Question 1

Assuming no budget constraint, when total utility is maximized, marginal utilities per dollar are equal for all products.

Accepted Answer

When total utility is maximized without budget constraints, it implies that the consumer has allocated their resources in such a way that the marginal utility per dollar spent is equal across all products. This is a condition for consumer equilibrium, ensuring that no reallocation could increase total utility further.

Question 2

Using the marginal approach, the consumer will choose that combination of goods that yields the lowest possible total utility.

Accepted Answer

Using the marginal approach, the consumer will choose that combination of goods that yields the highest possible total utility, not the lowest. This approach is based on the principle of maximizing satisfaction or utility from the consumption of goods and services within the constraints of their budget.

Question 3

Consumers try to maximize their consumption, given a limited budget, by buying the one commodity that gives them the most satisfaction.

Accepted Answer

Consumers try to maximize their satisfaction by allocating their limited budget across a variety of commodities in a way that the marginal utility per dollar spent is equalized across all goods, rather than spending it all on one commodity.

Question 4

A person is in equilibrium when marginal utility per dollar equals 1.

Accepted Answer

A person is in equilibrium when the marginal utility per dollar spent is equal across all goods and services, not necessarily when it equals 1.

Question 5

If Kim's marginal utility per dollar for hot dogs is less than her marginal utility per dollar for French fries, she should buy more French fries and fewer hot dogs to maximize her total utility.

Accepted Answer

To maximize total utility, consumers should allocate their budget in a way that equalizes the marginal utility per dollar across all goods. If Kim's marginal utility per dollar from French fries is higher than from hot dogs, buying more French fries and fewer hot dogs will move her closer to this optimal allocation.

Question 6

When the price of a good changes, the quantity demanded changes as the consumer seeks to reestablish equilibrium.

Accepted Answer

This statement reflects the basic economic principle of demand, where a change in the price of a good typically leads to a change in the quantity demanded by consumers, as they adjust their consumption to maximize utility based on the new price.

Question 7

Mikel buys both energy drinks and coffee. If the price of coffee rises, he will buy more coffee and fewer energy drinks in order to return to a state of equilibrium.

Accepted Answer

This scenario describes a substitution effect, where if the price of coffee rises, a consumer like Mikel would typically buy less coffee and more of a substitute good (energy drinks) to maintain their level of utility, not more coffee and fewer energy drinks.

Question 8

To draw a demand curve for commodity X, the only information needed is the total utility received from X.

Accepted Answer

To draw a demand curve for commodity X, information needed includes the price of X at different quantities and the quantity demanded at those prices, not just the total utility received from X.

Question 9

Assuming no budget constraints, maximization of total utility when choosing the amounts of two goods to purchase occurs when the ratios of marginal utility divided by price are equal for both goods.

Accepted Answer

This is based on the principle of equi-marginal utility, which states that consumers maximize their total utility when the last dollar spent on each good provides the same level of marginal utility, hence the ratios of marginal utility to price for each good should be equal.

Question 10

An individual with limited income will not have an opportunity to experience utility maximization.

Accepted Answer

Utility maximization is not solely dependent on income level; it involves making choices to allocate available resources in a way that maximizes satisfaction or utility, regardless of the income level.

Question 11

The downward slope of the demand curve can be explained using marginal utility analysis.

Accepted Answer

Marginal utility analysis explains that as a consumer consumes more units of a good, the additional satisfaction (marginal utility) derived from consuming each additional unit decreases, leading to a lower willingness to pay for more units, which is represented by the downward slope of the demand curve.

Question 12

Marginal utility theory assumes that utility can be measured.

Accepted Answer

Marginal utility theory operates on the assumption that utility, or the satisfaction gained from consuming goods and services, can be quantified or measured, allowing for the analysis of consumer behavior and choices.

Question 13

Marginal utility analysis cannot be used to explain a consumer's purchasing decision because it is not possible to measure the satisfaction received from a particular purchase.

Accepted Answer

Marginal utility analysis can be used to explain a consumer's purchasing decisions by assuming that consumers make choices to maximize their utility, even though the exact measurement of satisfaction may not be quantifiable.

Question 14

One of the criticisms of marginal utility analysis is that you cannot derive demand curves from marginal utilities.

Accepted Answer

Marginal utility analysis is actually foundational to deriving demand curves, as it posits that the quantity of a good demanded depends on its marginal utility and price, allowing for the construction of demand curves based on changes in marginal utility relative to price.

Question 15

Marketers of goods and services often exploit psychological factors to influence economic behavior in order to persuade consumers to buy things they might not otherwise buy.

Accepted Answer

Marketers use various psychological tactics, such as emotional appeal, social proof, scarcity, and the fear of missing out (FOMO), to influence consumers' perceptions and decision-making processes, encouraging them to purchase products or services they might not have considered otherwise.

Question 16

There is evidence to suggest that investors do NOT always act to maximize returns.

Accepted Answer

Behavioral finance research shows that investors often make decisions based on biases, emotions, and psychological factors, rather than solely focusing on maximizing returns.

Question 17

When deciding whether to buy a new car or repair an old car, it is as important to consider both how much has already been spent on the old car and the likely future costs of repairs to the old car.

Accepted Answer

The decision should primarily focus on the likely future costs of repairs to the old car and the cost of a new car, rather than how much has already been spent on the old car, as past costs are sunk costs and cannot be recovered.

Question 18

When deciding whether to buy a new car or repair an old car, it is not wise to dwell on how much has already been spent on the old car, but instead to consider how much is likely to be spent on future repairs to the old car.

Accepted Answer

This concept is known as the "sunk cost fallacy," which is the idea that past investments (time, money, resources) should not influence future decisions. Instead, decisions should be based on future costs and benefits.

Question 19

The expression "Don't cry over spilt milk" is a warning against committing a sunk cost fallacy.

Accepted Answer

The expression "Don't cry over spilt milk" is a warning against committing a sunk cost fallacy. This fallacy occurs when someone continues to invest in a project or venture even though it is clear that it is not going to be successful. The expression is a reminder that it is important to let go of past losses and move on.

Question 20

Behavioral economics theory suggests that consumers respond more positively to a price of $3.99 than they do to a price of $4.

Accepted Answer

This is because of the psychological pricing strategy known as "charm pricing," where prices are set just below a round number, making consumers perceive the price as being significantly lower.

Quiz 6: Consumer Choice and Demand