Question 1

If MU_x/P_x > MU_y/P_y, the consumer can increase utility by buying less of good y, which means the MU_y will rise.

Accepted Answer

If the inequality holds, it means that the marginal utility per dollar spent on good x is greater than the marginal utility per dollar spent on good y. Therefore, the consumer should shift their spending towards good x and away from good y in order to maximize utility, which will lead to an increase in the MU_y of good y.

Question 2

Which of the following varies along a given demand curve?

Accepted Answer

Along a demand curve, the only variable that changes is the price of the good itself. All other factors, such as consumer preferences, prices of substitutes, prices of complements, and income, are assumed to be constant.

Question 3

Along a consumer's demand curve, price reflects

Accepted Answer

Along a consumer's demand curve, price reflects the dollar value of the marginal utility of each additional unit of the good. As the price of a good decreases, consumers typically buy more of it, reflecting the fact that they are able to obtain more utility per dollar spent. The marginal utility of each additional unit decreases as consumption increases, so the price reflects this diminishing marginal utility.

Question 4

If consumers paid an amount for any good that reflected the value of the total benefits they receive from consuming it, then

Accepted Answer

The answer of If consumers paid an amount for any...

Question 5

If an individual's demand is elastic and price increases, what happens to total utility (TU), marginal utility (MU), consumer surplus (CS), and total expenditure (TE)?

Accepted Answer

If an individual's demand is elastic, a price increase will lead to a decrease in the quantity demanded, causing the individual to have less total utility (TU) because they are consuming less of the good. As a result, marginal utility (MU) will increase because each unit of the good consumed has become more valuable to the individual. This increase in MU will eventually level out, and the individual will reach their optimal consumption level at a price lower than the new price. Consumer surplus (CS) will decrease because the individual is now paying a higher price for the same level of satisfaction. Total expenditure (TE) will decrease because the individual is consuming less of the good at a higher price.

Question 6

The law of diminishing marginal utility explains why an individual's demand curve is elastic.

Accepted Answer

The law of diminishing marginal utility explains why an individual's demand curve is downward-sloping, but it does not necessarily mean that the demand curve is elastic. Elasticity depends on the responsiveness of quantity demanded to changes in price, which may or may not be influenced by the law of diminishing marginal utility.

Question 7

When residential water users are charged a flat monthly rate for water, the marginal cost of an extra thousand gallons of water to a household is zero.

Accepted Answer

When residential water users are charged a flat monthly rate, the price they pay for water remains the same regardless of the amount of water they consume. Hence, the marginal cost of an extra thousand gallons of water to a household is zero.

Question 8

In order to derive a demand curve for cheese, we would change

Accepted Answer

To derive a demand curve for cheese, we need to change the price of cheese and hold other things constant. This is because a demand curve shows the relationship between the price of a product and the quantity demanded, assuming that all other factors affecting demand remain unchanged. By varying the price of cheese and observing the corresponding quantities demanded at each price, we can plot a demand curve for cheese. Changing any other variable (such as income, tastes, or the price of other goods) would shift the demand curve, rather than deriving it.

Question 9

If MU_x/P_x > MU_y/P_y, the consumer can increase utility by buying more of good x, which will cause the MU_x to rise.

Accepted Answer

The answer of If MU_x/P_x > MU_y/P_y, the consumer can...

Question 10

Suppose Lorna will buy more sweaters if the price of sweaters rises. She is violating the

Accepted Answer

Lorna's behavior of buying more sweaters when the price of sweaters rises is in accordance with the law of demand, which states that consumers will buy more of a good or service at a lower price, ceteris paribus. In this case, the rising price of sweaters is the only factor changing, so according to the law of demand, Lorna would buy more sweaters at a lower price.

Question 11

Water is essential to life while diamonds, while beautiful, are not essential to life. In the marketplace, diamonds are very expensive while water is relatively cheap. We can resolve this paradox by focusing on

Accepted Answer

The paradox can be resolved by focusing on the marginal utility of water and diamonds, rather than their total or average utility. Marginal utility refers to the additional utility or satisfaction that an extra unit of a good or service provides. Water, being essential to life, has a high marginal utility, but a low price because it is abundant. On the other hand, diamonds have a low marginal utility (since they are not essential to life), but a high price because they are scarce and desirable for their beauty. Therefore, by focusing on marginal utility, we can understand why water is relatively cheap and diamonds are expensive, despite the fact that water is more essential to life.

Question 12

Suppose a glass of orange juice has a price of $2 and a glass of soft drink has a price of $1. If the consumer is maximizing utility,

Accepted Answer

If the consumer is maximizing utility, they will choose to consume the beverage that provides the highest marginal utility per dollar spent. Since the glass of orange juice is twice the price of the glass of soft drink, it must provide at least twice the amount of marginal utility to be the optimal choice. Therefore, choice A is the best choice because it states that juice must have a higher marginal utility than the soda drink.

Question 13

Basil is maximizing his utility from consuming tea and crumpets. If the marginal utility of his last cup of tea was 24 units of utility and that of his last crumpet was 6 units of utility, which of the following is true?

Accepted Answer

We can use the concept of the marginal utility per dollar to determine the relative prices of tea and crumpets. The marginal utility per dollar of tea is the marginal utility of tea divided by its price, and the marginal utility per dollar of crumpets is the marginal utility of crumpets divided by their price. We know that the marginal utility of the last cup of tea consumed is 24, so the marginal utility per dollar of tea is 24 divided by the price of tea. We also know that the marginal utility of the last crumpet consumed is 6, so the marginal utility per dollar of crumpets is 6 divided by the price of crumpets.

Since Basil is maximizing his utility, he is allocating his spending such that the marginal utility per dollar of the last unit of each good is equal. We can set the marginal utility per dollar of tea equal to the marginal utility per dollar of crumpets, and solve for the price ratio:

24/Price of tea = 6/Price of crumpets
Price of crumpets/Price of tea = 4

Therefore, the price of crumpets is four times the price of tea. The best choice is D.

As for the second part of the question, we cannot determine whether the MU of the next cup of tea is less than the MU of the next crumpet based on the information given, so E is not a valid choice.

Question 14

The law of demand states that

Accepted Answer

The law of demand states that there is an inverse relationship between the price of a good and the quantity of that good consumers are willing to purchase. As the price of a good increases, the quantity demanded of that good decreases, ceteris paribus. This inverse relationship is expressed graphically as a downward-sloping demand curve.

Question 15

Basil is maximizing his utility from consuming tea and crumpets. If the marginal utility of the last crumpet was 32 units of utility and the prices of tea and crumpets are $4 and $8, respectively, what was the marginal utility of the last cup of tea Basil consumed?

Accepted Answer

The answer of Basil is maximizing his utility from consuming...

Question 16

To derive a demand curve using utility analysis,

Accepted Answer

To derive a demand curve using utility analysis, we need to understand how a consumer's utility-maximizing consumption bundle changes in response to price changes. As the price of a good increases, the consumer will decrease their consumption, leading to a decrease in the quantity demanded. Similarly, as the price of a good decreases, the consumer will increase their consumption, leading to an increase in the quantity demanded. By observing these changes in consumption in response to price changes, we can derive the consumer's demand curve.

Question 17

Tyrell has $50 per week to spend on good A, which has a price of $5, and good B, which has a price of $4. He buys six units of A and five of B. The marginal utility of the sixth unit of A is 25, and the marginal utility of the fifth unit of B is 20. Which of the following is true?

Accepted Answer

To maximize utility, a consumer should allocate their budget in a way that the marginal utility per dollar spent on each good is equal. In this case, the marginal utility per dollar spent on A is 5 and the marginal utility per dollar spent on B is 5. Therefore, the consumer is already maximizing his utility by purchasing six units of A and five of B within his budget constraint of $50. The fact that he is not spending all of his income does not necessarily mean he is not maximizing his utility.

Question 18

If Arnold thinks his last dollar spent golfing yields less satisfaction than the last dollar spent on movies, and Arnold is a utility-maximizing consumer, he should

Accepted Answer

If Arnold believes his last dollar spent on movies yields greater satisfaction than his last dollar spent golfing, he should reduce his spending on golfing and allocate more money toward movies, as this will result in a greater overall satisfaction level. Therefore, choice C is the most appropriate decision.

Question 19

If MU_x/P_x > MU_y/P_yx, the consumer can increase utility by buying more of good x.

Accepted Answer

The equation compares the marginal utility of good x with its price to the marginal utility of good y with the price of y. If the left side is greater than the right side, then the marginal utility per dollar spent on x is higher than that of y, meaning the consumer can get more utility by buying more x.

Question 20

If the price of a good falls, the marginal utility per dollar received from consuming a specific unit of that good

Accepted Answer

When the price of a good falls, the consumer can afford to buy more quantity of the good with the same amount of money. Hence, the marginal utility per dollar received from consuming a specific unit of the good rises. This is because the consumer now has the option to buy an extra unit of the good with the same amount of money, which would only happen if the marginal utility per dollar was increasing.

Quiz 6: Consumer Choice and Demand

If MU_x/P_x > MU_y/P_y, the consumer can increase utility by buying less of good y, which means the MU_y will rise.

Which of the following varies along a given demand curve?

Along a consumer's demand curve, price reflects

If consumers paid an amount for any good that reflected the value of the total benefits they receive from consuming it, then

If an individual's demand is elastic and price increases, what happens to total utility (TU) , marginal utility (MU) , consumer surplus (CS) , and total expenditure (TE) ?

The law of diminishing marginal utility explains why an individual's demand curve is elastic.

When residential water users are charged a flat monthly rate for water, the marginal cost of an extra thousand gallons of water to a household is zero.

In order to derive a demand curve for cheese, we would change

If MU_x/P_x > MU_y/P_y, the consumer can increase utility by buying more of good x, which will cause the MU_x to rise.

Suppose Lorna will buy more sweaters if the price of sweaters rises. She is violating the

Water is essential to life while diamonds, while beautiful, are not essential to life. In the marketplace, diamonds are very expensive while water is relatively cheap. We can resolve this paradox by focusing on

Suppose a glass of orange juice has a price of $2 and a glass of soft drink has a price of $1. If the consumer is maximizing utility,

Basil is maximizing his utility from consuming tea and crumpets. If the marginal utility of his last cup of tea was 24 units of utility and that of his last crumpet was 6 units of utility, which of the following is true?

The law of demand states that

Basil is maximizing his utility from consuming tea and crumpets. If the marginal utility of the last crumpet was 32 units of utility and the prices of tea and crumpets are $4 and $8, respectively, what was the marginal utility of the last cup of tea Basil consumed?

To derive a demand curve using utility analysis,

Tyrell has $50 per week to spend on good A, which has a price of $5, and good B, which has a price of $4. He buys six units of A and five of B. The marginal utility of the sixth unit of A is 25, and the marginal utility of the fifth unit of B is 20. Which of the following is true?

If Arnold thinks his last dollar spent golfing yields less satisfaction than the last dollar spent on movies, and Arnold is a utility-maximizing consumer, he should

If MU_x/P_x > MU_y/P_yx, the consumer can increase utility by buying more of good x.

If the price of a good falls, the marginal utility per dollar received from consuming a specific unit of that good

Quiz 6: Consumer Choice and Demand

If MUx/Px > MUy/Py, the consumer can increase utility by buying less of good y, which means the MUy will rise.

Which of the following varies along a given demand curve?

Along a consumer's demand curve, price reflects

If consumers paid an amount for any good that reflected the value of the total benefits they receive from consuming it, then

If an individual's demand is elastic and price increases, what happens to total utility (TU) , marginal utility (MU) , consumer surplus (CS) , and total expenditure (TE) ?

The law of diminishing marginal utility explains why an individual's demand curve is elastic.

When residential water users are charged a flat monthly rate for water, the marginal cost of an extra thousand gallons of water to a household is zero.

In order to derive a demand curve for cheese, we would change

If MUx/Px > MUy/Py, the consumer can increase utility by buying more of good x, which will cause the MUx to rise.

Suppose Lorna will buy more sweaters if the price of sweaters rises. She is violating the

Water is essential to life while diamonds, while beautiful, are not essential to life. In the marketplace, diamonds are very expensive while water is relatively cheap. We can resolve this paradox by focusing on

Suppose a glass of orange juice has a price of $2 and a glass of soft drink has a price of $1. If the consumer is maximizing utility,

Basil is maximizing his utility from consuming tea and crumpets. If the marginal utility of his last cup of tea was 24 units of utility and that of his last crumpet was 6 units of utility, which of the following is true?

The law of demand states that

Basil is maximizing his utility from consuming tea and crumpets. If the marginal utility of the last crumpet was 32 units of utility and the prices of tea and crumpets are $4 and $8, respectively, what was the marginal utility of the last cup of tea Basil consumed?

To derive a demand curve using utility analysis,

Tyrell has $50 per week to spend on good A, which has a price of $5, and good B, which has a price of $4. He buys six units of A and five of B. The marginal utility of the sixth unit of A is 25, and the marginal utility of the fifth unit of B is 20. Which of the following is true?

If Arnold thinks his last dollar spent golfing yields less satisfaction than the last dollar spent on movies, and Arnold is a utility-maximizing consumer, he should

If MUx/Px > MUy/Pyx, the consumer can increase utility by buying more of good x.

If the price of a good falls, the marginal utility per dollar received from consuming a specific unit of that good

If MU_x/P_x > MU_y/P_y, the consumer can increase utility by buying less of good y, which means the MU_y will rise.

If MU_x/P_x > MU_y/P_y, the consumer can increase utility by buying more of good x, which will cause the MU_x to rise.

If MU_x/P_x > MU_y/P_yx, the consumer can increase utility by buying more of good x.