Quiz: Utility
Jane has a budget of $15 to spend at the local scientific store. Her two favorite items are beakers (Product X) which cost $3 and petri dishes (Product Y) which cost $2. In the schedule below you can see the marginal utility for each of her favorite items. Which combination would maximize Jane's utility?
3 Beakers and 3 petri dishes
Cedriq has a holiday budget of $160 to spend on dinners or souvenirs for his vacation trip to Jamaica. A dinner costs $20 while a souvenir costs $10. Using the table to identify the total utility of dinners and souvenirs when Cedriq maximizes his utility within his budget constraint.
760 total utility units
We have asked Max to rank his preferences between three market baskets, A, B, and C. If Max prefers B to C but is indifferent between A and B, then
B is on a higher indifference curve than C.
What are the main differences between traditional economics and behavioral economics?
Behavioral economics does not take as a given that decision makers are rational.
Both Diana and Sarah like jazz music and music by the Beatles. Diana likes music by the Beatles much better than jazz music, whereas Sarah prefers jazz music to music by the Beatles. If we were to graph an indifference curve with cd's by the Beatles on the horizontal axis and jazz cd's on the vertical axis, then ________. (Hint: What do these preferences say about Diana's & Sarah's marginal rates of substitution?)
Diana's indifference curve would be steeper than Sarah's indifference curve
Below are three examples of total utility as consumption increases. Which of these examples fits the typical total utility pattern the most accurately?
Glenda receives a total utility of 20 from eating one baked potato, a total utility of 35 from consuming two baked potatoes, and a total utility of 45 from consuming three baked potatoes.
Of the answers below, which of the statements is a true statement and is compatible with the properties of utility?
Khaleesi receives 10 utils from drinking a glass of milk and 15 utils from eating a chocolate chip cookie. Therefore, Khaleesi enjoys chocolate chip cookies more than milk.
Which of the following is a true characteristic of an indifference curve map?
Moving northeast to a new indifference curve will increase utility.
As a student Shayla enjoys consuming alphabet soup which is considered an inferior good. After Shayla graduates from college she acquires a job working as a data analyst and her income increases dramatically. What will most likely happen to Shayla's consumption of alphabet soup?
Shayla would discontinue consuming the soup and start eating steaks.
Which of the following is an example of consumers failing to treat money as fungible?
Susan overdrawing and shit
Joshua is currently consuming the optimal (utility-maximizing) quantities of tuna and ham when the price of tuna suddenly decreases. How will this affect his indifference curves and budget line and how will he respond to this price change?
The budget line will rotate outward, and Joshua will consume a bundle of goods at a new higher indifference curve tangent to the new budget line.
What determines the utility an individual receives from consuming a good?
The individual's own preferences.
Which of the following is considered to be a tell-tale signal that the choice with the maximum total utility has been found?
The marginal utility per dollar is the same for both goods.
The reason the substitution effect works to encourage a consumer to buy less of a product when its price increases is
The product is now relatively more expensive than it was before.
At the consumer equilibrium on an indifference curve/budget line diagram, what is true about the slope of the budget line?
The slope of the budget line is equal to the slope of the indifference curve
Rick's enjoyment of soda follows the principle of diminishing marginal utility. He calculates his total utility after consuming the first soda at 10, second soda at 15, third soda at 20, and fourth soda at 19. By the fourth soda Rick starts to feel sick. When is Rick's marginal utility maximized?
When he consumes the fourth soda.
A budget line for Shannon shows her consumption options for two of her favorite goods. An increase in Shannon's income would lead to
a parallel shift in her budget line to the right, allowing her to buy more of both goods.
Along an indifference curve, if the marginal rate of substitution is 3, then the consumer is willing to
give up 3 units of the good measured along the vertical axis for 1 unit of the good measured along the horizontal axis.
As long as the principle of diminishing marginal utility is operating, any increased consumption of a good
lowers marginal utility, but may raise total utility.
The step-by-step process of finding the choice with the maximum utility involves a comparison of the:
marginal utility gained and lost from different choices along the budget constraint.
Traditional economists, as opposed to behavioral economists, assume that ________.
people think rationally when making decisions
If a good is normal, then a decrease in price will cause a substitution effect that is
positive and an income effect that is positive.
You are a lawyer representing a client who lost their $1 million home in a house fire. They are suing the home's architect as design flaws were a major cause of the fire. How large would the damages awarded by the court to your client need to be in order for them to be equally happy as they were before the fire?
some amount greater than $1 million
Receiving less and less enjoyment from a second and then a third serving of ice cream is an example of ________.
the law of diminishing marginal utility
You can use marginal utility theory to find the demand curve by changing
the price of one good, holding income and the price of the other good constant.
The typical pattern revealed when consumers choose is that, as the quantity consumed of some product rises,
total utility rises, but marginal utility falls.
Economists believe that
utility is personal and subjective.
