Question 1

Ron starts out in consumer equilibrium, consuming two goods, X and Y. The price of Y rises. Immediately after the rise in price A)MUX/PX > MUY/PY, and then Ron increases his consumption of Y. B)MUX/PX > MUY/PY, and then Ron decreases his consumption of Y. C)MUX/PX < MUY/PY, and then Ron increases his consumption of Y. D)MUX/PX < MUY/PY, and then Ron decreases his consumption of Y. E)MUX/PX > MUY/PY, and then Ron increases his consumption of X and Y.

Accepted Answer

The answer of Ron starts out in consumer equilibrium, consuming...

Question 2

Harold can consume apples and oranges. He likes them equally well and currently is in consumer equilibrium. Then the price of oranges rises, while his income remains the same. What will happen to his consumption?
A)Consumption of oranges increases; consumption of apples decreases.
B)Consumption of oranges increases; consumption of apples increases.
C)Consumption of oranges decreases; consumption of apples decreases.
D)Consumption of oranges decreases; consumption of apples increases.
E)Consumption of oranges decreases; consumption of apples could either increase or decrease.

Accepted Answer

The answer of Harold can consume apples and oranges. He...

Question 3

Use the table below to answer the following questions.
Windsurfing equipment rents for $10 per hour and snorkeling equipment rents for $5 per hour.
Table 8.2.1
 
-Consider Devon's total utility from snorkeling and windsurfing in Table 8.2.1. Suppose that Devon's total income rises from $35 to $55, ceteris paribus. Given that Devon changes his choice of windsurfing and snorkeling, what is his income elasticity for windsurfing?
A)zero
B)28.6
C)44.4
D)0.64
E)1.55

Accepted Answer

Devon's income elasticity for windsurfing is 0.64. This is calculated by dividing the percentage change in windsurfing consumption (44.4%) by the percentage change in income (28.6%).

Question 4

When Kathryn is at her consumer equilibrium, she is
A)consuming the combination of goods that is at the midpoint of her budget line.
B)consuming a combination of goods that is located inside her budget line.
C)consuming a combination of goods that is located outside her budget line.
D)consuming a combination such that the marginal utility from good X divided by the marginal utility from good Y equals the price of good X divided by the price of good Y.
E)on the midpoint of her demand curve.

Accepted Answer

At consumer equilibrium, the consumer maximizes total utility subject to their budget constraint. This means that the consumer chooses a combination of goods such that the marginal utility per dollar spent on each good is equal. This can be expressed as (MUx/Px) = (MUy/Py), which is option D.

Question 5

As a consumer's income decreases, marginal utility theory predicts that
A)the price of normal goods falls.
B)the demand for normal goods decreases.
C)the demand for all goods decreases.
D)the demand for normal goods increases.
E)total utility increases.

Accepted Answer

Marginal utility theory states that as income decreases, consumers will have less disposable income to spend on goods and services. With less money to spend, the demand for normal goods (goods for which demand increases as income increases) will decrease, as consumers shift their spending towards inferior goods (goods for which demand increases as income decreases). Therefore, choice B is correct. Choices A, C, D, and E are all incorrect based on marginal utility theory.

Question 6

Ron starts out in consumer equilibrium, consuming two goods, X and Y. The price of X rises. Immediately after the rise in price A)MUX/PX > MUY/PY, and then Ron increases his consumption of X. B)MUX/PX > MUY/PY, and then Ron decreases his consumption of X. C)MUX/PX < MUY/PY, and then Ron increases his consumption of X. D)MUX/PX < MUY/PY, and then Ron decreases his consumption of X. E)MUX/PX > MUY/PY, and then Ron increases his consumption of X and Y.

Accepted Answer

When the price of X rises, its marginal utility per dollar (MUX/PX) decreases relative to the marginal utility per dollar of Y (MUY/PY). Therefore, Ron should decrease his consumption of X and increase his consumption of Y in order to maintain his consumer equilibrium.

Question 7

If the price of a good increases, everything else remaining the same, then the consumer's total utility
A)decreases.
B)increases.
C)decreases if the good has no substitutes and remains the same if the good has at least one substitute.
D)increases if the good has no substitutes and remains the same if the good has at least one substitute.
E)remains the same.

Accepted Answer

When the price of a good increases, the consumer's purchasing power decreases, which means they cannot buy as much of the good as before. This leads to a decrease in the consumer's total utility, given that they have less of the good to consume.

Question 8

Use the table below to answer the following questions.
Windsurfing equipment rents for $10 per hour and snorkeling equipment rents for $5 per hour.
Table 8.2.1
 
-Devon enjoys windsurfing and snorkeling. His total utility from each activity is summarized in Table 8.2.1. Devon has $35 to spend. How long will Devon choose to windsurf and to snorkel?
A)1 hour windsurfing and 5 hours snorkeling
B)2 hours windsurfing and 3 hours snorkeling
C)3 hours windsurfing and 1 hour snorkeling
D)4 hours windsurfing and no hours snorkeling
E)2 hour windsurfing and 4 hours snorkeling

Accepted Answer

The answer of Use the table below to answer the...

Question 9

Cindy has $70 a month to spend, and she can spend as much time as she likes playing golf and tennis. The price of an hour of golf is $10, and the price of an hour of tennis is $5. If Cindy equalizes the marginal utility per hour from golf and from tennis, she
A)can increase her total utility by spending less time golfing and more time playing tennis.
B)can increase her total utility by spending more time golfing and less time playing tennis.
C)maximizes her total utility.
D)can increase her total utility only if the price of golf decreases.
E)cannot increase her total utility.

Accepted Answer

Cindy should allocate her time between golf and tennis so that the marginal utility per dollar from each activity is equal. Since the marginal utility per hour of tennis is $1 (5/5) and the marginal utility per hour of golf is $1 (10/10), Cindy should spend more time playing tennis, which would give her a higher marginal utility per dollar than golf. Therefore, spending less time golfing and more time playing tennis would increase her total utility.

Question 10

Use the table below to answer the following questions.
Windsurfing equipment rents for $10 per hour and snorkeling equipment rents for $5 per hour.
Table 8.2.1
 
-Consider Devon's total utility from snorkeling and windsurfing in Table 8.2.1. Suppose Devon's total income is $35. If the price of windsurfing rises to $20 per hour, how long does Devon choose to windsurf and to snorkel?
A)1 hour of windsurfing and 3 hours of snorkeling
B)2 hour of windsurfing and 7 hours of snorkeling
C)3 hours of windsurfing and 5 hours of snorkeling
D)4 hours of windsurfing and 3 hours of snorkeling
E)5 hours of windsurfing and 1 hour of snorkeling

Accepted Answer

Devon can spend $20 on 1 hour of windsurfing and $15 on 3 hours of snorkeling, totaling $35, which maximizes his utility given the budget constraint.

Question 11

Use the table below to answer the following questions.
Windsurfing equipment rents for $10 per hour and snorkeling equipment rents for $5 per hour.
Table 8.2.1
 
-Consider Devon's total utility from snorkeling and windsurfing in Table 8.2.1. Suppose Devon's total income is $35. If the price of windsurfing rises to $20 per hour, what is Devon's cross elasticity of demand of snorkeling with respect to the price of windsurfing?
A)1.0
B)0.67
C)1.5
D)10
E)1.33

Accepted Answer

The answer of Use the table below to answer the...

Question 12

The marginal utility per dollar from pizza is greater than the marginal utility per dollar from pop. To maximize utility, a consumer buys
A)less pizza and more pop.
B)equal quantities of pizza and pop.
C)more pizza and less pop.
D)more pizza and more pop.
E)less pizza and less pop.

Accepted Answer

Since the marginal utility per dollar from pizza is greater than the marginal utility per dollar from pop, it is more beneficial for the consumer to buy more pizza and less pop. This means that the consumer should continue to buy pizza until the marginal utility per dollar from pizza equals the marginal utility per dollar from pop, at which point the consumer has maximized their overall utility.

Question 13

Billy likes candy and popcorn. Candy sells for $0.50 a bag and popcorn sells for $1 per bag. Currently he is in consumer equilibrium. Then the price of candy rises to $1 a bag. Which statement is true in the new consumer equilibrium?
A)The marginal utility from popcorn will increase.
B)Marginal utility per dollar on candy will be equal to 2.
C)Total utility will increase.
D)The marginal utility from candy will decrease.
E)The marginal utility from candy will be equal to the marginal utility from popcorn.

Accepted Answer

The answer of Billy likes candy and popcorn. Candy sells...

Question 14

Beverly is currently in consumer equilibrium. An increase in her income
A)increases her total utility.
B)decreases her total utility.
C)increases her marginal utility from all goods.
D)decreases her marginal utility from all goods.
E)increases her consumption of all goods.

Accepted Answer

The answer of Beverly is currently in consumer equilibrium. An...

Question 15

Use the table below to answer the following questions.
Windsurfing equipment rents for $10 per hour and snorkeling equipment rents for $5 per hour.
Table 8.2.1
 
-Consider Devon's total utility from snorkeling and windsurfing in Table 8.2.1. Suppose Devon's total income is $35. If the price of windsurfing rises to $20 per hour, what is Devon's elasticity of demand for windsurfing?
A)1.0
B)0.67
C)1.5
D)10
E)1.33

Accepted Answer

The answer of Use the table below to answer the...

Question 16

Use the table below to answer the following questions.
Windsurfing equipment rents for $10 per hour and snorkeling equipment rents for $5 per hour.
Table 8.2.1
 
-Consider Devon's utility from snorkeling and windsurfing in Table 8.2.1. Devon has $55 to spend. What are Devon's choices for time spent on the two activities?
A)1 hour of windsurfing and 9 hours of snorkeling
B)2 hours of windsurfing and 7 hours of snorkeling
C)3 hours of windsurfing and 5 hours of snorkeling
D)4 hours of windsurfing and 3 hours of snorkeling
E)5 hours of windsurfing and 1 hour of snorkeling

Accepted Answer

The answer of Use the table below to answer the...

Question 17

Chuck and Barry have identical total utility schedules but Chuck has a much higher income. If each is maximizing his total utility, then
A)they will have equal total utilities.
B)Chuck will have lower total utility than Barry.
C)Chuck will have lower marginal utility than Barry for each normal good consumed.
D)Chuck will have higher marginal utility than Barry for each normal good consumed.
E)they will have equal marginal utilities for each normal good consumed.

Accepted Answer

The answer of Chuck and Barry have identical total utility...

Question 18

If Katie purchases two slices of pizza and six breadsticks to maximize her total utility, then
A)a slice of pizza costs three times as much as a breadstick.
B)her marginal utility from the second slice of pizza divided by the price of a slice of pizza is equal to her marginal utility from the sixth breadstick divided by the price of a breadstick.
C)a breadstick costs three times as much as a slice of pizza.
D)she spends more on pizza than she spends on breadsticks.
E)her marginal utility from the second slice of pizza equals her marginal utility from the sixth breadstick.

Accepted Answer

In order to maximize total utility, Katie should allocate her spending so that the marginal utility per dollar spent on each item is equal. Therefore, her marginal utility from the second slice of pizza divided by the price of a slice of pizza should be equal to her marginal utility from the sixth breadstick divided by the price of a breadstick. This means that the price ratio between pizza and breadsticks is irrelevant, as long as the marginal utility per dollar spent is equal for both items. Choice A, C, and D are not necessarily true and are therefore incorrect. Choice E does not take into account the prices of the items and is therefore also incorrect.

Question 19

Bikes and roller blades are substitutes. Marginal utility theory predicts that when the price of a bike rises, the quantity of bikes demanded
A)decreases and the demand curve for roller blades shifts rightward.
B)decreases and the demand curve for roller blades shifts leftward.
C)decreases and a movement occurs down along the demand curve for roller blades.
D)increases and the demand curve for roller blades shifts rightward.
E)increases and the demand curve for roller blades shifts leftward.

Accepted Answer

Bikes and roller blades are substitutes, which means that when the price of bikes rises, people will likely reduce their purchases of bikes and turn to roller blades instead. This leads to a decrease in the quantity of bikes demanded, which is reflected as a leftward shift in the demand curve for bikes. At the same time, the demand for roller blades will increase, resulting in a rightward shift in the demand curve for roller blades. Therefore, choice A is the best answer.

Question 20

With a given income and prices of goods, Marcus is in consumer equilibrium when
A)he purchases the same amounts of all goods.
B)his marginal utility from all goods is maximized.
C)his marginal utility from all goods is equal.
D)he maximizes total utility.
E)his total utility per dollar is equal for all goods.

Accepted Answer

The answer of With a given income and prices of...

Quiz 8: Utility and Demand

Ron starts out in consumer equilibrium, consuming two goods, X and Y. The price of Y rises. Immediately after the rise in price

Harold can consume apples and oranges. He likes them equally well and currently is in consumer equilibrium. Then the price of oranges rises, while his income remains the same. What will happen to his consumption?

When Kathryn is at her consumer equilibrium, she is

As a consumer's income decreases, marginal utility theory predicts that

Ron starts out in consumer equilibrium, consuming two goods, X and Y. The price of X rises. Immediately after the rise in price

If the price of a good increases, everything else remaining the same, then the consumer's total utility

Cindy has $70 a month to spend, and she can spend as much time as she likes playing golf and tennis. The price of an hour of golf is $10, and the price of an hour of tennis is $5. If Cindy equalizes the marginal utility per hour from golf and from tennis, she

The marginal utility per dollar from pizza is greater than the marginal utility per dollar from pop. To maximize utility, a consumer buys

Billy likes candy and popcorn. Candy sells for $0.50 a bag and popcorn sells for $1 per bag. Currently he is in consumer equilibrium. Then the price of candy rises to $1 a bag. Which statement is true in the new consumer equilibrium?

Beverly is currently in consumer equilibrium. An increase in her income

Chuck and Barry have identical total utility schedules but Chuck has a much higher income. If each is maximizing his total utility, then

If Katie purchases two slices of pizza and six breadsticks to maximize her total utility, then

Bikes and roller blades are substitutes. Marginal utility theory predicts that when the price of a bike rises, the quantity of bikes demanded

With a given income and prices of goods, Marcus is in consumer equilibrium when