Exam 28: Consumption Theory: Demand

Explain the assumptions made about consumers and households used to build utility theory. -Why is income limited? Does everyone get to make the same choices? Why or why not?

Understand and demonstrate how the demand curve is derived. -Why does the marginal utility increase if the consumer purchases

Sam, the robot, has a utility meter on his forehead. Sam has just consumed 1 cookie, and the utility meter reads 15 utils. If Sam reacts according to economic theory, Sam's second cookie will increase his utility meter

Whats defention of terms: -cardinal utility

Explain the assumptions made about consumers and households used to build utility theory. -Why is it not possible to precisely measure utility or pleasure?

Discuss the criticisms of the assumptions of neoclassical consumer theory. -Do people always behave in rational ways? Give an example.

The founders of neoclassical economics built on the philosophy of Jeremy Bentham who asserted that, "nature has placed mankind under the governance of two sovereign masters . . ." What "sovereign masters" was he referring to?

Explain the assumptions made about consumers and households used to build utility theory. -What does it mean if a person is rational and making rational choices?

Discuss the criticisms of the assumptions of neoclassical consumer theory. -In general, is there scarcity in a capitalist system? Why or why not?

Whats defention of terms: -diminishing marginal utility

$\text { Table 28 a}$ Ouantity of DVDs Marginal Utility Total Utility 1 100 100 2 90 190 3 80 270 4 70 340 5 60 400 6 50 450 7 40 490 8 30 520 9 20 540 10 10 550 11 0 550 12 -10 540 13 -20 520 14 -30 490 -Table 28a represents Sam's utility schedule for DVDs. Assuming no budget constraints, Sam is likely to consume

Understand and demonstrate how the demand curve is derived. -If the price of a good goes up and throws the utility-maximizing pattern of consumption out of whack, what does utility theory predict the consumer will do?

Explain the conditions under which utility is maximized. -Explain what happens if the marginal utility of the last unit consumed divided by the price (bang per buck) is

Sam is at lunch trying to decide between a small salad and a cheeseburger. Sam loves cheeseburgers, but he really does not like salad. In fact, salad gives him negative utility. What choice would you expect Sam to make?

Discuss the criticisms of the assumptions of neoclassical consumer theory. -What is conspicuous consumption? How is this type of decision not rational?

A consumer will maximize utility when

What does the phrase, "consumer sovereignty," mean?

Explain how consumers maximize their utility (joy) within the bounds of their income. -What is the utility-maximizing condition? What does that mean in words?

Whats defention of terms: -revised sequence

Sam is maximizing his utility with a consumption bundle of 5 cookies, 10 DVDs, and 2 cheeseburgers. If the price of DVD's decreases, then