GLS4e_Partial_Ch04

What does the concept of utility represent in consumer behavior?

Utility represents the satisfaction or enjoyment a consumer receives from consuming goods or services.

In the utility function U = U(T,D), what do T and D stand for?

T stands for the number of movies consumed at the theater, and D stands for the number of DVDs consumed at home.

What is the formula for marginal utility in relation to theater movies?

MUT = 0.8T^{-0.2}D^{0.2}

Which adds more utility for George, popcorn or candy, according to U = P^{0.6}C^{0.4}?

Popcorn adds more utility than candy.

What does the marginal utility of popcorn (MUP) represent in George's utility function?

MUP = 0.6P^{-0.4}C^{0.4}.

What is the significance of the downward slope of a budget constraint?

It indicates that as a consumer purchases more of one good, they must give up some of another good due to limited income.

What do indifference curves represent in microeconomics?

Indifference curves represent different combinations of goods that provide the same level of utility to the consumer.

What shape do indifference curves take for perfect substitutes?

Relatively straight indifference curves.

What is the marginal rate of substitution (MRS)?

The MRS describes the rate at which a consumer is willing to substitute one good for another while maintaining the same level of satisfaction.

How does a change in income affect the budget constraint?

A change in income shifts the budget constraint by changing the intercepts.

What indicates a corner solution in consumer optimization?

A corner solution occurs when the consumer chooses only one of the two goods.

Why do indifference curves never cross?

If they did cross, it would imply inconsistent preferences, as a consumer would be indifferent between two different utility levels.

What is an interior solution in consumer optimization?

An interior solution is a utility-maximizing bundle that includes positive quantities of both goods.

What does it imply if the marginal utility per dollar spent on good X is more than on good Y?

It suggests that the consumer should consume more of good X until the marginal utility per dollar spent is equal across both goods.