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Q4: Choose the BEST answer. What happens to the consumption of a good if it is...

Q4: Choose the BEST answer.

What happens to the consumption of a good if it is following the law of diminishing marginal utility?

a. The marginal utility is maximized when the first unit is consumed.

b. The marginal utility is maximized when total utility is also maximized.

c. The marginal utility is maximized when total utility starts to decline.

Q7: Choose the BEST answer.

Joe spends his entertainment budget on computer games and board games. If the price of computer games increases then Joe’s spending on board games will ________.

a. remain unchanged

b. decrease

c. increase

d. could either increase, decrease, or remain unchanged.

Q8: Choose the BEST answer.

If a good is normal, then a decrease in price will cause a substitution effect that is

a. positive and an income effect that is negative.

b. positive and an income effect that is positive.

c. negative and an income effect that is positive.

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Homework Answers

Answer #1

a)"C"

Total utility is maximum when the marginal utility is the zero after that total utility starts to decline and the marginal utility will be negative. SO the answer is "C". marginal utility will maximum when total utility starts to decline.

b) "D"

It could increase or decrease or remain unchanged depending on the type of goods and how much Joe spends on that.

c) A decrease in the price will increase the income and that will lead to positive income effect. it will decrease the substitute we have in the market there by a negative substitution effect

Answer is "C".

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