Question 1

Indifference curves are generally downward sloping and concave to the origin.

Accepted Answer

Indifference curves are generally downward sloping but convex to the origin, reflecting diminishing marginal rates of substitution.

Question 2

The absolute value of the slope of the budget constraint is also known as the marginal rate of substitution.

Accepted Answer

The absolute value of the slope of the budget constraint is known as the price ratio of the two goods, not the marginal rate of substitution (MRS). The MRS reflects the rate at which a consumer is willing to substitute one good for another while maintaining the same level of utility, which is conceptually different from the price ratio indicated by the budget constraint's slope.

Question 3

Economists assume that the goal of consumers is to maximize total utility.

Accepted Answer

Economists believe that consumers aim to maximize their total satisfaction or total utility when making consumption decisions.

Question 4

Research presented in the textbookbook shows that people are more likely to spend a larger percentage of money received from the government when it is called a "tax bonus" than they would if it were called a "tax rebate."

Accepted Answer

The research presented in the textbook shows that people are more likely to spend a larger percentage of money received from the government when it is called a "tax bonus" than they would if it were called a "tax rebate."

Question 5

If Dan's marginal utility from eating one apple is 100 utils and Jorge's marginal utility from eating one apple is 200 utils, it follows that Jorge likes apples more than Dan, assuming that Dan and Jorge measure the marginal utility of apples in exactly the same way.

Accepted Answer

The statement that Jorge likes apples more than Dan is not necessarily true simply based on the marginal utility they each receive from eating one apple. Marginal utility can vary based on an individual's tastes, preferences, and circumstances, and cannot be used to definitively compare the overall level of enjoyment or preference for a good between two individuals.

Question 6

An indifference curve shows all the combinations of bundles of two goods a person can purchase given a fixed amount of income.

Accepted Answer

An indifference curve shows all the combinations of two goods that provide a consumer with the same level of satisfaction or utility, not the combinations they can purchase with a fixed amount of income. The budget constraint, not the indifference curve, shows the combinations of goods a person can afford given their income and the prices of the goods.

Question 7

Economists use the term utility to mean usefulness.

Accepted Answer

Economists use the term "utility" to refer to the satisfaction or pleasure that consumers derive from consuming goods and services, rather than their usefulness.

Question 8

Adam Smith observed that often things that have the greatest value in use, or are the most useful, have a relatively low price, and things that have little or no value in use have a high price.

Accepted Answer

Adam Smith noted this paradox in "The Wealth of Nations," referring to it as the diamond-water paradox, where water, essential for life, is cheap, while diamonds, with little intrinsic utility, are expensive.

Question 9

A good can have high total utility and low marginal utility.

Accepted Answer

Total utility refers to the overall satisfaction or usefulness a person gets from consuming a good, while marginal utility refers to the additional satisfaction or usefulness a person gets from consuming one more unit of the good. It is possible for a good to have high total utility (meaning it provides a lot of overall satisfaction or usefulness), but low marginal utility (meaning the additional satisfaction or usefulness from consuming one more unit of the good is relatively small). This is because as a person consumes more units of the good, the marginal utility may decrease due to factors such as diminishing returns or satiation.

Question 10

Indifference curves are generally downward sloping, they are convex to the origin, and they do not cross.

Accepted Answer

This is true because indifference curves depict combinations of two goods that give a consumer the same level of satisfaction, and as more of one of the goods is consumed, the consumer needs less of the other good to maintain the same level of satisfaction. Therefore, the curve is downward sloping. Indifference curves are convex to the origin due to the principle of diminishing marginal rate of substitution, which states that as a consumer receives more of one good, the amount of the other good they are willing to give up for an additional unit of the first good decreases. Finally, indifference curves cannot cross because of the transitivity property of preferences, which means that if a consumer prefers bundle A to bundle B and bundle B to bundle C, they must also prefer bundle A to bundle C.

Question 11

Marginal utility is computed by dividing total utility by the quantity consumed of a good.

Accepted Answer

Marginal utility is the additional utility gained from consuming one more unit of a good. It is not computed by dividing total utility by the quantity consumed.

Question 12

Economists assume that the goal of consumers is to maximize marginal utility.

Accepted Answer

The answer of Economists assume that the goal of consumers...

Question 13

Marginal utility is always a positive number.

Accepted Answer

Marginal utility can be positive, negative, or zero, depending on whether the additional consumption of a good increases, decreases, or does not change the overall satisfaction of the consumer.

Question 14

It is possible for total utility to rise as marginal utility falls.

Accepted Answer

Total utility is the sum of all the marginal utilities of each unit of a good consumed. As marginal utility decreases with each additional unit consumed, the total utility may still increase, but at a decreasing rate. This is because even though the additional units provide less satisfaction, they still provide some additional satisfaction to the consumer. However, at a certain point, the marginal utility will become negative and the total utility will begin to decrease.

Question 15

Economists David Zizzo and Andrew Oswald found that the majority of their study participants made themselves worse off in order to make someone else worse off.

Accepted Answer

Their study demonstrated the existence of "spiteful behavior" in economic decisions, where individuals were willing to incur a cost to themselves to reduce another person's welfare, highlighting the role of emotions in economic choices.

Question 16

If total utility is a positive number, marginal utility must also be a positive number.

Accepted Answer

Total utility can be increasing even if marginal utility is decreasing (but still positive), and total utility can still be positive when marginal utility becomes zero or negative, as long as the addition of units doesn't reduce total utility below zero.

Question 17

Research presented in the textbook shows that people are more concerned with their absolute income position in a group than their relative income position in the group.

Accepted Answer

Research presented in the textbook shows that people are more concerned with their relative income position in a group than their absolute income position in the group.

Question 18

When people treat some dollars differently than others, they are said to be compartmentalizing .

Accepted Answer

Compartmentalizing is the act of mentally separating money into different categories or "compartments" based on how it can be used or its perceived value. For example, someone may be more willing to splurge on a fancy dinner using their "fun money" compartment, while being more frugal with their "savings" compartment.

Question 19

Consumer equilibrium occurs at the point where the slope of the budget constraint is equal to the slope of the indifference curve.

Accepted Answer

This is known as the "optimal consumption point" and occurs where the marginal rate of substitution (the slope of the indifference curve) is equal to the price ratio (the slope of the budget constraint). At this point, the consumer is spending all of their available income in the most satisfying way possible.

Question 20

For the consumer, a point on an indifference curve that lies farther from the origin is preferable compared to those points that are closer to the origin.

Accepted Answer

The farther a point is from the origin on an indifference curve, the higher the utility or satisfaction it provides to the consumer. Therefore, it is preferable to the points that are closer to the origin.

Quiz 7: Consumer Choice: Maximizing Utility and Behavioral Economics