Question 1

The ability of a good or service to satisfy wants is called:

Accepted Answer

The term that describes the ability of a good or service to satisfy wants is utility.

Question 2

Mary says,"You would have to pay me $50 to attend that pro wrestling event." For Mary,the marginal utility of the event is:

Accepted Answer

Mary's statement implies that the event provides her with a negative marginal utility, as she would only attend if she was compensated monetarily.

Question 3

Suppose that MU_x/P_x exceeds MU_y/P_y.To maximize utility,the consumer who is spending all her money income should buy:

Accepted Answer

The notation suggests a comparison of marginal utilities per price unit (MUS/P) for goods X and Y. If the MUS/P of X exceeds that of Y, to maximize utility, the consumer should buy more of X and less of Y, as each additional dollar spent on X yields more utility than if the same were spent on Y.

Question 4

Answer the question on the basis of the following two schedules,which show the amounts of additional satisfaction (marginal utility)that a consumer would get from successive quantities of products J and K. $\begin{array}{c}
\begin{array}{ccc}
Unit&&\
\text { of } J & & M U_{j} \
\hline
1 & & 56 \
2 & & 48 \
3 & & 32 \
4 & & 24 \
5 & & 20 \
6 & & 16 \
7 & & 12
\end{array}
\begin{array}{ccc}
Unit&&\
\text { of } K & & M U_{k} \
\hline
1 & & 32 \
2 & & 28\
3 & & 24\
4 & & 20\
5 & & 12\
6 & & 10\
7 & & 8
\end{array}
\end{array}$ Refer to the data.If the consumer has money income of $52 and the prices of J and K are $8 and $4 respectively,the consumer will maximize her utility by purchasing:

Accepted Answer

To maximize utility, the consumer must allocate her entire budget such that the marginal utility per dollar spent is equal for both goods. 
MUj/Pj = MUk/Pk 
From the given data: 
MUj/Pj when J = 1: 56/8 = 7 
MUj/Pj when J = 2: 48/8 = 6 
MUk/Pk when K = 1: 32/4 = 8 
MUk/Pk when K = 2: 28/4 = 7 
MUk/Pk when K = 3: 24/4 = 6 
Therefore, the optimal combination of J and K is where the consumer spends all her budget and the marginal utility per dollar spent is equal for both goods. 
Using the given budget of $52: 
2J + 7K = 52 
Re-arranging and solving for J: 
J = (52 - 7K) / 2 
Substituting different values of K in the above equation gives: 
When K = 1, J = 22.5 (not possible as we cannot buy a fraction of a unit) 
When K = 2, J = 22 
When K = 3, J = 17.5 (not possible as we cannot buy a fraction of a unit) 
When K = 4, J = 13 
When K = 5, J = 8.5 (not possible as we cannot buy a fraction of a unit) 
When K = 6, J = 4 
When K = 7, J = - 0.5 (not possible as we cannot buy a negative quantity) 
The only feasible combination is therefore 4 units of J and 5 units of K.

Question 5

While eating at Alex's "Pizza by the Slice" restaurant,Kara experiences diminishing marginal utility.She gained 10 units of satisfaction from her first slice of pizza consumed and would only receive 5 units of satisfaction from consuming a second slice,at the same price.Based on this information we can conclude that:

Accepted Answer

Kara experiences diminishing marginal utility, meaning that each additional slice of pizza consumed will provide less satisfaction than the previous one. Therefore, in order to convince Kara to buy a second slice, Alex may have to lower the price to make it more appealing.

Question 6

The law of diminishing marginal utility explains why:

Accepted Answer

The law of diminishing marginal utility states that as a consumer consumes more and more of a good, the additional satisfaction or utility that the consumer derives from each additional unit of the good decreases. This means that the consumer is willing to pay less for each additional unit, leading to a downward-sloping demand curve.

Question 7

A product has utility if it:

Accepted Answer

Utility refers to the level of satisfaction or usefulness that a consumer derives from a product or service, indicating that it satisfies consumer wants. Therefore, C is the correct choice. A and B are incorrect as they refer to concepts unrelated to utility. D is partially correct, but it only captures one aspect of utility and therefore is not the best choice.

Question 8

Marginal utility can be:

Accepted Answer

Marginal utility can be positive, negative or zero, depending on whether an additional unit of a good increases, decreases or leaves unchanged the total utility gained from consuming that good. Therefore, option C is the best fit.

Question 9

Which of the following is correct?

Accepted Answer

If marginal utility is diminishing but still positive, it means that each additional unit consumed provides less additional satisfaction than the previous unit consumed. However, the total amount of satisfaction or utility obtained from consuming all units up to that point still increases as long as the marginal utility is positive. Therefore, choice C is correct. Option A is incorrect because there is a relationship between marginal and total utility - as more units are consumed, total utility increases but at a decreasing rate due to diminishing marginal utility. Option B is incorrect because total utility is the total amount of satisfaction obtained from consuming a certain quantity of a good, regardless of the change in marginal utility from consuming an additional unit. Option D is incorrect because as stated earlier, total utility can still increase even if marginal utility is diminishing as long as it is still positive.

Question 10

Utility refers to the:

Accepted Answer

Utility refers to the satisfaction or value that a consumer derives from consuming a good or service. It is a measure of how useful or desirable a product is to a consumer.

Question 11

Mrs.Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils.The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively.It can be concluded that:

Accepted Answer

The answer of Mrs.Arnold is spending all her money income...

Question 12

Marginal utility is the:

Accepted Answer

Marginal utility is the additional satisfaction or benefit that a consumer receives from consuming one more unit of a good or service. It is typically measured as the change in total utility divided by the change in quantity consumed. Therefore, option B, "change in total utility obtained by consuming one more unit of a good" is the correct definition of marginal utility.

Question 13

The law of diminishing marginal utility states that:

Accepted Answer

The law of diminishing marginal utility states that as a consumer consumes more and more units of a product, the additional satisfaction (utility) gained from consuming each additional unit will eventually decrease, beyond some point. In other words, the more you consume of a product, the less satisfaction you get from each additional unit.

Question 14

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility.His total utility from three Pepsis is 38 units of utility.The marginal utility of the third Pepsi is:

Accepted Answer

To find the marginal utility of the third Pepsi, we need to subtract the total utility of the first two Pepsis from the total utility of all three Pepsis:

Total utility of first Pepsi = 18 
Total utility of second Pepsi = 18 + 12 = 30 
Total utility of three Pepsis = 38

Marginal utility of third Pepsi = Total utility of three Pepsis - Total utility of first two Pepsis 
= 38 - 30 
= 8

Therefore, the marginal utility of the third Pepsi is 8 units of utility.

The best choice would be to stop at the second Pepsi since the marginal utility of the third Pepsi is less compared to the first two Pepsi.

Question 15

The utility of a good or service:

Accepted Answer

Utility refers to the satisfaction or pleasure one gets from consuming a good or service. It is subjective and varies from person to person, making it difficult to quantify.

Question 16

To maximize utility,a consumer should allocate money income so that the:

Accepted Answer

To maximize utility, a consumer should allocate their money income so that the marginal utility per dollar spent is the same across all goods and services they purchase. This ensures that no reallocation of spending could increase their overall satisfaction or utility.

Question 17

The theory of consumer behavior assumes that:

Accepted Answer

The theory of consumer behavior is based on the assumption that consumers behave rationally, attempting to maximize their satisfaction or utility. This means that consumers make choices based on their preferences, budget constraints, and the prices of the available goods and services, aiming to achieve the highest level of satisfaction possible. The other choices are incorrect: B is false because consumers have a limited budget constraint and cannot buy unlimited amounts of goods and services; C is false because the theory of consumer behavior assumes that consumers have knowledge of their preferences and the utility they derive from consuming different goods and services; and D is false because marginal utility is generally assumed to decline as the consumption of a good or service increases.

Question 18

Total utility may be determined by:

Accepted Answer

Total utility is the sum of the marginal utilities of each unit consumed. Therefore, choice B is correct. Option A calculates the marginal utility of the last unit consumed only, while option C multiplies the marginal utility of the last unit by the product price, which is not correct. Option D multiplies the marginal utility of the first unit consumed by the total number of units consumed, which is also incorrect.

Question 19

If the price of product X rises,then the resulting decline in the amount purchased will:

Accepted Answer

When the price of a product increases, consumers tend to buy less of it. According to the law of diminishing marginal utility, as the quantity consumed of a good decreases, the marginal utility (satisfaction) of the last unit consumed increases because it becomes more scarce or valuable to the consumer.

Question 20

Where total utility is at a maximum,marginal utility is:

Accepted Answer

Total utility is at a maximum when marginal utility is zero. This means that the last unit of consumption does not add any additional satisfaction to the consumer. If marginal utility was positive, consuming one more unit would increase total utility, and if it was negative, consuming one more unit would actually decrease total utility. Therefore, at the point of maximum total utility, marginal utility must be zero.

Quiz 7: Utility Maximization