Question 1

Suppose a consumer derives the following total utility from eating pizza: 0 utils for 0 slices, 20 utils for 1 slice, 36 utils for 2 slices, 46 utils for 3 slices, 52 utils for 4 slices, 54 utils for 5 slices, and 51 utils for 6 slices. What is the marginal utility of the fourth slice of pizza?

Accepted Answer

$$6$$

Question 2

According to the law of diminishing marginal utility, what happens as a consumer consumes more units of a good?

Accepted Answer

The marginal utility from each additional unit decreases.

Question 3

If the price of pizza falls from $$2.00 to 1.50 $$per slice, what are the two effects that explain why the quantity demanded increases?

Accepted Answer

Income effect and substitution effect

Question 4

A consumer has $$10 to spend. Pizza costs 2 $$per slice and Coke costs $1 per can. If the consumer wants to maximize utility, which rule should they follow?

Accepted Answer

Equalize the marginal utility per dollar spent across all goods and exhaust the budget.

Question 5

If the marginal utility per dollar spent on pizza is greater than that for Coke, what should the consumer do?

Accepted Answer

Buy more pizza and less Coke.

Question 6

Which formula represents the rule for maximizing utility between two goods, pizza and Coke?

Accepted Answer

$$\frac{MU_{pizza}}{P_{pizza}} = \frac{MU_{coke}}{P_{coke}}$$

Question 7

If a consumer’s budget constraint shifts outward, what does this indicate?

Accepted Answer

The consumer’s income has increased.

Question 8

What is the marginal rate of substitution (MRS) between pizza and Coke?

Accepted Answer

The rate at which a consumer is willing to trade Coke for pizza while keeping utility constant.

Question 9

Which equation relates the marginal rate of substitution (MRS) to marginal utilities?

Accepted Answer

$$MRS = \frac{MU_{coke}}{MU_{pizza}}$$

Question 10

If indifference curves cross, what does this imply about consumer preferences?

Accepted Answer

Preferences are not transitive, which violates a basic assumption of consumer theory.

Question 11

In the ultimatum game, why do recipients often reject offers that are less than 10 percent of the total amount?

Accepted Answer

Because people value fairness and are willing to sacrifice money to punish unfair offers.

Question 12

What is the endowment effect?

Accepted Answer

The tendency of people to value goods they already own more than identical goods they do not own.

Question 13

Which of the following is an example of a sunk cost?

Accepted Answer

A movie ticket purchased that cannot be refunded.

Question 14

If a consumer is unrealistic about their future behavior, which of the following is most likely to occur?

Accepted Answer

They may make decisions inconsistent with their long-run intentions.

Question 15

Which of the following best describes a network externality?

Accepted Answer

The usefulness of a product increases as more people use it.

Question 16

Which behavioral economics concept explains why people may buy more items when a store posts 'limit 10 per customer'?

Accepted Answer

Anchoring

Question 17

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

Accepted Answer

They are equal in absolute value.

Question 18

If Dave’s income increases from $$10 to 20$$, and both pizza and Coke are normal goods for him, what happens to his consumption?

Accepted Answer

He consumes more pizza and more Coke.

Question 19

Which of the following is NOT a common mistake made by consumers according to behavioral economics?

Accepted Answer

Ignoring monetary costs

Question 20

Which equation shows the relationship between the marginal rate of substitution and the prices of two goods at the optimum?

Accepted Answer

$$MRS = \frac{P_{pizza}}{P_{coke}}$$

Consumer Choice and Behavioral Economics: Utility, Demand, and Indifference Analysis

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