Question 1

-Refer to Table 6-3. The table above shows Lee's marginal utility per dollar from consuming ice cream cones and cans of Lemonade. The price of an ice cream cone is $2 and the price of Lemonade is $1. Use this information to select the correct statement.
A) We cannot determine how many ice cream cones and cans of Lemonade Lee will consume without knowing what his income is.
B) To maximise his utility, Lee should consume 1 ice cream cone and 5 cans of Lemonade.
C) We cannot determine how many ice cream cones and cans of Lemonade will maximise Lee's utility because we are given only the marginal utility per dollar values. We also need to know the marginal utility for each quantity.
D) If Lee has an unlimited budget, he will maximise his utility by buying only Lemonade.

Accepted Answer

CWithout knowing Lee's income, it's impossible to determine the exact combination of ice cream cones and cans of Lemonade he will consume to maximize his utility. Additionally, knowing only the marginal utility per dollar isn't enough to determine the optimal consumption quantities; we also need to know the marginal utility for each specific quantity of goods consumed to make accurate predictions.

Question 2

-Refer to Table 6-5, which lists the values of Harry Taber's marginal utility and marginal utility per dollar for burgers and sushi rolls. Assume that the price of the burgers is $4 and the price of sushi rolls is $2. When Harry's income is $14 he buys two burgers and three sushi rolls. The last column lists the values of the marginal utility per dollar for sushi rolls when the price of sushi rolls decreases to $1. Complete this statement: As a result of the change in price,
A) Harry's purchasing power has increased. He will reduce his consumption of sushi rolls so he can buy one more burger. This is an example of the substitution effect of a price change.
B) Harry's purchasing power has increased. If sushi rolls are a normal good for Harry, he will buy fewer sushi rolls. This is an example of the income effect of a price change.
C) Harry's purchasing power has increased. If sushi rolls are a normal good for Harry he will buy more sushi rolls. This is an example of the income effect of a price change.
D) Harry's purchasing power has increased. Harry buys fewer sushi rolls. This is an example of the substitution effect of a price change.

Accepted Answer

When the price of sushi rolls decreases from $2 to $1, the marginal utility per dollar for sushi rolls increases from 5 to 6. Therefore, Harry's purchasing power has increased. If sushi rolls are a normal good for Harry he will buy more sushi rolls due to the income effect of a price change. He can now buy three sushi rolls for $3, which is within his budget constraint. Therefore, choice C is the best answer.

Question 3

-Refer to Table 6-7. What is Antonio's marginal utility from consuming the fifth beer?
A) 4 utils
B) 13.6 utils
C) 69 utils
D) 134 utils

Accepted Answer

The marginal utility is the additional utility gained from consuming one more unit of a good. If the table shows that the total utility from consuming four beers is 130 utils and from five beers is 134 utils, the marginal utility of the fifth beer is 134 - 130 = 4 utils.

Question 4

Marv Pilson has $50 worth of groceries in a shopping cart at his local Shop 'n Save. Assume that the marginal utility per dollar of the liter bottles of soft drink in Marv's cart equals 50. The marginal utility per dollar of the boxes of cereal in Marv's cart equals 20. Marv has only $50 to spend, but has not yet paid for his groceries. How can Marv increase his total utility without spending more than $50?
A) Marv should substitute his favourite soft drink or the cereal in his cart for generic brands that have lower prices.
B) Marv should buy more boxes of cereal and fewer bottles of soft drink.
C) Marv should buy fewer boxes of cereal and more bottles of soft drink.
D) Marv should buy fewer boxes of cereal and fewer bottles of soft drink. He can then spend more on other items.

Accepted Answer

Marv can increase his total utility by reallocating his spending towards the good with the higher marginal utility per dollar. Since the soft drink has a higher marginal utility per dollar (50) compared to the cereal (20), he should buy more soft drinks and fewer boxes of cereal.

Question 5

If Lisa spends her income on veggie burgers and pints of soy milk and the price of veggie burgers is three times the price of a pint of soy milk, then when Lisa maximises her utility she will buy
A) both goods until the marginal utility of veggie burgers is three times the marginal utility of soy milk.
B) three times as many veggie burgers as pints of soy milk.
C) three times as many pints of soy milk as veggie burgers.
D) both goods until the marginal utility of a pint of soy milk is three times the marginal utility of veggie burgers.

Accepted Answer

According to the principle of utility maximization, consumers allocate their income so that the last dollar spent on each good provides the same marginal utility per dollar. Since the price of veggie burgers is three times the price of soy milk, the marginal utility of veggie burgers should be three times the marginal utility of soy milk for Lisa to maximize her utility.

Question 6

-Refer to Table 6-6. What is Jay's optimal consumption bundle?
A) 1 burger and 2 Pepsis
B) 2 burgers and 3 Pepsis
C) 3 burgers and 1 Pepsi
D) 3 burgers and 2 Pepsis

Accepted Answer

The answer of 
-Refer to Table 6-6. What is Jay's...

Question 7

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as
A) maximising behaviour.
B) economising behaviour.
C) the price constraint.
D) the budget constraint.

Accepted Answer

The given restriction is commonly known as the budget constraint. Therefore, option D is the correct answer. The other options, maximising behaviour and economising behaviour, may be related to consumer behaviour theory but they do not directly address the given restriction. Option C, the price constraint, is also related to consumer behaviour theory but it does not explicitly include the element of income available, which is fundamental to the budget constraint.

Question 8

-Refer to Table 6-7. Suppose Antonio has $10 to spend and the price of beer = $2 per glass and the price of pizza = $2 per slice. How many of each good will he consume when he maximises his utility?
A) 2 glasses of beer, 1 slice of pizza
B) 2 glasses of beer, 3 slices of pizza
C) 3 glasses of beer, 2 slices of pizza
D) 4 glasses of beer, 5 slices of pizza

Accepted Answer

Since Antonio has $10 to spend and beer costs $2 per glass, he can buy a maximum of 5 glasses of beer. Similarly, he can buy a maximum of 5 slices of pizza.

To maximize utility, Antonio should consume the combination of beer and pizza that gives him the highest level of satisfaction. According to the table, Antonio's utility is highest when he consumes 3 glasses of beer and 2 slices of pizza. This combination uses up all of his $10 budget and gives him a total utility of 31. Therefore, choice C (3 glasses of beer and 2 slices of pizza) is the best choice.

Question 9

Terence has $50 per week to spend on Subway sandwiches and milkshakes. The price of a Subway sandwich is $5 and the price of a milkshake is $4. He buys 6 sandwiches and 5 milkshakes. The marginal utility of the 6th sandwich = 25 and the marginal utility of the 5th milkshake = 24. Which of the following is true?
A) He is not maximising his utility and should buy more milkshakes.
B) He is maximising his utility.
C) He is not maximising his utility and should buy more Subway sandwiches.
D) He is not maximising his utility because he is not spending all of his income.

Accepted Answer

The answer of Terence has $50 per week to spend...

Question 10

-Refer to Table 6-6. If Jay can eat all the burgers he wants for free, how many burgers will he consume?
A) 7 burgers
B) 6 burgers
C) 5 burgers
D) 3 burgers

Accepted Answer

Jay will consume burgers until his marginal utility from eating an additional burger is zero. If he can eat for free, he will consume up to the point where the marginal utility of the last burger is zero, which is typically at 5 burgers.

Question 11

-Refer to Table 6-4. For steak and cheese and grilled chicken sandwiches, the table contains the values of the marginal utility (MU) and marginal utility per dollar (MU/P) for Mabel Jarvis. Mabel has $14 to spend on steak and cheese and grilled chicken sandwiches. Which of the following statements is false?
A) The price of steak and cheese sandwiches is $4. The price of grilled chicken sandwiches is $2.
B) If Mabel maximises her utility, she will buy three grilled chicken sandwiches.
C) If Mabel maximises her utility, she will buy two steak and cheese sandwiches.
D) We do not have enough information to determine how many sandwiches Mabel will buy to maximise her utility.

Accepted Answer

To determine the correct choices regarding Mabel's purchasing decisions to maximize utility, we would need to analyze the marginal utility per dollar (MU/P) for each type of sandwich. The statements about the prices of sandwiches (A) and the specific quantities that maximize utility (B and C) could be inferred from the given MU and MU/P values along with Mabel's budget. However, without seeing Table 6.4, we cannot confirm the accuracy of these statements or calculate the exact quantities of sandwiches Mabel should buy to maximize her utility. Therefore, the false statement is that we do not have enough information, as theoretically, with the MU, MU/P, and prices provided, one could determine the optimal purchase strategy.

Question 12

-Refer to Table 6-5, which lists the values of Harry Taber's marginal utility and marginal utility per dollar for burgers and sushi rolls. Assume that the price of the burgers is $4 and the price of sushi rolls is $2. When Harry's income is $14 he buys two burgers and three sushi rolls. The last column lists the values of the marginal utility per dollar for sushi rolls when the price of sushi rolls decreases to $1. Complete this statement: As a result of the change in price, the marginal utility of each sushi roll Harry consumes increases, and
A) the substitution effect of the price change will cause Harry to buy more sushi rolls and fewer burgers.
B) the substitution effect of the price change will cause Harry to buy more sushi rolls if they are a normal good, and fewer sushi rolls if they are an inferior good.
C) the substitution effect will cause Harry to buy another burger because his purchasing power has increased.
D) the substitution effect will cause Harry to buy fewer sushi rolls.

Accepted Answer

According to the law of demand, as the price of a good decreases, its quantity demanded increases. In this case, the marginal utility per dollar for sushi rolls has increased, indicating that Harry will get more satisfaction from each dollar spent on sushi rolls than before. Therefore, the substitution effect of the price change will cause Harry to buy more sushi rolls and fewer burgers as he reallocates his budget to maximize his satisfaction.

Question 13

Suppose Renee can increase her total utility from consuming video rentals and books by buying one more book and renting one fewer video. Which of the following is true?
A) The marginal utility of video rentals is negative.
B) The marginal utility per dollar spent on books exceeds that of video rentals.
C) The marginal utility of the last book consumed exceeds the marginal utility of the last video rental consumed.
D) The marginal utility of the last video rental consumed exceeds the marginal utility of the last book consumed.

Accepted Answer

The answer of Suppose Renee can increase her total utility...

Question 14

There are two conditions necessary for a consumer to maximise her utility. One is that the marginal utilities per dollar spent on each good and service consumed are equal. What is the other condition?
A) Total spending on all goods and services must equal the amount available to be spent.
B) The consumer must be satisfied with the choices she makes.
C) The total spent on each good and service is the same.
D) The prices of each good and service consumed must not be too high.

Accepted Answer

The other condition for a consumer to maximize her utility, besides equal marginal utilities per dollar spent, is that the total spending on all goods and services must equal the amount available to be spent. This ensures that the consumer is allocating their budget in a way that maximizes their satisfaction given their income constraints.

Question 15

Suppose Barry is maximising his utility from consuming used paperback novels and audio books. The price of a used novel = $4 and the price of an audio book = $8. If the marginal utility of the last novel was 32 units of utility (utils) what was the marginal utility of the last audio book purchased?
A) 2 utils
B) 12 utils
C) 16 utils
D) 64 utils

Accepted Answer

The answer of Suppose Barry is maximising his utility from...

Question 16

Which of the following is explained by the law of diminishing marginal utility?
A) The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her third bottle of Coca-Cola.
B) The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her third pretzel.
C) The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her friend Margie's third pretzel.
D) The total utility of one bottle of Coca-Cola is greater than the total utility of two bottles of Coca-Cola.

Accepted Answer

The answer of Which of the following is explained by...

Question 17

The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears. To maximise his utility, what should Harold do?
A) He should acquire more income so that he can afford to buy more oranges and pears.
B) He should reduce his consumption of both oranges and pears so that he can buy a greater variety of goods.
C) He should buy fewer pears and more oranges.
D) He should buy fewer oranges and more pears.

Accepted Answer

Since Harold's marginal utility per dollar for oranges is higher than his marginal utility per dollar for pears, he should reallocate his budget towards buying more oranges and fewer pears in order to maximise his overall utility.

Question 18

During a study session for an economics exam with three other students, Peter Daltry commented on an example of a consumer who had to decide the on number of slices of pizza and cups of Coca-Cola he would consume. Peter explained that 'To maximise his utility, this consumer must equate the marginal utility per dollar for pizza and Coca-Cola.' Was Peter's analysis correct?
A) Peter described one of the conditions necessary for utility maximisation. The consumer also must equate the marginal utility of pizza and the marginal utility of cups of Coca-Cola.
B) Peter's statement is correct.
C) Peter's statement is correct but we must also assume that the consumer is rational.
D) Peter describes one of the conditions necessary for utility maximisation. The second condition is that total spending on both goods must equal the amount available to be spent.

Accepted Answer

The answer of During a study session for an economics...

Question 19

Marge buys 5 CDs and 7 DVDs. The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils. Can we say that this is the optimal combination of CDs and DVDs for Marge?
A) No. We need to know her preferences for CDs and DVDs.
B) Yes.
C) No. We need to know the prices of the CDs and DVDs.
D) No. If this was the optimal combination, the marginal utility per dollar of the 5th CD and the 7th DVD would be equal.

Accepted Answer

The answer of Marge buys 5 CDs and 7 DVDs....

Question 20

-Refer to Table 6-4. For steak and cheese and grilled chicken sandwiches, the table contains the values of the marginal utility (MU) and marginal utility per dollar (MU/P) for Mabel Jarvis. Mabel has $14 to spend on steak and cheese and grilled chicken sandwiches. Which of the following statements is true?
A) If Mabel maximises her utility, she will buy three steak and cheese sandwiches and two grilled chicken sandwiches.
B) If Mabel was maximising her utility when spending $14 and then received an additional $4, she would receive the most marginal utility per dollar if her next purchase was another grilled chicken sandwich.
C) Mabel will first buy two steak and cheese sandwiches; then with her remaining $6 she will buy three grilled chicken sandwiches.
D) To maximise her utility, Mabel will need a total of $36, the income needed to buy 6 steak and cheese sandwiches and 6 grilled chicken sandwiches.

Accepted Answer

According to the table, Mabel will receive the most marginal utility per dollar by purchasing grilled chicken sandwich after spending $14. Therefore, if she receives an additional $4, her next purchase should be a grilled chicken sandwich to maximise her utility. The other options in A, C, and D do not reflect the optimal choice based on the given information in the table.

Quiz 6: Concumer Choice and Behavioural Economics

-Refer to Table 6-3. The table above shows Lee's marginal utility per dollar from consuming ice cream cones and cans of Lemonade. The price of an ice cream cone is $2 and the price of Lemonade is $1. Use this information to select the correct statement.

-Refer to Table 6-7. What is Antonio's marginal utility from consuming the fifth beer?

If Lisa spends her income on veggie burgers and pints of soy milk and the price of veggie burgers is three times the price of a pint of soy milk, then when Lisa maximises her utility she will buy

-Refer to Table 6-6. What is Jay's optimal consumption bundle?

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

-Refer to Table 6-7. Suppose Antonio has $10 to spend and the price of beer = $2 per glass and the price of pizza = $2 per slice. How many of each good will he consume when he maximises his utility?

-Refer to Table 6-6. If Jay can eat all the burgers he wants for free, how many burgers will he consume?

Suppose Renee can increase her total utility from consuming video rentals and books by buying one more book and renting one fewer video. Which of the following is true?

There are two conditions necessary for a consumer to maximise her utility. One is that the marginal utilities per dollar spent on each good and service consumed are equal. What is the other condition?

Suppose Barry is maximising his utility from consuming used paperback novels and audio books. The price of a used novel = $4 and the price of an audio book = $8. If the marginal utility of the last novel was 32 units of utility (utils) what was the marginal utility of the last audio book purchased?

Which of the following is explained by the law of diminishing marginal utility?

The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears. To maximise his utility, what should Harold do?

Marge buys 5 CDs and 7 DVDs. The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils. Can we say that this is the optimal combination of CDs and DVDs for Marge?