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

marginal utility is a measure of the benefit (or value, or enjoyment) a person obtains by a) Consuming a single additional unit of a product. b)Selling a single additional unit of a product (and spending the resulting cash). c) Borrowing the dollar value of a single additional unit of a product (and spending it on something nice). d)Converting a single additional unit of product to an equivalent number of units.

The substitution effect of a price change:   will always offset the income effect. will always result in the consumer buying less of a good at a higher price. dominates the income effect in the inferior good case. will always be lower than the income effect of the price change.

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Subpart 7 only

(D)

Optimal consumption refers to   Multiple Choice   the mix of products that maximizes total utility for the limited amount of income consumers have to spend.   the total number of products that maximizes total utility for consumers.   the maximum total utility a consumer receives by the consumption of one more item.   the amount demanded that will create the strongest economy.

As a person receives more of a good, the _______________ from each additional unit of the good declines.   Group of answer choices   cost   sunk costs   marginal utility   budget constraint

The price of good "a" is $5 and the price of good "b" is $15. If the marginal utility of good "a" is 20 then the marginal utility of good "b" must be ________ to have an optimum combination of goods purchased. 80 20 60 4

(a) A consumer with income I=120 facing prices pX = 4 and pY = 8 for two goods X and Y (for each good she prefers more to less, with diminishing MRS) chooses optimally to consume 12 units of X. If the prices change and now pX = 6 and pY = 4, what is the possible range for her new optimal X consumption?   (b) Forget about (a). A consumer with I=$240 budget is shopping for apples (x) and oranges (y). Apples cost $1 each up until 60 units; thereafter each apple costs $2. Similarly, oranges cost $1 each up until 60 units, and thereafter $2 each. Draw the graph of feasible set of bundles for the consumer with relevant points and numbers (shade the feasible area), no explanation needed. (c)(HARD!) In (b), calculate the optimal bundle assuming the consumer’s utility function is u(x,y) = x5y.