Question 1

-Refer to the above table. Suppose the price of a movie is $5 and the income of the consumer is $29. What are the quantities demanded of hamburger at prices of $2 and $1 respectively?

Accepted Answer

Given a consumer's income of $29 and the price of a movie being $5, the consumer can spend the remaining $24 on hamburgers after buying one movie ticket. At a hamburger price of $2, the consumer can buy 12 hamburgers ($24/$2), and at a price of $1, the consumer can buy 24 hamburgers ($24/$1). However, without the table mentioned, the correct quantities demanded cannot be directly inferred. The choice provided as correct (B) is based on a typical assumption in consumer choice problems, but without the specific table data, the exact answer might vary. My response assumes a general understanding of budget constraints and consumer choice theory.

Question 2

-Refer to the above table. The price of a hamburger is $2, the price of a movie is $10, and the consumer has $44. What is the change in quantity demanded of hamburgers if the price of a hamburger decreases to $1?

Accepted Answer

The answer of 
-Refer to the above table. The price...

Question 3

Why is water much cheaper than diamonds even though water is essential to human lives while diamonds are not?

Accepted Answer

The answer of Why is water much cheaper than diamonds...

Question 4

Why are diamonds more expensive than water?

Accepted Answer

The reason diamonds are more expensive than water is because the last diamond has higher marginal utility than the last glass of water. In other words, diamonds are considered more valuable because they provide greater satisfaction or enjoyment than an additional glass of water. This is due to the fact that diamonds are rare, desirable, and can be used for a variety of purposes, such as jewelry or industrial applications. Water, on the other hand, is a necessity and is readily available, which makes its marginal utility lower than that of a diamond.

Question 5

The law of demand is derived under the assumption of

Accepted Answer

The law of demand is derived under the assumption of constant consumer tastes and preferences, meaning that the quantity demanded of a good or service will decrease as the price of the good or service increases, assuming all other factors such as consumer incomes and tastes remain constant. The other options are not necessarily assumed for the law of demand.

Question 6

To derive the law of demand, we assume that

Accepted Answer

The law of demand is derived by assuming that tastes or preferences are constant, while the price of the good or service is variable.

Question 7

If you could pay for a product according to the marginal utility that you gain from additional consumption, then as you consume more of a product the price you pay would

Accepted Answer

The law of diminishing marginal utility states that as you consume more of a product, the additional satisfaction you gain from each additional unit consumed decreases. Therefore, if you could pay for a product according to the marginal utility you gain from additional consumption, the price you pay should decline as you consume more of the product. This is because the additional satisfaction you gain from each additional unit consumed decreases, so the price you are willing to pay for each additional unit should also decrease.

Question 8

-Refer to the above figure. All of the following are true concerning the diamond-water paradox EXCEPT

Accepted Answer

The diamond-water paradox illustrates that the price of goods is not determined by their total utility but by their marginal utility. Diamonds have a high price because their marginal utility is high (due to their rarity), not because their overall demand is great. Demand for water is actually greater than for diamonds, but water's price is lower due to its abundant supply and lower marginal utility.

Question 9

Why does a price increase of a product result in a decrease in the quantity demanded of that product, according to utility analysis?

Accepted Answer

The answer of Why does a price increase of a...

Question 10

Given the price of a good or service, what determines how much a person is willing to pay for that good or service?

Accepted Answer

Marginal utility refers to the additional satisfaction or benefit a person receives from consuming one more unit of a good or service. As a person consumes more units, the marginal utility eventually diminishes, meaning they are willing to pay less for each additional unit. Therefore, the price of a good or service is determined by the marginal utility a person receives from it.

Question 11

Given the utility-optimizing rule and the presence of diminishing marginal utility for a good,

Accepted Answer

The utility-optimizing rule states that individuals will continue to consume a good up to the point where the marginal utility of the good is equal to its price. However, due to diminishing marginal utility, the additional satisfaction obtained from consuming an extra unit of the good will decrease as more of the good is consumed. This means that the consumer will only be willing to pay a lower price for each additional unit consumed. As a result, the demand curve for the good will be negatively sloped.

Question 12

A consumer was at an optimum. She then discovers that the marginal utility per dollar spent on food is more than the marginal utility per dollar spent on gasoline. She knows then that

Accepted Answer

The answer of A consumer was at an optimum. She...

Question 13

The reason that diamonds cost more than water is

Accepted Answer

The marginal utility of each diamond a consumer purchases is quite high due to the small amount of diamonds that most consumers purchase, whereas water has a much lower marginal utility as it is abundant and necessary for basic human survival. Thus, the demand for diamonds is much higher than the demand for water, driving up the price.

Question 14

An individual's demand curve slopes down because

Accepted Answer

The law of diminishing marginal utility states that as more units are consumed, the additional satisfaction or utility obtained from each additional unit decreases. As a result, consumers are willing to pay less for each additional unit consumed. The rule of equal marginal utilities per dollar states that consumers will allocate their limited income to maximize their satisfaction by purchasing goods with the same ratio of marginal utility to price. Therefore, the demand curve slopes down to show that as the price of a good decreases, consumers are willing and able to purchase more of it because the marginal utility satisfaction gained from each additional unit decreases, but the price per unit stays the same or decreases.

Question 15

The diamond-water paradox illustrates the idea that ________ determines what consumers are willing to pay for a particular good.

Accepted Answer

The diamond-water paradox highlights that although water has more total utility (usefulness) than diamonds, diamonds have a higher value due to their greater marginal utility (extra satisfaction gained from the last unit consumed) and scarcity. This illustrates the concept that marginal utility, not total utility, determines the price consumers are willing to pay for a good.

Question 16

The diamond-water paradox was solved by knowing that

Accepted Answer

The diamond-water paradox was solved by understanding that the price of goods is determined by their marginal utility rather than their total utility. This explains why diamonds, which have a high marginal utility due to their rarity, are priced higher than water, which has a lower marginal utility due to its abundance, despite water having a higher total utility for survival.

Question 17

The total utility of water is

Accepted Answer

Water has a higher total utility as it is a necessity for survival and is used for various purposes such as drinking, cooking, cleaning, etc. Diamonds, on the other hand, have a lower total utility as they are not necessary for survival and have limited uses. However, the marginal utility of diamonds is higher as people are willing to pay more for each additional diamond they acquire, whereas the marginal utility of water decreases as people acquire more of it. Therefore, choice C is the best answer.

Question 18

The diamond-water paradox is an example that shows that

Accepted Answer

The diamond-water paradox demonstrates that even though water is essential for survival and has a high total utility, its marginal utility is low and therefore it has a lower price compared to diamonds, which have a high marginal utility and a lower total utility. This paradox highlights the importance of considering marginal utility rather than total utility in determining a good's value.

Question 19

The average demand curve slopes downward due to all of the following EXCEPT

Accepted Answer

The law of increasing relative costs does not affect the slope of the demand curve. It is a principle that explains the upward sloping supply curve. The other three choices all contribute to the downward slope of the demand curve.

Question 20

Which of the following statements is FALSE, with respect to what economist Adam Smith called the diamond-water paradox?

Accepted Answer

The diamond-water paradox highlights that even though water is more essential and has a higher total utility than diamonds, diamonds are priced higher due to their scarcity and the higher marginal utility of the last unit consumed. The demand for water is actually much larger than the demand for diamonds, not smaller, due to its essential nature for life.

Quiz 20: Consumer Choice