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Exam 19: The Logic of Individual Choice: the Foundation of Supply and Demand

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Question 61

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If the price of one Weight Watchers' frozen dinner is $2 and the price of one dozen jelly doughnuts is $3, which of the following would Kent, a utility maximizing consumer, buy with his $6? $\begin{array} { c } { \text { Jelly Danuts } } \quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad { \text { Frazen Dinners } } \\\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Dazen } \\\text { Consumed per } \\\text { Day }\end{array} & \begin{array} { c } \text { Tatal utility (Units di } \\\text { utility) }\end{array} & \begin{array} { c } \text { Dinners Consumed } \\\text { per Day }\end{array} & \begin{array} { c } \text { Tatal utility (Units df } \\\text { utility) }\end{array} \\\hline 0 & 0 & 0 & 0 \\\hline 1 & 12 & 1 & 16 \\\hline 2 & 21 & 2 & 32 \\\hline 3 & 27 & 3 & 46 \\\hline 4 & 30 & 4 & 42 \\\hline 5 & 30 & 5 & 42 \\\hline 6 & 28 & 6 & 36 \\\hline\end{array}\end{array}$

A) three frozen dinners
B) two frozen dinners and two dozen jelly doughnuts
C) one frozen dinner and four dozen jelly doughnuts
D) two dozen jelly doughnuts

E) A) and D)
F) A) and B)

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Question 62

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Joseph Gallo poured two glasses of wine from the same bottle but put a more expensive price tag on one glass than on the other. He let people test both and asked them which they wanted, and most wanted the more expensive glass, not knowing that both had come from the same bottle. This result indicates that firms should:

A) be careful about lowering the price of their product, because consumers may assume that a lower price means lower quality.
B) be careful about raising the price of their product, because the law of demand is always valid.
C) never lower the price of their product.
D) always raise the price of their product.

E) All of the above
F) C) and D)

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Question 63

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Suppose you are considering volunteering some of your time at the student government car wash fundraiser.You compute your utility schedule as follows: $\begin{array} { | c | c | } \hline \text { Hour \# } & \text { TU } \\\hline 0 & 0 \\\hline 1 & 40 \\\hline 2 & 70 \\\hline 3 & 94 \\\hline 4 & 100 \\\hline 5 & 94 \\\hline\end{array}$ Now suppose you discover the person you've been dying to go out with is going to work for five hours at the car wash. (a)How will this change your utility schedule? (b)How will this change your decision to volunteer? (c)How do your answers to (a)and (b)relate to the law of supply? Explain.

The absolute value of the slope of the indifference curve given the law of diminishing marginal rate of substitution:

Susan has $10 to spend on soda and candy bars.Soda costs $1 per bottle and candy bars cost $.50 each.Using the grid below: (Appendix) (a)Draw Susan's budget constraint. (b)Draw a new budget constraint if the price of soda stays at $1 per bottle but the price of candy bars rises to $1 each. (c)Draw a new budget constraint with the prices at their original levels (soda costs $1 per bottle and candy bars cost $.50 each)but now suppose that on her way to the store to make her purchase Susan loses $5 (she now has only $5 to spend).

Refer to the graph shown. Assuming each carnival game costs $1 and each Ferris wheel ride costs $2, a consumer with $10 to spend will optimally choose to consume at point:

Refer to the following graph. If the price of bagels falls, the budget constraint in the graph will rotate:

As long as total utility is increasing, we know that marginal utility is:

John is maximizing utility by choosing to spend 90 minutes reading a chapter in The Theory of Moral Sentiments, which will give him 450 units of utility, instead of spending 20 minutes reading a chapter of Atlas Shrugged, which will give him 200 units of utility. (Assume marginal utility decreases slowly. )

Jason is faced with two options: A BMW costing $40,000 gives him an additional 800 units of utility, and a laser printer costing $1,000 gives him an additional 25 units of utility. Rational choice theory would predict that he would choose:

The last Big Mac that Eva consumes costs $2.00 and gives her 24 units of utility. The last Whopper she consumes costs $1.50 and gives her 18 units of utility. Eva is maximizing her utility. If the price of the Whopper falls to $1.30 and given diminishing marginal utility, Eva should:

Faced with a hundred pounds of strawberries, the rational individual will eat:

Refer to the graph shown. The diagram demonstrates that an increase in the price of soda will:

Refer to the graph shown. Assuming a consumer has $5 to spend, if a soda costs $0.25 and a chocolate bar costs $0.50, the consumer will optimally choose to consume:

Suppose Jane has chosen a combination of two goods, A and B, such that MU/P of good A is 10 (MU_A/P_A = 10) , and the MU/P of good B is 10 (MU_B/P_B = 10) . To increase utility with the same amount of money, Jane should:

Refer to the graphs shown, which show indifference curve analysis with the associated demand curves. The effect of a decrease in the price of X is shown by the movements from:

When marginal utility is positive, total utility is:

Behavioral economics:

What is meant by "utility" and how do the concepts of total utility and marginal utility relate to one another? Use these concepts to explain the principle of diminishing marginal utility and give an example.

What is utility,according to economist's use of the term?