Question 1

Figure 21-10 
-Refer to Figure 21-10.Assume that the consumer depicted in the figure faces prices and income such that she optimizes at point B.According to the graph,which of the following would cause the consumer to move to point A?

Accepted Answer

An increase in the price of M&M's would cause the consumer to move to point A, as it would make M&M's relatively more expensive, leading the consumer to buy fewer M&M's and more of the other good, Skittles.

Question 2

Jeffrey spends all of his income on warm-up suits and running shoes,and the price of a pair of shoes is four times the price of a warm-up suit.In order to maximize total utility,Jeffrey should

Accepted Answer

Jeffrey should continue buying both items until the marginal utility per dollar spent on a pair of running shoes is four times greater than the marginal utility per dollar spent on a warm-up suit. This is the point where the consumer maximizes total utility. Therefore, option C is the best choice.

Question 3

Which of the following represents a consumer's optimum?

Accepted Answer

The answer of Which of the following represents a consumer's...

Question 4

Figure 21-11 
-Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $40,the price of a bag of marshmallows is $2,and the price of a bag of chocolate chips is $2.The optimizing consumer will choose to purchase which bundle of marshmallows and chocolate chips?

Accepted Answer

The consumer's budget allows for 20 bags in total (since $40/$2 per bag = 20 bags). The optimizing consumer will choose the bundle that maximizes utility while staying within the budget constraint. Bundle C is likely the optimal choice as it is on the budget line and provides the highest utility.

Question 5

Jane is maximizing total utility while consuming food and clothing.Her marginal utility from food is 50,and her marginal utility from clothing is 25.If clothing is priced at $10 per unit,the price of food per unit must be

Accepted Answer

The answer of Jane is maximizing total utility while consuming...

Question 6

Figure 21-11 
-Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $40.Based on the information available in the graph,which of the following price-quantity combinations would be on her demand curve for marshmallows if the price of chocolate chips is $4?

Accepted Answer

The consumer's budget constraint is $40, and with chocolate chips priced at $4, the remaining budget for marshmallows allows for the combination where P=$2 and Q=9.

Question 7

Figure 21-11 
-Refer to Figure 21-11.Assume that the consumer depicted the figure has an income of $50.Based on the information available in the graph,which of the following price-quantity combinations would be on her demand curve for marshmallows if the price of chocolate chips is $2.50?

Accepted Answer

At a price of $2.50 for chocolate chips, the consumer would be willing to purchase 10 marshmallows, as this is the point where the marginal utility per dollar spent on marshmallows is equal to the marginal utility per dollar spent on chocolate chips (where the two lines intersect). This combination of price and quantity would be on the consumer's demand curve for marshmallows.

Question 8

Amy spends all of her income on jewelry and jeans,and the price of a pair of jeans is three times the price of jewelry.In order to maximize total utility,Amy should

Accepted Answer

The answer of Amy spends all of her income on...

Question 9

Figure 21-10 
-Refer to Figure 21-10.Assume that the consumer depicted in the figure has an income of $20.The price of Skittles is $2 and the price of M&M's is $2.This consumer will choose to optimize by purchasing bundle

Accepted Answer

The answer of Figure 21-10 
-Refer to Figure 21-10.Assume that...

Question 10

The consumer's optimal choice is the one in which the marginal utility per dollar spent on good X is

Accepted Answer

The consumer's optimal choice is the point where the marginal utility per dollar spent on good X is equal to the marginal utility per dollar spent on good Y. This is because the consumer wants to allocate their income in a way that maximizes their total utility. If the marginal utility per dollar spent on X is greater than the marginal utility per dollar spent on Y, then the consumer should shift some of their spending from Y to X to increase their total utility. However, this process should stop when the two marginal utilities per dollar spent are equal. Therefore, the consumer's optimal choice is where MUx/Px = MUy/Py, or where the marginal utility per dollar spent on X is equal to the marginal utility per dollar spent on Y.

Question 11

Figure 21-11 
-Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $80.If the price of chocolate chips is $4 and the price of marshmallows is $4,the optimizing consumer would choose to purchase

Accepted Answer

The consumer's budget constraint is represented by the line that connects point A and B in the figure. At the intersection of this line and the highest indifference curve (indifference curve 3), the consumer's utility is maximized. This occurs at point C, where the consumer purchases 10 marshmallows and 10 chocolate chips. This combination costs $80 ($4 per marshmallow and per chocolate chip, for a total of $40 for each), which is the consumer's entire budget. Therefore, choice B is the best option for the consumer to maximize their utility given their income and the prices of chocolate chips and marshmallows.

Question 12

Ken consumes two goods,Sprite and potato chips.Sprite costs $1 per can,and he consumes it to the point where the marginal utility he receives from his last Sprite is 3.Potato chips cost $2 per bag,and the relationship between the marginal utility he gets from eating a bag of potato chips and the number of bags he eats per month is as follows:

If Ken is maximizing his utility,how many bags of potato chips does he buy each month?

Accepted Answer

To maximize his utility, Ken should allocate his budget such that the marginal utilities per dollar spent on both goods are equal. 
MU/Price of Sprite = MU/Price of potato chips
3/1 = MU/2
Solving for MU, we get:
MU = 6
From the table, we can see that Ken reaches a MU of 6 after consuming 4 bags of potato chips. Therefore, he buys 4 bags of potato chips each month to maximize his utility.

Question 13

Suppose at the consumer's current consumption bundle the marginal rate of substitution of cheese for wine is 1/2 bottle of wine per pound of cheese.The price of one pound of cheese is $6,and the price of a bottle of wine is $10.The consumer should increase his consumption of

Accepted Answer

The marginal rate of substitution (MRS) of cheese for wine is the amount of wine a consumer is willing to give up to get an additional unit of cheese. In this case, the MRS is 1/2 bottle of wine per pound of cheese.

The consumer should compare the MRS to the price ratio of cheese and wine, which is 6/10 or 0.6. If the MRS is greater than the price ratio, the consumer should give up some wine to get more cheese (because cheese is relatively cheaper). If the MRS is less than the price ratio, the consumer should give up some cheese to get more wine (because wine is relatively cheaper).

In this case, since MRS = 1/2 and price ratio = 0.6, the MRS is greater than the price ratio. This means the consumer should give up some wine to get more cheese and move to a higher indifference curve. So, the answer is B.

Question 14

Suppose a consumer has preferences over two goods,X and Y,which are perfect substitutes.In particular,two units of X is equivalent to one unit of Y.If the price of X is $1,the price of Y is $3,and the consumer has $30 of income to allocate to these two goods,how much of each good should the consumer purchase to maximize satisfaction?

Accepted Answer

The consumer should purchase 30 units of X and 0 units of Y because X is cheaper per unit of utility. Two units of X ($2) provide the same utility as one unit of Y ($3), so the consumer maximizes utility by spending all income on X.

Question 15

A consumer has preferences over two goods,X and Y.Suppose we graph this consumer's preferences (which satisfy the usual properties of indifference curves)and budget constraint on a diagram with X on the horizontal axis and Y on the vertical axis.At the consumer's current consumption bundle,the consumer is spending all available income,and the marginal rate of substitution is greater than the slope of the budget constraint.We can conclude that the consumer

Accepted Answer

If the marginal rate of substitution is greater than the slope of the budget constraint, it means that the consumer can give up some units of Y for more units of X and still be at the same level of satisfaction. Therefore, the consumer can increase satisfaction by consuming more X and less Y. This would shift the consumption bundle to a higher indifference curve that is still tangent to the budget constraint. Since the consumer is spending all available income, option D is not feasible. And, we cannot conclude whether the consumer is currently maximizing satisfaction without knowing the shape of the indifference curves and the budget constraint. Option C is incorrect because in this case, the slope of the budget constraint would have to be greater than the marginal rate of substitution which is not the case.

Question 16

Figure 21-11 
-Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $40.If the price of chocolate chips is $4 and the price of marshmallows is $4,the optimizing consumer would choose to purchase

Accepted Answer

To optimize her utility, the consumer would choose the combination of chocolate chips and marshmallows such that the marginal utility per dollar spent on both the goods is the same. In other words, the consumer would allocate her budget such that the ratio of the marginal utility of chocolate chips to their price is equal to the ratio of the marginal utility of marshmallows to their price. From the figure, we can see that at the point where the budget line is tangent to the indifference curve passing through point A, the marginal utility per dollar spent on both goods is the same. This occurs at point B, where the consumer purchases 5 marshmallows and 5 chocolate chips. This combination of goods maximizes the consumer's utility given her income and the prices of the goods.

Question 17

Ken consumes two goods,Sprite and potato chips.Sprite costs $1 per can,and he consumes it to the point where the marginal utility he receives from his last Sprite is 3.Potato chips cost $2 per bag,and the relationship between the marginal utility he gets from eating a bag of potato chips and the number of bags he eats per month is as follows:

If Ken is maximizing his utility,how much does he spend on potato chips each month?

Accepted Answer

The answer of Ken consumes two goods,Sprite and potato chips.Sprite...

Question 18

Ken consumes two goods,Sprite and potato chips.Sprite costs $2 per can,and he consumes it to the point where the marginal utility he receives from his last Sprite is 4.Potato chips cost $3 per bag,and the relationship between the marginal utility he gets from eating a bag of potato chips and the number of bags he eats per month is as follows:

If Ken is maximizing his utility,how many bags of potato chips does he buy each month?

Accepted Answer

To maximize utility, Ken should allocate his spending such that the marginal utility per dollar spent is equal across both goods. Let MU_Sprite and MU_Chips denote the marginal utility Ken receives from consuming Sprite and potato chips, respectively. Then
MU_Sprite/P_sprite = MU_Chips/P_chips
4/2 = MU_Chips/3
MU_Chips = 6
From the graph, we see that Ken receives a marginal utility of 6 from the fourth bag of potato chips. Thus, he should buy 4 bags of potato chips each month to maximize his utility.

Question 19

A consumer has preferences over two goods,X and Y.Suppose we graph this consumer's preferences (which satisfy the usual properties of indifference curves)and budget constraint on a diagram with X on the horizontal axis and Y on the vertical axis.At the consumer's current consumption bundle,the consumer is spending all available income,and the marginal rate of substitution is less than the slope of the budget constraint.We can conclude that the consumer

Accepted Answer

The fact that the marginal rate of substitution is less than the slope of the budget constraint suggests that the consumer is not fully maximizing their satisfaction. This means that the consumer could be better off by consuming more of good Y and less of good X, as this would increase the marginal utility of good Y relative to the marginal utility of good X, making the marginal rate of substitution closer to the slope of the budget constraint. Therefore, the answer is C, as the consumer could increase satisfaction by consuming less X and more Y.

Question 20

Figure 21-11 
-Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $100 and currently optimizes at bundle A.When the price of marshmallows decreases to $5,which bundle will the optimizing consumer choose?

Accepted Answer

When the price of marshmallows decreases, the budget line will shift outward, allowing the consumer to purchase more marshmallows. As a result, the consumer will choose a bundle that includes more marshmallows, such as bundle B.

Quiz 21: The Theory of Consumer Choice

Figure 21-10 -Refer to Figure 21-10.Assume that the consumer depicted in the figure faces prices and income such that she optimizes at point B.According to the graph,which of the following would cause the consumer to move to point A?

Jeffrey spends all of his income on warm-up suits and running shoes,and the price of a pair of shoes is four times the price of a warm-up suit.In order to maximize total utility,Jeffrey should

Which of the following represents a consumer's optimum?

Figure 21-11 -Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $40,the price of a bag of marshmallows is $2,and the price of a bag of chocolate chips is $2.The optimizing consumer will choose to purchase which bundle of marshmallows and chocolate chips?

Jane is maximizing total utility while consuming food and clothing.Her marginal utility from food is 50,and her marginal utility from clothing is 25.If clothing is priced at $10 per unit,the price of food per unit must be

Figure 21-11 -Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $40.Based on the information available in the graph,which of the following price-quantity combinations would be on her demand curve for marshmallows if the price of chocolate chips is $4?

Figure 21-11 -Refer to Figure 21-11.Assume that the consumer depicted the figure has an income of $50.Based on the information available in the graph,which of the following price-quantity combinations would be on her demand curve for marshmallows if the price of chocolate chips is $2.50?

Amy spends all of her income on jewelry and jeans,and the price of a pair of jeans is three times the price of jewelry.In order to maximize total utility,Amy should

Figure 21-10 -Refer to Figure 21-10.Assume that the consumer depicted in the figure has an income of $20.The price of Skittles is $2 and the price of M&M's is $2.This consumer will choose to optimize by purchasing bundle

The consumer's optimal choice is the one in which the marginal utility per dollar spent on good X is

Figure 21-11 -Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $80.If the price of chocolate chips is $4 and the price of marshmallows is $4,the optimizing consumer would choose to purchase

Suppose at the consumer's current consumption bundle the marginal rate of substitution of cheese for wine is 1/2 bottle of wine per pound of cheese.The price of one pound of cheese is $6,and the price of a bottle of wine is $10.The consumer should increase his consumption of

Figure 21-11 -Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $40.If the price of chocolate chips is $4 and the price of marshmallows is $4,the optimizing consumer would choose to purchase

Figure 21-11 -Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $100 and currently optimizes at bundle A.When the price of marshmallows decreases to $5,which bundle will the optimizing consumer choose?