Question 1

If MU_x/P_x > MU_y/P_yx, the consumer can increase utility by buying more of good x.

Accepted Answer

This statement suggests that the marginal utility per dollar spent on good x is greater than the marginal utility per dollar spent on good y. Therefore, the consumer can increase their overall utility by purchasing more of good x.

Question 2

If by purchasing a little more milk and a little less ice cream you could increase your total utility,
A) the MU of milk must be greater than that of ice cream
B) the MU of ice cream must be greater than that of milk
C) the MU/P of milk must be greater than that of ice cream
D) milk must be cheaper than ice cream
E) the MU of milk will increase

Accepted Answer

The answer of If by purchasing a little more milk...

Question 3

Fernando allocates his lunch money between pizza and Coke. A Coke has a price of $1 and a slice of pizza has a price of $1.50. The marginal utility of the last slice of pizza Fernando ate today was 30, and the marginal utility of his last Coke was 25. Fernando spent all of his lunch money. From this information we can conclude that
A) Fernando allocated his money in a way that maximized his total utility
B) Fernando's total utility would have been greater if he had purchased more Coke and less pizza
C) Fernando's total utility would have been greater if he had purchased more pizza and less Coke
D) Fernando could have increased his total utility by purchasing more Coke but the same quantity of pizza
E) Fernando could have increased his total utility by purchasing more pizza but the same quantity of Coke

Accepted Answer

The answer of Fernando allocates his lunch money between pizza...

Question 4

Basil is maximizing his utility from consuming tea and crumpets. If the marginal utility of the last crumpet was 32 units of utility and the prices of tea and crumpets are $4 and $8, respectively, what was the marginal utility of the last cup of tea Basil consumed?
A) 2 units of utility
B) 12 units of utility
C) $6
D) 128 units of utility
E) 16 units of utility

Accepted Answer

The answer of Basil is maximizing his utility from consuming...

Question 5

Your marginal utility of a third waffle is 10 and your marginal utility of a second piece of ham is 30. If you eat the third waffle, which of the following must be true?
A) You are irrational.
B) You prefer waffles.
C) The price of a waffle is less than one third the price of a piece of ham.
D) The price of a waffle is more than the price of a piece of ham.
E) The price of a waffle is three times the price of a piece of ham.

Accepted Answer

The answer of Your marginal utility of a third waffle...

Question 6

If MU_x/P_x > MU_y/P_y, the consumer can increase utility by buying less of good y, which means the MU_y will rise.

Accepted Answer

If the ratio of the marginal utility to price of good x is greater than the ratio of the marginal utility to price of good y, then the consumer gets more utility per unit of money spent on good x compared to good y. Therefore, the consumer can increase their overall utility by shifting their consumption towards good x and away from good y, causing the MU_y to rise.

Question 7

If Arnold thinks his last dollar spent golfing yields less satisfaction than the last dollar spent on movies, and Arnold is a utility-maximizing consumer, he should
A) golf more so that the total satisfaction from this activity will increase
B) spend less on movies so that the marginal satisfaction from expenditures in this area will increase
C) golf less and spend more on movies
D) eliminate golfing from his schedule
E) golf more since it costs less

Accepted Answer

If the last dollar spent golfing yields less satisfaction than the last dollar spent on movies, Arnold should golf less and spend more on movies. This will maximize his overall utility and satisfaction.

Question 8

The law of diminishing marginal utility explains why an individual's demand curve is elastic.

Accepted Answer

The answer of The law of diminishing marginal utility explains...

Question 9

If the price of a good falls, the marginal utility per dollar received from consuming a specific unit of that good
A) also falls
B) stays the same
C) rises
D) will rise or fall, depending on the consumer
E) remains unchanged, provided the consumer buys no more of the good

Accepted Answer

The Law of Diminishing Marginal Utility states that as a consumer consumes more and more units of a good, the marginal utility (satisfaction) derived from each additional unit decreases. Therefore, as the price of a good falls, the consumer can now purchase more units of the good with their given budget. This means that the consumer will be able to consume more units of the good, and since the marginal utility for the initial units of a good tends to be higher, the consumer will receive higher marginal utility per dollar spent. So, when the price of a good falls, the marginal utility per dollar received from consuming a specific unit of that good rises.

Question 10

Basil is maximizing his utility from consuming tea and crumpets. If the marginal utility of his last cup of tea was 24 units of utility and that of his last crumpet was 6 units of utility, which of the following is true?
A) The price of tea is six times the price of crumpets.
B) The price of crumpets is four times the price of tea.
C) The prices of tea and crumpets are equal.
D) The price of tea is four times the price of crumpets.
E) The MU of the next cup of tea is less than the MU of the next crumpet.

Accepted Answer

We can find the relative prices of tea and crumpets by comparing their marginal utility per dollar spent. If the marginal utility per dollar spent on tea is higher than that of crumpets, then Basil should consume more tea and fewer crumpets to maximize his utility. Given that the marginal utility of the last cup of tea (MU/price) is six times greater than that of the last crumpet, we can conclude that the price of tea is four times the price of crumpets. Therefore, Basil can purchase four crumpets for the same price as one cup of tea.

Also, we cannot determine whether the MU of the next cup of tea is less than that of the next crumpet based on the information provided in the question.

Question 11

When residential water users are charged a flat monthly rate for water, the marginal cost of an extra thousand gallons of water to a household is zero.

Accepted Answer

When residential water users are charged a flat monthly rate for water, they pay the same amount regardless of how much water they use. Therefore, the marginal cost of an extra thousand gallons of water to a household is zero.

Question 12

Exhibit 6-10
 
-Exhibit 6-10 indicates the marginal utilities that Sharrona receives from consuming different amounts of goods A and B. If the price of A is $2 per unit and the price of B is $4 per unit, what combination of A and B would maximize Sharrona's total utility if her budget is $12?
A) 0 units of A; 3 units of B
B) 4 units of A; 1 unit of B
C) 4 units of each
D) 1 unit of A; 4 units of B
E) 2 units of each

Accepted Answer

The answer of Exhibit 6-10
 
-Exhibit 6-10 indicates the marginal...

Question 13

If MU_x/P_x > MU_y/P_y, the consumer can increase utility by buying more of good x, which will cause the MU_x to rise.

Accepted Answer

The answer of If MU_x/P_x > MU_y/P_y, the consumer can...

Question 14

Sally is allocating her budget between two goods, A and B. If Sally has used up the budget on a combination of A and B for which MU_A/PA exceeds MU_B/P_B, she can increase total utility by buying A) more A and less B B) more B and less A C) more A without changing her consumption of B D) less B without changing her consumption of A E) more B and more A

Accepted Answer

Sally can increase her total utility by buying more of good A and less of good B because the marginal utility per dollar spent on A is greater than that on B, indicating she gets more utility per dollar from A.

Question 15

Suppose you have spent your entire budget and, for all the goods you purchase, the marginal utilities per dollar spent are identical. Which of the following is true?
A) You are being irrational.
B) You can increase your utility by reallocating your income.
C) You will reduce your utility if you allocate income in any other way.
D) You are minimizing your marginal utility.
E) You can avoid diminishing marginal utility.

Accepted Answer

The answer of Suppose you have spent your entire budget...

Question 16

To derive a demand curve using utility analysis,
A) change a consumer's marginal utilities and note the effect of demand curve changes on market prices
B) change a consumer's marginal utilities and note the effect of supply curve changes on market prices
C) change a consumer's marginal utilities and note the effect of supply and demand curve changes on market prices
D) note how the consumer's utility-maximizing consumption bundle changes in response to price changes
E) note how the consumer's utility-maximizing consumption bundle changes in response to demand-curve shifts

Accepted Answer

To derive a demand curve using utility analysis, one should note how the consumer's utility-maximizing consumption bundle changes in response to price changes. This involves analyzing how a change in the price of a good affects the consumer's marginal utility and, consequently, the amount of the good the consumer is willing to buy. By repeating this analysis for different prices, a demand curve can be derived.

Question 17

Suppose a glass of orange juice has a price of $2 and a glass of soft drink has a price of $1. If the consumer is maximizing utility,
A) juice must have higher MU than soda drink
B) the soft drink must have higher MU than juice
C) both must have equal MU
D) consumers would buy more soda drink than orange juice
E) the consumer would buy twice as much orange juice as soft drink

Accepted Answer

If the consumer is maximizing utility, they will choose the option that gives them the highest marginal utility per dollar spent. Therefore, if the price of orange juice is twice that of the soft drink, the consumer is likely to attribute more utility to the orange juice to justify the additional cost. Hence, the juice must have a higher marginal utility than the soda drink.

Question 18

Tyrell has $50 per week to spend on good A, which has a price of $5, and good B, which has a price of $4. He buys six units of A and five of B. The marginal utility of the sixth unit of A is 25, and the marginal utility of the fifth unit of B is 20. Which of the following is true?
A) He is maximizing his utility.
B) We cannot tell if he is maximizing his utility unless we know his total utility.
C) He is not maximizing his utility and should buy more of A.
D) He is not maximizing his utility and should buy more of B.
E) He is not maximizing his utility because he is not spending all of his income.

Accepted Answer

To maximize utility, the consumer should allocate his/her money so that the marginal utility per dollar spent on one good is equal to the marginal utility per dollar spent on the other good. In this case, the marginal utility per dollar spent on A is 5, while the marginal utility per dollar spent on B is 4. Therefore, the consumer should buy more A, which he is already doing. Also, the fact that he has some money left over does not necessarily mean he is not maximizing utility, as he may have chosen to save some of his income for future consumption. Therefore, given the information provided, we can conclude that the consumer is maximizing his utility.

Question 19

The law of diminishing marginal utility may be illustrated by a person
A) buying additional goods after getting a pay raise
B) eating more twinkies but enjoying them less
C) giving some of income to a needy person
D) who spends more hours studying than do his fellow students
E) buying goods so long as their marginal utility is greater than zero

Accepted Answer

The law of diminishing marginal utility states that as an individual consumes more units of a good, the additional satisfaction (or marginal utility) from each additional unit will eventually start to decrease. This means that they will enjoy each additional unit of the good less than the previous unit. Eating more twinkies but enjoying them less is a clear example of diminishing marginal utility.

Question 20

Suppose you eat at a restaurant that serves clams at a fixed price and crab legs at a price that varies based on market conditions. Each week, the marginal utility you attach to an order of crab legs is 100, and the marginal utility of an order of clams is 50. One week you have crab legs, but the next week you have clams. This means that
A) you are irrational
B) your tastes must have changed
C) the price of clams dropped below the price of crab legs
D) the price of crab legs increased
E) the price of crab legs must have increased to more than twice that of clams

Accepted Answer

The answer of Suppose you eat at a restaurant that...

Quiz 6: Consumer Choice and Demand

If MUx/Px > MUy/Pyx, the consumer can increase utility by buying more of good x.

If by purchasing a little more milk and a little less ice cream you could increase your total utility,

Basil is maximizing his utility from consuming tea and crumpets. If the marginal utility of the last crumpet was 32 units of utility and the prices of tea and crumpets are $4 and $8, respectively, what was the marginal utility of the last cup of tea Basil consumed?

Your marginal utility of a third waffle is 10 and your marginal utility of a second piece of ham is 30. If you eat the third waffle, which of the following must be true?

If MUx/Px > MUy/Py, the consumer can increase utility by buying less of good y, which means the MUy will rise.

If Arnold thinks his last dollar spent golfing yields less satisfaction than the last dollar spent on movies, and Arnold is a utility-maximizing consumer, he should

The law of diminishing marginal utility explains why an individual's demand curve is elastic.

If the price of a good falls, the marginal utility per dollar received from consuming a specific unit of that good

Basil is maximizing his utility from consuming tea and crumpets. If the marginal utility of his last cup of tea was 24 units of utility and that of his last crumpet was 6 units of utility, which of the following is true?

When residential water users are charged a flat monthly rate for water, the marginal cost of an extra thousand gallons of water to a household is zero.

Exhibit 6-10 -Exhibit 6-10 indicates the marginal utilities that Sharrona receives from consuming different amounts of goods A and B. If the price of A is $2 per unit and the price of B is $4 per unit, what combination of A and B would maximize Sharrona's total utility if her budget is $12?

If MUx/Px > MUy/Py, the consumer can increase utility by buying more of good x, which will cause the MUx to rise.

Sally is allocating her budget between two goods, A and B. If Sally has used up the budget on a combination of A and B for which MUA/PA exceeds MUB/PB, she can increase total utility by buying

Suppose you have spent your entire budget and, for all the goods you purchase, the marginal utilities per dollar spent are identical. Which of the following is true?

To derive a demand curve using utility analysis,

Suppose a glass of orange juice has a price of $2 and a glass of soft drink has a price of $1. If the consumer is maximizing utility,

Tyrell has $50 per week to spend on good A, which has a price of $5, and good B, which has a price of $4. He buys six units of A and five of B. The marginal utility of the sixth unit of A is 25, and the marginal utility of the fifth unit of B is 20. Which of the following is true?

The law of diminishing marginal utility may be illustrated by a person

If MU_x/P_x > MU_y/P_yx, the consumer can increase utility by buying more of good x.

If MU_x/P_x > MU_y/P_y, the consumer can increase utility by buying less of good y, which means the MU_y will rise.

If MU_x/P_x > MU_y/P_y, the consumer can increase utility by buying more of good x, which will cause the MU_x to rise.

Sally is allocating her budget between two goods, A and B. If Sally has used up the budget on a combination of A and B for which MU_A/PA exceeds MU_B/P_B, she can increase total utility by buying