Question

1.Anything that gives a person utility is known as: *

a.choices

b.marginal utility

c.decisions made at the margin

d.good

2.Marginal utility is *

a.the extra satisfaction derived from consuming an additional unit of a good

b.the total satisfaction derived from consuming an additional unit of a good

c.the total satisfaction derived from consuming a good

d.is the total amount of satisfaction derived from consuming a particular quantity of a good

3.The satisfaction that one receives from consuming a certain good is known as: *

a.Good

b.Bad

c.Utility

d.Incentive

4.Maximum utility occurs when: *

a.Implicit costs exceed explicit costs

b.The marginal utility per dollar for both goods is equal

c.The marginal utility per dollar for the cheaper good is greater

d.The marginal utility per dollar for the more expensive good is greater

5.A consumer is making purchases of products A and B such that the marginal utility of product A is 20 and the marginal utility of product B is 30. The price of product A is $10 and the price of product B is $20. Based on the rule of maximizing utility, the consumer should _________ the consumption of product A and _________ the product B. *

a.Increase, increase

b.Increase, decrease

c.Decrease, decrease

d.Decrease, increase

Answer 1

1. d.Good

A good in economics is one that has the ability to satisfy consumer's wants, i.e, a consumer is satisfied after consuming a good because it has utility that satisfies consumer's wants.

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2. a.The extra satisfaction derived from consuming an additional unit of a good.

The marginal utility is the extra satisfaction derived from consuming an additional unit of a good.

The marginal utility is the extra utility or satisfaction derived from consuming an additional unit of a good. It is the change in total utility for the change of an additional unit of consumption of a good.

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3. c.Utility

The satisfaction that one receives from consuming a certain good is known as utility.

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4. b.The marginal utility per dollar for both goods is equal.

Maximum utility occurs when the marginal utility per dollar for both goods is equal.

Let, there are two goods, X, and Y. The price of good X is Px , and the price of good Y is Py; then the maximum utility occurs, when;

MUx / Px = MUy / Py , where MUx = marginal utility of good X , and MUy = marginal utility of good Y.

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5. b.Increase, decrease

Based on the rule of maximizing utility, the consumer should increase the consumption of product A and decrease the product B.

The marginal utility of product A(MUa) is 20 and the marginal utility of product B(MUb) is 30. The price of product A(Pa) is $10 and the price of product B(Pb) is $20.

MUa / Pa = 20 / 10 = 2

MUb / Pb = 30 / 20 = 1.5

So, MUa / Pa MUb / Pb

The utility maximization requires,

MUa / Pa = MUb / Pb

So, to achieve the maximum utility, MUa must decrease, or MUb must increase.

For a normal good, the marginal utility gradually decreases with the increase in the consumption of the good.

Based on the rule of maximizing utility, we see here that the consumer should increase the consumption of product A ,and should decrease the consumption of product B. If the consumer increases the consumption of product A, the MUa will decrease, and if the consumer decreases the consumption of product B, the MUb will increase.

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