Econ Chapter 21
- 1.
1. The diamond-water paradox is the observation that
- A.
Those things that have the greatest price often have little value in exchange and those things that have the lowest price often have the greatest value in exchange.
- B.
Those things that have the greatest value in use often have little value in exchange and those things that have little value in use often have the greatest value in exchange.
- C.
Those things that have the least value in use often have little value in exchange and those things that have the greatest value in use often have the greatest value in exchange.
- D.
Those things that have the least price often have little value in exchange and those things that have the greatest price often have the greatest value in exchange.
Correct Answer
B. Those things that have the greatest value in use often have little value in exchange and those things that have little value in use often have the greatest value in exchange.Explanation
The diamond-water paradox refers to the observation that things that have the greatest value in use, such as water, often have little value in exchange, while things that have little value in use, such as diamonds, often have the greatest value in exchange. This means that the value of a good in terms of its usefulness does not necessarily correspond to its value in terms of its exchangeability or price.Rate this question:
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- 2.
2. When an economist talks about utility, she is talking about
- A.
A company that provides electricity, water, gas, etc.
- B.
The satisfaction, in terms of price, that a producer receives from selling his product.
- C.
The satisfaction that results from the consumption of a good.
- D.
The amount of one good that a person is willing to give up in order to get a unit of another good.
- E.
The satisfaction that results from the consumption of a good minus the price that must be paid to get the good.
Correct Answer
C. The satisfaction that results from the consumption of a good.Explanation
The term "utility" in economics refers to the satisfaction or pleasure that individuals derive from consuming goods and services. It represents the subjective value or benefit that a person obtains from consuming a particular good. This concept is important in understanding consumer behavior and decision-making, as individuals typically seek to maximize their utility by choosing goods and services that provide the greatest satisfaction. Therefore, when an economist talks about utility, they are referring to the satisfaction that results from the consumption of a good.Rate this question:
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- 3.
3. A util is an artificial construct used as a means of measuring the
- A.
Price of a good.
- B.
Satisfaction one receives from the consumption of a good.
- C.
Costs of producing a good.
- D.
Difference between the price and the value of a good.
Correct Answer
B. Satisfaction one receives from the consumption of a good.Explanation
A util is a unit of measurement used to quantify the satisfaction or utility that an individual derives from consuming a good. It is an artificial construct that helps economists understand and analyze consumer behavior. The answer choice "satisfaction one receives from the consumption of a good" accurately describes the purpose and function of a util in measuring the value or benefit that individuals gain from consuming a good.Rate this question:
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- 4.
4. Total utility is defined as the
- A.
Change in marginal utility a person derives from the consumption of a good.
- B.
Change in total utility a person derives from the consumption of a good divided by the price of that good.
- C.
Change in total utility a person derives from the consumption of a good divided by the change in the consumption of that good.
- D.
Sum of the amounts of satisfaction a person receives from consuming a good.
- E.
Change in total utility a person derives from the consumption of a good.
Correct Answer
D. Sum of the amounts of satisfaction a person receives from consuming a good.Explanation
The correct answer is "sum of the amounts of satisfaction a person receives from consuming a good." This is because total utility refers to the overall satisfaction or happiness that a person derives from consuming a good. It is the cumulative sum of the satisfaction obtained from each unit consumed. This definition does not involve any changes in marginal utility, price, or consumption, but rather focuses on the overall satisfaction received from consuming the good.Rate this question:
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- 5.
5. Marginal utility is defined as the
- A.
Change in marginal utility a person derives from the consumption of a good.
- B.
Change in total utility a person derives from the consumption of a good divided by the price of that good.
- C.
Change in total utility a person derives from the consumption of a good divided by the change in the quantity of the good consumed.
- D.
Sum of the amounts of satisfaction a person receives from consuming a good.
- E.
Change in total utility a person derives from the consumption of a good divided by the value in use of that good.
Correct Answer
C. Change in total utility a person derives from the consumption of a good divided by the change in the quantity of the good consumed.Explanation
Marginal utility is the additional satisfaction or benefit that a person derives from consuming one more unit of a good. It is calculated by dividing the change in total utility (the overall satisfaction or benefit) by the change in the quantity of the good consumed. This measure helps to understand how the utility or satisfaction gained from consuming a good changes as the quantity consumed changes. By calculating the marginal utility, individuals can make decisions about how much of a good to consume to maximize their overall satisfaction.Rate this question:
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- 6.
10. Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 80, 116, 136, 150, respectively. The marginal utility of the sixth wing is __________ utils.
- A.
14
- B.
136
- C.
20
- D.
22.7
Correct Answer
C. 20Explanation
The marginal utility of the sixth wing is 20 utils. This can be determined by calculating the difference in total utils between the sixth and fifth wings. The total utils from the sixth wing is 136, and the total utils from the fifth wing is 116. Therefore, the marginal utility of the sixth wing is 136 - 116 = 20 utils.Rate this question:
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- 7.
15. Which of the following is true?
- A.
It is possible for total utility to rise as marginal utility falls.
- B.
Marginal utility is the same as total utility.
- C.
As marginal utility falls, total utility always falls.
- D.
A and c
Correct Answer
A. It is possible for total utility to rise as marginal utility falls.Explanation
The correct answer is "It is possible for total utility to rise as marginal utility falls." This statement is true because total utility is the overall satisfaction or benefit derived from consuming a certain quantity of a good, while marginal utility is the additional satisfaction or benefit gained from consuming an additional unit of the good. Initially, as more units of a good are consumed, the marginal utility tends to decrease, meaning that each additional unit provides less satisfaction. However, total utility can still increase if the decrease in marginal utility is offset by the increase in the quantity consumed.Rate this question:
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- 8.
20. You and your roommate are eating pizza and have already consumed all but the last slice. Your roommate claims that he is hungrier than you and therefore should get the last slice of pizza. Your roommate has made
- A.
A diamond-water paradox.
- B.
An interpersonal utility comparison.
- C.
A correct statement.
- D.
A marginal error.
Correct Answer
B. An interpersonal utility comparison.Explanation
An interpersonal utility comparison refers to the act of comparing the preferences or levels of satisfaction between two individuals. In this scenario, the roommate is comparing their level of hunger to the speaker's in order to determine who should get the last slice of pizza. This is an example of an interpersonal utility comparison because it involves comparing the preferences or levels of satisfaction between two people.Rate this question:
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- 9.
25. Which of the following statements is true?
- A.
The less you have of any one good, the less you would be willing to pay for one more unit of it.
- B.
The less you have of any one good, the more you would be willing to pay for one more unit of it.
- C.
The amount you have of any one good does not influence the price you would be willing to pay for it, but it does affect the marginal utility received from consuming a particular unit.
- D.
None of the above
Correct Answer
B. The less you have of any one good, the more you would be willing to pay for one more unit of it.Explanation
The correct answer is "The less you have of any one good, the more you would be willing to pay for one more unit of it." This statement aligns with the concept of diminishing marginal utility, which states that as you consume more of a good, the additional satisfaction or utility derived from each additional unit decreases. Therefore, when you have less of a good, the value or willingness to pay for an additional unit increases because it provides a greater increase in utility.Rate this question:
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- 10.
30. Because there are so few diamonds in the world, the consumption of diamonds
- A.
Takes priority over the consumption of water.
- B.
Takes place at relatively high marginal utility.
- C.
Takes place at relatively low marginal utility.
- D.
Is more important than the consumption of water.
Correct Answer
B. Takes place at relatively high marginal utility.Explanation
The correct answer is "takes place at relatively high marginal utility." This means that the consumption of diamonds is considered to be more valuable and desirable compared to the consumption of water. The concept of marginal utility suggests that the value or satisfaction derived from consuming an additional unit of a good or service decreases as more of it is consumed. In this case, the high marginal utility implies that each additional diamond consumed provides a significant increase in satisfaction or value.Rate this question:
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- 11.
35. Ari is currently consuming 10 hot dogs and 8 hamburgers per week. The last hot dog she consumed yielded 20 utils while the last hamburger she ate gave her 25 utils. If hot dogs cost $2 and hamburgers cost $2.50, is Ari consuming the correct quantities of these two goods to be in consumer equilibrium?
- A.
No, she should consume more hamburgers and fewer hot dogs.
- B.
No, she should consume more hot dogs and fewer hamburgers.
- C.
Yes, so there is no need to change her eating habits.
- D.
There is not enough information to answer the question.
Correct Answer
C. Yes, so there is no need to change her eating habits.Explanation
Based on the given information, Ari is currently consuming 10 hot dogs and 8 hamburgers per week. The last hot dog she consumed yielded 20 utils while the last hamburger she ate gave her 25 utils. Since utils represent the satisfaction or utility derived from consuming a good, we can compare the utils obtained from each item. The hot dog gives her 20 utils, while the hamburger gives her 25 utils. However, the price of a hot dog is $2, while the price of a hamburger is $2.50. To determine consumer equilibrium, we need to consider the marginal utility per dollar spent. In this case, the marginal utility per dollar spent on hot dogs is 10 utils per dollar ($2 divided by 20 utils) and the marginal utility per dollar spent on hamburgers is 10 utils per dollar ($2.50 divided by 25 utils). Since the marginal utility per dollar spent is the same for both goods, Ari is consuming the correct quantities of hot dogs and hamburgers to be in consumer equilibrium. Therefore, the correct answer is "Yes, so there is no need to change her eating habits."Rate this question:
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- 12.
40. In the Texas A & M study of the "buying" behavior of two white rats, as the "relative price" of one beverage was raised,
- A.
Both white rats began to consume more of the higher-priced beverage.
- B.
Both white rats began to consume less of the higher-priced beverage.
- C.
One white rat began to consume more of the higher-priced beverage and the other began to consume less.
- D.
Both white rats continued consuming the same amount of the beverage as before its price was raised.
- E.
There was no study done at Texas A & M with white rats.
Correct Answer
B. Both white rats began to consume less of the higher-priced beverage.Explanation
As the "relative price" of one beverage was raised, both white rats began to consume less of the higher-priced beverage. This suggests that the increase in price had an impact on their consumption behavior, causing them to consume less of the higher-priced beverage.Rate this question:
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- 13.
45. Diamonds are more expensive than water because
- A.
Markets do not always reflect value.
- B.
They have fewer uses.
- C.
They yield higher marginal utility.
- D.
They yield higher total utility.
- E.
All of the above
Correct Answer
C. They yield higher marginal utility.Explanation
The correct answer is "they yield higher marginal utility." Marginal utility refers to the additional satisfaction or value that a consumer derives from consuming an additional unit of a good or service. In this case, diamonds are more expensive than water because each additional unit of diamond provides a higher level of satisfaction or utility compared to each additional unit of water. This higher marginal utility justifies the higher price of diamonds in the market.Rate this question:
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- 14.
50. According to the traditional theory of marginal utility as presented in the textbook, as more units of a good are acquired, the consumer's marginal utility
- A.
Always continues to rise.
- B.
Diminishes.
- C.
Remains constant.
- D.
May diminish at first, but it must eventually rise.
- E.
May rise at first, but it must eventually become constant.
Correct Answer
B. Diminishes.Explanation
According to the traditional theory of marginal utility, as more units of a good are acquired, the consumer's marginal utility diminishes. This means that the additional satisfaction or benefit that a consumer derives from each additional unit of a good decreases as they acquire more of it. This is because as the consumer already has a certain amount of the good, the importance or need for each additional unit decreases, resulting in a decrease in marginal utility.Rate this question:
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- 15.
55. Given two goods, X and Y, and their prices, PX and PY a consumer will maximize utility by allocating expenditures such that
- A.
MUX/PY = MUY/PX.
- B.
PY/MUX = PX/MUY.
- C.
MUX/PX = MUY /PY.
- D.
MUX = PX = MUY = PY = MU$.
- E.
MUX = MUY = PX = PY = MU$.
Correct Answer
C. MUX/PX = MUY /PY.Explanation
The correct answer is MUX/PX = MUY /PY. This equation represents the condition for maximizing utility, known as the marginal rate of substitution (MRS). It states that the ratio of the marginal utility of good X to its price should be equal to the ratio of the marginal utility of good Y to its price. This ensures that the consumer is getting the most satisfaction from their spending, as they are equating the additional utility gained from consuming one more unit of each good to the additional cost of each good.Rate this question:
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- 16.
60. Marginal utility is
- A.
The extra satisfaction derived from consuming an additional unit of a good.
- B.
The total satisfaction derived from consuming an additional unit of a good.
- C.
The total satisfaction derived from consuming a good.
- D.
The change in total satisfaction as an additional unit of a good is consumed.
- E.
A and d
Correct Answer
E. A and dExplanation
Marginal utility refers to the additional satisfaction or benefit gained from consuming one more unit of a good. It measures the change in total satisfaction as an additional unit of the good is consumed. Therefore, options "a" and "d" are correct as they both describe the concept of marginal utility accurately.Rate this question:
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- 17.
Units of Plums Total Utility of Plums (utils) 1 22 2 34 3 44 4 52 5 57 61. Refer to Exhibit 21-1. The marginal utility of the third plum is
- A.
17 utils.
- B.
10 utils.
- C.
8 utils.
- D.
3 utils.
- E.
Cannot be determined
Correct Answer
B. 10 utils.Explanation
The correct answer is 10 utils. This can be determined by calculating the difference in total utility between the second and third plum. The total utility of the second plum is 34 utils and the total utility of the third plum is 44 utils. Therefore, the marginal utility of the third plum is 44 - 34 = 10 utils.Rate this question:
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- 18.
Units of Plums Total Utility of Plums (utils) 1 22 2 34 3 44 4 52 5 57 62. Refer to Exhibit 21-1. The marginal utility of the second plum is
- A.
18.5 utils.
- B.
7.5 utils.
- C.
37 utils.
- D.
12 utils.
Correct Answer
D. 12 utils.Explanation
The marginal utility of the second plum is 12 utils. This can be determined by calculating the difference in total utility between the second and first plum, which is 34 - 22 = 12. Marginal utility represents the additional utility gained from consuming one additional unit of a good, and in this case, consuming the second plum adds 12 utils of utility.Rate this question:
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- 19.
Units of Plums Total Utility of Plums (utils) 1 22 2 34 3 44 4 52 5 57 63. Refer to Exhibit 21-1. The marginal utility of the fourth plum is
- A.
8 utils.
- B.
2 utils.
- C.
10 utils.
- D.
13.5 utils.
- E.
50 utils.
Correct Answer
A. 8 utils.Explanation
Based on the given table, the total utility of plums increases as the number of plums consumed increases. The marginal utility is the additional utility gained from consuming one more unit of a good. In this case, the marginal utility of the fourth plum can be calculated by subtracting the total utility of the third plum (44 utils) from the total utility of the fourth plum (52 utils), which equals 8 utils. Therefore, the correct answer is 8 utils.Rate this question:
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- 20.
Units of Plums Total Utility of Plums (utils) 1 22 2 34 3 44 4 52 5 57 64. Refer to Exhibit 21-1. In this example, marginal utility
- A.
Constantly increases.
- B.
Constantly diminishes.
- C.
Increases then diminishes.
- D.
Diminishes then increases.
Correct Answer
B. Constantly diminishes.Explanation
Based on the given information, the total utility of plums increases from 22 to 57 as the number of units of plums consumed increases from 1 to 5. However, the marginal utility of plums decreases from 12 to 5 as the number of units of plums consumed increases from 1 to 5. This indicates that the additional satisfaction gained from consuming each additional unit of plums diminishes over time. Therefore, the correct answer is that the marginal utility constantly diminishes.Rate this question:
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- 21.
Units of Oranges Marginal Utility of Oranges (utils) 1 20 2 16 3 13 4 11 5 8 65. Refer to Exhibit 21-2. Total utility for the first two units is
- A.
36 utils.
- B.
20 utils.
- C.
40 utils.
- D.
36 utils.
- E.
Cannot be determined
Correct Answer
D. 36 utils.Explanation
The total utility for the first two units can be calculated by adding the marginal utilities of the two units together. The marginal utility for the first unit is 20 utils and the marginal utility for the second unit is 16 utils. Adding these two values together gives a total utility of 36 utils.Rate this question:
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- 22.
Units of Oranges Marginal Utility of Oranges (utils) 1 20 2 16 3 13 4 11 5 8 66. Refer to Exhibit 21-2. Total utility for the first three units is
- A.
12 utils.
- B.
62 utils.
- C.
49 utils.
- D.
15 utils.
- E.
42 utils.
Correct Answer
C. 49 utils.Explanation
The total utility for the first three units can be calculated by summing up the marginal utilities of each unit. In this case, the marginal utilities for the first three units are 20, 16, and 13 utils respectively. Adding them together, we get 49 utils. Therefore, the correct answer is 49 utils.Rate this question:
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- 23.
Units of Oranges Marginal Utility of Oranges (utils) 1 20 2 16 3 13 4 11 5 8 67. Refer to Exhibit 21-2. Total utility for the first four units is
- A.
11 utils.
- B.
60 utils.
- C.
52 utils.
- D.
15 utils.
- E.
40 utils.
Correct Answer
B. 60 utils.Explanation
The correct answer is 60 utils. This is because the total utility is the sum of the marginal utilities of each unit consumed. In this case, the marginal utilities for the first four units are 20 utils, 16 utils, 13 utils, and 11 utils respectively. Adding these together gives a total utility of 60 utils.Rate this question:
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- 24.
Units of Oranges Marginal Utility of Oranges (utils) 1 20 2 16 3 13 4 11 5 8 68. Refer to Exhibit 21-2. Total utility for all five units is
- A.
70 utils.
- B.
12 utils.
- C.
68 utils.
- D.
80 utils.
- E.
40 utils.
Correct Answer
C. 68 utils.Explanation
The total utility for all five units of oranges can be calculated by adding up the marginal utilities of each unit. In this case, the marginal utilities are 20, 16, 13, 11, and 8. Adding these values together gives a total of 68 utils.Rate this question:
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- 25.
70. The law of diminishing marginal utility
- A.
Allows us to make interpersonal utility comparisons.
- B.
Tells us that an additional dollar is worth less to a millionaire than to a poor person.
- C.
Tells us the worth of an additional dollar of income.
- D.
Tells us that an additional dollar of income is worth less than the preceding dollar of income.
- E.
A, b, and d
Correct Answer
D. Tells us that an additional dollar of income is worth less than the preceding dollar of income.Explanation
The law of diminishing marginal utility states that as a person consumes more and more of a good, the satisfaction or utility derived from each additional unit of the good decreases. In the context of income, this means that as a person earns more money, the value or worth of an additional dollar of income decreases. This is because the initial dollars of income are able to fulfill basic needs and provide significant utility, but as income increases, the additional dollars have less impact on overall satisfaction or well-being. Therefore, the correct answer is that the law of diminishing marginal utility tells us that an additional dollar of income is worth less than the preceding dollar of income.Rate this question:
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- 26.
75. Which of the following is inconsistent with the proposition that gambling in a fair game is not worth it?
- A.
Increasing total utility of money
- B.
Increasing marginal utility of money
- C.
Diminishing marginal utility of money
- D.
Deriving displeasure from gambling
Correct Answer
B. Increasing marginal utility of moneyExplanation
The proposition that gambling in a fair game is not worth it implies that the utility gained from gambling is not enough to justify the risk involved. Increasing marginal utility of money contradicts this proposition because it suggests that the additional satisfaction or benefit obtained from each additional unit of money increases. This would imply that the utility gained from gambling, in terms of potential monetary gains, is worth the risk involved.Rate this question:
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- 27.
Apples Oranges Units Total Utility Units Total Utility 0 0 0 0 1 15 1 22 2 28 2 41 3 39 3 58 4 48 4 73 5 55 5 85 78. Refer to Exhibit 21-3. Linda spends $5 a week on apples and oranges. If the price of both goods is $1 per unit, how many apples and oranges, respectively, does she purchase per week if she wants to maximize her utility?
- A.
0 and 5
- B.
1 and 4
- C.
2 and 3
- D.
3 and 2
- E.
None of the above
Correct Answer
B. 1 and 4Explanation
Based on the given table, the total utility for apples and oranges increases as the number of units consumed increases. However, the rate at which the total utility increases starts to diminish after a certain point. In this case, Linda wants to maximize her utility while spending $5. Since the price of both goods is $1 per unit, she can purchase a maximum of 5 units. Looking at the table, when she purchases 1 apple and 4 oranges, the total utility is the highest at 22 + 73 = 95. Therefore, the answer is 1 and 4.Rate this question:
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- 28.
Apples Oranges Units Total Utility Units Total Utility 0 0 0 0 1 15 1 22 2 28 2 41 3 39 3 58 4 48 4 73 5 55 5 85 79. Refer to Exhibit 21-3. Linda spends $5 a week on apples and oranges. If the price of both goods is $1 per unit, what is Linda's total utility from consuming the optimal bundle of goods?
- A.
85
- B.
86
- C.
88
- D.
209
- E.
279
Correct Answer
C. 88 -
- 29.
Apples Oranges Units Total Utility Units Total Utility 0 0 0 0 1 15 1 22 2 28 2 41 3 39 3 58 4 48 4 73 5 55 5 85 80. Refer to Exhibit 21-3. Assume that the price of oranges increases to $2, while the price of apples remains at $1, and Linda allocates $5 of the weekly food budget to purchasing apples and oranges. If Linda wants to maximize her utility, her new consumption bundle will consist of
- A.
1 apple and 2 oranges.
- B.
3 apples and 1 orange.
- C.
5 apples and no oranges.
- D.
None of the above
Correct Answer
B. 3 apples and 1 orange.Explanation
Based on the table provided in Exhibit 21-3, the total utility for 3 apples and 1 orange is 58 + 2 = 60. This is the highest total utility compared to the other options. Therefore, if Linda wants to maximize her utility with a budget of $5, she should choose 3 apples and 1 orange.Rate this question:
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- 30.
85. Smith says she gets 5 utils from consuming the fifth unit of a good whereas Jones says he gets 10 utils from consuming the fifth unit of a good. It follows that
- A.
The fifth unit of the good means more to Jones than Smith.
- B.
The fifth unit of the good means more to Smith than Jones.
- C.
The fifth unit of the good means twice as much to Jones as it means to Smith.
- D.
If the law of diminishing marginal utility holds, both Smith and Jones will get less utility from the sixth unit of the good than the fifth.
- E.
A and d
Correct Answer
D. If the law of diminishing marginal utility holds, both Smith and Jones will get less utility from the sixth unit of the good than the fifth.Explanation
The correct answer is "if the law of diminishing marginal utility holds, both Smith and Jones will get less utility from the sixth unit of the good than the fifth." This is because the law of diminishing marginal utility states that as a person consumes more units of a good, the additional utility or satisfaction they derive from each additional unit decreases. Therefore, both Smith and Jones will get less utility from the sixth unit compared to the fifth unit. The statements made by Smith and Jones about their utility from the fifth unit do not provide enough information to determine which individual values it more.Rate this question:
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- 31.
90. Smith, who has $10,000, receives an extra dollar, as does Jones, who has $100,000. Smith receives more utility from the extra dollar than does Jones. This is an example of
- A.
An interpersonal utility comparison.
- B.
The law of diminishing marginal utility.
- C.
The diamond-water paradox.
- D.
A and b
Correct Answer
A. An interpersonal utility comparison.Explanation
This scenario demonstrates an interpersonal utility comparison because it involves comparing the utility gained from an extra dollar by two different individuals, Smith and Jones. It suggests that Smith, who has less wealth, derives more utility from the additional dollar compared to Jones, who has more wealth. This highlights how utility can vary between individuals based on their personal circumstances and preferences, emphasizing the importance of considering interpersonal comparisons when analyzing utility.Rate this question:
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- 32.
95. If, as a person consumes additional units of a good, total utility rises by a constant amount, it follows that
- A.
Marginal utility is rising.
- B.
Marginal utility is falling.
- C.
Total utility and marginal utility are equal.
- D.
Marginal utility is constant.
- E.
Marginal utility is negative.
Correct Answer
D. Marginal utility is constant.Explanation
If the total utility of consuming additional units of a good rises by a constant amount, it implies that the marginal utility remains constant. Marginal utility refers to the additional utility gained from consuming one more unit of a good. If the total utility increases by the same amount for each additional unit, it suggests that the marginal utility is not changing and remains constant.Rate this question:
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- 33.
100. The MU/P ratio for good X is greater than the MU/P ratio for good Y. To achieve consumer equilibrium, the consumer reallocates dollars from the purchase of good Y to the purchase of good X. If the law of diminishing marginal utility holds, the marginal utility of good X __________ and the marginal utility of good Y __________.
- A.
Falls, rises
- B.
Rises, falls
- C.
Rises, stays constant
- D.
Falls, stays constant
- E.
Stays constant, rises
Correct Answer
A. Falls, risesExplanation
If the consumer reallocates dollars from the purchase of good Y to the purchase of good X, it indicates that the consumer finds more utility in good X compared to good Y. According to the law of diminishing marginal utility, as the consumer consumes more units of a good, the marginal utility derived from each additional unit decreases. Therefore, as the consumer reallocates more dollars to purchase good X, the marginal utility of good X will fall. On the other hand, since the consumer is reallocating fewer dollars to purchase good Y, the marginal utility of good Y will rise.Rate this question:
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- 34.
105. The MU/P ratio for good X is the same as for good Y: 12 utils per dollar. If the price of good X rises to $2 from $1, a consumer who seeks (consumer) equilibrium will buy more of good __________ until the marginal utility of good __________ falls to __________ utils.
- A.
Y; Y; 12
- B.
X; X; 24
- C.
Y; Y; there is not enough information to answer this part of the question.
- D.
X; X; there is not enough information to answer this part of the question.
Correct Answer
C. Y; Y; there is not enough information to answer this part of the question. -
- 35.
Units of Good Consumed Total Utility (utils) Marginal Utility (utils) 1 40 40 2 (A) 35 3 (B) 20 4 100 (C) 5 (D) 2 110. Refer to Exhibit 21-4. What value goes in blank (A)?
- A.
30
- B.
100
- C.
80
- D.
75
- E.
There is not enough information to answer this question.
Correct Answer
D. 75Explanation
The value that goes in blank (A) is 75 because it is the difference between the total utility of consuming 2 units (40) and the total utility of consuming 3 units (20). This represents the decrease in utility from consuming an additional unit.Rate this question:
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- 36.
Units of Good Consumed Total Utility (utils) Marginal Utility (utils) 1 40 40 2 (A) 35 3 (B) 20 4 100 (C) 5 (D) 2 111. Refer to Exhibit 21-4. What value goes in blank (B)?
- A.
95
- B.
150
- C.
45
- D.
100
- E.
There is not enough information to answer this question.
Correct Answer
A. 95Explanation
The value that goes in blank (B) is 95 because it represents the marginal utility of consuming the third unit of the good. This can be determined by subtracting the total utility of consuming the second unit (35) from the total utility of consuming the third unit (20). The result is a decrease in total utility of 15, indicating that the marginal utility of the third unit is 15.Rate this question:
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- 37.
Units of Good Consumed Total Utility (utils) Marginal Utility (utils) 1 40 40 2 (A) 35 3 (B) 20 4 100 (C) 5 (D) 2 112. Refer to Exhibit 21-4. What value goes in blank (C)?
- A.
25
- B.
5
- C.
14.5
- D.
10
- E.
There is not enough information to answer this question.
Correct Answer
B. 5Explanation
The value that goes in blank (C) is 5. This can be determined by looking at the table provided. The marginal utility for the 4th unit consumed is not given, so we cannot determine the specific value for (C). However, we can see that the total utility for the 4th unit consumed is 100, and the total utility for the 5th unit consumed is 102. Therefore, the marginal utility for the 5th unit consumed must be 2 (102 - 100 = 2).Rate this question:
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- 38.
Units of Good Consumed Total Utility (utils) Marginal Utility (utils) 1 40 40 2 (A) 35 3 (B) 20 4 100 (C) 5 (D) 2 113. Refer to Exhibit 21-4. What value goes in blank (D)?
- A.
102
- B.
111
- C.
118
- D.
25
- E.
There is not enough information to answer this question.
Correct Answer
A. 102Explanation
The value that goes in blank (D) is 102. This can be determined by looking at the table provided. The total utility for the first unit consumed is 40, for the second unit it is 35, for the third unit it is 20, and for the fourth unit it is 100. Since the marginal utility for the fifth unit is 2, it can be inferred that the total utility for the fifth unit is 102.Rate this question:
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- 39.
115. The marginal utility curve for units 1 through 5 of good Z lies above the horizontal axis. What does this imply must be true about the total utility curve for units 1 through 5 of good Z?
- A.
That portion of good Z’s total utility curve must be upward sloping.
- B.
That portion of good Z’s total utility curve must be downward sloping.
- C.
That portion of good Z’s total utiity curve must be horizontal.
- D.
That portion of good Z’s total utility curve must also lie above the horizontal axis.
Correct Answer
A. That portion of good Z’s total utility curve must be upward sloping.Explanation
If the marginal utility curve for units 1 through 5 of good Z lies above the horizontal axis, it implies that the additional utility gained from consuming each additional unit of good Z is positive. This suggests that the total utility curve for units 1 through 5 of good Z must be upward sloping, as the total utility is increasing with each additional unit consumed.Rate this question:
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- 40.
Units of Good Consumed Total Utility (utils) Marginal Utility (utils) 1 20 20 2 30 (A) 3 (B) 8 4 (C) 6 5 (D) 3
- A.
12.0
- B.
13.5
- C.
10.0
- D.
14.0
- E.
There is not enough information to answer this question.
Correct Answer
C. 10.0Explanation
The marginal utility for the second unit of the good consumed is 10.0. This can be determined by subtracting the total utility of the first unit (20) from the total utility of the second unit (30).Rate this question:
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- 41.
Units of Good Consumed Total Utility (utils) Marginal Utility (utils) 1 20 20 2 30 (A) 3 (B) 8 4 (C) 6 5 (D) 3 117. Refer to Exhibit 21-5. What value goes in blank (B)?
- A.
27
- B.
38
- C.
40
- D.
35
- E.
There is not enough information to answer this question.
Correct Answer
B. 38Explanation
The marginal utility is the additional satisfaction gained from consuming one more unit of a good. In this case, the marginal utility for the first unit consumed is 20, and the total utility for consuming two units is 30. To find the marginal utility for the second unit, we subtract the total utility of the first unit (20) from the total utility of the second unit (30). Therefore, the marginal utility for the second unit is 10.Rate this question:
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- 42.
Units of Good Consumed Total Utility (utils) Marginal Utility (utils) 1 20 20 2 30 (A) 3 (B) 8 4 (C) 6 5 (D) 3 118. Refer to Exhibit 21-5. What value goes in blank (C)?
- A.
28
- B.
16
- C.
44
- D.
50
- E.
There is not enough information to answer this question.
Correct Answer
C. 44Explanation
The value that goes in blank (C) is 44. This can be determined by looking at the pattern of the marginal utility values. In this case, the marginal utility decreases as the number of units consumed increases. The marginal utility for the first unit consumed is 20, for the second unit it is (A) (which is not provided), for the third unit it is 8, and for the fourth unit it is 6. Based on this pattern, it can be inferred that the marginal utility for the fifth unit consumed would be 3. Therefore, the value in blank (C) must be 44.Rate this question:
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- 43.
Units of Good Consumed Total Utility (utils) Marginal Utility (utils) 1 20 20 2 30 (A) 3 (B) 8 4 (C) 6 5 (D) 3 119. Refer to Exhibit 21-5. What value goes in blank (D)?
- A.
47
- B.
15
- C.
35
- D.
60
- E.
There is not enough information to answer this question.
Correct Answer
A. 47 -
- 44.
120. Suppose that there are two cities that are alike in every way except that one city has significantly better weather than the other city. Call the city with good weather Good-Weather City (GWC) and the other Bad-Weather City (BWC). Assume that the median price of a home in the two cities is originally the same. If the marginal utility of living in GWC is 500 and the marginal utility of living in BWC is 300, to make themselves better off economic theory tells us that
- A.
At least some people will move from BWC to GWC, which will make housing prices rise in GWC and BWC.
- B.
At least some people will move from GWC to BWC, which make housing prices rise in BWC and GWC.
- C.
At least some people will move from BWC to GWC, which will make housing prices rise in GWC and fall in BWC.
- D.
At least some people will move from GWC to BWC, which will make housing prices rise in BWC and fall in GWC.
Correct Answer
C. At least some people will move from BWC to GWC, which will make housing prices rise in GWC and fall in BWC.Explanation
The correct answer is that at least some people will move from BWC to GWC, which will make housing prices rise in GWC and fall in BWC. This is because people will be willing to pay a higher price to live in GWC due to its better weather, increasing the demand for housing in GWC. As a result, housing prices in GWC will rise. On the other hand, the decrease in demand for housing in BWC as people move to GWC will lead to a decrease in housing prices in BWC.Rate this question:
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- 45.
125. If the MU/P ratio for two goods is the same, then
- A.
The slope of the budget constraint between the two goods is equal to the marginal rate of substitution (MRS) between the two goods.
- B.
The indifference curve between the two goods is concave to the origin.
- C.
The prices of the two goods are the same.
- D.
It follows that consumers prefer fewer goods to more goods.
- E.
A and c
Correct Answer
A. The slope of the budget constraint between the two goods is equal to the marginal rate of substitution (MRS) between the two goods.Explanation
The correct answer is the slope of the budget constraint between the two goods is equal to the marginal rate of substitution (MRS) between the two goods. This is because the MU/P ratio represents the marginal rate of substitution, which is the rate at which a consumer is willing to trade one good for another while keeping the same level of satisfaction. The slope of the budget constraint represents the rate at which the consumer can trade one good for another given their budget constraint. If the MU/P ratio is the same for both goods, it means that the consumer is willing to trade them at the same rate, which is reflected in the slope of the budget constraint.Rate this question:
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- 46.
130. Refer to Exhibit 21-6. I1, I2 and I3 are indifference curves and line ab is the relevant budget constraint. The equilibrium position for the consumer is at
- A.
Any point on the budget constraint.
- B.
Point M.
- C.
Point J.
- D.
Point T.
- E.
Point R.
Correct Answer
D. Point T.Explanation
The equilibrium position for the consumer is at point T because it represents the point where the budget constraint (line ab) is tangent to the highest indifference curve (I3). This means that at point T, the consumer is maximizing their utility given their budget constraint. Any point on the budget constraint would not be optimal because it would either be below the highest indifference curve (resulting in lower utility) or above the highest indifference curve (resulting in unaffordable consumption). Points M, J, and R are not optimal because they do not represent the point of tangency between the budget constraint and the highest indifference curve.Rate this question:
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- 47.
131. Refer to Exhibit 21-6. I1, I2 and I3 are indifference curves and line ab is the relevant budget constraint. If the consumer is initially at point R, he should
- A.
Strive for point N by obtaining a larger money income.
- B.
Purchase more of X and less of Y.
- C.
Remain at that point in order to maximize utility.
- D.
Purchase more of Y and less of X.
- E.
None of the above
Correct Answer
D. Purchase more of Y and less of X.Explanation
The consumer should purchase more of Y and less of X because point N is located on a higher indifference curve than point R. This means that the consumer can achieve a higher level of utility by consuming more of good Y and less of good X. Increasing consumption of Y and decreasing consumption of X will allow the consumer to move closer to point N and maximize their utility.Rate this question:
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- 48.
132. Refer to Exhibit 21-6. I1, I2 and I3 are indifference curves and line ab is the relevant budget constraint. Point N is
- A.
The consumer's equilibrium position.
- B.
Unattainable
- C.
Inferior to every other labeled point on the diagram.
- D.
Attainable, but does not exhaust the consumer's income.
Correct Answer
D. Attainable, but does not exhaust the consumer's income.Explanation
Point N is the consumer's equilibrium position because it lies on the budget constraint line ab and on indifference curve I2. This means that the consumer is maximizing their utility given their budget constraint. However, point N is not the highest attainable level of utility for the consumer because it is not on the highest indifference curve (I3) and does not exhaust the consumer's income. Therefore, the consumer could potentially achieve a higher level of utility by reallocating their income to reach a point on a higher indifference curve.Rate this question:
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- 49.
135. If a person's income falls, his or her budget constraint moves
- A.
Inward toward the origin, and its slope changes.
- B.
Outward away from the origin, and its slope remains the same.
- C.
Inward toward the origin, and its slope remains the same.
- D.
Outward away from the origin, and its slope changes.
- E.
None of the above
Correct Answer
C. Inward toward the origin, and its slope remains the same.Explanation
When a person's income falls, their budget constraint moves inward toward the origin because they have less money to spend. However, the slope of the budget constraint remains the same because the ratio of the prices of goods and services does not change. The slope represents the trade-off between the two goods, and this trade-off remains the same even when income decreases. Therefore, the correct answer is inward toward the origin, and its slope remains the same.Rate this question:
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- 50.
138. Refer to Exhibit 21-7. Which of the following graphs represents a budget constraint of a consumer whose income is $120?
- A.
(1)
- B.
(2)
- C.
(3)
- D.
(1) and (2)
- E.
This cannot be determined from the information provided.
Correct Answer
E. This cannot be determined from the information provided.Explanation
The question states that the budget constraint is of a consumer whose income is $120. However, there is no exhibit provided in the question that shows any graphs representing budget constraints. Therefore, it is not possible to determine which graph represents the budget constraint of a consumer with an income of $120.Rate this question:
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.jpg "130. Refer to Exhibit 21-6. I1, I2 and I3 are indifference curves and line ab is the relevant budget constraint. The equilibrium position for the consumer is at")
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.jpg "132. Refer to Exhibit 21-6. I1, I2 and I3 are indifference curves and line ab is the relevant budget constraint. Point N is")
.jpg "138. Refer to Exhibit 21-7. Which of the following graphs represents a budget constraint of a consumer whose income is $120?")
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