Unit 4 Exam - Consumer Choice

If a person is receiving greater utility per dollar from consuming apples than from consuming oranges, then the person is maximizing her total utility. True False

False Total utility is maximized when the marginal utilities per dollar spent on each good are equal.

If Bill is receiving a greater utility per dollar from consuming boats than from consuming houses, then Bill is not maximizing his total utility. True False

True

Tom receives 30 utils from one candy bar, 45 utils from two candy bars, and 55 utils from three candy bars. The marginal utility of the third candy bar is ____________, and Tom's _________ utility rises as his ______________ utility declines. a. 10; total; marginal b. 130; total; marginal c. 55; total; marginal d. 10; marginal; total

a. 10; total; marginal Marginal utility is the additional utility from consuming one more candy bar. By consuming three candy bars, Tom gets 10 more utils than the 45 he got from consuming 2 candy bars. His total utility is increasing from 45 to 55, but his marginal utility is decreasing from 15 to 10.

In regard to potato chips, marginal utility is the _____________ satisfaction from eating ___________ potato chip(s). a. additional; one more b. additional; all the c. total; one more d. total; all the

a. additional; one more "Marginal" means additional. Marginal utility is the additional satisfaction gained from eating one additional, or marginal, potato chip.

Jack likes to play golf. Although he is experiencing diminishing marginal utility, his marginal utility remains positive. We can say that Jack's total utility is a. increasing at a decreasing rate. b. increasing at an increasing rate. c. decreasing at a decreasing rate. d. decreasing at an increasing rate.

a. increasing at a decreasing rate. Jack's marginal utility is still positive. Therefore each new golf game adds to his marginal total utility but at a decreasing rate.

In a two-good model, total utility is maximized when a. the marginal utilities per dollar spent on each good are equal. b. the total utilities per dollar spent on each good are equal. c. the marginal utilities per dollar spent on each good are maximized. d. the total utilities per dollar spent on each good are maximized.

a. the marginal utilities per dollar spent on each good are equal.

Assume that the price for peanut butter and bread is $1 each. Dan's marginal utility for peanut butter is 10 utils, and his marginal utility for bread is 20 utils. Given this situation, a. Dan gains more utility per dollar from consuming peanut butter than from consuming bread. b. Dan gains more utility per dollar from consuming bread than from consuming peanut butter. c. Dan gains the same amount of utility per dollar from consuming each good. d. Dan is in consumer equilibrium.

b. Dan gains more utility per dollar from consuming bread than from consuming peanut butter. Dan's MU/$1 for bread is 20 utils; his MU/$1 for peanut butter is 10 utils.

Suppose Valerie is consuming one novel per week and one movie per week. Further assume that the marginal utility of novels is 40 utils, and the marginal utility of movies is 50 utils. If each novel and each movie costs $4.00, is Valerie attaining consumer equilibrium? a. Yes. She does not want to change her consumption. b. No. She needs to buy more novels and see fewer movies. c. No. She needs to buy fewer novels and see more movies. d. There is not enough information to answer the question.

c. No. She needs to buy fewer novels and see more movies. The marginal utility per dollar for novels is MU / P = 40 / $4 = 10 / $1; the marginal utility per dollar for movies is MU / P = 50 / $4 = 12.5 / $1. Valerie should see more movies.

Mary likes pies and cakes, and she consumes several of each per week. The marginal utility of the last pie is 6 utils and the marginal utility of the last cake is 12 utils. If each pie and each cake costs $12.00, is Mary attaining consumer equilibrium? a. Yes. She does not change her consumption to reach consumer equilibrium. b. No. She needs to buy more pies to reach consumer equilibrium. c. No. She needs to buy more cakes to reach consumer equilibrium. d. There is not enough information to answer this question.

c. No. She needs to buy more cakes to reach consumer equilibrium.

The law of diminishing marginal utility states that at some point, a person's marginal utility from additional consumption a. increases. b. decreases at a decreasing rate. c. decreases. d. decreases at a constant rate.

c. decreases. The law states that marginal utility decreases. The rate at which it decreases will vary from individual to individual.

Suppose that the marginal utility per dollar of apples is greater than the marginal utility per dollar for candy bars as the result of a fall in the price of apples. To achieve consumer equilibrium the consumer reallocates dollars from candy bars to apples. In the process, he a. puts downward pressure on the price of candy bars. b. maximizes total utility. c. acts according to the law of demand. d. B and C.

d. B and C. The consumer substitutes the relatively lower priced apples for candy bars, according to the law of demand. In the process, the consumer is maximizing utility by reallocating spending to apples.

Bill likes boats and houses, and he has a budget of $450,000 to allocate between them. The price of boats is $50,000 and the price of houses is $100,000. The first boat Bill purchases gives Bill 8,000 utils of satisfaction, while the first house he purchases gives him 10,000 utils of satisfaction. If each boat and house Bill consumes provides half the marginal utility of the previous boat and house consumed, how many more boats and houses must Bill consume to meet the consumer equilibrium condition? a. 0 boats, 3 houses b. 2 boats, 2 houses c. 6 boats, 0 houses d. Consumer equilibrium can not be reached within this budget.

d. Consumer equilibrium can not be reached within this budget.

As more of a product is consumed, its marginal utility a. equals total utility. b. rises. c. stays the same. d. falls.

d. falls.

Mary likes pie. The more pies she eats, however, the less she likes each additional pie. As long as Mary's marginal utility remains positive, her total utility is a. decreasing at an increasing rate. b. increasing at an increasing rate. c. decreasing at a decreasing rate. d. increasing at a decreasing rate.

d. increasing at a decreasing rate.

Mary likes pie. Her total utility is the ____________ satisfaction from eating _____________ pie(s). a. additional; one more b. additional; all the c. total; one more d. total; units of

d. total; units of