Instructor A. Best (Office# 317)
Due Friday, May 26th, 2017
Chapter 5 (section 5.4) 6 and appendix
Name: ______
1. / Suppose that Jon is purchasing the optimal amounts of apples and oranges. The marginal utility of the last apple is 8 and of the last orange is 6. If the price of an apple is $1, what must be the price of an orange?
A) / 50 cents.
B) / 75 cents.
C) / $1.33.
D) / $1.40.
E) / Cannot be determined from this information.
Use the following to answer questions 2-3:
Quantity / Total / MarginalConsumed / Utility / Utility
1 / 50
2 / 98
3 / 183
4 / 40
5 / 33
6 / 241
7 / 15
8 / 254
2. / Refer to the above information to answer this question. What is the marginal utility of the 3rd unit?
A) / 30.
B) / 45.
C) / 48.
D) / 143.
E) / Cannot be determined.
3. / Refer to the above information to answer this question. What is the total utility of 7 units?
A) / 15.
B) / 25.
C) / 256.
D) / 271.
E) / Cannot be determined.
Use the following to answer question 4:
The following table shows Pierre's utility for bagels and cider.
Quantity / Bagels: / Cider:Marginal Utility / Marginal Utility
1 / 20 / 20
2 / 10 / 16
3 / 8 / 12
4 / 3 / 9
5 / 1 / 4
4. / Refer to the above information to answer this question. If Pierre has a budget of $12, the price of bagels is $1 and cider is $2, what will be the total utility of his optimal purchase?
A) / 12 utils.
B) / 41 utils.
C) / 50 utils.
D) / 57 utils.
E) / 98 utils.
Use the following to answer question 5:
The following table shows Erica's utility for muffins and grapefruit.
Quantity / Muffins / GrapefruitMarginal Utility / Marginal Utility
1 / 80 / 75
2 / 70 / 72
3 / 60 / 66
4 / 50 / 62
5 / 40 / 56
5. / Refer to the above information to answer this question. If Erica has a budget of $5 and the price of both muffins and grapefruit are $1, what will be the total utility of her optimal purchase?
A) / 66 utils.
B) / 126 utils.
C) / 136 utils.
D) / 363 utils.
E) / 423 utils.
6. / What will happen if MUA/PA>MUB/PB?
A) / The price of A will be forced to drop.
B) / The price of B will be forced to drop.
C) / The consumer will purchase more of product A.
D) / The consumer will purchase more of product B.
Suppose that Reza buys two products and that the marginal utility of an additional carton of soy milk is 20 and its price is $1.25, whereas the marginal utility for an additional orange costing 50 cents is 7.
7. Refer to the above information to answer this question. What can be deduced?
A.The MU per dollar spent on soya milk is equal to that of an orange.
B.The MU per dollar spent on soya milk is greater than that of an orange.
C.The MU per dollar spent on soya milk is less than that of an orange.
D.The MU per dollar spent on soya milk is 25.
E.The MU per dollar spent on an orange is $3.50.
The following graph shows the marginal utility derived from milk and giant cookies purchased by Sandeep.
8. Refer to the above graph to answer this question. What would be Sandeep's total utility if he consumed 5 milk and 5 cookies?
A.10.
B.14.
C.80.
D.124.
E.130.
The following table shows Ketta's utility for eggs and bacon.
9. Refer to the above information to answer this question. If Ketta has a budget of $5 and the price of both eggs and bacon are $1, what will be her optimal purchase?
A.5 bacon.
B.1 egg and 4 bacon.
C.2 eggs and 3 bacon.
D.3 eggs and 2 bacon.
E.4 eggs and 1 bacon.
Suppose that Irina is prepared to pay a maximum of $2.40 for her first glass of cranberry juice, but for each subsequent glass she is only prepared to pay 20 cents less than the previous one.
10.Refer to the above information to answer this question. If the price of cranberry juice is 80 cents per glass, how many glasses will she purchase?
A.3 glasses.
B.8 glasses.
C.9 glasses.
D.10 glasses.
E.Cannot be determined.
FIGURE 5-7
11)
Refer to Figure 5-7. The market for good X is in equilibrium at P0 and Q0. Now suppose the government imposes a ______at P2. One result would be ______.
A)
price ceiling; a deadweight loss represented by areas 5 and 6.
B)
price floor; a deadweight loss represented by area 8.
C)
price floor; a deadweight loss represented by areas 5 and 6.
D)
price ceiling; an increase in economic surplus represented by areas 2 and 5.
E)
price floor; an increase in economic surplus represented by area 1.
FIGURE 5-5
12)
Refer to Figure 5-5. Suppose this market for gardening services is in a free-market equilibrium. If the government then imposes a price floor of $50 per hour for gardening services, the result would be
A)
a loss of economic surplus of the areas 2 and 6.
B)
a loss of economic surplus of the area 1.
C)
a loss of economic surplus of the areas 2, 3, 4, 6, and 7.
D)
a loss of economic surplus of the areas 1, 2, 3, and 4.
E)
a loss of economic surplus of the areas 6 and 7.
The diagram below shows the market for litres of milk.
FIGURE 5-8
13)
Refer to Figure 5-8. Suppose that a binding output quota is imposed on this market at quantity Q1. The loss in economic surplus due to the quota is equal to
A)
areas 5, 6 and 7.
B)
area 1.
C)
areas 5 and 6.
D)
areas 1, 2 and 3.
E)
areas 2 and 5.
FIGURE 5-5
14)
Refer to Figure 5-5. If production and consumption of gardening services were 5000 hours per month
A)
the value placed by consumers on the last 1000 hours is less than the additional costs associated with their provision.
B)
this market is not achieving efficiency.
C)
the provision of the last 1000 hours would decrease the amount of economic surplus in this market.
D)
the resources going into the last 1000 hours of gardening service would be more highly valued elsewhere.
E)
all of the above.
15)
The "law" of diminishing marginal utility implies that the
A)
marginal utility of a good diminishes over time.
B)
last unit of a good consumed will contribute most to the consumer's satisfaction.
C)
total utility is constant as more units are consumed.
D)
first unit of a good consumed will contribute most to the consumer's satisfaction.
E)
total utility is negative.
Toffee (bars) Cashews (bags)
Units Marginal Total Marginal Total
Utility Utility Utility Utility
1 10 10 12 12
2 8 18 10 22
3 5 23 7 29
4 3 26 5 34
5 1 27 2 36
6 0 27 1 37
7 0 27 0 37
TABLETABLE 6 6- 1
16)
Refer to Table 6-1. If this consumer purchases 3 toffee bars and 4 bags of cashews per week, his/her total utility will be
A)
7
B)
23
C)
31
D)
54
E)
57
17)
Refer to Table 6-1. If the prices of toffee bars and bags of cashews are both $1 and this consumer has $7 per week to spend on these two snacks, how many of each will he/she purchase to maximize utility?
A)
5 toffee bars and 2 bags of cashews.
B)
2 toffee bars and 5 bags of cashews.
C)
6 toffee bars and 1 bag of cashews.
D)
3 toffee bars and 4 bags of cashews.
E)
4 toffee bars and 3 bags of cashews.
FIGURE 6-2
18)
Refer to Figure 6-2. Suppose that the price of X is $2, the price of Y is $1, and the consumer's income is $10. The consumer is currently buying 3 units of good X and 4 units of good Y. He/she
A)
should buy more of X but the same amount Y.
B)
is maximizing total utility.
C)
should buy less of X and more Y.
D)
should buy the same amount of X but less Y.
E)
should buy more of X and less Y.
19)
The income effect refers to the change in quantity demanded that occurs as a result of a change in
A)
marginal utility, with real income held constant.
B)
money income, with relative prices held constant.
C)
preferences, with real income held constant.
D)
real income, with relative prices held constant.
E)
relative prices, with real income held constant.
20)
At a garage sale, Ken purchases a used bicycle for $8 when he was willing to pay $25. If the bicycle costs $75 new, Ken's consumer surplus is ______.
A)
$0
B)
$17
C)
$33
D)
$50
E)
$67
Dave's Consumer Surplus on DVD Rentals per Week
Number of DVDs Amount Dave is willing to Dave's consumer surplus
rented per week pay to rent this DVD ($) on each DVD rental price = $5
1st 10.00 ____
2nd 8.00 ____
3rd 6.50 ____
4th 5.50 ____
5th 5.00 ____
6th 4.50 ____
7th 4.25 ____
TABLE TABLE 66-2
21)
Refer to Table 6-2. If Dave rents 3 DVDs in one week, his total consumer surplus is ______and the total amount he pays is ______.
A)
$24.50; $24.50
B)
$19.50; $15.00
C)
$9.50; $15.00
D)
$6.50; $5.00
E)
$5.50; $5.00
The diagram below shows a set of budget lines facing a household.
FIGURE 6-5
22)
Refer to Figure 6-5. The movement of the budget line from ab to db could be caused by
A)
an increase in the price of food.
B)
an increase in the price of housing.
C)
a decrease in the price of food.
D)
a decrease in money income.
E)
a decrease in the price of housing.
23)
Assume the quantity of good X is measured on the horizontal axis and the quantity of good Y on the vertical axis. Initial prices are: good X = $5, good Y = $10. The consumer's income is $100. If the price of good Y increases to $20, then
A)
the budget line will rotate to the left down the vertical axis with the slope changing from 1/2 to 1/4.
B)
the budget line will rotate to the right down the horizontal axis with the slope changing from 1/4 to 1/2.
C)
the budget line will rotate to the left across the horizontal axis, slope remaining constant.
D)
the entire budget line shifts to the left with its slope changing from 1/2 to 1/4.
E)
the entire budget line will shift to the right.
FIGURE 6-6
24)
Refer to Figure 6-6. In part (i), the consumer is able to move from point A to point B because of
A)
a decrease in the price of bread.
B)
an increase in real income.
C)
a decrease in the price of one good and an increase in money income.
D)
a decrease in the price of milk.
E)
a decrease in money income.
Chris's consumption of specialty coffee per week.
FIGURE 6-7
25)
Refer to Figure 6-7. The two diagrams in Figure 6-7 are showing
A)
the change in Chris's preferences toward specialty coffee.
B)
that Chris is indifferent between bundles A, B and C.
C)
that Chris is indifferent between points D, E and F.
D)
the derivation of Chris's indifference curve for specialty coffee.
E)
the derivation of Chris's demand curve for specialty coffee.
Part Two: Problems
1. Cindy enjoys golf and tennis. The table below shows the marginal utility she gets from each activity.
Hours per month / Marginal utility from golf / Marginal utility from tennis1 / 120 / 55
2 / 100 / 35
3 / 80 / 30
4 / 40 / 20
5 / 35 / 10
6 / 15 / 5
7 / 6 / 1
Cindy has $55 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.
(a) How long does Cindy spend playing golf and how long does she spend playing tennis to maximize her utility? What is her total utility with this bundle?
(b) Cindy’s golf club lowers its price of an hour of golf to $5. The price of tennis and Cindy’s income remain the same. How many hours does Cindy now spend playing golf and how long does she spend playing tennis to maximize her utility?
(c) Given the information in parts (a) and (b), draw Cindy’s demand curve for golf.
(d) Is Cindy’s demand for golf elastic or inelastic?
(e) What is Cindy’s cross elasticity of demand for tennis with respect to the price of golf? Are tennis and golf substitutes or complements for Cindy?
(f) Oops! Due to the economic slowdown, Cindy can only afford to spend $40 dollars a month on her two favorite activities. Assuming that the price of an hour of golf is $10, and the price of an hour of tennis is $5, what is her new optimal purchasing bundle?
(g) Based on your answer in (f), is what type of good is tennis for Cindy? Golf?