Question

11. A dehydrated person has two glasses of water. Compared with the person's first glass of water, total utility after the second glass will:

a)	increase and marginal utility will decrease.

b)	decrease and marginal utility will decrease.

c)	increase and marginal utility will increase.

d)

decrease and marginal utility will increase.

14. Jenn's marginal utility of the last candy bar consumed is 8 and her marginal utility of the last smoothie consumed is 20. If candy bars cost $2 and smoothies cost $4, which statement is true according to the utility maximization rule?

a)	Jenn is maximizing her utility.

b)	Jenn must consume more candy bars and less smoothies to maximize utility.

c)	Jenn must consume more smoothies and less candy bars to maximize utility.

d)

Jenn must consume less of both candy bars and smoothies to maximize utility.

17. Which of these is not an example of a sunk cost that is subject to poor economic decision making?

a)	a new laptop that you purchased for school

b)	an appraisal fee to determine the value of a house you are thinking of buying

c)	tuition that you paid for an economics course

d)	a registration fee for a local 10K race

Answer 1

1. A). Increase and marginal utility will decrease. This is according to the law of diminishing marginal utility which states for every unit of a good consumed, the marginal utility of the next unit of that good will decrease but its total utility will increase or remain the same under normal conditions.

14. For the utility to maximize, MUx/Px = MUy/Py

In this case let candy be x. Then MUx/Px= 8/2=4

Let smoothie be y, then MUy/Py =20/4=5

Thus for Jenn to be in equilibrium, the smoothie consumed should decrease while consumption of candy bar must increase. Hence, b) is the answer

3.a). A new laptop purchased for school. This is not a sunk cost because this laptop can help in providing utility even after the school is over.