Question 1

A measure of relative levels of satisfaction consumers enjoy from
consumption of goods and services

Accepted Answer

Utility

Your satisfaction is quantified with utils.

 “Utility” = economic way of saying “happiness”
➢Think of a util as a happiness point.
➢You eat a brownie. How many utils (happy points) do you get?

Question 2

We can state with numbers how much more we prefer one good to another.
• Using cardinal numbers (1, 2, 3, etc.) to numerically quantify utility using “utils.” We
can state with numbers how much more we prefer one good to another.

Accepted Answer

Cardinal utility

Question 3

We can rank goods in order of preference, but we can’t say by how much we like
one good over another.
• Simply being able to only “rank” preferences in the order in which you prefer them
(first best, second best, etc.)

Accepted Answer

Ordinal utility

Question 4

Faced with two alternatives, A and B, you can tell me whether you
prefer A to B, prefer B to A, or you are indifferent between A and B.

Accepted Answer

Complete preferences

Question 5

Given a choice between A, B, and C: If you prefer A to B, and prefer B
to C, then you must prefer A to C.

Accepted Answer

Transitive Preferences

Question 6

The overall amount of happiness from consumption

Accepted Answer

Total utility

Question 7

Additional utility gained from consuming one more unit of a good or service

Accepted Answer

Marginal utility (MU)

Question 8

If marginal utility is positive, it means that additional consumption will
make us happier at the margin, thus increasing our total utility.

Accepted Answer

Increasing marginal utility

Question 9

Occurs when marginal utility declines as consumption increases

Accepted Answer

Diminishing marginal utility

Question 10

Which  would most likely illustrate an example of negative
marginal utility?
A. studying for another hour
B. sleeping in late on a weekend
C. eating too much food at an all-you-can-eat buffet
D. drinking a second glass of juice with a meal

Accepted Answer

C. eating too much food at an all-you-can-eat buffet

Question 11

The limited amount of income available to consumers to spend on goods and services.

Accepted Answer

Budget constraint

Question 12

What do you combine to get the consumer's optimum consumption bundle?

Accepted Answer

Combining the indifference curves and budget constraint

Question 13

Represent the various combinations of two goods that yield the same level
of utility

Accepted Answer

Indifference curves (IC)

Question 14

A point at which a certain combination of two goods yields the most utility

Accepted Answer

Maximization point

Question 15

You can afford more than before; this is like having a higher income.

Accepted Answer

income effect

Question 16

The item has become cheaper relative to the other item

Accepted Answer

substitution effect

Question 17

What happens if Price 1 decreases? 

MU1/P1  > MU2/P2

Accepted Answer

Lower prices increase the marginal utility per dollar → So consumers buy more of the good, optimizing utility.

Higher prices decrease the marginal utility per dollar → So consumers buy less of the good, optimizing utility

Question 18

The change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing
power, holding all other factors constant.

Accepted Answer

Income effect (IE)

Question 19

The change in the quantity demanded of a good that results from a change in price, making the good more or less
expensive relative to other goods, holding constant the effect of the price
change on consumer purchasing power.

Accepted Answer

Substitution effect (SE)

Question 20

If I consume more of good Z, what happens?
A. The price of good Z will fall.
B. The price of good Z will rise.
C. My marginal utility of good Z will fall.
D. My marginal utility of good Z will rise

Accepted Answer

C. My marginal utility of good Z will fall.

Question 21

You get more utility/dollar when you eat burgers than hot dogs. What makes sense?
A. Eat more hot dogs since cheaper than burgers
B. Get something to drink to go with the food
C. Eat more burgers
D. Eat at Five Guys since they have better burgers

Accepted Answer

C. Eat more hamburgers

Question 22

Suppose that MU1/P1  < MU2/P2

To optimize utility, the consumer should
A. buy more X.
B. buy less X.
C. buy more X and less Y.
D. buy more Y and less X.

Accepted Answer

D. buy more Y and less X.

Question 23

Price of a good rises, consumers purchase less of that good and purchase more of another good. 
A. the real-income effect.
B. the substitution effect.
C. diminishing marginal utility.
D. the disadvantage of using “utils” to measure consumption.

Accepted Answer

B. the substitution effect.

Econ 201 chapter 16

Consumer Choice

Question	Answer
A measure of relative levels of satisfaction consumers enjoy from consumption of goods and services	Utility Your satisfaction is quantified with utils. “Utility” = economic way of saying “happiness” ➢Think of a util as a happiness point. ➢You eat a brownie. How many utils (happy points) do you get?
We can state with numbers how much more we prefer one good to another. • Using cardinal numbers (1, 2, 3, etc.) to numerically quantify utility using “utils.” We can state with numbers how much more we prefer one good to another.	Cardinal utility	Example: Imagine you're choosing between three snacks: Chocolate bar: 100 utils, Cookie: 70 utils, and Apple: 30 utils
We can rank goods in order of preference, but we can’t say by how much we like one good over another. • Simply being able to only “rank” preferences in the order in which you prefer them (first best, second best, etc.)	Ordinal utility	Example: Using the same snacks: 1st choice: Chocolate bar, 2nd choice: Cookie, and 3rd choice: Apple
Faced with two alternatives, A and B, you can tell me whether you prefer A to B, prefer B to A, or you are indifferent between A and B.	Complete preferences
Given a choice between A, B, and C: If you prefer A to B, and prefer B to C, then you must prefer A to C.	Transitive Preferences
The overall amount of happiness from consumption	Total utility
Additional utility gained from consuming one more unit of a good or service	Marginal utility (MU)
If marginal utility is positive, it means that additional consumption will make us happier at the margin, thus increasing our total utility.	Increasing marginal utility
Occurs when marginal utility declines as consumption increases	Diminishing marginal utility
Which would most likely illustrate an example of negative marginal utility? A. studying for another hour B. sleeping in late on a weekend C. eating too much food at an all-you-can-eat buffet D. drinking a second glass of juice with a meal	C. eating too much food at an all-you-can-eat buffet
The limited amount of income available to consumers to spend on goods and services.	Budget constraint
INFORMATION This is a constrained optimization problem: o Goal: To optimize (maximize) utility. o Constraint: Limited budget due to income and prices
A consumer’s preferences can be represented by indifference curves. • The choices a consumer can make are represented by a budget constraint. • Putting the two together allows us to examine a consumer’s optimum consumption bundle.
What do you combine to get the consumer's optimum consumption bundle?	Combining the indifference curves and budget constraint
Represent the various combinations of two goods that yield the same level of utility	Indifference curves (IC)
A point at which a certain combination of two goods yields the most utility	Maximization point
INFORMATION Economic “goods”: • Consuming more leads to higher total utility. • Marginal utility is positive.
INFORMATION Economics “bads”: • Consuming more leads to lower total utility. • Marginal utility is negative.
You can afford more than before; this is like having a higher income.	income effect
The item has become cheaper relative to the other item	substitution effect
What happens if Price 1 decreases? MU1/P1 > MU2/P2	Lower prices increase the marginal utility per dollar → So consumers buy more of the good, optimizing utility. Higher prices decrease the marginal utility per dollar → So consumers buy less of the good, optimizing utility
The change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding all other factors constant.	Income effect (IE)
The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.	Substitution effect (SE)
INFORAMTION Change in Income (increase in income) → Shift Budget Constraint
If I consume more of good Z, what happens? A. The price of good Z will fall. B. The price of good Z will rise. C. My marginal utility of good Z will fall. D. My marginal utility of good Z will rise	C. My marginal utility of good Z will fall.
You get more utility/dollar when you eat burgers than hot dogs. What makes sense? A. Eat more hot dogs since cheaper than burgers B. Get something to drink to go with the food C. Eat more burgers D. Eat at Five Guys since they have better burgers	C. Eat more hamburgers
Suppose that MU1/P1 < MU2/P2 To optimize utility, the consumer should A. buy more X. B. buy less X. C. buy more X and less Y. D. buy more Y and less X.	D. buy more Y and less X.
Price of a good rises, consumers purchase less of that good and purchase more of another good. A. the real-income effect. B. the substitution effect. C. diminishing marginal utility. D. the disadvantage of using “utils” to measure consumption.	B. the substitution effect.
INFORMATION MU1/P1 = MU2/P2 = MU3/P3 =...= MU10/P10

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