Economics: Principles and Policy (MindTap Course List)
13th Edition
ISBN: 9781305280595
Author: William J. Baumol, Alan S. Blinder
Publisher: Cengage Learning
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Chapter 5, Problem 2DQ
To determine
Explain why it is difficult to make psychological measurement.
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Students have asked these similar questions
Product M has a price of $7.95.
If the Total Utility an individual receives from
consuming 8 units of Product M is 249 and
the Total Utility for consuming one fewer unit
of Product M is 228, then what is the Marginal
Utility per Price of the 8th unit of Product M?
(Round your answer to 2 digits after the
decimal.)
When consumers have a budget, their utility is maximized by buying a combination of goods such
that the marginal utility per dollar is the same for all of these goods. This is because
if this were not the case, it would mean that the consumer hadn't used up their entire budget.
of their insatiability.
if a consumer could get higher marginal utility from one good than from others, they would want to buy more
of that good, and less of others.
if a consumer could get higher marginal utility from one good than from others, they would want to buy less of
that good, and more of others.
it guarantees them some variety.
All goods have diminishing marginal utility, but for some goods (or activities), marginal utility falls quickly as you consume more, while for others, marginal utility falls slowly. Can you think of examples of goods that you continue to enjoy a great deal as your consumption increases? Can you think of goods for which your marginal utility decreases rapidly?
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Economics: Principles and Policy (MindTap Course List)
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- What is the law of diminishing marginal utility for consumers, what is the learning curve of a producer? It seems that as the producer becomes more efficient at producing their product; the consumer tends to have less and less satisfaction from consuming one additional unit of the producer's product. Is this true (think in terms of only one producer and consumer)? Explain your answer.arrow_forwardThis module considers important concepts in economics: Total Utility, Marginal Utility, Diminishing Marginal Utility, and Utility Maximization within a budget constraint. These tools can be applied to personal decision making, particularly the consumption choices we make. Microeconomics often considers rational optimizing behavior by individuals, including consumers. Use the Law of Diminishing Marginal Utility to discuss why Market Demand has to have a downward slope. In other words, in order for consumers to demand a higher quantity of an item, its price must fall. Also use the Law of Diminishing Marginal Utility to explain why consumers often prefer to purchase a variety of goods and services (in other words, we are unlikely to fill a grocery cart with many units of the exact same product). Finally, use the utility optimizing condition that the ratio of Marginal Utility to Price for any good has to be the same across all goods to justify why it may be rational behavior to buy an…arrow_forwardDescribe how rational consumers maximize utility by comparing the marginal utility-to-price ratios of all the products they could possibly purchase.arrow_forward
- Type the correct answer in the box. Spell all words correctly. Vivian conducted market research on her company’s products. She found that after the company raised the price of its product by $1.50, the demand in the uptown region remained the same with only minor fluctuations. However, she found that the demand in the downtown region dropped by 20 percent after the price change. How should Vivian take these demands into consideration? In a situation where demand differs in different areas, Vivian should consider the demand.arrow_forwardTwo students, Nick and Sofia, are discussing normal and inferior goods. Nick says that if Frodo buys more beer when the price of beer goes up, then beer must be an inferior good for Frodo. If, on the other hand, he buys less beer when the price of beer goes up, then beer must be a normal good for Frodo. Sofia disagrees: "Normal and inferior goods are about income changes, not price changes. Therefore, we do not have enough information: beer could be an inferior or normal good in either of these cases." Do you agree or disagree? Carefully explain your point of view. Support your argument with graphs of income, substitution and total effects (please put beer on the horizontal axis and the other goods on the vertical axis). Please assume that Frodo's preferences over beer and other goods are strictly convex and satisfy "more is better" assumption.arrow_forwardYou may have observed that items such as different brands of aspirin, tomato sauce, or gasoline are typically priced the same as each other. This is particularly true when consumers can find these goods in close proximity to each other. For example, prices are often the same at gas stations that are on opposite sides of the street. Prices are also generally the same for products next to each other on the same grocery store shelf. Choose the correct fill in the blank. The aforementioned examples are goods that are likely to be substitutes or complements You would expect the value of the cross-price elasticity to be insignificant, small, or large because the opportunity cost of getting information on price is low.arrow_forward
- Explain the principles, concepts, and theories underlying individual consumers’ behaviour with respect to utility maximization.arrow_forwardYou are choosing between two goods, X and Y, and your marginal utility from each is as shown in the following table. If your income is $9 and the prices of X and Y are $2 and $1, respectively, what quantities of each will you purchase to maximize utility? What total utility will you realize? Assume that, other things remaining unchanged, the price of X falls to $1. What quantities of X and Y will you now purchase? Using the two prices and quantities for X, derive a demand schedule (a table showing prices and quantities demanded) for X.arrow_forwardAccording to statistics, people in their teens (15 years) will buy 12 CDs and 15 cheese pizza in a year. If cheese pizza is a secondary good, is this consumer indifferent between getting a $ 30 gift voucher at a local CDs store and $ 30 in cash? Explain. Thank you for taking a look at my question.arrow_forward
- What is utility? the satisfaction a person gets from the consumption of a good a measure of production efficiency the difference between what a consumer is willing and able to pay for a good a measure of the amount of "need" people have for a goodarrow_forwardTom had an "absolute need" for web help and therefore was ready to "pay anything" to get it. If this were true, what shape would his demand curve have? Why isn't this realistic?arrow_forwardFang likes playing badminton with her friends. Her utility function for playing badminton every week is given by U(t) = 11t – 2t2, where t is measured in hours. They play on a badminton court, which they can rent per hour. Suppose the current price to play on the badminton court is £2.50 per hour. How many hours should Fang play if she wishes to maximise her utility? Explain what we mean by the principle of diminishing marginal utility. Does the principle apply in Fang’s case? Explain why. In a diagram with income in pound sterling on the horizontal axis and quantity on the vertical axis, show the relationship between Fang’s budget and the number of hours that would maximise her consumer surplus.arrow_forward
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