Econ 202, Ch. 7

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At each point on an indifference curve

total utility is the same

Budget lines & Indifference curves

budget lines are linear and down sloping, indifference curves are down sloping and convex to the origin

Marginal utility

change in total utility obtained by consuming one more unit of a good

The budget line shows:

all possible combinations of two goods that can be purchased, given money income and the prices of the goods

If marginal utility is diminishing and is a positive amount:

total utility will increase

A consumers demand curve for a product is downsloping bc:

marginal utility diminishes as more of a product is consumed

Most economists contend that:

noncash gifts are less efficient than cash gifts

Increases in product prices shift the consumer’s:

budget line to the left

Frank is purchasing products C and D in utility-maximizing amounts. if the price of C is $4 and the price of D is $2, then:

the marginal utility of C is twice that of D

The diamond-water paradox arises bc:

essential goods may be cheap while nonessential goods may be expensive

In moving along a given budget line:

the prices of both products and money income are assumed to be constant

Noncash gifts:

reduce recipient utility relative to cash gift bc noncash gifts often fail to match recipient preferences

The law of diminishing marginal utility states that:

beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer

The marginal rate of substitution measures the:

consumers’ willingness to substitute one product for another so that total utility will remain constant

What do the income effect, substitution effect, and diminishing marginal utility have in common?

that all help explain the downsloping demand curve

Any combination of goods lying outside of the budget line:

is unattainable, given the consumers income

To maximize utility, a consumer should allocate money income so that the:

marginal utility obtained from the last dollar spent on each product is the same

An indifference map implies that

curves farther from the origin yeild higher levels of total utility

The utility of a good or service

is the satisfaction or pleasure one gets from consuming it

The theory of consumer behavior assumes that consumers attempt to maximize:

total utility

The slope of a budget line reflects the:

price ratio of the 2 products

The law of diminishing marginal utility explains why:

demand curves slope downward

Mary says "you would have to pay me $50 to attend that pro wrestling event", for mary, the marginal utility of the event is:


Most people do not steal bc:

their marginal costs, including guilt costs, are too high

Total Utility may be determined by:

summing the marginal utilities of each unit consumed

The theory of consumer behavior assumes that:

consumers behave rationally, attempting to maximize their satisfaction

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