Question

Lower prices:

lower the marginal utility per dollar spent and cause consumers to buy less of a good.

increase the marginal utility per dollar spent and cause consumers to buy less of a good.

do not change the marginal utility per dollar.

lower the marginal utility per dollar spent and cause consumers to buy more of a good.

increase the marginal utility per dollar spent and cause consumers to buy more of a good.

Question 17

Suppose your favorite ice cream flavor, strawberry, costs $1.50 per cone and chocolate costs $1.00 per cone. If you receive 10 utils when you eat chocolate ice cream, how many additional utils would you need to get from eating strawberry ice cream to make you indifferent between purchasing the two flavors of ice cream?

5

10

15

20

25

Question 18

Farmers can increase crop production by adding fertilizer, up to a point. The fact that agricultural output cannot keep increasing indefinitely by adding more of a variable input is due to

the law of diminishing marginal returns

the law of increasing opportunity costs

limits of specialization

diseconomies of scale

Answer 1

16. Lower prices increases the marginal utility per dollar spent and cause consumer to buy more of a good. When the price of a good falls, it increases the marginal utility per dollar and induced the consumer to purchase more of that good.

17. Answer = 15

Inorder to be indifferent of two goods, the ratio of marginal utility to it's price for both goods should be equal.

MU of chocolate/ price of chocolate = Mu of strawberry / price of strawberry

10/1 = MU of strawberry / 1.5

Mu of strawberry = 10 × 1.5

= 15

18. Law of diminishing marginal returns. As more and more of inputs is used, the output increases to a certain point and then starts decreasing. This is known as law of diminishing marginal returns.