Chapter 6 - Consumer Theory

Behavioral economics integrates psychology into economic decision-making. What is its core principle concerning how individuals perceive money?

• Money has constant and stable value regardless of the situation.

• People's spending is only influenced by their income levels.

• The perceived value of money can vary depending on the context.

• Individuals always prefer more money to less.

What does a budget constraint illustrate in consumer theory?

• The level of utility that maximizes consumer satisfaction.

• The inflation rate that affects consumer purchasing power.

• The maximum number of goods a firm can produce.

• The various combinations of two goods a consumer can afford with a limited income.

At which point does consumer equilibrium occur on a budget line?

• When the marginal utility of the goods equals their prices.

• When the income effect no longer applies.

• When the ratio of the prices of the goods is equal to the ratio of their marginal utilities.

• When the total utility is at its minimum level.

What is diminishing marginal utility?

• The increase in total utility a consumer gets from consuming one more unit of a good.

• The decrease in satisfaction from consuming additional units of a good after reaching a saturation point.

• The reduction in additional satisfaction as one consumes more units of a good.

• The point where additional units of a good no longer provide any utility.

What does it mean for a good to be "fungible"?

• It is easily replaceable by another identical item and holds the same value.

• It can only be produced by a monopolistic company.

• It provides diminishing marginal utility.

• It has no utility to the consumer.

What is the income effect in the context of a price increase for a good?

• It is the increased income required to purchase the same amount of the good.

• It is the reduction in the quantity of the good demanded because of the higher price.

• It refers to the reduced effective buying power when the price of a good increases.

• It is the additional income earned by working overtime to afford the more expensive good.

What does marginal utility indicate?

• The total satisfaction received from a given level of consumption.

• The additional utility gained by increasing consumption by one more unit.

• The utility lost when one less unit of a product is consumed.

• The cost of producing one additional unit of a good.

What is "marginal utility per dollar"?

• The amount of utility gained from spending one more dollar on a good.

• The total utility divided by the cost of the good.

• The utility gained from the last dollar spent on all goods.

• The additional satisfaction gained relative to the price of a good.

What is demonstrated by the substitution effect?

• The tendency for consumers to buy more of a good as its price rises.

• The inclination to substitute a good with another that provides more utility per dollar.

• The change in consumption resulting from a change in real income.

• The habit of consuming only goods that have increasing marginal utility.

What is 'total utility' in consumer theory?

• The satisfaction a consumer derives from the last unit consumed.

• The maximum utility that a consumer can achieve with a given budget.

• The aggregate satisfaction obtained from all units of goods consumed.

• The level of utility where a consumer can no longer perceive any additional satisfaction.