1. Fundamentals of consumer choice Lorenzo and his friend go out for lunch to a
ID: 1105013 • Letter: 1
Question
1. Fundamentals of consumer choice
Lorenzo and his friend go out for lunch to a nearby food court. Lorenzo is trying to decide between ordering a burger or a sandwich. Which of the following factors will directly affect his decision? Check all that apply.
The friend's budget
The expected benefits of the two options
The friend’s recommendations
The color of his friend’s car
The relative prices of burgers and sandwiches
Lorenzo has always been fond of tuna sushi. However, after having tuna sushi every day for a week while on vacation, he grew tired of his favorite meal. How can economic theory help explain this change of heart?
Lorenzo realizes that tuna fish are an endangered species and decides that he should stop eating them.
Because of his limited income, Lorenzo realizes that he will be happier if he substitutes California roll for tuna sushi.
As Lorenzo consumes more and more of his favorite meal, the marginal utility of additional servings of tuna sushi declines.
Because tuna sushi is very expensive, Lorenzo feels guilty about spending so much money on this item.
Explanation / Answer
1. Correct options:
The expected benefits of the two options
The friend’s recommendations
The relative prices of burgers and sandwiches
2. This can be explained with the law of diminishing marginal utility. It states that overtime as more and more of a good is consumed, the marginal utility derived from its consumption starts to fall.
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