Utility Theory Quiz

The Marginal Rate of Substitution between points a and b is Which of the following is true of points a and b? Which of the following is true of points a and c?

Answer 1:Correct! -2/3 Answer 2:Correct! The individual is indifferent between a and b Answer 3:Correct! Point c is preferred to a

1. this consumer should buy ___ pieces of popcorn and ___ pieces of candy in order to maximize utility subject to their constraints. 2. Which of the points would the consumer prefer? 3. Which of the attainable points would the consumer prefer? 4. The equation of the budget line is ___

Answer 1:Correct! 20 Answer 2:Correct! 20 Answer 3:Correct! c Answer 4:Correct! a Answer 5:Correct! Q2 = 40 - Q1

1. The consumer optimum at point a involves a quantity of good 1 equal to: 2. At a price of $1, point ____ is optimal 3. At a price of $2, point ____ is optimal 4. At a price of $3, point ____ is optimal

Answer 1:Correct! 25 Answer 2:Correct! a Answer 3:Correct! b Answer 4:Correct! c

Choose the correct values for marginal utility. Quantity Total Utility Marginal Utility 1300--2380 [ Select ] ["1", "300", "-2", "5", "15", "80", "40"] 3420 [ Select ] ["5", "-2", "40", "15", "80", "300", "1"] 4435 [ Select ] ["80", "-2", "15", "40", "5", "1", "300"] 5440 [ Select ] ["-2", "5", "80", "40", "1", "15", "300"] 644117439 [ Select ] ["15", "300", "1", "80", "40", "-2", "5"]

Answer 1:Correct! 80 Answer 2:Correct! 40 Answer 3:Correct! 15 Answer 4:Correct! 5 Answer 5: Correct Answer 1 Answer 6:Correct! -2

Say we know a given consumer prefers X to C and prefers G to H. We also know this consumer prefers H to Y, and prefers C to G. Based on the assumptions of microeconomic preference theory, we can conclude that _____ . The assumption used to solve the previous question is that preferences are _____ .

Answer 1:Correct! The consumer prefers C to H Answer 2:Correct! transitive

The indifference curve is the work of which of the following economists:

Edgeworth and Pareto

Which of the following is NOT true?

The individual gains more utility from good 1 than from good 2

If an outcome is considered a disutility, it implies which of the following? (Choose all that apply)

The individual will not voluntarily choose the outcome The marginal utility is less than zero

One of the weaknesses of utility theory is:

none of these answers : Utility theory doesn't use mathematical equations Utility theory states that utilities must be publicly owned Utility theory assumes that everyone has the same preferences Utility is not observable and not measurable

A consumer with income (Y) of $20 is choosing between quantities of two goods, Q1 and Q2, with P1 = $4, P2 = $5. The equation for the budget line is: The slope of the budget line is:

1. Q2 = 4 - 0.8(Q1) 2. -0.8

Say you are really thirsty. If you have one glass of water, your utility goes from 0 to 400 utils. If you have a second glass, your utility goes from 400 to 500. What is the marginal utility of the second glass of water? (Please enter a whole number, with no decimal point.)

100

Utility theory posits that each person has a unique utility function, which is based upon their preferences. The general form of the utility function is: U = f(Q1, Q2, Q3, ... Qn), where Q1 = quantity of good 1, Q2 = quantity of good 2, etc. up to the n goods available in the society. Some argue this is materialism, because [ Select ] ["capitalism is the greatest economic system ever invented", "having more goods leads to greater utility", "philosophers say all kinds of things", "they're just jealous"] . Some argue this assumes people are sociopaths, because [ Select ] ["we live in a society, and we're social animals", "the theory assumes everyone enjoys microeconomic theory", "the theory assumes everyone has the same preferences", "other peoples' happiness or pain is not included in the utility function, hence it has no impact on the person's utility"] .

Answer 1:Correct! having more goods leads to greater utility Answer 2:Correct! other peoples' happiness or pain is not included in the utility function, hence it has no impact on the person's utility

Microeconomic theory suggests that people maximize utility subject to their constraints. When an outcome is uncertain, people maximize the expected value of the utility subject to their constraints. Microeconomic theory, then, would predict that: A person [ Select ] ["would not", "would"] pay $5 for a 1% chance of winning $1,000, because [ Select ] ["the expected value ($10 - $5 = $5) is higher", "the expected value (-$5) is lower"] . A person [ Select ] ["would", "would not"] pay $5 to avoid a 1% chance of losing $1,000, because the expected value is higher (-$5 vs. -$10) . In contrast, behavioral economics has shown that [ Select ] ["people do not consistently choose the option that maximizes expected value", "microeconomic theory is correct", "people maximize utility subject to their constraints"] .

Answer 1:Correct! would Answer 2:Correct! the expected value ($10 - $5 = $5) is higher Answer 3:Correct! would Answer 4:Correct! the expected value is higher (-$5 vs. -$10) Answer 5:Correct! people do not consistently choose the option that maximizes expected value

1. Calculate the expected value of rolling a six-sided die, where the payoff matches the number on the die, e.g. rolling a one gives you $1, a two gives you $2, etc. 2. Say that you are invited to play a game where you pay $3.75 to play the game described above. Microeconomic theory suggest you should: 3. Say that you are observing a situation as in the above, except the game is repeated 20 times and you may place bets on the movement of the average. For example, if the roll on the first round is a 1, then the average is one. Between each round people may now bet on whether the average moves up, down, or stays the same by the end of all 20 rounds. If the roll on the second round is a 6, then the average of the two preceding rolls is the average of 1 and 6. A person playing the game has rolled a 1, 2, 3, 2, 1. What is the average? 4. It would make the most sense to bet on the average

Answer 1:Correct!$3.50 Answer 2:Correct! not play the game Answer 3:Correct! 1.8 Answer 4:Correct! moving up

"This discussion of utility began with an assumption that it is possible to place numerical values on utility, an assumption that may seem questionable. You can buy a thermometer for measuring temperature at the hardware store, but what store sells an "utilimometer" for measuring utility? While measuring utility with numbers is a convenient assumption to clarify the explanation, the key assumption is not that an outside party can measure utility but only that individuals can decide which of two alternatives they prefer." -- Greenlaw and Shapiro The point of this passage is:

Though utility is not measurable, we know what we prefer

In microeconomics, the word "utility" means

happiness