Chapter 10 example #46349

The study of situations in which people make choices that do not appear to be economically rational

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

were not shown to actually exist until 2006.

the income effect would have to be larger than the substitution effect.

consumers find it unfair for firms to increase prices after an increase in demand.

Consumers are also concerned with fairness as exemplified by tipping in restaurants that will never be visited again OR also concerned with fairness as exemplified by donations to charity

If a network externality is present for a​ product than consumers may be more likely to buy the product because it is more useful

Involves consuming goods and services with or around other consumers.

the cost of the clothes B. the​ individual's tastes and preferences. C. social influences

A situation in which the usefulness of a product increases with the number of consumers who use it

An experiment that tests whether fairness is important in consumer decision making

Students in an Economics class are required to purchase a textbook assigned by the professor.

An example of businesses taking advantage of inconsistencies in consumer​ decision-making is credit card companies not allowing stores to charge a fee to consumers if they pay with a credit card but allowing stores to provide a discount to consumers if they pay in cash

Economist Richard Thaler studies how businesses often make use of​ consumers' failure to take into account nonmonetary opportunity costs.

be ignored

firms take actions that are appropriate to reach goals given available information

Some people likely overeat because their preferences are not consistent over time.

Economists suggest that when people overeat or smoke​ cigarettes, they are overvaluing the utility from current choices long dash —eating chocolate cake or smoking long dash —and undervaluing the utility to be received in the future from being thin or not getting lung cancer. That​ is, economists argue that many people have preferences that are not consistent over time. In the long​ run, people would like to be thin or give up​ smoking, but each​ day, they make decisions​ (such as to eat too much or​ smoke) that are not consistent with this​ long-run goal. If consumers are unrealistic about their future​ behavior, then they will underestimate the costs of choices long dash —like overeating or smoking long dash —that are made today.

The study of situations in which people make choices that do not appear to be economically rational.

more ham due to the income effect because their purchasing power decreases and less ham due to the substitution effect because the opportunity cost of consuming ham is higher.

The tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it.

When a product becomes​ established, consumers may find it to costly to a new product that contains better technology.

Due to switching​ costs, the technology that was first available may have advantages over better technologies that were developed later. The path along which the economy has developed is important

That​ is, the key to making the best consumption decision is to maximize utility by following the rule of equal marginal utility per dollar spent such that the amount spent equals the amount available to spend.

reflects the enjoyment a consumer receives from consuming a particular set of goods and services

Since the marginal utility per dollar spent renting movies is not equal to the marginal utility per dollar spent on​ CDs, you are not maximizing utility.

Predicts that consumers will choose to buy the combination of goods and services that makes them as well off as possible from among all the combinations that their budgets allow them to buy.

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.

The change in total utility a person receives from consuming one additional unit of a good or service

A situation in which the usefulness of a product increases with the number of consumers who use it

The highest-valued alternative that must be given up to engage in an activity.

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.

A cost that has already been paid and cannot be recovered

The enjoyment or satisfaction people receive from consuming goods and services.

is the sum of consumer and producer surplus.

the enjoyment or satisfaction people receive from consuming goods and services not measurable

The change in utility from consuming an additional unit of a good or service

suggests that consumers experience diminishing additional satisfaction as they consume more of a good or service

optimal decisions are made at the margin

(until marginal utility becomes​ negative) because they are constrained by limited resources as indicated by their budget constraints.

consumers, ​firms, and the government

A key economic principle is that optimal​ decisions, such as how consumers should spend their​ income, are made at the margin.

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

equalizing the marginal utility per dollar spent across goods and services

by consuming a combination of goods and services such that the marginal rate of substitution is equal to the slope of the budget constraint.

it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.

The principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time.

It holds true in most situations involving the consumption of a good

For methamphetamine​ addicts, the more dosages of the illegal​ drug, the more euphoric they become.

Choose an amount of current spending on goods and savings so that the marginal utility per dollar of both are equal

what happens to the quantity sold when income changes. In this​ case, income is constant

The change in total utility a person receives from consuming one additional unit of a good or service.

The substitution effect causes you to want to eat more pizza.

a price decrease lowers the opportunity cost of consuming the​ good, which causes the quantity of the good demanded to increase.

a price decrease will cause the quantity demanded to increase for a normal good and the quantity demanded to decrease for an inferior good.

true

marginal utility decreases

It is the limited amount of income available to consumers to spend on goods and services

where your marginal utility per dollar spent on pizza equals your marginal utility per dollar spent on coke.

You can increase your consumption of Red Bull.

When the price of a good declines​, the ratio of the marginal utility to price rises​, leading consumers to buy more of that good.

adding horizontally the individual demand curves.

the total quantity demanded by all individuals in a market at alternative prices. Since quantity demanded is measured along the horizontal​ axis, the market demand curve is derived from the individual demand curves by adding the individual demand curves horizontally.

The good would have to be an inferior​ good, and the substitution effect would have to be smaller ​(in absolute​ value) than income effect.

if the price of a good increases, the consumen has less purchasing power, so he would want to purchase more of an inferior good

This does not mean that the demand curves for inferior goods should slope upward as we must also take into account the substitution effect

if the price of an inferior good falls, the income effect will decrease quantity demanded while the substitution effect will increase quantity demanded, so these two effects are in the opposite directions

at each point on the demand​ curve, marginal utility from the consumption of pizza equals marginal utility from the consumption of Coke.

the consumer adjusts the consumption of both pizza and Coke following the rule of equal marginal utility per dollar.

more of a good when the price rises. This is the correct answer.

the poorest of the poor often cannot purchase more of a good when the price rises

an inferior​ good, and the income effect would have to be larger than the substitution effect.

No. To conclude that heating oil is an inferior an inferior ​good, we would have to know that less less heating oil was consumed as the incomes of Northeast households rose

a Giffen good because when the price fell less was consumed

take actions that are appropriate to reach goals given available information.

situations in which people make choices that do not appear to be economically rational.

ignoring nonmonetary opportunity​ costs, failing to ignore sunk​ costs, and being overly optimistic about the future.

are costs that have already been paid and cannot be recovered and should be ignored.

they take into account monetary costs but ignore nonmonetary opportunity costs​ (the highest-valued alternative that must be given up to engage in an​ activity), they fail to ignore sunk costs​ (costs that have already been paid and cannot be​ recovered), and they are overly optimistic about their future behavior.

may be​ sub-optimized because rules of thumb may not reflect current reality.

on the basis of only limited information and without the time or capacity to calculate their optimal choices. As a​ result, rather than making optimal​ choices, people often use rules of​ thumb, which are guides to decision making that may not produce optimal choices.

even if the second value is irrelevant.

a high​ "regular price" on a​ product, which makes the discounted​ "sale price" appear to be a bargain

Thaler places a higher value on bottles of wine when he owns them than when he does not own them.

The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they​ didn't already own it.

to fail to ignore sunk costs.

he was ignoring the nonmonetary opportunity cost of the wine.

No, the quarterback who the coaches believe is best suited to be the starter should start for the team

. They are unrealistic about their future behavior. B. They fail to ignore sunk costs. C. They take into account monetary costs but ignore nonmonetary opportunity costs. D. All of the above are mistakes consumers commonly commit when making decisions

If they are offered a price greater than the price they would pay if they did not already own the good.

. People overvalue the utility from current choices. B. People undervalue the utility to be received in the future. C. ​People's preferences are not consistent over time. D. All of the above explain why people are overweight.

that may not produce optimal choices

true