Exam 19: The Logic of Individual Choice: the Foundation of Supply and Demand

The following table describes utility for consuming cans of soda. At what point does the law of diminishing marginal utility set in? Cans of Soda Total utility 1 14 2 30 3 47 4 57 5 56 6 50 7 42

The theory of bounded rationality suggests that as price rises:

What is a consumer's budget constraint? (Appendix)

Steve has two choices for taking classes. Each is three credits and meets three hours a week, so we assume they have equal monetary costs. If Steve chooses to take a modern dance class instead of an economics class, it must be that for Steve the opportunity cost of taking a modern dance class exceeds the opportunity cost of taking an economics class.

What is the total utility of five cans of soda? Cans of Soda Total utility Marginal utility 1 14 2 12 3 36 4 44 5 6

According to the law of diminishing marginal utility, after some point:

Focal point equilibria definitely violate the principle of rational choice.

The following table lists the utility that Sarah receives from consuming bananas at $0.25 a banana. What is the marginal utility of consuming the fourth banana? Number of bananas Total utility 0 0 1 10 2 22 3 32 4 40 5 46

Refer to the following graph. Marginal utility is:

How does the principle of rational choice also underlie the law of supply (as it applies to the supply of labor)?

Using the equilibrium condition of the principle of rational choice,explain why only Point B on the graph below maximizes utility,and that all other points don't.(Appendix)

When marginal utility of consuming a good is zero, total utility is:

Zach has $100 to spend on meals at restaurants and movie theatre tickets.The price of a meal is $10 and the price of a movie ticket is $5.At equilibrium,Zach goes to the movies 10 times and eats in the restaurant 5 times a month. (Appendix) (a)Draw Zach's budget constraint and an indifference curve showing his equilibrium. (b)What is the relationship between the marginal utility of a meal in a restaurant and the marginal utility of a movie at the current equilibrium condition? (c)If the price of a meal drops to $5 a meal,show graphically how equilibrium changes. (d)If Zach's budget increases to $200 and prices remain constant ($5 a movie and $10 a meal),show graphically how equilibrium changes.

Some kids wait until the school year begins to buy their back-to-school clothes so that they are sure to fit in. Such follow-the-leader behavior is an example of what the text calls:

When the ratios of the marginal utility to the price of goods are equal, you're maximizing utility.

Economists' formal analysis requires two pieces of information.What are they?

Refer to the graphs shown. If income is $60 and the price of Y is $3, a decrease in the price of X from $3 to $2 would cause a movement:

Conspicuous consumption refers to the consumption of goods and services:

Joe is maximizing utility by consuming three colas at $2 apiece and four hot dogs at $3 apiece. The last cola gave him 200 units of utility. How many units of utility did the last hot dog give him?

Total utility refers to the: