Cups of Coffee Tom's Utility Schedule Total Utility from Quantity of bags of Coffee Cookies Marginal Utility from bags of Cookies 50 60 85 45 40 110 130 140 145 30 20 15 Each day, Tom consumes two goods, coffee and cookies. The price of coffee is $1 per cup and the price of each bag of cookies is $2. If Tom has $7 to spend and the above table represents Tom's total utility from coffee and his marginal utility for bags of cookies he would reach his consumer equilibrium by consuming cups of coffee and bags of cookies. A. B. C. D. E. 5; 1 7; 0 1;3 4;3 3; 2
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Michael spends all of his income on coffee and donuts. A coffee costs $2.50 and a donut costs $2.00. At his current consumption level, the marginal utility for coffee is 30 utils, and the marginal utility for a donut is 60 utils. Which statement best describes what Michael needs to do to maximize his utility?
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Question 2
What is it called when the marginal utility derived from the last dollar spent on each good is the same across all goods and the last dollar spent uses all of the available budget for the purchase of those goods?
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Question 3 (1 point)
What does the economic theory of marginal utility infer?
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Question 4
Kate is addicted to chocolate and does not care how much it costs. In fact, she spends more than $20 a week on chocolate. What can be concluded about elasticity in her buying decisions?
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Question 5 (1 point)
Why does the demand for a good become relatively more elastic?
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Question 6 (1 point)
Assume the price of chicken per pound is $3.49 and that Americans purchase 10 million pounds per chicken every month. If the price of chicken increases to $5.49 per pound, identify what will occur to consumer surplus?
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Question 7 (1 point)
What is another name for the difference between the price that consumers are willing to pay for a good and a lower price that they may actually have to pay?
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Question 8
Adam, Brian, Robert, and Sam all want to attend a football game. The admission price is $48. Adam is willing to pay $59 for the ticket. Brian is willing to pay $39. Robert is willing to pay $45, and Sam is willing to pay $55. Based on this information, who will go to the game?
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Question 9 (1 point)
Lily is willing to pay $10 for one bracelet and $5 for a second. Patty is willing to pay $12 for one bracelet and $2 for a second. If the price is currently $8 per bracelet, identify what is the total consumer surplus after Lily and Patty make their purchases?
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Question 10 (1 point)
Manfred is willing to shovel one driveway for $25, a second for $30, and a third for $35. Assume that the market rate for shoveling driveways is $32. How many driveways will Manfred shovel, what will be his total revenue, and what will be his producer surplus?
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Question 11 (1 point)
What would the difference between the price that producers receive and the lower price at which they are willing to sell the good be called?
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Question 12 (1 point)
What will happen when there is an increase in the price of eBook downloads?
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Question 13 (1 point)
When is price elasticity of demand utilized to measure how an individual changes the quantity they demand?
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Question 14 (1 point)
Assume Mary consumes only tea and pastries. A cup of tea costs 5 euros and a pastry costs 8 euros. Her weekly income is 450 euros. Mary always drinks 2 cups of tea for every pastry she consumes. What is Maryâs optimal weekly consumption bundle?
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Question 15 (1 point)
When is producer surplus a positive value?
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1. Economists use ____________ as a measure of the relative level of satisfaction when someone consumes a good or service.
consumer happiness |
utility |
a happiness index |
a satisfaction index |
2. Sue likes brownies. However, Sue notices that the more brownies she eats the less satisfaction she receives from each extra brownie. We can say that Sue is experiencing ___________________ from each extra brownie.
sugar sickness |
total utility |
diminishing marginal utility |
increasing marginal utility |
3. When total utility is maximized, the marginal utility will be
positive. |
zero. |
negative. |
none of these. |
4. Consider Dirk and Lee. They are both eating pizza. Which of the following statements is true regarding their satisfaction and utility?
Dirk and Lee both receive 10 utils from eating pizza. |
Dirk and Lee both receive the same level of satisfaction from eating pizza. |
Dirk gets more twice as much satisfaction as Lee from eating pizza. |
It is difficult to determine because the utility is subjective. |
5. For many products, the total utility curve is
strictly increasing because of increasing marginal utility. |
strictly decreasing because of diminishing marginal utility. |
increasing initially because of increasing marginal utility, but eventually decreases. |
increasing initially at a decreasing rate because of diminishing marginal utility but eventually decreases. |
6. When consumers get the biggest bang for the buck, we say they
used the loudest gun in hunting season. |
reached a consumer optimum. |
minimized consumer satisfaction. |
maximized marginal utility. |
7. By choosing to consume at the consumer optimum, consumers will
maximize their total utility. |
minimize their total utility. |
maximize the amount they spend on each good. |
minimize the amount they spend on each good. |
8. A consumer is in equilibrium when consuming two goods when which of the following holds?
MUa/ Pa = MUb/ Pb |
MUa/ Ph =MUb/ Pa |
Pa/ MUa = Pb/ MUb |
MUa x Pa = MUbxPb |
9. If the marginal utility of good 1 is 15 and its price is $3, and the marginal utility of good 2 is 12, and its price is $4, then the consumer
has achieved a consumer optimum. |
should increase his or her consumption of good 1. |
should increase his or her consumption of good 2. |
should decrease his or her consumption of good 1. |
10.Suppose the price of an iPod decrease and the price of HD TVs remains the same; what noticeable effect(s) occur(s)?
the substitution effect only |
the real-income effect only |
the substitution effect and real-income effect, if there is a noticeable change in purchasing power |
the substitution effect and real-income effect, if there isnât a noticeable change in purchasing power |
11. The ______________ paradox was described by Adam Smith in 1776.
diamond-carbon |
diamond-water |
diamond-life |
water-utility |
12. What is the key to solving the diamond-water paradox?
more water and fewer diamonds |
marginal utility |
total utility |
consumer demand |
13. When solving the diamond-water paradox we notice that the marginal utility of
diamonds are equal to the marginal utility of water. |
diamonds are greater than the marginal utility of water. |
diamonds are less than the marginal utility of water. |
water is equal to its price, and therefore lower than the marginal utility of diamonds. |
14. The consumer surplus for water is
greater than that for diamonds because water is nonessential. |
greater than that for diamonds because water is essential. |
less than that for diamonds because water is nonessential. |
less than that for diamonds because water is essential. |
15. Suppose a consumer consumes only diamonds and water, and the price of diamonds increases. All else being equal, a consumerâs marginal utility for diamonds
decreases and the marginal utility for water stays the same. |
increases and the marginal utility for water decreases. |
decreases and the marginal utility for water increases. |
increases and the marginal utility for water stays the same. |
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 |
8 |
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 |
7 |
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?
1 |
10 |
49 |
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?
1 |
10 |
49 |
50 |
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?
15 |
17.65 |
85 |
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. |