Question 1

If Justin is willing to pay as much as $100 for a ticket to see the Rolling Stones, but is able to buy a ticket for $55, then he has a(n)

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay and what the consumer actually pays. Justin was willing to pay $100 but paid $55, so his consumer surplus is $100 - $55 = $45.

Question 2

If Jenna buys a CD at a price of $10, she gets a consumer surplus of $20. This means she

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay and what they actually pay. If Jenna gets a consumer surplus of $20 from buying a CD for $10, it means she was willing to pay $30 for the CD.

Question 3

Walter is just learning how to ski. He states that every time he goes skiing, he has more fun than the last time. This means his marginal utility of skiing is

Accepted Answer

Marginal utility refers to the additional satisfaction or utility that a person receives from consuming an additional unit of a good or service. If Walter is having more fun each time he goes skiing, it means the additional satisfaction he gets from each successive skiing trip is increasing. Therefore, his marginal utility of skiing is increasing.

Question 4

The law of demand (downward-sloping demand curve)is based on the idea of

Accepted Answer

The law of demand, which posits that demand decreases as price increases, is fundamentally based on the law of diminishing marginal utility. This principle states that as a consumer consumes more of a good, the additional satisfaction (marginal utility) gained from consuming an additional unit of the good decreases, leading to a lower willingness to pay for more units.

Question 5

The MU/P equalization principle means consumers will spend their income (budget) so that the MU/P ratio of the goods consumed is

Accepted Answer

The MU/P equalization principle states that consumers allocate their income in a way that the marginal utility per dollar spent (MU/P) is equal across all goods they consume. This ensures they get the most satisfaction possible from their spending.

Question 6

Greg spends his entire budget on two goods: he plays video games at the mall arcade and he buys pizza. He discovers that his MU/P of video games is lower than his MU/P of pizza. From this, we know that he would be

Accepted Answer

Given that the marginal utility per dollar (MU/P) of video games is lower than that of pizza, Greg would increase his total utility by consuming more pizza and fewer video games, reallocating his budget to equalize the MU/P across both goods.

Question 7

If the marginal utility of Jordyn's 100th dollar of income is 40 utils and the marginal utility of Joshua's 10th dollar is 135 utils, we know

Accepted Answer

The concept of utility is subjective and varies from person to person. The statement about marginal utility does not allow for direct comparisons between individuals, as utility is not a directly observable or measurable quantity that can be compared across different people.

Question 8

Suppose I buy 3 cups of coffee at the price of $1 each. I would have been willing to pay $3 for that marvelous first cup, pay even $2 for the second cup, and $1-the market price-for the third cup. My consumer surplus is

Accepted Answer

The answer of Suppose I buy 3 cups of coffee...

Question 9

Carla spends all her income on two goods: apples and bananas. The price of an apple is $2 and the price of a banana is $1. If the marginal utility of an apple to Carla is 4 and the marginal utility of a banana is 3, she should consume

Accepted Answer

To maximize total utility, Carla should consume more bananas and fewer apples because the marginal utility per dollar spent on bananas (3) is higher than that for apples (2). This is based on the principle of equating the marginal utility per dollar across all goods for optimal consumption.

Question 10

A util represents a unit of measurement for the

Accepted Answer

A util is a theoretical unit of measurement used in economics to quantify the amount of happiness or satisfaction a person gains from consuming goods and services.

Question 11

In the "Interdisciplinary Perspective" titled "A Philosophical Critique on the Marginal Utility of Money," the basic point made is that

Accepted Answer

The basic point made is that after a certain threshold where basic needs are met, additional income or wealth does not significantly increase happiness, reflecting the concept of diminishing marginal utility of money in terms of its impact on overall well-being.

Question 12

The water and diamond paradox is called a paradox because the

Accepted Answer

The paradox arises because water, which is essential for life and thus has a high total utility, has a low marginal utility due to its abundance. Diamonds, on the other hand, have a high marginal utility due to their scarcity, despite their lower total utility compared to water. This discrepancy leads to diamonds being priced higher than water, illustrating the paradox between utility and value.

Question 13

Suppose Fernando allocates his lunch money to pizza and Coke. A Coke costs $1 and a slice of pizza costs $1.50. The marginal utility of the last slice of pizza Fernando ate 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

Accepted Answer

The answer of Suppose Fernando allocates his lunch money to...

Question 14

The relative scarcity of water in desert societies causes the marginal utility of the last unit consumed to be

Accepted Answer

In desert societies, where water is scarce, the marginal utility of the last unit consumed is high because each additional unit of water provides significant satisfaction or utility due to its scarcity.

Question 15

If a consumer is choosing the optimal combinations of two goods X and Y, and then the price of good Y decreases, this causes

Accepted Answer

When the price of good Y decreases, the marginal utility per dollar (MU/P) of good Y increases, making it more attractive for the consumer to buy more of good Y to reach a new optimal combination of goods.

Question 16

The difference between the maximum amount a person would be willing to pay for a good and the amount that a person actually pays is called

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good or service and the actual price they do pay.

Question 17

Many social policies, such as progressive income tax systems, are based on the idea that

Accepted Answer

Interpersonal comparisons of utility are a foundational concept for progressive income tax systems, which operate on the principle that the marginal utility of income decreases as income increases. This allows for the assumption that taking more from the wealthy and redistributing to the less wealthy can increase overall social welfare, despite the challenges in measuring utility across different individuals.

Question 18

The MU/P of a good will decrease when there is a(n)

Accepted Answer

The MU/P (Marginal Utility per unit of Price) of a good will decrease when there is an increase in the price of the good, as the denominator of the MU/P ratio increases, assuming marginal utility remains constant.

Question 19

If a runner's demand for bottled water increases, and the market price remains unchanged, the runner's consumer surplus

Accepted Answer

When a runner's demand for bottled water increases, it means they value it more highly, so the difference between what they are willing to pay and the market price increases, thus increasing their consumer surplus.

Question 20

A graph that shows all the equally preferred combinations of two goods is called a(n)

Accepted Answer

An indifference curve represents a graph showing combination of two goods that give the consumer equal satisfaction and utility, thereby indicating the consumer's preferences.

Quiz 5: Happiness, Utility, and Consumer Choice