Question 1

If a rational consumer is in equilibrium, which of the following conditions will hold true?

Accepted Answer

In equilibrium, a rational consumer will allocate their income in such a way that the marginal utility per dollar spent on each good is equal. This means that the marginal utility of the last dollar spent on each good purchased will be the same. Option A is not necessarily true, as the marginal utility of each good may vary. Option B is not possible as the consumer will only continue to purchase additional units of a good as long as the marginal utility is positive. Option D is not necessary for equilibrium, as the consumer may maximize their satisfaction even if the total utility obtained from each good is different.

Question 2

A consumer who has a limited budget will maximize utility or satisfaction when the

Accepted Answer

A consumer on a limited budget will want to get the most satisfaction or utility from each dollar spent. This means that they will want to allocate their budget in such a way that the ratios of the marginal utility of each product they buy divided by its price are equal. In other words, they will want to buy products that give them the most utility per dollar spent. This is known as the principle of equal marginal utility per dollar spent.

Question 3

If MU_a/P_a= 100/$35 = MU_b/P_b= 300/? = MU_c/P_c= 400/?, the prices of products B and C in consumer equilibrium

Accepted Answer

To find the prices of products B and C, we set the marginal utility per dollar equal for all products. For product B, 300/? = 100/35, solving gives ? = $105. For product C, 400/? = 100/35, solving gives ? = $140.

Question 4

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $18  How many units of the two products will the rational consumer purchase?

Accepted Answer

The answer of Answer the question on the basis of...

Question 5

Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K.  What level of total utility is realized from the equilibrium combination of J and K, if the consumer has a money income of $52 and the prices of J and K are $8 and $4, respectively?

Accepted Answer

The answer of Answer the question on the basis of...

Question 6

The marginal utility of the last unit of apples consumed is 12, and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium?

Accepted Answer

To reach consumer equilibrium, the consumer would maximize their total utility by allocating their budget between the two goods in such a way that the marginal utility per dollar spent is the same for both goods. Since MUa/Pa = MUb/Pb, we can set up the equation 12/$Pa = 8/$Pb and solve for the ratio of prices. We get Pa/Pb = 2/3. From the answer choices, only option B ($6 and $4) satisfies this condition, as 6/4 = 3/2. If the price of apples were any higher relative to bananas, the consumer would switch from consuming more apples to more bananas due to the higher marginal utility per dollar spent on bananas.

Question 7

Diminishing marginal utility explains why

Accepted Answer

Diminishing marginal utility refers to the decrease in additional satisfaction or usefulness as more and more units are consumed or purchased. This means that as the quantity of a good or service that a consumer purchases increases, the marginal utility of each additional unit will decrease. This leads to a downward sloping demand curve as consumers are willing to pay less for each additional unit due to the diminished satisfaction they receive.

Question 8

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $18.  What level of total utility does the rational consumer realize in equilibrium?

Accepted Answer

The answer of Answer the question on the basis of...

Question 9

A consumer is maximizing her utility with a particular money income when

Accepted Answer

The equation given in option B is the marginal utility per dollar spent equation (MUD). The consumer maximizes her utility when the marginal utility per dollar spent is equal for all products. This means that the consumer is getting the most satisfaction possible from each dollar spent and is allocating her budget efficiently. Therefore, the consumer should choose the products that satisfy the equation given in option B.

Question 10

Which of the following best explains why most people don't consume units of goods to the point that their marginal utility falls to zero?

Accepted Answer

Consumers face budget constraints that limit how much they can purchase. As the quantity of a good consumed increases, its marginal utility falls, which means that each additional unit of the good provides less additional satisfaction than the previous unit. However, consumers cannot continue consuming the good indefinitely because they face budget constraints that limit how much they can purchase. Therefore, they will stop consuming the good when its marginal utility falls to a level that makes the additional satisfaction obtained from consuming it not worth the additional cost.

Question 11

The theory of consumer behavior assumes that consumers attempt to maximize

Accepted Answer

The theory of consumer behavior assumes that consumers attempt to maximize total utility, which is the total satisfaction received from consuming a good or service.

Question 12

When a consumer shifts purchases from product X to product Y, the marginal utility of

Accepted Answer

When a consumer shifts purchases from product X to product Y, it implies that the last unit of X consumed was providing less satisfaction compared to what the consumer now expects to gain from Y. Therefore, the marginal utility of X rises because the consumer is consuming less of X, making each unit of X more valuable. Conversely, the marginal utility of Y falls because the consumer is consuming more of Y, making each additional unit of Y less valuable.

Question 13

Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Prashanth

Accepted Answer

The fact that Prashanth chose to buy the more expensive hockey game ticket implies that he gets more marginal utility from attending the hockey game than from attending the Broadway play. However, this cannot be attributed to a lack of appreciation for the arts (choice A) or attending multiple Broadway plays (choice D). The decision is based on the "marginal utility-to-price ratio" for each activity, meaning Prashanth believes he will get more satisfaction per dollar spent on the hockey game than he would from spending the same amount of money on the Broadway play. Therefore, the best answer is C.

Question 14

Assume MU_cand MU_drepresent the marginal utility that a consumer gets from products C and D, the respective prices of which are P_cand P_d. The consumer will increase his total utility from a specific money outlay by spending more on C and less on D if initially

Accepted Answer

The answer of Assume MU_cand MU_drepresent the marginal...

Question 15

What do the income effect, the substitution effect, and diminishing marginal utility have in common?

Accepted Answer

These concepts all contribute to explaining why demand curves typically slope downwards, indicating that as the price of a product decreases, consumers are more likely to purchase more of it. The income effect suggests that a lower price increases the purchasing power of consumers, allowing them to buy more. The substitution effect indicates that as the price of a product decreases, it becomes relatively cheaper compared to substitutes, leading consumers to switch their purchases to the cheaper option. Diminishing marginal utility explains that the more of a good consumers have, the less additional utility (satisfaction) they get from consuming more, which influences how much they're willing to pay for additional units, contributing to a downward-sloping demand curve.

Question 16

Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K.  If the consumer's money income were cut from $52 to $28, and the prices of J and K remain at $8 and $4, respectively, she would maximize her satisfaction by purchasing

Accepted Answer

The answer of Answer the question on the basis of...

Question 17

Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $0.60 per bottle and $0.40 per bag, respectively. It can be concluded that

Accepted Answer

The marginal utility per dollar spent on soda is 60 utils / $0.60 = 100 utils per dollar, while for pretzels it is 30 utils / $0.40 = 75 utils per dollar. Mrs. Arnold should spend more on soda and less on pretzels to maximize utility.

Question 18

Suppose you have a limited money income and you are purchasing products A and B, whose prices happen to be the same. To maximize your utility, you should purchase A and B in such amounts that

Accepted Answer

To maximize utility, you should allocate your limited income in such a way that the marginal utility per dollar spent on each product is equal. Since both products have the same price, you should choose the quantities that have equal marginal utilities. This is because the marginal utility per dollar of the last units of A and B consumed will be equal, which means that you will be getting the same additional satisfaction from each product per dollar spent. Therefore, the optimal choice is to purchase A and B in such amounts that their marginal utilities are the same.

Question 19

Suppose that MUx/P_xexceeds MUy/P_y. To maximize utility, the consumer who is spending all her money income should buy

Accepted Answer

If MUx/P_x exceeds MUy/P_y, then it is optimal for the consumer to buy more of X (to increase their utility), or less of Y (to reduce the relatively lower utility gained from purchasing Y). Therefore, the best choice(s) would be to buy more of X and/or less of Y, which is reflected in option D.

Question 20

Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K.  If the consumer has money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing

Accepted Answer

To maximize utility, the consumer should allocate their entire budget towards the commodities in such a way that the marginal utility per dollar spent is equal for both products. In this case, the consumer can afford to spend $52 on J and K, which if spent judiciously, can yield maximum satisfaction. At $8 per unit of J, the consumer can buy a maximum of 6 units, which yields marginal utility of 18. At $4 per unit of K, the consumer can buy a maximum of 13 units, which yields marginal utility of 8. Therefore, the consumer would allocate their budget such that the last dollar spent on each product yields the same extra satisfaction. 
The marginal utility per dollar spent on J=18/8= 2.25
The marginal utility per dollar spent on K=8/4=2
At the point where both marginal utilities per dollar are equal, the consumer maximizes their utility. Using the table, the combination that satisfies this condition is 4 units of J and 5 units of K. Therefore, the answer is C.

Quiz 7: Utility Maximization

If a rational consumer is in equilibrium, which of the following conditions will hold true?

A consumer who has a limited budget will maximize utility or satisfaction when the

If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products B and C in consumer equilibrium

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $18 How many units of the two products will the rational consumer purchase?

The marginal utility of the last unit of apples consumed is 12, and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium?

Diminishing marginal utility explains why

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $18. What level of total utility does the rational consumer realize in equilibrium?

A consumer is maximizing her utility with a particular money income when

Which of the following best explains why most people don't consume units of goods to the point that their marginal utility falls to zero?

The theory of consumer behavior assumes that consumers attempt to maximize

When a consumer shifts purchases from product X to product Y, the marginal utility of

Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Prashanth

Assume MUc and MUd represent the marginal utility that a consumer gets from products C and D, the respective prices of which are Pc and Pd. The consumer will increase his total utility from a specific money outlay by spending more on C and less on D if initially

What do the income effect, the substitution effect, and diminishing marginal utility have in common?

Suppose you have a limited money income and you are purchasing products A and B, whose prices happen to be the same. To maximize your utility, you should purchase A and B in such amounts that

Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is spending all her money income should buy

If MU_a/P_a= 100/$35 = MU_b/P_b= 300/? = MU_c/P_c= 400/?, the prices of products B and C in consumer equilibrium

Assume MU_cand MU_drepresent the marginal utility that a consumer gets from products C and D, the respective prices of which are P_cand P_d. The consumer will increase his total utility from a specific money outlay by spending more on C and less on D if initially

Suppose that MUx/P_xexceeds MUy/P_y. To maximize utility, the consumer who is spending all her money income should buy