Question 1

The law of diminishing marginal utility states that

Accepted Answer

The law of diminishing marginal utility states that as more units of a good are consumed, the additional satisfaction (or utility) gained from each additional unit will eventually decrease. In other words, the marginal utility of each additional unit will eventually diminish. This is because as more units are consumed, the consumer's needs and wants are increasingly satisfied, and therefore the additional satisfaction gained from each additional unit becomes less and less. Choice A is incorrect because total utility may continue to increase even as marginal utility diminishes. Choice C is incorrect because the extra satisfaction does not increase as more of a good is consumed. Choice D is incorrect because negative marginal utility may not necessarily lead to a decrease in total utility.

Question 2

If a consumer always buys goods rationally, then

Accepted Answer

If a consumer always buys goods rationally, they will allocate their spending to maximize their total utility within their budget constraint. This means that the consumer will continue to purchase goods until the marginal utility per dollar spent is equal for each good. Therefore, the marginal utilities per dollar spent on all goods will be equal.

Question 3

As a consumer consumes more and more of a product in a particular time period, eventually marginal utility

Accepted Answer

Marginal utility will eventually decline as the consumer consumes more of a product in a particular time period. This means that each additional unit consumed will bring less satisfaction or usefulness to the consumer.

Question 4

Consumers maximise total utility within their budget constraint by

Accepted Answer

Consumers aim to maximise their utility within their budget constraint, which means getting the most satisfaction out of every dollar spent. In order to achieve this, they should allocate their spending towards goods with the largest marginal utility per dollar spent, which means choosing goods that give the most additional satisfaction for each additional dollar spent. Buying the cheapest goods or spending the same dollar amount for each good does not necessarily lead to maximum utility, while buying whatever they like the best may not provide the best value for money.

Question 5

Utility is

Accepted Answer

Utility is subjective and differs from person to person. It is based on an individual's preferences, tastes, and desires, and therefore cannot be easily measured in objective units.

Question 6

An item has utility for a consumer if it

Accepted Answer

Utility refers to the satisfaction or usefulness a consumer gains from the consumption of a good or service. In other words, it is the level of enjoyment or satisfaction that a consumer derives from a product or service. Therefore, option D- generates enjoyment or satisfaction is the best choice.

Question 7

Marginal utility is the

Accepted Answer

Marginal utility refers to the additional satisfaction received by consuming one more unit of a product. It is not the total satisfaction received (option A) or the average satisfaction (option B). It also does not refer to the satisfaction achieved when a consumer has had enough of a product (option D).

Question 8

If a consumer receives 22 units of marginal utility from consuming the first can of lemonade, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is

Accepted Answer

Total utility is the sum of the marginal utilities of each unit consumed, so 22 + 20 + 15 = 57 utility units.

Question 9

If your total satisfaction increases when you consume another unit, your marginal utility must be

Accepted Answer

The answer of If your total satisfaction increases when you...

Question 10

Consumers have to make trade-offs in deciding what to consume because

Accepted Answer

Consumers have to make trade-offs because they are limited by a budget constraint, meaning they cannot buy everything they want. They must make choices about what goods and services to consume based on their budget or income. The other options, such as varying prices and limited production, may also contribute to trade-offs but are not the primary reason for them.

Question 11

If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of

Accepted Answer

The scenario described is an example of the law of diminishing marginal utility, which states that as a person consumes more and more of a good, the additional utility (or satisfaction) gained from each additional unit consumed will eventually decrease. This is because the person's needs and wants are already partially satisfied by the previous units consumed.

Question 12

Which of the following is likely to occur as the result of the law of diminishing marginal utility?

Accepted Answer

The law of diminishing marginal utility states that as an individual consumes more units of a good or service, their marginal utility (satisfaction) decreases. Therefore, Wesley would likely experience less satisfaction from his second bottle of iced tea compared to his first.

Question 13

Total utility

Accepted Answer

Total utility is the overall satisfaction or benefit a person receives from consuming a certain amount of a good. It is calculated by summing up the marginal utility of each unit consumed. Therefore, option C is correct. Option A is incorrect because total utility may decrease if marginal utility decreases at a faster rate than the quantity consumed increases. Option B is incorrect because marginal utility can decrease at an increasing rate. Option D is incorrect because total utility can still be positive even if marginal utility is declining, as long as the increase in quantity consumed compensates for the decrease in marginal utility.

Question 14

If a consumer receives 20 units of utility from consuming two chocolate bars, and 25 units of utility from consuming three chocolate bars, the marginal utility of the second chocolate bar is

Accepted Answer

The answer of If a consumer receives 20 units of...

Question 15

If a consumer receives 20 units of utility from consuming two chocolate bars, and 25 units of utility from consuming three chocolate bars, the marginal utility of the third chocolate bar is

Accepted Answer

Marginal utility is the additional utility gained from consuming one additional unit of a good. In this case, the consumer gained an additional 5 units of utility from consuming the third chocolate bar (25 - 20 = 5). Therefore, the answer is C.

Question 16

Suppose your marginal utility from consuming the 3rd slice of cake is zero; then your total utility from consuming cake is

Accepted Answer

If the marginal utility from consuming the 3rd slice of cake is zero, it means that consuming any additional slice of cake will not increase your total utility. Therefore, your total utility is maximised at the point where the marginal utility becomes zero. Any further consumption will result in decreasing marginal utility and hence decreasing total utility. Therefore, consuming 3 slices of cake is the best choice in terms of maximising total utility.

Question 17

If, when you consume another piece of chocolate, your marginal utility is zero, then

Accepted Answer

When the marginal utility of consuming an additional chocolate becomes zero, it means that any further consumption of chocolate will not increase your total utility. Therefore, you have maximized your total utility from consuming chocolate, and further consumption will not give you any additional satisfaction.

Question 18

-Refer to Table 6-1. What is Keegan's optimal consumption bundle?

Accepted Answer

Keegan's optimal consumption bundle is where the marginal utility per dollar spent is equal for both goods. Looking at the table, the marginal utility per dollar spent for pita wraps is 3/2 and for bubble teas is 4/3. Therefore, Keegan should consume more bubble teas and less pita wraps until the marginal utility per dollar spent for both goods are equal. At 3 pita wraps and 4 bubble teas, the marginal utility per dollar spent for both goods is 4/3, making it Keegan's optimal consumption bundle.

Question 19

Marginal utility can be

Accepted Answer

Marginal utility can be positive, negative or zero depending on the satisfaction level of the additional unit of a good or service. If the additional unit increases satisfaction, marginal utility is positive. If the additional unit decreases satisfaction, marginal utility is negative. If the additional unit does not change satisfaction, marginal utility is zero. Therefore, D is the best choice as it includes all possible outcomes.

Question 20

If total utility increases at a decreasing rate as a consumer consumes more coffee, then marginal utility must

Accepted Answer

If the total utility is increasing at a decreasing rate, it means that the additional satisfaction obtained from each additional cup of coffee is diminishing. This implies that the marginal utility of coffee is decreasing, hence choice C is correct. Choice A is incorrect as constant marginal utility would imply constant total utility. Choice B is incorrect as increasing marginal utility would mean an increasing rate of increase in total utility. Choice D is incorrect as negative marginal utility implies that the additional cup of coffee would decrease total utility which is not the case in this scenario.

Quiz 6: Concumer Choice and Behavioural Economics