Chp 7 reference

Chp 7 reference - QUIZ FOR CHAPTER 7 Started: June 13, 2011...

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QUIZ FOR CHAPTER 7 Started: June 13, 2011 1:57 PM Submitted: June 13, 2011 2:01 PM Time spent: 00:04:03 Total score: 3/10 = 30% 1. The utility of a particular good: Student Response Value Correct Answer Feedback A. is the same for everyone, even if its usefulness differs from person to person B. is a measure of the product's usefulness 0% Utility is the subjective satisfaction one derives from a good. The law of diminishing marginal utility suggests that utility increases at a decreasing rate. C. increases at a constant rate D. increases at a decreasing rate Score: 0/1 2. Answer the next question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer derives from successive quantities of products J and K.
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Refer to the table. If this consumer has an income of $26 and the prices of J and K are $2 and $4 respectively, the consumer will maximize her utility by purchasing: Student Response Value Correct Answer Feedback A. 7 units of J and 3 units of K B. 5 units of J and 4 units of K C. 3 units of J and 5 units of K 0% Divide each of the entries in the MU J column by $2 and each of the entries in the MU K column by $4 to obtain the marginal utilities in terms of per dollar spent on each good. The first dollar will be spent on K because it provides 12 units of utility, whereas J would provide only 10 units of utility. Continue in this manner, purchasing the next unit of the good with the highest marginal utility per dollar until income is exhausted. At this point, the marginal utility per dollar of each good will be the same???6 units of utility per dollar in this example. D. 1 units of J and 6 units of K Score: 0/1 3. Jim enjoys having either a peanut butter sandwich or a bologna sandwich for his lunch. A drop in the price of peanut butter increases the marginal utility per dollar of peanut butter and causes Jim to buy more peanut butter and less bologna to restore maximum utility. This best illustrates the: Student Response Value Correct Answer Feedback A. law of diminishing marginal utility
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B. income effect C. substitution effect D. law of increasing total utility 0% The substitution effect of a price decrease refers to the impact on quantity demanded because this good is now relatively less expensive compared to its substitutes. Score: 0/1 4. Suppose the prices of products X and Y are $5 and $10, respectively. For a specific consumer who is currently exhausting her total income, the total utility from X is 100, while the total utility from Y is 200. The marginal utility of X and Y are both equal to 8. From this information, we can conclude: Student Response Value Correct Answer Feedback A. she is maximizing total utility B. she should purchase relatively more X 100% The total utility derived from each good is not relevant here. However, the marginal utility of the last dollar spent on X exceeds that spent on Y (8/$5 > 8/$10) indicating she should reallocate her spending towards more purchases of X.
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This note was uploaded on 06/13/2011 for the course ECON 222 taught by Professor Mclean during the Spring '11 term at Ferris State.

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Chp 7 reference - QUIZ FOR CHAPTER 7 Started: June 13, 2011...

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