Question 1

Use the following to answer questions: 
-(Table: Alaina's Utility from Consuming Cups of Coffee) Look at the table Alaina's Utility from Consuming Cups of Coffee. Given the information in the table, Alaina's total utility from drinking coffee:

Accepted Answer

Alaina's total utility increases at a decreasing rate as she consumes more coffee due to the law of diminishing marginal utility, which states that as a person consumes more of a good, the additional satisfaction gained from consuming an additional unit decreases.

Question 2

Tonya's budget constraint for gasoline (G) and clothes (C) each month can be expressed by the equation G = 100 - 2C. If the price of clothing is $10, the price of gasoline is _____ and the total amount of income spent on both clothing and gasoline each month is _____.

Accepted Answer

The slope of the budget constraint (-2) represents the price ratio of clothes to gasoline. Since clothes cost $10, gasoline costs $5. The intercept (100) represents the maximum gasoline Tonya can buy if she spends nothing on clothes, implying a total budget of $500.

Question 3

The consumption bundles that Mei CAN afford but that do not use up her entire income lie _____ the budget line.

Accepted Answer

Consumption bundles that Mei can afford but do not use up her entire income lie within the budget line, indicating they cost less than or equal to her total income but do not exhaust it.

Question 4

Use the following to answer questions: 
-(Table: Alaina's Utility from Consuming Cups of Coffee) Look at the table Alaina's Utility from Consuming Cups of Coffee. Alaina's marginal utility from consuming her sixth cup of coffee is _____ utils.

Accepted Answer

Marginal utility is the additional utility gained from consuming one more unit of a good. If the table shows the total utility for each cup, the marginal utility for the sixth cup is the difference between the total utility of the sixth cup and the fifth cup.

Question 5

George has a weekly income (I) of $50, which he uses to purchase doughnuts (D) and coffee (C). If the price of a doughnut is $1 and the price of coffee is $2.50, which of the following consumption bundles lies BEYOND George's budget constraint?

Accepted Answer

George's budget constraint is $50. For bundle B, 15 coffees cost $37.50 and 15 doughnuts cost $15, totaling $52.50, which exceeds his budget.

Question 6

George has a weekly income (I) of $50, which he uses to purchase doughnuts (D) and coffee (C). The price of a doughnut is $1 and the price of coffee is $2.50. Suppose George's income increases to $100 and the prices of both doughnuts and coffee remain unchanged. Given this income change, one would expect George's budget line:

Accepted Answer

When George's income increases, his budget line shifts to the right, indicating he can now afford more of both goods (doughnuts and coffee) while prices remain unchanged.

Question 7

Jie consumes three heads of broccoli and six bowls of rice each week. The price of a head of broccoli is $2 and the price of rice is $4 per bowl. Jie's marginal utility from the last head of broccoli consumed is 4 utils and her marginal utility from her last bowl of rice is 8 utils. If Jie wants to maximize her utility, she should:

Accepted Answer

The answer of Jie consumes three heads of broccoli and...

Question 8

The marginal decision on how to allocate an additional dollar allows consumers to:

Accepted Answer

The marginal decision on how to allocate an additional dollar allows consumers to maximize utility by choosing the option that provides the greatest additional satisfaction or benefit per dollar spent.

Question 9

Consumption of more of a good that has become cheaper in place of a good that has become relatively more expensive is the:

Accepted Answer

When a good becomes cheaper, the substitution effect encourages consumers to buy more of it, while the income effect may encourage them to buy less of it. However, the substitution effect is typically stronger than the income effect, so the overall effect is that consumers will buy more of the cheaper good.

Question 10

Tonya's budget constraint for gasoline (G) and clothes (C) each month can be expressed with the equation G = 100 - 2C. If the price of clothing is $10, which of the following consumption bundles lies INSIDE Tonya's budget line?

Accepted Answer

Tonya's budget constraint is G = 100 - 2C. For 10 units of clothing (C = 10), G = 100 - 2(10) = 80. The bundle (10, 5) lies inside the budget line because it requires only 5 units of gasoline, which is less than the 80 units she can afford.

Question 11

George has a weekly income (I) of $50, which he uses to purchase doughnuts (D) and coffee (C). The price of a doughnut is $1 and the price of coffee is $2.50. Suppose George's income drops to $25 and the prices of doughnuts and coffee each fall to one-half their initial prices. One would expect George's budget line to:

Accepted Answer

George's budget line will stay the same because both his income and the prices of goods have been halved, maintaining the same purchasing power and budget constraint.

Question 12

If marginal utility is diminishing, the marginal utility curve is _____, since each additional unit of the good consumed yields _____ satisfaction.

Accepted Answer

When marginal utility is diminishing, it means that each additional unit of the good consumed provides less satisfaction than the previous one, resulting in a downward-sloping marginal utility curve.

Question 13

Sam always tries to maximize his utility in his consumption of popcorn and soft drinks. Both of these goods are subject to diminishing marginal utility. Suppose the prices of these goods, along with Sam's income, stay the same, but Sam decides to decrease his consumption of popcorn. Holding everything else constant, this means that Sam must _____ his consumption of soft drinks, and his marginal utility per dollar spent on popcorn will be _____ than it used to be.

Accepted Answer

When Sam decreases his consumption of popcorn, the marginal utility per dollar spent on popcorn increases due to diminishing marginal utility. To maximize utility, he should increase his consumption of soft drinks to balance the marginal utility per dollar spent across both goods.

Question 14

Consumption bundles that Mei CANNOT afford because the bundles cost more than her income are _____ the budget line.

Accepted Answer

Bundles that cost more than her income are beyond her budget line, meaning they are outside the feasible region of consumption for Mei.

Question 15

When a consumer maximizes utility, the marginal utility per dollar spent must be the same for all goods and services in the consumption bundle. This is referred to as:

Accepted Answer

The optimal consumption rule states that consumers maximize their utility when the marginal utility per dollar spent is equal across all goods and services in their consumption bundle.

Question 16

Tonya's budget constraint for gasoline (G) and clothes (C) each month can be expressed with the equation G = 100 - 2C. If the price of clothing is $10, which of the following consumption bundles is NOT feasible for Tonya?

Accepted Answer

Tonya's budget constraint is G = 100 - 2C. For 50 units of clothing, G = 100 - 2(50) = 0. Therefore, 50 units of clothing and 100 units of gasoline is not feasible.

Question 17

George has a weekly income (I) of $50, which he uses to purchase doughnuts (D) and coffee (C). If the price of a doughnut is $1 and the price of coffee is $2.50, his budget constraint can be expressed as:

Accepted Answer

George's budget constraint is determined by the equation I = P_D * D + P_C * C, where P_D is the price of doughnuts and P_C is the price of coffee. Substituting the given values, 50 = 1*D + 2.50*C, rearranging gives D = 50 - 2.50C.

Question 18

A decrease in the price of a good, holding income and the prices of all other goods constant, is associated with:

Accepted Answer

A decrease in the price of a good would result in a higher marginal utility per dollar spent on that particular good, leading consumers to increase their consumption of the good. This is known as the positive substitution effect.

Question 19

A consumer is attempting to maximize utility in her consumption of goods A and B. If her income and the price of good A do not change but the marginal utility of good B is constant and the price of good B decreases, this will _____ utility per dollar spent on good B.

Accepted Answer

If the price of good B decreases and the marginal utility of good B is constant, the consumer will be able to purchase more of good B, thus increasing the marginal utility per dollar spent on it. Therefore, the answer is D - increase the marginal.

Question 20

Use the following to answer questions: 
-(Table: Alaina's Utility from Consuming Cups of Coffee) Look at the table Alaina's Utility from Consuming Cups of Coffee. Diminishing marginal utility:

Accepted Answer

Diminishing marginal utility is present because although Alaina's total utility increases with each additional cup of coffee, the rate of increase (marginal utility) decreases with each additional cup.

Quiz 10: The Rational Consumer

Use the following to answer questions: -(Table: Alaina's Utility from Consuming Cups of Coffee) Look at the table Alaina's Utility from Consuming Cups of Coffee. Given the information in the table, Alaina's total utility from drinking coffee:

Tonya's budget constraint for gasoline (G) and clothes (C) each month can be expressed by the equation G = 100 - 2C. If the price of clothing is $10, the price of gasoline is _ and the total amount of income spent on both clothing and gasoline each month is _.

The consumption bundles that Mei CAN afford but that do not use up her entire income lie _____ the budget line.

Use the following to answer questions: -(Table: Alaina's Utility from Consuming Cups of Coffee) Look at the table Alaina's Utility from Consuming Cups of Coffee. Alaina's marginal utility from consuming her sixth cup of coffee is _____ utils.

George has a weekly income (I) of $50, which he uses to purchase doughnuts (D) and coffee (C) . If the price of a doughnut is $1 and the price of coffee is $2.50, which of the following consumption bundles lies BEYOND George's budget constraint?