Econ 201 Exam 3 Quizlet
consumers - ANS-also called economic agents or ROIs; they are assumed to be self
interested and rational decision makers
rational - ANS-in an economic sense, this means that economic agents will only do
things that will not make them worse off based on their own beliefs; ie, we only do
things that we believe will make us better off
No! If something is rational to one person, it may or may not be to another person. It
also doesn't mean that one person won't be made worse off by the decision. There is
uncertainty involved/probabilistic outcomes for all choices. - ANS-Is what is "rational"
the same for everyone?
self-interested - ANS-in an economic sense, this means that consumers care about
themselves and what makes them happy; we can consider others but only as much as
they affect us
altruism - ANS-a concern for others; generosity
utility - ANS-classical idea of how useful a thing is; expands to how much enjoyment we
get from something; ie, the more we enjoy it, the more utility we get from it
utility function for substitutes - ANS-U=U(X,Y)=X+Y
utility function for complements - ANS-U=U(X,Y)=X*Y
We must think of it as ordinal because utility is arbitrary and hard to compare. - ANS-Is
utility cardinal or ordinal?
cardinal - ANS-magnitude of numbers; numbers are meaningful in and of themselves;
ie, 2 is twice as big as 1
ordinal - ANS-order of numbers is all that matters; 2 is larger than 1 but not necessarily
two times as big as one
total utility - ANS-bundles of utility have a determined by arbitrary number
, marginal utility - ANS-the additional utility we receive from consuming an additional unit
of the good; how much more or less another unit gives us
a good - ANS-A change in utility is a change in _____.
decreases, increases - ANS-We assume that marginal utility _____ as the # of goods
____.
Total Utility Graph - ANS-
marginal utility - ANS-What is the slope of the total utility graph?
marginal utility graph - ANS-slopes downward, derivative of the utility function
when U' = marginal utility = 0 - ANS-When is utility maximized?
No! We are constrained by our income and prices - ANS-Is it reasonable to assume that
we consume all goods to the point where MU = 0?
rational spending rule - ANS-we can consume as much as we can afford based on our
marginal utility and price; we consume until the MU of the last good consumed per
dollar is the same
We consume until the mental tradeoff is equal to our market tradeoff. - ANS-What
equality do we consume until we reach?
mental tradeoff - ANS-the MU ratio (MU x / MU y)
market tradeoff - ANS-the price ratio (P x / P y)
We weigh costs against the benefits (utility). We consume a good until the additional
benefit equals the additional cost to us. - ANS-How does the rational spending rule
relate to demand/utility?
firm types - ANS-1) sole proprietor
2) partnerships
3) corporations
distribution of risk and liability - ANS-What is the main difference between the types of
firms?
consumers - ANS-also called economic agents or ROIs; they are assumed to be self
interested and rational decision makers
rational - ANS-in an economic sense, this means that economic agents will only do
things that will not make them worse off based on their own beliefs; ie, we only do
things that we believe will make us better off
No! If something is rational to one person, it may or may not be to another person. It
also doesn't mean that one person won't be made worse off by the decision. There is
uncertainty involved/probabilistic outcomes for all choices. - ANS-Is what is "rational"
the same for everyone?
self-interested - ANS-in an economic sense, this means that consumers care about
themselves and what makes them happy; we can consider others but only as much as
they affect us
altruism - ANS-a concern for others; generosity
utility - ANS-classical idea of how useful a thing is; expands to how much enjoyment we
get from something; ie, the more we enjoy it, the more utility we get from it
utility function for substitutes - ANS-U=U(X,Y)=X+Y
utility function for complements - ANS-U=U(X,Y)=X*Y
We must think of it as ordinal because utility is arbitrary and hard to compare. - ANS-Is
utility cardinal or ordinal?
cardinal - ANS-magnitude of numbers; numbers are meaningful in and of themselves;
ie, 2 is twice as big as 1
ordinal - ANS-order of numbers is all that matters; 2 is larger than 1 but not necessarily
two times as big as one
total utility - ANS-bundles of utility have a determined by arbitrary number
, marginal utility - ANS-the additional utility we receive from consuming an additional unit
of the good; how much more or less another unit gives us
a good - ANS-A change in utility is a change in _____.
decreases, increases - ANS-We assume that marginal utility _____ as the # of goods
____.
Total Utility Graph - ANS-
marginal utility - ANS-What is the slope of the total utility graph?
marginal utility graph - ANS-slopes downward, derivative of the utility function
when U' = marginal utility = 0 - ANS-When is utility maximized?
No! We are constrained by our income and prices - ANS-Is it reasonable to assume that
we consume all goods to the point where MU = 0?
rational spending rule - ANS-we can consume as much as we can afford based on our
marginal utility and price; we consume until the MU of the last good consumed per
dollar is the same
We consume until the mental tradeoff is equal to our market tradeoff. - ANS-What
equality do we consume until we reach?
mental tradeoff - ANS-the MU ratio (MU x / MU y)
market tradeoff - ANS-the price ratio (P x / P y)
We weigh costs against the benefits (utility). We consume a good until the additional
benefit equals the additional cost to us. - ANS-How does the rational spending rule
relate to demand/utility?
firm types - ANS-1) sole proprietor
2) partnerships
3) corporations
distribution of risk and liability - ANS-What is the main difference between the types of
firms?
