Question 1

As more bananas are consumed, marginal utility decreases at

Accepted Answer

Marginal utility decreases at different rates for different people, and eventually, for everyone, it can become negative as consumption increases beyond a certain point.

Question 2

Have you ever gone to an auction? You see people bidding against each other for a good, such as an oil painting. As the bidding price inches upward, people drop out of the bidding process. Why? Because for the people dropping out, the

Accepted Answer

As the price of the good increases during an auction, the marginal utility per dollar spent on that good decreases compared to the marginal utility per dollar spent on other goods. This means that the value or satisfaction gained from each additional dollar spent on the good becomes less than what could be obtained by spending that dollar on something else, leading bidders to drop out.

Question 3

Lorna loves sweaters! She has drawers filled with them, and continues to buy them. But she's sort of strange in this one respect: she buys more when price rises. It is strange because her behavior violates the law of

Accepted Answer

The law of demand states that, all else being equal, as the price of a good increases, the quantity demanded of that good decreases. Lorna's behavior of buying more sweaters as the price rises violates this principle.

Question 4

Suppose you spent your entire budget on goods so that the marginal utility per dollar spent on each is identical. Which of the following is true?

Accepted Answer

When the marginal utility per dollar spent on each good is identical, it means you have allocated your budget in a way that maximizes your total utility. Any shift in income from this allocation would lead to a decrease in total utility, as you would be moving away from the optimal distribution of spending.

Question 5

Helen is a computer analyst earning $750,000 a year in New York and flies each winter weekend to Florida to bask in the sun. The price tag is $1,500. Her cousin Fred is a nursery school teacher earning $35,000 a year in Chicago and spends his winter weekends going to avant-garde movie theaters. The price tag is $20. Who gets the betterdeal?

Accepted Answer

The concept of utility is subjective and varies from person to person. Therefore, it's impossible to objectively compare the utility Helen and Fred derive from their respective weekend activities, making interpersonal comparisons of utility infeasible.

Question 6

Maria goes shopping for wedding shoes and is willing to pay $50. She pays only $20 because the shoes she wants are on sale. Does she gets a consumer surplus? If so,how much?

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay and what they actually pay. Maria was willing to pay $50 but paid $20, so her consumer surplus is $30 ($50 - $20).

Question 7

Which of the following is likely to yield the greatest consumer surplus?

Accepted Answer

Consumer surplus is the difference between what consumers are willing to pay for a good or service and what they actually pay. In the case of finding water in the Sahara desert after three days of thirst, the value to the consumer (in terms of survival and relief from extreme thirst) would far exceed any price they might have been willing to pay, leading to the greatest consumer surplus among the options provided.

Question 8

Suppose your best friend's birthday is next week and you are willing to pay $300 for a gift of Rollerblades, but you found them on sale for $200 at Sportsmart. Lucky? Yes.Your consumer surplus is

Accepted Answer

Consumer surplus is the difference between what you are willing to pay ($300) and what you actually pay ($200), which is $100.

Question 9

How do you calculate the total consumer surplus in any market? It is the area

Accepted Answer

Consumer surplus is calculated as the area beneath the demand curve and above the price, representing the difference between what consumers are willing to pay and what they actually pay.

Question 10

Everyone refers to Jerry as "Big Guy." He is 6'4" tall and weighs 275 pounds (he says). It's probably closer to 300 pounds. Jerry loves hamburgers. He ate 4 of them at McDonald's one evening. He figured the last one was just worth the $1 price he paid. If his demand curve for hamburgers is downward sloping, then he

Accepted Answer

Jerry gained consumer surplus on the first three hamburgers because he valued them more than the price he paid. The fourth hamburger was valued exactly at the price he paid, so no consumer surplus was gained on it.

Question 11

Ed thinks he looks good in tweed. Last week he saw a light-brown tweed sports coat at Dessen's Fine Clothing Store and thought that the $200 price tag was about as much as he was willing to pay. Lucky for him, he noticed an ad in the local paper that night that had attached a $20-off coupon for any purchase at Dessen's over $100. Using the coupon, he bought the coat. He ended up with the coat and a

Accepted Answer

The answer of Ed thinks he looks good in tweed....

Question 12

Joel buys ten disks for his new personal computer, and he places a $60 value on those disks, even though he only paid $2 per disk. What is his consumer surplus?

Accepted Answer

The answer of Joel buys ten disks for his new...

Question 13

Which of the following do you know for certain is true?

Accepted Answer

The law of diminishing marginal utility states that as a person consumes more of a good, the marginal utility (satisfaction) derived from each additional unit decreases. Therefore, the marginal utility of Diane's second Coke is greater than the marginal utility of her third Coke, assuming all other factors remain constant.

Question 14

Catherine's demand for fish takes the conventional form of a downward-sloping demand curve. When the price of fish falls, her consumer surplus

Accepted Answer

When the price of fish falls, Catherine's consumer surplus increases because she is able to purchase the same quantity of fish for a lower price or a greater quantity for the same expenditure, thus deriving more utility or satisfaction from her purchase at a lower cost.

Question 15

George Carlson wears cuff links with his dress shirts and he loves the new pair his wife bought him. He adds it to his collection, which he now values at $650. Before the new purchase, he valued the collection at $575. What can we say about the marginal utility of the new cuff links to him?

Accepted Answer

The marginal utility of the new cuff links is the difference in value he places on his collection before and after the purchase, which is $650 - $575 = $75.

Question 16

Lynda Carlson collects wacky colored and shaped eyeglasses. Her husband found a new multicolored pair and bought it for her. She adds it to her collection, which she now values at $950. Before the new purchase, she valued the collection at $910. What can we say about the marginal utility to her of the new eyeglasses and its relationship to the marginal utility of any of the eyeglasses she already had?

Accepted Answer

The marginal utility of the new eyeglasses is the difference in the value of the collection before and after the purchase, which is $950 - $910 = $40.

Question 17

Economists argue that consumers are rational and that they allocate their income among the purchase of goods in such a way that maximizes their total utility. The higher their income, the more goods they buy and the higher is the total utility. If that's the case, how do you explain the fact that many people willingly give up some of their income to help the less fortunate? Do they sacrifice utility?

Accepted Answer

The total utility is not necessarily less because the satisfaction (or utility) gained from helping others can be greater than the utility from spending the money on themselves.

Question 18

If, after a person buys a set of goods with his/her income and total utility is not maximized, then

Accepted Answer

If total utility is not maximized after a purchase, it implies that the allocation of income across different goods is not optimal. Adjusting the composition of goods bought (buying more of some goods and less of others) could lead to an increase in total utility, indicating that the initial allocation was not utility-maximizing.

Question 19

Consumers maximize their total utility subject to a budget constraint if the

Accepted Answer

Consumers maximize their total utility subject to a budget constraint when the marginal utility per dollar spent on each good is equal. This ensures that no reallocation of spending could increase their total utility, achieving an optimal distribution of their budget across different goods.

Question 20

Marti wanted to replenish her wardrobe and went to the $30 rack at K-Mart. There she saw three stylish dresses. She was delighted because she would have been willing to pay $40 for the first dress, $35 for the second dress, and $30 for the third dress. She bought all three. Which of the following is correct?

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay and what they actually pay. For the first dress, the surplus is $10 ($40 - $30), for the second dress, it's $5 ($35 - $30), and for the third dress, it's $0 ($30 - $30), totaling $15.

Quiz 5: Happiness, Utility, and Consumer Choice