Question 1

We can derive the market demand curve for gold earrings
A)only if the tastes of all gold earring consumers are similar.
B)by adding horizontally the individual demand curves of each gold earring consumer.
C)by adding vertically the quantity demanded of each gold earring consumed at each price.
D)by adding the prices each gold earring consumer is willing to pay for each quantity.

Accepted Answer

The market demand curve for a particular good represents the sum of all individual demand curves for that good. It is derived by adding horizontally the individual demand curves of each consumer. Therefore, the correct option is B.

Question 2

Arnie Ziffel has $20 per week to spend on any combination of pineapples and green tea.The price of a pineapple is $4 and the price of a bottle of green tea is $2.The table below shows Arnie's utility values.Use the table to answer the questions that follow the table.
 $\begin{array}{|c|c|l|l|l|l|l|l|}
\hline\text { Quantity }& & & \text { Marginal } & \text { Quantity }&\text {  } &&\text {  Marginal }  \
\text { of }&\text { Total } & \text { Marginal } & \text { Utility per }&\text { of Green } & \text { Total }&\text {Marginal   } &\text { Utility per } \
\text { Pineapples } & \text { Utility } & \text { Utility } & \text { Dollar } & \text { Tea } & \text { Utility } & \text { Utility } & \text { Dollar } \
\hline 1 & 32 & & & 1 & 28 & & \
\hline 2 & 52 & & & 2 & 46 & & \
\hline 3 & 64 & & & 3 & 54 & & \
\hline 4 & 68 & & & 4 & 60 & & \
\hline 5 & 70 & & & 5 & 64 & & \
\hline 6 & 71 & & & 6 & 66 & & \
\hline 7 & 71 & & & 7 & 67 & & \
\hline
\end{array}$ 
a.Complete the table by filling in the blank spaces.
b.Suppose Arnold purchases 4 pineapples and 2 bottles of green tea.Is he consuming the optimal consumption bundle? If so,explain why.If not,what combination should he buy and why?

Accepted Answer

The answer of Arnie Ziffel has $20 per week to...

Question 3

Figure 7-1
 
-Refer to Figure 7-1.Which of the following statements is true?
A)Quantities Q₀ and Q₁ are the utility-maximizing quantities of hoagies at two different prices of hoagies.
B)Quantities Q₀ and Q₁ may not necessarily be the utility-maximizing quantities of hoagies at two different prices because we have no information on the consumer's budget or the price of other goods.
C)Quantity Q₀ could be a utility-maximizing choice if the price is $5.75, but quantity Q₁ may not be because we have no information on the marginal utility per dollar when price changes.
D)Quantities Q₀ and Q₁ are derived independently of the utility-maximizing model.

Accepted Answer

The answer of Figure 7-1
 
-Refer to Figure 7-1.Which of...

Question 4

Giffen goods
A)are theoretical and have never been discovered in the real world.
B)have not existed since prior to the Industrial Revolution.
C)were proven to exist in the 1890s by Sir Robert Giffen.
D)were not shown to actually exist until 2006.

Accepted Answer

The answer of Giffen goods
A)are theoretical and have never been...

Question 5

Lilly Davis has $5 per week to spend on any combination of ice cream and candy.The price of an ice cream cone is $2 and the price of a candy bar is $1.The table below shows Lilly's utility values.Use the table to answer the questions that follow the table.
 $\begin{array}{|c|c|c|c|c|c|c|}
\hline\begin{array}{c}
\text { Quantity } \
\text { of Ice } \
\text { Cream } \
\text { Cones }
\end{array} & \text { Total } & \begin{array}{c}
\text { Utility } \
\text { Utility }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Utility per } \
\text { Dollar }
\end{array} & \begin{array}{c}
\text { Quantity } \
\text { of Candy }
\end{array} & \begin{array}{c}
\text { Total } \
\text { Utility }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Utility }
\end{array} \
\hline 1 & 20 &  &  & 1 & 20 & \
\hline 2 & 38 &   &   & 2 & 38 & \
\hline 3 & 52 & & & 3 & 48 &  \
\hline 4 & 62 & && 4 & 54 & \
\hline
\end{array}$ 
a.Complete the table by filling in the blank spaces.
b.Suppose Lilly purchases 2 ice cream cones and 1 candy bar.Is she consuming the optimal consumption bundle? If so,explain why.If not,what combination should she buy and why?

Accepted Answer

The answer of Lilly Davis has $5 per week to...

Question 6

You wish to buy only one CD.Use the rule of equal marginal utility per dollar to determine which one to purchase: (a)Usher's latest CD for $15 which gives you 75 units of utility,or (b)Tom Petty and the Heartbreakers' Greatest Hits for $10 that gives you 100 units of utility?

Accepted Answer

The answer of You wish to buy only one CD.Use...

Question 7

Economists do not think it is possible to compare the relative utility that two people get from consuming an additional unit of a particular good.

Accepted Answer

The concept of utility is subjective and varies from person to person, making it impossible to compare the relative utility different individuals derive from consuming the same good.

Question 8

In order to derive an individual's demand curve for salmon,we would observe what happens to the utility-maximizing bundle when we change
A)income and hold everything else constant.
B)tastes and preferences and hold everything else constant.
C)the price of the product and hold everything else constant.
D)the price of a close substitute and hold everything else constant.

Accepted Answer

To derive an individual's demand curve for salmon, we need to observe the changes in the quantity demanded when the price of the product changes while holding everything else constant. This is because the price of the product is the only variable that changes along the demand curve, while income, tastes and preferences, and the price of close substitutes remain constant. Therefore, option C is the correct answer.

Question 9

Along a downward-sloping linear demand curve
A)the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities increase.
B)the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities remain constant.
C)the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases.
D)the marginal utility from the consumption of each unit of the good rises and the total utility from consuming larger quantities remain constant.

Accepted Answer

Along a downward-sloping linear demand curve, the marginal utility from the consumption of each unit of the good falls as more units are consumed due to the law of diminishing marginal utility. However, the total utility from consuming larger quantities increases because the decrease in marginal utility is offset by the increase in quantity consumed.

Question 10

You participate in a taste test for a new protein supplement called "Boost." You are given five consecutive one ounce vials of the supplement and after consuming each vial you are asked to note your reaction.You consume the first vial and your response is: "Hmmm,quite good!" After the second,you say,"Not bad at all." After the third,you note,"It's alright." and after the fourth you wince,"No more,the after-taste is getting to me.I need water." What economic principle does this scenario illustrate? Define the principle.

Accepted Answer

The answer of You participate in a taste test for...

Question 11

The Wong family consumes 3 pounds of fish and 5 pounds of chicken per month.The price of fish is $8 per pound and chicken is $4 per pound.
a.What is the amount of income allocated to fish and chicken consumption?
b.What is the price ratio (the price of fish relative to the price of chicken)?
c.Explain the meaning of the price ratio you computed.
d.If the Wongs maximize utility,what is the ratio of the marginal utility of fish to the marginal utility of chicken?
e.If the price of chicken rises,will the Wong family consume more chicken,less chicken or the same amount of chicken? Explain your answer using the rule of equal marginal utility per dollar.

Accepted Answer

The answer of The Wong family consumes 3 pounds of...

Question 12

The demand curve for a Giffen good is
A)non-linear but downward-sloping.
B)vertical.
C)upward-sloping.
D)non-existent.

Accepted Answer

A Giffen good is a type of inferior good, where an increase in its price leads to an increase in its demand. This is due to the income effect being stronger than the substitution effect. The demand curve for a Giffen good is upward-sloping, which is contrary to the law of demand.

Question 13

Eliza consumes 12 cappuccinos and 8 apple turnovers per week.The price of cappuccino is $4 each and apple turnovers are $1 each.
a.What is the amount of income allocated to cappuccino and apple turnover consumption?
b.What is the price ratio (the price of cappuccino relative to the price of apple turnovers)?
c.Explain the meaning of the price ratio you computed.
d.If Eliza maximize utility,what is the ratio of the marginal utility of cappuccino to the marginal utility of apple turnovers?
e.If the price of apple turnovers falls,will Eliza consume more apple turnovers,fewer apple turnovers or the same amount of apple turnovers? Explain your answer using the rule of equal marginal utility per dollar.

Accepted Answer

The answer of Eliza consumes 12 cappuccinos and 8 apple...

Question 14

What is marginal utility and what is the law of diminishing marginal utility?

Accepted Answer

The answer of What is marginal utility and what is...

Question 15

Figure 7-2
  
Figure 7-2 represents the demand for ice cream cones.
-Refer to Figure 7-2.When the price of ice cream cones increases from $2 to $3,quantity demanded decreases from 4 ice cream cones to 3 ice cream cones.This change in quantity demanded is due to
A)the price and output effects.
B)the income and substitution effects.
C)the law of diminishing marginal utility.
D)the fact that marginal willingness to pay falls.

Accepted Answer

The decrease in quantity demanded due to a price increase is an example of the substitution effect, where consumers switch to substitute goods or reduce consumption altogether. It is also possible that the income effect comes into play, as the increase in price may decrease the purchasing power of consumers' income, leading to a decrease in demand. However, this is not explicitly shown in the graph. The law of diminishing marginal utility and the fact that marginal willingness to pay falls may also be factors that affect demand, but they are not directly related to the price increase shown in the graph.

Question 16

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good,with an income effect larger than its substitution effect,a good must be ________ and make up a ________ portion of a consumer's budget.
A)a normal good; very small
B)an inferior good; very small
C)a normal good; very large
D)an inferior good; very large

Accepted Answer

Giffen goods are inferior goods with a large share of a consumer's budget. When the price of these goods increases, it leads to a decrease in the consumer's purchasing power, which may result in them buying more of the inferior good. This is because they cannot afford to buy the more expensive substitute goods, and therefore their demand for the inferior good increases. This leads to a larger income effect (due to the change in purchasing power) than substitution effect (due to the change in relative prices).

Question 17

After getting an A on your economics exam,you decide to go to your favorite Mexican restaurant to celebrate.You are having trouble deciding whether to order the chipotle chicken chimichanga or the cilantro seafood enchiladas.Use the rule of equal marginal utility per dollar to determine which one to purchase: (a)the chimichanga for $8 which gives you 120 units of utility,or (b)the enchiladas for $15 which gives you 195 units of utility?

Accepted Answer

The answer of After getting an A on your economics...

Question 18

Figure 7-1
 
-Refer to Figure 7-1.When the price of hoagies increases from $5.00 to $5.75,quantity demanded decreases from Q₁ to Q₀.This change in quantity demanded is due to
A)the price and output effects.
B)the income and substitution effects.
C)the fact that marginal willingness to pay falls.
D)the law of diminishing marginal utility.

Accepted Answer

The decrease in quantity demanded due to an increase in price is a result of the substitution effect (consumers switching to alternatives due to the higher price) and the income effect (consumers' purchasing power is reduced by the higher price). The other options are not applicable in this scenario.

Question 19

Figure 7-2
  
Figure 7-2 represents the demand for ice cream cones.
-Refer to Figure 7-2.Which of the following statements is true?
A)Points a and b are the utility-maximizing quantities of ice-cream cones at two different prices of ice-cream.
B)Points a and b may not necessarily be the utility-maximizing quantities of ice-cream cones at two different prices because we have no information on the consumer's budget or the price of other goods.
C)Point a could be a utility-maximizing choice if the price is $3 but point b may not be because we have no information on the marginal utility per dollar when price changes.
D)Points a and b are derived independently of the utility-maximizing model.

Accepted Answer

The answer of Figure 7-2
  
Figure 7-2 represents the...

Question 20

The income effect due to a price decrease will result in an increase in the quantity demanded for
A)a Giffen good.
B)an inferior good.
C)a public good.
D)a normal good.

Accepted Answer

The income effect due to a price decrease will result in an increase in the quantity demanded for a normal good. This is because consumers will have more purchasing power and their real income will increase, allowing them to buy more of the good at the new lower price.

Quiz 7: Consumer Choice and Elasticity

We can derive the market demand curve for gold earrings

Figure 7-1 -Refer to Figure 7-1.Which of the following statements is true?

Giffen goods

You wish to buy only one CD.Use the rule of equal marginal utility per dollar to determine which one to purchase: (a)Usher's latest CD for $15 which gives you 75 units of utility,or (b)Tom Petty and the Heartbreakers' Greatest Hits for $10 that gives you 100 units of utility?

Economists do not think it is possible to compare the relative utility that two people get from consuming an additional unit of a particular good.

In order to derive an individual's demand curve for salmon,we would observe what happens to the utility-maximizing bundle when we change

Along a downward-sloping linear demand curve

The demand curve for a Giffen good is

What is marginal utility and what is the law of diminishing marginal utility?

Figure 7-2 Figure 7-2 represents the demand for ice cream cones. -Refer to Figure 7-2.When the price of ice cream cones increases from $2 to $3,quantity demanded decreases from 4 ice cream cones to 3 ice cream cones.This change in quantity demanded is due to

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good,with an income effect larger than its substitution effect,a good must be and make up a portion of a consumer's budget.

Figure 7-1 -Refer to Figure 7-1.When the price of hoagies increases from $5.00 to $5.75,quantity demanded decreases from Q₁ to Q₀.This change in quantity demanded is due to

Figure 7-2 Figure 7-2 represents the demand for ice cream cones. -Refer to Figure 7-2.Which of the following statements is true?

The income effect due to a price decrease will result in an increase in the quantity demanded for