Micro Exam 2 - Microeconomics Exam 2 Review Chapter 7 Consumer Behavior TERMS Utility Revealed Preference Utility Function Bundle Marginal Utility

Micro Exam 2 - Microeconomics Exam 2 Review Chapter 7...

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Microeconomics: Exam 2 ReviewChapter 7: Consumer BehaviorTERMSUtilityA measure of the amount of satisfaction a person derives from somethingRevealed PreferenceThe idea that people’s preferences can be determined by observing their choices and behaviorUtility FunctionA formula for calculating the total utility that a particular person derives from consuming a combination of goods and servicesBundleA unique combination of goods that a person could choose to consumeMarginal UtilityThe change in total utility that comes from consuming one additional unit of a good or serviceDiminishing Marginal UtilityThe principle that the additional utility gained from consuming successive units of a good or service tends to be smaller than the utility gained from the previous unitBudget ConstraintA line that is composed of all the possible combinations of goods and services that a consumer can buy with her or his incomeIncome EffectThe change in consumption that results from increased effective wealth due to lower pricesSubstitution EffectThe change in consumption that results from a change in the relative price of goodsAltruismA motive for action in which a person’s utility increases simplebecause someone else’s utility increasesReciprocityResponding to another’s action with similar actionsLearning Objectives7.1Explain how revealed preference indicate which goods or activities give a person utility7.2Show how the budget constraint affects utility maximization7.3Show how a change in income affects consumption choices7.4Show how a change in price affects consumption choices, and distinguish between the income and substitution effects7.5Outline the ways in which utility is influenced by outside perceptions, and describe how people get utility from altruism and reciprocity
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Chapter 8: Behavior EconomicsTermsBehavioral EconomicsA field of economics that draws on insights from psychology to expand models of individual decision makingTime InconsistencyWhen we change our minds about what we want simply because ofthe timing of the decisionCommitment DeviceAn arrangement entered into by an individual with the aim of helping fulfill a plan for future behavior that would otherwise be difficultSunk CostA cost that has already been incurred and cannot be refunded or recoveredFungibleEasily exchangeable or substitutableLearning Objectives8.1Define time inconsistency, and explain how it accounts for procrastination and other problems of self-control8.2Explain why sunk costs should not be taken into account in deciding what to do next8.3Identify the types of opportunity cost that people often undervalue and explain why undervaluing them distorts decision making8.4Define fungibility, and explain why it matters in financial decision makingChapter 9: Game Theory and Strategic ThinkingTermsGameA situation involving at least two people that requires those involved to think strategicallyGame Theory
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