Question 1

Discuss the criticisms of the assumptions of neoclassical consumer theory.
-What factors might affect your preferences for different goods or services?

Accepted Answer

The answer of Discuss the criticisms of the assumptions of...

Question 2

Discuss the criticisms of the assumptions of neoclassical consumer theory.
-In general, is there scarcity in a capitalist system? Why or why not?

Accepted Answer

The answer of Discuss the criticisms of the assumptions of...

Question 3

Discuss the criticisms of the assumptions of neoclassical consumer theory.
-Consumer sovereignty says that households ultimately decide what businesses produce. How does advertising compromise the notion that households control what businesses do?

Accepted Answer

The answer of Discuss the criticisms of the assumptions of...

Question 4

Explain the conditions under which utility is maximized.
-Explain what happens if the marginal utility of the last unit consumed divided by the price (bang per buck) is

Accepted Answer

The answer of Explain the conditions under which utility is...

Question 5

Explain the conditions under which utility is maximized.
-Fill in the table above. Is the principle of diminishing marginal utility operative in this case? How do you know?

Accepted Answer

The answer of Explain the conditions under which utility is...

Question 6

Understand and demonstrate how the demand curve is derived.
-Can consumers dictate the prices they pay for products at the store? What can consumers do if the price of a product rises and their income is fixed? What role does the availability of substitutes play here?

Accepted Answer

The answer of Understand and demonstrate how the demand curve...

Question 7

Understand and demonstrate how the demand curve is derived.
-If the price of a good goes up and throws the utility-maximizing pattern of consumption out of whack, what does utility theory predict the consumer will do?

Accepted Answer

The answer of Understand and demonstrate how the demand curve...

Question 8

Understand and demonstrate how the demand curve is derived.
-Why does the marginal utility increase if the consumer purchases

Accepted Answer

The answer of Understand and demonstrate how the demand curve...

Question 9

Understand and demonstrate how the demand curve is derived.
-Explain how consumers reacting to changes in prices and attempting to keep at a utility-maximizing level of consumption leads to the relationship between price and quantity demanded.

Accepted Answer

The answer of Understand and demonstrate how the demand curve...

Question 10

The founders of neoclassical economics built on the philosophy of Jeremy Bentham who asserted that, "nature has placed mankind under the governance of two sovereign masters . . ." What "sovereign masters" was he referring to?
A) utility and pleasure
B) pain and suffering
C) pain and pleasure
D) hunger and thirst

Accepted Answer

Jeremy Bentham believed that the two sovereign masters which govern mankind are pain and pleasure, not utility or any other factors. He argued that individuals always seek pleasure and avoid pain, hence the foundation of the ethical principle of utilitarianism.

Question 11

When neoclassical economists assume that individuals are rational, they mean that people
A) rarely show emotion.
B) are generally unselfish and self-sacrificing.
C) make purposeful choices based on their own self-interest.
D) make impulsive decisions based on what feels good at the time.

Accepted Answer

Neoclassical economists assume that individuals are rational, meaning they make purposeful choices based on their own self-interest, weighing the costs and benefits of different options. This assumption is at the core of neoclassical economic theory.

Question 12

What does the assumption of diminishing marginal utility mean?
A) eventually additional units consumed will lead to a decline in total utility.
B) utility cannot be precisely measured but consumers can produce a ranking of consumption choices.
C) as more units are consumed each additional unit will provide less and less additional utility.
D) an increase in units of labor will leads to less and less additional output.

Accepted Answer

The assumption of diminishing marginal utility means that as more units are consumed, each additional unit will provide less and less additional utility. This means that there is a saturation point where additional consumption will no longer increase overall satisfaction or happiness.

Question 13

Sam, the robot, has a utility meter on his forehead. Sam has just consumed 1 cookie, and the utility meter reads 15 utils. If Sam reacts according to economic theory, Sam's second cookie will increase his utility meter
A) by another 15 utils for a total of 30 utils.
B) by less than 15 utils
C) by more than 15 utils.
D) by zero.

Accepted Answer

According to the law of diminishing marginal utility, as the consumption of a good increases, the additional utility gained from consuming one more unit of the good will eventually start to decrease. Therefore, the second cookie will add less utility than the first cookie, and likely less than 15 utils.

Question 14

Sam is at lunch trying to decide between a small salad and a cheeseburger. Sam loves cheeseburgers, but he really does not like salad. In fact, salad gives him negative utility. What choice would you expect Sam to make?
A) Sam will choose a salad, because he knows it is in his best interest to eat healthy food.
B) Sam will choose a cheeseburger, because it will send his utility meter through the roof.
C) Sam will choose both the salad and the cheeseburger, because he will get healthy food plus an increase in his utils.
D) Sam will probably buy 2 salads.

Accepted Answer

Since Sam does not like salad and it gives him negative utility, it is unlikely that he will choose it. On the other hand, Sam loves cheeseburgers and they give him positive utility, so he is more likely to choose the cheeseburger. Therefore, choice B is the best answer option.

Question 15

$\text { Table 28 a}  $
$\begin{array}{|c|c|c|}
\hline \text { Ouantity of DVDs } & \text { Marginal Utility } &\text { Total Utility }\
\hline 1 & 100 & 100 \
\hline 2 & 90 & 190 \
\hline 3 & 80 & 270 \
\hline 4 & 70 & 340 \
\hline 5 & 60 & 400 \
\hline 6 & 50 & 450 \
\hline 7 & 40 & 490 \
\hline 8 & 30 & 520 \
\hline 9 & 20 & 540 \
\hline 10 & 10 & 550 \
\hline 11 & 0 & 550 \
\hline 12 & -10 & 540 \
\hline 13 & -20 & 520 \
\hline 14 & -30 & 490 \
\hline
\end{array}$
-Table 28a represents Sam's utility schedule for DVDs. Assuming no budget constraints, Sam is likely to consume
A) 1 or 2 DVDs
B) 8 DVDs
C) 10 or 11 DVDs
D) 12 DVDs

Accepted Answer

Sam is likely to consume 10 or 11 DVDs because the total utility is maximized at 550 units without becoming negative, indicating the highest satisfaction without incurring a loss in utility.

Question 16

A consumer will maximize utility when
A) the marginal utility per dollar of the last item of each good consumed is the same.
B) he or she consumes as much as possible of his or her favorite good.
C) the marginal utility of the last item of each good consumed is the same.
D) the marginal utility of the last item of each good is exactly zero.

Accepted Answer

Maximizing utility means obtaining the most satisfaction possible with the limited income or resources a consumer has. In order to do so, the consumer must allocate their spending among the different goods and services they consume. The key to doing this optimally is to equate the marginal utility per dollar for each good. This means that the additional satisfaction gained from the last dollar spent on each good is equal. Therefore, choice A is the correct answer.

Question 17

Sam is maximizing his utility with a consumption bundle of 5 cookies, 10 DVDs, and 2 cheeseburgers. If the price of DVD's decreases, then
A) Sam will continue to buy the same number of each good.
B) Sam will tend to buy more DVDs
C) Sam will tend to buy more cookies.
D) Sam will tend to buy more cheeseburgers.

Accepted Answer

When the price of DVDs decreases, Sam's budget constraint will shift outward, allowing him to purchase more DVDs while still being able to afford the same amount of cookies and cheeseburgers as before. Therefore, Sam will tend to buy more DVDs.

Question 18

$\text { Table 28.1a }$
$\begin{array}{|l|l|l|}
\hline \text { Apples } & \text { Bread } & \text { Cake } \
\hline 11 \text { units of utility } & 22 \text { units of utility } & 33 \text { units of utility }\
\hline
\end{array}$

-Tables 28.1a provides information on Sam's current consumption of apples, bread and cake. Sam is currently maximizing utility it
A) the price of apples is $1, bread is $2 and cake is $3
B) the prices of apples, bread and cake are all $1.
C) the price of apples is $3, bread is $2, and cake is $1
D) all items are $11 each

Accepted Answer

The answer of $\text { Table 28.1a }$
\(\begin{array}{|l|l|l|}
\hline \text {...

Question 19

What does the phrase, "consumer sovereignty," mean?
A) consumers can be swayed by advertisers to buy things they do not want.
B) businesses make goods in response to the desires of consumers.
C) consumers buy goods in response to the advertisements of businesses.
D) consumers buy goods in response to their sovereign master, utility.

Accepted Answer

Consumer sovereignty is the principle that businesses should produce the goods that consumers want to buy. It means that consumers have the power to determine what is produced in the market through their purchasing decisions. This principle is based on the idea that in a free market economy, businesses need to compete for consumer dollars by offering products and services that meet their needs and desires. Therefore, businesses that fail to meet consumer demand are likely to fail, while those that succeed are likely to prosper.

Quiz 28: Consumption Theory: Demand

Discuss the criticisms of the assumptions of neoclassical consumer theory. -What factors might affect your preferences for different goods or services?

Discuss the criticisms of the assumptions of neoclassical consumer theory. -In general, is there scarcity in a capitalist system? Why or why not?

Discuss the criticisms of the assumptions of neoclassical consumer theory. -Consumer sovereignty says that households ultimately decide what businesses produce. How does advertising compromise the notion that households control what businesses do?

Explain the conditions under which utility is maximized. -Explain what happens if the marginal utility of the last unit consumed divided by the price (bang per buck) is

Explain the conditions under which utility is maximized. -Fill in the table above. Is the principle of diminishing marginal utility operative in this case? How do you know?

Understand and demonstrate how the demand curve is derived. -Can consumers dictate the prices they pay for products at the store? What can consumers do if the price of a product rises and their income is fixed? What role does the availability of substitutes play here?

Understand and demonstrate how the demand curve is derived. -If the price of a good goes up and throws the utility-maximizing pattern of consumption out of whack, what does utility theory predict the consumer will do?

Understand and demonstrate how the demand curve is derived. -Why does the marginal utility increase if the consumer purchases

Understand and demonstrate how the demand curve is derived. -Explain how consumers reacting to changes in prices and attempting to keep at a utility-maximizing level of consumption leads to the relationship between price and quantity demanded.

The founders of neoclassical economics built on the philosophy of Jeremy Bentham who asserted that, "nature has placed mankind under the governance of two sovereign masters . . ." What "sovereign masters" was he referring to?

When neoclassical economists assume that individuals are rational, they mean that people

What does the assumption of diminishing marginal utility mean?

Sam, the robot, has a utility meter on his forehead. Sam has just consumed 1 cookie, and the utility meter reads 15 utils. If Sam reacts according to economic theory, Sam's second cookie will increase his utility meter

Sam is at lunch trying to decide between a small salad and a cheeseburger. Sam loves cheeseburgers, but he really does not like salad. In fact, salad gives him negative utility. What choice would you expect Sam to make?

A consumer will maximize utility when

Sam is maximizing his utility with a consumption bundle of 5 cookies, 10 DVDs, and 2 cheeseburgers. If the price of DVD's decreases, then

What does the phrase, "consumer sovereignty," mean?