Question

1.

A) Robinson has spent all his income on mangos and bananas. Mangos cost $3 per pound and bananas cost $1 per pound. At his current consumption bundle, the marginal utility is 30 for mangos, and 10 for bananas. According to Cardinal Utility Theory, it is rational for Robinson to:

a. purchase more mangos and fewer bananas.

b. purchase more bananas and fewer mangos.

c. remain at the present combination of goods.

d. none of the above.

B) Neoclassical economic models of consumer behavior assume that consumers are “rational”. What is the context in which economists use the term “rational behavior” with respect to consumers?
a. consumers never choose products that are out of style.

b. consumers always worry about what others might think of their consumption choices.

c. consumers attempt to maximize their utility, subject to the budget constraint.
d. consumers will purchase all products to the point where marginal utility is zero.

Answer 1

Answer:

A) Robinson has spent all his income on mangos and bananas. Mangos cost $3 per pound and bananas cost $1 per pound. At his current consumption bundle, the marginal utility is 30 for mangos, and 10 for bananas. According to Cardinal Utility Theory, it is rational for Robinson to:

Solution:

c. remain at the present combination of goods.

Explanation for the answer:

A cardinal utility function or scale is a utility index that preserves preference orderings uniquely up to positive affine transformations

B) Neoclassical economic models of consumer behavior assume that consumers are “rational”. What is the context in which economists use the term “rational behavior” with respect to consumers?

Solution:

c. consumers attempt to maximize their utility, subject to the budget constraint.

Explanation for the answer:

Utility maximization refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions. For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction.