For the multiple choice questions, explain (or show) why your answer is the correct one.

1. In equilibrium, Joyce consumes three slices of pizza and two jars of coke. The prices of pizza and coke are 80 cents per slice and 60 cents per jar, respectively.It can be concluded that for Joyce, in equilibrium, the ratio of marginal utility of pizza to the marginal utility of coke is:

(a) 3 4 (b) 4 3 (c) 2 3 (d) 3 2

2.According to the law of diminishing marginal utility, if consumption of a third slice of bread yields 10 utils, then consumption of the fourth slice of bread will give:

(a)more than 10 utils(b)between 5 and 10 utils

(c)between 0 and 5 utils(d)less than 10 utils

3.A consumer has an income of $24 to spend each day. The only two goods the consumer is interested in purchasing are goods A and B. The marginal-utility schedules for these two goods are shown in the table below.The consumer wants to maximize utility.

QuantityMU_AMU_B

14824

23216

32412

4168

586

644

(a) How much of A the consumer will buy each day when the price of A is $8 per unit and the price of B is $2 per unit? What is the consumer's total utility?

(b) How much of A the consumer will buy each day when the price of A is $4 per unit and the price of B is still $2 per unit? What is the consumer's total utility?

4. (a) A student asserts in class that both income and substitution effects lead to a decrease in the consumption of an inferior good when the price decreases.Do you agree with the statement?Explain.

(b) "Utility is maximized when the marginal utilities of all goods are exactly equal."Do you agree or disagree? Explain.