Chapter 7 Flashcards
(20 cards)
What is the marginal utility from the third cup of coffee if Erin drinks three cups?
$0.50
Marginal utility decreases with each additional cup consumed.
What does marginal utility refer to?
The change in total utility when an extra unit of output is consumed.
This concept helps to understand consumer satisfaction from additional consumption.
What does diminishing marginal utility mean?
As you consume more of a good, the additional satisfaction obtained from each additional unit tends to fall.
This principle is fundamental in understanding consumer behavior.
The statement ‘I’m tired of eating cold pizza for breakfast. Today I’m going to make some oatmeal instead.’ reflects which economic principle?
Law of diminishing marginal utility.
Indicates a shift in consumption due to decreasing satisfaction.
If the price of a good is $5, what will a consumer do?
Consume all units that have a marginal utility greater than $5.
Consumers aim to maximize utility based on price.
If Noah thinks the last dollar spent on belts yields more satisfaction than the last dollar spent on socks, what should he do?
Decrease his spending on socks and increase his spending on belts.
This aligns with utility-maximizing behavior.
What is the term for an increase in the consumption of a good resulting from a reduction in price?
Substitution effect.
Consumers shift to the cheaper good, increasing its quantity demanded.
What does the market demand curve for pizza represent?
The horizontal sum of the individual consumer demand curves for pizza.
This aggregation reflects total market demand.
How does price elasticity of demand improve our understanding of demand?
Analyzes the degree of responsiveness of consumer purchases to price changes.
It helps predict consumer behavior in response to price fluctuations.
Why is the demand for Chocolate Chip Cookie Dough ice cream likely quite elastic?
Other flavors of ice cream are good substitutes for this particular flavor.
Substitutability increases elasticity.
The demand for salt is considered what type of elasticity?
Inelastic because there are few substitutes for salt and it represents a small percentage of a consumer’s budget.
This reflects its necessity and low sensitivity to price changes.
If product A measures 0.65 in price elasticity and product B measures 1.3, which is more price elastic?
Product B is more price elastic than product A.
Higher elasticity indicates greater sensitivity to price changes.
When the price of running shoes decreases from $100 to $80 and quantity demanded increases from 20 to 30 million, what is the absolute value of the price elasticity of demand?
1.25.
Calculated based on the percentage change in quantity and price.
If the quantity of cookies purchased decreases by 30 percent due to a 15 percent increase in price, what is the absolute value of the price elasticity of demand for cookies?
2.00.
Indicates a highly elastic demand.
If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, how is the demand classified?
Elastic.
Demand responds significantly to price changes.
When economists say the demand for a good is highly inelastic, what do they mean?
A large percentage change in the price of a good will result in only a small percentage change in the quantity demanded.
This reflects consumer necessity for the good.
The demand for a product is likely to be more elastic when?
More good substitutes for the product are available.
Substitutability enhances consumer choice and responsiveness to price changes.
A good is classified as inferior if?
Consumers buy less when income rises.
This contrasts with normal goods, which see increased demand with rising income.
What defines a normal good?
Whose demand increases when incomes increase.
Normal goods reflect positive income elasticity.
What does a demand curve with a price elasticity of one imply?
Unitary elasticity, meaning a percent change in price leads to an equal percent change in quantity demanded.
This reflects balanced responsiveness in consumer behavior.
