Microeconomics – 3. Demand and Consumer Behavior

  1. Consumer choice boils down to what three things?
  2. What is the difference between a cardinal and ordinal measure of utility?
  3. What is the difference between total versus marginal utility?
  4. Explain the law of diminishing marginal utility.
  5. State the utility-maximizing rule or the equimarginal principle.
  6. When is utility maximized?
  7. What is the difference between real and nominal income?
  8. What does the price elasticity of demand measure? Write out the formula.
  9. Why do we use percentages rather than absolute amounts in measuring consumer responsiveness?
  10. Define and illustrate elastic and inelastic demand.
  11. What are the four major determinants of price elasticity of demand? Explain how each affects demand elasticity.
  12. Suppose your business sells widgets and demand for your product is relatively price elastic. What would you do to raise your total revenues?
  13. Why do many airlines offer fare discounts to people who stay over on a Saturday night?
  14. Why don’t most new cars sell at their sticker price?
  15. Why do many farmers go bankrupt when crops are plentiful?
  16. If the government imposes a sales tax on a product that is highly elastic, what will happen to total tax revenues?

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