Economics 1021A/B Study Guide - Real Income, Indifference Curve
ECON 1021A/B Full Course Notes
Document Summary
Get access
Related Documents
Related Questions
Assume that an individual consumes two goods, X and Y. The total utility (assumed measurable) of each good is independent of the consumption rate of other goods.
The price of X and Y are respectively $40 and $60. Use the following table of total utilities to answer the following questions.
| Good | Total utility X | Total utility Y |
| 1 | 20 | 45 |
| 2 | 38 | 78 |
| 3 | 54 | 108 |
| 4 | 68 | 135 |
| 5 | 80 | 159 |
| 6 | 90 | 180 |
a. The marginal utility of the fourth unit of Y is__________.
b. The marginal utility of the fifth unit of X is___________.
c. The marginal utility per dollar spent on the third unit of X is__________.
d. The marginal utility per dollar spent on the second unit of Y is__________.
e. If the consumer has $420 to spend, ______ unit of X and _______units of Y maximize utility subject to the budget constraint. Explain.
f. If the consumer has $220 to spend, _______ units of X and_______ units of Y maximize utility subject to the budget constraint. Explain.
g. If the consumer wanted 4 units of X and 6 units of Y, what would have to be his/her budget constraint in order to maximize his/her utility? Explain.
1. Economists use ____________ as a measure of the relative level of satisfaction when someone consumes a good or service.
| consumer happiness |
| utility |
| a happiness index |
| a satisfaction index |
2. Sue likes brownies. However, Sue notices that the more brownies she eats the less satisfaction she receives from each extra brownie. We can say that Sue is experiencing ___________________ from each extra brownie.
| sugar sickness |
| total utility |
| diminishing marginal utility |
| increasing marginal utility |
3. When total utility is maximized, the marginal utility will be
| positive. |
| zero. |
| negative. |
| none of these. |
4. Consider Dirk and Lee. They are both eating pizza. Which of the following statements is true regarding their satisfaction and utility?
| Dirk and Lee both receive 10 utils from eating pizza. |
| Dirk and Lee both receive the same level of satisfaction from eating pizza. |
| Dirk gets more twice as much satisfaction as Lee from eating pizza. |
| It is difficult to determine because the utility is subjective. |
5. For many products, the total utility curve is
| strictly increasing because of increasing marginal utility. |
| strictly decreasing because of diminishing marginal utility. |
| increasing initially because of increasing marginal utility, but eventually decreases. |
| increasing initially at a decreasing rate because of diminishing marginal utility but eventually decreases. |
6. When consumers get the biggest bang for the buck, we say they
| used the loudest gun in hunting season. |
| reached a consumer optimum. |
| minimized consumer satisfaction. |
| maximized marginal utility. |
7. By choosing to consume at the consumer optimum, consumers will
| maximize their total utility. |
| minimize their total utility. |
| maximize the amount they spend on each good. |
|
minimize the amount they spend on each good. |
8. A consumer is in equilibrium when consuming two goods when which of the following holds?
| MUa/ Pa = MUb/ Pb |
| MUa/ Ph =MUb/ Pa |
| Pa/ MUa = Pb/ MUb |
| MUa x Pa = MUbxPb |
9. If the marginal utility of good 1 is 15 and its price is $3, and the marginal utility of good 2 is 12, and its price is $4, then the consumer
| has achieved a consumer optimum. |
| should increase his or her consumption of good 1. |
| should increase his or her consumption of good 2. |
| should decrease his or her consumption of good 1. |
10.Suppose the price of an iPod decrease and the price of HD TVs remains the same; what noticeable effect(s) occur(s)?
| the substitution effect only |
| the real-income effect only |
| the substitution effect and real-income effect, if there is a noticeable change in purchasing power |
| the substitution effect and real-income effect, if there isnât a noticeable change in purchasing power |
11. The ______________ paradox was described by Adam Smith in 1776.
| diamond-carbon |
| diamond-water |
| diamond-life |
| water-utility |
12. What is the key to solving the diamond-water paradox?
| more water and fewer diamonds |
| marginal utility |
| total utility |
| consumer demand |
13. When solving the diamond-water paradox we notice that the marginal utility of
| diamonds are equal to the marginal utility of water. |
| diamonds are greater than the marginal utility of water. |
| diamonds are less than the marginal utility of water. |
| water is equal to its price, and therefore lower than the marginal utility of diamonds. |
14. The consumer surplus for water is
| greater than that for diamonds because water is nonessential. |
| greater than that for diamonds because water is essential. |
| less than that for diamonds because water is nonessential. |
| less than that for diamonds because water is essential. |
15. Suppose a consumer consumes only diamonds and water, and the price of diamonds increases. All else being equal, a consumerâs marginal utility for diamonds
| decreases and the marginal utility for water stays the same. |
| increases and the marginal utility for water decreases. |
| decreases and the marginal utility for water increases. |
| increases and the marginal utility for water stays the same. |
