Question 1

In order to derive an individual's demand curve for salmon,we would observe what happens to the utility-maximizing bundle when we change
A) income and hold everything else constant.
B) tastes and preferences and hold everything else constant.
C) the price of the product and hold everything else constant.
D) the price of a close substitute and hold everything else constant.

Accepted Answer

To derive an individual's demand curve for salmon, we need to observe the change in the quantity demanded of salmon as we change the price of salmon while holding everything else constant. This is because the demand curve shows the relationship between the quantity demanded of a product and its price, with all other factors remaining constant. Therefore, the correct choice is C - the price of the product, which in this case is salmon, while holding everything else constant.

Question 2

What is marginal utility and what is the law of diminishing marginal utility?

Accepted Answer

The answer of What is marginal utility and what is...

Question 3

The Wong family consumes 3 pounds of fish and 5 pounds of chicken per month.The price of fish is $8 per pound and chicken is $4 per pound.
a.What is the amount of income allocated to fish and chicken consumption?
b.What is the price ratio (the price of fish relative to the price of chicken)?
c.Explain the meaning of the price ratio you computed.
d.If the Wongs maximize utility,what must the ratio of the marginal utility of fish to the marginal utility of chicken be equal to?
e.If the price of chicken rises,will the Wong family consume more chicken,less chicken,or the same amount of chicken? Explain your answer using the rule of equal marginal utility per dollar.

Accepted Answer

The answer of The Wong family consumes 3 pounds of...

Question 4

Figure 7-2
  Figure 7-2 represents the demand for ice cream cones.
-Refer to Figure 7-2.Which of the following statements is true?
A) Points a and b are the utility-maximizing quantities of ice cream cones at two different prices of ice cream.
B) Points a and b may not necessarily be the utility-maximizing quantities of ice cream cones at two different prices because we have no information on the consumer's budget or the price of other goods.
C) Point a could be a utility-maximizing choice if the price is $3 but point b may not be because we have no information on the marginal utility per dollar when price changes.
D) Points a and b are derived independently of the utility-maximizing model.

Accepted Answer

The answer of Figure 7-2
  Figure 7-2 represents the...

Question 5

Arnie Ziffel has $20 per week to spend on any combination of pineapples and green tea.The price of a pineapple is $4 and the price of a bottle of green tea is $2.The table below shows Arnie's utility values.Use the table to answer the questions that follow the table.
 $\begin{array}{|c|c|c|c|c|c|c|c|}
\hline  \begin{array}{c}
\text { Quantity } \
\text { of } \
\text { Pineapples }
\end{array} & \begin{array}{c}
\text { Total } \
\text { Utility }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Utility }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Utility per } \
\text { Dollar }
\end{array} & \begin{array}{c}
\text { Quantity } \
\text { of Green } \
\text { Tea }
\end{array} & \begin{array}{c}
\text { Total } \
\text { Utility }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Utility }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Utility per } \
\text { Dollar }
\end{array} \
\hline 1 & 32 & & & 1 & 28 & & \
\hline 2 & 52 & & & 2 & 46 & & \
\hline 3 & 64 & & & 3 & 54 & & \
\hline 4 & 68 & & & 4 & 60 & & \
\hline 5 & 70 & & & 5 & 64 & & \
\hline 6 & 71 & & & 6 & 66 & & \
\hline 7 & 71 & & & 7 & 67 & & \
\hline
\end{array}$ 
a.Complete the table by filling in the blank spaces.
b.Suppose Arnold purchases 4 pineapples and 2 bottles of green tea.Is he consuming the optimal consumption bundle? If so,explain why.If not,what combination should he buy and why?

Accepted Answer

The answer of Arnie Ziffel has $20 per week to...

Question 6

The income effect due to a price decrease will result in an increase in the quantity demanded for
A) a Giffen good.
B) an inferior good.
C) a public good.
D) a normal good.

Accepted Answer

A price decrease for a normal good will result in an increase in the purchasing power of consumers, leading to an increase in their demand for the good. This is known as the income effect. Giffen goods have a unique demand curve in which a price decrease actually leads to a decrease in quantity demanded. Inferior goods have a direct relationship between price and quantity demanded, but a price decrease may result in consumers switching to higher-quality substitutes. Public goods have a fixed quantity supplied, so their demand is not affected by changes in price.

Question 7

Figure 7-1
 
-Refer to Figure 7-1.When the price of hoagies increases from $5.00 to $5.75,quantity demanded decreases from Q₁ to Q₀.This change in quantity demanded is due to
A) the price and output effects.
B) the income and substitution effects.
C) the fact that marginal willingness to pay falls.
D) the law of diminishing marginal utility.

Accepted Answer

The decrease in quantity demanded due to an increase in price is a result of the substitution effect (consumers switching to alternatives due to the higher price) and the income effect (consumers' purchasing power is reduced by the higher price). The other options are not applicable in this scenario.

Question 8

The increase in consumption of a good when its price falls is caused by two effects.What are these two effects? Explain the difference between these effects.

Accepted Answer

The answer of The increase in consumption of a good...

Question 9

We can derive the market demand curve for gold earrings
A) only if the tastes of all gold earring consumers are similar.
B) by adding horizontally the individual demand curves of each gold earring consumer.
C) by adding vertically the quantity demanded of each gold earring consumed at each price.
D) by adding the prices each gold earring consumer is willing to pay for each quantity.

Accepted Answer

The market demand curve for gold earrings can be derived by adding horizontally the individual demand curves of each gold earring consumer. This means taking the quantity demanded of gold earrings by each individual consumer at various prices and adding them together to get the overall market demand for gold earrings. It is not necessary for the tastes of all gold earring consumers to be similar in order to derive the market demand curve.

Question 10

Giffen goods
A) are theoretical and have never been discovered in the real world.
B) have not existed since prior to the Industrial Revolution.
C) were proven to exist in the 1890s by Sir Robert Giffen.
D) were not shown to actually exist until 2006.

Accepted Answer

The answer of Giffen goods
A) are theoretical and have never...

Question 11

You wish to buy only one CD.Use the rule of equal marginal utility per dollar to determine which one to purchase: (a)Drake's latest CD for $15 which gives you 75 units of utility,or (b)Bob Dylan's "Shadows in the Night" for $10 that gives you 100 units of utility?

Accepted Answer

The answer of You wish to buy only one CD.Use...

Question 12

Eliza consumes 12 cappuccinos and 8 apple turnovers per week.The price of a cappuccino is $4 each and apple turnovers are $1 each.
a.What is the amount of income allocated to cappuccino and apple turnover consumption?
b.What is the price ratio (the price of cappuccinos relative to the price of apple turnovers)?
c.Explain the meaning of the price ratio you computed.
d.If Eliza maximize utility,what is the ratio of the marginal utility of cappuccinos to the marginal utility of apple turnovers?
e.If the price of apple turnovers falls,will Eliza consume more apple turnovers,fewer apple turnovers,or the same amount of apple turnovers? Explain your answer using the rule of equal marginal utility per dollar.

Accepted Answer

The answer of Eliza consumes 12 cappuccinos and 8 apple...

Question 13

You participate in a taste test for a new protein supplement called "Kapow." You are given five consecutive one ounce vials of the supplement and after consuming each vial you are asked to note your reaction.You consume the first vial and your response is: "Hmmm,quite good!" After the second,you say,"Not bad at all." After the third,you note,"It's alright." and after the fourth you wince,"No more,the after-taste is getting to me.I need water." What economic principle does this scenario illustrate? Define the principle.

Accepted Answer

The answer of You participate in a taste test for...

Question 14

Lilly Davis has $5 per week to spend on any combination of ice cream and candy.The price of an ice cream cone is $2 and the price of a candy bar is $1.The table below shows Lilly's utility values.Use the table to answer the questions that follow the table.
 $\begin{array}{|c|c|c|c|c|c|c|}
\hline  \begin{array}{c}
\text { Quantity } \
\text { of Ice } \
\text { Cream } \
\text { Cones }
\end{array} & \begin{array}{c}
\text { Total } \
\text { Utility }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Utility }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Utility per } \
\text { Dollar }
\end{array} & \begin{array}{c}
\text { Quantity } \
\text { of Candy }
\end{array} & \begin{array}{c}
\text { Total } \
\text { Utility }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Utility }
\end{array} \
\hline 1 & 20 & & & 1 & 20 & \
\hline 2 & 38 & & & 2 & 38 & \
\hline 3 & 52 & & & 3 & 48 & \
\hline 4 & 62 & & & 4 & 54 & \
\hline
\end{array}$ 
a.Complete the table by filling in the blank spaces.
b.Suppose Lilly purchases 2 ice cream cones and 1 candy bar.Is she consuming the optimal consumption bundle? If so,explain why.If not,what combination should she buy and why?

Accepted Answer

The answer of Lilly Davis has $5 per week to...

Question 15

Along a downward-sloping linear demand curve
A) the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities increase.
B) the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities remain constant.
C) the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases.
D) the marginal utility from the consumption of each unit of the good rises and the total utility from consuming larger quantities remain constant.

Accepted Answer

Along a downward-sloping linear demand curve, the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases. This is because as more of the good is consumed, the marginal utility from each additional unit consumed decreases due to the law of diminishing marginal utility. However, the total utility still increases as the quantity consumed increases, as long as the additional marginal utility is positive.

Question 16

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good,with an income effect larger than its substitution effect,a good must be ________ and make up a ________ portion of a consumer's budget.
A) a normal good; very small
B) an inferior good; very small
C) a normal good; very large
D) an inferior good; very large

Accepted Answer

A Giffen good is an inferior good, meaning that as income increases, demand for the good decreases. However, for a good to be a Giffen good, the income effect must be larger than the substitution effect. This means that the good must make up a significant portion of a consumer's budget, so that as the price of the good increases, the consumer can no longer afford to purchase other goods and must continue to buy the Giffen good despite the higher price. Therefore, the good must be inferior and make up a large portion of the consumer's budget, which is only true for choice D.

Question 17

Figure 7-1
 
-Refer to Figure 7-1.Which of the following statements is true?
A) Quantities Q₀ and Q₁ are the utility-maximizing quantities of hoagies at two different prices of hoagies.
B) Quantities Q₀ and Q₁ may not necessarily be the utility-maximizing quantities of hoagies at two different prices because we have no information on the consumer's budget or the price of other goods.
C) Quantity Q₀ could be a utility-maximizing choice if the price is $5.75, but quantity Q₁ may not be because we have no information on the marginal utility per dollar when price changes.
D) Quantities Q₀ and Q₁ are derived independently of the utility-maximizing model.

Accepted Answer

The answer of Figure 7-1
 
-Refer to Figure 7-1.Which of...

Question 18

The demand curve for a Giffen good is
A) non-linear but downward sloping.
B) vertical.
C) upward sloping.
D) nonexistent.

Accepted Answer

The answer of The demand curve for a Giffen good...

Question 19

Economists do not think it is possible to compare the relative utility that two people get from consuming an additional unit of a particular good.

Accepted Answer

Utility is a subjective measure that can vary from person to person, making it difficult to compare between individuals. Therefore, economists do not believe it is possible to compare the relative utility gained by two different people from consuming an additional unit of a particular good.

Question 20

After getting an A on your economics exam,you decide to go to your favorite Mexican restaurant to celebrate.You are having trouble deciding whether to order the chipotle chicken chimichanga or the cilantro seafood enchiladas.Use the rule of equal marginal utility per dollar to determine which one to purchase: (a)the chimichanga for $8 which gives you 120 units of utility,or (b)the enchiladas for $15 which gives you 195 units of utility? Assume your budget is large enough to purchase either item.

Accepted Answer

The answer of After getting an A on your economics...

Quiz 7: Consumer Choice and Elasticity

In order to derive an individual's demand curve for salmon,we would observe what happens to the utility-maximizing bundle when we change

What is marginal utility and what is the law of diminishing marginal utility?

Figure 7-2 Figure 7-2 represents the demand for ice cream cones. -Refer to Figure 7-2.Which of the following statements is true?

The income effect due to a price decrease will result in an increase in the quantity demanded for

Figure 7-1 -Refer to Figure 7-1.When the price of hoagies increases from $5.00 to $5.75,quantity demanded decreases from Q₁ to Q₀.This change in quantity demanded is due to

The increase in consumption of a good when its price falls is caused by two effects.What are these two effects? Explain the difference between these effects.

We can derive the market demand curve for gold earrings

Giffen goods

You wish to buy only one CD.Use the rule of equal marginal utility per dollar to determine which one to purchase: (a)Drake's latest CD for $15 which gives you 75 units of utility,or (b)Bob Dylan's "Shadows in the Night" for $10 that gives you 100 units of utility?

Along a downward-sloping linear demand curve

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good,with an income effect larger than its substitution effect,a good must be and make up a portion of a consumer's budget.

Figure 7-1 -Refer to Figure 7-1.Which of the following statements is true?

The demand curve for a Giffen good is

Economists do not think it is possible to compare the relative utility that two people get from consuming an additional unit of a particular good.