Question 1

Which of the following best describes the law of diminishing marginal utility as illustrated in the marginal utility curve above?

Accepted Answer

Marginal utility decreases as more units are consumed.

Question 2

Suppose Brett's total utility from consuming 3 avocados is 245 utils and from 4 avocados is 285 utils. What is the marginal utility of the 4th avocado?

Accepted Answer

$$MU = \frac{285 - 245}{4 - 3} = 40$$

Question 3

If the price of good X falls while the price of good Y and the consumer's income remain unchanged, what will happen to the consumer's utility-maximizing choice according to the utility maximization rule?

Accepted Answer

The consumer will buy more of good X and less of good Y until $$\frac{MU_x}{P_x} = \frac{MU_y}{P_y}$$ again.

Question 4

Given the following information: $$MU_x = 10$$, $$MU_y = 7$$, $$P_x = 1$$, $$P_y = 2. Is $$the consumer maximizing utility?

Accepted Answer

No, because $$\frac{MU_x}{P_x} = 10$$ and $$\frac{MU_y}{P_y} = 3.5$$ are not equal.

Question 5

Suppose a consumer has a budget of $$I = 20$$, the price of X is $$P_x = 4$$, and the price of Y is $$P_y = 2. $$Which of the following combinations of X and Y exhausts the consumer's budget?

Accepted Answer

$$4Q_x + 2Q_y = 20$$; Q_x = 2, Q_y = 6$

Question 6

If the marginal utility of the last dollar spent on good X is greater than that on good Y, what should the consumer do to maximize utility?

Accepted Answer

Buy more of good X and less of good Y.

Question 7

Which area on a standard supply and demand graph represents consumer surplus?

Accepted Answer

The area under the demand curve and above the market price line.

Question 8

Given Yoko's demand function $$Q_Y = 10,000 - 100P$$ and Justin's $$Q_J = 5,000 - 200P$$, what is the market demand function?

Accepted Answer

$$Q_{total} = 15,000 - 300P$$

Question 9

Why is the market demand curve downward sloping?

Accepted Answer

Because as the price decreases, the quantity demanded by all consumers increases.

Question 10

The water-diamond paradox asks why water, which is essential for life, is cheaper than diamonds, which are not. What is the microeconomic explanation?

Accepted Answer

The marginal utility of water is low due to its abundance, while the marginal utility of diamonds is high due to their scarcity.

Question 11

If a consumer's total utility from consuming 5 units of a good is 315 utils and from 6 units is 335 utils, what is the marginal utility of the 6th unit?

Accepted Answer

$$MU = \frac{335 - 315}{6 - 5} = 20$$

Question 12

Suppose the equilibrium quantity in a competitive market is $$Q^* = 250$$ units and the economic surplus is $$3,125. $$What does this economic surplus represent?

Accepted Answer

The sum of consumer and producer surplus at equilibrium.

Question 13

If the marginal utility per dollar spent on good X is less than that on good Y, what should the consumer do?

Accepted Answer

Buy more of good Y and less of good X.

Question 14

Which of the following equations represents the utility maximization condition for two goods X and Y?

Accepted Answer

$$\frac{MU_x}{P_x} = \frac{MU_y}{P_y}$$

Question 15

If a consumer's total utility increases at a decreasing rate as more units are consumed, what does this imply about marginal utility?

Accepted Answer

Marginal utility is positive but decreasing.

Consumer Behaviour: Utility, Demand, and Surplus

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