Question

1) Which of the following is likely to occur as the result of the law of diminishing marginal utility?

a) Petra's utility from her second apple was less than her satisfaction from her first orange.

b) Hudson enjoyed his second slice of pizza more than his first.

c) Sabine's utility from her first granola bar is greater than Rachel's utility from her second granola bar.

d) Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant.

2) A consumer's utility-maximizing combination of goods is given by the bundle that corresponds to the point on

a) the indifference curve that intersects the horizontal axis.

b) the indifference curve that intersects the vertical axis.

c) an indifference curve that is tangent to the budget constraint.

d) the budget constraint where it intersects one of the axes.

3) Which of the following is not a property of indifference curves?

a) Indifference curves never cross.

b) Indifference curves have a concave shape.

c) Indifference curves slope downward.

d) The farther away from the origin, the higher utility.

e) All of the above are properties of indifference curves.

Answer 1

1. Option D.

The law of diminishing marginal utility states that the utility derived from the consumption of one more unit of any good decreases when consumption increases.

When consumers try to consume an additional unit of a good, their utility starts to decrease.

Hence, when wesley started consuming his second bottle of iced tea, his utility started to fall.

2. Option C.

A consumers utility maximizing combination of goods is given by the bundle that corresponds to the point on an indifference curve that is tangent to the buget constraint.

A consumer is said to maximize its utility when all the income spent on the consumption of a particular good may yield same level of utility.

This point of utility maximization is observed on the indifference curve.

3. Option B.

Indifference curves shows the combinations of two goods which may yield same utility for a consumer.

These indifference curves never cross each other and are usually convex to the origin.

The more farther the curve is from the origin, greater is the utility derived from the consumption of a good.