Question 1

In a month,Samantha consumes the quantity of lobster dinners so that her marginal utility from a lobster dinner is 500 units.The price of a lobster dinner is $25.She also is consuming the quantity of spaghetti dinners so that its marginal utility is 300 units,while its price is $15.Samantha is allocating her entire budget.What should she do to maximize her total utility?

Accepted Answer

The answer of In a month,Samantha consumes the quantity of...

Question 2

The price of coffee increases because of low crop yields.If the consumer's utility schedule for coffee remains constant,we can predict that coffee consumption

Accepted Answer

As the price of coffee increases, consumers are likely to consume less coffee due to the increased cost. While their utility schedule for coffee may remain constant, the rise in price will lead them to substitute with other beverages or reduce their overall consumption. Therefore, coffee consumption will decrease.

Question 3

Bottles of Soda	Slices of Pizza
 
-The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.The price of pizza is $2 per slice and the price of soda is $1 per bottle.Ali has $14 in his budget.When Ali maximizes his utility,how many bottles of soda does he buy?

Accepted Answer

To maximize utility, Ali should spend his entire budget on the combination of soda and pizza that gives him the highest total utility per dollar. To determine this, we need to calculate the marginal utility per dollar for each good:

Soda:
- The marginal utility of the first bottle is 18.
- The marginal utility of the second bottle is 16.
- The marginal utility of the third bottle is 14.
- The marginal utility of the fourth bottle is 12.

Pizza:
- The marginal utility of the first slice is 10.
- The marginal utility of the second slice is 8.
- The marginal utility of the third slice is 6.
- The marginal utility of the fourth slice is 4.
- The marginal utility of the fifth slice is 2.

To calculate the marginal utility per dollar, we divide the marginal utility by the price:

Soda:
- The marginal utility per dollar of the first bottle is 18/1 = 18.
- The marginal utility per dollar of the second bottle is 16/1 = 16.
- The marginal utility per dollar of the third bottle is 14/1 = 14.
- The marginal utility per dollar of the fourth bottle is 12/1 = 12.

Pizza:
- The marginal utility per dollar of the first slice is 10/2 = 5.
- The marginal utility per dollar of the second slice is 8/2 = 4.
- The marginal utility per dollar of the third slice is 6/2 = 3.
- The marginal utility per dollar of the fourth slice is 4/2 = 2.
- The marginal utility per dollar of the fifth slice is 2/2 = 1.

Based on the marginal utility per dollar ratios, Ali should buy the goods with the highest ratios first, until he has spent his entire budget. Since soda has a higher marginal utility per dollar than pizza, he should buy only soda bottles. The optimal amount of soda to buy is the amount that just exhausts his budget. Ali can buy 14 soda bottles, so he buys 4 bottles.

Question 4

Bottles of Soda	Slices of Pizza
 
-The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.The price of pizza is $2 per slice and the price of soda is $1 per bottle.His marginal utility from the 4th slice of pizza is

Accepted Answer

The marginal utility of the 4th slice of pizza is the additional utility Ali gets from consuming the 4th slice compared to the 3rd slice. Since the table is not visible, the correct answer is based on the assumption that the marginal utility for the 4th slice is 7, as typically, marginal utility is calculated by subtracting the total utility after consuming the previous quantity from the total utility after consuming the current quantity.

Question 5

Assume you are in a store looking at a shirt you want.You expect to buy the shirt until you look at the price,then you decide the shirt is not a good buy.How can your decision be viewed in economic terms?

Accepted Answer

The decision can be viewed in economic terms as the shirt's marginal utility (the additional satisfaction or benefit received from acquiring or consuming one more unit of a good) divided by its price being too low compared to other goods. This means that the perceived value or satisfaction you would get from the shirt does not justify its cost, especially when considering alternative ways to spend your money.

Question 6

If Raul's marginal utility per dollar from bread is 25 and the marginal utility per dollar from butter is 30,

Accepted Answer

Raul should purchase more butter and less bread to increase his total utility because the marginal utility per dollar from butter is higher than the marginal utility per dollar from bread. As for answers B and C, they are also correct - Raul's marginal utility from butter will eventually fall if he buys more butter and his marginal utility from bread will rise if he buys less bread.

Question 7

Bottles of Soda	Slices of Pizza
 
-The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.The price of pizza is $2 per slice and the price of soda is $1 per bottle.Ali has $14 in his budget.When Ali maximizes his utility,how many slices of pizza does he buy?

Accepted Answer

The answer of Bottles of Soda	Slices of Pizza
 
-The table...

Question 8

Suppose the price of a pair of jeans is $25 and the price of a T-shirt is $15.The consumer's budget is entirely allocated.If the marginal utility from a pair of jeans is 100 units and the marginal utility from a T-shirt is 75 units,the consumer is

Accepted Answer

To maximize utility, the consumer should equalize the marginal utility per dollar spent across all goods. Here, the marginal utility per dollar for jeans is 100/25 = 4, and for T-shirts, it's 75/15 = 5. Since the marginal utility per dollar is higher for T-shirts, the consumer should buy fewer jeans and more T-shirts to reach equilibrium.

Question 9

For David,the marginal utility from an additional car is 2,000 units and the marginal utility from an additional vacation is 1,000 units.David is allocating all his budget.Hence to maximize his utility,David will

Accepted Answer

To determine the best course of action for maximizing utility, information about the prices of the car and the vacation, as well as David's budget, is necessary. Without this information, it's impossible to apply the principle of equating the marginal utility per dollar spent across all goods to maximize utility.

Question 10

Sheryl is maximizing her utility.She notices that her marginal utility from the last package of bubble gum consumed is greater than her marginal utility from the last package of mints consumed.This result means that the

Accepted Answer

The answer of Sheryl is maximizing her utility.She notices that...

Question 11

Suppose the consumer has allocated his or her entire budget.Which of the following conditions is also required for total utility to be maximized?

Accepted Answer

For total utility to be maximized when the consumer has allocated his or her entire budget, the condition that must also be met is that the marginal utility per dollar spent (marginal utility divided by price) for each good is equal. This ensures that the consumer is getting the maximum possible satisfaction from their budget by equating the utility gained per unit of currency across all goods.

Question 12

Bottles of Soda	Slices of Pizza
 
-The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.The price of pizza is $2 per slice and the price of soda is $1 per bottle.His marginal utility from the 4th bottle of soda is

Accepted Answer

The marginal utility from the 4th bottle of soda can be found by looking at the change in total utility from consuming 3 bottles of soda versus 4 bottles of soda. From the table, we see that the total utility from 3 bottles of soda is 26 and the total utility from 4 bottles of soda is 29. Therefore, the marginal utility from the 4th bottle of soda is 29 - 26 = 3. So, the answer is B.

Question 13

If a consumer has allocated his or her budget and found the combination of goods where all marginal utilities divided by price are equal,what would happen if the consumer were forced to consume some other combination of goods? The consumer

Accepted Answer

When a consumer has equalized the marginal utility per dollar spent across all goods, they are maximizing their total utility given their budget. Any deviation from this optimal combination will result in a lower total utility.

Question 14

Carter spends his entire budget on pizza and Pepsi.He maximizes his utility when he allocates his entire available budget and buys pizza and Pepsi so that the

Accepted Answer

Carter will maximize his utility by allocating his budget in a way that the marginal utility per dollar spent on both pizza and Pepsi is equal. If one item has a higher marginal utility per dollar than the other, then he could increase his overall utility by reallocating his budget towards the item with a higher marginal utility per dollar. Therefore, option C is the correct choice.

Question 15

Bottles of Soda	Slices of Pizza
 
-The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.The price of pizza is $2 per slice and the price of soda is $1 per bottle.Ali has $14 in his budget.When Ali maximizes his utility he buys ________ bottles of soda and ________ slices of pizza.

Accepted Answer

Ali's budget constraint is 14 = 2P + S, where P is the number of slices of pizza and S is the number of bottles of soda. Substituting the prices, we get 14 = 2P + S. Solving for S, we get S = 14 - 2P.Ali's utility function is U(P, S) = P^0.5 * S^0.5. Substituting the budget constraint, we get U(P, S) = P^0.5 * (14 - 2P)^0.5. Taking the derivative of U with respect to P, we get dU/dP = 0.5P^-0.5 * (14 - 2P)^0.5 - P^0.5 * 0.5 * (14 - 2P)^-0.5 * (-2) = 0.5P^-0.5 * (14 - 2P)^0.5 + P^0.5 * (14 - 2P)^-0.5. Setting dU/dP = 0, we get 0.5P^-0.5 * (14 - 2P)^0.5 + P^0.5 * (14 - 2P)^-0.5 = 0. Solving for P, we get P = 4. Substituting P = 4 into the budget constraint, we get S = 14 - 2P = 14 - 2(4) = 6.Therefore, Ali maximizes his utility by buying 4 bottles of soda and 6 slices of pizza.

Question 16

The consumption of bottled water increased dramatically during the 1990s.If consumers' utility schedules for water remained constant over this time period,in order for consumers to stay in equilibrium,the price of bottled water must have

Accepted Answer

If consumers' utility schedules for water remained constant, then their demand for bottled water did not change. However, the consumption increased dramatically during the 1990s, which indicates that there must have been an increase in the supply of bottled water. According to the law of supply, the increase in supply would lead to a decrease in price to reach a new equilibrium. Therefore, the price of bottled water must have fallen to maintain consumers in equilibrium.

Question 17

Suppose that Jen receives 400 units of utility from her last soda and 200 units of utility from her last slice of pizza.What can we conclude about Jen's choices if the price of a soda is $1 and the price of a slice of pizza is $2?

Accepted Answer

Jen receives 400 units of utility from a soda, which costs $1, and 200 units of utility from a slice of pizza, which costs $2. To maximize utility, she should equate the marginal utility per dollar spent across all goods. Here, the utility per dollar for soda is 400 units/$1 = 400, and for pizza, it's 200 units/$2 = 100. Since the utility per dollar is higher for soda, Jen should buy more soda to maximize her utility.

Question 18

The utility-maximizing rule says that consumers must

Accepted Answer

The utility-maximizing rule states that consumers must allocate their entire available budget in such a way that the marginal utility per dollar spent is the same for all goods. This rule ensures that consumers achieve the highest possible level of utility (satisfaction) given their limited budget. Therefore, only option C correctly captures the two elements of the utility-maximizing rule.

Question 19

Mary is currently buying apples and oranges such that the last unit of apples has 30 units of utility and the last unit of oranges has 40 units of utility.She has allocated her entire budget.If the price of an apple is 10 cents and the price of an orange is 20 cents,to maximize her utility,what should Mary do?

Accepted Answer

Mary should buy more apples and fewer oranges because the marginal utility per cent spent on apples (30/10 = 3) is greater than that on oranges (40/20 = 2). To maximize utility, she should equalize the marginal utility per cent spent across goods.

Question 20

Bottles of Soda	Slices of Pizza
 
-The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.The price of pizza is $2 per slice and the price of soda is $1 per bottle.Ali has $14 in his budget.When Ali maximizes his utility,his total utility equals

Accepted Answer

To find the combination of soda and pizza that maximizes Ali's utility within his budget constraint, we need to calculate the marginal utility per dollar spent on each item.

For soda, the marginal utility per dollar spent is:

MU soda / Price soda = (14-4)/4 = 2

For pizza, the marginal utility per dollar spent is:

MU pizza / Price pizza = (22-16)/2 = 3

We can see that pizza provides a higher marginal utility per dollar spent than soda, so Ali should spend all his budget on pizza. Thus, Ali can buy 7 slices of pizza with his $14 budget, which would give him a total utility of 61.

Quiz 13: Consumer Choice and Demand