Question 1

The substitution effect

Accepted Answer

The substitution effect occurs when a consumer buys more of a good as a result of a relative price change. For example, if the price of coffee decreases relative to the price of tea, a consumer may switch from consuming more tea to consuming more coffee, resulting in the substitution effect.

Question 2

To reach the consumer optimum for two goods,the

Accepted Answer

The consumer optimum is achieved when the ratios of marginal utility to price for both goods are equal. This means that the consumer is allocating their budget in a way that the $1 spent on each good provides the same level of marginal utility. Any other allocation would either result in a decrease in total utility or a reduction in spending power. Therefore, choice A is the best answer.

Question 3

Refer to the following table to answer the following questions:
 
-If the price of attending a soccer game changes from $20 to $25,the marginal utility per dollar spent for the fifth game changes from

Accepted Answer

The answer of Refer to the following table to answer...

Question 4

For a consumer,which of the following statements about the real-income effect is true?

Accepted Answer

The real-income effect occurs when a change in the price of a good affects the purchasing power of a consumer's income. However, this effect only matters when the price change is significant enough to cause a noticeable effect on the consumer's ability to purchase goods with their income. Therefore, statement A is true while B, C, and E are false. Statement D is also incorrect because the real-income effect can result in either an increase or decrease in demand for the good whose price has changed, depending on the type of good and the consumer's preferences.

Question 5

If the price of a good decreases,the marginal utility per dollar spent ________ and consumers buy ________ of the good.

Accepted Answer

When the price of a good decreases, the marginal utility per dollar spent on the good increases. This means that consumers will receive more satisfaction for each dollar spent on the good. Therefore, consumers will buy more of the good as the price decreases. This relationship is captured by the law of demand, which states that as the price of a good decreases, the quantity demanded of the good increases, ceteris paribus.

Question 6

If a decrease in price results in only a small amount in savings,the enhanced purchasing power is effectively

Accepted Answer

If a decrease in price results in only a small amount of savings, it means that the price elasticity of demand is low. Therefore, the enhanced purchasing power will not result in a significant increase in the quantity of the good demanded, so the effect is effectively zero.

Question 7

Peter is deciding between consuming Good X and Good Y.At his current level of consumption,his marginal utility per dollar for Good X is less than the marginal utility per dollar for Good Y.To achieve the consumer optimum,Peter needs to

Accepted Answer

The consumer optimum is reached when the marginal utility per dollar for each good is equal. Since Peter's marginal utility per dollar is higher for Good Y, he should either consume less of Good X or more of Good Y. This will increase his marginal utility per dollar for Good Y and decrease it for Good X until they are equal. Therefore, choice B is the best choice.

Question 8

Lower prices increase the marginal utility per dollar spent and cause consumers to buy more of a good.On the other hand,higher prices lower the marginal utility per dollar spent and cause consumers to buy less of a good.This is a way of restating ________ in terms of marginal utility.

Accepted Answer

This is a restatement of the law of demand, which posits that, all else being equal, as the price of a good decreases, the quantity demanded increases, and as the price increases, the quantity demanded decreases. This explanation ties the concept to changes in marginal utility per dollar spent.

Question 9

Higher prices

Accepted Answer

According to the law of diminishing marginal utility, as a consumer consumes more of a good, the marginal utility that they derive from each additional unit of that good decreases. Therefore, as the price of a good increases, the marginal utility per dollar spent decreases, making consumers less willing to buy the good. This is reflected in choice A, where higher prices lower the marginal utility per dollar spent and cause consumers to buy less of a good.

Question 10

Joanna is deciding between consuming Good X and Good Y.At her current level of consumption,her marginal utility per dollar for Good X is greater than the marginal utility per dollar for Good Y.To achieve the consumer optimum,Joanna needs to

Accepted Answer

The consumer optimum is achieved when the marginal utility per dollar for each good is equal. Since Joanna's marginal utility per dollar for Good X is currently greater than that of Good Y, the best choice is to consume less of Good Y (which will decrease its marginal utility per dollar) and/or consume more of Good X (which will increase its marginal utility per dollar) until the marginal utility per dollar for both goods is equal. Choice D is therefore the best option.

Question 11

When a price changes,there are two effects: the ________ effect and the ________effect.

Accepted Answer

The real-income effect refers to the change in purchasing power that occurs when the price of a good changes. If the price of a good increases, then the consumer's purchasing power decreases, and vice versa. This can lead to a change in the quantity demanded of the good.

The substitution effect refers to the change in the quantity demanded of a good that occurs when its price changes relative to the price of another good. If the price of a good increases, then consumers may switch to a substitute good that is relatively cheaper, leading to a decrease in the quantity demanded of the original good.

Question 12

When there is a change in purchasing power as a result of a change in the price of a good,economists call it

Accepted Answer

When the price of a good changes, it affects the consumer's purchasing power. The real-income effect refers to the change in the consumer's purchasing power that results from a change in the price of a good, which in turn affects the quantity demanded of the good.

Question 13

When a consumer buys more of a good as a result of a relative price change,economists call it

Accepted Answer

The substitution effect occurs when consumers react to a change in the price of a good by consuming more of that good and less of a higher-priced alternative, or vice versa, purely because of the change in relative price, holding the real income or purchasing power constant.

Question 14

The real-income effect

Accepted Answer

The real-income effect occurs when there is a change in purchasing power as a result of a change in the price of a good. For example, if the price of a good decreases, a consumer's purchasing power increases and they can afford to purchase more of that good, resulting in an increase in the quantity demanded. Conversely, if the price of a good increases, a consumer's purchasing power decreases and they can afford to purchase less of that good, resulting in a decrease in the quantity demanded.

Question 15

Which of the following statements about the real-income effect and the substitution effect is true?

Accepted Answer

Both the real-income effect and the substitution effect always exist when there is a change in price of a good. The real-income effect refers to the change in purchasing power of consumers' income due to a price change, while the substitution effect refers to the change in the quantity demanded of a good due to a change in its relative price with respect to other goods. Both effects can occur simultaneously and can have an impact on the quantity demanded of a good.

Question 16

If the price of a good increases,the marginal utility per dollar spent ________ and consumers buy ________ of the good.

Accepted Answer

When the price of a good increases, the marginal utility per dollar spent decreases because consumers are now getting less value for each dollar spent. As a result, consumers tend to buy less of the good to maximize the utility they get from their limited income. Therefore, the correct answer is D.

Question 17

The substitution effect and the real-income effect are two effects that happen when

Accepted Answer

The substitution effect and the real-income effect occur when there is a change in price, which is represented by the letter D in the options. The substitution effect is when a change in price causes consumers to substitute towards or away from a product, while the real-income effect is when a change in price causes a change in the purchasing power of consumers' incomes.

Question 18

Lower prices

Accepted Answer

Lower prices increase the marginal utility per dollar spent, making consumers feel they are getting more value for each dollar, which typically leads to an increase in the quantity of the good purchased.

Question 19

Refer to the following table to answer the following questions:
 
-For 2 chips and 5 sodas to be a combination of goods that maximizes someone's utility per dollar,the price of chips must be ________ if the price of soda is $1.00.

Accepted Answer

The answer of Refer to the following table to answer...

Question 20

Refer to the following table to answer the following questions:
 
-If the price of attending a soccer game changes from $25 to $20,the marginal utility per dollar spent for the fifth game changes from

Accepted Answer

The marginal utility per dollar spent for the fifth game changes from 2.00 to 2.50, which means that there is an increase in the marginal utility per dollar spent. Therefore, it is best to attend the fifth game at the new price of $20.

Quiz 16: Consumer Choice