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Utility is defined as...
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the satisfaction from consuming a good
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a measure of all the satisfaction you receive from al the coffee you consume is your...
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total utility from coffee
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Mark's marginal utility from reading books is the ___ when he reads ___.
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change in his total utility; one additional book
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Marginal utility measures the...
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additional utility from an additional unit of consumption
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If Pete enjoys his 1st pancake of the morning much more than his 5th pancake, he is exhibiting...
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diminishing marginal utility
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As Goldilocks consumes more gummy bears, her total utility ___ and her marginal utility ___ (they are normal goods with diminishing marginal utility)
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increases; decreases
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The budget line____.
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shows the limits to a household's consumption choices
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Shaniq consumes only magazines and CDs. Her income equals $60 per month. CDs are $12 each and magazines are $5 each. What is the equation for her budget line?
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60 = 5(Q Magazines) + 12(Q CDs)
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Suppose the price of coffee is $3, the price of a bagel is $2 and a person's budget is $40. The budget line's equation is
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2Qbagel + 3Qcoffee = 40
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Consumers' preferences are represented by...
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Indifference curves
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An indifference curve shows combinations of goods ____.
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which the consumer prefers equally
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For a consumer, a budget line shows the boundary between...
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what is affordable and what is not affordable
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In order to determine a household's budget line, you must know the....
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prices of the goods bought and the household's income
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Moving along a given budget line,...
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prices and real income are constant
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Jake plans to spend $100 on fried chicken and Pepsi. The price of a fried chicken is $5 and Pepsi is $2 pe bottle. If Jake buys 10 fried chickens how many bottles of Pepsi can he buy?
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25
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Bob plans to spend $60 per month on DVD movie rentals and CDs. The price of a movie rental is $3 and the price of a CD is $15. If Bob rents 5 DVDs per month, how many CDs can he buy?
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3
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Suppose that Dave has $200 to spend per week and he buys only magazines and pizza. The price of a pizza is $10 and the price of a magazine is $5. What is the maximum amount of pizza Dave can buy each week?
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20
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The more a good is consumed, its marginal utility ___ and its total utility___.
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falls; rises
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A consumer has maximized his/her utility by consuming
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so that the ratio of marginal utility to price is the same for all goods consumed.
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When you chose to buy the second cup of coffee instead of the third bagel, which of the following is necessarily correct?
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the marginal utility per dollar from the third bagel is less than the marginal utility per dollar of the second coffee
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As long as the marginal utility per dollar from pizza is greater than the marginal utility per dollar from soda, then to maximize utility a consumer will buy
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more pizza and less soda
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Danny has $12 to spend on two goods: pies and soda. The price of a pie is $4, and the price of a can of soda is $2. To maximize his utility, Danny buys ________.
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the combo that gives him the same marginal utility per dollar spend on pies as on soda
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Marginal utility theory is used in the derivation of the...
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negative slope of demand curves
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Marginal utility theory predicts that when income increases...
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a person's consumption of normal goods will increase
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The "law of demand" states that, other thing remaining the same, the higher...
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price of a good, the smaller is the quantity demanded
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People buy more of good 1 when good 2 rises. These goods are...
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substitutes
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The observation that the demand curve for grape jelly shifts rightward every time the price of peanut butter falls means that grape jelly and peanut butter are...
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Compliments
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A decrease in the expected future price of cars...
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decreases the current demand for cars, that is, there is a leftward shift of the demand curve for cars.
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Kelly graduates and her income increases by $25,000 a year. Other things remaining the same, she increases the quantity of clothes she buys. For Kelly, clothes are ________.
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a normal good
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If macaroni and cheese is an inferior good, an increase in income will
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decrease the demand for macaroni and cheese.
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Which of the following lists has variables that all shift a good's demand curve?
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income, preferences, number of buyers, price of complementary good
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The ________ effect can be divided into the ________ effect and the ________ effect.
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price; substitution; income
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A Giffen good shows
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a positive relationship between price and quantity demanded
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For Giffen good, it must be ________________ good and an income effect must be ____________ to a substitution effect.
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inferior; superior
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What is a conventional example of Giffen good?
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Potato in Ireland
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The effect of a change in price on the quantity bought while keeping the consumer on the same indifference curve, is called the...
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substitution effect
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According to the substitution effect along an indifference curve, when the relative price of a good falls, the consumer ________ substitutes ________ of that good for the other good.
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always; more
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The substitution effect
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always decreases purchases of a good as the price of a good rises
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Nick considers macaroni and cheese to be an inferior good. As a result of macaroni and cheese being an inferior good, the
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income effect is negative, so that less is purchased as income increases.
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Suppose the price of a good rises. The income effect...
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is shown by decreasing income at the new relative price in order to move from the old indifference curve to the new indifference curve after the price change.
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The price elasticity of demand measures...
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the responsiveness of the quantity demanded to changes in price
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The price elasticity of demand is defined as the magnitude of the
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percent change in quantity demanded divided by the percentage change in price
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Dan sells newspapers. Dan says that a 4 percent increase in the price of a newspaper will decrease the quantity of newspapers demanded by 8 percent. According to Dan, the demand for newspapers is ________.
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elastic
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According to the total revenue test, a price cut increases total revenue if demand is...
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elastic
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The cross elasticity of demand is calculated as the percentage change in the...
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quantity demanded of one good divided by the percentage change in the price of another good
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Donuts and coffee are complements. When the price of a donut increases, the demand for coffee ________ and the cross elasticity of demand for coffee with respect to the price of a donut is ________.
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decreases, negative
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If tea and coffee are substitutes, the cross elasticity of coffee with respect to the price of tea will be ________ and an increase in the price of tea will ________ the demand for coffee.
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positive; increase
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the income elasticity of demand is defined as the percentage change in
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the quantity demanded divided by the percentage change in income
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An increase in Abigail's income decreases her demand for used cars. For her cars are a(n)____ good.
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inferior
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The income elasticity of demand for bikes is +10, implying that bikes are a(n)___ good.
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normal
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A market demand curve is constructed by...
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a horizontal summation of each individual demand curve
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A market demand curve can be constructed by...
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adding the quantities that consumers buy at each price
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The price elasticity of demand is defined as the magnitude of the
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percentage change in quantity demanded divided by the percentage change in price.
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