Chapter 6

Question 1

Utility theory is based on the hypothesis that the ___________ received from each additional unit of the good __________ as total consumption of the good increases.

Answer 1

utility, decreases

Question 2

A​ utility-maximizing consumer will allocate expenditure such that the _________ per dollar spent on each product is _____ for all products.

Answer 2

marginal utility, the same

Question 3

An equation that represents a​ utility-maximizing pattern of consumption of two​ goods, A and​ B, is

Answer 3

MUa/Pa = MUb/Pb

Question 4

Suppose that a​ consumer’s total utility decreases with consumption of one additional unit of a good. In this​ case, we know that marginal utility must be _________.

Answer 4

negative

Question 5

Suppose Lori is maximizing her utility as she allocates her monthly budget between two
goods—golf games and ski passes. If the price of ski passes​ falls, then, ceteris paribus​, the marginal utility per dollar spent on ski passes __________. To maximize her​ utility, she will buy more __________ and less _________.

Answer 5

increases, ski passes, golf games

Question 6

Suppose Jeff has a monthly family budget to allocate between food and clothing. The price of food is​ $10 per​ unit, the price of clothing is​ $15 per​ unit, and the marginal utility from the last unit of clothing is 75. If he is maximizing​ utility, the marginal utility from the last unit of food is

Answer 6

50

Question 7

Marginal utility analysis tells us that a rise in the price of a​ good, ceteris paribus​,
leads each consumer to reduce the ___________ of the good.​ This, in​ turn, predicts a ____________ demand curve.

Answer 7

quantity demanded, negatively sloped

Question 8

Why are newspaper publishers prepared to use vending machines that allow customers to pay for one newspaper and remove​ several, whereas candy and​ soft-drink producers use vending machines that allow customers to remove only the single product that is​ purchased?
A. The government program against obesity forbids selling several units of candy or soft drink at a time.
B. People who buy newspapers are considered to be more honest than people who like candies and soft drinks.
C. The marginal cost of producing an extra unit of newspaper is very close to​ zero, so that publishers​ don’t take into account losses of several units of newspaper.
D. Unlike candies and soft​ drinks, the marginal value of an extra unit of newspaper is very close to​ zero; hence most people will take only one newspaper.

Answer 8

D. Unlike candies and soft​ drinks, the marginal value of an extra unit of newspaper is very close to​ zero; hence most people will take only one newspaper.

Question 9

If the marginal utility from consuming more of a good is zero, total utility is:
A. negative
B. neither increasing nor decreasing
C. zero
D. decreasing
E. increasing

Answer 9

B. neither increasing nor decreasing

Question 10

Suppose a​ utility-maximizing consumer is usually purchasing two​ substitutes, good A and good B. What would be the likely impact of
an increase in the price of
good A on this​ consumer’s usual consumption​ bundle?
A. a decrease in the consumption of good B and an increase in the consumption of good A
B. a decrease in the consumption of good A and an increase in the consumption of good B
C. an increase in the consumption of both goods
D. a decrease in the consumption of both goods.

Answer 10

B. a decrease in the consumption of good A and an increase in the consumption of good B

Question 11

For a normal good​ (positive income elasticity of​ demand), the income and substitution effects of a price increase work in _______. The substitution effect will lead to ______ n quantity demanded and the income effect will lead to _________ in quantity demanded.

Answer 11

the same direction, a decrease, a decrease

Question 12

For an inferior good​ (negative income elasticity of​ demand), the income and substitution effects of a price increase work in ________. The substitution effect will lead to ______ in quantity demanded and the income effect will lead to __________ lead to in quantity demanded.

Answer 12

opposite directions, a decrease, an increase

Question 13

In what situations do the substitution effect and the income effect work in the same direction to produce a​ downward-sloping demand​ curve?
A. Any normal good
B.A normal good for which the income effect is greater than the substitution effect
C.A Giffen good
D. An inferior good for which the income effect is greater than the substitution effect
E. Any inferior good
F. A normal good for which the income effect is less than the substitution effect
G. An inferior good for which the income effect is less than the substitution effect

Answer 13

A, B, F

Question 14

In what situations do they have opposing​ effects? ​
A. A normal good with an​ upward-sloping demand curve
B. A Giffen good
C. An inferior good with an​ upward-sloping demand curve
D. A normal good with a​ downward-sloping demand curve
E. An inferior good with a​ downward-sloping demand curve
F. Any inferior good
G. Any normal good

Answer 14

B,C,E,F

Question 15

Suppose that a​ utility-maximizing consumer is usually purchasing two
complements​,ketchup (a normal​ good) and french fries. Suppose that the price of ketchup decreases and as a result the quantity purchased of french fries decreases​, ceteris paribus. We can thus say that french fries are…
A. inferior goods
B. luxuries
C. necessities
D. normal goods

Answer 15

A. inferior goods

Question 16

Total consumer surplus is the area
________ the demand curve and ______ the price line. Consumer surplus on any one unit is the difference between the maximum price the consumer is willing to pay for that unit and the ____________.

Answer 16

below, above, price that is actually paid

Question 17

A consumer will continue to purchase a good as long as the marginal value received from the last unit purchased is __________ than the market price.

Answer 17

greater

Question 18

When the market is in​ equilibrium, consumer surplus on the final unit purchase is ________.

Answer 18

zero

Question 19

Since water​ (in Canada) has a very low​ price, consumers continue to use it to the point where the marginal value they place on the last unit they consume is ________. At the same​ time, the total value placed on the water consumed is ______________.

Answer 19

also very low, very high

Question 20

The paradox of value refers to the situation where a good with low total value can command a _______ price, while a good with a high total value may only command a ______, price.

Answer 20

high, low

Question 21

Many medical and hospital services in Canada are provided at zero direct cost to all Canadians and are financed out of general government revenues.
a. If the government provided the necessary resources to satisfy all​ demand, the marginal value of such services consumed by each Canadian would be

Answer 21

zero