Deck 28: Consumption Theory: Demand

Question 1

Whats defention of terms:
-cardinal utility

Answer 1

the idea that the consumer satisfaction (utility or joy) received from a particular good can be numerically measured in countable units

Question 2

Whats defention of terms:
-conspicuous consumption

Answer 2

buying things to show off or to enhance one's social status

Question 3

Whats defention of terms:
-diminishing marginal utility

Answer 3

decline in the incremental increase in utility that takes place after a certain point as more units of an item are consumed

Question 4

Whats defention of terms:
-marginal utility

Question 5

Whats defention of terms:
-negative marginal utility

Question 6

Whats defention of terms:
-ordinal utility

Question 7

Whats defention of terms:
-rationality

Question 8

Whats defention of terms:
-revised sequence

Question 9

Whats defention of terms:
-total utility

Question 10

Whats defention of terms:
-utility

Question 11

Explain the assumptions made about consumers and households used to build utility theory.
-List the assumptions that are used to build the traditional model of consumer demand.

Question 12

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?

Question 13

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?

Question 14

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

Question 15

Explain the assumptions made about consumers and households used to build utility theory.
-What happens to total utility even if there is diminishing marginal utility? Even if there is diminishing marginal utility, why is it assumed that people prefer more rather than less?

Question 16

Explain how consumers maximize their utility (joy) within the bounds of their income.
-Is it possible to consume goods until their marginal utility goes to zero? Why or why not?

Question 17

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?

Question 18

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

Question 19

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

Question 20

Discuss the criticisms of the assumptions of neoclassical consumer theory.
-What is the difference between demand and effective demand or the ability to buy a good or service?

Question 21

Discuss the criticisms of the assumptions of neoclassical consumer theory.
-What factors might affect your preferences for different goods or services?

Question 22

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

Question 23

Discuss the criticisms of the assumptions of neoclassical consumer theory.
-Consumer sovereignty says that households ultimately decide what businesses produce. How does advertising compromise the notion that households control what businesses do?

Question 24

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

Question 25

Explain the conditions under which utility is maximized.
-Fill in the table above. Is the principle of diminishing marginal utility operative in this case? How do you know?

Question 26

Understand and demonstrate how the demand curve is derived.
-Can consumers dictate the prices they pay for products at the store? What can consumers do if the price of a product rises and their income is fixed? What role does the availability of substitutes play here?

Question 27

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?

Question 28

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

Question 29

Understand and demonstrate how the demand curve is derived.
-Explain how consumers reacting to changes in prices and attempting to keep at a utility-maximizing level of consumption leads to the relationship between price and quantity demanded.

Question 30

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?

A) utility and pleasure
B) pain and suffering
C) pain and pleasure
D) hunger and thirst

Question 31

When neoclassical economists assume that individuals are rational, they mean that people

A) rarely show emotion.
B) are generally unselfish and self-sacrificing.
C) make purposeful choices based on their own self-interest.
D) make impulsive decisions based on what feels good at the time.

Question 32

What does the assumption of diminishing marginal utility mean?

A) eventually additional units consumed will lead to a decline in total utility.
B) utility cannot be precisely measured but consumers can produce a ranking of consumption choices.
C) as more units are consumed each additional unit will provide less and less additional utility.
D) an increase in units of labor will leads to less and less additional output.

Question 33

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

A) by another 15 utils for a total of 30 utils.
B) by less than 15 utils
C) by more than 15 utils.
D) by zero.

Question 34

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?

A) Sam will choose a salad, because he knows it is in his best interest to eat healthy food.
B) Sam will choose a cheeseburger, because it will send his utility meter through the roof.
C) Sam will choose both the salad and the cheeseburger, because he will get healthy food plus an increase in his utils.
D) Sam will probably buy 2 salads.

Question 35

-Table 28a represents Sam's utility schedule for DVDs. Assuming no budget constraints, Sam is likely to consume

A) 1 or 2 DVDs
B) 8 DVDs
C) 10 or 11 DVDs
D) 12 DVDs

Question 36

A consumer will maximize utility when

A) the marginal utility per dollar of the last item of each good consumed is the same.
B) he or she consumes as much as possible of his or her favorite good.
C) the marginal utility of the last item of each good consumed is the same.
D) the marginal utility of the last item of each good is exactly zero.

Question 37

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

A) Sam will continue to buy the same number of each good.
B) Sam will tend to buy more DVDs
C) Sam will tend to buy more cookies.
D) Sam will tend to buy more cheeseburgers.

Question 38

-Tables 28.1a provides information on Sam's current consumption of apples, bread and cake. Sam is currently maximizing utility it

A) the price of apples is $1, bread is $2 and cake is $3
B) the prices of apples, bread and cake are all $1.
C) the price of apples is $3, bread is $2, and cake is $1
D) all items are $11 each

Question 39

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

A) consumers can be swayed by advertisers to buy things they do not want.
B) businesses make goods in response to the desires of consumers.
C) consumers buy goods in response to the advertisements of businesses.
D) consumers buy goods in response to their sovereign master, utility.