Question 1

Teddy buys only chocolate chip cookies and hot chocolate and spends all of his income on the two items. Suppose that Teddy's marginal utility per dollar from cookies exceeds that from hot chocolate. Teddy can make himself better off if he buys
A) more cookies and less hot chocolate.
B) fewer cookies and more hot chocolate.
C) an equal amount of cookies and hot chocolate.
D) only hot chocolate.

Accepted Answer

Since Teddy's marginal utility per dollar from cookies is higher, he should buy more of the item that gives him greater satisfaction per dollar spent. Buying more cookies and less hot chocolate will give him the most utility for his money.

Question 2

Jeannie's marginal utility from her 4th book in a month is 50. Her marginal utility from her 5th book
A) is greater than 50.
B) equals 50.
C) is less than 50.
D) might be more than, less than, or equal to 50 but more information is needed.

Accepted Answer

The law of diminishing marginal utility states that as a person consumes more of a good, the marginal utility of each additional unit tends to decrease. Therefore, it is likely that Jeannie's marginal utility from her 5th book will be less than her marginal utility from her 4th book.

Question 3

Sergio consumes only beef and snails and is maximizing his utility. If the price of beef is less than the price of snails, then we definitely know that
A) Sergio buys more beef than snails.
B) Sergio buys more snails than beef.
C) the marginal utility from the last pound of beef purchased is greater than the marginal utility from the last pound of snails purchased.
D) the marginal utility from the last pound of snails purchased is greater than the marginal utility from the last pound of beef purchased.

Accepted Answer

The answer of Sergio consumes only beef and snails and...

Question 4

-Becky decides to spend $50 per month on DVD rentals and movie tickets. Her marginal utility schedules from these two goods are shown in the table above. The price of a DVD rental is $2.50, and the price of a movie ticket is $5. Becky maximizes her utility if she rents ________ DVDs per month and buys ________ movie tickets per month.
A) 6; 7
B) 4; 8
C) 8; 6
D) 5; 7

Accepted Answer

The answer of 
-Becky decides to spend $50 per month...

Question 5

Katie has a choice of spending $6.00 for another hamburger, which has a marginal utility of 30, or $9.00 for another pizza. For her to choose the pizza, it would have to have a marginal utility of at least
A) 9.
B) 30.
C) 31.
D) 46.

Accepted Answer

The answer of Katie has a choice of spending $6.00...

Question 6

Tom spends all his income on comics and cola and maximizes his total utility. If the price of a comic is $4 and the price of a can of cola is $1, then the ratio of the ________ is 4.
A) marginal utility from cola to the marginal utility from comics
B) marginal utility from comics to the marginal utility from cola
C) number of comics Tom buys to the number of cola Tom buys
D) total utility from comics to the total utility from cola

Accepted Answer

The ratio of the marginal utility from comics to the marginal utility from cola determines the optimal allocation of income between the two goods. Since Tom is maximizing his total utility, he will continue consuming the two goods until the marginal utility per dollar spent is equal for both goods. Therefore, the ratio of marginal utilities for the two goods must be equal to the ratio of their prices, which is 4 in this case.

Question 7

Kumiko is not at her consumer equilibrium because she sees too many movies and buys too few books. As she moves toward her consumer equilibrium, her marginal utility from movies will ________ and her marginal utility from books will ________.
A) decrease; decrease
B) increase; decrease
C) decrease; increase
D) increase; increase

Accepted Answer

The answer of Kumiko is not at her consumer equilibrium...

Question 8

John and Sally have identical preferences except that Sally's utility is exactly 10 times John's for each basket of goods. If they have the same income and face the same prices
A) Sally will consume 10 times the amount that John consumes.
B) Sally will receive 1/10 the satisfaction of John.
C) both will consume the same amount of all goods.
D) John and Sally will have equal total utility.

Accepted Answer

Since John and Sally have identical preferences, they will choose the same basket of goods. However, since Sally's utility for each basket is 10 times that of John, she will receive more total utility from consuming the same amount of goods. Therefore, both will consume the same amount of all goods, but Sally will receive more satisfaction for consuming those goods.

Question 9

Magazines Chocolate bars 
-Sonya's budget for magazines and chocolate bars is $50. Her marginal utility from these goods is shown in the table above. The price of a magazine is $5 and the price of a chocolate bar is $2.50. Sonya currently buys 2 magazines and 12 chocolate bars. To maximize her utility, she should
A) buy more chocolate bars and fewer magazines.
B) buy more magazines and fewer chocolate bars.
C) buy more of both goods.
D) stay with the current combination of goods.

Accepted Answer

The answer of Magazines Chocolate bars 
-Sonya's budget for magazines...

Question 10

When Alex eats 1 slice of pizza, his total utility is 80; when Alex eats 2 slices of pizza, his total utility is 120. Alex's marginal utility from the second pizza is
A) 200.
B) 80.
C) 60.
D) 40.

Accepted Answer

The answer of When Alex eats 1 slice of pizza,...

Question 11

As more of a good is consumed, its marginal utility ________ and its total utility ________.
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls

Accepted Answer

The answer of As more of a good is consumed,...

Question 12

Tom spends $20 a month on CDs and magazines. The price of a CD is $6 and the price of a magazine is $4. When Tom maximizes his utility, the marginal utility from CDs is ________ the marginal utility from newspapers.
A) the same as
B) 1/2
C) 20 times
D) 1 1/2 times

Accepted Answer

Let's assume Tom buys x CDs and y magazines. 
We know that he spends $20, so we can write: 
6x + 4y = 20 
or simplifying: 
3x + 2y = 10

To maximize his utility, Tom should allocate his budget in such a way that the marginal utility per dollar spent is the same for both CDs and magazines. 
Let's assume that the marginal utility of CDs is MUc and the marginal utility of magazines is MUm. Then: 
MUc / 6 = MUm / 4 
or simplifying: 
MUc = 3/2 MUm

According to the principle of diminishing marginal utility, the marginal utility of a good decreases as more of it is consumed. Therefore, MUc will be higher than MUm only if Tom buys fewer CDs than magazines.

To find the optimal combination of CDs and magazines, we need to solve the system of equations: 
3x + 2y = 10 
MUc = 3/2 MUm

Without more information about the shape of Tom's utility function or the specific values of his marginal utilities, we cannot solve this system exactly. However, we can use the information we have to eliminate some of the options.

A) If MUc and MUm were the same, Tom would be indifferent between buying one more CD or one more magazine, which is not consistent with the principle of diminishing marginal utility.

B) If MUc were half of MUm, that would mean that Tom gets twice as much utility per dollar spent on magazines than on CDs. In that case, he should buy only magazines until his budget is exhausted, which is not consistent with the fact that he spends $20 a month on CDs and magazines.

C) If MUc were 20 times MUm, that would mean that Tom gets much more utility per dollar spent on CDs than on magazines, and he should buy only CDs until his budget is exhausted. Again, this is not consistent with the fact that he spends $20 a month on both CD and magazines.

D) If MUc were 1.5 times MUm, that would mean that Tom gets somewhat more utility per dollar spent on CDs than on magazines, but not enough to justify buying CDs exclusively. In that case, he should allocate his budget in such a way that he buys more CDs than magazines, but not too many. The exact ratio of CDs to magazines depends on the values of MUc and MUm, but it must satisfy the equation 3x + 2y = 10.

Therefore, the best choice is D, with the explanation that Tom should buy more CDs than magazines to maximize his utility, but not enough to make the marginal utility of CDs much higher than the marginal utility of magazines.

Question 13

-Becky decides to spend $50 per month on DVD rentals and movie tickets. Her marginal utility schedules from these two goods are shown in the table above. The price of a DVD rental is $2.50, and the price of a movie ticket is $5. Suppose Becky rents 8 DVDs and buys 6 movie tickets per month. She
A) cannot increase her total utility because she already gets the maximum possible utility from DVD rentals and movies within her budget.
B) can increase her total utility if she rents more DVDs and buys more movie tickets.
C) can increase her total utility if she rents more DVDs and buys fewer movie tickets.
D) can increase her total utility if she rents fewer DVDs and buys more movie tickets.

Accepted Answer

The answer of 
-Becky decides to spend $50 per month...

Question 14

Kumiko is not at her consumer equilibrium because she sees too many movies and buys too few books. As she moves toward her consumer equilibrium, her total utility from movies will ________ and her total utility from books will ________.
A) decrease; decrease
B) increase; decrease
C) decrease; increase
D) increase; increase

Accepted Answer

Kumiko is not at her consumer equilibrium because she sees too many movies and buys too few books. This means that the marginal utility per dollar spent on movies is lower than the marginal utility per dollar spent on books. As she moves toward her consumer equilibrium, she will decrease her consumption of movies and increase her consumption of books until the marginal utility per dollar spent on each good is equal. Thus, her total utility from movies will decrease and her total utility from books will increase.

Question 15

Tommy buys only soda and pizza and is buying the amounts that maximize his utility. The marginal utility from a soda is 5 and the price of a soda is $1. The marginal utility from a slice of pizza is 10. The price of a slice of pizza must be
A) $10.
B) $2.
C) $1.
D) some amount that cannot be calculated without more information.

Accepted Answer

The answer of Tommy buys only soda and pizza and...

Question 16

If Bobby decides that his marginal utility per dollar spent on vanilla ice cream exceeds his marginal utility per dollar spent on chocolate ice cream, he should then
A) buy more chocolate ice cream and less vanilla ice cream.
B) buy more vanilla ice cream and less chocolate ice cream.
C) buy all the vanilla ice cream he can.
D) never buy chocolate ice cream.

Accepted Answer

Bobby should buy more vanilla ice cream and less chocolate ice cream because it provides him with greater satisfaction per dollar spent. However, buying all the vanilla ice cream he can is not a realistic or practical option, and choosing to never buy chocolate ice cream is also unnecessary if he still derives some level of satisfaction from it.

Question 17

Economists using marginal utility theory assume that consumers' objectives are to
A) maximize their total utility.
B) maximize their marginal utility.
C) maximize their income.
D) none of the above.

Accepted Answer

Economists using marginal utility theory assume that consumers' objectives are to maximize their total utility, not just their marginal utility or income.

Question 18

Which of the following is NOT an assumption of marginal utility theory?
A) People derive utility from their consumption.
B) More consumption yields more total utility.
C) Marginal utility diminishes with more consumption.
D) Utility can be measured and the units of utility are precisely defined.

Accepted Answer

Marginal utility theory assumes that people derive utility from their consumption, more consumption yields more total utility, and marginal utility diminishes with more consumption. However, it does not assume that utility can be measured and the units of utility are precisely defined. This is because utility is a subjective concept that cannot be quantified in a precise way.

Question 19

Joshua consumes only apples and bread and is in consumer equilibrium. Joshua reads that eating bread is healthy, so his total utility from each loaf of bread increases. At his new consumer equilibrium Joshua would consume
A) more apples and less bread.
B) fewer apples and more bread.
C) some combination of apples and bread corresponding to a lower ratio of the marginal utility of bread to the marginal utility of apples.
D) the same quantity of apples and the same quantity of bread.

Accepted Answer

Since the total utility from each loaf of bread has increased, Joshua's marginal utility of bread has increased. This means that he will want to consume more bread at the expense of consuming fewer apples in order to maintain consumer equilibrium with the new utility levels. Therefore, he would consume fewer apples and more bread.

Question 20

The marginal utility from the first burrito Bobby consumes is larger than the marginal utility from the first taco Bobby consumes. As a result
A) tacos are an inferior good for Bobby.
B) Bobby will never consume tacos.
C) Bobby will consume a taco only if the price of a taco is less than the price of a burrito.
D) burritos and tacos are substitute goods for Bobby.

Accepted Answer

Since the marginal utility from the first burrito consumed is larger than the marginal utility from the first taco consumed, it means that Bobby values the first burrito more than the first taco. However, this does not mean that Bobby will never consume tacos or that tacos are an inferior good for him. Rather, it suggests that Bobby will only consume a taco if its price is less than the price of a burrito, since he values burritos more than tacos initially. This makes choice C the best answer. There is no information in the question that suggests burritos and tacos are substitute goods for Bobby, so choice D is not a valid answer.

Quiz 8: Utility and Demand

Teddy buys only chocolate chip cookies and hot chocolate and spends all of his income on the two items. Suppose that Teddy's marginal utility per dollar from cookies exceeds that from hot chocolate. Teddy can make himself better off if he buys

Jeannie's marginal utility from her 4th book in a month is 50. Her marginal utility from her 5th book

Sergio consumes only beef and snails and is maximizing his utility. If the price of beef is less than the price of snails, then we definitely know that

Katie has a choice of spending $6.00 for another hamburger, which has a marginal utility of 30, or $9.00 for another pizza. For her to choose the pizza, it would have to have a marginal utility of at least

Tom spends all his income on comics and cola and maximizes his total utility. If the price of a comic is $4 and the price of a can of cola is $1, then the ratio of the ________ is 4.

Kumiko is not at her consumer equilibrium because she sees too many movies and buys too few books. As she moves toward her consumer equilibrium, her marginal utility from movies will and her marginal utility from books will .

John and Sally have identical preferences except that Sally's utility is exactly 10 times John's for each basket of goods. If they have the same income and face the same prices

When Alex eats 1 slice of pizza, his total utility is 80; when Alex eats 2 slices of pizza, his total utility is 120. Alex's marginal utility from the second pizza is

As more of a good is consumed, its marginal utility and its total utility .

Tom spends $20 a month on CDs and magazines. The price of a CD is $6 and the price of a magazine is $4. When Tom maximizes his utility, the marginal utility from CDs is ________ the marginal utility from newspapers.

-Becky decides to spend $50 per month on DVD rentals and movie tickets. Her marginal utility schedules from these two goods are shown in the table above. The price of a DVD rental is $2.50, and the price of a movie ticket is $5. Suppose Becky rents 8 DVDs and buys 6 movie tickets per month. She

Kumiko is not at her consumer equilibrium because she sees too many movies and buys too few books. As she moves toward her consumer equilibrium, her total utility from movies will and her total utility from books will .

Tommy buys only soda and pizza and is buying the amounts that maximize his utility. The marginal utility from a soda is 5 and the price of a soda is $1. The marginal utility from a slice of pizza is 10. The price of a slice of pizza must be

If Bobby decides that his marginal utility per dollar spent on vanilla ice cream exceeds his marginal utility per dollar spent on chocolate ice cream, he should then

Economists using marginal utility theory assume that consumers' objectives are to

Which of the following is NOT an assumption of marginal utility theory?

Joshua consumes only apples and bread and is in consumer equilibrium. Joshua reads that eating bread is healthy, so his total utility from each loaf of bread increases. At his new consumer equilibrium Joshua would consume

The marginal utility from the first burrito Bobby consumes is larger than the marginal utility from the first taco Bobby consumes. As a result