Question 1

The assumption that preferences are complete requires the consumer:
A)to rank any two baskets.
B)to say that basket C is preferred to basket A if basket B is preferred to basket A and basket C is preferred to basket B.
C)to rank a basket with more units of all goods higher than a basket with fewer units of all goods.
D)to have a diminishing marginal rate of substitution.

Accepted Answer

The assumption that preferences are complete requires the consumer to be able to rank any two baskets, meaning they must have a preference between any two given options. The other options mentioned (B, C, and D) are related to other assumptions or concepts in microeconomics. Completeness of preferences requires the consumer to be able to rank any two baskets, which is precisely what option A states. Option B describes transitivity of preferences, option C describes monotonicity of preferences, and option D describes the diminishing marginal rate of substitution, all of which are separate assumptions in microeconomics.

Question 2

If I prefer steak to burritos, burritos to pasta and pasta to steak:
A)My preferences are irrational.
B)My preferences violate the transitivity assumption.
C)My preferences violate the "more is better assumption.
D)I must have been exhibiting diminishing marginal utility.

Accepted Answer

The given preferences violate the transitivity assumption, which means that if A is preferred to B and B is preferred to C, then A should be preferred to C. However, the given preferences violate this assumption because it states that steak is preferred to burritos, burritos are preferred to pasta, but pasta is preferred to steak. This is a logical inconsistency and violates the basic assumption of rational decision-making. The transitivity assumption states that if A is preferred to B and B is preferred to C, then A must be preferred to C. However, in this case, we have a violation of transitivity since we prefer steak to burritos, burritos to pasta, but pasta to steak. This means that our preferences are inconsistent and violate the transitivity assumption.

Question 3

Sally likes Jim twice as much as she likes Bob. This is an example of:
A)ordinal preferences.
B)cardinal preferences.
C)transitivity.
D)diminishing marginal utility.

Accepted Answer

The statement "Sally likes Jim twice as much as she likes Bob" implies that Sally has a specific numerical value for the level of liking she has for both Jim and Bob. This suggests cardinal preferences, where individuals assign numerical values to their preferences. Ordinal preferences, on the other hand, only rank preferences in order of preference without assigning specific numerical values. Transitivity and diminishing marginal utility are not relevant to this statement. The statement "Sally likes Jim twice as much as she likes Bob" implies that Sally has assigned a numerical value (twice as much) to her liking for Jim compared to her liking for Bob. This indicates that Sally's preferences can be measured on a cardinal scale, making it an example of cardinal preferences.

Question 4

Which of the following statements is false?
A)Marginal utility may be negative.
B)Marginal utility is the slope of total utility.
C)If the more is better assumption is satisfied, total utility will increase as consumption increases.
D)If the more is better assumption is satisfied, the marginal utility from consuming the second unit must be greater than the marginal utility from consuming the first unit.

Accepted Answer

If the more is better assumption is satisfied, the marginal utility from consuming the second unit may or may not be greater than the marginal utility from consuming the first unit. It depends on various factors such as the nature of the good, individual preferences, and the context in which the consumption is taking place. If the more is better assumption is satisfied, the marginal utility from consuming the second unit may be either greater or lesser than the marginal utility from consuming the first unit. It depends on various individual factors such as preferences, tastes, and needs.

Question 5

Marginal utility is:
A)the slope of the total utility function.
B)the slope of a ray from the origin to the total utility function.
C)always less than average utility.
D)always greater than average utility.

Accepted Answer

Marginal utility is the additional satisfaction gained from consuming one more unit of a good or service. It is represented by the slope of the total utility function, which shows the total satisfaction gained from consuming a certain quantity of a good or service. Therefore, choice A is the correct answer. Choices B, C, and D do not accurately describe marginal utility. Marginal utility is the additional utility gained from consuming one more unit of a good. Therefore, it is calculated by taking the derivative of the total utility function, making it the slope of the total utility function. Options B, C, and D are incorrect statements.

Question 6

If a consumer would rather eat three bars of chocolate than four bars of chocolate, this consumer's preferences violate which of the following key assumptions?
A)Completeness
B)Transitivity
C)More is better
D)Both completeness and transitivity

Accepted Answer

The "more is better" assumption is violated because the consumer prefers less of a good (three bars of chocolate) over more of it (four bars of chocolate), which goes against the typical economic assumption that consumers will prefer more of a good to less, all else being equal.

Question 7

Jacob's estimated utility from pizza is given by 3Z, where Z is the number of pizzas he consumes per month. We can say that:
A)Jacob likes pizza better than steak.
B)Jacob is a vegetarian.
C)Jacob's preferences are transitive.
D)Jacob's marginal utility from pizza is constant.

Accepted Answer

Since Jacob's estimated utility from pizza is given by 3Z, his marginal utility from pizza remains constant. This means that each additional pizza he consumes adds the same amount of utility to his overall satisfaction. Therefore, he can continue to consume pizzas until his total utility maximizes, which may not necessarily mean that he likes pizza better than steak or that he is a vegetarian. We cannot make any assumptions about his preferences from this information. Transitivity of his preferences is also not relevant in this context. The fact that Jacob's estimated utility from pizza is given by 3Z indicates that his marginal utility from pizza is constant. This means that each additional pizza consumed provides the same amount of added utility. None of the other options can be inferred from this information.

Question 8

One adhesive having twice the adhesive power of another is an example of:
A)ordinal ranking.
B)Johnson's theory of adhesivity.
C)cardinal ranking.
D)transitivity.

Accepted Answer

Cardinal ranking refers to assigning numerical values to a characteristic or property being compared, and in this case, the adhesive power is being compared and given a value of "twice" the power of another adhesive. The comparison of adhesive power is a measurement using cardinal ranking, where quantitative values are assigned to the adhesive power. The fact that one adhesive has twice the adhesive power of another implies that there is a clear numerical difference between them, which is the essence of cardinal ranking. Ordinal ranking only involves placing items in a particular order based on their attributes, without any quantitative distinction. Johnson's theory of adhesivity is not relevant to this scenario, and transitivity refers to the logical relationship where if A is preferred to B and B is preferred to C, then A is preferred to C, which is not applicable here.

Question 9

Wendy is very indecisive. She can't decide whether she should go on a cruise or spend her vacation at her friend's home. Her preferences violate the assumption of:
A)completeness.
B)transitivity.
C)more is better.
D)both completeness and transitivity.

Accepted Answer

Completeness in decision theory implies that an individual can always make a decision between any two choices, indicating a preference for one over the other or indifference between the two. Wendy's indecisiveness violates this assumption, as she cannot decide between the two options.

Question 10

John tends to order pizza once or twice a week to his college dorm room. When his parents come to visit, he always asks them to take him to the local steakhouse. Bob is probably suffering from:
A)veganism
B)transitivity.
C)diminishing marginal utility from pizza consumption.
D)completeness and transitivity.

Accepted Answer

Bob is likely experiencing diminishing marginal utility from pizza consumption, meaning that each additional pizza he orders provides less satisfaction than the previous ones. This may be why he seeks out a different type of food when his parents visit. The other options do not seem to fit the situation described. Bob's consistent ordering of pizza suggests that he has not reached the point of satiation or diminishing marginal utility from pizza consumption. However, his preference for steak when his parents visit suggests that he is seeking a change in taste or variety, indicating that he may be experiencing diminishing marginal utility from pizza consumption. Therefore, option C - diminishing marginal utility from pizza consumption - is the best choice.

Question 11

Assume that two baskets and lie on the same indifference curve. Assume that basket contains more of good than basket but less of good than basket. As the consumer moves down and to the right (from basket to basket)along his indifference curve, total utilityL
A)increases.
B)remains constant.
C)decreases.
D)is ambiguous.

Accepted Answer

Since both baskets lie on the same indifference curve, they provide the same level of satisfaction to the consumer. Therefore, as the consumer moves from one basket to the other along the same indifference curve, the total utility remains constant. Since the two baskets lie on the same indifference curve, they provide the consumer with the same level of satisfaction/utility. As the consumer moves from one basket to the other, the increase in the quantity of one good is offset by the decrease in the quantity of the other good, so total utility remains constant.

Question 12

Indifference curves that intersect are said to be:
A)irrational.
B)non-transitive.
C)inconsistent with our basic assumptions about preferences.
D)complete, but not consistent.

Accepted Answer

Indifference curves that intersect violate the assumption of consistency in consumer preferences, which states that if a consumer prefers bundle A over bundle B, and prefers bundle B over bundle C, then the consumer should prefer bundle A over bundle C. Intersecting indifference curves imply that a consumer is indifferent between bundles at one point and then reverses preferences at another point, which is inconsistent with our basic assumptions about preferences.

Question 13

Assume that a consumer prefers watching Yu-Gi-Oh to watching Teen Titans Go, and that this same consumer prefers watching Teen Titans Go to watching Sponge Bob. Further assume that this same consumer states, "I would prefer to watch Sponge Bob to watching Yu-Gi-Oh." This consumer's preferences violate which of the following key assumptions?
A)Completeness
B)Transitivity
C)More is better
D)Both completeness and transitivity

Accepted Answer

Transitivity is violated because if the consumer prefers Yu-Gi-Oh over Teen Titans Go, and Teen Titans Go over Sponge Bob, then logically, they should prefer Yu-Gi-Oh over Sponge Bob to maintain consistency in their preference ordering. The statement that they would prefer Sponge Bob over Yu-Gi-Oh contradicts this, indicating a lack of transitivity in their preferences.

Question 14

Marginal utility:
A)is the ratio of total utility to total consumption.
B)is the rate at which total utility changes as the level of consumption rises.
C)will always be equal to the product's price.
D)tells us nothing; we're only concerned with total utility.

Accepted Answer

Marginal utility is the change in total utility when one more unit of a product is consumed. It is the additional satisfaction gained from consuming an extra unit of a good, and it decreases as more units are consumed. Therefore, it is the rate at which total utility changes as the level of consumption rises. Marginal utility is the rate at which total utility changes as the level of consumption rises. It measures the additional utility (or satisfaction) that a consumer derives from consuming one additional unit of a good or service. Marginal utility can be positive, negative, or zero, and it diminishes as consumption of the good or service increases.

Question 15

The assumption that more is better requires the consumer:
A)to rank any two baskets.
B)to say that basket is preferred to basket if basket is preferred to basket and basket is preferred to basket .
C)to rank a basket with more units of all goods higher than a basket with fewer units of all goods.
D)to have a diminishing marginal rate of substitution.

Accepted Answer

The assumption that more is better implies that the consumer prefers a basket with more units of all goods than a basket with fewer units of all goods. This relates to the concept of marginal utility, where the consumer derives satisfaction from consuming more units of a good, but the satisfaction gained from each additional unit diminishes over time. Therefore, choice C correctly captures the idea that the consumer ranks a basket with more units of all goods higher than a basket with fewer units of all goods. The other choices either do not fully capture the assumption that more is better or introduce additional concepts not relevant to this assumption. The assumption that more is better implies that a basket with more units of all goods is preferred over a basket with fewer units of all goods. This assumes a positive marginal utility for each good, indicating that as more units of a good are consumed, the additional utility gained from each unit gradually diminishes. Therefore, it is not necessary for the consumer to rank any two baskets or have a diminishing marginal rate of substitution. Option B is also incorrect because it involves transitivity, which may not always hold true for consumers' preferences.

Question 16

Consider the following three market baskets. $$\begin{array} { c c c } 
\text { Basket } & \text { Good x } & \text { Good y } \
\text { A } & 2 & 8 \
\text { B } & 10 & 2 \
\text { C } & 6 & 5
\end{array}$$ If Basket A and Basket B are on the same indifference curve, preferences satisfy the usual assumptions, and the indifference curves have a diminishing marginal rate of substitution, which of the following is correct?
A)Basket C is preferred to Basket A
B)Basket A is preferred to Basket C
C)The consumer is indifferent between Basket A and Basket C
D)There is not enough information to determine how the consumer would rank Basket A relative to Basket C.

Accepted Answer

Since Basket A and Basket B are on the same indifference curve, they provide the same level of utility. Basket C, with 6 units of x and 5 units of y, offers a combination that is likely to be on a higher indifference curve due to the diminishing marginal rate of substitution, making it preferred to Basket A.

Question 17

The assumption that more is preferred to less:
A)is called transitivity.
B)implies that if basket lies to the northeast of basket , then basket is preferred to basket .
C)is called completeness.
D)implies that indifference curves are "thick".

Accepted Answer

The assumption that more is preferred to less implies that if one basket of goods lies to the northeast of another (meaning it has more of at least one good and no less of any other), then the first basket is preferred to the second. This is because having more of a good is assumed to be better, all else being equal.

Question 18

The assumption that preferences are transitive requires the consumer:
A)to rank any two baskets.
B)to say that basket is preferred to basket if basket is preferred to basket and basket is preferred to basket .
C)to rank a basket with more units of all goods higher than a basket with fewer units of all goods.
D)to have a diminishing marginal rate of substitution.

Accepted Answer

Transitivity in preferences means that if a consumer prefers basket A to basket B and prefers basket B to basket C, then the consumer must also prefer basket A to basket C. This ensures consistency in the ranking of preferences.

Question 19

If a consumer is unable to compare two baskets, then this consumer's preferences violate which of the following key assumptions?
A)Completeness.
B)Transitivity.
C)More is better.
D)Both completeness and transitivity.

Accepted Answer

Completeness is a key assumption that states a consumer can compare any two bundles and determine that one is preferred to the other, or that they are equally preferred. If a consumer cannot compare two baskets, it means their preferences do not satisfy the completeness assumption.

Question 20

Consumer preferences:
A)are fixed exogenously and unchanging in reality.
B)indicate how a consumer would rank any two possible baskets of goods, taking into account her budget constraint.
C)indicate how a consumer would rank any two possible baskets of goods, taking into account the current prices of those goods.
D)indicate how a consumer would rank any two possible baskets of goods, assuming that the baskets were available to the consumer at no cost.

Accepted Answer

Consumer preferences are about ranking baskets of goods based on personal satisfaction or utility, assuming no cost or budget constraints.

Quiz 3: Consumer Preferences and the Concept of Utility

The assumption that preferences are complete requires the consumer:

If I prefer steak to burritos, burritos to pasta and pasta to steak:

Sally likes Jim twice as much as she likes Bob. This is an example of:

Which of the following statements is false?

Marginal utility is:

If a consumer would rather eat three bars of chocolate than four bars of chocolate, this consumer's preferences violate which of the following key assumptions?

Jacob's estimated utility from pizza is given by 3Z, where Z is the number of pizzas he consumes per month. We can say that:

One adhesive having twice the adhesive power of another is an example of:

Wendy is very indecisive. She can't decide whether she should go on a cruise or spend her vacation at her friend's home. Her preferences violate the assumption of:

John tends to order pizza once or twice a week to his college dorm room. When his parents come to visit, he always asks them to take him to the local steakhouse. Bob is probably suffering from:

Assume that two baskets and lie on the same indifference curve. Assume that basket contains more of good than basket but less of good than basket. As the consumer moves down and to the right (from basket to basket) along his indifference curve, total utilityL

Indifference curves that intersect are said to be:

Marginal utility:

The assumption that more is better requires the consumer:

The assumption that more is preferred to less:

The assumption that preferences are transitive requires the consumer:

If a consumer is unable to compare two baskets, then this consumer's preferences violate which of the following key assumptions?

Consumer preferences: