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Sample Questions: Introductory Microeconomics: D) All of The Above
Sample Questions: Introductory Microeconomics: D) All of The Above
it is downward sloping
it exhibits diminishing marginal rate of substitution
it never crosses each other
all of the above
2. Suppose espresso is free, then to maximize total utility, a consumer should drink
espresso until his/her marginal utility is:
a)
b)
c)
d)
at a maximum
zero
equals the price of tea
no longer diminishing
SHORT ANSWERS
True or false and explain. Illustrate with a graph where
appropriate.
1. a) rent control for apartments creates surplus of rental apartments
False. There is an excess demand for apartments, a shortage of apartment rental.
b) Since demand for agricultural products is inelastic, higher prices mean lower
incomes for farmers
False. The % change in price is larger than the % change in quantity. Price and total
revenue move in the same direction.
2. State whether each of the following events will result in a movement along the
demand curve for Jack in the Box Sourdough Cheeseburger or whether it will cause
the curve to shift. If the demand curve shifts, indicate whether it will shift to the left
or the right and draw a graph to illustrate the shift.
3. Define marginal utility. Provide an argument why to maximize total utility over
good x and good y, the consumer should consume until the ratio of marginal utilities
over price is the same across both goods.
Marginal Utility is an additional utility gained from consuming an additional unit of
good. It is the same as marginal benefit.
If the marginal utility per dollar is not the same for good x and good y, there is a net
gain on the original budget allocation. Thus, his total utility is not maximized.
For example, the total spending on good x and y is $400. MU per dollar for good x is
12/1= 12utils/$; MU per dollar for good y is 16/2 = 8utils/$. If he consumes $2 less
on good y, he is giving up 1 unit of good y and can consume 2 more units of good x.
The marginal utility lost from giving up good y is 16utils. The marginal utility gain
from good x is 24utils. Net gained is 8utils. Thus, he is not maximizing his total
utility. He should spend more on good x and spend less on good y until the ratio is the
same for both goods. Rational Spending Rule is satisfied.