Question 1

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

Accepted Answer

The law of diminishing marginal utility explains why an individual's demand curve is downward sloping, not necessarily elastic. Elasticity is determined by the percentage change in quantity demanded relative to a percentage change in price.

Question 2

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

Buying more of good x will cause the marginal utility of x (MU_x) to decrease due to the law of diminishing marginal utility, not rise.

Question 3

Suppose Lorna will buy more sweaters if the price of sweaters rises.She is violating the
A)law of supply
B)law of increasing costs
C)law of large numbers
D)law of diminishing costs
E)law of demand

Accepted Answer

The law of demand states that as price increases, the quantity demanded decreases, and vice versa. Lorna's behavior of buying more sweaters as the price increases is contrary to this law, and therefore violates it.

Question 4

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

When the price of a good falls, the marginal utility per dollar increases because the consumer is getting the same utility for a lower price, thus increasing the utility received per dollar spent.

Question 5

Which of the following varies along a given demand curve?
A)consumer preferences
B)prices of substitutes
C)prices of complements
D)the price of the good itself
E)income

Accepted Answer

The price of the good itself varies along a given demand curve, meaning that as the price of the good changes, the quantity demanded also changes. The other options may affect the position or slope of the demand curve, but they do not vary along a given demand curve.

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

This statement is true because the inequality 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 overall utility by shifting purchases towards good x and away from good y, causing the MU_y to rise.

Question 7

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 marginal utility per dollar spent should be equal for both goods for rational decision-making. If the marginal utility of crab legs is twice that of clams, the price of crab legs must have increased to more than twice that of clams for you to switch to clams.

Question 8

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

Fernando's marginal utility per dollar spent on pizza (30/1.50 = 20) is less than that for Coke (25/1), indicating he would gain more utility by purchasing more Coke and less pizza.

Question 9

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 marginal utility per price (MU/P) of milk must be greater than that of ice cream for the consumer to increase total utility by purchasing more milk and less ice cream.

Question 10

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 would choose the option that gives them the highest amount of satisfaction per dollar spent. Since the price of orange juice is twice that of soft drink, for the consumer to be willing to pay that price difference, the marginal utility (MU) of orange juice must be higher than that of soft drink. Therefore, the best choice for the consumer would be to buy the orange juice.

Question 11

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

When the marginal utilities per dollar spent are identical for all goods, it means you have achieved the optimal allocation of your budget, maximizing your total utility. Any reallocation would reduce your utility.

Question 12

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

Accepted Answer

The inequality indicates that the marginal utility per dollar spent on good x is higher than the marginal utility per dollar spent on good y. Therefore, buying more of good x will result in a greater increase in overall utility for the consumer.

Question 13

In order to derive a demand curve for cheese, we would change
A)income and hold other things constant
B)tastes and hold other things constant
C)the price of other goods and hold everything else constant
D)the price of cheese and hold other things constant
E)the price of all goods, including cheese and hold other things constant

Accepted Answer

To derive a demand curve for cheese, we need to hold other things constant and change the price of cheese itself. This allows us to observe how changes in price affect the quantity of cheese demanded. By plotting different prices against the corresponding quantities demanded, we can derive the demand curve for cheese. Changing income, tastes, or the price of other goods would not enable us to isolate the effect of cheese's price on its demand.

Question 14

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

Since Arnold is a utility-maximizing consumer, he will always choose the option that gives him the most satisfaction. If he believes that his last dollar spent on movies gives him more satisfaction than his last dollar spent on golfing, he should reduce his spending on golfing and increase his spending on movies until he reaches a point where the satisfaction he gets from spending an additional dollar on movies is equal to the satisfaction he gets from spending an additional dollar on golfing. Therefore, he should golf less and spend more on movies.

Question 15

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

To maximize utility, Basil should keep consuming both tea and crumpets until the marginal utility per dollar spent becomes equal for both. Since the marginal utility of tea is four times higher than that of crumpets (24/6=4), Basil is getting more utility per dollar spent on tea. Therefore, he should consume more tea and less crumpets until the marginal utility per dollar spent becomes equal. This implies that the price of tea should be four times the price of crumpets.

Question 16

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, the cost of water is fixed regardless of the amount of water used, so the marginal cost of an extra thousand gallons of water to a household is zero.

Question 17

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 a consumer consumes additional units of a good, the satisfaction or utility he/she derives from each additional unit declines. Eating more twinkies, but enjoying them less, is a clear example of this phenomenon.

Question 18

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 marginal utility per dollar spent should be equal for both goods for utility maximization. If you choose the waffle, its price must be less than one third of the ham's price to equate the marginal utility per dollar.

Question 19

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

To maximize utility, the marginal utility per dollar spent should be equal for both goods. For crumpets: MU_crumpet/Price_crumpet = 32/8 = 4. For tea: MU_tea/Price_tea = MU_tea/4. Setting them equal gives MU_tea/4 = 4, so MU_tea = 16.

Question 20

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

Utility analysis involves analyzing how a consumer's utility-maximizing consumption bundle changes in response to price changes. By observing how changes in price affect the quantity demanded of a good, a demand curve can be derived. Therefore, the correct choice is D.

Quiz 6: Consumer Choice and Demand

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

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

Suppose Lorna will buy more sweaters if the price of sweaters rises.She is violating the

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

Which of the following varies along a given demand curve?

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

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

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,

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?

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

In order to derive a demand curve for cheese, we would change

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

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.

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

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?

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?

To derive a demand curve using utility analysis,

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.

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_yx, the consumer can increase utility by buying more of good x.