Question 1

Sharon purchases two products with a given fixed budget, orange juice and soda. Her marginal utility from orange juice is 60, and her marginal utility from soda is 30. The price of a bottle of orange juice is $2.00, and the price of soda is $1.00. These data suggest that
A) Sharon is maximizing her utility from the given fixed budget.
B) Sharon should buy more orange juice and less soda.
C) Sharon should buy more soda and less orange juice.
D) Sharon should buy less orange juice and soda.

Accepted Answer

According to the concept of marginal utility and the prices of the two products, Sharon is maximizing her utility by consuming equal amounts of both products. This is because the marginal utility per dollar spent on orange juice is 30 (60/2) and for soda is 30 (30/1), which are equal. Hence, any increase or decrease in the consumption of either product would decrease her overall utility. Therefore, she should continue consuming equal amounts of orange juice and soda to maximize her utility from the given fixed budget.

Question 2

In deciding what to buy, the consumer will choose the good with the
A) highest marginal utility.
B) lowest price.
C) highest marginal utility-to-price ratio.
D) lowest marginal utility-to-price ratio.

Accepted Answer

The consumer will choose the good with the highest marginal utility-to-price ratio because they want to maximize the satisfaction they get from their purchase relative to the amount of money they spend. This means that they are looking for goods that provide a high level of satisfaction per dollar spent. Choosing the good with the highest marginal utility-to-price ratio ensures that they get the most value for their money.

Question 3

In spending all his income on beer and pizza, Fred finds that the marginal utility of the last pizza he consumed is 8, and the marginal utility of the last bottle of beer is 4. The price of a bottle of beer is $1.50. If Fred has maximized his utility, the price of pizza must be
A) $0.75.
B) $1.00.
C) $3.00.
D) $4.50.

Accepted Answer

Fred maximizes utility when the ratio of marginal utility to price is equal for both goods. Thus, 8/Pizza Price = 4/1.50. Solving for the Pizza Price gives $3.00.

Question 4

A child is given $4 of pocket money to be spent on either hard candies or chocolates. Chocolates cost 40 cents and hard candies 80 cents each. The marginal utilities derived from each product are as shown in the following table.  Which combination would give the child the maximum utility out of spending $4?
A) 6 chocolates and 2 hard candies
B) 4 chocolates and 3 hard candies
C) 2 chocolates and 4 hard candies
D) 0 chocolates and 5 hard candies

Accepted Answer

The answer of A child is given $4 of pocket...

Question 5

A child is given $4 of pocket money to be spent on either hard candies or chocolates. Chocolates cost 40 cents and hard candies 80 cents each. The marginal utilities derived from each product are as shown in the following table.  If the child buys either chocolates or hard candies one piece at a time, what will be his first two purchases?
A) a hard candy, followed by another hard candy
B) a hard candy, followed by a chocolate
C) a chocolate, followed by a hard candy
D) a chocolate, followed by another chocolate

Accepted Answer

The answer of A child is given $4 of pocket...

Question 6

Answer the question based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4, and the price of product Y is $2. The income of the consumer is $20.
 If the consumer buys both product X and product Y, how much will the consumer buy of each in order to maximize utility?
A) 4X and 2Y
B) 3X and 4Y
C) 4X and 3Y
D) 5X and 3Y

Accepted Answer

The answer of Answer the question based on the table...

Question 7

A child is given $4 of pocket money to be spent on either hard candies or chocolates. Chocolates cost 40 cents and hard candies 80 cents each. The marginal utilities derived from each product are as shown in the following table.  Based on taste and preference alone, which good does the child prefer?
A) chocolates
B) hard candies
C) The child equally likes chocolates and hard candies.
D) One cannot tell from the given data.

Accepted Answer

The marginal utility per dollar for hard candies is higher than that for chocolates. Therefore, the child will prefer to spend their money on hard candies.

Question 8

Mr. Samuelson's current rates of purchase are such that the marginal utility of slacks is 18 and the marginal utility of ties for him is 5. If slacks and ties are priced at $12 and $2, respectively, it can be concluded that Mr. Samuelson
A) is spending too much on slacks and not enough on ties.
B) is spending too much on ties and not enough on slacks.
C) is spending his income in such a way as to maximize his satisfaction.
D) should buy six times as many ties as he does slacks.

Accepted Answer

The marginal utility per dollar spent on slacks is 18/12 = 1.5, and for ties, it is 5/2 = 2.5. Since the marginal utility per dollar is higher for ties, Mr. Samuelson should spend more on ties and less on slacks to maximize his satisfaction.

Question 9

A consumer is making purchases of products Alpha and Beta such that the marginal utility of product Alpha is 30 and the marginal utility of product Beta is 40. The price of product Alpha is $5, and the price of product Beta is $10. The utility-maximizing rule suggests that, to stay within a given budget constraint, this consumer should
A) increase consumption of product Beta and decrease consumption of product Alpha.
B) increase consumption of product Beta and increase consumption of product Alpha.
C) increase consumption of product Alpha and decrease consumption of product Beta.
D) makeno change in the consumption of Alpha or Beta.

Accepted Answer

The utility-maximizing rule suggests that a consumer should allocate their budget in such a way that the marginal utility per dollar spent is equal across all goods consumed. This means that in this case, the consumer should aim to have a marginal utility per dollar of 6 for both product Alpha and Beta, since the price of Alpha is $5 and the price of Beta is $10. 
Currently, the marginal utility per dollar spent on Beta is higher (4) than that of Alpha (6), which indicates that the consumer should decrease consumption of Beta and increase consumption of Alpha to reach an equilibrium where the marginal utility per dollar spent is equal across both products. Therefore, the consumer should choose to increase consumption of product Alpha and decrease consumption of product Beta. Choice C is the only option that reflects this decision.

Question 10

Answer the question based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4, and the price of product Y is $2. The income of the consumer is $20.
 If the consumer buys product X or product Y one unit at a time, which of the following will the consumer's first two purchases be?
A) a first unit of X followed by a first unit of Y
B) a first unit of X followed by a second unit of X
C) a first unit of Y followed by a first unit of X
D) a first unit of Y followed by a second unit of Y

Accepted Answer

The answer of Answer the question based on the table...

Question 11

Answer the question based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4, and the price of product Y is $2. The income of the consumer is $30.
 What would be the utility-maximizing combination of products X and Y that could be purchased with $30?
A) 3X and 3Y
B) 4X and 4Y
C) 5X and 4Y
D) 5X and 5Y

Accepted Answer

The answer of Answer the question based on the table...

Question 12

Betty is maximizing her satisfaction from spending her budget on two items, movie rentals and music downloads. If her marginal utility from the last movie rental is twice that from the last music download, what is the price of a movie rental if the price of a music download is $0.80?
A) $0.40
B) $0.80
C) $1.20
D) $1.60

Accepted Answer

The answer of Betty is maximizing her satisfaction from spending...

Question 13

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the
A) total utility is the same for each good.
B) marginal utility of each good is maximized.
C) marginal utility per dollar spent is the same for all goods.
D) marginal utility per dollar spent is maximized for each good.

Accepted Answer

A consumer with a fixed income will maximize utility by allocating their budget in a way that ensures that the marginal utility per dollar spent is the same for all goods. This means that the consumer should purchase more of the goods that provide a higher marginal utility per dollar and less of the goods that provide a lower marginal utility per dollar until the marginal utility per dollar is equal for all goods. This is because the consumer cannot increase their purchasing power, so they need to make sure they are getting the most utility for each dollar spent.

Question 14

"Consumer equilibrium" refers to the situation when the consumer is getting
A) the highest total utility out of spending a given budget on various goods.
B) the highest marginal utility out of spending a given budget on various goods.
C) equal marginal utility values from each product consumed.
D) equal total utility values from each product consumed.

Accepted Answer

The answer of "Consumer equilibrium" refers to the situation when...

Question 15

A consumer is in equilibrium and is spending income in such a way that the marginal utility of product X is 40 units and that of Y is 16 units. If the unit price of X is $5, then the price of Y must be
A) $1 per unit.
B) $2 per unit.
C) $3 per unit.
D) $4 per unit.

Accepted Answer

To reach equilibrium, the consumer must allocate their money in a way that the marginal utility per dollar spent on each product is equal. We can calculate the marginal utility per dollar for each product by dividing the marginal utility of each by its respective price:

MUx/Px = 40/5 = 8
MUy/Py = 16/Py

For equilibrium, MUx/Px = MUy/Py. 
Solving for Py ,
8 = 16/Py , 
Py = $2 per unit.

Therefore, the price of Y must be $2 per unit.

Question 16

Answer the question based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4, and the price of product Y is $2. The income of the consumer is $20.
 When the consumer purchases the utility-maximizing combination of product X and product Y, total utility will be
A) 72.
B) 84.
C) 136.
D) 156.

Accepted Answer

The answer of Answer the question based on the table...

Question 17

Assume that a consumer purchases a combination of products Y and Z and that the MUy/P_y= 25 and MUz/P_z= 20. To maximize utility, without spending more money, the consumer should A) purchase less of Y and more of Z. B) purchase more of Y and less of Z. C) purchase more of both Y and Z. D) make no change in the quantities Y and Z.

Accepted Answer

The answer of Assume that a consumer purchases a combination...

Question 18

Assume that a consumer purchases a combination of products Y and Z and that the MUy/P_y= 30/2 and MUz/P_z= 45/3. To maximize utility, without spending more money, the consumer should A) purchase less of Y and more of Z. B) purchase more of Y and less of Z. C) purchase more of both Y and Z. D) make no change in the quantities of Y and Z.

Accepted Answer

The answer of Assume that a consumer purchases a combination...

Question 19

A consumer currently spends a given budget on two goods, X and Y, in such quantities that the marginal utility of X is 10 and the marginal utility of Y is 8. The unit priceof X is $5 and the unit price of Y is $2. The utility-maximizing rule suggests that this consumer should
A) increase consumption of product X and decrease consumption of product Y.
B) increase consumption of product X and increase consumption of product Y.
C) increase consumption of product Y and decrease consumption of product X.
D) stick with the current consumption mix because it yields maximum utility.

Accepted Answer

The utility-maximizing rule states that for a consumer to achieve maximum utility, the ratio of the marginal utility to the price of each good should be equal across all goods. In this case, MUx/Px = 10/5 = 2 and MUy/Py = 8/2 = 4. Since the ratio for Y is higher, the consumer should increase consumption of Y and decrease consumption of X to equalize these ratios.

Question 20

Assume that product Alpha and product Beta are both priced at $1 per unit and that Ellie has $20 to spend on Alpha and Beta. She buys 8 units of Alpha and 12 units of Beta. The marginal utility of Alpha is 40 and the marginal utility of Beta is 20. This indicates that
A) Ellie should make no change in consumption.
B) given another dollar, Ellie should buy an additional unit of Beta.
C) in order to maximize utility, Ellie should buy more of Beta and less of Alpha.
D) in order to maximize utility, Ellie should buy more of Alpha and less of Beta.

Accepted Answer

The marginal utility per dollar for Alpha is 40 and for Beta is 20. This means that Ellie is getting more satisfaction per dollar spent on Alpha than on Beta. Therefore, in order to maximize her overall utility, Ellie should buy more of Alpha (which has the higher marginal utility per dollar) and less of Beta. Thus, the best choice is D.

Quiz 7: Utility Maximization

Sharon purchases two products with a given fixed budget, orange juice and soda. Her marginal utility from orange juice is 60, and her marginal utility from soda is 30. The price of a bottle of orange juice is $2.00, and the price of soda is $1.00. These data suggest that

In deciding what to buy, the consumer will choose the good with the

In spending all his income on beer and pizza, Fred finds that the marginal utility of the last pizza he consumed is 8, and the marginal utility of the last bottle of beer is 4. The price of a bottle of beer is $1.50. If Fred has maximized his utility, the price of pizza must be

A child is given $4 of pocket money to be spent on either hard candies or chocolates. Chocolates cost 40 cents and hard candies 80 cents each. The marginal utilities derived from each product are as shown in the following table. Based on taste and preference alone, which good does the child prefer?

Mr. Samuelson's current rates of purchase are such that the marginal utility of slacks is 18 and the marginal utility of ties for him is 5. If slacks and ties are priced at $12 and $2, respectively, it can be concluded that Mr. Samuelson

Betty is maximizing her satisfaction from spending her budget on two items, movie rentals and music downloads. If her marginal utility from the last movie rental is twice that from the last music download, what is the price of a movie rental if the price of a music download is $0.80?

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the

"Consumer equilibrium" refers to the situation when the consumer is getting

A consumer is in equilibrium and is spending income in such a way that the marginal utility of product X is 40 units and that of Y is 16 units. If the unit price of X is $5, then the price of Y must be

Assume that a consumer purchases a combination of products Y and Z and that the MUy/Py = 25 and MUz/Pz = 20. To maximize utility, without spending more money, the consumer should

Assume that a consumer purchases a combination of products Y and Z and that the MUy/Py = 30/2 and MUz/Pz = 45/3. To maximize utility, without spending more money, the consumer should

A consumer currently spends a given budget on two goods, X and Y, in such quantities that the marginal utility of X is 10 and the marginal utility of Y is 8. The unit priceof X is $5 and the unit price of Y is $2. The utility-maximizing rule suggests that this consumer should

Assume that product Alpha and product Beta are both priced at $1 per unit and that Ellie has $20 to spend on Alpha and Beta. She buys 8 units of Alpha and 12 units of Beta. The marginal utility of Alpha is 40 and the marginal utility of Beta is 20. This indicates that

Assume that a consumer purchases a combination of products Y and Z and that the MUy/P_y= 25 and MUz/P_z= 20. To maximize utility, without spending more money, the consumer should

Assume that a consumer purchases a combination of products Y and Z and that the MUy/P_y= 30/2 and MUz/P_z= 45/3. To maximize utility, without spending more money, the consumer should