Question

____ 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.

____ 32. The marginal utility of a unit of good X

a. is always greater than the total utility of X.

b. is always less than the average utility of X.

c. generally depends on how much X the consumer already has.

d. is always equal to the price of X.

____ 33. Resolving Adam Smith's diamond-water puzzle involves

a. realizing that price is not directly related to total utility.

b. knowing that at optimal purchase, price will tend to equal marginal utility.

c. knowing that, as increasing quantities of a good are consumed, marginal utility diminishes and, conversely, consuming a small quantity of a good produces high marginal utility.

d. All of the above are correct.

____ 34. Market demand curves are found by

a. vertically summing individual demand curves.

b. horizontally summing individual demand curves.

c. summing individual demand curves in a parallel fashion.

d. adding the slopes of individual demand curves.

Answer 1

31. a. total satisfaction derived from a bundle of goods
(total utility means total satisfaction a consumer receives from a bundle of good)

32. c. generally depends on how much X the consumer already has.
(Marginal utility is the additional utility from an extra unit which depend on how much X consumer already has.)

33. d. All of the above are correct.
(Diamond-water paradox is explained through all these points as more utility does not mean higher price also. It is explained through diminishing marginal utility, which states that as consumption is increased, marginal utility derived from it diminishes and at optimal puchases, price equals marginal utility.)

34. horizontally summing individual demand curves
(Horizontal addition of demand for each firm's product at a price, gives the market demand at that price.)