Download week3QA1

Auxiliary Problems for Chapter 19
1. What is the difference between total utility and marginal utility?
2. What is meant by diminishing marginal utility?
3. Movie theaters often give discounts to children, seniors and daytime patrons. Why?
4. Biff, Stan and Jerry are willing to pay $36, $32 and $18, respectively, for a dozen golf balls.
The balls are on sale this weekend for $22. Is there any consumer surplus in this situation?
5. Suppose Suzanne buys potatoes and onions. The MU of the next potato is 104 utils and the
MU of the next onion is 88 utils. Potatoes cost $0.44 and onions cost $0.62. She only has
money to buy one of them. Which should she buy?
Answers
1. Total utility is the sum of all satisfaction from the consumption of a good or service.
Marginal utility is the change in total utility obtained from the consumption of one additional
unit of a good or service.
2. This means that a consumer gets less and less additional utility (per new unit) as he or she
consumes more of a good or service.
3. Movie theaters are using price discrimination to increase the number of patrons. Theaters
realize that children and seniors often have lower incomes and lower demands for movies.
Thus, the theaters provide the movie at a discount versus what a regular patron would pay.
4. Yes, there is consumer surplus. Biff gets consumer surplus of $14 (i.e., $36-$22) and Stan
gets consumer surplus of $10 (i.e., $32-$22). Jerry gets no consumer surplus because he does
not buy the golf balls.
5. Suzanne should buy a potato. She gets 226.1 utils per dollar for potatoes and just 154.4 utils
per dollar for onions.
Chapter 19
Cones
TU
1
10
2
18
3
MU
6
4
28
5
2
Table 19.1
1. Refer to Table 19.1. Total utility from consuming three ice cream cones is
a.
b.
c.
d.
6.
22.
24.
36.
Answer: c
Feedback: Marginal utility is the change in total utility from a one-unit increase in
quantity. In this case, as the consumer goes from two to three cones, the marginal utility
is 6, so total utility increases to 24.
2. When you were a kid, you probably refused to eat Brussels sprouts at dinner. You were
making the implicit statement that the marginal utility of the Brussels sprouts is
a.
b.
c.
d.
Small.
Zero or negative.
Positive but decreasing.
Less than the total utility.
Answer: b
Feedback: If you don’t want something, it means that it gives you no additional utility, or
in some cases makes you worse off.
3. The law of diminishing marginal utility indicates that
a.
b.
c.
d.
The demand for a good gets more elastic as its price falls.
The total amount of utility falls as we consume additional amounts of a good.
We generally will not enjoy a third piece of pizza as much as the first piece.
The additional level of utility stays the same as more of a good is consumed.
Answer: c
Feedback: As the consumer has more and more pizza, the last unit becomes less desired.
That is, the marginal utility of the next piece of pizza is diminished when compared with
previous pieces.
4. A downward-sloping demand curve
a.
b.
c.
d.
Shows that consumers are less willing to pay for additional units of a good.
Shows that as tastes change, people are less willing to pay for a good.
Tells us that total utility falls as consumers pay more for a good.
Is not justified based on the law of diminishing marginal utility.
Answer: a
Feedback: As consumers get more and more of a good, the utility of each subsequent unit
diminishes. Thus they would not be willing to pay as much for each additional unit
consumed.
5. If Peter values a hot dog at $5.00 and is able to purchase it for $2.00, his consumer
surplus is
a.
b.
c.
d.
$2.00.
$3.00.
$5.00.
You cannot tell until you know how much the hot dog cost to produce.
Answer: b
Feedback: Consumer surplus is the difference between the value a consumer places on a
product and that product’s price. In this case it’s $5 - $2 = $3.
6. Price discrimination is
a.
b.
c.
d.
Used to give better deals to those customers willing to pay top dollar.
Used to extract value from those customers willing to pay top dollar.
Illegal in the United States.
Illegal when conducting international trade.
Answer: b
Feedback: Price discrimination gives a seller an opportunity to charge higher prices to
those who value a product more. This extracts some consumer surplus from that buyer.
7. The determinants of demand are
a.
b.
c.
d.
Income, tastes, exports, and age.
Income, tastes, imports, and other goods.
Income, tastes, expectations, and other goods.
Imports, exports, expectations, and other goods.
Answer: c
Feedback: This is a list of the common determinants of consumer demand.
8. Consumer surplus will increase when
a.
b.
c.
d.
The supply curve shifts to the right.
The supply curve shifts to the left.
A consumer is spending excess or “surplus” income.
A consumer is using a coupon or rebate.
Answer: a
Feedback: When the supply curve shifts to the right, the price falls and allows more
people to buy the product. The lower price gives more consumer surplus to current
buyers, and the new buyers are able to get some consumer surplus, too.
9. The law of demand says that
a.
b.
c.
d.
Income and demand are positively related.
Income and import demand are positively related.
Price and consumer satisfaction are negatively related.
Price and quantity demanded are negatively related.
Answer: d
Feedback: This is the definition of the law of demand.
10. As a general rule, consumers allocate their fixed incomes so that
a.
b.
c.
d.
They maximize marginal utility.
The value of MU/P of good A is greater than the value of MU/P of good B.
Their total utility from their consumption will be zero.
The value of MU/P of good A is equal to the value of MU/P of good B.
Answer: d
Feedback: Consumers consider both MU and P when they make purchases and, in
equilibrium, the ratio MU/P for all goods must be equal.
1. The marginal utility for a good is computed as
A. Total utility divided by quantity.
B. Quantity divided by total utility.
C. The change in quantity divided by total utility.
D. The change in total utility divided by the change in quantity.
Marginal utility refers to the amount of satisfaction one gets from consuming the last unit of a
product.
2. Complete Table 19.2 below:
In Table 19.2, the marginal utility of the third unit is
A. 3.
B. 5.
C. 6.
D. 30.
Marginal utility is the change in total utility obtained by consuming one additional good or
service. Total utility increases from 24 to 30 when the third unit is consumed, an increase of 6
utils.
3. Complete Table 19.2 below:
In Table 19.2, the total utility when four units are consumed is
A. 33.
B. 30.
C. 6.
D. 3.
The total utility when three units are consumed is 30, and the fourth unit adds 3 additional utils,
which causes total utility to increase to 33.
4. Complete Table 19.2 below:
In Table 19.2, diminishing marginal utility occurs
A. With the second and fourth units only.
B. With the first and third units only.
C. Only with the second unit.
D. With all units after the first.
Because the marginal utility decreases with each additional unit consumed, diminishing marginal
utility occurs when the second and subsequent units are consumed.
5. Marginal utility is the
A. Change in total utility obtained by spending one extra dollar on a good or service.
B. Change in total utility obtained by consuming one extra unit of a good or service.
C. Change in total utility obtained by selling one extra unit of a good or service.
D. Utility received from consuming the optimal combination of goods and services.
Marginal utility is the change in total utility obtained by consuming one additional (marginal)
unit of a good or service—for instance, how much additional enjoyment one would get by eating
a second candy bar.
6. Consumer surplus measures
A. The difference between the maximum price a consumer is willing to pay and the price
actually paid.
B. The difference between the minimum price a consumer is willing to pay and the price actually
paid.
C. The difference between the amounts of a good a consumer is willing to pay, and how much of
the good is available for sale.
D. The sum of all of the marginal utilities for that good
Consumer surplus is the difference between what you are willing to pay and the actual
equilibrium price.
7. The total consumer surplus is shown on a graph as
A. The area under the demand curve and below the actual price.
B. The area under the demand curve and above the actual price.
C. The area above the demand curve and above the actual price.
D. The area above the demand curve and below the actual price.
See Figure 19.4 in the textbook. The consumer surplus is the shaded triangle under the demand
curve and above the actual or equilibrium price.
8. The additional pleasure or satisfaction from a good declines as more of it is consumed in a
given period. This is the definition of the
A. Law of demand.
B. Law of diminishing marginal utility.
C. Law of diminishing total utility.
D. Total revenue rule.
As a rule, the amount of additional utility we obtain from a product declines as we continue to
consume it. For example, the third slice of pizza isn't as desirable as the first.