Tom's utility on two goods, x and y, is presented as below. utility = U(x, y) = √xy ➡) If x costs $1 each and y costs $2 each, determine his utility-maximizing consumption quantities for x and y, assuming he is spending all his money endowment of $10. a) b) ) Suppose x price drops to $0.5. How much money can Tom save if he adjusts his consumption quantities of x and y such that he remains at the same level of utility he received in part a)?

Tom's utility on two goods, x and y, is presented as below. utility = U(x, y) = √xy ➡) If x costs $1 each and y costs $2 each, determine his utility-maximizing consumption quantities for x and y, assuming he is spending all his money endowment of $10. a) b) ) Suppose x price drops to $0.5. How much money can Tom save if he adjusts his consumption quantities of x and y such that he remains at the same level of utility he received in part a)?

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Theory Of Consumer Choice

Section: Chapter Questions

Problem 11PA

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Question 17 Marginal utility is the: sensitivity of consumer purchases of a good to changes in the price of that good. change in total utility obtained by consuming one more unit of a good. change in total utility obtained by consuming another unit of a good divided by the change in the price of that good. total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.
Question 14 Marginal utility can be: decreasing, but not negative. positive, but not negative positive, negative, or zero. positive or negative, but not zero.
Question 9 Rational consumer behaviour is where a person consumes the amount of a good that maximises the total utility from the good. maximises the consumer surplus from the good. minimises the amount spent on the good to achieve a given level of utility. maximises the marginal utility from the good
Question 4 With the prices of commodities A, B and C equal, which of the following should a consumer do to maximize her utility? Regard these commodities as providing equal satisfaction value Buy these commodities in the quantities needed to make their marginal utilities equal. Buy quantities of each which make total utilities equal. Divide her budget equally among these commodities. None of the suggested options.
Question 11 Which one of the following statements is incorrect? Each point on a budget line stands for a different combination of 2 goods. All points on a budget line stand for the same level of satisfaction. The indifference curve is convex to the origin because of the law of diminishing marginal utility. Each point on an indifference curve represents a different combination of 2 goods All points on an indifference curve stand for the same level of satisfaction.
Question 18 An increase in the price of product A will: cause utility-maximizing consumers to buy more of A. decrease the marginal utility per dollar spent on A. not affect the marginal utility per dollar spent on A. increase the marginal utility per dollar spent on A.
Question 2 A consumer is currently purchasing three pairs of jeans and five T-shirts per year. The price of jeans is $50, and shirts cost $25. At the current rate of consumption, the marginal utility of jeans is 150, and the marginal utility of shirts is 100. Based on the model of consumer choice, what should this consumer do to maximize utility? Purchase more shirts and fewer jeans. Purchase fewer shirts and more jeans. Purchase only jeans. This consumer is already maximizing utility. Purchase only shirts.
Question 7 The law of diminishing marginal utility states that: Utility derived from the additional unit of the good consumed falls as the consumption of the good increases. Total Utility derived from consumption of a good falls as consumption increases. None of the suggested options. Ratio of the MU to P for luxuries is lower than that for necessities. Ratio of MU to P will be the same for all goods
Question 2 The rule for rational budget allocation by the consumer is that the marginal utility of each good: purchased divided by its price must be equal. must be zero. must be infinite. purchased multiplied by its price must be equal. none of the suggested options.
Question 6 A consumer spends all of her income on two goods, coffee and doughnuts. She buys coffee at 25 cents per unit with a total utility of 800 and a marginal utility of 12. Doughnuts are purchased at 75 cents a unit with a total utility of 200 and a marginal utility of 24. To increase her total utility, the consumer should: Buy more coffee and less doughnuts Buy more of both goods Do nothing. She is currently maximizing utility with her limited budget. Buy less of both goods Buy more doughnuts and less coffee.
Question 28 The marginal rate of substitution measures the: extra utility that a consumer derives from successive units of a product. consumer's willingness to substitute one product for another so that total utility will remain constant. magnitude of the substitution effect. total utility received by a consumer when equilibrium is achieved.
____ 31. Total utility can be thought of as the a. total satisfaction derived from a bundle of goods. b. minimum amount of money a consumer is willing to spend on a bundle of goods. c. additional satisfaction a consumer receives from the marginal unit of a good. d. willingness to pay for the marginal unit of a good.