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Homework answers / question archive / University of Waterloo MICROECONO AFM101 Chapter 8 1)Initially the consumer is maximizing utility
University of Waterloo
MICROECONO AFM101
Chapter 8
1)Initially the consumer is maximizing utility. Then the price of one good falls. Complete the sentences.
The marginal utility per dollar from that good immediately . The consumer responds to the fall in the price and .
A. decreases; the quantity demanded of that good increases
B. decreases; the quantity demanded of that good decreases
C. increases; demand for that good increases
D. increases; the quantity demanded of that good increases
2) Billy Jean loves to read and she has decided that she will buy all of her books at the bookstore at the outlet mall.
One day she is in Barnes & Noble and sees a book from the New York Times Best Sellers list that she wants to read and she decides to buy it.
Buying the book means that she will not be able to take her Mom out for coffee this week. Billy Jean's decision is an example of .
A. bounded economics
B. bounded willpower
C. bounded self-interest
D. bounded rationality
3) Shawn drinks tea and hot chocolate throughout the winter. For Shawn, tea and hot chocolate are substitutes.
The graph shows Shawn's demand curve for tea.
Draw a new curve that illustrates Shawn's demand for tea when the price of a mug of hot chocolate falls. Label it D1.
When the price of a mug of hot chocolate falls, Shawn responds by , which his marginal utility per dollar from hot chocolate.
A. decreasing the quantity of hot chocolate he buys; increases
B. decreasing the quantity of hot chocolate he buys; decreases
C. increasing the quantity of hot chocolate he buys; decreases
D. increasing the quantity of hot chocolate he buys; increases
4) When income rises, .
A. a movement occurs up along the demand curve for a normal good, which increases marginal utility per dollar
B. a movement occurs down along the demand curve for a normal good, which decreases marginal utility per dollar
C. the demand curve for a normal good shifts rightward, so that at the new quantity consumed marginal utility per dollar is equal for all goods
D. the demand curve for a normal good shifts leftward, so that at the new quantity consumed marginal utility per dollar is equal for all goods
5) Complete the following sentences.
The consumer surplus from water, which is cheap, is than the consumer surplus from gold, which is expensive.The total utility from gold is than the total utility from water.
a. smaller; less
b. smaller; greater
c. greater; greater
d. greater; less
6) In consumer equilibrium, the marginal utility per dollar from water the marginal utility per dollar from gold.
A. is less than
B. is greater than
C. equals
7) William likes to eat both donuts and danishes. The price of a donut is $0.50, and the price of a danish is $1.00.
William's marginal utility from donuts is one half of his marginal utility from danishes. William consumes for each danish he consumes.
a. 2 donuts
b. 1 donut
c. 1/3 donut
d. 1/2 donut
8) Max has $35 a day to spend on windsurfing and snorkeling and he can spend as much time as he likes doing them. The price of renting equipment for windsurfing is $5 an hour and for snorkeling is $5 an hour. The table shows the total utility Max gets from windsurfing.
How many hours does Max spend windsurfing and how many hours does he spend snorkeling?
Max considers windsurfing for 3 hours and snorkeling for 1 hour. He this combination because .
a. chooses; it maximizes his total utility
b. does not choose; it does not use all of his income and the marginal utility per dollar from windsurfing is greater than the marginal utility per dollar from snorkeling
c. chooses; this is the combination he chooses regardless of price or his income
d. does not choose; it does not use all of his income and the marginal utility per dollar from snorkeling is greater than the marginal utility per dollar from windsurfing
To maximize his total utility, the number of hours that Max spends windsurfing is__________________ and the number of hours he spends snorkeling is _________________
9) Pam has $10 a day to spend on bottled water and ice cream. The price of a bottle of water is $2.00 and the price of an ice cream cone is $1.00. Draw Pam's budget line and label it. When Pam spent all her budget and she buys 4 ice cream cones, how many bottles of water does she buy?
She buys ______________
10) Ricky is in a consumer equilibrium. Complete the following sentence.
Given the prices of goods, Ricky has allocated all his income such that his marginal utility per dollar is for goods.
a. maximized; all
b. equal; all
c. maximized; essential
d. equal; normal
11) Roses and chocolates are substitutes. Russell spends all of his income on roses and chocolates and he is in consumer equilibrium.The price of roses falls.Complete the following sentences.
The marginal utility per dollar on roses is now than the marginal utility on chocolates.
A. equal to
B. less
C. greater
12) Russell roses and chocolate.
A. decreases his quantity demanded of; decreases his quantity demand of
B. increases his demand for; decreases his demand for
C. decreases his demand for; increases his quantity demanded of
D. increases his quantity demanded of; decreases his demand for
13) Andy drinks hot chocolate every week throughout the winter. Draw a curve that illustrates Andy's total utility from hot chocolate. Label it.
Total utility depends on .
a. price and income
b. the level of consumption
c. income only
d. price only
14) The graph shows Marjorie's total utility curve for apple pies. Which of the following statements is true?
a. Marjorie's marginal utility from pies gets larger as she consumes more pies.
b. Marjorie's marginal utility from pies gets smaller as she consumes more pies.
c. The marginal utility that Marjorie receives from the 4th pie is negative.
d. The marginal utility that Marjorie receives from the 5th pie is negative.
15) The table shows Lily's marginal utilities from chicken and fish.
Lily has $27 to spend each week on chicken and fish. Chicken costs $3 a serving and fish costs $9 a serving.
Lily will consume servings of chicken and servings of fish each week.
A. 2; 3
B. 4; 1
C. 3; 2
D. 1; 4
16) Choose the statement that is correct.
A. Marginal utility is the benefit that a person gets from the consumption of all the different goods and services.
B. Total utility depends on the level of consumption.
C. Marginal utility is positive and increases as consumption of a good increases.
D. Total utility decreases as we consume more of a good.
17) The table shows Elaine's total utility from pizza and hamburgers.
Elaine spends $10 a week on pizza and hamburgers. The price of a slice of pizza is $2 and the price of a hamburger is $2. Elaine maximizes her total utility by buying slices of pizza and hamburgers a week.
A. 0; 5
B. 5; 0
C. 3; 2
D. 2; 3
18) Complete the following sentence.
Marginal utility theory shows us that a rare gem which we value highly has a marginal utility and a total utility.
A. small; small
B. large; small
C. small; large
D. large; large
19) Claire drinks ice tea and lemonade throughout the summer. For Claire, ice tea and lemonade are substitutes. The graph shows Claire's demand curve for ice tea.
Draw a curve that illustrates Claire's demand for ice tea when the price of a glass of lemonade rises. Label it D1.
When the price of a glass of lemonade rises, Claire .
A. drinks the same amount of ice tea and her marginal utility from ice tea does not change
B. drinks more ice tea and the marginal utility she receives from a glass of ice tea falls
C. drinks less ice tea and the marginal utility she receives from a glass of ice tea rises
D. drinks more ice tea and the marginal utility she receives from a glass of ice tea rises
CHAPTER 8B
1) The table shows Jennifer's marginal utility from tea and shortbread. Jennifer has $10.00 to spend each day on tea and shortbread.
The price of tea is $2.00 a cup and the price of shortbread is $1.00 a piece.
When Jennifer maximizes her total utility, how many pieces of shortbread does she buy each day and what is her marginal utility per dollar from shortbread?
When Jennifer maximizes her total utility, she buys
pieces of shortbread each day and her marginal utility per dollar on shortbread is
2) The table shows the total utility that Ellen and John get from apple pies. Given this information, which of the following statements is true?
A. If Ellen consumes 2 pies, her total utility will be 34.
B. Ellen's marginal utility is increasing.
C. For Ellen, the marginal utility from the third pie consumed is 6.
D. Ellen and John have identical marginal utilities.
3) The figure shows Phillip's budget line when he has $40 a week to spend on protein bars and movies.
Which combinations of protein bars and movies can Phillip afford? Phillip can afford all combinations the budget line.
A. inside, on, and outside
B. both on and inside
C. inside but not on
D. on but not inside
4) Complete the sentence.
Starting from a point of consumer equilibrium, a rise in income .
A. decreases marginal utility for all goods
B. increases consumption of all goods
C. increases total utility
D. increases marginal utility of normal goods
5) Complete the sentence.
A prediction of marginal utility theory is that when the price of good A rises, , and the higher the price of good A, the is the quantity bought of good B, a substitute for good A.
A. a movement up along the demand curve for good A occurs; greater
B. a rightward shift of the demand curve for good A occurs; greater
C. the quantity demanded of good A decreases; smaller
D. the quantity demanded of good A increases; smaller
6) The table shows Sue's total utility from playing golf and playing tennis.
The price of playing tennis is $10 an hour, the price of playing golf is $20 an hour, and Sue's budget for sporting activities (golf plus tennis) is $100.
In consumer equilibrium, Sue will play tennis for and golf for .
A. 3 hours; 1 hour
B. 3 hours; 4 hours
C. 4 hours; 3 hours
D. 2 hours; 3 hours
7) Complete the following sentence.
Sarah maximizes her total utility when she spends all her available income such that the utility per dollar is for all goods.
A. marginal; equal
B. total; zero
C. marginal; maximized
D. total; equal
8) Complete the sentence.
With respect to the typical consumption levels of water and diamonds, water has a .
A. higher marginal utility than diamonds
B. lower marginal utility than diamonds
C. marginal utility equal to diamonds
D. lower total utility than diamonds
9) Complete the sentence.
A prediction of marginal utility theory is that a rise in the price of a good will lead to .
A. a decrease in the demand for the good
B. an increase in the marginal utility from consumption of the good
C. an increase in the quantity demanded of the good
D. an increase in the total utility from the consumption of the good
10) Complete the sentence.
Diminishing marginal utility is the decrease in marginal utility as .
A. the price of the good increases
B. preferences change
C. income increases and demand increases
D. the quantity consumed increases
11) Cindy enjoys golf and tennis. Table 1 shows the marginal utility she gets from each activity. Cindy has $70 a month to spend, and she can spend as much time as she likes on her leisure pursuits. The price of an hour of golf is $10, and the price of an hour of tennis is $5.
Table 2 shows some combinations of golf and tennis that Cindy can afford.
Calculate Cindy's marginal utility per dollar from golf and tennis and fill in the columns in the table.
>>> Answer to 1 decimal place.
12) Complete the sentence. Total utility .
A. and a consumer's preferences are illustrated by a budget line.
B. is positive but diminishes as consumption of a good increases.
C. is independent of the level of consumption.
D. is the total benefit that a person gets from the consumption of all the different goods and services.
13) Complete the following sentences.
Water is cheap and brings a . Diamonds are expensive and bring a .
A. small consumer surplus; large consumer surplus
B. large deadweight loss; small deadweight loss
C. large consumer surplus; small consumer surplus
D. small deadweight loss; large deadweight loss
14) The table sets out Sue's total utility from playing golf and playing tennis. Complete the sentence.
If the price of playing tennis is $10 per hour and the price of playing golf is $20 per hour, then Sue will spend .
A. twice as much time playing golf as tennis
B. more time playing tennis than golf
C. twice as much time playing tennis as golf
D. more time playing golf than tennis
15) According to marginal utility theory, when the price of a good falls, increases, and the lower the price of a good, the is the quantity bought of substitutes for the good.
A. demand for the good; smaller
B. the quantity of the good demanded; smaller
C. demand for the good; greater
D. the quantity of the good demanded; greater
16) If the price of a good falls, then in the new consumer equilibrium .
A. the marginal utility from consuming the good will be lower than before
B. the quantity of the good consumed will decrease
C. the quantity consumed of substitutes for the good will increase
D. the marginal utility from substitutes will be lower than before
17) Gerald is willing to buy a grand piano for $47,000, but he is not willing to give up the grand piano he currently owns for $47,000.
Complete the sentence.
Gerald's behaviour is an example of .
A. bounded rationality
B. bad economics
C. the endowment effect
D. neuroeconomics
