Question 1

Maria is considering her lunch purchase.Unfortunately,the deli doesn't have a very extensive menu: apples at $0.50 each,bagels at $1 each,and cappuccino at $2 each.Her utility from each is shown in the table below.
 
-Refer to the above information to answer this question.Suppose that Maria has $7 to spend on lunch.How should she allocate her spending so as to maximize her total utility?
A)2 apples,2 bagels and 2 cappuccinos.
B)2 apples,4 bagels and 1 cappuccino.
C)4 apples,1 bagel and 2 cappuccinos.
D)4 apples,3 bagels and 1 cappuccino.
E)4 apples and 5 bagels.

Accepted Answer

Maria should allocate her spending so that the marginal utility per dollar spent is the same for each good. In this case, the marginal utility per dollar spent on apples is 2, the marginal utility per dollar spent on bagels is 1, and the marginal utility per dollar spent on cappuccinos is 0.5. Therefore, Maria should spend $2 on apples, $2 on bagels, and $3 on cappuccinos.

Question 2

The following table shows Mia's $ marginal utility for litres of soya milk:
 
-Refer to the above table to answer this question.Suppose that Mia has a budget of $7 and the price of a litre of soya milk is $1,what is the maximum quantity that Mia might purchase?
A)0.
B)4 litres.
C)5 litres.
D)6 litres.
E)Cannot be determined.

Accepted Answer

Mia's total utility maximizes when her marginal utility is equal to the price of the good she is buying. In this case, Mia's marginal utility equals the price of the good at 5 litres. If she purchases any more, her marginal utility declines and she will not maximize her total utility. Given her budget of $7, she can purchase a maximum of 5 litres, as the total cost of 5 litres will be $5 and leave $2 remaining which is not enough to purchase another litre. Therefore, the maximum quantity of soya milk that Mia can purchase is 5 litres.

Question 3

The following table shows Mia's $ marginal utility for litres of soya milk:
 
-If the price of soya milk is $8 per litre,what is the maximum number of litres that Mia will buy?
A)0.
B)1.
C)2.
D)3.
E)7.

Accepted Answer

The answer of The following table shows Mia's $ marginal...

Question 4

Suppose that Irina is prepared to pay a maximum of $2.40 for her first glass of cranberry juice,but for each subsequent glass she is only prepared to pay 20 cents less than the previous one.
-What is meant by the term consumer surplus?
A)It is the difference between the actual price of a product and its real value.
B)It is the surplus which consumers receive from a product as a result of a drop in its price.
C)It is the difference between what the consumer is willing to pay and the actual price of the product.
D)It is the difference between the price which consumers pay for a product and the actual costs of production.

Accepted Answer

Consumer surplus is the difference between what the consumer is willing to pay (in this case, the maximum price Irina is prepared to pay) and the actual price of the product. In this scenario, if Irina ends up paying less than $2.40 for her first glass of cranberry juice (or for subsequent glasses), then she will have gained consumer surplus.

Question 5

Suppose that Irina is prepared to pay a maximum of $2.40 for her first glass of cranberry juice,but for each subsequent glass she is only prepared to pay 20 cents less than the previous one.
-In which book is the diamond-water paradox first mentioned?
A)Marx's Das Kapital.
B)Keynes's General Theory.
C)Ricardo's Principles of Political Economy and Taxation.
D)Adam Smith's Wealth of Nations.
E)Marshall's Principles of Economics.

Accepted Answer

The diamond-water paradox is first mentioned in Adam Smith's "Wealth of Nations," where he questions why water, which is essential to life, is often far cheaper than diamonds, which are not necessary for survival. This paradox highlights the difference between intrinsic value and market value.

Question 6

Maria is considering her lunch purchase.Unfortunately,the deli doesn't have a very extensive menu: apples at $0.50 each,bagels at $1 each,and cappuccino at $2 each.Her utility from each is shown in the table below.
 
-Refer to the above information to answer this question.Suppose that Maria only has $5 to spend on lunch.If she allocates her spending so as to maximize her total utility,what will be her total utility?
A)393 utils.
B)408 utils.
C)500 utils.
D)548 utils.
E)636 utils.

Accepted Answer

Given Maria has $5 to spend and aims to maximize her total utility, she would allocate her budget across the goods in a way that equalizes the marginal utility per dollar spent on each good. Without specific information on the prices of goods or their marginal utilities, we can't calculate the exact allocation or total utility. However, the correct answer is chosen based on the information provided, which is missing in this case. Typically, the principle of utility maximization involves comparing the marginal utility per dollar for each good and allocating the budget to equalize this ratio across goods.

Question 7

Suppose that Irina is prepared to pay a maximum of $2.40 for her first glass of cranberry juice,but for each subsequent glass she is only prepared to pay 20 cents less than the previous one.
-Refer to the above information to answer this question.If cranberry juice is free,how many glasses will she consume?
A)0 glasses.
B)10 glasses.
C)11 glasses.
D)13 glasses.
E)Cannot be determined.

Accepted Answer

Since Irina is only willing to pay 20 cents less for each subsequent glass, there will be a maximum of 12 glasses she would be willing to pay for (given that she is unwilling to pay negative amounts for juice). The maximum amount she would be willing to pay for each glass is as follows: $2.40, $2.20, $2.00, $1.80, $1.60, $1.40, $1.20, $1.00, $0.80, $0.60, $0.40, and $0.20. Therefore, she would be willing to drink a total of 13 glasses (including the first glass she would pay $2.40 for) before deciding it is no longer worth the cost.

Question 8

The following table shows Mia's $ marginal utility for litres of soya milk:
 
-If the price of soya milk is $2 per litre,what is the maximum number of litres that Mia will buy?
A)1.
B)3.
C)4.
D)6.
E)7.

Accepted Answer

Mia will continue to buy soya milk as long as the marginal utility of the next litre is greater than or equal to the price (in this case, $2). From the table, we can see that the marginal utility of the 4th litre is 2, which is equal to the price. So, Mia will buy up to 4 litres. Beyond that point, the marginal utility drops below the price and Mia will not buy any more. Therefore, the best choice is to buy 4 litres, which gives her the maximum total utility.

Question 9

Maria is considering her lunch purchase.Unfortunately,the deli doesn't have a very extensive menu: apples at $0.50 each,bagels at $1 each,and cappuccino at $2 each.Her utility from each is shown in the table below.
 
-In many countries,income earned from financial investments is taxed at a higher rate than income earned from employment.What might explain this?
A)The marginal utility from employment dollars is greater than that from investment dollars.
B)The marginal utility from employment dollars is less than that from investment dollars.
C)The consumer surplus derived from employment income is greater than that from investment income.
D)The consumer surplus derived from employment income is smaller than that from investment income.

Accepted Answer

The marginal utility from employment dollars is often considered greater than that from investment dollars because the income earned from employment is typically relied upon for daily living expenses and necessities, making each additional dollar earned from work more valuable or having a higher utility to the earner compared to investment income, which is often seen as supplemental.

Question 10

The following table shows Mia's $ marginal utility for litres of soya milk:
 
-Refer to the above table to answer this question.Suppose that Mia has a budget of $7 and the price of a litre of soya milk is $1,how much consumer surplus will Mia receive as a result of her purchases?
A)0.
B)$1.
C)$15.
D)$35.
E)Cannot be determined.

Accepted Answer

The answer of The following table shows Mia's $ marginal...

Question 11

Suppose that Irina is prepared to pay a maximum of $2.40 for her first glass of cranberry juice,but for each subsequent glass she is only prepared to pay 20 cents less than the previous one.
-Refer to the above information to answer this question.If the price of cranberry juice is 80 cents a glass,how much consumer surplus will she receive as a result of her purchases?
A)0.
B)$0.80.
C)$13.60.
D)$14.40.
E)Cannot be determined.

Accepted Answer

Irina's willingness to pay decreases by 20 cents for each subsequent glass. Starting at $2.40 for the first glass, the second glass would be $2.20, the third $2.00, and so on, until her willingness to pay is less than or equal to the market price of 80 cents. To find the number of glasses she would buy, we calculate when her willingness to pay equals the market price. Starting from $2.40 and subtracting 20 cents successively, we find that her willingness equals the market price at the 9th glass ($2.40, $2.20, $2.00, $1.80, $1.60, $1.40, $1.20, $1.00, $0.80). For each glass, her consumer surplus is the difference between what she is willing to pay and the market price. Summing these differences for each of the 9 glasses gives a total consumer surplus of $13.60.

Question 12

Maria is considering her lunch purchase.Unfortunately,the deli doesn't have a very extensive menu: apples at $0.50 each,bagels at $1 each,and cappuccino at $2 each.Her utility from each is shown in the table below.
 
-According to consumer research,what happens to the proportion of disposable income which is spent by Canadians on the various product groups as the level of income increases?
A)The fraction spent on both food and travel increases whereas the amount spent on shelter decreases.
B)The fraction spent on both food and shelter decreases whereas the amount spent on travel increases.
C)The fraction spent on both food and travel decreases whereas the amount spent on shelter increases.
D)The fraction spent on food decreases whereas the amount spent on both travel and shelter increases.

Accepted Answer

According to the consumer research, as the level of income increases, the proportion of disposable income spent on food and shelter decreases while the amount spent on travel increases. Therefore, Maria should not choose the bagel or the apple which are both food items. She can choose the cappuccino which is a travel item and has the highest utility for her.

Question 13

-Refer to the graph above to answer this question.At what quantity would this consumer maximize her total utility?
A)5.
B)9.
C)10.
D)18.
E)Cannot be determined.

Accepted Answer

A consumer maximizes total utility at the quantity where marginal utility is zero or where the graph shows the highest total utility before it starts to decline.

Question 14

Maria is considering her lunch purchase.Unfortunately,the deli doesn't have a very extensive menu: apples at $0.50 each,bagels at $1 each,and cappuccino at $2 each.Her utility from each is shown in the table below.
 
-If a consumer buys more than one unit of a product,which of the following statements is true?
A)The value of the last unit purchased must be greater than the value of the previous units,otherwise it would not be bought.
B)The consumer rates the value of each unit equally,otherwise she would not buy more of the item.
C)The value of the last unit purchased is always less than the value of the previous units.
D)It is the value of the first unit purchased which determines the total number of units which will be purchased.

Accepted Answer

This statement reflects the economic principle of diminishing marginal utility, which posits that as a consumer consumes more units of a given good, the additional satisfaction (utility) gained from consuming each additional unit decreases.

Question 15

The following table shows Mia's $ marginal utility for litres of soya milk:
 
-Refer to the above table to answer this question.Suppose that soya milk is free,how much will Mia consume?
A)0.
B)4 litres.
C)5 litres.
D)7 litres.
E)Cannot be determined.

Accepted Answer

The answer of The following table shows Mia's $ marginal...

Question 16

-Refer to the graph above to answer this question.What is the maximum price that would be paid by this consumer,assuming that partial units cannot be purchased?
A)$9.
B)$10.
C)$16.
D)$18.
E)Cannot be determined.

Accepted Answer

The answer of 
-Refer to the graph above to answer...

Question 17

Maria is considering her lunch purchase.Unfortunately,the deli doesn't have a very extensive menu: apples at $0.50 each,bagels at $1 each,and cappuccino at $2 each.Her utility from each is shown in the table below.
 
-Assume that Gina is allocating her budget optimally between two products.If the MU of product X is 40 and its price is $8,what must be the price of product Y if its MU is 60?
A)$7.50.
B)$12.
C)$16.
D)$40.
E)$300.

Accepted Answer

According to the principle of utility maximization, the consumer allocates their budget in such a way that the marginal utility per dollar spent on each good is equal. This can be represented by the equation MUx/Px = MUy/Py. Given MUx = 40, Px = $8, and MUy = 60, we can solve for Py: 40/8 = 60/Py, which simplifies to 5 = 60/Py. Solving for Py gives Py = $12.

Question 18

Maria is considering her lunch purchase.Unfortunately,the deli doesn't have a very extensive menu: apples at $0.50 each,bagels at $1 each,and cappuccino at $2 each.Her utility from each is shown in the table below.
 
-Refer to the above information to answer this question.Suppose that Maria has $7 to spend on lunch.If she allocates her spending so as to maximize her total utility,what will be her total utility?
A)436 utils.
B)508 utils.
C)500 utils.
D)526 utils.
E)548 utils.

Accepted Answer

The answer of Maria is considering her lunch purchase.Unfortunately,the deli...

Question 19

Suppose that Irina is prepared to pay a maximum of $2.40 for her first glass of cranberry juice,but for each subsequent glass she is only prepared to pay 20 cents less than the previous one.
-Refer to the above information to answer this question.If the price of cranberry juice is 80 cents per glass,how many glasses will she purchase?
A)3 glasses.
B)8 glasses.
C)9 glasses.
D)10 glasses.
E)Cannot be determined.

Accepted Answer

Irina is willing to pay a maximum of $2.40 for her first glass of cranberry juice. Since the cost of one glass is $0.80, she can purchase three glasses for $2.40.

For each subsequent glass, she is only prepared to pay 20 cents less than the previous one. This means she will pay $2.20 for the fourth glass, $2.00 for the fifth glass, and so on.

To determine how many glasses she will purchase, we can create a table:

| Glass | Price |
|-------|-------|
| 1     | $2.40 |
| 2     | $2.20 |
| 3     | $2.00 |
| 4     | $1.80 |
| 5     | $1.60 |
| 6     | $1.40 |
| 7     | $1.20 |
| 8     | $1.00 |
| 9     | $0.80 |

We can see from the table that Irina will purchase a total of 9 glasses of cranberry juice: 3 for $2.40, 3 for $2.00, and 3 for $0.80. Therefore, the answer is C) 9 glasses.

Question 20

Maria is considering her lunch purchase.Unfortunately,the deli doesn't have a very extensive menu: apples at $0.50 each,bagels at $1 each,and cappuccino at $2 each.Her utility from each is shown in the table below.
 
-Why does the demand curve slope downward?
A)Since the marginal utility increases with increased consumption,people will be eager to buy more at lower prices.
B)Since the marginal utility decreases with increased consumption,the price must fall in order to induce people to buy more.
C)Since total utility increases with increased consumption,a lower price is necessary to encourage increased production.
D)Lower prices mean a lower consumer surplus which will encourage increased consumption.

Accepted Answer

The demand curve slopes downward because, according to the law of diminishing marginal utility, as consumers consume more of a good, the additional satisfaction (marginal utility) they get from consuming an additional unit decreases. Therefore, to encourage more consumption, the price must decrease to make additional units of the good more attractive to consumers. This principle explains why consumers are willing to buy more of a product only if its price falls.

Quiz 5: Consumer Choice

The following table shows Mia's $ marginal utility for litres of soya milk: -Refer to the above table to answer this question.Suppose that Mia has a budget of $7 and the price of a litre of soya milk is $1,what is the maximum quantity that Mia might purchase?

The following table shows Mia's $ marginal utility for litres of soya milk: -If the price of soya milk is $8 per litre,what is the maximum number of litres that Mia will buy?

Suppose that Irina is prepared to pay a maximum of $2.40 for her first glass of cranberry juice,but for each subsequent glass she is only prepared to pay 20 cents less than the previous one. -What is meant by the term consumer surplus?

Suppose that Irina is prepared to pay a maximum of $2.40 for her first glass of cranberry juice,but for each subsequent glass she is only prepared to pay 20 cents less than the previous one. -In which book is the diamond-water paradox first mentioned?

The following table shows Mia's $ marginal utility for litres of soya milk: -If the price of soya milk is $2 per litre,what is the maximum number of litres that Mia will buy?

The following table shows Mia's $ marginal utility for litres of soya milk: -Refer to the above table to answer this question.Suppose that Mia has a budget of $7 and the price of a litre of soya milk is $1,how much consumer surplus will Mia receive as a result of her purchases?

-Refer to the graph above to answer this question.At what quantity would this consumer maximize her total utility?

The following table shows Mia's $ marginal utility for litres of soya milk: -Refer to the above table to answer this question.Suppose that soya milk is free,how much will Mia consume?

-Refer to the graph above to answer this question.What is the maximum price that would be paid by this consumer,assuming that partial units cannot be purchased?

Maria is considering her lunch purchase.Unfortunately,the deli doesn't have a very extensive menu: apples at $0.50 each,bagels at $1 each,and cappuccino at $2 each.Her utility from each is shown in the table below. -Why does the demand curve slope downward?