Marginal Utility quiz

Question 1 According to the table, what is the marginal utility for the 3rd sock?

Answer to question 1 12

Question 10 The law of diminishing marginal utility implies that as a person consumes more and more of a given commodity:

Answer to question 10 Marginal utility will eventually decline

Question 11 Which situation is consistent with the law of diminishing marginal utility?

Answer to question 11 The more pizza Henry eats, the less he enjoys another slice

Question 12 The reason people are charged for each additional can of soda obtained from a soda machine, but are not charged for each additional paper taken from a newspaper dispensing machine is that the marginal utility of additional:

Answer to question 12 Soda diminishes slowly, but the marginal utility of additional newspapers is close to zero.

Question 13 When the price of a product rises for a normal good, the:

Answer to question 13 Income and substitution effects will encourage consumers to purchase less of the product

Question 14 Assume that Tonya consumes only two products, pizza and potato chips. Both are normal goods for Tonya. If the price of pizza decreases, then Tonya's consumption of pizza will:

Answer to question 14 Increase due to the income effect

Question 15 Assume that a consumer purchases a combination of products A and B. The MUa is 5 and Pa is $5. The Mub is 6 and Pb $6. What should the consumer do to maximize utility?

Answer to question 15 To maximize utility, you need to use the utility maximizing rule. It is MUa / Pa = MUb / Pb. After calculating, you will discover that the marginal utility per dollar is equal for both products. This means that the consumer is maximizing utility and should make no changes in consumption patterns.

Question 16 A vice president of a company argues that the president of the company should raise workers' wages if the president wants less absenteeism. The president says that wages probably should be cut that the workers could not afford to miss so much work. Evaluate the two views using the income an substitution effects in your analysis.

Answer to question 16 The vice president is wrong if the income effect outweighs the substitution effect. Paying workers more will allow the workers to work shorter hours and earn enough to afford their added leisure. However if the substitution effect outweighs the income effect, the vice president is right and the president is wrong. Paying the workers less will cause the workers to work fewer hours. This is because they don't lose as much for each hour not worked. Due to lower income, absenteeism may increase.

Question 17 For this question, the answer for A will not be graded. The answer for B will be recorded for this question. The answer for C will be recorded on the next question. A consumer finds only three products, X, Y, and Z, are for sale. The amount of utility which their consumption will yield is shown in the table below. Assume that the prices of X, Y, and Z are $10, $2, and $8, respectively, and that the consumer has an income of $74 to spend. (b) How many units of X, Y, and Z will the consumer buy when maximizing utility and spending all income? Show this result using the utility maximization formula.

Answer to question 17 (b) To maximize utility, the consumer will buy 4 units of X, 5 units of Y, and 3 units of Z. For each of the products, the marginal utility per dollar is equal to 3.0. Also, all income, which is $74, is spent on the products. Here is my work: ($40 for X) + ($10 for Y) + ($24 for Z) = $74

Question 18 Provide an answer to C from the previous question. (c) Why would the consumer not be maximizing utility by purchasing 2 units of X, 4 units of Y, and 1 unit of Z?

Answer to question 18 (c) The consumer doesn't spend all available income, even though the marginal utility per dollar is equal to 4.0 for products X, Y, and Z. There is $74 available, but the consumer only spends $36. More goods can be acquired by spending the income to maximize utility.

Question 2 What is the marginal utility for the 3rd glove?

Answer to question 2 8

Question 3 What is the marginal utility per dollar of the 4th sock?

Answer to question 3 4

Question 4 What is the marginal utility per dollar of the 4th glove?

Answer to question 4 6

Question 5 Considering the budget of $10, and using the utility maximization rule, what is the optimal combination of purchases of both socks and gloves?

Answer to question 5 3 socks, 4 gloves

Question 6 If the consumer income were to increase to $13, what would be the new combination of purchases according to the maximum utility rule?

Answer to question 6 4 socks, 5 gloves

Question 7 If your marginal utility from a 25 cent candy bar is 50 utils and the marginal utility of a 30 cent cola is 60 utils, you can:

Answer to question 7 not add to your satisfaction by changing the mix.

Question 8 A consumer with a given income will maximize their utility when

Answer to question 8 the marginal utilities derived from each commodity consumed are proportional to their prices.

Question 9 According to the law of diminishing marginal utility, as a person successively consumes additional equal-sized units of a good,

Answer to question 9 total utility may well increase, remain constant, or decrease.