CAS EC 101 Study Guide - Midterm Guide: Marginal Utility, Demand Curve, Price Controls

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CAS EC 101 Full Course Notes

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Markets: market distortions or imperfections can reduce the social surplus to a level below the maximum => the. So, in the equilibrium, the seller will first lower his price, and then add the tax to his new lower price. The tax coming from you is less than the total amount of the tax. Lecture 15: income and substitution effects, producer: when the price of a good changes, consumers experience two effects. Dunkin is an inferior good: when the price of potatoes goes up, you want to buy less potatoes and more meat (substitution effect). But you also feel poorer, so now you cannot afford meat, and you buy more potatoes and less meat (income effect). Lecture 16: profit maximization and long-run competiton: total cost (tc), tc = fc + vc, average cost (ac): ac = tc / q, sometimes called average total cost (atc, profits:

Related Questions

1. Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because:

A. luxury cars cost a lot more than non-luxury cars.

B. the total utility of less expensive cars is greater than that of luxury cars.

C. car buyers are irrational.

D. the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars.

2. The labor market is considered as one of the more important markets in an economy because

A. most people typically earn the bulk of their income from wages and salaries.

B. the usual market forces do not hold in the labor market.

C. the labor market does not reach an equilibrium.

D. most people are concerned that wages determined in the labor market are unfair.

3. Table 17-1
Quantity of Labor Output (units)
1 80
2 170
3 240
4 300
5 350
6 390
7 420

Refer to Table 17-1. The marginal product of the fourth unit of labor is

A. 300.

B. 75.

C. 60.

D. 15.

4. Carolyn spends her income on popular magazines and music CDs. If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility, she buys:

A. both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased.

B. both goods until the marginal utility of the last magazine purchased is four times the marginal utility of the last CD purchased.

C. four times as many magazines as CDs.

D. four times as many CDs as magazines.

5. Marginal utility is the:

A. average satisfaction received from consuming a product.

B. total satisfaction received from consuming a given number of units of a product.

C. extra satisfaction received from consuming one more unit of a product.

D. satisfaction achieved when a consumer has had enough of a product.

6. What is behavioral economics?

A. the study of how people behave in the face of scarcity

B. the study of how people make decisions at the margin

C. the study of situations in which people act in ways that are not economically rational

D. the study of how people make wealth-maximizing decisions

7. Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input. If hiring another worker would increase output by three units per hour, then to maximize profits the firm should:

A. not hire an additional worker.

B. hire another worker.

C. not change the number of workers it currently hires.

D. There is not enough information to answer the question.

8. Consumers have to make tradeoffs in deciding what to consume because:

A. they are limited by a budget constraint.

B. there are not enough of all goods produced.

C. not all goods give them the same amount of satisfaction.

D. the prices of goods vary.

9. Table 17-1
Quantity of Labor Output (units)
1 80
2 170
3 240
4 300
5 350
6 390
7 420

Refer to Table 17-1. If the output price is $3, what is the marginal revenue product of the fifth unit of labor?

A. $1,050

B. $360

C. $210

D. $150

10. At low wages, the labor supply curve for most people slopes upward because:

A. as wages increase income also increases unless hours worked decrease.

B. the demand for labor is perfectly elastic at low wages.

C. as wages increase the opportunity cost of leisure increases.

D. the supply of labor is perfectly inelastic at low wages.

11. A negative externality exists if:

A. the marginal social cost of producing a good or service exceeds the private cost.

B. the marginal private cost of producing a good or service exceeds the social cost.

C. there are quantity controls in a market.

D. there are price controls in a market.

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1. Suppose that the total utility from consuming one unit of good X is 54 utils, the total utility of two units of good X is 74 utils, and the total utility of three units of good X is 84 utils. The marginal utility of the third unit is

a.70.67 utils.

b.10 utils.

c.12.25 utils.

d.20 utils.

2. If income rises, the budget constraint

a. Moves outward away from the origin

b. Does not move

c. Moves inward toward the origin

d. Moves farther down the vertical axis

3. Economists assume that the goal of consumers is to maximize total utility.

true/false

4. The budget constraint cuts the horizontal axis at 12 units of good X and it cuts the vertical axis at 20 units of good Y. If the price of good X is $20 and the price of good Y is $12, then what does income equal?

a. $200

b. $240

c. $520

d. $280

e. not enough information to answer this question

5. Consumer equilibrium exists when an individual

a. can be made better off by buying more of a normal good and less of an inferior good.

b. is receiving the same total utility from each of the goods he or she purchases.

c. is receiving the same marginal utility from each of the goods he or she purchases.

d. has the same MU/P ratio for each of the goods he or she purchases.

e. none of the above

6. Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 30, 50, 65, 72, respectively. In this situation we have __________ marginal utility, which is generally __________ in the analysis of consumer choice.

a. diminishing; not assumed

b. increasing; assumed

c. diminishing; assumed

d. increasing; not assumed

7. Which of the following best describes an interpersonal utility comparison?

a. Usually, Smith seems a lot happier than Jones.

b. Smith gets more utility from working on his computer than Jones gets from working on his computer.

c. Smith usually eats more in a day than Jones eats in a day.

d. ones likes computers produced by Dell Computer Corporation and Smith likes computers produced by Apple Computer Inc

e. Smith got less utility from eating the 30th cookie than eating the 29th cookie, and the same holds for Jones.

8. We would expect the total utility of water to be high but its marginal utility to be low. Why?

a. Because we need water to live and there is so much of it.

b. Because we need water to live and there is very little of it.

c. Because water is a fluid and we don't need fluids to live as much as we need food

d. Because water's price is low.

9.The marginal utility curve for units 6 through 8 of good Z lies below the horizontal axis. What does this imply must be true about the total utility curve for units 6 through 8 of good Z?

a. That portion of good Zâs total utility curve must also lie below the horizontal axis.

b. That portion of good Zâs total utility curve must be upward sloping.

c. That portion of good Zâs total utility curve must be horizontal.

d. That portion of good Zâs total utility curve must be downward sloping.

10. Research presented in the text shows that people are more concerned with their absolute income position in a group than their relative income position in the group.

true/false

1. Use the table below for the following question. Suppose you have a budget of $6 and that brownies and Twizzlers cost $1 each. What is the consumer optimum?

Number of Brownies	Total Utility of Brownies	Marginal Utility of Brownies	Number of Twizzlers	Total Utility of Twizzlers	Marginal Utility of Twizzlers
0	0	-	0	0	-
1	10	10	1	6	8
2	19	9	2	13	7
3	26	7	3	19	6
4	30	4	4	23	4
5	30	0	5	25	2
6	29	-1	6	25	0

6 brownies

3 brownies and 3 Twizzlers

4 brownies and 2 Twizzlers

any combination of 6 because they're both $1

2. Use the table below for the following question. What is the consumer equilibrium for a $6 budget if the price of brownies rises to $1.50 and the price of Twizzlers remains at $1.00?

Number of Brownies	Total Utility of Brownies	Marginal Utility of Brownies	Number of Twizzlers	Total Utility of Twizzlers	Marginal Utility of Twizzlers
0	0	-	0	0	-
1	10	10	1	6	8
2	19	9	2	13	7
3	26	7	3	19	6
4	30	4	4	23	4
5	30	0	5	25	2
6	29	-1	6	25	0

The consumer will buy all Twizzlers because they're cheaper.

4 brownies

3 Twizzlers and 2 brownies

3 brownies and 3 Twizzlers

3. At Nice Price for the Ice, an ice cream parlor, customers routinely buy a scoop of ice cream for $3. If consumers purchase one scoop of ice cream at $3, then why don't they keep buying more and more scoops for $3 until the store sells out?

People would not want more than one scoop of ice cream because then they would have less money to spend on other goods.

People do not want to consume all the scoops of ice cream because their total utility is higher the less they eat.

At some point, customers do not value an additional scoop at $3, so they will not pay $3 for a scoop after they reach that point.

4. Suppose you plan on eating 50 potato chips. As you start consuming potato chips, your marginal utility is very high, but it begins to fall slowly until you've eaten 10 chips. After you have eaten 10 chips, your marginal utility decreases even faster with each additional chip. The marginal utility continues to decline until you've eaten 49 chips. The fiftieth chip does not give you any additional utility. After 50 chips, your mouth gets so salty that it's unpleasant to eat anymore, so marginal utility is actually negative for those chips. How many chips should you eat in order to maximize your total utility?

5. As you start consuming potato chips, your marginal utility is very high, but it begins to fall slowly until you've eaten 10 chips. After you have eaten 10 chips, marginal utility decreases even faster with each additional chip. The marginal utility continues to decline until you've eaten 49 chips. The fiftieth chip does not give you any additional utility. After 50 chips, your mouth gets so salty that it's unpleasant to eat anymore, so marginal utility is actually negative for those chips. How many chips should you eat in order to maximize your marginal utility?

6. At current levels of consumption, Alice is spending her entire budget. If Alice gets 3 utils of satisfaction per dollar spent on ice cream and 2 utils per dollar spent on shampoo, then how should she adjust her consumption to get closer to the consumer optimum?

She is already at the consumer optimum, so no adjustment is necessary.

She should buy more ice cream and less shampoo.

She should buy more shampoo and less ice cream.

She should buy more of both goods.

7. Suppose you are at a restaurant and your favorite dish costs $20. You can get your next-favorite dish for $17. If your next-favorite dish gives you 100 utils, how many additional utils do you need from your favorite dish to spend the extra $3?

17.65

117.65

8. The diamond water paradox is the observation that water is essential to life and inexpensive, while diamonds are not essential and are highly-priced. Which of the other pairs of goods exhibit a pricing structure similar to water and diamonds?

economy & luxury cars

rice & truffles (very expensive mushrooms)

paper clips & gasoline

paper & textbooks

9. Rice is a cheap staple food eaten several times a day by many people all over the world. In Trufflelandia, residents also eat expensive mushrooms known as truffles once every year as a birthday celebration. Rice keeps the people alive and truffles are not necessary for sustaining their lives. Why is rice so cheap and truffles so expensive?

Truffles taste better, so they are worth more money.

Rice is easy to cook, so people buy a lot of it. If people are going to buy so much, then it has to be cheap.

Truffles are more nutritious, and healthy food is always more expensive than unhealthy food.

People eat so much rice that an additional serving of rice has little marginal value, but the marginal value of another serving of truffles is very high.

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CAS EC 101 Study Guide - Midterm Guide: Marginal Utility, Demand Curve, Price Controls

CAS EC 101 Full Course Notes

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