Question 1

At the video store, Lucian narrows his selection to either a $2 videocassette of The Evil Dead or a
$4 DVD of Finding Nemo.Lucian finally flips a coin to decide which movie to rent.This must mean that Lucian's marginal rate of substitution of The Evil Dead for Finding Nemo is 0.5.False

Accepted Answer

Lucian's marginal rate of substitution (MRS) is 0.5 because he is indifferent between the two options, as indicated by his decision to flip a coin. This implies he values the $2 videocassette of The Evil Dead equally to the $4 DVD of Finding Nemo, suggesting an MRS of 0.5 (2/4).

Question 2

Figure: Consumer Equilibrium IV   (Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.An unattainable level of utility, given budget constraint FL, is at point:

Accepted Answer

The answer of Figure: Consumer Equilibrium IV   (Figure:...

Question 3

Figure: Consumer Equilibrium IV
(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.The highest attainable level of utility, given budget constraint FL, is at point:

Accepted Answer

Point I represents the highest attainable level of utility given budget constraint FL. This is where the budget line is tangent to the highest indifference curve. Therefore, point I is the best choice for the consumer in this situation.

Question 4

Maria derives 288 utils from buying two pairs of hiking boots and four saws.She gets 313 utils from buying one pair of hiking boots and seven saws.Maria is indifferent between these two combinations of hiking boots and saws.True

Accepted Answer

To solve this problem, we need to use the concept of marginal utility. Marginal utility refers to the additional utility or satisfaction that a person receives from consuming one more unit of a good.

Let's assume that the utility of one pair of hiking boots is X, and the utility of one saw is Y. We can use this information to create two equations:

2X + 4Y = 288  (equation 1)
1X + 7Y = 313  (equation 2)

We want to determine if Maria is indifferent between these two combinations of hiking boots and saws. In other words, does she derive the same level of satisfaction from both?

We can start by solving for X in equation 2:

1X = 313 - 7Y 
X = 313/1 - 7Y/1

Now we can substitute this expression for X into equation 1 and simplify:

2(313/1 - 7Y/1) + 4Y = 288 
626/1 - 14Y/1 + 4Y = 288 
-10Y = -338 
Y = 33.8

We can now plug Y=33.8 into either equation to solve for X:

2X + 4(33.8) = 288 
2X = 118.4 
X = 59.2

Therefore, the utility of one pair of hiking boots is 59.2 and the utility of one saw is 33.8.

Now we can calculate the total utility of each combination of hiking boots and saws:

Combination 1: 
2 pairs of hiking boots = 2X = 118.4 
4 saws = 4Y = 135.2 
Total utility = 253.6

Combination 2: 
1 pair of hiking boots = 1X = 59.2 
7 saws = 7Y = 236.6 
Total utility = 295.8

Since the total utility of Combination 2 is higher than Combination 1, Maria prefers Combination 2. Therefore, the statement "Maria is indifferent between these two combinations of hiking boots and saws" is false.

Question 5

Due to diminishing marginal utility, indifference curves are convex to the origin.False

Accepted Answer

Indifference curves are convex to the origin because of diminishing marginal utility, which implies that as a consumer has more of one good, they are willing to give up less of the other good to maintain the same level of utility.

Question 6

Henry and Anne have identical incomes.Both buy only sardines and ice cream.Since they face the same prices for the two goods, their optimal consumption bundles must be identical.True

Accepted Answer

Even with identical incomes and prices, Henry and Anne may have different preferences, leading to different optimal consumption bundles.

Question 7

Figure: Consumer Equilibrium IV
(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.Assume that you are consuming the combination of goods at point I.Given the budget constraint FL, utility:

Accepted Answer

The answer of Figure: Consumer Equilibrium IV
(Figure: Consumer Equilibrium IV)...

Question 8

Figure: Consumer Equilibrium IV  (Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.Assume that you are consuming the combination of goods at point K.Given the budget constraint FL, utility can be increased by moving to point:

Accepted Answer

The answer of Figure: Consumer Equilibrium IV  (Figure: Consumer...

Question 9

One point on an indifference curve drawn between mangoes and vegetable broth is the consumption bundle consisting of five mangoes and three boxes of vegetable broth.This means that Sharri is indifferent between five mangoes and three boxes of vegetable broth.True

Accepted Answer

The answer of One point on an indifference curve drawn...

Question 10

The assumption that "the farther from the origin an indifference curve is, the higher the level of utility it indicates" implies "more is better."
False

Accepted Answer

The assumption that the farther from the origin an indifference curve is, the higher the level of utility it indicates is true, but it does not necessarily imply that "more is better." This assumption is based on the idea of consumer preferences and the satisfaction they derive from consuming goods and services, which does not necessarily follow a linear relationship with the quantity consumed. It is possible for a consumer to prefer a lower quantity of a certain good over a higher quantity, depending on their individual preferences and needs. Therefore, the assumption does not necessarily imply that "more is better" in all cases.

Question 11

Figure: Consumer Equilibrium IV   (Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.Assume that you are
Consuming the combination of goods at point K.Given the budget constraint FL, utility:

Accepted Answer

The answer of Figure: Consumer Equilibrium IV   (Figure:...

Question 12

As an individual moves down his or her indifference curve, total utility remains constant.False

Accepted Answer

An indifference curve represents combinations of goods that provide the same level of utility to a consumer, so moving along the curve keeps total utility constant.

Question 13

Diminishing marginal utility occurs with increasing total utility.False

Accepted Answer

Diminishing marginal utility occurs with increasing total utility because as more of a good is consumed, the additional satisfaction (marginal utility) derived from each additional unit decreases.

Question 14

Suppose Joe derives 327 utils from consuming 1 dozen crab cakes and 11 pairs of socks.If he also derives 327 utils from 2 dozen crab cakes and 5 pairs of socks, Joe is indifferent between those combinations of crab cakes and socks.False

Accepted Answer

Joe is indifferent between the two combinations because he derives the same level of utility (327 utils) from both, indicating equal satisfaction.

Question 15

Janella consumes only bananas and passion fruit.It is not possible for Janella's indifference curves to cross one another at any point.False

Accepted Answer

Indifference curves represent different levels of utility, and they cannot cross because it would imply inconsistent preferences, which is not possible in standard consumer theory.

Question 16

Shirley knows her marginal rate of substitution of mangos in place of bananas is equal to three.The price of bananas is $0.50 and the price of mangos is $1.00.Shirley should buy more mangos.False

Accepted Answer

Shirley should buy more bananas because the price of bananas is lower than the price of mangos, and her marginal rate of substitution of mangos in place of bananas is equal to three. This means that she is willing to give up three bananas to get one mango. So, she should buy more bananas and fewer mangos until the marginal rate of substitution is equal to the price ratio.

Question 17

Mr.Coiner is always willing to exchange two nickels for a dime, no matter how many nickels and dimes he has.This implies that nickels and dimes are ordinary goods for Mr.Coiner.True

Accepted Answer

Ordinary goods are typically defined by their consumption increasing as income increases. The willingness to exchange two nickels for a dime suggests that Mr. Coiner views them as perfect substitutes, not ordinary goods.

Question 18

The following bundles can all be on the same indifference curve.Bundle A: 4 enchiladas, 1 burrito; Bundle B: 3 enchiladas, 3 burritos; Bundle C: 2 enchiladas, 2 burritos.True

Accepted Answer

Bundles on the same indifference curve must provide the same level of utility. If Bundle B has more burritos and only one less enchilada than Bundle A, it likely provides more utility, so they cannot all be on the same indifference curve.

Question 19

Pooh spends all his income on honey and maple syrup.Because he views honey and maple syrup as perfect substitutes, he is willing to substitute honey for maple syrup at the constant rate of 1 teaspoon of honey to 2 teaspoons of maple syrup.If the relative price of honey in terms of maple syrup is 2.2, Pooh's optimal consumption bundle will consist entirely of maple syrup.False

Accepted Answer

Since Pooh views honey and maple syrup as perfect substitutes and is willing to substitute 1 teaspoon of honey for 2 teaspoons of maple syrup, he will choose the cheaper option. If the relative price of honey in terms of maple syrup is 2.2, it means honey is more expensive than his substitution rate, so he will consume only maple syrup.

Question 20

Figure: Consumer Equilibrium IV
(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.The highest level of utility shown in the figure is at point:

Accepted Answer

The highest level of utility is represented by point J, where the budget line is tangent to the highest possible indifference curve. At this point, the consumer is maximizing their utility given their budget constraint. Points G, H, and I are all on lower indifference curves and therefore represent lower levels of utility.

Quiz 10: The Rational Consumer

At the video store, Lucian narrows his selection to either a $2 videocassette of The Evil Dead or a $4 DVD of Finding Nemo.Lucian finally flips a coin to decide which movie to rent.This must mean that Lucian's marginal rate of substitution of The Evil Dead for Finding Nemo is 0.5.False

Figure: Consumer Equilibrium IV (Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.An unattainable level of utility, given budget constraint FL, is at point:

Figure: Consumer Equilibrium IV (Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.The highest attainable level of utility, given budget constraint FL, is at point:

Maria derives 288 utils from buying two pairs of hiking boots and four saws.She gets 313 utils from buying one pair of hiking boots and seven saws.Maria is indifferent between these two combinations of hiking boots and saws.True

Due to diminishing marginal utility, indifference curves are convex to the origin.False

Henry and Anne have identical incomes.Both buy only sardines and ice cream.Since they face the same prices for the two goods, their optimal consumption bundles must be identical.True

Figure: Consumer Equilibrium IV (Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.Assume that you are consuming the combination of goods at point I.Given the budget constraint FL, utility:

Figure: Consumer Equilibrium IV (Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.Assume that you are consuming the combination of goods at point K.Given the budget constraint FL, utility can be increased by moving to point: