Question 1

Refer to the accompanying table. If the price of Good A is $5 and the price of Good B is $4, then the rational spending rule is satisfied when the consumer purchases ________ units of Good A and ________ units of Good B.

Accepted Answer

The rational spending rule maintains that a consumer's total utility is maximized if the ratio of marginal utility to price is the same for all goods the consumer purchases. Here, the rational spending rule is satisfied when the consumer purchases 1 unit of Good A and 3 units of Good B because the ratio of marginal utility to price would be 6 for both goods. That is, MUA/PA = 30/5 = 6, and MUB/PB = 24/4 = 6.

Question 2

Refer to the accompanying table. If the price of a t-shirt is $6 and the price of a sweater is $80, then the rational spending rule is satisfied when the consumer purchases ________ t-shirts and ________ sweaters.

Accepted Answer

The rational spending rule maintains that a consumer's total utility is maximized if the ratio of marginal utility to price is the same for all goods the consumer purchases. Here, the rational spending rule is satisfied when the consumer purchases 4 t-shirts and 1 sweater because the ratio of marginal utility to price would be 5 for both goods. That is, MUT/PT = 30/6 = 5, and MUJ/PJ = 400/80 = 5.

Question 3

The rational spending rule is derived from the consumer's desire to:

Accepted Answer

Utility maximization is the presumed underlying goal of rational consumer behavior.

Question 4

Refer to the accompanying table. If the price of Good A is $2 and the price of Good B is $6, then the rational spending rule is satisfies when the consumer purchases ________ units of Good A and ________ units of Good B.

Accepted Answer

The rational spending rule maintains that a consumer's total utility is maximized if the ratio of marginal utility to price is the same for all goods the consumer purchases. Here, the rational spending rule is satisfied when the consumer purchases 4 unit of Good A and 3 units of Good B because the ratio of marginal utility to price would be 4 for both goods. That is, MUA/PA = 8/2 = 4, and MUB/PB = 24/6 = 4.

Question 5

Suppose Suzanne allocates her spending on apples and bananas according to the rational spending rule. If the price of apples is less than the price of bananas, then at Suzanne's optimal consumption bundle, her marginal utility from apples will be:

Accepted Answer

According to the rational spending rule, consumers should allocate their spending such that the marginal utility per dollar spent on each item is the same for all items. Therefore, at a consumer's optimal consumption bundle, the lower the price of an item, the lower must be the consumer's marginal utility from consuming that item.

Question 6

If a consumer reallocates his or her spending away from Good A and towards Good B, then the consumer's total utility will increase if:

Accepted Answer

If MUA/PA < MUB/PB, then the loss in utility from spending a dollar less on Good A will be more than compensated for by the increase in utility from spending a dollar more on Good B.

Question 7

You are trying to decide how to spend your last lunch dollar. You should use that dollar to buy more of the item:

Accepted Answer

Buying the item that provides the highest marginal (or, additional)utility per dollar will add the most to total utility. Note that marginal utility per dollar is not the same as average utility per dollar.

Question 8

For two goods, coffee and scones, suppose that MU(coffee)/P(coffee)= 4 and MU(scones)/P(scones)= 3. To maximize your total utility from these two goods, you should purchase:

Accepted Answer

Since the ratio of marginal utility to price (i.e., marginal utility per dollar spent)is higher for coffee than for scones, the consumer should buy more coffee and fewer scones. The utility gained from spending an additional dollar on coffee will exceed the utility lost from spending a dollar less on scones; hence, total utility will rise.

Question 9

Let MUc denote the marginal utility that Pablo receives from a cup of coffee, and let Pc denote the price of a cup of coffee. We typically expect that as Pablo buys more coffee:

Accepted Answer

We typically expect goods to satisfy the law of diminishing marginal utility. That is, as our consumption increases, the additional utility gained from consuming an additional unit of a good will fall. Thus, as Pablo's consumption of coffee increases, we would expect MUc/Pc to fall.

Question 10

Refer to the accompanying table. If the price of Good A is $1 and the price of Good B is $3, then the rational spending rule is satisfied when the consumer purchases ________ units of Good A and ________ units of Good B.

Accepted Answer

The rational spending rule maintains that a consumer's total utility is maximized if the ratio of marginal utility to price is the same for all goods the consumer purchases. Here, the rational spending rule is satisfied when the consumer purchases 4 units of Good A and 3 units of Good B because the ratio of marginal utility to price would be 8 for both goods. That is, MUA/PA = 8/1 = 8, and MUB/PB = 24/3 = 8.

Question 11

Purchasing goods such that the ratio of marginal utility to price is equal across all goods results in the:

Accepted Answer

The utility-maximizing consumption bundle must satisfy the rational spending rule. That is, the ratio of marginal utility to price (which is the marginal utility per dollar)should be the same for all goods.

Question 12

If a consumer buys two different goods, the rational spending rule requires that the:

Accepted Answer

The rational spending rule maintains that the ratio of marginal utility to price must be the same for both goods.

Question 13

When the price of a good falls, marginal utility per dollar spent on that good ________, prompting consumers to purchase ________ of that good.

Accepted Answer

If the price of a good falls, then the ratio (MU/P)rises, and since the consumer is receiving more marginal utility per dollar spent on the good, this will induce the consumer to buy more of it.

Question 14

When the price of a good rises, marginal utility per dollar spent on that good ________, leading consumers to purchase ________ of that good.

Accepted Answer

If the price of a good rises, then the ratio (MU/P)falls, and since the consumer is receiving less marginal utility per dollar spent on that good, this will induce the consumer to purchase less of it.

Question 15

Suppose that at your current consumption of two goods, A and B, MUA/PA = 25 and MUB/PB = 20. In order to maximize, your utility you should:

Accepted Answer

If the ratio of marginal utility to price is higher for A than for B, then you should reallocate your spending away from B and towards A. The utility gained from spending an additional dollar on A will exceed the utility lost from spending a dollar less on B.

Question 16

For two goods, A and B, the rational spending rule is expressed as:

Accepted Answer

The formula (MUA/PA)= (MUB/PB)indicates that the marginal utility per dollar spent is the same for the two goods, which is what is required for the rational spending rule to be satisfied.

Question 17

Suppose you want to maximize your total utility. If your marginal utility per dollar spent is higher for one good than for all others, then you should:

Accepted Answer

If your marginal utility per dollar spent is higher one good than for all others, then you should reallocate your spending towards that good in order to maximize your total utility.

Question 18

Refer to the accompanying table. If the price of a t-shirt is $10 and the price of a sweater is $40, then the rational spending is satisfied when the consumer purchases ________ t-shirts and ________ sweaters.

Accepted Answer

The rational spending rule maintains that a consumer's total utility is maximized if the ratio of marginal utility to price is the same for all goods the consumer purchases. Here, the rational spending rule is satisfied when the consumer purchases 2 t-shirts and 3 sweaters because the ratio of marginal utility to price would be 6 for both good goods. That is, MUT/PT = 60/10 = 6, and MUJ/PJ = 240/40 = 6.

Question 19

Refer to the accompanying table. The law of diminishing marginal utility:

Accepted Answer

As indicated by the numbers in the chart, the marginal utility of each good falls as more of it is consumed, which characterizes the law of diminishing marginal utility.

Question 20

Refer to the accompanying table. The law of diminishing marginal utility:

Accepted Answer

Computing the marginal utility of each good (i.e., the change in total utility accompanying an one unit change in consumption)yields 75, 60, 45, and 30 for each successive t-shirt and 400, 320, 240, and 160 for each successive sweater. The fact that the marginal utility of both goods declines is consistent with the law of diminishing marginal utility.

Quiz 5: Demand

Refer to the accompanying table. If the price of Good A is $5 and the price of Good B is $4, then the rational spending rule is satisfied when the consumer purchases units of Good A and units of Good B.

Refer to the accompanying table. If the price of a t-shirt is $6 and the price of a sweater is $80, then the rational spending rule is satisfied when the consumer purchases t-shirts and sweaters.

The rational spending rule is derived from the consumer's desire to:

Refer to the accompanying table. If the price of Good A is $2 and the price of Good B is $6, then the rational spending rule is satisfies when the consumer purchases units of Good A and units of Good B.

Suppose Suzanne allocates her spending on apples and bananas according to the rational spending rule. If the price of apples is less than the price of bananas, then at Suzanne's optimal consumption bundle, her marginal utility from apples will be:

If a consumer reallocates his or her spending away from Good A and towards Good B, then the consumer's total utility will increase if:

You are trying to decide how to spend your last lunch dollar. You should use that dollar to buy more of the item:

For two goods, coffee and scones, suppose that MU(coffee) /P(coffee) = 4 and MU(scones) /P(scones) = 3. To maximize your total utility from these two goods, you should purchase:

Let MUc denote the marginal utility that Pablo receives from a cup of coffee, and let Pc denote the price of a cup of coffee. We typically expect that as Pablo buys more coffee:

Refer to the accompanying table. If the price of Good A is $1 and the price of Good B is $3, then the rational spending rule is satisfied when the consumer purchases units of Good A and units of Good B.

Purchasing goods such that the ratio of marginal utility to price is equal across all goods results in the:

If a consumer buys two different goods, the rational spending rule requires that the:

When the price of a good falls, marginal utility per dollar spent on that good , prompting consumers to purchase of that good.

When the price of a good rises, marginal utility per dollar spent on that good , leading consumers to purchase of that good.

Suppose that at your current consumption of two goods, A and B, MUA/PA = 25 and MUB/PB = 20. In order to maximize, your utility you should:

For two goods, A and B, the rational spending rule is expressed as:

Suppose you want to maximize your total utility. If your marginal utility per dollar spent is higher for one good than for all others, then you should:

Refer to the accompanying table. If the price of a t-shirt is $10 and the price of a sweater is $40, then the rational spending is satisfied when the consumer purchases t-shirts and sweaters.

Refer to the accompanying table. The law of diminishing marginal utility:

Refer to the accompanying table. The law of diminishing marginal utility: