Question 1

Which of the following statements is false?

Accepted Answer

We do not know if any of the statements are true or false, because we do not know how much utility one person receives relative to another.

Question 2

Rich has $100,000 and Poore has $1,000. Which of these statements is most strongly supported by the theory of consumer choice?

Accepted Answer

An extra dollar given to Rich is worth less to him than his 100,000th dollar. This is because the theory of consumer choice states that the marginal utility of a good decreases as the consumer consumes more of that good.

Question 3

We would expect the total utility of diamonds to be __________ than the total utility of water and the marginal utility of diamonds to be __________ than the marginal utility of water.

Accepted Answer

The total utility of diamonds is lower than that of water because water is essential for life, making it more valuable in total. However, the marginal utility of diamonds is higher than that of water because each additional unit of diamond is perceived as more valuable due to its rarity, compared to an additional unit of water which is more abundant.

Question 4

We take one dollar from a millionaire and give it to a pauper. Assuming a diminishing marginal utility of money,

Accepted Answer

The answer of We take one dollar from a millionaire...

Question 5

Ari is currently consuming 10 hot dogs and 8 hamburgers per week. The last hot dog she consumed yielded 20 utils while the last hamburger she ate gave her 25 utils. If hot dogs cost $2 and hamburgers cost $2.50, is Ari consuming the correct quantities of these two goods to be in consumer equilibrium?

Accepted Answer

Ari is in consumer equilibrium because the marginal utility per dollar spent on hot dogs is equal to the marginal utility per dollar spent on hamburgers.

Question 6

In which of the following settings is an interpersonal utility comparison being made?

Accepted Answer

Interpersonal utility comparisons involve comparing the utility (satisfaction, happiness, etc.) one person gets from a good or situation to the utility another person gets from it. Choices A and C both involve one person making a statement about how much satisfaction or preference they have compared to another person, which fits the definition of an interpersonal utility comparison. Choice B does not involve a comparison of utility between individuals, but rather an acknowledgment of the inability to know another's thoughts or feelings.

Question 7

Dan is currently consuming 10 Cokes and 5 slices of pizza per week such that the marginal utility of the tenth Coke is 12 utils and that of the fifth slice of pizza is also 12 utils. How should Dan redirect his purchases so as to attain consumer equilibrium?

Accepted Answer

The answer of Dan is currently consuming 10 Cokes and...

Question 8

Because there are so few diamonds in the world, the consumption of diamonds

Accepted Answer

Diamonds are scarce, which means each additional unit consumed provides relatively high satisfaction or utility, reflecting the principle of marginal utility.

Question 9

Economists usually assume that money has __________ marginal utility.

Accepted Answer

Economists typically assume that money has decreasing marginal utility, meaning that as a person acquires more money, each additional unit of money provides less additional satisfaction or utility than the previous unit. This concept reflects the idea that the more of something you have, the less you value additional amounts of it.

Question 10

Suppose the government provides peanut butter to everyone free of charge and everyone consumes it to the point at which he receives no additional satisfaction from another spoonful. Is this necessarily good?

Accepted Answer

The correct answer is B because it highlights the concept of opportunity cost, suggesting that the resources used to produce peanut butter could have potentially been allocated more efficiently to produce other goods that might have provided greater overall satisfaction or utility to society.

Question 11

Suppose for a consumer the marginal utility (MU) of bread is 20 utils and the MU of milk is 10 utils; the price of bread is $3 and the price of milk is $1. Given this,

Accepted Answer

The utility per dollar for bread is 20 utils / $3 = 6.67 utils per dollar, and for milk, it's 10 utils / $1 = 10 utils per dollar. Therefore, more utility per dollar is gained from consuming milk than bread.

Question 12

If a person is receiving greater marginal utility per dollar from consuming one good than another, it follows that he or she is

Accepted Answer

To maximize utility, a consumer should allocate their budget in a way that the marginal utility per dollar is equal across all goods. If a person is receiving greater marginal utility per dollar from one good than another, it indicates that they could increase their overall utility by reallocating their spending, thus they are not maximizing utility.

Question 13

Which of the following statements is true?

Accepted Answer

The statement B is true because it reflects the economic principle of diminishing marginal utility. This principle states that as a person consumes more of a good, the additional satisfaction (marginal utility) they get from consuming an additional unit of the good decreases. Therefore, when you have less of a good, the marginal utility of acquiring one more unit is higher, and you would be willing to pay more for that additional unit.

Question 14

Suppose you could quantify the amount of satisfaction you receive from consuming ice cream in money terms. You might say, "I expect to get $3 worth of satisfaction from this ice cream cone." According to traditional economic theory, if the price of this ice cream cone were $3.25, would you buy one?

Accepted Answer

Traditional economic theory suggests that a rational consumer will make a purchase if the marginal benefit (the satisfaction or utility derived from consuming a good) exceeds the marginal cost (the price of the good). In this scenario, the marginal benefit ($3 worth of satisfaction) is less than the marginal cost ($3.25 for the ice cream cone), so according to traditional economic theory, you would not buy the ice cream cone.

Question 15

We take one dollar from a pauper and give it to a millionaire. Assuming a diminishing marginal utility of money,

Accepted Answer

The answer of We take one dollar from a pauper...

Question 16

Suppose you just finished your third plateful of Thanksgiving dinner and it yielded zero units of additional satisfaction. Should you go back for more?

Accepted Answer

The concept of negative utility suggests that consuming more of something can lead to a decrease in overall satisfaction or happiness, which in this case could be due to overeating or discomfort from consuming too much food.

Question 17

Suppose the marginal utility (MU) of a paperback books is 60 utils and each book costs $10, while the MU of a hamburger is 50 utils and each costs $7.50. If you consume one movie and buy one hamburger per week, are you attaining consumer equilibrium?

Accepted Answer

To achieve consumer equilibrium, the ratio of the marginal utility to the price of each good should be equal. For books, MU/Price = 60/10 = 6 utils per dollar. For hamburgers, MU/Price = 50/7.5 = 6.67 utils per dollar. Since the utility per dollar spent on hamburgers is higher, you should buy more hamburgers and fewer books to move toward consumer equilibrium.

Question 18

We would expect the total utility of water to be high but its marginal utility to be low. Why?

Accepted Answer

Water is essential for life, which gives it a high total utility. However, because it is abundant in many places, the utility gained from consuming an additional unit (marginal utility) is low.

Question 19

Jackson says that his fifth game of chess gave him greater utility than his first, and therefore the law of diminishing marginal utility does not hold. An economist who believes that marginal utility definitely and always declines with the consumption of equal successive units of a good will likely say

Accepted Answer

The economist would argue that each game of chess provides a different experience or context, making each game effectively a different "good" in terms of utility, rather than an exception to the law of diminishing marginal utility or a case where the law does not apply.

Question 20

You and your roommate are eating pizza and have already consumed all but the last slice. Your roommate claims that he is hungrier than you and therefore should get the last slice of pizza. Your roommate has made

Accepted Answer

Your roommate is making an interpersonal utility comparison by asserting that his level of hunger (and thus the utility he would derive from eating the last slice of pizza) is greater than yours. This involves comparing subjective levels of satisfaction or utility between different individuals, which is inherently difficult to measure or prove.

Quiz 20: Consumer Choice and Behavioral Economics