Question 1

Total utility
A) is the total amount of satisfaction derived from consuming a particular quantity of a good.
B) for quantity Y can be calculated by summing the marginal utilities of each unit that comprises quantity Y.
C) is the sum of the amounts of utility derived from consuming each unit of a good.
D) a and b
E) all of the above

Accepted Answer

Total utility is the overall amount of satisfaction a consumer derives from consuming a particular quantity of a good. It can be calculated by summing the marginal utilities of each unit that comprises the quantity consumed, as well as the sum of the amounts of utility derived from consuming each unit individually. Therefore, choices A, B, and C are all correct statements about total utility, making E the best choice.

Question 2

Suppose that the total utility from consuming one unit of good X is 54 utils,the total utility of two units of good X is 74 utils,and the total utility of three units of good X is 84 utils. The marginal utility of the third unit is
A) 10 utils.
B) 70.67 utils.
C) 12.25 utils.
D) 20 utils.

Accepted Answer

The marginal utility of the third unit is the additional utility gained from consuming the third unit, which is the total utility of three units minus the total utility of two units: 84 utils - 74 utils = 10 utils.

Question 3

Suppose a consumer is purchasing Coke (c)and pretzels (p)in quantities such that he is achieving consumer equilibrium.Then the price of Coke increases.Which of the following will be true?
A) MUC/PC = MUP/PP
B) MUC/PC > MUP/PP
C) MUC/PC < MUP/PP
D) We cannot say for certain what will happen to the MUC/PC relative to the MUP/PP.

Accepted Answer

When the price of Coke increases, the consumer will consume less Coke and substitute it with more pretzels to maintain the same level of satisfaction. Therefore, the marginal utility per dollar spent on Coke (MUC/PC) will decrease while the marginal utility per dollar spent on pretzels (MUP/PP) will increase. This implies that MUC/PC < MUP/PP.

Question 4

Joe is currently in consumer equilibrium by consuming cheese and crackers,such that the last cracker consumed yielded 8 utils and the last piece of cheese consumed yielded 12 utils.Assume the price of crackers is two cents per cracker and the price of cheese is three cents per piece.If the price of crackers increases to four cents,Joe should __________ his consumption of crackers and his marginal utility from crackers will __________ and also __________ his consumption of cheese and his marginal utility from cheese will __________.
A) increase; increase; increase; increase
B) increase; increase; decrease; decrease
C) increase; decrease; increase; decrease
D) decrease; increase; decrease; increase
E) decrease; increase; increase; decrease

Accepted Answer

The answer of Joe is currently in consumer equilibrium by...

Question 5

Marginal utility is
A) the extra satisfaction derived from consuming an additional unit of a good.
B) the total satisfaction derived from consuming an additional unit of a good.
C) the total satisfaction derived from consuming a good.
D) the change in total satisfaction as an additional unit of a good is consumed.
E) a and d

Accepted Answer

Marginal utility refers to the extra satisfaction (utility) a consumer gains from consuming one more unit of a good or service, which is captured in both A) and D). A) directly defines marginal utility, while D) describes the process of how total satisfaction changes with the consumption of an additional unit, essentially reflecting the concept of marginal utility.

Question 6

Suppose that a consumer purchases a combination of X and Y such that MUX/PX = 15 utils per dollar and MUY /PY = 10 utils per dollar.To maximize utility,the consumer should buy
A) less of X and more of Y.
B) more of X and less of Y.
C) more of both X and Y.
D) less of both X and Y.
E) neither X nor Y.

Accepted Answer

The answer of Suppose that a consumer purchases a combination...

Question 7

The diamond-water paradox is illustrated by which of the following statements?
A) Water, a necessity, has a relatively low price whereas diamonds, usually a luxury, have a relatively high price.
B) Although water appears to have a relatively low price when compared to diamonds, in reality, it has a relatively higher price.
C) Although water appears to have a relatively low price when compared to diamonds, in reality, the prices are equal.
D) Although water appears to have a relatively low price when compared to diamonds, at the margin, water has the relatively higher price.
E) Although water appears to have a relatively low price when compared to diamonds, at the margin, the prices are equal.

Accepted Answer

The diamond-water paradox is the apparent contradiction that water, a necessity for survival, has a lower price than diamonds, a luxury item. This is best illustrated by statement A, which directly contrasts the relative prices of the two goods.

Question 8

Suppose that the total utility from consuming one unit of good Z is 220 utils,the total utility from consuming two units of good Z is 320 utils,and the total utility from consuming three units of good Z is 400 utils. The marginal utility received from consuming the third unit of good Z is
A) 313.33 utils.
B) 80 utils.
C) 100 utils.
D) 50 utils.

Accepted Answer

The marginal utility is the additional utility gained from consuming an additional unit of a good. The marginal utility of the third unit is the total utility of three units minus the total utility of two units: 400 utils - 320 utils = 80 utils.

Question 9

Given two goods,X and Y,their prices,PX and PY,a consumer is in equilibrium when the last dollar spent on X yields
A) zero marginal utility for Y.
B) the same marginal utility as if all the money were spent on Y.
C) a smaller marginal utility than the last dollar spent on Y.
D) the same marginal utility as the last dollar spent on Y.
E) none of the above

Accepted Answer

In order to be in equilibrium, the consumer must have allocated their budget in such a way that the marginal utility per dollar spent on each good is the same. This means that the last dollar spent on good X must yield the same marginal utility as the last dollar spent on good Y. Therefore, the correct answer is D.

Question 10

To an economist,utility refers to the
A) usefulness of a good or service.
B) satisfaction that results from the consumption of a good.
C) relative scarcity of a good.
D) rate of decline in the demand curve.

Accepted Answer

Utility refers to the satisfaction or pleasure that a consumer receives from consuming a good or service. It is subjective and varies across individuals and circumstances. The higher the level of utility derived from a good, the more valuable it is perceived to be by the consumer.

Question 11

If the marginal utility of a good is negative,then
A) consumers should buy less of it.
B) consumers will consume it only if it is free.
C) consumers should buy more of it to make its marginal utility positive.
D) the law of diminishing marginal utility is being violated.

Accepted Answer

If the marginal utility of a good is negative, it means that each additional unit of the good consumed brings less satisfaction than the previous unit. Therefore, it is not rational for consumers to continue consuming the good at the same rate or to increase consumption. Rather, they should buy less of it to maximize their satisfaction.

Question 12

Given two goods,X and Y,and their prices,PX and PY a consumer will maximize utility by allocating expenditures such that
A) MUX/PY = MUY/PX.
B) PY/MUX = PX/MUY.
C) MUX/PX = MUY /PY.
D) MUX = PX = MUY = PY = MU$.
E) MUX = MUY = PX = PY = MU$.

Accepted Answer

The consumer's utility will be maximized when the ratio of the marginal utility of good X to its price is equal to the ratio of the marginal utility of good Y to its price. Thus, MUX/PX = MUY/PY is the correct equation that helps allocate expenditures optimally.

Question 13

Suppose a consumer is purchasing Coke and pretzels in quantities such that she is achieving consumer equilibrium.Then the price of Coke decreases.The consumer will likely __________ her consumption of Coke and the marginal utility of Coke will __________ while the total utility from Coke will __________.
A) increase; increase; increase
B) increase; decrease; decrease
C) increase; decrease; increase
D) decrease; increase; increase
E) decrease; decrease; decrease

Accepted Answer

When the price of Coke decreases, the consumer will likely increase her consumption of Coke to achieve a new consumer equilibrium. As she consumes more Coke, the marginal utility (additional satisfaction from consuming one more unit) of Coke will decrease due to the law of diminishing marginal utility. However, the total utility (overall satisfaction) from Coke will increase because she is consuming more of it.

Question 14

To economists,utility means
A) marginal value.
B) relative value.
C) satisfaction.
D) usefulness.
E) a, c, and d

Accepted Answer

To economists, utility refers to the satisfaction or level of happiness that a consumer derives from consuming a certain good or service. It is distinct from usefulness, which is a measure of whether a good or service can perform a certain task or function, regardless of whether consumers derive satisfaction from it. While marginal value and relative value are related concepts, they are not the same as utility.

Question 15

According to the traditional theory of marginal utility as presented in the textbook,as more units of a good are acquired,the consumer's marginal utility
A) always continues to rise.
B) diminishes.
C) remains constant.
D) may diminish at first, but it must eventually rise.
E) may rise at first, but it must eventually become constant.

Accepted Answer

According to the traditional theory of marginal utility, as more units of a good are acquired, the consumer's marginal utility diminishes. This is because as the consumer acquires more units of the good, the satisfaction they derive from each additional unit decreases. Eventually, the consumer may reach a point where the marginal utility becomes negative, meaning that the additional unit of the good actually reduces their overall satisfaction.

Question 16

The theory of consumer choice assumes that consumers attempt to maximize
A) the difference between total utility and marginal utility.
B) average utility.
C) total utility.
D) marginal utility.

Accepted Answer

The theory of consumer choice assumes that consumers attempt to maximize total utility, which is the total satisfaction received from consuming a given total quantity of a good or service.

Question 17

Diamonds are more expensive than water because
A) markets do not always reflect value.
B) they have fewer uses.
C) they are relatively scarce and they yield higher marginal utility.
D) they yield higher total utility.
E) all of the above

Accepted Answer

Diamonds are relatively scarce and less abundant than water which makes them more valuable and thus more expensive. Additionally, due to their scarcity, possessing diamonds yields higher marginal utility (i.e. satisfaction from consuming an additional unit of the good) compared to water. Therefore, the correct answer is C.

Question 18

Suppose Valerie is consuming lipstick (L)and eye shadow (E)and nothing else.MUL = 24 and MUE = 40.The price of eye shadow is $5,and the price of lipstick is $4.What should Valerie do?
A) Consume more eye shadow and less lipstick.
B) Consume more lipstick and less eye shadow.
C) Consume less of both.
D) Consume more of both.
E) Not change her consumption of either good.

Accepted Answer

Valerie should consume more eye shadow and less lipstick because the marginal utility per dollar spent on eye shadow (MUE/Price of E = 40/5 = 8) is greater than that for lipstick (MUL/Price of L = 24/4 = 6).

Question 19

To resolve the diamond-water paradox,it is important to note that under most circumstances,
A) the marginal utility of water is lower than the marginal utility of diamonds.
B) the marginal utilities of water and diamonds are about the same.
C) the marginal utility of water is higher than the marginal utility of diamonds.
D) the marginal utilities of water and diamonds are inversely related.
E) the marginal utilities of water and diamonds are directly related.

Accepted Answer

The diamond-water paradox is resolved by understanding that the marginal utility of water is lower than that of diamonds because water is abundant and diamonds are scarce. This means that the additional satisfaction (utility) gained from consuming one more unit of water is less than that from consuming one more unit of diamond.

Question 20

Given that MUX/PX < MUY/PY,consumers who spend all their income on these two goods
A) can never maximize utility.
B) have maximized total utility.
C) can increase utility by buying more of X and less of Y.
D) can increase utility by buying more of Y and less of X.
E) a and b

Accepted Answer

If MUX/PX < MUY/PY, buying more Y and less X will increase the marginal utility per dollar spent, thereby increasing total utility. This is the principle of the law of diminishing marginal utility, which states that as one consumes more and more of a good, the marginal utility (additional satisfaction derived from consuming an additional unit) decreases. Hence, consumers should allocate their spending towards goods with higher marginal utility per dollar spent.

Quiz 21: Consumer Choice: Maximizing Utility and Behavioral Economics

Total utility

Suppose that the total utility from consuming one unit of good X is 54 utils,the total utility of two units of good X is 74 utils,and the total utility of three units of good X is 84 utils. The marginal utility of the third unit is

Suppose a consumer is purchasing Coke (c) and pretzels (p) in quantities such that he is achieving consumer equilibrium.Then the price of Coke increases.Which of the following will be true?

Marginal utility is

Suppose that a consumer purchases a combination of X and Y such that MUX/PX = 15 utils per dollar and MUY /PY = 10 utils per dollar.To maximize utility,the consumer should buy

The diamond-water paradox is illustrated by which of the following statements?

Suppose that the total utility from consuming one unit of good Z is 220 utils,the total utility from consuming two units of good Z is 320 utils,and the total utility from consuming three units of good Z is 400 utils. The marginal utility received from consuming the third unit of good Z is

Given two goods,X and Y,their prices,PX and PY,a consumer is in equilibrium when the last dollar spent on X yields

To an economist,utility refers to the

If the marginal utility of a good is negative,then

Given two goods,X and Y,and their prices,PX and PY a consumer will maximize utility by allocating expenditures such that

Suppose a consumer is purchasing Coke and pretzels in quantities such that she is achieving consumer equilibrium.Then the price of Coke decreases.The consumer will likely her consumption of Coke and the marginal utility of Coke will while the total utility from Coke will __.

To economists,utility means

According to the traditional theory of marginal utility as presented in the textbook,as more units of a good are acquired,the consumer's marginal utility

The theory of consumer choice assumes that consumers attempt to maximize

Diamonds are more expensive than water because

Suppose Valerie is consuming lipstick (L) and eye shadow (E) and nothing else.MUL = 24 and MUE = 40.The price of eye shadow is $5,and the price of lipstick is $4.What should Valerie do?

To resolve the diamond-water paradox,it is important to note that under most circumstances,

Given that MUX/PX < MUY/PY,consumers who spend all their income on these two goods