Quiz 5 - Utility

Jiaqi Fan's two favorite snack foods are peanuts and potato chips. When he exhausts his $20 budget at the local supermarket he finds that the marginal utility from the last bag of peanuts he consumed is 20 while the last bag of potato chips is 40. Assuming he is a rational consumer who has successfully maximized his utility, what do we know about the prices of peanuts and potato chips? 1) A bag of potato chips must cost twice as much as a bag of peanuts. 2) The price of both goods must be equal. 3) A bag of peanuts must cost twice as much as a bag of potato chips.

A bag of potato chips must cost twice as much as a bag of peanuts.

Alora buys only two brands of golf balls: "Nickless" and "Olin 1." The more of any one she buys, the lower the marginal utility of that ball. In spending all her income, her marginal utility of a "Nickless" is 5 and her marginal utility of an "Olin 1" is 10. The price of a "Nickless" ball is $2 and the price of an "Olin 1" is $3. Given this information, which of the statements is true? 1) In equilibrium, Alora must give up three "Olin 1" balls for two "Nickless" balls 2) Alora would be willing to give up two "Olin 1" balls for one "Nickless" ball. 3) Alora could increase her satisfaction by trading "Nickless" for "Olin 1."

Alora could increase her satisfaction by trading "Nickless" for "Olin 1."

Bo buys 10 music albums and 25 notebooks along with quantities of other goods. Suppose that the price of an album increases by $2 and the price of notebooks falls by $1. Other prices and Bo's income remain unchanged. What will Bo do? 1) Buy more albums and less notebooks. 2) Buy more notebooks and less albums. 3) Remain where she is since her present position is the best attainable one after prices change.

Buy more notebooks and less albums.

________ is the satisfaction or value people extract from consumed services or goods and those derived from pursued activities. 1) Rational behavior 2) Utility 3) Equilibrium

Utility

Which of these statements best fits how a behavioral economist might view a situation? ​1) If you find $100 on the street, you will be more likely to spend if freely than you would be to take $100 out of your bank account. 2) If you lost $20 today but then found $20 later on, you would feel neutral because it's as if you never lost anything at all. 3) Dollars are fungible, or have equal value to the individual, regardless of the situation.

​If you find $100 on the street, you will be more likely to spend if freely than you would be to take $100 out of your bank account.

Which of the following is an example of a nudge used by behavioral economists to encourage rational behavior? 1) All people in construction zones are required by law to wear protective headgear. 2) In some countries all drivers are automatically registered as organ donors unless they opt out. 3) Consumers are left free to choose which home mortgage terms work best for them.

In some countries all drivers are automatically registered as organ donors unless they opt out.

Over the past decade consumer incomes have risen by 20%. During that same time consumption of public transport has decreased by 10%. Which of the following must be true? 1) Public transport is an inferior good. 2) The demand curve for public transport is upwards sloping. 3) The price of public transport must have increased by more than 20%.

Public transport is an inferior good.

What happens to the consumption of a good if it is following the law of diminishing marginal utility? 1) The marginal utility is maximized when total utility starts to decline. 2) The marginal utility is maximized when total utility is also maximized. 3) The marginal utility is maximized when the first unit is consumed.

The marginal utility is maximized when the first unit is consumed.

Which of the following is considered to be a tell-tale signal that the choice with the maximum total utility has been found? 1) The marginal utility per dollar is controlled by trade-offs. 2) The marginal utility per dollar is the same for both goods. 3) The marginal utility is maximized for both goods. 4) The marginal utility is the same for both goods.

The marginal utility per dollar is the same for both goods.

If a good is normal, then a decrease in price will cause a substitution effect that is 1) negative and an income effect that is positive. 2) positive and an income effect that is positive. 3) positive and an income effect that is negative.

positive and an income effect that is positive.

The typical pattern revealed when consumers choose is that, as the quantity consumed of some product rises, 1) marginal utility rises. 2) total utility falls, but marginal utility rises. 3) total utility falls. 4) total utility rises, but marginal utility falls.

total utility rises, but marginal utility falls.

Economists believe that 1) utility can be measured like temperature. 2) utility is impersonal and objective. 3) utility is personal and subjective.

utility is personal and subjective.

In May and June, Tammy spent all her clothing budget on bathing suits and beach bags. Each bathing suit cost $75. At Tammy's optimal choice, her marginal utility from the last bathing suit purchased is 300 and her marginal utility from the last beach bag purchased is 200. This means that each handbag must cost ________. 1) $25 2) $100 3) $50

$50

Which of the following is an example of irrational decision making that a behavioral economist might choose to study? 1) Yu decides to purchase a car even though her credit is poor and so the interest on the car loan high. 2) After winning tickets to a play, George decides to attend even though he does not like theater and he can resell the tickets for cash. 3) Susan spends $20,000 on a world tour rather than invest the money in the stock market.

After winning tickets to a play, George decides to attend even though he does not like theater and he can resell the tickets for cash.

What are the main differences between traditional economics and behavioral economics? 1) Traditional economics is mainly theoretical. 2) Traditional economics assumes that decision makers are fully informed. 3) Behavioral economics does not take as a given that decision makers are rational.

Behavioral economics does not take as a given that decision makers are rational.

Below are three examples of total utility as consumption increases. Which of these examples fits the typical total utility pattern the most accurately? 1) Juline receives a total utility of 5 from eating the first cobb salad, 10 after consuming the second, and 15 after the third. 2) Arthur receives a total utility of 30 from eating the first chicken pot pie, 20 after consuming the second, and 15 after the third. 3) Glenda receives a total utility of 20 from eating the first baked potato, 35 after consuming the second, and 45 after the third.

Glenda receives a total utility of 20 from eating the first baked potato, 35 after consuming the second, and 45 after the third.

What determines the utility an individual receives from consuming a good? 1) The individual's own preferences. 2) The demand and supply curves for that good. 3) The producers conducting customer feedback surveys of that good and the feedback provided.

The individual's own preferences.

Total utility is determined by 1) multiplying the marginal utility of the last unit consumed by the number of units consumed. 2) adding up the marginal utilities of each unit consumed. 3) multiplying the marginal utility of the last unit consumed by the unit price.

adding up the marginal utilities of each unit consumed.

Suppose that Misty likes pizza and hotdogs. If her marginal utility per dollar from pizza is 6 and from hotdogs it is 5, Misty 1) could increase her total utility by buying more hotdogs and less pizza 2) is maximizing her marginal utility 3) could increase her total utility by buying more pizza and fewer hotdogs

could increase her total utility by buying more pizza and fewer hotdogs

If you consume pasta every day of the week, the marginal utility of pasta is likely to ________ at the end of the week, ceteris paribus, and this demonstrates the law of ________. 1) decline; diminishing marginal utility 2) increase; increasing marginal utility 3) increase; diminishing marginal utility 4) decrease; total utility

decline; diminishing marginal utility

The step-by-step process of finding the choice with the maximum utility involves a comparison of the: 1) budget constraint and net gains in satisfaction. 2) marginal utility gained and lost from different choices along the budget constraint. 3) relative prices of various goods.

marginal utility gained and lost from different choices along the budget constraint.

Receiving less and less enjoyment from a second and then a third serving of ice cream is an example of ________. 1) the law of diminishing marginal utility 2) the law of excessive returns 3) the law of increasing total utility

the law of diminishing marginal utility

If baseball cards are a normal good then a decrease in income will cause 1) the quantity consumed to increase. 2) the quantity consumed to decrease. 3) the quantity consumed will remain unchanged.

the quantity consumed to decrease.

Which of the following statements do economists believe about utility? 1) It can be tracked like the weather. 2) It is based on impersonal and objective behavior. 3) It is personal and subjective.

It is personal and subjective.

The reason the substitution effect works to encourage a consumer to buy less of a product when its price increases is 1) the real income of the consumer has been increased. 2) other products are now relatively more expensive than they were before. 3) The product is now relatively more expensive than it was before.

The product is now relatively more expensive than it was before.