ECON101 Lecture Notes - Marginal Utility, Limited Liability, Marginal Cost
ECON101 Full Course Notes
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When deciding consumption levels of more than one good, the utility-maximizing rule states that you are maximizing utility when
the marginal utility o two goods are equal | ||
the marginal utility of two goods are zero | ||
the ratio of marginal utility to price of two goods is zero | ||
the ratio of marginal utility to price for the two goods are equal |
10 points
QUESTION 2
My brother says the law of diminishing marginal utility is nonsense because he is way happier after his sixth beer than after his first one. Pick the best response.
He has a point, maybe this is something behavioral economists should take a look at. | ||
True, but marginal utility refers only to the utility gained (or lost) by drinking that last beer, not to his total utility | ||
There are always exceptions, but in general this law will hold. | ||
True, but the law of diminishing marginal utility is really just saying that eventually he will prefer a glass of wine to another beer. |
10 points
QUESTION 3
Frank spends $75 on 10 magazines and 25 newspapers. The magazines cost $5 each and the newspapers cost $2.50 each. Suppose that his marginal utility from the final magazine is 10 utils while his marginal utility from the final newspaper is also 10 utils. According to the utility-maximizing rule, Frank should:
Reallocate spending from magazines to newspapers | ||
Reallocate spending from newspapers to magazines | ||
Be satisfied because he is already maximizing his total utility | ||
None of the above |
10 points
QUESTION 4
Marginal utility can be:
Positive, negative, or zero | ||
Decreasing but not negative | ||
Positive or negative, but not zero | ||
Positive, but not negative |
10 points
QUESTION 5
In economics, a product provides utility if it:
is useful | ||||||||||||||
violates the law of demand | ||||||||||||||
takes more and more resources to produce successive units of it | ||||||||||||||
satisfies consumer wants Which of the following is true of an indifference curve?
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