| Exercises | On the Net I Economics Consultants I Added Perspective |
| Review | Interactive Quiz I Interactive Quiz - Appendix I PowerPoint Review Slides I More Study Aids |
| Research |
Chapter in a Nutshell
In the Demand and Supply chapter, we studied the law of demand, noting that when price falls, quantity demanded increases. But why? It seemed obvious, didn't it? In this chapter, we explore the obvious to explain the law of demand. We'll find that the explanation for the law of demand lies in the concepts marginal utility, total utility, and the marginal-utility-to-price ratios for different goods. Some other new concepts that are presented in this chapter to help us understand consumer choice include the law of diminishing marginal utility, consumer surplus, and interpersonal comparisons of utility. This chapter gets to the bottom of why people buy what they do.
After working through this chapter, you should be
able to:
· Explain what is meant by the term marginal utility.
· Relate the concepts total utility and marginal utility to each other.
· Describe the meaning of the law of diminishing marginal utility with an example.
· Present an explanation for the water-diamond paradox.
· Account for the law of demand using marginal-utility-to-price ratios.
· Explain the logic behind the marginal-utility-to-price ratio equalization rule.
· Give an example of consumer surplus.
· Discuss how interpersonal comparisons of utility can be useful to policymakers.
• Visit the Diamond Information Center (http://www.adiamondisforever.com/). What statement does this site make about the marginal utility of diamonds?
• A number of commercial firms, such as USADATA (http://www.usadata.com/), conduct research on consumer choices and preferences.
Recently, a group of scientists have developed a method for producing nearly flawless diamonds from coal at very little cost. These artificial diamonds are indistinguishable from real diamonds to the naked eye. A few of the scientists have formed the Diamond Institute to explore strategies to profit from this process.
The Diamond Institute has approached Economic Consultants for advice about how to best profit from this new procedure. Prepare a report for the Diamond Institute that addresses the following issues:
• Diamond Information Center
(http://www.adiamondisforever.com/)
The Diamond Information Center offers tips and guidelines for purchasing diamonds. The center is sponsored
by De Beers, which controls 80 percent of the world's diamond trade.
• Independent Gemmological Services (IGS)
(http://web.idirect.com/~igs/)
IGS provides buying and appraisal information for diamonds.
• Diamontrigue
(http://www.diamontrigue.com/)
Rostar
(http://www.rostar.com/RostarSD/)
Diamontrigue and Rostar manufacture and sell simulated diamonds.
• U.S. Diamond Exchange
(http://www.usdiamond.com/)
U.S. Diamond Exchange is an electronic exchange for trading polished diamonds.
Added Perspective: More on the Net
• How many different kinds and flavors of yogurt are there? Take a look at what Dannon (http://www.dannon.com/fyog_us.html) has. Why so many flavors?
• For information about other economic experiments, visit Al Roth's Game Theory and Experimental Economics Page (http://www.pitt.edu/~alroth/alroth.html).
Test your understanding of the chapter's concepts with the interactive quiz. The quiz contains twenty multiple-choice questions, like those found on a typical exam. Questions include detailed feedback for each answer, so that you may know instantly why you have answered correctly or incorrectly. In addition, you may email yourself and/or your instructor the results of the quiz, with a listing of correct and incorrect answers. Finally, check your results versus other students around the world -- previous scores to quizzes are displayed online.
How to Take the Quiz
Start the quiz, type in your
name (required), your email address (optional), and the email address of your instructor (optional). Answer
the questions (as many or as few as you like, but you need to answer at least one question). Then hit
the submit button and see your results. At the results page, click on the link in the "description"
column to see feedback on your answers. Scroll down the page to see quiz results from students around
the world.
Test your understanding of the chapter's concepts with the interactive quiz. The quiz contains twenty multiple-choice questions, like those found on a typical exam. Questions include detailed feedback for each answer, so that you may know instantly why you have answered correctly or incorrectly. In addition, you may email yourself and/or your instructor the results of the quiz, with a listing of correct and incorrect answers. Finally, check your results versus other students around the world -- previous scores to quizzes are displayed online.
How to Take the Quiz
Start the quiz, type in your name (required),
your email address (optional), and the email address of your instructor (optional). Answer the questions
(as many or as few as you like, but you need to answer at least one question). Then hit the submit button
and see your results. At the results page, click on the link in the "description" column to
see feedback on your answers. Scroll down the page to see quiz results from students around the world.
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