Exam 8: Utility and Demand

Marginal utility theory concludes that a decrease in the price of a good increases the quantity demanded and

Bananas Apples -According to the principle of diminishing marginal utility, as an individual consumes more and more of a good or service, the total utility increases while the marginal utility decreases.

According to marginal utility theory, a rise in income will

A consumer's total utility is maximized when the total utility per dollar from all goods is equalized.

Neuroeconomic observations show that rational utility maximizing decisions generate activity in the part of a brain called ________, while irrational decisions driven by fear and anxiety activate ________.

Lisa is spending all of her income on compact discs and downloadable games for her smart phone. She finds that the marginal utility from the last compact disc she buys is 30 and the marginal utility from the last downloadable game is 10. The price of a compact disc is $15 and the price of a downloadable game is $5. Lisa should

Milkshakes Sodas -The table above shows Tom's total utility from milkshakes and sodas. Tom's total budget for milkshakes and sodas is $10.00 per week. Milkshakes cost $2.00 each and sodas cost $1.00 each. What quantity of sodas does Tom purchase at his consumer equilibrium?

Teddy buys only chocolate chip cookies and hot chocolate and spends all of his income on the two items. Suppose the price of a cookie rises. According to marginal utility theory, Teddy buys

If marginal utility is positive but diminishing, as more units of a good are consumed, then the total utility from the good must be

Water has a ________ marginal utility and brings a ________ consumer surplus; diamonds have a ________ marginal utility and bring a ________ consumer surplus.

-The table above gives Jane's total utility from magazines and CDs. What is the marginal utility of Jane's sixth magazine?

Kumiko is not at her consumer equilibrium because she sees too many movies and buys too few books. As she moves toward her consumer equilibrium, her marginal utility from movies will ________ and her marginal utility from books will ________.

Marginal utility theory assumes that when Sally consume less of a good that she was previously consuming more than one unit of, her

When Ramona is in consumer equilibrium

-In the figure above, diminishing marginal utility is shown by

In consumer equilibrium, Harold consumes pizza, sodas, and other goods. Pizza and soda are complements for Harold. The price of a pizza rises while his income remains the same. Harold then consumes

Betty consumes only milkshakes and sandwiches and maximizes her total utility. Suppose that the prices of a milkshakes and sandwiches both double and at the same time Betty's income doubles. Betty buys ________ sandwiches and her marginal utility from sandwiches ________.

Milkshakes Sodas -The table above shows Tom's total utility from milkshakes and sodas. Tom's total budget for milkshakes and sodas is $20.00 per week. Milkshakes cost $2.00 each and sodas cost $1.00 each. What quantity of milkshakes does Tom purchase at his consumer equilibrium?

-Suppose that you consume only pizza, which costs $4 per slice, and Diet Pepsi, which costs $2 each. The table above gives your utility from consuming these two goods. If your income is $14, which of the following consumption combinations will you choose?

Cookies Cake -The above table shows Homer's marginal utility from consuming various quantities of chocolate chip cookies and cake. The price of cookies is $2 per pound, the price of cake is $2 per slice and Homer has $18 to spend on cookies and cake. Homer will consume ________ pounds of cookies and ________ slices of cake.