Question 1

Which of the following statements is not correct?

Accepted Answer

A reduction in money income results in a decrease in purchasing power, which would shift the budget line to the left, not to the right. This is because with less income, consumers can afford fewer goods and services at the same prices.

Question 2

The income effect explains an exception to the law of demand.

Accepted Answer

The answer of The income effect explains an exception to...

Question 3

(Consider This) When the federal government started requiring restaurants to print calorie counts next to menu items, some people increased their consumption of higher-calorie items. Whichof the following best explains this phenomenon?

Accepted Answer

Consumers may prioritize getting the most calories for their money, even if it means choosing higher-calorie items. The availability of calorie counts may have allowed them to more easily compare and select options that provided them with a greater caloric value.

Question 4

If marginal utility is diminishing, total utility must also be declining.

Accepted Answer

Diminishing marginal utility means that each additional unit of a good or service provides less additional utility than the previous unit, but total utility can still be increasing, just at a decreasing rate.

Question 5

When total utility is at a maximum, marginal utility is zero.

Accepted Answer

When total utility is at a maximum, marginal utility is zero because the additional satisfaction gained from consuming one more unit of a good is zero at the point where the total utility curve reaches its peak.

Question 6

(Last Word) All of the following would reduce property crime by increasing its "price," except

Accepted Answer

The answer of (Last Word) All of the following would...

Question 7

Refer to the budget line shown in the diagram. If the consumer's money income is $20, the

Accepted Answer

The answer of Refer to the budget line shown in...

Question 8

(Consider This) When the federal government started requiring restaurants to print calorie counts next to menu items,

Accepted Answer

The answer of (Consider This) When the federal government started...

Question 9

(Last Word) Most people do not steal, because

Accepted Answer

Most people do not steal because the marginal costs, including guilt costs, are too high. Stealing goes against societal norms and values, and individuals may feel guilty and face social or legal consequences if caught. Therefore, the potential costs of stealing outweigh the potential benefits, leading most people to refrain from stealing.

Question 10

Noncash gift-giving involves value loss when the marginal utility of the gift to the receiver is less than the product price.

Accepted Answer

Noncash gift-giving can result in value loss if the gift's marginal utility to the receiver is less than the product's price, as the receiver may not benefit from the gift's full value.

Question 11

The limited money income of consumers results in a so-called budget constraint.

Accepted Answer

This is true because consumers have limited money to spend on goods and services, which creates a budget constraint that affects their choices and purchasing decisions.

Question 12

Marginal utility is total utility divided by the number of units consumed.

Accepted Answer

Marginal utility is the additional utility gained from consuming one more unit of a good, it is not the same as total utility divided by the number of units consumed.

Question 13

A rational consumer will cease purchasing a product at that quantity where marginal utility begins to diminish.

Accepted Answer

A rational consumer will continue purchasing a product until the marginal utility of the product equals the marginal cost, not merely when marginal utility begins to diminish. Diminishing marginal utility occurs as more of a product is consumed, but this does not immediately stop consumption.

Question 14

The consumer demand curve for a product is downsloping because marginal utility is constant when price declines.

Accepted Answer

The consumer demand curve for a product is downsloping because as the price declines, consumers are willing to buy more of the product, not because marginal utility is constant. In fact, the law of diminishing marginal utility suggests that the marginal utility of a product decreases as consumption increases.

Question 15

When the price of a product falls, the income effect induces the consumer to purchase more of it, while the substitution effect prompts her to buy less.

Accepted Answer

When the price of a product falls, the income effect makes the consumer feel richer, thus encouraging them to buy more of the product, while the substitution effect makes the product relatively cheaper compared to others, also encouraging the consumer to buy more of it.

Question 16

The substitution effect suggests that when consumers judge product quality by price, they will substitute high-priced products for low-priced products.

Accepted Answer

The substitution effect suggests that when the price of a product increases, consumers are more likely to substitute it for a similar but cheaper product. It does not necessarily mean that they will judge product quality solely by price.

Question 17

(Last Word) Theft and burglary

Accepted Answer

Theft and burglary can be viewed as attempts to maximize utility, given certain marginal costs and marginal benefits. Individuals who engage in these crimes may weigh the potential gains (in terms of valuable possessions or money obtained) against the potential costs (getting caught and facing legal consequences) and decide that the benefits outweigh the risks. This decision-making process is based on economic rationality, even if the behavior itself is illegal and unethical.

Question 18

When a consumer has maximized total utility, he or she cannot increase total utility by reallocating expenditures among different products.

Accepted Answer

When a consumer has maximized total utility, it means he or she is already allocating expenditures in a way that is maximizing satisfaction. Therefore, reallocating expenditures among different products will not lead to an increase in total utility.

Question 19

The budget line shows

Accepted Answer

The budget line shows all possible combinations of two goods that can be purchased, given money income and the prices of the goods. It represents the different choices a consumer can make when deciding how to allocate their income between two goods. The slope of the budget line is equal to the ratio of the prices of the two goods. Thus, the budget line provides information on the trade-off between the two goods in terms of their prices.

Question 20

When a consumer shifts purchases from X to Y, the marginal utility of X falls and the marginal utility of Y rises.

Accepted Answer

When a consumer shifts purchases from X to Y, the marginal utility of X rises (because they are consuming less of X and thus value the next unit more) and the marginal utility of Y falls (because they are consuming more of Y and thus value the next unit less).

Quiz 7: Utility Maximization