Q: At the point where the indifference curve is tangent to the budget line, which equation holds?

$$ \text{MRS} = \frac{P_{\text{Pizza}}}{P_{\text{Coke}}} $$

Question 1

Which of the following best describes the law of diminishing marginal utility?

Accepted Answer

As a consumer consumes more units of a good, the marginal utility from each additional unit decreases.

Question 2

Suppose the marginal utility from eating the third slice of pizza is 10 utils and the price per slice is $2. What is the marginal utility per dollar spent for the third slice?

Accepted Answer

$$ \frac{10}{2} = 5 $$ utils per dollar

Question 3

A consumer has $$10 to spend. Pizza costs 2 $$per slice and Coke costs $1 per can. Which bundle is affordable and maximizes utility if the rule of equal marginal utility per dollar spent is satisfied?

Accepted Answer

3 slices of pizza and 4 cans of Coke

Question 4

If the marginal utility per dollar spent on pizza is less than the marginal utility per dollar spent on Coke, what should the consumer do to maximize utility?

Accepted Answer

Buy more Coke and less pizza

Question 5

At the optimal consumption point, what is true about the slopes of the indifference curve and the budget constraint?

Accepted Answer

The slope of the indifference curve equals the slope of the budget constraint.

Question 6

Given the following total utility values for beef: 100 (1 unit), 200 (2 units), 275 (3 units), 325 (4 units), 350 (5 units), 360 (6 units), 360 (7 units), what is the marginal utility for the 5th unit?

Accepted Answer

$$ 350 - 325 = 25 $$

Question 7

If Dave’s marginal rate of substitution (MRS) between pizza and Coke is 4, what does this mean?

Accepted Answer

Dave is willing to give up 4 cans of Coke for 1 slice of pizza.

Question 8

Which of the following statements about indifference curves is correct?

Accepted Answer

Higher indifference curves represent higher levels of utility.

Question 9

If Dave’s income increases from $$10 to 20$$, what happens to his budget constraint?

Accepted Answer

The budget constraint shifts outward.

Question 10

At the point where the indifference curve is tangent to the budget line, which equation holds?

Accepted Answer

$$ 	ext{MRS} = \frac{P_{	ext{Pizza}}}{P_{	ext{Coke}}} $$

Question 11

A consumer’s budget constraint is defined as:

Accepted Answer

The limited amount of income available to spend on goods and services.

Question 12

If the price of pizza increases, what happens to the slope of the budget constraint (pizza on the horizontal axis, Coke on the vertical axis)?

Accepted Answer

The slope becomes steeper.

Question 13

Which of the following is NOT a condition for maximizing utility?

Accepted Answer

Choosing the bundle with the highest price.

Question 14

If a consumer is on a lower indifference curve compared to another bundle, what does this indicate?

Accepted Answer

The consumer receives lower utility from the lower curve.

Question 15

Suppose a consumer’s marginal utility from Coke is 15 and the price is $$1, while the marginal utility from pizza is 10 and the price is 2. $$Which good should the consumer buy more of to maximize utility?

Accepted Answer

Buy more Coke

Question 16

If the marginal utility from consuming the sixth slice of pizza is negative, what does this imply?

Accepted Answer

The consumer’s total utility decreases.

Question 17

Which real-world scenario best illustrates the principle of diminishing marginal utility?

Accepted Answer

A person becomes less satisfied with each additional slice of pizza at a party.

Question 18

If indifference curves for a consumer cross, what does this violate?

Accepted Answer

The assumption of transitive preferences.

Question 19

In the context of the 72-ounce steak challenge, why might the marginal utility of each additional ounce of steak decrease for most participants?

Accepted Answer

Because participants become fuller and derive less satisfaction from each additional ounce.

Question 20

If a consumer’s optimal bundle is where the indifference curve is tangent to the budget line, what does this imply about the consumer’s allocation of resources?

Accepted Answer

The consumer is maximizing utility given their budget constraint.

Chap 10 - Consumer Choice and Behavioral Economics: Utility, Indifference Curves, and Budget Constraints

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