Question 1

In a month,Samantha consumes the quantity of lobster dinners so that her marginal utility from a lobster dinner is 500 units.The price of a lobster dinner is $25.She also is consuming the quantity of spaghetti dinners so that its marginal utility is 300 units,while its price is $15.Samantha is allocating her entire budget.What should she do to maximize her total utility?
A) consume more lobster dinners and fewer spaghetti dinners
B) consume more spaghetti dinners and fewer lobster dinners
C) consume the current combination of lobster and spaghetti dinners
D) consume fewer lobster dinners and fewer spaghetti dinners
E) Not enough information is given to answer the question.

Accepted Answer

The answer of In a month,Samantha consumes the quantity of...

Question 2

$$\begin{array} { c c c c } 
\text { Quantity } & \text { Total utility } & \text { Quantity } & \text { Total utility } \
\hline 0 & 0 & 0 & 0 \
1 & 8 & 1 & 10 \
2 & 14 & 2 & 19 \
3 & 18 & 3 & 27 \
4 & 21 & 4 & 34 \
5 & 23 & 5 & 40 \
6 & 24 & 6 & 45
\end{array}$$
-The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.The price of pizza is $2 per slice and the price of soda is $1 per bottle.His marginal utility from the 4th slice of pizza is
A) 7.
B) 3.50.
C) 34.
D) 17.50.
E) 27.

Accepted Answer

Marginal utility is the change in total utility from consuming one more unit of a good. For the 4th slice of pizza, the change in total utility is from 27 to 34, which is a difference of 7.

Question 3

Carter spends his entire budget on pizza and Pepsi.He maximizes his utility when he allocates his entire available budget and buys pizza and Pepsi so that the
A) marginal utility from pizza is equal to the marginal utility from Pepsi.
B) total utility from both pizza and Pepsi is maximized.
C) marginal utility per dollar from pizza is equal to the marginal utility per dollar from Pepsi.
D) total utility per dollar from both pizza and Pepsi are equal.
E) None of the above answers is correct.

Accepted Answer

Carter can maximize his utility by allocating his entire available budget and buying pizza and Pepsi in such a way that the marginal utility per dollar from pizza is equal to the marginal utility per dollar from Pepsi. This is because he wants to get the most satisfaction for every dollar he spends. If the marginal utility per dollar from pizza is higher than that from Pepsi, he should buy more pizza and less Pepsi until they are equal, and vice versa. This way he can maximize his total utility from both pizza and Pepsi within his budget. It is important to note that choice A, B, and D may not be true as maximizing total utility or making marginal utilities equal may not necessarily lead to maximizing utility per dollar.

Question 4

If a consumer has allocated his or her budget and found the combination of goods where all marginal utilities divided by price are equal,what would happen if the consumer were forced to consume some other combination of goods? The consumer
A) will definitely have higher total utility.
B) will definitely have lower total utility.
C) will definitely not experience any change in total utility.
D) might be have higher, lower, or the same total utility, but more information is needed to determine which.
E) None of the above answers is correct.

Accepted Answer

If the consumer is forced to consume some other combination of goods, the marginal utility per dollar spent will not be equal for all goods. This means that either some goods will have higher marginal utility per dollar spent, in which case the consumer would want to consume more of those goods, or some goods will have lower marginal utility per dollar spent, in which case the consumer would want to consume less of those goods. In either case, the consumer would end up with less total utility than if they were able to consume the combination of goods where all marginal utilities divided by price are equal.

Question 5

Suppose the price of a pair of jeans is $25 and the price of a T-shirt is $15.The consumer's budget is entirely allocated.If the marginal utility from a pair of jeans is 100 units and the marginal utility from a T-shirt is 75 units,the consumer is
A) in equilibrium because his or her utility is maximized.
B) not in equilibrium and should purchase fewer jeans and more T-shirts.
C) not in equilibrium and should purchase fewer T-shirts and more jeans.
D) not in equilibrium but should maintain the current level of purchases.
E) not in equilibrium and should purchase more T-shirts and more jeans.

Accepted Answer

To maximize utility, the consumer should equalize the marginal utility per dollar spent across all goods. Here, the marginal utility per dollar for jeans is 100/25 = 4, and for T-shirts, it's 75/15 = 5. Since the marginal utility per dollar is higher for T-shirts, the consumer should buy fewer jeans and more T-shirts to reach equilibrium.

Question 6

Sheryl is maximizing her utility.She notices that her marginal utility from the last package of bubble gum consumed is greater than her marginal utility from the last package of mints consumed.This result means that the
A) price of a package of gum is greater than the price of a package of mints.
B) price of a package of mints is greater than the price of a package of gum.
C) total utility of gum must be falling as more gum is consumed.
D) total utility of mints must be falling as more mints are consumed.
E) More information is needed to determine which, if any, of the above answers is correct.

Accepted Answer

The answer of Sheryl is maximizing her utility.She notices that...

Question 7

For David,the marginal utility from an additional car is 2,000 units and the marginal utility from an additional vacation is 1,000 units.David is allocating all his budget.Hence to maximize his utility,David will
A) shift his consumption from the vacation to the car.
B) shift his consumption from the car to the vacation.
C) save his budget by not spending it until he can afford both the car and the vacation.
D) buy both the car and the vacation now.
E) possibly do something, but there is not enough information available to determine what he would do.

Accepted Answer

To determine how David should allocate his budget to maximize utility, we need to know the prices of the car and the vacation, as well as how these utilities compare to their respective costs. Without this information, we cannot accurately say what David should do to maximize his utility.

Question 8

Suppose that Jen receives 400 units of utility from her last soda and 200 units of utility from her last slice of pizza.What can we conclude about Jen's choices if the price of a soda is $1 and the price of a slice of pizza is $2?
A) Jen is maximizing utility because she buys more of the good providing the most utility.
B) Jen should buy more soda to maximize her utility.
C) Jen should buy more pizza to maximize her utility.
D) Jen needs to buy less soda and less pizza to maximize her utility.
E) None of the above answers is correct.

Accepted Answer

To maximize utility, consumers should allocate their spending so that the marginal utility per dollar spent is equal across all goods. Here, the marginal utility per dollar spent on soda is 400 units/$1 = 400 units per dollar, and for pizza, it's 200 units/$2 = 100 units per dollar. Since the marginal utility per dollar is higher for soda, Jen should buy more soda to maximize her utility.

Question 9

Assume you are in a store looking at a shirt you want.You expect to buy the shirt until you look at the price,then you decide the shirt is not a good buy.How can your decision be viewed in economic terms?
A) The shirt's marginal utility divided by price was too low compared to other goods.
B) The shirt has zero marginal utility for you.
C) The opportunity cost of the shirt was too low.
D) The shirt's marginal utility divided by price was too high compared to other goods.
E) None of the above answers is correct.

Accepted Answer

The decision can be viewed in terms of marginal utility per dollar spent. If the shirt's price is too high relative to the satisfaction (utility) it provides, its marginal utility per dollar is considered too low, making it a less attractive purchase compared to other goods where you might get more satisfaction per dollar spent.

Question 10

The consumption of bottled water increased dramatically during the 1990s.If consumers' utility schedules for water remained constant over this time period,in order for consumers to stay in equilibrium,the price of bottled water must have
A) risen because marginal utility increased since people consumed more bottled water.
B) fallen.
C) remained constant because the marginal utility schedule did not change.
D) risen because the supply of water must have increased.
E) We don't have enough information to say what happened to the price.

Accepted Answer

According to the law of demand, as the quantity demanded of a good increases, the price of the good will fall, assuming that all other factors affecting demand remain constant. Therefore, if consumers' utility schedules for water remained constant but the consumption of bottled water increased dramatically during the 1990s, the price of bottled water must have fallen in order for consumers to stay in equilibrium.

Question 11

The price of coffee increases because of low crop yields.If the consumer's utility schedule for coffee remains constant,we can predict that coffee consumption
A) will increase.
B) will decrease.
C) will stay the same.
D) will increase if the marginal utility of coffee diminishes and will decrease if the marginal utility of coffee increases.
E) might change, but we need more information to determine if it increased, decreased, or did not change.

Accepted Answer

With the increase in price, consumers will likely reduce their coffee consumption as it becomes relatively more expensive compared to other substitutes. This is known as the income effect. However, some consumers may still be willing to pay the higher price to maintain their usual level of coffee consumption, particularly those with a high preference or addiction to coffee. This would result in a minor decrease in coffee consumption overall.

Question 12

The utility-maximizing rule says that consumers must
A) only allocate the entire available budget.
B) only make the marginal utility per dollar the same for all goods.
C) allocate the entire available budget and make the marginal utility per dollar the same for all goods.
D) either allocate the entire available budget or make the marginal utility per dollar the same for all goods, but not both.
E) None of the above answers is correct.

Accepted Answer

The utility-maximizing rule states that consumers must allocate their entire available budget while ensuring that the marginal utility per dollar spent is equal for all goods. This is because allocating less than the entire budget means that the consumer is not fully utilizing all available resources to maximize utility, and having different marginal utilities per dollar spent on different goods means that the consumer can increase total utility by redistributing their budget to focus on goods with a higher marginal utility per dollar spent, i.e., goods that provide the most additional satisfaction per each dollar spent. Therefore, choice C best reflects the utility-maximizing rule.

Question 13

$$\begin{array} { c c c c } 
\text { Quantity } & \text { Total utility } & \text { Quantity } & \text { Total utility } \
\hline 0 & 0 & 0 & 0 \
1 & 8 & 1 & 10 \
2 & 14 & 2 & 19 \
3 & 18 & 3 & 27 \
4 & 21 & 4 & 34 \
5 & 23 & 5 & 40 \
6 & 24 & 6 & 45
\end{array}$$
-The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.The price of pizza is $2 per slice and the price of soda is $1 per bottle.Ali has $14 in his budget.When Ali maximizes his utility he buys ________ bottles of soda and ________ slices of pizza.
A) 4; 5
B) 6; 4
C) 2; 6
D) 6; 6
E) None of the above answers is correct.

Accepted Answer

The answer of \[\begin{array} { c c c c }...

Question 14

$$\begin{array} { c c c c } 
\text { Quantity } & \text { Total utility } & \text { Quantity } & \text { Total utility } \
\hline 0 & 0 & 0 & 0 \
1 & 8 & 1 & 10 \
2 & 14 & 2 & 19 \
3 & 18 & 3 & 27 \
4 & 21 & 4 & 34 \
5 & 23 & 5 & 40 \
6 & 24 & 6 & 45
\end{array}$$
-The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.The price of pizza is $2 per slice and the price of soda is $1 per bottle.Ali has $14 in his budget.When Ali maximizes his utility,his total utility equals
A) 6.
B) 9.
C) 69.
D) 61.
E) None of the above answers is correct.

Accepted Answer

We can start by finding the marginal utility per dollar (MUPD) of both pizza and soda. MUPD is calculated by dividing the marginal utility (change in total utility from consuming an additional unit) by the price of the good.

For pizza:

- MU of 1st slice = 8
- MU of 2nd slice = 6
- MU of 3rd slice = 4
- MU of 4th slice = 5
- MU of 5th slice = 2
- MU of 6th slice = 1

To find the MUPD, we divide each MU by the price of pizza ($2):

- MUPD of 1st slice = 8/2 = 4 
- MUPD of 2nd slice = 6/2 = 3 
- MUPD of 3rd slice = 4/2 = 2 
- MUPD of 4th slice = 5/2 = 2.5 
- MUPD of 5th slice = 2/2 = 1 
- MUPD of 6th slice = 1/2 = 0.5

For soda:

- MU of 1st bottle = 2 
- MU of 2nd bottle = 5 
- MU of 3rd bottle = 8 
- MU of 4th bottle = 7 
- MU of 5th bottle = 6 
- MU of 6th bottle = 5

To find the MUPD, we divide each MU by the price of soda ($1):

- MUPD of 1st bottle = 2/1 = 2 
- MUPD of 2nd bottle = 5/1 = 5 
- MUPD of 3rd bottle = 8/1 = 8 
- MUPD of 4th bottle = 7/1 = 7 
- MUPD of 5th bottle = 6/1 = 6 
- MUPD of 6th bottle = 5/1 = 5

Now we can use the MUPD values to determine the optimal combination of pizza and soda. The rule for maximizing utility with a limited budget is to buy the combination of goods that gives the highest MUPD per dollar spent.

We start by looking at the MUPD of the first unit of each good. Soda has a higher MUPD than pizza (2 vs. 4), so Ali should spend his first dollar on a bottle of soda.

With $13 left in his budget, Ali should now choose the good with the highest MUPD per dollar.

- MUPD per dollar of 2nd slice of pizza = 3/2 = 1.5 
- MUPD per dollar of 2nd bottle of soda = 5/1 = 5

Buying the 2nd bottle of soda is the better choice, since it has a higher MUPD per dollar.

With $11 left in his budget, the MUPD per dollar of the next choice for each good is:

- MUPD per dollar of 3rd slice of pizza = 2/2 = 1 
- MUPD per dollar of 3rd bottle of soda = 8/1 = 8

Buying the 3rd bottle of soda is again the better choice. We continue this process until we run out of money.

Note that Ali will buy 3 bottles of soda and 4 slices of pizza, spending a total of $14. This gives him a total utility of 27 (from the soda) + 10 (from the pizza) = 37.

Therefore, D) 61 (as none of the answers in the question matches the actual calculated utility) is the closest to Ali's maximized utility, but note that the question does not provide the exact total utility for Ali's optimal choice.

Question 15

$$\begin{array} { c c c c } 
\text { Quantity } & \text { Total utility } & \text { Quantity } & \text { Total utility } \
\hline 0 & 0 & 0 & 0 \
1 & 8 & 1 & 10 \
2 & 14 & 2 & 19 \
3 & 18 & 3 & 27 \
4 & 21 & 4 & 34 \
5 & 23 & 5 & 40 \
6 & 24 & 6 & 45
\end{array}$$
-The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.The price of pizza is $2 per slice and the price of soda is $1 per bottle.Ali has $14 in his budget.When Ali maximizes his utility,how many bottles of soda does he buy?
A) fewer than 3
B) 3
C) 4
D) 5
E) more than 5

Accepted Answer

To maximize utility, Ali should allocate his budget in a way that the marginal utility per dollar spent on each good is equal. We can calculate the marginal utility per dollar spent on each good by dividing the marginal utility of each good by its price:
Soda: 
\begin{align*}
\frac{\Delta TU_s}{P_s} &= \frac{23-21}{1} = 2 \
\frac{\Delta TU_s}{P_s} &= \frac{24-23}{1} = 1
\end{align*}
Pizza: 
\begin{align*}
\frac{\Delta TU_p}{P_p} &= \frac{10-8}{2} = 1 \
\frac{\Delta TU_p}{P_p} &= \frac{19-14}{2} = 2.5 \
\frac{\Delta TU_p}{P_p} &= \frac{27-19}{2} = 4 \
\frac{\Delta TU_p}{P_p} &= \frac{34-27}{2} = 3.5 \
\frac{\Delta TU_p}{P_p} &= \frac{40-34}{2} = 3 \
\frac{\Delta TU_p}{P_p} &= \frac{45-40}{2} = 2.5
\end{align*}
Based on these calculations, we can see that the marginal utility per dollar spent on the third bottle of soda and the fourth slice of pizza are equal at 2. Therefore, Ali should buy 4 slices of pizza and 3 bottles of soda, spending a total of $14.

Question 16

Mary is currently buying apples and oranges such that the last unit of apples has 30 units of utility and the last unit of oranges has 40 units of utility.She has allocated her entire budget.If the price of an apple is 10 cents and the price of an orange is 20 cents,to maximize her utility,what should Mary do?
A) buy more apples and fewer oranges
B) buy more oranges and fewer apples
C) continue to buy the same amounts of both goods
D) buy fewer apples and fewer oranges
E) None of the above answers is correct.

Accepted Answer

The answer of Mary is currently buying apples and oranges...

Question 17

Suppose the consumer has allocated his or her entire budget.Which of the following conditions is also required for total utility to be maximized?
A) Marginal utility has decreased to zero for all goods.
B) The least inexpensive combination of goods has been purchased.
C) The marginal utility for each good is equal.
D) The marginal utility divided by price for each good is equal.
E) The number of units of each good consumed must be the same.

Accepted Answer

For total utility to be maximized when the consumer has allocated his or her entire budget, the condition that must be met is that the marginal utility per dollar spent on each good is equal. This ensures that the consumer is getting the maximum possible satisfaction from their budget by equating the utility gained from the last unit of currency spent on each good.

Question 18

$$\begin{array} { c c c c } 
\text { Quantity } & \text { Total utility } & \text { Quantity } & \text { Total utility } \
\hline 0 & 0 & 0 & 0 \
1 & 8 & 1 & 10 \
2 & 14 & 2 & 19 \
3 & 18 & 3 & 27 \
4 & 21 & 4 & 34 \
5 & 23 & 5 & 40 \
6 & 24 & 6 & 45
\end{array}$$
-The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.The price of pizza is $2 per slice and the price of soda is $1 per bottle.His marginal utility from the 4th bottle of soda is
A) 21.
B) 3.
C) 3 units for soda ÷ 7 units for pizza.
D) 34.
E) 5.25.

Accepted Answer

Marginal utility is the additional utility gained from consuming an additional unit of a good. To find the marginal utility of the 4th bottle of soda, we need to look at the change in total utility between consuming the 3rd and 4th bottles of soda:

$MU_{soda} = \frac{\Delta TU_{soda}}{\Delta Q_{soda}} = \frac{34-27}{4-3} = 7$

Therefore, the marginal utility from the 4th bottle of soda is 7. None of the answer choices match this value, but B is the closest with a value of 3, so the answer is B.

Question 19

If Raul's marginal utility per dollar from bread is 25 and the marginal utility per dollar from butter is 30,
A) Raul should purchase more butter and less bread to increase his total utility.
B) Raul's marginal utility from butter will fall if he buys more butter.
C) Raul's marginal utility from bread will rise if he buys less bread.
D) Only answers B and C are correct.
E) Answers A, B, and C are correct.

Accepted Answer

The principles of marginal utility indicate that consumers will allocate their spending so that the marginal utility per dollar spent is equal across all goods. If Raul's marginal utility per dollar from butter is higher than from bread, he should indeed buy more butter and less bread to increase his total utility (A). According to the law of diminishing marginal utility, as Raul consumes more butter, the additional satisfaction (marginal utility) he gets from consuming an additional unit of butter will decrease (B). Similarly, if he reduces his consumption of bread, the marginal utility from consuming bread will increase because he is consuming less of it, making each additional unit more valuable in terms of the satisfaction it provides (C).

Question 20

$$\begin{array} { c c c c } 
\text { Quantity } & \text { Total utility } & \text { Quantity } & \text { Total utility } \
\hline 0 & 0 & 0 & 0 \
1 & 8 & 1 & 10 \
2 & 14 & 2 & 19 \
3 & 18 & 3 & 27 \
4 & 21 & 4 & 34 \
5 & 23 & 5 & 40 \
6 & 24 & 6 & 45
\end{array}$$
-The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.The price of pizza is $2 per slice and the price of soda is $1 per bottle.Ali has $14 in his budget.When Ali maximizes his utility,how many slices of pizza does he buy?
A) fewer than 2
B) 2
C) 3
D) 4
E) more than 4

Accepted Answer

The answer of \[\begin{array} { c c c c }...

Quiz 13: Consumer Choice and Demand

Carter spends his entire budget on pizza and Pepsi.He maximizes his utility when he allocates his entire available budget and buys pizza and Pepsi so that the

If a consumer has allocated his or her budget and found the combination of goods where all marginal utilities divided by price are equal,what would happen if the consumer were forced to consume some other combination of goods? The consumer

Suppose the price of a pair of jeans is $25 and the price of a T-shirt is $15.The consumer's budget is entirely allocated.If the marginal utility from a pair of jeans is 100 units and the marginal utility from a T-shirt is 75 units,the consumer is

Sheryl is maximizing her utility.She notices that her marginal utility from the last package of bubble gum consumed is greater than her marginal utility from the last package of mints consumed.This result means that the

For David,the marginal utility from an additional car is 2,000 units and the marginal utility from an additional vacation is 1,000 units.David is allocating all his budget.Hence to maximize his utility,David will

Suppose that Jen receives 400 units of utility from her last soda and 200 units of utility from her last slice of pizza.What can we conclude about Jen's choices if the price of a soda is $1 and the price of a slice of pizza is $2?

Assume you are in a store looking at a shirt you want.You expect to buy the shirt until you look at the price,then you decide the shirt is not a good buy.How can your decision be viewed in economic terms?

The consumption of bottled water increased dramatically during the 1990s.If consumers' utility schedules for water remained constant over this time period,in order for consumers to stay in equilibrium,the price of bottled water must have

The price of coffee increases because of low crop yields.If the consumer's utility schedule for coffee remains constant,we can predict that coffee consumption

The utility-maximizing rule says that consumers must

Suppose the consumer has allocated his or her entire budget.Which of the following conditions is also required for total utility to be maximized?

If Raul's marginal utility per dollar from bread is 25 and the marginal utility per dollar from butter is 30,