Econ 101 ch 6 ISU TH
If Bill spends all his money on apples that cost $3 per pound and Bill has $31 to spend, how many pounds can he buy (whole pounds)?
10.0 Since apples are $3 per pound, he can buy $31/$3 pounds.
What is the consumer surplus at a price of $10, assuming the demand relationship is linear?$______________
100.0 Consumer surplus is the area of the triangle formed by the demand curve and the price. Extending the demand relationship above, if price were $20, quantity would be 0. Therefore, consumer surplus is ½ (20 x 10) = $100.
What is the marginal utility of the 2^{nd} pound of apples?
15.0 Total utility increases from 18 to 33 as apples increase from 1 to 2 pounds; therefore, the gain in utility from the 2nd pound is 33-18 = 15.
If apples cost $3 per pound and bananas cost $5 per pound, how many pounds of apples should Bill buy if he wants to maximize his utility and he has $31 to spend?
2.0 To answer this question, you must generate a column of marginal utilities for apples and for bananas. Then generate another column with marginal utilities per dollar spent for each.
What is the consumer surplus at a price of $5? $______________
225.0 Same analysis as above, except ½ (30 x 15) = $225.
If apples cost $3 per pound, how much utility per dollar is Bill getting with the 4^{th} pound of apples?
3.0 The marginal utility of the 4th pound of apples is 9 (54-45), and the price of apples is $3 per pound; therefore, the marginal utility per dollar spent is 3 (9/$3 = 3).
What is the marginal utility of the 4^{th} pound of bananas?
30.0 Total utility increases from 150 to 180 as bananas increase from 3 to 4 pounds; therefore, the gain in utility from the 4th pound is 180-150 = 30.
If apples cost $3 per pound and bananas cost $5 per pound, how many pounds of bananas should Bill buy if he wants to maximize his utility and he has $31 to spend?
5.0 To answer this question, you must generate a column of marginal utilities for apples and for bananas. Then generate another column with marginal utilities per dollar spent for each.
If Bill spends all his money on bananas that cost $5 per pound and Bill has $31 to spend, how many pounds can he buy (whole pounds)?
6.0 Since bananas are $5 per pound, he can buy $31/$5 pounds
Assume that Jill is consuming at the utility-maximizing point. If the utility from the last soda she consumes is 40 and its price is $2, and the utility from the last bucket of popcorn is 20, then we know that the price of the bucket of popcorn is ____. A $1 B $2 C $4 D $5
A $1 Since the marginal utility per dollar for soda is 20 (40/$2), the same must be true for popcorn. If the marginal utility is 20, then the price must be $1.
If the price of a hot dog is $2 and your willingness to pay is $3, then your consumer surplus is _____. A $1 B $2 C $3 D $5
A $1 You're willing to pay $3, but only need to pay $2; therefore, you gain $1 in consumer surplus.
Using the graph, if the price of an ice cream cone is $2.00, consumer surplus will equal ______. A 2 B 3 C 4 D 5
A 2 The area of a triangle (which is what is represented in the graph above) is ½ x base x height. In this case, the base is 4 and the height is 1 ($3-$2), so the area or consumer surplus is 2.
Assume that Jill is NOT consuming at the utility-maximizing level. The marginal utility of soda is 40 and its price is $2, but the marginal utility of popcorn is now 30, and its price is $1. What should Jill do to maximize her utility? A Consume less soda and more popcorn B Consume more soda and less popcorn C Consume more of both D Consume less of both
A Consume less soda and more popcorn If the marginal utility per dollar for soda is 20 and the marginal utility per dollar for popcorn is 30, she's getting more "bang for the buck" by buying more popcorn. If she buys more popcorn, she must buy less soda.
In class, we motivated how "risk aversion" (the dislike of risk) is the same as diminishing marginal utility of wealth. The basic idea is that A From a utility standpoint, the pain of losing $100 is greater than the happiness of winning $100. B The greater a person's wealth, the more the person dislikes taking a gamble. C An insurance company typically charges a higher premium to wealthier customers. D Wealthier people are in a better position to take gambles because they will still have money left over.
A From a utility standpoint, the pain of losing $100 is greater than the happiness of winning $100.
Assume you spend all of your income on two goods: peanuts and chips. Also assume that you are consuming the combination of peanuts and chips that maximize your utility. Which of the following statements is true? A If the price of peanuts is equal to the price of chips, then the marginal utilities must also be equal. B If the price of peanuts is more than the price of chips, then the marginal utility of peanuts is less than the marginal utility of chips. C If the price of peanuts is less than the price of chips, then the marginal utility of peanuts is more than the marginal utility of chips. D The marginal utilities of the two goods and their prices are not related.
A If the price of peanuts is equal to the price of chips, then the marginal utilities must also be equal. The ratios of marginal utility per dollar must be equal for both goods. This ratio comparison can be made even if prices of the goods are different.
If a consumer is currently maximizing her satisfaction, what will happen to the marginal utility of a good when its price increases and the consumer adjusts consumption accordingly? The marginal utility will __________. A Increase, because the consumer will decrease her consumption of the good. B Decrease, because the consumer will increase her consumption of the good. C Decrease, because a consumer will decrease her consumption of the good. D Increase, because the consumer will increase her consumption of the good.
A Increase, because the consumer will decrease her consumption of the good. The consumer will decrease her consumption of the good, and as she does, the marginal utility she derives from the last unit consumed will increase.
If the price of a normal good decreases, the substitution effect ______________ the quantity demanded of that good. A Increases B Decreases
A Increases If the price of a normal good (or any good) falls, there will be a shift toward this good and away from other, relatively more expensive goods according to the substitution effect. Therefore, when the price decreases, the quantity demanded of that good will increase.
If David buys more coffee and less ice cream, the ______________ of coffee will ______________ , and the ___ of ice cream will ______________. A Marginal utility; fall; marginal utility; rise B Marginal utility; rise; marginal utility; fall C Total utility; fall; marginal utility; rise D Marginal utility; rise; total utility; rise
A Marginal utility; fall; marginal utility; rise As consumption of a good increases, its marginal utility falls. The reverse is true as well. So if more coffee is consumed, the marginal utility of coffee falls. But as less ice cream is consumed, its marginal utility increases.
A utility-maximizing consumer of coffee also enjoys consuming tea. Coffee prices rise, while tea prices do not change. This consumers consumes only these two goods and all else remains the same. For this consumer, consumption of tea will ______________, and marginal utility of coffee will ______________. A increase; increase B increase; decrease C decrease; not change D decrease, decrease E one cannot tell
A increase; increase
A consumer faces the following situation. Her marginal utility of a luxury good with a price of $100 is 100 utils. An alternative good has a marginal utility of 75 utils and a price of $50. What should she do if she wishes to increase her total utility? A purchase fewer of the luxury goods and more of the alternative goods B purchase more of the luxury goods and fewer of the alternative goods C purchase fewer of the luxury goods and fewer of the alternative goods D purchase more of the luxury goods and more of the alternative goods
A purchase fewer of the luxury goods and more of the alternative goods
Suppose Frank chooses to buy hot dogs at their current price. When the price of hot dogs increases, Frank's consumer surplus ________. A Increases B Decreases C Doesn't change D Cannot be determined unless the size of the price increases is known
B Decreases An increase in price will lead to a decrease in consumer surplus since Frank now keeps less of his money when he purchases hot dogs. He will also buy fewer hot dogs. Both of those factors will reduce his consumer surplus.
When Jane's income doubles, she increases her consumption. For all normal goods that Jane consumes, what is true? A Her marginal utility per dollar will increase B Her marginal utility per dollar will decrease C Her marginal utility per dollar will not change D Her total utility will decrease
B Her marginal utility per dollar will decrease As she increases her consumption of all normal goods, the marginal utility for each good will fall, causing the marginal utility per dollar to also fall.
Using the graph, if the price increases from $1 to $1.50, consumer surplus will decrease by _____. A $1.50 B $2.50 C $3.50 D $4.50
C $3.50 At $1.50, the area is $1.50 x 6 x ½ = $4.50. At $1, the consumer surplus was $8, so the difference is $3.50.
A consumer is maximizing her satisfaction and currently consuming three goods. If her tastes change so that the marginal utility she gains from movies increases, what will happen to her consumption of the other two goods - hamburgers and football games? A Her consumption will increase because the ratio of their marginal utilities to their prices is now greater than the ratio of the marginal utility of movies to the price of a movie. B Her consumption will increase because the ratio of their marginal utilities to their prices is now less than the ratio of the marginal utility of movies to the price of a movie. C Her consumption will decrease because the ratio of their marginal utilities to their prices is now less than the ratio of the marginal utility of movies to the price of a movie. D Her consumption will decrease because the ratio of their marginal utilities to their prices is now greater than the ratio of the marginal utility of movies to the price of a movie.
C Her consumption will decrease because the ratio of their marginal utilities to their prices is now less than the ratio of the marginal utility of movies to the price of a movie. If the ratios of marginal utility to price are equal for all goods, the increase in the marginal utility of movies will mean that the consumer can gain satisfaction by giving up consumption of all other goods and increasing his consumption of movies. As a result of this consumption change, the marginal utility of movies will then decrease and the marginal utilities of the other two goods will increase.
Fred just ate a hamburger and received total utility of 15 from consuming it. If he eats another one, which of the following will be true? A His total utility will likely stay at 15 B His total utility will likely decrease C His total utility will likely increase
C His total utility will likely increase Fred's marginal utility will probably fall, but he will probably still get an increase in total utility.
If a good is provided for free, it is likely to have a marginal utility that is relatively ______________ and be ______________ the marginal utility that could be gained from consuming some other good which must be paid for. A High; less than B High; greater than C Low; less than D Low; greater than E Unknown; equal to
C Low; less than If the good is free, consumers will expand their consumption until their marginal utility is almost zero. For most goods, that is likely to be less than the cost of producing the good since goods require resources to produce and very few goods would cost nothing to produce.
Suppose at her current level of consumption, a person enjoys going to an additional baseball game three times as much as seeing an additional new movie. The price of a ticket for a baseball game is $30, and the price of a ticket for a movie is $15. Is the person spending her income (for these two goods) in a manner that maximizes her satisfaction? A Yes, she is. B No, she should increase the consumption of baseball games and movies. C No, she should increase the consumption of baseball games and decrease the consumption of movies. D No, she should decrease the consumption of baseball games and increase the consumption of movies.
C No, she should increase the consumption of baseball games and decrease the consumption of movies.
If the price of a good changes, why does an income effect exist? A You need income to purchase the good B Diminishing marginal utility exists C The price change causes a change in real income D People prefer larger incomes
C The price change causes a change in real income The change in the price of a good changes how much real income someone has to spend on all goods.
If orange prices increase, consumers maximizing satisfaction will change their consumption patterns in such a way that the marginal utility of oranges ______________ and the marginal utility of all other goods ______________. A decreases; decreases B increases; increases C increases; decreases D decreases; increases
C increases; decreases A decreases; decreases
If diminishing marginal utility exists and a person decreases consumption of a good, then (all else equal) it must be true that A the person's total utility will rise B the person's marginal utility will decline C the person's marginal utility will rise D the price of the good will fall
C the person's marginal utility will rise
Suppose Gail is willing to pay $89 for a new pair of shoes and Karen is willing to pay $60. What is the gain in total consumer surplus if the price of the shoes falls from $70 to $50? A $10 B $19 C $29 D $30
D $30 At a price of $70, only Gail will buy the shoes and the consumer surplus is $19 ($89-$70). At a price of $50, both will buy the shoes and total consumer surplus is $39 + $10 = $49. Therefore, the gain in consumer surplus is $49-$19 or $30.
Using the graph, if the price of an ice cream cone is $1, consumer surplus will equal ______. A 2 B 4 C 6 D 8
D 8 Same as above—the base is 8 and the height is 2, so the area is 8.
Suppose that the price of a pizza is $10 and the price of a video game is $30. Currently, Aaron is consuming such that the ratio of his marginal utility of pizza to marginal utility of video games is ¼. If he wants to maximize his utility, what should he do? A Buy more pizzas and fewer video games B Buy more pizzas and more video games C Buy fewer pizzas and video games D Buy fewer pizzas and more video games
D Buy fewer pizzas and more video games Another video game provides 4 times the amount of satisfaction as a pizza, but only costs 3 times as much. Aaron gets more bang for their buck with video games, so he should buy more video games (but he has to give up some pizzas to do this since he has a limited budget). With higher video game consumption and less pizza consumption, he will experience lower marginal utility with video games and higher marginal utility with pizza. This consumption change (and marginal utility change) should continue until the ratios or marginal utility per dollar are equal for both goods.
Assume Anna is consuming two goods, movies and books, and at her current level of consumption, the marginal utility of the last movie is 60 and the marginal utility of the last book is 30. The price of a movie is $12 and the price of a book is $4. In order to maximise her utility, what should Anna do? A Increase her consumption of both movies and books B Decrease her consumption of both movies and books C Do nothing—she's maximizing her utility D Decrease her consumption of movies and increase her consumption of books E Increase her consumption of movies and decrease her consumption of books
D Decrease her consumption of movies and increase her consumption of books Movies give Anna twice as much satisfaction as books do (60/30), while the price of a movie is 3 times as high ($12/$4); therefore, she should decrease her consumption of movies and increase her consumption of books.
Assuming a fixed budget, when the price good X increases, consumers will adjust their consumption patterns in a way that the marginal utilities of all other goods will _________. A Increase B Decrease C Not change D Decrease, but the marginal utility of good X will increase. E Increase, but the marginal utility of the higher priced good will decrease.
D Decrease, but the marginal utility of good X will increase. As consumers reduce consumption of the higher priced good, the marginal utility gained from consuming the good increases. As the consumer consumes more of other goods, the marginal utilities will decrease.
A utility-maximizing consumer will consume a good or service until the point at which: A MU is zero B Total consumer surplus is zero C MU > marginal cost D MU/price of the good is on par with MU/price of other goods
D MU/price of the good is on par with MU/price of other goods
Which of the following statements about utility is most accurate? As one consumes more of a good: A marginal and total utility are likely to increase. B marginal and total utility are likely to decrease. C marginal utility is likely to increase; total utility is likely to decrease. D marginal utility is likely to decrease; total utility is likely to increase. E None of the above is true.
D marginal utility is likely to decrease; total utility is likely to increase.
Use the concepts of opportunity cost and marginal utility to explain how rational consumers compare marginal costs and marginal benefits when deciding how much of a good to purchase.
if they really want something they are gonna have to give up other items in order to purchase more of the good that they want and enjoy . they have to think if it is worth giving up other goods to stock up on the good that they are really liking at the moment
Explain why the marginal utility of water may be quite high at low levels of consumption, but eventually diminish as you increase your consumption.
similar to the apple senario, the first one will be the best and taste amazing but once you get past the third it might not be as satisfying as the first.
How does diminishing marginal utility affect the decision about how much of a good to purchase compared to another good at the same price?
the marginal utility will decrease as more are purchased. if marginal utility drops below the marginal utility of other products, consumers will buy more of the other goods.
What do you think will happen to marginal utility (that is, the additional satisfaction gained from consuming each additional good) as one consumes more of a good?
the satisfaction gained from other goods will decrease and in some cases it might decrease the consumers overall satisfaction as sometimes one things can get old after so long
Who suffers the greater loss of consumer surplus when the price increases: those with elastic demands or those with inelastic demands?
those with elastic demand because they are more sensitive to price change
How does a consumer maximize satisfaction when goods have different prices?
you need some way to compare between two goods of different price. Think of how much utility you would get per dollar spent
