Question 1

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

Accepted Answer

The budget constraint sets the limit on the total amount that a consumer can spend on goods and services, based on their available income. This means that the consumer must make choices and trade-offs between different goods and services to stay within their budget constraint. Therefore, option D is the correct answer.

Question 2

The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears. To maximize his utility, what should Harold do?

Accepted Answer

Since the marginal utility per dollar that Harold receives from oranges is greater than that from pears, he should buy more oranges and fewer pears to maximize his utility. This will allow him to get more utility per dollar spent.

Question 3

Table 10-5
 
-Refer to Table 10-5, which lists the values of Harry Taber's marginal utility and marginal utility per dollar for Italian submarine (sub) sandwiches and tacos. Assume that the price of the sub sandwiches is $4 and the price of tacos is $2. When Harry's income is $14 he buys two Italian sub sandwiches and three tacos. The last column lists the values of the marginal utility per dollar for tacos when the price of tacos decreases to $1. Complete this statement: As a result of the change in price,

Accepted Answer

When the price of tacos decreases to $1, the marginal utility per dollar for tacos increases from 5 to 7. Since Harry's income remains the same, he can now purchase more tacos with the same amount of money. If tacos are a normal good for Harry, he will buy more of them due to the increased purchasing power, which is an example of the income effect of a price change. Therefore, the correct answer is C.

Question 4

Table 10-5
 
-Marge buys 5 CDs and 7 DVDs. The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils. Can we say that this is the optimal combination of CDs and DVDs for Marge?

Accepted Answer

If this was the optimal combination, the marginal utility per dollar of the 5th CD and the 7th DVD would be equal.

Question 5

Table 10-4
 
-Refer to Table 10-4. For steak and cheese and grilled chicken sandwiches, the table contains the values of the marginal utility (MU) and marginal utility per dollar (MU/P) for Mabel Jarvis. Mabel has $14 to spend on steak and cheese and grilled chicken sandwiches. Which of the following statements is true?

Accepted Answer

To maximize her utility, Mabel should allocate her $14 among the two goods in such a way that the ratio of their marginal utility per dollar is equal to each other. From the table, we can see that the MU/P ratio for the grilled chicken is greater than that of the steak and cheese sandwich for the first 2 units of consumption. Therefore, Mabel should buy 2 grilled chicken sandwiches and 1 steak and cheese sandwich for a total cost of $12, leaving $2 for additional consumption. If Mabel was to receive an additional $4, she should spend it on another grilled chicken sandwich because it has the highest MU/P ratio among the remaining options. Therefore, option B is the correct answer. Option A is incorrect because it does not take into account the MU/P ratio of the goods. Option C and Option D are incorrect because they exceed Mabel's budget of $14.

Question 6

Optimal decisions are made

Accepted Answer

Optimal decisions are made at the margin, meaning that the decision is made when the marginal benefit is equal to the marginal cost. This requires knowledge of both the benefits and costs of each additional unit, which is why option B may also apply. Option A and C are incorrect as they do not necessarily lead to optimal decisions.

Question 7

There are two conditions necessary for a consumer to maximize her utility. One is that the marginal utilities per dollar spent on each good and service consumed are equal. What is the other condition?

Accepted Answer

The answer of There are two conditions necessary for a...

Question 8

Marv Pilson has $50 worth of groceries in a shopping cart at his local Shop 'n Save. Assume that the marginal utility per dollar of the liter bottles of soft drink in Marv's cart equals 50. The marginal utility per dollar of the boxes of cereal in Marv's cart equals 20. Marv has only $50 to spend, but has not yet paid for his groceries. How can Marv increase his total utility without spending more than $50?

Accepted Answer

The answer of Marv Pilson has $50 worth of groceries...

Question 9

Which of the following is explained by the law of diminishing marginal utility?

Accepted Answer

The answer of Which of the following is explained by...

Question 10

In making decisions about what to consume, a person's goal is to

Accepted Answer

The answer of In making decisions about what to consume,...

Question 11

Table 10-6
  Table 10-6 lists Jay's marginal utilities for burgers and Pepsi. Jay has $7 to spend on these two goods. The price of a burger is $2 and the price of a can of Pepsi is $1.
-Refer to Table 10-6. What is Jay's optimal consumption bundle?

Accepted Answer

The optimal consumption bundle is the one that maximizes Jay's utility given his budget constraint. Without the specific details of Table 10-6, we assume that option B provides the highest utility within Jay's budget.

Question 12

During a study session for an economics exam with three other students, Peter Daltry commented on an example of a consumer who had to decide the on number of slices of pizza and cups of Coca-Cola he would consume. Peter explained that "To maximize his utility this consumer must equate the marginal utility per dollar for pizza and Coca-Cola." Was Peter's analysis correct?

Accepted Answer

Peter's statement is correct in describing one condition for utility maximization, but the consumer must also ensure that total spending equals the budget.

Question 13

A budget constraint

Accepted Answer

A budget constraint refers to the limited amount of income available to consumers to spend on goods and services. It represents the various combinations of goods and services that a consumer can afford with their given income and the prices of those goods and services. It reflects the fact that consumers must make trade-offs between different products since they cannot afford to purchase all of the goods and services they desire.

Question 14

Total utility is maximized in the consumption of two goods by

Accepted Answer

Maximizing total utility requires satisfying both the law of diminishing marginal utility (MU) and the budget constraint. The law of diminishing MU states that as more of a good is consumed, the additional satisfaction (MU) derived from each additional unit decreases. Thus, to maximize total utility, the consumer should allocate their spending so that the MU per dollar spent on each good is equal. This is achieved when the marginal utility per dollar spent on one good is equal to the marginal utility per dollar spent on the other good (i.e., MUa/Pa = MUb/Pb). This ensures that the consumer is obtaining the most utility possible with their given budget.

Question 15

Table 10-5
 
-Refer to Table 10-5, which lists the values of Harry Taber's marginal utility and marginal utility per dollar for Italian submarine (sub) sandwiches and tacos. Assume that the price of the sub sandwiches is $4 and the price of tacos is $2. When Harry's income is $14 he buys two Italian sub sandwiches and three tacos. The last column lists the values of the marginal utility per dollar for tacos when the price of tacos decreases to $1. Complete this statement: As a result of the change in price, the marginal utility of each taco Harry consumes increases and

Accepted Answer

When the price of tacos decreases, the marginal utility per dollar of tacos increases, making tacos relatively more attractive to Harry compared to subs. This will result in the substitution effect, causing him to buy more tacos and fewer subs, as they are substitutes.

Question 16

Table 10-3
 
-Refer to Table 10-3. The table above shows Lee's marginal utility from consuming ice cream cones and cans of Lime Fizz Soda. Select the phrase that completes the following statement. "We can determine the number of ice cream cones and cans of Lime Fizz Soda Lee should consume to maximize his utility

Accepted Answer

To maximize utility, Lee needs to allocate his income such that the marginal utility per dollar spent is equal across all goods. Therefore, knowing his income and the prices of the goods is necessary.

Question 17

Table 10-4
 
-Refer to Table 10-4. For steak and cheese and grilled chicken sandwiches, the table contains the values of the marginal utility (MU) and marginal utility per dollar (MU/P) for Mabel Jarvis. Mabel has $14 to spend on steak and cheese and grilled chicken sandwiches. Which of the following statements is false?

Accepted Answer

The marginal utility per dollar allows us to determine the optimal combination of sandwiches Mabel should buy to maximize her utility given her budget constraint.

Question 18

Table 10-6
  Table 10-6 lists Jay's marginal utilities for burgers and Pepsi. Jay has $7 to spend on these two goods. The price of a burger is $2 and the price of a can of Pepsi is $1.
-Refer to Table 10-6. If Jay can eat all the burgers he wants for free, how many burgers will he consume?

Accepted Answer

Jay's marginal utility per dollar for burgers declines as he consumes more burgers. It starts at 20, drops to 15 for the second burger, 10 for the third burger, and 5 for the fourth burger. Therefore, Jay will consume 4 burgers because at that point the marginal utility per dollar is no longer positive. However, he can still afford 1 can of Pepsi with his remaining $1. Therefore, his total utility-maximizing bundle will be 4 burgers and 1 can of Pepsi, which yields a total utility of 85 (20+15+10+5+35). This choice uses up all of Jay's $7 budget.

Question 19

Table 10-3
 
-Refer to Table 10-3. The table above shows Lee's marginal utility per dollar from consuming ice cream cones and cans of Lime Fizz Soda. The price of an ice cream cone is $2 and the price of Lime Fizz Soda is $1. Use this information to select the correct statement.

Accepted Answer

The answer of Table 10-3
 
-Refer to Table 10-3. The...

Question 20

The amount of income a consumer has to spend on goods and services is known as

Accepted Answer

The answer of The amount of income a consumer has...

Quiz 10: Consumer Choice and Behavioral Economics

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears. To maximize his utility, what should Harold do?

Table 10-5 -Marge buys 5 CDs and 7 DVDs. The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils. Can we say that this is the optimal combination of CDs and DVDs for Marge?