A consumer makes purchases of an existing product A such that the marginal utility is 40 and the price is $20. The consumer also tries a new product B and at the current level of consumption it has a marginal utility of 72 and a price of $24. What does
the utility-maximizing rule suggest that this consumer should do?
What will be an ideal response?
Increase consumption of product B and decrease consumption of product A because the marginal utility per dollar spent on A is 2 (40/$20) while the marginal utility per dollar spent on B is
3 (72/$24). More utility per dollar spent is obtained from consuming B, so more should be consumed until the marginal utility per dollar spent on both products is equal.
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The marginal social benefit from the production of the last unit of a good is $4,800. If the willingness to pay for that unit is $3,900, what is the external benefit from its production?
A) $900 B) $8,700 C) $3,800 D) $4,100
Suppose a consumer's income increases from $30,000 to $36,000. As a result, the consumer increases her purchases of compact disks (CDs) from 25 CDs to 30 CDs. What is the consumer's income elasticity of demand for CDs?
A) 0.5 B) 1.0 C) 1.5 D) 2.0
The greater the elasticities of supply and demand, the smaller are the gains from trade
a. True b. False Indicate whether the statement is true or false
Which of the following is not a cause of frictional unemployment?
a. the destruction of manufacturing jobs b. a worker leaving a job to find one with better benefits c. minimum-wage laws d. unemployment insurance