Exam 5: Consumer Choice: Individual and Market Demand

Draw individual demands for caviar for Al, Barbara, Chuck, and Denise where Al's demand is relatively inelastic, Barbara's is elastic, Chuck's is upward sloping, and Denise refuses to eat caviar at any price.Then draw the corresponding market demand.

Scarcity

Since price tends to equal marginal utility, the price of water is low and the price of diamonds is high.

According to the "law" of demand, we would expect

Because the consumer's budget is limited, purchase decisions among available goods must of necessity be interdependent.

Figure 5-13 -In Figure 5-13, the consumer is better off

Why is it that the consumer can maximize total net utility only if the purchase quantity brings marginal utility as close as possible to equality with price?

All inferior goods have upward-sloping demand curves.

Gwen's decision to buy a new television instead of a bicycle for the same price

Adam Smith's diamond-water puzzle

Consumer surplus is the difference between the worth of a commodity to the consumer and the price the consumer pays for the commodity.

The law of demand holds that as prices of goods decrease, people are willing to buy more.

Figure 5-17 -In Figure 5-17, which of the marked points would an economist use to help him construct a single demand curve for X?

The law of demand states that as the price

Total utility always decreases when additional amounts of a commodity are consumed.

The theory of consumer choice is based on the hypothesis that each consumer wants to

Utility is the pleasure, satisfaction, or enjoyment derived from consumption.

Total utility will be at its maximum when

The host at a party offers Justin a sixth beer.Justin says, "No thanks, man.The marginal utility of that fifth beer was, like, 20 cents, but the marginal utility of the sixth would be minus 10 cents." From his comments, we deduce that Justin

The optimal purchase rule is stated as