Question 1

A consumer's utility is maximized when:

Accepted Answer

A consumer's utility is maximized when the marginal utility per dollar spent is equal across all goods, which is not explicitly stated in any of the given options.

Question 2

Jeremy maximizes utility by consuming both iced tea and coffee.Iced tea is priced at $1.50 per bottle and coffee at $2.00 per 16-ounce cup.Which of the following marginal utility pairs is inconsistent with Jeremy's consumer equilibrium at these prices?

Accepted Answer

In consumer equilibrium, the ratio of marginal utility to price should be equal for both goods. For option B, the ratio for iced tea is 4/1.5 and for coffee is 3/2, which are not equal, indicating inconsistency with equilibrium.

Question 3

Which of the following is not true about utility?

Accepted Answer

The answer of Which of the following is not true...

Question 4

Daniel enjoys both soda and pizza,allocating his purchases across these two goods so that his utility is maximized.If Daniel receives one-third as much utility from the last can of soda as from the last slice of pizza,we can say that:

Accepted Answer

To maximize utility, the marginal utility per dollar spent on each good should be equal. If the utility from the last can of soda is one-third that of the last slice of pizza, then the price of pizza must be three times that of soda to equalize the marginal utility per dollar.

Question 5

Diminishing marginal utility means that:

Accepted Answer

The answer of Diminishing marginal utility means that:
...

Question 6

The price of a bagel with cream cheese equals $2 and the price of a donut equals 50 cents.The marginal utility to Joaquin of the last bagel consumed equals 16 utils.If Joaquin maximizes his satisfaction by consuming both bagels and donuts,we would expect the marginal utility of the last donut consumed to equal:

Accepted Answer

The answer of The price of a bagel with cream...

Question 7

Brandon receives a marginal utility of 5,4,3,2,1,and 0 from eating successive donuts.Successive cups of coffee provide him with 9,8,6,4,3,and 2 utils of marginal utility.Donuts cost 50 cents each,coffee costs $1 per cup,and Brandon has $3 to spend.Which of the following options will yield Brandon the greatest utility?

Accepted Answer

To maximize utility, we need to spend all $3 and choose the combination that gives us the greatest total marginal utility (MU) per dollar spent. 
Six donuts would cost $3 and give us a total MU of 15, which means a total MU per dollar spent of 5. 
Four donuts and one cup of coffee would cost $2.50 and give us a total MU of 23, which means a total MU per dollar spent of 9.2. 
Two donuts and two cups of coffee would cost $3 and give us a total MU of 21, which means a total MU per dollar spent of 7. 
Therefore, the best choice would be option C - two donuts and two cups of coffee, as it yields the greatest total marginal utility per dollar spent.

Question 8

The law of diminishing marginal utility means that:

Accepted Answer

The law of diminishing marginal utility states that beyond some point, added units of a product provide lower and lower amounts of marginal utility. This means that as a consumer consumes more and more units of a good, the satisfaction or usefulness gained from each additional unit decreases. Therefore, the consumer will eventually reach a point where the utility gained from an additional unit is so low that they are no longer willing to pay for it.

Question 9

The price of shrimp is $10.00 per pound and the price of lobster is $15.00 per pound.The marginal utility to Mike of pound of shrimp consumed is 60 utils.If Mike maximizes his satisfaction by consuming both shrimp and lobster,we would expect the marginal utility of the last pound of lobster consumed to equal:

Accepted Answer

To determine the best combination of shrimp and lobster to maximize satisfaction, we need to compare the marginal utility per dollar of each. The marginal utility per dollar of shrimp is 60/10=6 utils per dollar. The marginal utility per dollar of lobster can be calculated assuming that it's greater than the marginal utility per dollar of shrimp, because if that was not the case, Mike would just consume shrimp and not lobster. Let's assume that the marginal utility per dollar of lobster is 10 utils, then we get 10/15= 0.67 utils per dollar.

To maximize satisfaction, Mike should consume both shrimp and lobster until the marginal utility per dollar of each is equal, because at that point, he cannot increase satisfaction anymore. So, set the two marginal utility per dollar equations equal to each other:

60/10 = x/15, where x is the marginal utility of the final pound of lobster consumed.

Solving for x, we get x=90 utils.

Thus, the marginal utility of the last pound of lobster consumed is 90 utils. Therefore, the best choice is to consume shrimp and lobster until the marginal utility per dollar of shrimp and lobster are equal and the marginal utility of the last pound of lobster consumed should be 90 utils.

Question 10

Cheese is priced at $5 per pound and wine at $10 per bottle.A consumer who enjoys both cheese and wine will not be in consumer equilibrium until the marginal utility of a pound of cheese is:

Accepted Answer

Consumer equilibrium is achieved when the ratio of the marginal utility to price is equal for all goods. Therefore, the marginal utility per dollar spent on cheese should equal the marginal utility per dollar spent on wine. Since cheese is $5 per pound and wine is $10 per bottle, the marginal utility of cheese should be half that of wine to maintain equilibrium.

Question 11

Rebecca consumes both iced tea and coffee.Iced tea is priced at $1.50 per bottle and coffee at $2.00 per 16-ounce cup.Which of the following marginal utility pairs is consistent with Rebecca's consumer equilibrium at these prices?

Accepted Answer

The answer of Rebecca consumes both iced tea and coffee.Iced...

Question 12

An individual consumes only hamburgers and milkshakes.The last hamburger consumed yields 25 utils of satisfaction,while the last milkshake consumed yields 10 utils of satisfaction.If the price of a hamburger is $2.50 and the price of a milkshake is $1.50,we can conclude that:

Accepted Answer

To determine the best choice, we need to compare the marginal utility per dollar spent on hamburgers and milkshakes. The marginal utility per dollar spent on hamburgers is 10 utils per dollar ($2.50 ÷ 25 utils) and the marginal utility per dollar spent on milkshakes is 6.67 utils per dollar ($1.50 ÷ 10 utils). Therefore, the consumer should consume more hamburgers and fewer milkshakes to increase their overall satisfaction. This is because the consumer gets more satisfaction per dollar spent on hamburgers compared to milkshakes. The consumer has not achieved consumer equilibrium as they can still increase their overall satisfaction by adjusting their consumption.

Question 13

Grace maximizes her utility by consuming both gourmet cookies and ice cream.If the price of a dozen cookies is three times that of a pint of ice cream,we would expect that:

Accepted Answer

The marginal utility of the last dozen cookies is three times that of the last pint of ice cream because the price of a dozen cookies is three times that of a pint of ice cream.

Question 14

Collin consumes both corned beef sandwiches and steak sandwiches.Corned beef is priced at $5.00 per sandwich and steak sandwiches are priced at $8.00.Which of the following marginal utility pairs is consistent with Collin's consumer equilibrium at these prices?

Accepted Answer

Consumer equilibrium occurs when the marginal utility per dollar spent is equal for each good. If MU of corned beef is 1 and the price is $5, then the MU per dollar is 0.2. If MU of steak is 1.6 and the price is $8, then the MU per dollar is 0.2 as well. Therefore, B is the only option that satisfies the condition for consumer equilibrium.

Question 15

Exhibit 10-1 A consumer is faced with choosing between hamburgers and milkshakes that are priced at $2 and $1,respectively.The marginal utility derived from each of the two goods is as follows:
 Refer to Exhibit 10-1.How many hamburgers and milkshakes will be consumed each if the consumer maximizes his utility subject to $11 of income each week?

Accepted Answer

To maximize utility subject to the budget constraint, the consumer should allocate their entire budget on the burgers and milkshakes that provide the highest marginal utility per dollar spent. In this case, the marginal utility per dollar spent on hamburgers is 20 ($2/100) and the marginal utility per dollar spent on milkshakes is 40 ($4/100). Therefore, the consumer should spend 3 dollars on hamburgers (3 x $2 = $6) and 8 dollars on milkshakes (8 x $1 = $8), for a total of $14 spent out of the $11 budget which is impossible. To stay within budget the consumer can buy 4 hamburgers ($8) and 3 milkshakes ($3), for a total of $11, which maximizes their utility. Therefore, the answer is C, 4 hamburgers and 3 milkshakes.

Question 16

Which of the following is true?

Accepted Answer

Total utility refers to the overall satisfaction derived from consuming a certain quantity of goods and services. Marginal utility, on the other hand, represents the extra satisfaction gained from consuming one additional unit of a good or service. Therefore, both a. and b. are true. Option c. is incorrect as total utility is simply the sum of all the marginal utilities, not the marginal utility of the last unit multiplied by the quantity consumed.

Question 17

Which of the following is false?

Accepted Answer

All of the options are false. Marginal utility is subjective and varies from person to person, so we cannot make any definitive claims about how income affects it. Additionally, while greater marginal utility does contribute to greater total utility, it is not the only factor - other factors such as the price of the good and the consumer's budget constraints also play a role.

Question 18

Burritos and margaritas are priced at $3 and $5 each,respectively.If the marginal utility of the last burrito is 15 utils,then,in consumer equilibrium,the marginal utility of the last margarita is:

Accepted Answer

In consumer equilibrium, the ratio of the marginal utility to price should be equal for all goods. Therefore, (MU of burrito / Price of burrito) = (MU of margarita / Price of margarita). Given MU of burrito is 15 utils and price is $3, the ratio is 15/3 = 5. For margaritas, the price is $5, so MU of margarita should be 5 * 5 = 25 utils.

Question 19

If the price of good A falls,it will:

Accepted Answer

When the price of good A falls, a consumer can purchase more of it, increasing total utility. However, as more units are consumed, the marginal utility of the last unit typically decreases due to the law of diminishing marginal utility.

Question 20

Exhibit 10-1 A consumer is faced with choosing between hamburgers and milkshakes that are priced at $2 and $1,respectively.The marginal utility derived from each of the two goods is as follows:
 Refer to Exhibit 10-1.How many hamburgers and milkshakes will be consumed if the consumer maximizes his utility subject to $14 of income each week?

Accepted Answer

To maximize utility subject to $14 of income each week, the consumer will allocate their spending such that the marginal utility per dollar spent on each good is equal. In this case, the marginal utility per dollar spent on hamburgers is 5 (11/2) and the marginal utility per dollar spent on milkshakes is 2 (2/1). Therefore, the consumer will buy more hamburgers than milkshakes to maximize their utility. Using the marginal utility per dollar spent on hamburgers as a ratio, the consumer will buy 5 hamburgers and 4 milkshakes, for a total cost of $13 (5x$2 + 4x$1) and leaving $1 of their weekly income unspent.

Quiz 10: Consumer Choice Theory