7: Consumer Choice: Practice Quiz

Tom likes to collect Batman and Superman comic books. The table below presents his total and marginal utilities for both types of comic books. Instructions: Enter your answers as a whole number. Batman Comics, Superman Comics, and Tom's Utility Batman Comic Books | Quantity | Total Utility | Marginal Utility | | 0 | 0 | — | | 1 | 40 | 40 | | 2 | 68 | 28 | | 3 | 88 | 20 | | 4 | 94 | 6 | | 5 | 94 | 0 | | 6 | 84 | -10 | | 7 | 64 | -20 | Superman Comic Books | Quantity | Total Utility | Marginal Utility | | 0 | 0 | — | | 1 | 58 | 58 | | 2 | 92 | 34| | 3 | 10 | 61 | | 4 | 110 | 4| | 5 | 112 | 2 | | 6 | 11 | 20 | | 7 | 104 | -8 | a. Assume the price of a Batman comic book is $1, and the price of a Superman comic book is $2. Fill in the values for the marginal utility per dollar for Batman and Superman comic books in the table below. Batman Comics, Superman Comics, and Tom's Marginal Utility per Dollar Batman Comic Books | Quantity | Marginal Utility per Dollar | | 0 | — | | 1 | ? | | 2 | ? | | 3 | ? | | 4 | ? | | 5 | ? | | 6 | ? | | 7 | ? | Superman Comic Books | Quantity | Marginal Utility per Dollar | | 0 | — | | 1 | ? | | 2 | ? | | 3 | ? | | 4 | ? | | 5 | ? | | 6 | ? | | 7 | ? | b. Suppose Tom has $5 to spend on Batman and Superman comic books (nothing else matters to Tom). If Tom wants to maximize his utility, how many of each should he buy? _ Batman comic book(s) and _ Superman comic book(s) c. Now suppose Tom has $10 to spend on Batman and Superman comic books (nothing else matters to Tom). If Tom wants to maximize his utility, how many of each should he buy? _ Batman comic book(s) and _ Superman comic book(s)

Explanation a. Marginal utility per dollar is calculated by dividing marginal utility by the price of the product. Since a Batman comic book is priced at $1, the marginal utility that is provided in the first table is identical with marginal utility per dollar. Since a Superman comic book is priced at $2, marginal utility per dollar for a Superman comic book is half of marginal utility. Table Answer is: Batman Comic Books Marginal Utility per Dollar:| 40 | 28 | 20 | 6 | 0 | -10 | -20 | Superman Comic Books Marginal Utility per Dollar:| 29 | 17 | 7 | 2 | 1 | 0 | -4 | b. Tom would spend his $5 as follows: The first dollar on the first Batman comic book because the marginal utility per dollar is greater than the one for the first Superman comic book (40 versus 29). The second and third dollar he would spend on his first Superman comic book because the marginal utility per dollar is greater than the one for the second Batman comic book (29 versus 28). The last two dollars he would spend on two Batman comic books because the marginal utility per dollar for both is greater than the one for a second Superman comic book (28 and 20 versus 17). Blank 1: 3 Blank 2: 1 c. When Tom has $10 to spend he would spend the additional $5 as follows: Before Tom buys a fourth Batman comic book, he would buy a second and third Superman comic book because the marginal utility per dollar is greater (17 and 7 versus 6). He would spend his last dollar on a fourth Batman comic book rather than on a fourth Superman comic book. This is because the marginal utility per dollar is higher (6 versus 2) and also because he cannot buy half of a Superman comic book. Blank 1: 4 Blank 2: 3

Instructions: Enter your answers as a whole number. If you are entering a negative number include a minus sign. a. Use the table below and fill in the values for marginal utility. Hot Dogs and Biff's Utility | Hot Dogs | Total Utility (utils) | Marginal Utility (utils) | | 4 | 50 | — | | 5 | 54 | ? | | 6 | 56 | ? | | 7 | 57 | ? | | 8 | 56 | ? | | 9 | 53 | ? | b. If Biff is rational, and has no intention of winning the hot dog eating contest, what is the optimal number of hot dogs he will eat? What is the maximum level of utility Biff can reach from eating that number of hot dogs? Optimal number of hot dogs: _ Maximum utility: __

Explanation a. Marginal utility shows by how much total utility increases when the quantity consumed increases by one unit. For example, if the consumption of hot dogs increases from 5 to 6, then total utility increases from 54 utils to 56 utils. Therefore, for a quantity of 6 hot dogs, marginal utility is 2 utils (56 utils − 54 utils). Use this same procedure to calculate the remaining entries in the table. the Table should look like: Hot Dogs and Biff's Utility | Hot Dogs | Total Utility (utils) | Marginal Utility (utils) | | 4 | 50 | — | | 5 | 54 | 4 | | 6 | 56 | 2 | | 7 | 57 | 1 | | 8 | 56 | -1 | | 9 | 53 | -3 | b. The total utility column in the table shows maximum total utility is reached when Biff consumes 7 hot dogs. The table shows that the utility associated with 7 hot dogs is 57 utils, which is the maximum utility Biff can reach. You can also see that the optimal number of hot dogs is 7 by looking at the table for marginal utility, as 1 hot dogs is the last positive value; the ninth hot dog has a negative marginal utility and decreases total satisfaction. Answers: Optimal number of hot dogs: 7 Maximum utility: 57

The tables below provide Sam's total utility for coffee and tea. Instructions: Enter your answers as a whole number. a. Fill in the missing values for marginal utility. Coffee and Sam's Utility | Cups of Coffee | Total Utility (utils) | Marginal Utility (utils)| | 0 | 0 | — | | 1 | 20 | ? | | 2 | 0 | ? | | 3 | 47 | ? | | 4 | 55 | ? | | 5 | 61 | ? |. | 6 | 66 | ? | Tea and Sam's Utility | Cups of Tea | Total Utility (utils) | Marginal Utility (utils) | | 0 | 0 | — | | 1 | 12 | ? | | 2 | 20 | ? | | 3 | 26 | ? | | 4 | 30 | ? | | 5 | 33 | ? | | 6 | 35 | ? | b. What is Sam's total utility if he consumes 4 cups of coffee and 3 cups of tea? _ utils c. Suppose Sam consumes an additional cup of tea. By how much would Sam's utility increase? _ utils

Explanation a. To calculate the marginal utility of an additional drink, subtract the new utility from the previous utility. For example, to find the marginal utility of the fourth cup of coffee, take the total utility from 4 cups of coffee and subtract the total utility from 3 cups of coffee. This will tell you how much utility is gained from consuming the fourth cup. The Table suppose to look like this: Coffee and Sam's Utility | Cups of Coffee | Total Utility (utils) | Marginal Utility (utils)| | 0 | 0 | — | | 1 | 20 | 20 | | 2 | 0 | 15 | | 3 | 47 | 12 | | 4 | 55 | 8 | | 5 | 61 | 6 | | 6 | 66 | 5 | Tea and Sam's Utility | Cups of Tea | Total Utility (utils) | Marginal Utility (utils) | | 0 | 0 | — | | 1 | 12 | 12 | | 2 | 20 | 8 | | 3 | 26 | 6 | | 4 | 30 | 4 | | 5 | 33 | 3 | | 6 | 35 | 2 | b. Sam will gain 55 utils from consuming 4 cups of coffee and 26 utils from consuming 3 cups of tea. Therefore, Sam's total utility is 81 utils (55 + 26). Answer: 81 c. The marginal utility of the fourth cup of tea is 4 utils. We can also compare the total utility of the initial consumption of 4 cups of coffee and 3 cups of tea (81 utils) to the new consumption of 4 cups of coffee and 4 cups of tea (85 utils). The difference in the total utility from the old consumption to the new consumption is an increase of 4 utils. Answer: 4

The table below represents how Marco feels about chocolate candy bars. a. Fill in the missing values for total utility and marginal utility. Instructions: Enter your answers as a whole number. Chocolate Candy Bars and Marco's Utility | Chocolate Candy Bars | Total Utility (utils) | Marginal Utility (utils) | | 0 | 0 | — | | 1 | 27 | ? | | 2 | ? | 19 | | 3| 60 | ? | | 4 | ? | ? | | 5 | 76 | 6 | | 6 | ? | 1 | Suppose Marco currently has two candy bars. You tell Marco you will give him either a soda, which gives him 28 utils of happiness, or two additional candy bars. b. Which is he likely to prefer?

Explanation a. When consumption increases from 0 to 1, total utility increases from 0 to 27. Thus, marginal utility is 27 (27 - 0). When consumption increases from 1 to 2, marginal utility is 19. Consequently, total utility increases by 19 to 46 (27 + 19). The same logic can be used to fill in the other cells of the table. However, for a quantity of 4, neither total utility nor marginal utility is provided. The problem can be solved when we consider that for a quantity of 5, marginal utility is 6. This shows that total utility increases by 6 when quantity increases from 4 to 5. Since total utility for a quantity of 5 is 76, total utility for a quantity of 4 is 70 (76 - 6). Table Answers are: Row 1: 27 Row 2: 46 Row 3: 14 Row 4: 70 & 10 Row 5: 77 b. Marco has two candy bars, which give him a utility of 46 utils. Adding a soda would increase his utility to 74 (46 + 28). If he consumes four candy bars (2 candy bars + 2 extra candy bars), his utility will be 70 utils. Therefore, he should consume: A soda. Answer is : A soda

Lucinda prefers chrysanthemums to gardenias. Chrysanthemums are priced lower than gardenias. Lucinda chooses not to buy the chrysanthemums. Which of the following reasons for Lucinda's choice is consistent with rational consumer choice? multiple choice ◉ Lucinda does not know the relative prices of the flowers. ◉ Lucinda would rather spend her income on other goods. ◉ Lucinda is not sure of her preferences. ◉ Lucinda does not know what is in her own best interest.

Lucinda would rather spend her income on other goods. Explanation To be consistent with rational consumer choice, a consumer would have information about prices, know her preferences, and know her best interest. We know that Lucinda did not buy the chrysanthemums. We also indirectly know that she did not buy the gardenias. This is true because if she were to buy flowers at all, she would buy the cheaper chrysanthemums, which she prefers over gardenias. Thus, she likely did not buy flowers at all and rather spent her income on other goods.

Hector would like to buy a new pair of soccer cleats. He prefers Adidas to Puma brand soccer cleats, but chooses to buy the Puma brand cleats instead. Which reason is consistent with rational consumer choice? multiple choice ◉ Hector could not afford to buy both pairs of soccer cleats. ◉ The price of Adidas brand soccer cleats was less than the price of Puma brand soccer cleats. ◉ The price of Puma brand soccer cleats was less than the price of Adidas brand soccer cleats. ◉ Hector did not know his preferences between the two brands of soccer cleats.

The price of Puma brand soccer cleats was less than the price of Adidas brand soccer cleats. Explanation If the Adidas brand soccer cleats were less expensive than the Puma brand soccer cleats, then Hector would buy the Adidas brand cleats because he knows his preferences and prefers Adidas over Puma, which also would have saved him money. We also know that Hector was planning to buy one pair of cleats, not two. He likely bought the less preferred Puma brand soccer cleats because the higher utility he would have received from the Adidas brand cleats did not justify the difference in price.