Chapter 7 Consumer Behavior Utility is the benefit or satisfaction that a person receives from continuing a good or a service The law of diminishing

Chapter 7 Consumer Behavior Utility is the benefit or...

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Chapter 7 Consumer Behavior Utility is the benefit or satisfaction that a person receives from continuing a good or a service. The law of diminishing marginal utility indicates that gains in satisfaction become smaller as successive unit of a specific product are consumed. Diminishing marginal utility provides a simple rational for the law of demand. The theory of consumer behavior assumes that, with limited income and a set of product prices, consumer make rational choices on the bases of well-defined preferences. A consumer maximizes utility by allocation income so that the marginal utility per dollar spent is the same for everyone. A downward-sloping demand curve can be derived by changing the price of one product in the consumer-behavior model and noting the change in utility-maximization quantity of that product demanded. By providing insights on the income effect and substitution effect of a price decline, the utility-maximization modal helps explain why demand curves are down-sloping. MCQ’s on “Consumer Behavior” I. The utility of a particular good:
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o is the same for everyone, even if its usefulness differs from person to person o is a measure of the product's usefulness o increases at a constant rate o increases at a decreasing rate II. Answer the next question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer derives from successive quantities of products J and K. Refer to the table. If this consumer has an income of $26 and the prices of J and K are $2 and $4 respectively, the consumer will maximize her utility by purchasing: o 7 units of J and 3 units of K o 5 units of J and 4 units of K o 3 units of J and 5 units of K o 1 units of J and 6 units of K III. Jim enjoys having either a peanut butter sandwich or a bologna sandwich for his lunch. A drop in the price of peanut butter increases the marginal utility per dollar of peanut butter and causes Jim to buy more peanut butter and less bologna to restore maximum utility. This best illustrates the: o Law of diminishing marginal utility o Income effect o Substitution effect o Law of increasing total utility IV. Suppose the prices of products X and Y are $5 and $10, respectively. For a specific consumer who is currently exhausting her total income, the total utility from X is 100, while the total utility from Y
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is 200. The marginal utility of X and Y are both equal to 8. From this information, we can conclude: o She is maximizing total utility o She should purchase relatively more x o She should purchase relatively more y o Nothing about whether she is maximizing total utility V. Suppose the price of an iced coffee is $4 and the price of a candy bar is $2. In order to maximize total utility, a consumer who buys some
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