Exam 10: The Rational Consumer

LaToya sees honey and sugar as perfect substitutes. She is always willing to substitute 1 teaspoon of honey for 2 teaspoons of sugar. If the price of honey is half that of sugar, LaToya will use:

Use the following to answer question: -(Table: Utility from Pizza and Beer) Look at the table Utility from Pizza and Beer. At All-Sports Bar, a bottle of beer costs $4; a slice of pizza costs $2. Denard has $10 to spend on beer and pizza. To maximize his utility, Denard will consume _____ slice(s) of pizza and _____ bottle(s) of beer.

The marginal utility of a good is used to describe any good (such as a mushroom brush or a shrimp deveiner) that has only limited usefulness.

Sally devotes all of her income to the consumption of apples and Reese's Peanut Butter Cups. At her current level of consumption the marginal utility of an apple is 6 and the marginal utility of a Reese's Peanut Butter Cup is 8. Assume that diminishing marginal utility applies to both apples and Reese's Peanut Butter Cups. Suppose the price of an apple is $0.20 and the price of a Reese's Peanut Butter Cup is $0.25. To maximize her total utility, assuming that the goods are divisible, she would:

A person's consumption possibilities include all points on the budget line as well as all points below the budget line.

Increases in the price of the good measured on the vertical axis will make the vertical intercept _____ and make the budget line _____.

How is a utility function different from an indifference curve?

Steven consumes staples and paper clips. He is maximizing his utility in consumption of both goods. The price of staples falls. After the change in price Steven should consume _____ staples and _____ paper clips.

Gillian is consuming her optimal consumption bundle of peanuts and raisins. The marginal utility associated with the last peanut she consumes is 4 utils, and the marginal utility associated with the last raisin is 2 utils. What must be the price of peanuts relative to that of raisins?

Javon is consuming his optimal utility-maximizing consumption bundle of lobster and macaroni-and-cheese dinners when he loses his job and has less money to spend. Both are normal goods. When he adjusts his consumption to reflect the new level of income, the number of macaroni-and-cheese dinners he consumes:

Use the following to answer questions: Figure: Consumer Equilibrium III -(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. Given the figure, which of the following is TRUE?

Xavier notices that the marginal utility of working with a tutor seems to fall with each hour the tutor helps him study. If Xavier keeps the tutor until his grade actually begins to fall, his marginal utility for the last hour of tutoring will be:

Use the following to answer question: -(Table: Utility from Milk and Honey) Look at the table Utility from Milk and Honey. The price of milk is $2 and the price of honey is $4. If Max's income is $16, he buys _____ bottle(s) of milk and _____ jar(s) of honey.

Use the following to answer questions: Figure: The Optimal Consumption Bundle -(Figure: The Optimal Consumption Bundle) Look at the figure The Optimal Consumption Bundle. Which of the following could lead to an optimal consumption bundle on indifference curve I₁?

George has a weekly income (I) of $50, which he uses to purchase doughnuts (D) and coffee (C). If the price of a doughnut is $1 and the price of coffee is $2.50, which of the following consumption bundles lies BEYOND George's budget constraint?

Assume that a combination of two goods reflects a point of tangency between the budget line and an indifference curve. In this situation, which of the following is INCORRECT?

The marginal utility of coffee consumption for Steve is the change in _____ generated by consuming an additional cup of coffee.

If a consumer moves upward along an indifference curve, his or her total utility:

Use the following to answer questions: Figure: Consumer Equilibrium III -(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. A level of total utility NOT attainable is at point:

A decreasing marginal rate of substitution indicates that an indifference curve is: