Question

B 1. Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decline in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is: A. negative and therefore these goods are substitutes. 10 B. negative and therefore these goods are complements. C. positive and therefore these goods are substitutes. D. positive and therefore these goods are complements. 2. To maximize utility a consumer should allocate money income so that the: A elasticity of demand on all products purchased is the same. B. marginal utility obtained from the last dollar spent on each product is the same. total utility derived from each product consumed is the same. D. marginal utility of the last unit of each product consumed is the same. 3. Where total utility is at a maximum, marginal utility is: A. negative. B. positive and increasing. C. zero. D. positive but decreasing. 4. The theory of consumer behavior assumes that: A. consumers behave rationally, attempting to maximize their satisfaction. B. consumers have unlimited money incomes. C. consumers do not know how much marginal utility they obtain from successive units of various products. D. marginal utility is constant. 5. Marginal utility can be: A. positive, but not negative. B. positive or negative, but not zero. C. positive, negative, or zero. D. decreasing, but not negative. Units Consumed Total Utility Marginal Utility w XIS

Answer 1

1. Ans: B ) negative and therefore these goods are complements.

2. Ans: B ) marginal utility obtained from the last dollar spent on each product is the same.

Explanation:

Consumer's equilibrium condition is where;

• MU_A / P_A = MU_B / P_B = MU_C / P_C
• Total given money income or budget must be spent on the goods.

Here MU stands for marginal unit

P stands for price of respective goods.

A, B and C stands for different goods.

3. Ans: C ) zero

4. Ans: A) Consumers behave rationally , attempting to maximize their satisfaction.

5. Ans:

Units Consumed	Total Utility	Marginal Utility
0	0	-
1	20	20
2	35	15
3	45	10
4	40	5

Explanation:

Marginal Utility = Change in total utility / Change in quantity

or

MU = TU_n - TU_n-1