Ch 7 Problem Sets

"Essential" water is cheaper than "nonessential" diamonds because A) the supply of water is great relative to demand and the supply of diamonds is small relative to demand. B) although the total utility of diamonds is greater, their marginal utility is small. C) the supply of diamonds is great relative to demand and the supply of water is small relative to demand. D) new industrial uses for diamonds have been discovered.

A) the supply of water is great relative to demand and the supply of diamonds is small relative to demand.

Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is spending all her money income should buy A) more of X and/or less of Y. B) more of Y only if its price rises. C) less of X only if its price rises. D) more of Y and/or less of X.

A) more of X and/or less of Y.

Compared to coffee, we would expect the cross elasticity of demand for A) tea to be positive, but negative for cream. B) both tea and cream to be positive. C) tea to be negative, but positive for cream. D) both tea and cream to be negative.

A) tea to be positive, but negative for cream.

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $18 Units of L Total Utility Units of M Total Utility 1 9 1 16 2 15 2 28 3 18 3 36 4 20 4 40 5 21 5 42 How many units of the two products will the rational consumer purchase? A) 4 of L and 2 of M B) 2 of L and 3 of M C) 3 of L and none of M D) 3 of L and 5 of M

B) 2 of L and 3 of M

Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K. Units of J MUj Units of K MUk 1 56 1 32 2 48 2 28 3 32 3 24 4 24 4 20 5 20 5 12 6 6 6 10 7 12 7 8 If the consumer has money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing A) 2 units of J and 7 units of K. B) 4 units of J and 5 units of K. C) 6 units of J and 3 units of K. D) 5 units of J and 5 units of K.

B) 4 units of J and 5 units of K.

While eating at Alex's "Pizza by the Slice" restaurant, Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed and would only receive 5 units of satisfaction from consuming a second slice, at the same price. Based on this information, we can conclude that A) Kara will not eat a second slice, even if it is given to her at no charge. B) Alex may have to lower the price to convince Kara to buy a second slice. C) Kara will definitely want to buy a second slice of pizza. D) even if Kara buys a second slice, she will not buy a third slice.

B) Alex may have to lower the price to convince Kara to buy a second slice.

Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Prashanth A) obtains more marginal utility from the play than from the hockey game. B) has a higher "marginal utility-to-price ratio" for the hockey game than for the play. C) is relatively unappreciative of the arts. D) has recently attended several other Broadway plays.

B) has a higher "marginal utility-to-price ratio" for the hockey game than for the play.

We would expect the cross elasticity of demand between dress shirts and ties to be A) negative, indicating substitute goods. B) negative, indicating complementary goods. C) positive, indicating complementary goods. D) positive, indicating normal goods.

B) negative, indicating complementary goods.

A product has utility if it A) violates the law of demand. B) takes more and more resources to produce successive units of it. C) is useful. D) satisfies consumer wants.

D) satisfies consumer wants.

Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4, respectively. The marginal utility of the last units of A and B are 16 and 24, respectively. These data suggest that Ms. Thomson A) has preferences that are at odds with the principle of diminishing marginal utility. B) should buy less A and more B. C) considers A and B to be complementary goods. D) should buy less B and more A.

D) should buy less B and more A.