Question 1

A consumer must allocate their income so that their total utility is the same for every good consumed in order to reach consumer equilibrium.

Accepted Answer

Consumer equilibrium occurs when the marginal utility per dollar spent on each good is equal. This means that the consumer should allocate their income in a way that maximizes overall utility, not necessarily equal utility for every good consumed.

Question 2

Marginal utility decreases as more and more of a good is consumed.

Accepted Answer

Marginal utility refers to the additional satisfaction or usefulness gained from consuming one more unit of a good. As more and more of the good is consumed, the marginal utility tends to decrease. This is because the initial units of a good provide more satisfaction or usefulness compared to the subsequent units. This is known as the law of diminishing marginal utility.

Question 3

Explain why broadcast television is considered a public good.

Accepted Answer

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Question 4

Total utility decreases as consumption increases.

Accepted Answer

Total utility generally increases as consumption increases, but at a diminishing rate due to the law of diminishing marginal utility.

Question 5

What is the difference between private and social costs?

Accepted Answer

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Question 6

How can restaurants that offer all-you-can-eat buffets operate without the fear of losing money?

Accepted Answer

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Question 7

If the marginal utility per dollar spent for Good A is higher than the marginal utility per dollar spent on Good B, a consumer should increase their consumption of Good A in order to achieve consumer equilibrium.

Accepted Answer

Consumer equilibrium is achieved when the marginal utility per dollar spent on all goods consumed is equal. If the marginal utility per dollar spent on Good A is higher than that of Good B, the consumer is getting more satisfaction per dollar spent on Good A, and therefore should increase their consumption of Good A until the marginal utility per dollar spent on both goods is equal.

Question 8

A consumer will reach consumer equilibrium if they allocate their income such that the marginal utility per dollar spent on Good A is equal to the marginal utility per dollar spent on Good B.

Accepted Answer

This statement is true. Consumer equilibrium is achieved when the ratio of the marginal utility of each good to its price is equal for all goods consumed. This ensures that the consumer maximizes their utility within their budget constraint.

Question 9

What distinguishes public goods from private goods?

Accepted Answer

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Question 10

Why do decision makers tend to ignore external costs? How can internalizing external costs move us closer to efficient levels of output?

Accepted Answer

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Question 11

What are the external costs associated with cellular phone usage in automobiles? What are the external benefits?

Accepted Answer

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Quiz 6: Market Efficiency and Market Failure