Q7 2013

[Benoco]

Hey, I'm struggling with the following, which should be pretty straightforward at this stage:

Which of the following is NOT implied by the principle of diminishing marginal utility of income:


A Total utility increases at a decreasing rate as income increases.
B Marginal utility increases at a decreasing rate as income increases.
C Marginal utility decreases at an increasing rate as income falls.
D Total utility decreases at an increasing rate as income increases.

To me none of the last 3 options make sense

B) Doesn't Marginal Utility decrease at a decreasing rate with income?

C) Same as B except the other way around, as income falls marginal utility increases.

D) This is the answer they gave and obviously not implied by the theory, but are B and C?

Can anyone explain how B and C are implied by the principle of diminishing marginal utility of income?

Anyone have any insight?

 

[Benoco]

This question actually wrecked my head today, couldn't make heads or tails of it, eventually I was thinking "Jesus Christ, this should be obvious at this stage", I was hoping I was just burnt out from the week.

I just reopened it to take another look and noticed the following on the examiner's report:

The multiple choice section was generally well answered. The marks for questions 7 and 17 were awarded to all answers due to a typo in the questions. In question 11, answers B and D and in question 18 answers D and C were accepted.

I'm a dummy.

 

[Margaret Wood]

This was a bad question. The examiners awarded the mark to everyone. All that the theory says is that marginal utility falls as consumption increases, ie that total utility increases at a decreasing rate. This means that A is true. If we remove the "NOT" from the question, A would be the correct answer!

I'm afraid that bad questions do sometimes occur. Have confidence in yourself - as you say, you should know the answer at this stage. If you have a question like this, always go for one answer, but write a note to the examiner explaining any problems.

 

[Benoco]

This was a bad question. The examiners awarded the mark to everyone. All that the theory says is that marginal utility falls as consumption increases, ie that total utility increases at a decreasing rate. This means that A is true. If we remove the "NOT" from the question, A would be the correct answer!

I'm afraid that bad questions do sometimes occur. Have confidence in yourself - as you say, you should know the answer at this stage. If you have a question like this, always go for one answer, but write a note to the examiner explaining any problems.

Wouldn't have thought to do that, thanks.