Question 1

The marginal utility of good X is 6 and the marginal utility of good Y is 18. The price of good X is $2. The price of good Y must be ________ if the consumer is optimizing her utility.

Accepted Answer

To optimize utility, the consumer should equalize the marginal utility per dollar spent on each good. The marginal utility per dollar for good X is 6/2 = 3. To have the same marginal utility per dollar for good Y, we set 18/Price of Y = 3. Solving for the price of Y gives us $6.

Question 2

A consumer with unlimited income will continue consuming goods until

Accepted Answer

The law of diminishing marginal utility states that as a consumer consumes more and more units of a good, the marginal utility (additional satisfaction) derived from each additional unit consumed decreases. Eventually, the marginal utility will reach zero, indicating that the consumer no longer derives any additional satisfaction from consuming more of that good. If the consumer has unlimited income, they will continue to consume until marginal utility reaches zero for each good. Therefore, the correct choice is A, where the consumer stops consuming when the marginal utility of each good is equal to zero.

Question 3

-Refer to the above table. If a consumer's optimum consists of 3 magazines and 6 novels, then

Accepted Answer

The price ratio of goods at the consumer's optimum is equal to the ratio of the quantities consumed. If a consumer chooses 3 magazines and 6 novels, it implies that the marginal utility per dollar spent on each is equal. Therefore, if the consumer buys twice as many novels as magazines, it suggests that the price of a magazine is higher relative to a novel, specifically six times more, to make the consumer indifferent between purchasing one over the other at the margin.

Question 4

Using the utility-optimizing model, which of the following would induce a consumer to increase consumption of good A, a normal good?

Accepted Answer

According to the utility-optimizing model, a consumer will increase consumption of a normal good if the marginal utility of the good increases. Therefore, an increase in the marginal utility of good A would induce the consumer to increase consumption of good A. The other options (B, C, and D) either have no effect on the consumption of good A or would decrease it.

Question 5

When Sally increases the consumption of pizza and decrease the consumption of soda, her marginal utility of

Accepted Answer

According to the law of diminishing marginal utility, as Sally consumes more pizza, the additional satisfaction (marginal utility) she gets from each additional slice decreases. Conversely, as she consumes less soda, the marginal utility of soda increases because she starts to miss the satisfaction that soda provided.

Question 6

The consumer optimum is the set of goods and services, subject to the limited income of the consumer, that

Accepted Answer

The consumer optimum refers to the combination of goods and services that maximizes the level of satisfaction for the consumer, subject to the constraint of a limited budget. Therefore, option C is correct. Option A is incorrect because it only refers to the affordability of goods and services, which is necessary but not sufficient to determine the consumer optimum. Options B and D are also incorrect because they are not necessary conditions for the consumer optimum.

Question 7

According to utility theory, consumer purchase decisions are made such that

Accepted Answer

Utility theory posits that consumers allocate their spending so that the last unit of currency spent on each good provides the same marginal utility per unit of currency, hence the ratio of marginal utility to price is equalized across goods.

Question 8

The price of good X is $5 and the price of good Y is $15. If the marginal utility of good X is 20 then the marginal utility of good Y must be ________ to have an optimum combination of goods purchased.

Accepted Answer

To have an optimum combination of goods purchased, the consumer should equate the marginal utility per dollar spent on each good. Since the price of good X is $5 and its marginal utility is 20, the marginal utility per dollar spent on X is 20/5 = 4. For good Y, priced at $15, to have the same marginal utility per dollar, its total marginal utility must be 15 * 4 = 60.

Question 9

-Refer to the above table. Assume the consumer spends his entire income. The price of a hotdog is $1, the price of a movie is $6, and the consumer has $15. What is the consumer's optimum?

Accepted Answer

Given the consumer has $15 to spend, the price of a hotdog is $1, and the price of a movie is $6, the combination of 3 hotdogs ($3) and 2 movies ($12) exactly uses the $15 budget. Other options either exceed the budget or do not fully utilize it.

Question 10

In a restaurant we can observe people consuming coffee, tea, and juices. All are priced the same. If Ann consumes coffee and Bob consumes a juice, we can conclude that

Accepted Answer

The fact that Ann consumes coffee and Bob consumes juice does not provide any information about Carl's drink choice, so option A is incorrect. We cannot make a direct comparison about Ann and Bob's tastes in drinks, so option B is also incorrect. However, we can infer that since all drinks are priced the same, Ann and Bob must derive equal utility from their respective drinks. Therefore, option D is also incorrect. Option C correctly states that Ann derives more utility from coffee than from tea or juice, and Bob derives more utility from juice than from tea or coffee.

Question 11

The consumer optimum (for two goods, A and B) is reached when

Accepted Answer

The consumer optimum is reached where the marginal utility per dollar spent on each good is equal. This can be expressed as MUA/PA = MUB/PB. Therefore, the correct answer is D.

Question 12

Assume that the marginal utility from good A is 10 units and that the price of good A is $5 per unit. The marginal utility from good B is 15 units and its unit price is $7. In this situation, a utility-maximizing consumer should

Accepted Answer

To maximize utility, a consumer should allocate spending towards goods where the marginal utility per dollar is highest. In this case, the marginal utility per dollar of good B is higher than that of good A.

For good A, the marginal utility per dollar is 10/5 = 2.
For good B, the marginal utility per dollar is 15/7 ≈ 2.14.

Therefore, the consumer should consume more of good B to achieve the highest level of utility possible, given their budget constraint.

Question 13

A consumer has spent all of his funds on hamburgers and movies. The price of a hamburger is $1 and the price of a movie is $5. The marginal utility of the last hamburger is 5 and the marginal utility of the last movie is 40. This consumer has

Accepted Answer

The answer of A consumer has spent all of his...

Question 14

Consumers do NOT buy as many units of each good as they want because

Accepted Answer

Consumers have limited incomes, which means that they cannot afford to buy as much of each good as they want. This forces them to make choices and allocate their limited resources in the best way possible to maximize their satisfaction. The law of diminishing marginal utility and zero marginal utility are also factors that affect consumer behavior, but they do not provide a complete explanation for why consumers do not buy as many units of each good as they want.

Question 15

-Refer to the above table. Assume the consumer spends his entire income. If the consumer's optimum at the current price of a movie is at 4 hotdogs and 4 movies, and the price of a hotdog is $1, what is the consumer's income?

Accepted Answer

The consumer buys 4 hotdogs at $1 each, totaling $4. Since the optimum includes 4 movies, the remaining income must be spent on movies. Therefore, the consumer's income is $4 (hotdogs) + $16 (movies) = $20.

Question 16

Consumers usually buy fewer units of a good than the quantity that would maximize total utility from consuming the good because

Accepted Answer

Consumers have limited incomes, which means that they cannot afford to buy an unlimited quantity of goods. They have to make trade-offs and prioritize which goods they want to buy. Therefore, they will buy fewer units of a good than the quantity that would maximize total utility from consuming the good.

Question 17

The consumer optimum is defined as

Accepted Answer

The consumer optimum is the combination of goods and services that maximizes the total utility of the consumer subject to their limited income. This means that the consumer will allocate their income to the goods and services that give them the most satisfaction and utility, until they cannot afford any more. This point of maximum satisfaction is their consumer optimum.

Question 18

When the marginal utility per dollar of good A exceeds the marginal utility per dollar of good B,

Accepted Answer

When the marginal utility per dollar of good A exceeds the marginal utility per dollar of good B, the consumer should consume more of good A. This is because for every dollar spent, good A provides more marginal utility compared to good B. As a result, the consumer will have higher overall utility by consuming more of good A.

Question 19

The price of a hotdog is $1, the price of a movie ticket is $5, and the consumer has $13. A consumer has purchased 3 hotdogs and two movie tickets, receiving 10 units of utility for the last hotdog and 10 units of utility for the last movie. The set of goods

Accepted Answer

The marginal utility per dollar spent is higher for hotdogs (10 utility/$1) than for movies (10 utility/$5), indicating the consumer could increase total utility by reallocating spending.

Question 20

-The price of a magazine is $2, the price of a novel is $5, and the consumer has $33. According to the above table, the rational consumer will purchase

Accepted Answer

The answer of 
-The price of a magazine is $2,...

Quiz 20: Consumer Choice