Question 1

Joe is currently in consumer equilibrium by consuming cheese and crackers, such that the last cracker consumed yielded 8 utils and the last piece of cheese consumed yielded 12 utils. Assume the price of crackers is two cents per cracker and the price of cheese is three cents per piece. If the price of crackers increases to four cents, Joe should __________ his consumption of crackers and his marginal utility from crackers will __________ and also __________ his consumption of cheese and his marginal utility from cheese will __________.
A)increase; increase; increase; increase
B)increase; increase; decrease; decrease
C)increase; decrease; increase; decrease
D)decrease; increase; decrease; increase
E)decrease; increase; increase; decrease

Accepted Answer

The answer of Joe is currently in consumer equilibrium by...

Question 2

A consumer is in equilibrium if he or she derives the same
A)total utility from each good consumed.
B)total utility per dollar spent on each good consumed.
C)marginal utility from each good consumed.
D)marginal utility per dollar spent on each good consumed.

Accepted Answer

In order to be in equilibrium, a consumer must allocate their spending such that the marginal utility per dollar spent is equal for all goods consumed. This ensures that the consumer is maximizing their overall utility given their budget constraint.

Question 3

Which of the following statements is true?
A)If a consumer is in equilibrium, it does not necessarily follow that he or she is also achieving the greatest total utility.
B)If a consumer is in equilibrium, it necessarily follows that he or she is also achieving the greatest total utility.
C)If a consumer is attaining the greatest marginal utility, then it necessarily follows that he or she is also achieving the greatest total utility.
D)If a consumer is attaining the greatest total utility, then it necessarily follows that he or she is also achieving the greatest marginal utility.

Accepted Answer

In consumer theory, equilibrium is reached when a consumer allocates their income in a way that maximizes their total utility given the prices of goods and services. This means that at equilibrium, the consumer cannot increase their total utility by reallocating their spending, implying they are achieving the greatest total utility possible with their income and the given prices.

Question 4

In order for an individual to achieve consumer equilibrium through the consumption of two goods, A and B, that individual must fulfill the condition A)TU_A = TU_B. B)TU_A\P_A = TU_B\P_B. C)MU_A = MU_B. D)MU_A\P_A = MU_B\P_B. E)MU_B\P_A = MU_A\P_B.

Accepted Answer

Consumer equilibrium is achieved when the ratio of the marginal utility to the price of one good is equal to the ratio of the marginal utility to the price of another good, which is accurately represented in choice D.

Question 5

Given that MU_X\P_X A)can never maximize total utility. B)have maximized total utility. C)can increase total utility by buying more of X and less of Y. D)can increase total utility by buying more of Y and less of X.

Accepted Answer

The answer of Given that MU_X\P_X A)can never maximize total utility. B)have...

Question 6

According to the traditional theory of marginal utility as presented in the textbookbook, as more units of a good are acquired, the consumer's marginal utility
A)always continues to rise.
B)diminishes.
C)remains constant.
D)may diminish at first, but it must eventually rise.
E)may rise at first, but it must eventually become constant.

Accepted Answer

The traditional theory of marginal utility states that as more units of a good are acquired, the consumer's marginal utility diminishes. This means that each additional unit of the good provides less satisfaction or usefulness than the previous unit acquired. This is because the law of diminishing marginal utility applies to most goods and services, where the desire for additional units of a good or service falls as the quantity consumed rises.

Question 7

To an economist, utility refers to the
A)usefulness of a good or service.
B)satisfaction that results from the consumption of a good.
C)relative scarcity of a good.
D)rate of decline in the demand curve.

Accepted Answer

To an economist, utility refers to the satisfaction that results from the consumption of a good or service. It is a measure of how much benefit or satisfaction a consumer gets from using a particular good or service.

Question 8

Suppose that the total utility from consuming one unit of good Z is 80 utils, the total utility from consuming two units of good Z is 125 utils, and the total utility from consuming three units of good Z is 160 utils.  The marginal utility received from consuming the third unit of good Z is
A)365 utils.
B)35 utils.
C)45 utils.
D)50 utils.

Accepted Answer

The marginal utility of consuming the third unit of good Z is the additional utility gained from consuming the third unit compared to the second unit. This is calculated as the total utility from three units (160 utils) minus the total utility from two units (125 utils), which equals 35 utils.

Question 9

Given two goods, X and Y, their prices, P_X and P_Y, a consumer is in equilibrium when the last dollar spent on X yields A)zero marginal utility for Y. B)the same marginal utility as if all the money were spent on Y. C)a smaller marginal utility than the last dollar spent on Y. D)the same marginal utility as the last dollar spent on Y.

Accepted Answer

In equilibrium, the consumer will allocate their spending between X and Y such that the marginal utility per dollar spent on each good is equal. Therefore, the last dollar spent on X will yield the same marginal utility as the last dollar spent on Y.

Question 10

Suppose a consumer is purchasing Coke and pretzels in quantities such that she is achieving consumer equilibrium. Then the price of Coke decreases. The consumer will likely __________ her consumption of Coke and the marginal utility of Coke will __________ while the total utility from Coke will __________.
A)increase; increase; increase
B)increase; decrease; decrease
C)increase; decrease; increase
D)decrease; increase; increase
E)decrease; decrease; decrease

Accepted Answer

When the price of Coke decreases, the consumer will likely increase her consumption of Coke to achieve a new consumer equilibrium. As she consumes more Coke, the marginal utility (additional satisfaction from consuming one more unit) of Coke will decrease due to the law of diminishing marginal utility. However, the total utility (overall satisfaction) from Coke will increase because she is consuming more of it.

Question 11

The theory of consumer choice assumes that consumers attempt to maximize
A)the difference between total utility and marginal utility.
B)average utility.
C)total utility.
D)marginal utility.

Accepted Answer

The theory of consumer choice assumes that consumers attempt to maximize total utility, which is the total satisfaction received from consuming a given total quantity of a good or service.

Question 12

Diamonds are more expensive than water because
A)markets do not always reflect value.
B)they have fewer uses.
C)they are relatively scarce and they yield higher marginal utility.
D)they yield higher total utility.

Accepted Answer

Diamonds are relatively scarce and yield higher marginal utility, which means that people are willing to pay more for each additional unit of a scarce good that gives them greater satisfaction. Water, on the other hand, is abundant and has a wide range of uses, so the marginal utility of a unit of water is lower, and the price is lower as well.

Question 13

To resolve the diamond-water paradox, it is important to note that under most circumstances,
A)the marginal utility of water is lower than the marginal utility of diamonds.
B)the marginal utilities of water and diamonds are about the same.
C)the marginal utility of water is higher than the marginal utility of diamonds.
D)the marginal utilities of water and diamonds are inversely related.
E)the marginal utilities of water and diamonds are directly related.

Accepted Answer

The diamond-water paradox is resolved by understanding that the marginal utility of water is lower than that of diamonds because water is abundant and diamonds are scarce. This means that the additional satisfaction (utility) gained from consuming one more unit of water is less than that from consuming one more unit of diamond.

Question 14

Suppose Valerie is consuming lipstick (L)and eye shadow (E)and nothing else. MU_L = 40 and MU_E = 36. The price of eye shadow is $9, and the price of lipstick is $15. What should Valerie do? A)Consume more eye shadow and less lipstick. B)Consume more lipstick and less eye shadow. C)Consume less of both. D)Consume more of both. E)Not change her consumption of either good.

Accepted Answer

We can calculate Valerie's marginal utility per dollar (MUD) for each good:
MUDL = MUL / PL = (MUS1U1B1LS1U1B0-MUS1U1B0LS1U1B0) / PL = (40-0) / 15 = 2.667
MUDE = MUE / PE = (MUS1U1B1ES1U1B0-MUS1U1B0ES1U1B0) / PE = (36-0) / 9 = 4

Since MUDE > MUDL, Valerie should consume more eye shadow and less lipstick in order to increase her total utility. By spending an additional dollar on eye shadow, Valerie can obtain a higher marginal utility than she would by spending an additional dollar on lipstick.

Question 15

If the marginal utility of a good is negative, then
A)consumers should buy less of it.
B)consumers will consume it only if it is free.
C)consumers should buy more of it to make its marginal utility positive.
D)the law of diminishing marginal utility is being violated.

Accepted Answer

The marginal utility of a good is the additional satisfaction or utility a consumer derives from consuming an additional unit of the good. If the marginal utility is negative, it means that consuming one more unit of the good reduces the overall level of satisfaction. In this case, consumers should buy less of the good as it is not providing them with as much utility as before.

Question 16

Suppose that a consumer purchases a combination of X and Y such that MU_X\P_X = 15 utils per dollar and MU_Y \P_Y = 10 utils per dollar. To maximize utility, the consumer should buy A)less of X and more of Y. B)more of X and less of Y. C)more of both X and Y. D)less of both X and Y. E)neither X nor Y.

Accepted Answer

To maximize utility, a consumer should equate the marginal utility per dollar spent across all goods. Since the marginal utility per dollar of X (15 utils per dollar) is higher than that of Y (10 utils per dollar), the consumer should buy more of X and less of Y to equalize the marginal utility per dollar spent on each.

Question 17

The law of diminishing marginal utility helps to explain
A)the direct relationship between price and quantity supplied.
B)the law of demand.
C)why the production possibilities frontier is typically bowed-out.
D)why the production possibilities frontier is typically a straight line.

Accepted Answer

The law of diminishing marginal utility explains why the demand curve slopes downward. As consumers consume more units of a good, the additional satisfaction or utility they receive from each additional unit decreases, causing them to be willing to pay a lower price. Therefore, the law of diminishing marginal utility is a key determinant of the law of demand.

Question 18

Given two goods, X and Y, and their prices, P_X and P_Y a consumer will maximize total utility by allocating expenditures such that A)MU_X\P_Y = MU_Y\P_X. B)P_Y\MU_X = P_X\MU_Y. C)MU_X\P_X = MU_Y \P_Y. D)MU_X = P_X = MU_Y = P_Y = MU_$. E)MU_X = MU_Y = P_X = P_Y = MU_$.

Accepted Answer

The consumer maximizes total utility by equating the marginal utility per dollar spent on each good, which is represented by the equation in choice C.

Question 19

Suppose a consumer is purchasing Coke (c)and pretzels (p)in quantities such that he is achieving consumer equilibrium. Then the price of Coke increases. Which of the following will be true? A)MU_C\P_C = MU_P\P_P B)MU_C\P_C > MU_P\P_P C)MU_C\P_C D)We cannot say for certain what will happen to the MU_C\P_C relative to the MU_P\P_P.

Accepted Answer

The answer of Suppose a consumer is purchasing Coke (c)and...

Question 20

Suppose that the total utility from consuming one unit of good X is 87 utils, the total utility of two units of good X is 150 utils, and the total utility of three units of good X is 180 utils.  The marginal utility of the third unit is
A)30 utils.
B)417 utils.
C)63 utils.
D)139 utils.

Accepted Answer

The marginal utility of the third unit is the additional utility gained from consuming the third unit, calculated as the total utility from three units (180 utils) minus the total utility from two units (150 utils), which equals 30 utils.

Quiz 7: Consumer Choice: Maximizing Utility and Behavioral Economics

A consumer is in equilibrium if he or she derives the same

Which of the following statements is true?

In order for an individual to achieve consumer equilibrium through the consumption of two goods, A and B, that individual must fulfill the condition

Given that MU_X\P_X

According to the traditional theory of marginal utility as presented in the textbookbook, as more units of a good are acquired, the consumer's marginal utility

To an economist, utility refers to the

Suppose that the total utility from consuming one unit of good Z is 80 utils, the total utility from consuming two units of good Z is 125 utils, and the total utility from consuming three units of good Z is 160 utils. The marginal utility received from consuming the third unit of good Z is

Given two goods, X and Y, their prices, P_X and P_Y, a consumer is in equilibrium when the last dollar spent on X yields

Suppose a consumer is purchasing Coke and pretzels in quantities such that she is achieving consumer equilibrium. Then the price of Coke decreases. The consumer will likely her consumption of Coke and the marginal utility of Coke will while the total utility from Coke will __.

The theory of consumer choice assumes that consumers attempt to maximize

Diamonds are more expensive than water because

To resolve the diamond-water paradox, it is important to note that under most circumstances,

Suppose Valerie is consuming lipstick (L) and eye shadow (E) and nothing else. MU_L = 40 and MU_E = 36. The price of eye shadow is $9, and the price of lipstick is $15. What should Valerie do?

If the marginal utility of a good is negative, then

Suppose that a consumer purchases a combination of X and Y such that MU_X\P_X = 15 utils per dollar and MU_Y \P_Y = 10 utils per dollar. To maximize utility, the consumer should buy

The law of diminishing marginal utility helps to explain

Given two goods, X and Y, and their prices, P_X and P_Y a consumer will maximize total utility by allocating expenditures such that

Suppose a consumer is purchasing Coke (c) and pretzels (p) in quantities such that he is achieving consumer equilibrium. Then the price of Coke increases. Which of the following will be true?

Suppose that the total utility from consuming one unit of good X is 87 utils, the total utility of two units of good X is 150 utils, and the total utility of three units of good X is 180 utils. The marginal utility of the third unit is