Economics for Today's World International Edition 7th Edition by Irvin B. Tucker - Test Bank

Economics for Today’s World International Edition 7th Edition by Irvin B. Tucker – Test Bank

 

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Sample Questions Are Posted Below

 

Chapter 6—Consumer Choice Theory

 

MULTIPLE CHOICE

 

1. Utility is most closely defined by which of the following terms?

a.	Useful.
b.	Worthiness.
c.	Necessary.
d.	Satisfaction.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   RE

 

2. The ability of a good to satisfy a want refers to its:

a.	usefulness.
b.	utility.
c.	worthiness.
d.	necessity.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   RE

 

3. In the context of consumer choice theory, utility means:

a.	usefulness.
b.	satisfaction.
c.	practicality.
d.	boring.
e.	action.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   RE

 

4. A util represents a unit of measurement for the:

a.	dollars a consumer spends on a good.
b.	profit a firm makes from producing a good.
c.	way a consumer will respond to a change in price.
d.	happiness a person obtains from consuming a good.
e.	way a producer will respond to a change in price.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   RE

 

5. The term utility refers to the:

a.	usefulness of a good in relation to its scarcity.
b.	necessity of a good.
c.	price of a good.
d.	number of goods a consumer has.
e.	pleasure or satisfaction a consumer receives upon consuming a good.

 

 

ANS:  E                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   RE

 

6. A util:

a.	can measure satisfaction with factual accuracy.
b.	is not a valid concept.
c.	applies to a good but not to a service.
d.	is purely a fictitious measure of the satisfaction a consumer derives from a product.
e.	can be used in place of money in some countries.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   RE

 

7. ____ is the subjective measure of the physical and mental satisfaction that is anticipated from consumption.

a.	Demand
b.	Supply
c.	Recognition
d.	Utility
e.	Cognition

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   RE

 

8. Utility is:

a.	easily measured, because all people derive the same utility from consumption.
b.	easily measured, because it is an objective concept.
c.	easily measured, because it is a subjective concept.
d.	hard to measure, because it is a subjective concept.
e.	hard to measure, because it is an objective concept.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   RE

 

9. What term do economists use to refer to the satisfaction that an individual expects to receive from consuming a good or service?

a.	Utility.
b.	Response.
c.	Usability.
d.	Demand.
e.	Desirable.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   RE

 

10. Utility refers to the:

a.	relationship of demand to the supply of a product.
b.	satisfaction a consumer experiences after a good or service is purchased.
c.	satisfaction a consumer expects to receive from a good or service.
d.	ability of a good or a service to have value in the marketplace.
e.	usefulness of the product consumed.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   RE

 

11. Utility is defined as the:

a.	sense of pleasure or satisfaction derived from consuming goods and services.
b.	cost of acquiring goods and services.
c.	profits consumers earn from consuming goods and services.
d.	monetary value to consumers of goods and services.
e.	desire to consume goods and services.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   RE

 

12. The utility of a good is:

a.	different for different consumers.
b.	the same for all consumers.
c.	constant no matter how much is consumed.
d.	related to the cost of producing it.
e.	easily measured.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   RE

 

13. If utility is not maximized, then:

a.	some change in consumption will increase satisfaction.
b.	no change in consumption will increase utility.
c.	only a change in income will increase utility.
d.	only a change in price will increase utility.
e.	the principle of diminishing marginal utility does not hold.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   CA

 

14. When total utility is at a maximum, marginal utility is:

a.	zero.
b.	positive.
c.	negative.
d.	one.
e.	infinite.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Total utility     TYP:   SA

 

15. A rational consumer should not consume more of a good when:

a.	total utility is decreasing.
b.	marginal utility is diminishing.
c.	both a and b.
d.	income is decreasing.
e.	the price is high.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficult         REF:   Full: 154 | Mic: 154

TOP:   Total utility     TYP:   CA

 

16. John loves to travel. He would never turn down the opportunity to go on a trip. This means that, for John:

a.	the total utility of travel always increases.
b.	marginal utility of travel never decreases.
c.	the law of diminishing marginal utility does not apply to travel.
d.	marginal utility of travel is always zero.
e.	extra travel yields zero consumer surplus.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Total utility     TYP:   CA

 

17. The marginal utilities associated with the first 4 units of consumption of good Y are 10, 12, 9, and 7, respectively. What is the total utility associated with the third unit?

a.	3.
b.	9.
c.	25.
d.	31.
e.	The amount cannot be determined from the marginal utilities.

 

 

ANS:  D                    PTS:   1                    DIF:    Difficult         REF:   Full: 154 | Mic: 154

TOP:   Total utility     TYP:   SA

 

18. The marginal utilities associated with the first 5 units of consumption of good Y are 15, 15, 10, 7, and 3, respectively. What is the total utility associated with those 5 units?

a.	5.
b.	-12.
c.	12.
d.	35.
e.	50.

 

 

ANS:  E                    PTS:   1                    DIF:    Difficult         REF:   Full: 154 | Mic: 154

TOP:   Total utility     TYP:   CA

 

19. Generally speaking, as more of a particular good is purchased, a consumer’s marginal utility ____ and total utility ____.

a.	increases; decreases
b.	decreases; increases
c.	increases; increases
d.	decreases; decreases
e.	generalizations cannot be made

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Total utility     TYP:   CA

 

20. Which of the following statements is true about the total utility provided by a good?

a.	Total utility can never be negative.
b.	Total utility is maximized when marginal utility is maximized.
c.	Total utility continues to increase as more of the good is consumed.
d.	Total utility is maximized when marginal utility is zero (for total utility > 0).
e.	Total utility is maximized when marginal utility is zero (for total utility < 0).

 

 

ANS:  D                    PTS:   1                    DIF:    Difficult         REF:   Full: 154 | Mic: 154

TOP:   Total utility     TYP:   CA

 

21. Consumers tend to maximize:

a.	marginal utility.
b.	marginal utility per dollar.
c.	total utility.
d.	money holdings.
e.	consumer surplus.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Total utility     TYP:   CA

 

22. The conceptual measure of the satisfaction a person obtains by consuming all the units of a good or service during a given time period is:

a.	total product.
b.	total revenue.
c.	total utility.
d.	total product.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Total utility     TYP:   RE

 

23. Total utility is measured by a mythical unit called the:

a.	bliss unit.
b.	useful unit.
c.	pleasure unit.
d.	util.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Total utility     TYP:   RE

 

24. The fact that a gallon of gasoline commands a higher market price than a gallon of water indicates that:

a.	gasoline is an economic good but water is not.
b.	the marginal utility of gasoline is greater than the marginal utility of a gallon of water.
c.	the average utility of a gallon of gasoline is greater than the average utility of a gallon of water.
d.	the total utility of gasoline exceeds the total utility of water.

 

 

ANS:  B                    PTS:   1                    DIF:    Difficult         REF:   Full: 154 | Mic: 154

TOP:   Marginal and total utility                 TYP:   SA

 

25. Marginal utility (MU) equals:

a.	P/Q.
b.	Q/TU.
c.	PQ/TU.
d.	TU/P.
e.	TU/Q.

 

 

ANS:  E                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

26. Marginal utility is the change in:

a.	total utility when an extra unit of output is produced.
b.	marginal utility when an extra unit of output is consumed.
c.	total utility when an extra unit of output is consumed.
d.	marginal utility when an extra unit of output is produced.
e.	average utility when an extra unit of output is consumed.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

27. On Thanksgiving, Jake’s mother gives him a huge platter of food. If Jake were to keep eating just to please his mother (even when he really wanted to stop), his marginal utility would be:

a.	the same as his total utility.
b.	large.
c.	minus one.
d.	positive.
e.	negative.

 

 

ANS:  E                    PTS:   1                    DIF:    Difficult         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   CA

 

28. Utility theory assumes that marginal utility:

a.	increases as an individual consumes more of a product.
b.	decreases as an individual consumes more of a product.
c.	is zero as long as the individual derives utility from the product.
d.	is constant as long as the individual derives utility from the product.
e.	is constant as long as the individual derives satisfaction from the product.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

29. Bonnie gets her hair cut at her usual salon and is very happy with the results. Later that afternoon, she goes to the mall and sees that a hair salon is giving away free haircuts only on that day. If Bonnie does not take advantage of the giveaway, it is because the:

a.	marginal utility of the next haircut would be zero or negative.
b.	marginal utility of the next haircut would increase.
c.	marginal utility of the next haircut would be zero or positive.
d.	total utility of both haircuts would be zero or negative.
e.	total utility of both haircuts would be higher than just one haircut.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficult         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   CA

 

30. If finding the last stamp to complete your collection makes you happier than finding the first, then:

a.	marginal utility is zero.
b.	marginal utility is negative.
c.	total utility is decreasing.
d.	total utility is constant.
e.	marginal utility is not diminishing.

 

 

ANS:  E                    PTS:   1                    DIF:    Difficult         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   CA

 

31. Tina’s marginal utility of her first piece of cake is 15, while Jerry’s marginal utility of his first piece of cake is 24. An economist would conclude that:

a.	Tina likes cake more than Jerry likes cake.
b.	Jerry likes cake more than Tina likes cake.
c.	Tina likes cake less than Jerry likes cake.
d.	Jerry likes cake less than Tina likes cake.
e.	we can’t make a comparison to see who values cake more.

 

 

ANS:  E                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

32. If total utility is falling, marginal utility is:

a.	positive.
b.	negative
c.	positive, but declining.
d.	either positive or negative.
e.	zero.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

33. At the point where total utility is at its peak, marginal utility is:

a.	zero.
b.	positive.
c.	negative.
d.	positive, but declining.
e.	positive, but increasing.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

34. If the marginal utility of each good consumers buy does not diminish but remains constant, we should witness consumers:

a.	buying no goods at all.
b.	spending all of their income on the good with the highest MU.
c.	buying one of each good.
d.	buying only the least expensive goods.
e.	become indifferent to what goods they buy.

 

 

ANS:  B                    PTS:   1                    DIF:    Difficult         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   CA

 

35. Marginal utility is defined as:

a.	the extra satisfaction the consumer receives from an extra $1 of income.
b.	the total level of satisfaction a consumer receives upon the consumption of a certain number of goods.
c.	the number of hours a consumer would be willing to work to receive a certain product.
d.	the extra satisfaction a person derives from consuming an additional unit of a good.
e.	a comparison of the utility a good provides with the price of that good.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

36. A utility-maximizing consumer would never purchase a good if the:

a.	MU/P is positive.
b.	marginal utility is positive.
c.	marginal utility is negative.
d.	none of these is correct.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   CA

 

37. Marginal utility can be measured by the change in:

a.	total utility / the change in quantity.
b.	income / the change in utility.
c.	quantity / the change in income.
d.	price / the change in utility.
e.	income / the change in price.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

38. The change in total utility due to a 1-unit change in the quantity consumed is:

a.	marginal utility.
b.	average utility.
c.	per capita utility.
d.	total utility.
e.	the principle of diminishing marginal utility.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

39. Marginal utility is measured by:

a.	a ray from the origin to a point on the total utility curve.
b.	the change in total utility for a 1-unit change in the quantity consumed.
c.	total utility divided by total quantity consumed.
d.	the first utility minus the last utility.
e.	average utility multiplied by the total quantity consumed.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

40. The total utilities associated with the first 5 units of consumption of good X are 15, 30, 40, 47, and 50, respectively. What is the marginal utility associated with the third unit?

a.	15.
b.	70.
c.	85.
d.	10.
e.	45.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

41. As a general rule, marginal utility will be less:

a.	as less of the good is consumed.
b.	as more of the good is consumed.
c.	when average utility is at a maximum.
d.	only when the good is inferior.
e.	when satisfaction is less than cost.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

42. A fall in marginal utility reflects:

a.	the water and diamond paradox.
b.	the law of supply.
c.	the principle of diminishing marginal utility.
d.	decreased consumption of a good.
e.	the fact that total utility must be declining.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

43. Marginal utility will generally decrease when:

a.	more of a particular good is consumed.
b.	less of a particular good is consumed.
c.	average utility is the least.
d.	per capita utility is the least.
e.	the TU curve’s slope is positive rather than negative.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

44. As more bananas are consumed, other things constant, marginal utility tends to decrease at:

a.	the same rate for all people.
b.	the same rate for all goods for a given person.
c.	the same rate for all people.
d.	different rates for different people and for other goods.
e.	different rates for different people, but at the same rate as other goods.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

45. If marginal utility is positive, then total utility is:

a.	constant.
b.	negative.
c.	increasing.
d.	decreasing.
e.	zero.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

46. Suppose that for Merv the marginal utility of $50-per-serving caviar is 100 and the marginal utility of $1-per-serving popcorn is 10. For his snack, Merv should buy:

a.	the caviar if he has the $50; otherwise, the popcorn.
b.	the caviar if he has the $50; otherwise, nothing.
c.	the popcorn, whether he has the $50 or not.
d.	one serving each of the caviar and popcorn, if he has $51.
e.	five servings of popcorn for each serving of caviar.

 

 

ANS:  C                    PTS:   1                    DIF:    Difficult         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   CA

 

47. Suppose that the price of telephones decreases. If more are purchased then:

a.	the total utility of telephones will decrease.
b.	the total utility of telephones will be unchanged.
c.	the marginal utility of telephones will likely increase.
d.	the marginal utility of telephones will likely decrease.
e.	both a and d.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

48. The amount by which an additional unit of a good or service increases a consumer’s total utility is:

a.	marginal bliss.
b.	marginal benefit.
c.	marginal utility.
d.	marginal.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

49. Marginal utility is best computed as the ratio of:

a.	total utility to change in quantity consumed.
b.	the change in total utility to total quantity consumed.
c.	total quantity consumed to total utility.
d.	the change in total utility to change in quantity consumed.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

50. Assume the total utilities corresponding to the first four units of a product consumed are 8, 12, 14, and 15, respectively. The marginal utility of the second unit consumed is:

a.	0.
b.	4.
c.	12.
d.	20.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

51. Assume the total utilities corresponding to the first four units of a product consumed are 8, 12, 14, 15, respectively. The marginal utility of the third unit consumed is:

a.	2.
b.	14.
c.	3
d.	34.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

52. As more Big Macs are consumed each day, the marginal utility that a person gets from each additional Big Mac:

a.	rises at a steady rate.
b.	decreases.
c.	remains constant.
d.	accelerates.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

53. “I’m tired of eating muffins for breakfast. Today, I’m trying a bagel.” These statements most clearly reflect the:

a.	law of increasing returns to scale.
b.	second law of demand.
c.	law of diminishing marginal utility.
d.	law of comparative advantage.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   SA

 

54. Which of the following most directly reflects the law of diminishing marginal utility?

a.	After watching two football games, Terry decides to watch a third game.
b.	A sports fan enjoys watching Monday night football rather than going to the theater.
c.	After listening to three compact discs, Kim decides to go bowling rather than listen to a fourth disc.
d.	A musician receives the biggest ovation of the evening after playing the final number of a recital.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   SA

 

55. The statement “as more of a good is consumed, the utility a person derives from each additional unit diminishes” is known as the:

a.	water and diamond paradox.
b.	law of diminishing marginal utility.
c.	law of total utility.
d.	marginal-utility-to-price ratio equalization rule.
e.	law of diminishing demand.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   RE

 

56. If the price of a good falls, the marginal utility per dollar spent on that good:

a.	also falls.
b.	stays the same.
c.	rises.
d.	will rise or fall, depending on the consumer.
e.	remains unchanged, provided the consumer buys no more of the good.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   RE

 

57. “As consumption of a good increases, the extra satisfaction received from consuming an additional unit of the good decreases.” This statement is known as the law of:

a.	demand.
b.	increasing costs.
c.	diminishing marginal utility.
d.	diminishing marginal returns.
e.	total utility.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   RE

 

58. If the price of a product rises, consumers buy less of the good because the:

a.	MU/P of the good falls below the MU/P of other goods.
b.	MU/P of the good rises above the MU/P of other goods.
c.	marginal utility of the good diminishes.
d.	total utility of the good diminishes.
e.	marginal utility of the good rises.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficult         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   CA

 

59. The principle of diminishing marginal utility says that:

a.	as more of a good or service is consumed, demand decreases.
b.	as more of a good or service is consumed, the price will rise.
c.	the marginal utility of additional units consumed increases.
d.	an increase in income causes demand to increase.
e.	the marginal utility of additional units consumed decreases.

 

 

ANS:  E                    PTS:   1                    DIF:    Easy               REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   RE

 

60. Diminishing marginal utility means that as you consume more of a good, other things constant, the:

a.	total satisfaction you obtain from consuming this good falls.
b.	total amount produced falls.
c.	marginal product falls.
d.	additional satisfaction you obtain from each additional unit of the good falls.
e.	total satisfaction you obtain from each extra good becomes constant.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   SA

 

61. Which of the following is true, according to the law of diminishing marginal utility?

a.	The marginal utility of Diane’s second Coke is greater than the marginal utility of her third pretzel, other things constant.
b.	The marginal utility of Diane’s second Coke is greater than the marginal utility of Ken’s third pretzel, other things constant.
c.	The marginal utility of Diane’s second Coke is greater than the marginal utility of her third Coke, other things constant.
d.	The total utility of two Cokes is greater than the total utility of three Cokes, other things constant.
e.	The marginal utility of Diane’s second Coke is greater than the marginal utility of Ken’s third Coke, other things constant.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   SA

 

62. According to the law of diminishing marginal utility, the marginal utility curve is ____.

a.	vertical
b.	flat.
c.	upward sloping.
d.	downward sloping.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   RE

 

63. The law of diminishing marginal utility is the principle that the marginal utility curve ____ as people consume more of a product in a given period.

a.	rises.
b.	falls.
c.	remains unchanged.
d.	first falls and then rises.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   RE

 

64. The law of diminishing marginal utility indicates that the marginal utility curve is:

a.	downward sloping.
b.	upward sloping.
c.	U-shaped.
d.	flat.
e.	vertical.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   RE

 

65. If the first four units of a good consumed have marginal utilities of 8, 4, 2, and 1, respectively, this trend is an indication of the:

a.	law of consumer equilibrium.
b.	law of diminishing marginal utility.
c.	law of diminishing consumer surplus.
d.	law of supply.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   SA

 

66. The law of diminishing marginal utility exists for the first four units of a good if they have marginal utilities of:

a.	1, 2, 4, 8.
b.	8, 4, 1, 2.
c.	4, 8, 2, 1.
d.	8, 4, 2, 1.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   SA

 

67. Suppose the law of diminishing marginal utility holds for coffee. As a person drinks more coffee during the day, the total utility he or she receives will:

a.	increase faster and faster.
b.	fall steadily.
c.	remain constant.
d.	rise, but at slower and slower rates.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   SA

 

68. The demand curve is downward-sloping because of the law of ____.

a.	diminishing marginal utility
b.	diminishing consumer equilibrium
c.	consumer equilibrium
d.	diminishing utility maximization

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   RE

 

 

Exhibit 6-1 Total utility for good X

 

Total utility (utils)	0	80	120	148	160	155
Quantity consumed per day	0	1	2	3	4	5

 

 

69. As shown in Exhibit 6-1, the marginal utility for the second unit consumed is:

a.	0.
b.	40.
c.	80.
d.	200.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

70. As shown in Exhibit 6-1, the marginal utility for the fifth unit consumed is:

a.	305.
b.	155.
c.	5.
d.	0.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

71. As shown in Exhibit 6-1, the law of diminishing marginal utility is first observed at the:

a.	first unit.
b.	second unit.
c.	third unit.
d.	fourth unit.
e.	fifth unit.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   SA

 

Exhibit 6-2 Total utility for hamburgers, fries, and Cokes

 

Total Utility from Hamburgers	Total Utility from Fries	Total Utility from Cokes
1 hamburger (100 utils)	1 order of fries (30 utils)	1 Coke (40 utils)
2 hamburgers (180 utils)	2 orders of fries (50 utils)	2 Cokes (60 utils)
3 hamburgers (240 utils)	3 orders of fries (60 utils)	3 Cokes (70 utils)

 

 

72. In Exhibit 6-2 assume that the price of hamburgers is $2 each, fries cost 50 cents each, and Cokes cost $1 each. What is the marginal utility of having a second order of fries?

a.	10 utils.
b.	20 utils.
c.	30 utils.
d.	50 utils.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

73. In Exhibit 6-2, assume that the price of hamburgers is $2 each, fries cost 50 cents each, and Cokes cost $1 each. Suppose the consumer has $6 to spend on hamburgers, fries, and Cokes. Which of the following meals gives the consumer the most utility?

a.	3 hamburgers, no fries, and no Cokes.
b.	2 hamburgers, no fries, and 2 Cokes.
c.	2 hamburgers, 2 orders of fries and 1 Coke.
d.	1 hamburger, 2 orders of fries, and 3 Cokes.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   SA

 

74. In Exhibit 6-2, assume that the price of hamburgers is $2 each, fries cost 50 cents each, and Cokes cost $1 each. Suppose the consumer has $6 to spend on hamburgers, fries, and Cokes. In the consumer equilibrium, what is the marginal utility per dollar for each of the three goods?

a.	20 utils per dollar.
b.	40 utils per dollar.
c.	90 utils per dollar.
d.	270 utils per dollar.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

75. If Mr. Smith thinks the last dollar spent on shirts yields less satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should:

a.	decrease his spending on cola.
b.	decrease his spending on cola and increase his spending on shirts.
c.	increase his spending on shirts.
d.	increase his spending on cola and decrease his spending on shirts.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

76. A local restaurant offers an “all you can eat” ribs special. You pay $11.95, and then you can eat as many servings as you desire at no additional cost. It would follow that you will stop eating when:

a.	your marginal utility (or value) derived from eating another serving is zero.
b.	your total utility (or value) derived from all of the servings consumed just equals $11.95.
c.	your marginal utility (or value) derived from another serving equals $11.95.
d.	it is physically impossible for you to eat any more.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

77. If John’s marginal benefit derived from the consumption of another candy bar is greater than the price of the candy bar:

a.	John will not purchase any more candy bars.
b.	John will increase his total satisfaction by purchasing the candy bar.
c.	the opportunity cost of the candy bar is lower than the price.
d.	John will decrease his total utility if he purchases the candy bar.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

78. If Jane’s marginal benefit as a consumer in the jeans market is larger than the price of a pair of jeans:

a.	Jane will not purchase any more jeans.
b.	Jane can benefit by purchasing more jeans.
c.	the opportunity cost of a pair of jeans is lower than the price.
d.	Jane will decrease her total utility by purchasing more jeans.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

79. If Mr. McLean thinks the last dollar spent on bowling yields more satisfaction than the last dollar spent on hamburgers, and McLean is a utility-maximizing consumer, he should:

a.	bowl less, so the marginal satisfaction from expenditures in this area will increase.
b.	spend more on hamburgers, so total satisfaction from that activity will increase.
c.	eliminate spending on hamburgers.
d.	bowl more and spend less on hamburgers.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

80. If Mr. Smith thinks the last dollar spent on shirts yields more satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should:

a.	decrease his spending on cola.
b.	decrease his spending on cola and increase his spending on shirts.
c.	increase his spending on shirts.
d.	increase his spending on cola and decrease his spending on shirts.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

81. Consumer equilibrium is a condition in which total utility cannot increase by spending more of a given budget on one good and spending ____ on another good.

a.	an equal amount
b.	more
c.	less
d.	zero

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

82. A state of consumer equilibrium for two goods consumed exists when the:

a.	marginal utility of all goods is the same for the last dollar spent on each good.
b.	marginal utility per dollar’s worth of two goods is the same for the last dollar spent on each good.
c.	price of two goods is the same for the last dollar spent on each good.
d.	marginal cost per dollar spent on two goods is the same.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   RE

 

83. Consumers should continue to rearrange their consumption of two goods until:

a.	the prices of the two goods are equal for the last dollar spent on each good.
b.	marginal utility is the same for each good for the last dollar spent on each good.
c.	the marginal utility per dollar’s worth of the two goods is the same for the last dollar spent on each good.
d.	the same amount of each is purchased.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   RE

 

84. The consumer equilibrium condition for two goods is achieved by equating the:

a.	marginal utility of one to the price of the other for the last dollar spent on each good.
b.	prices of both goods for the last dollar spent on each good.
c.	marginal utilities of both goods for the last dollar spent on each good.
d.	ratios of marginal utility to the price of both goods for the last dollar spent on each good.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   RE

 

85. Suppose that an individual consumes just two goods: Big Macs and milkshakes. In order to reach consumer equilibrium, the individual must arrange the consumption of Big Macs and milkshakes so that the:

a.	marginal utility of the two goods is equal for the last dollar spent on each good.
b.	ratio of marginal utility to price is the same for both goods for the last dollar spent on each good.
c.	ratio of marginal utility of milkshakes to the marginal utility of Big Macs is 1 for the last dollar spent on each good.
d.	price paid for the two goods is the same.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   RE

 

86. Total utility is maximized in the consumption of two goods by equating the:

a.	prices of both goods for the last dollar spent on each good.
b.	marginal utilities of both goods for the last dollar spent on each good.
c.	ratios of marginal utility to the price of both goods for the last dollar spent on each good.
d.	marginal utility of one good to the price of the other.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   RE

 

87. A consumer buys only food and clothing. If the quantity of food bought increases while that of clothing remains the same, the marginal utility of food will:

a.	fall, but not as fast as the marginal utility of clothing falls.
b.	rise, but not as fast as the marginal utility of clothing rises.
c.	rise relative to the marginal utility of clothing.
d.	fall relative to the marginal utility of clothing.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

88. Assume a consumer purchases a combination of goods X and Y such that MU_x / -P_x = 20 units of utility per dollar and MU_y / P_y = 10 units of utility per dollar. To maximize utility, the consumers should buy:

a.	neither X nor Y.
b.	less of both X and Y.
c.	more of both X and Y.
d.	more of X and less of Y.
e.	less of X and more of Y.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

89. Assume that an individual consumes only hotdogs and colas and that the last hotdog consumed yields 15 utils and the last cola 10 utils. If the price of a hotdog is $1 and the price of a cola is $.50, we can conclude that the:

a.	consumer should consume more hotdogs and less cola.
b.	price of hotdogs is too high.
c.	consumer should consume fewer hotdogs and more cola.
d.	consumer is in equilibrium.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

90. Assume that an individual consumes only coffee and bagels and that the last cup of coffee yields 12 utils and the last bagel 6 utils. If the price of a cup of coffee is $1 and the price of the bagel is $.50, we can conclude that the:

a.	consumer should consume more coffee and fewer bagels.
b.	price of coffee is too high relative to bagels.
c.	consumer should consume less coffee and more bagels.
d.	consumer is in equilibrium.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

Exhibit 6-3 Marginal utility data for goods X and Y

 

Units of good X	Marginal utility of good X	Units of good Y	Marginal utility of good Y
1	20	1	14
2	16	2	12
3	12	3	10
4	8	4	8
5	4	5	6

 

 

91. As shown in Exhibit 6-3, assume that the price of both goods is $1 per unit. To maximize total utility without a budget, you should consume:

a.	neither X nor Y.
b.	more of X and less of Y.
c.	less of X and more of Y.
d.	more of both X and Y.
e.	less of both X and Y.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   SA

 

92. As shown in Exhibit 6-3, assume that the price of both goods is $1 per total unit, and your budget is $8. If you consume 4 units of good X and 1 unit of good Y. To maximize utility, you should consume:

a.	neither X nor Y.
b.	more of X and less of Y.
c.	less of X and more of Y.
d.	more of both X and Y.
e.	less of both X and Y.

 

 

ANS:  C                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

93. As shown in Exhibit 6-3, assume that the price of good X is $2 per unit and the price of good Y is $1 per unit and your budget is $11. If you consume 3 units of good X and 4 units of good Y and maximize utility, you should consume:

a.	neither X nor Y.
b.	more of X.
c.	more of Y.
d.	more of both X and Y.
e.	less of both X and Y.

 

 

ANS:  C                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

94. As shown in Exhibit 6-3, assume that the price of good X is $1 per unit and the price of good Y is $2 per unit and your budget is $13. If you consume 4 units of good X and 2 units of good Y and maximize utility, you should consume:

a.	neither X nor Y.
b.	more of X and less of Y.
c.	more of Y.
d.	more of both X and Y.
e.	less of both X and Y.

 

 

ANS:  D                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

95. According to the utility model of consumer demand, the demand curve is downward-sloping because of the law of:

a.	diminishing marginal utility.
b.	diminishing consumer equilibrium.
c.	consumer equilibrium.
d.	diminishing utility maximization.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium–law of demand                              TYP:   CA

 

Exhibit 6-4 Total utility for multiplex tickets, video rentals, and popcorn

 

Total Utility from Multiplex Tickets	Total Utility from Video Rentals	Total Utility from Popcorn
1 movie (30 utils)	1 video (14 utils)	1 bag (8 utils)
2 movies (54 utils)	2 videos (24 utils)	2 bags (13 utils)
3 movies (72 utils)	3 videos (30 utils)	3 bags (15 utils)
4 movies (84 utils)	4 videos (32 utils)	4 bags (16 utils)

 

 

96. In Exhibit 6-4, assume the Multiplex tickets cost $6 each, video rentals cost $2 each, and bags of popcorn cost $1 each. What is the marginal utility of renting a third video?

a.	6 utils.
b.	8 utils.
c.	10 utils.
d.	30 utils.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

97. In Exhibit 6-4, assume the Multiplex tickets cost $6 each, video rentals cost $2 each, and bags of popcorn cost $1 each. Suppose the consumer has $12 per week to spend on multiplex tickets, video rentals, and popcorn. What combination of goods will give the consumer the most utility?

a.	1 movie, 3 videos, and no popcorn.
b.	1 movie, 2 videos, and 2 bags of popcorn.
c.	1 movie, 1 video, and 4 bags of popcorn.
d.	2 movies, no videos, and no bags of popcorn.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

98. In Exhibit 6-4, assume the Multiplex tickets cost $6 each, video rentals cost $2 each, and bags of popcorn cost $1 each. Suppose the consumer has $12 per week to spend on multiplex tickets, video rentals, and popcorn. In the consumer equilibrium, what is the marginal utility per dollar for each of the three goods?

a.	5 utils per dollar.
b.	9 utils per dollar.
c.	13 utils per dollar.
d.	22 utils per dollar.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

99. Suppose a consumer wants to obtain the highest possible satisfaction from goods purchased on a fixed budget. Which of the following must be equal for all goods?

a.	Total utility.
b.	Marginal utility.
c.	Average utility.
d.	Marginal utility per dollar.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   RE

 

100. Consider a consumer who spends all income on only two goods: bread and wine. An extra loaf of bread would give the consumer 10 extra util, while an extra bottle of wine would give the consumer 60 extra utils. Bread costs 50¢ per loaf, and wine costs $6 per bottle. In this situation, the consumer:

a.	could increase utility by buying more bread and less wine.
b.	could increase utility by purchasing more wine and less bread.
c.	has maximized utility and attained consumer equilibrium.
d.	is violating the law of diminishing marginal utility.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

101. Suppose a consumer is spending his or her entire budget. In order to obtain the most satisfaction from his or her purchases, all goods should:

a.	provide the same marginal utility per dollar.
b.	be consumed in equal quantities.
c.	have identical marginal utilities.
d.	give the consumer matching amounts of total utility.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   RE

 

102. Consider a consumer who spends all income on only two goods: pizza and soda. An extra slice of pizza would give the consumer 60 extra utils, while an extra can of soda would give the consumer 20 extra utils. Pizza costs $3 per slice, and soda costs $1 per can. In this situation, the consumer:

a.	is buying too much pizza and not enough soda.
b.	should purchase more pizza and less soda.
c.	has maximized his or her total utility.
d.	needs to equate the marginal utilities for pizza and soda.

 

 

ANS:  C                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

103. Which of the following statements is true?

a.	Total utility is the extra satisfaction from the consumption of a good or service.
b.	Marginal utility is the amount of satisfaction received from all the units of a good or service consumed.
c.	The law of diminishing marginal utility states that as more of a good or service is consumed total utility decreases.
d.	Consumer equilibrium is a combination of goods and services consumed which maximizes total utility from a given budget.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   RE

 

104. If a consumer wishes to maximize satisfaction given limited income and MU_x/P_x < MU_y/P_y then the consumer should:

a.	do nothing because she/he is in equilibrium.
b.	buy more of X and less of Y.
c.	buy more of Y and less of X.
d.	buy more of both X and Y.
e.	buy less of both X and Y.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

105. Consumer equilibrium exists when:

a.	the marginal utility of each good and service consumed is equal.
b.	the total utility of each good and service consumed is equal.
c.	the marginal utility of each good and service consumed equals its price.
d.	ratio of marginal utility to price for all goods and services is equal.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   RE

 

 

 

 

 

 

 

 

Exhibit 6-5 Marginal utility data for desserts

 

Quantity	Brownies	Ice Cream	Pie
1	20	18	16
2	18	17	13
3	15	14	9
4	12	11	7
5	10	8	5

 

 

106. Refer to Exhibit 6-5. Each dessert is priced at $1. If you had $10 to spend on desserts, which of the following combinations of goods would you buy?

a.	5 units of brownies, 4 units of ice cream, and 1 unit of pie.
b.	4 units of brownies, 5 units of ice cream, and 1 unit of pie.
c.	4 units of brownies, 4 units of ice cream, and 2 units of pie.
d.	4 units of brownies, 3 units of ice cream, and 3 units of pie.
e.	3 units of brownies, 4 units of ice cream, and 3 units of pie.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

Exhibit 6-6 Marginal utility for data for clothes and amusement

 

Quantity	Clothes	Amusement
1	15	20
2	13	18
3	10	15
4	8	12
5	6	10

 

 

107. Refer to Exhibit 6-6. Clothes and amusements are priced at $10 each. The marginal utility per dollar for the first unit of amusement is:

a.	0.5.
b.	1.5.
c.	2.0.
d.	5.0.
e.	20.0.

 

 

ANS:  C                    PTS:   1                    DIF:    Difficult         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   CA

 

108. Refer to Exhibit 6-6. Clothes and amusements are priced at $10 each. If you had a budget of $50, which of the following combinations of goods would you buy?

a.	4 units of clothes and 1 unit of amusement.
b.	3 units of clothes and 2 units of amusement.
c.	2 units of clothes and 3 units of amusement.
d.	1 unit of clothes and 4 units of amusement.
e.	5 units of clothes and 5 units of amusement.

 

 

ANS:  C                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

109. Refer to Exhibit 6-6. Your budget is $50. The price of amusement goods is $10. If the price of clothes falls to $4, which of the following statements is true?

a.	The marginal-utility-to-price ratio for clothes will decrease.
b.	The marginal-utility-to-price ratio for clothes will increase.
c.	The quantity demanded of clothes will decrease.
d.	Both b and c are true.
e.	The quantity demanded for amusement goods will remain constant.

 

 

ANS:  B                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

110. The MU/P equalization principle means consumers will exhaust their expenditure budget so that, in the end, the MU/P ratio is:

a.	zero for each good.
b.	higher for goods the consumer wants the most.
c.	maximized for the goods the consumer wants the most.
d.	higher than TU/P.
e.	the same for each good.

 

 

ANS:  E                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

111. Greg spends his entire budget on two goods: he plays video games at the mall arcade and he buys pizza. He discovers that his MU/P of video games is lower than his MU/P of pizza. From this, we know that he would be:

a.	happier eating less pizza and playing fewer video games.
b.	happier eating less pizza and playing more video games.
c.	happier eating more pizza and playing fewer video games.
d.	indifferent to which selection he makes.
e.	as happy as possible, since he is already maximizing total utility.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

112. If Allison’s marginal utility of her 100th dollar of income is greater than Brad’s marginal utility of his 10th dollar, then we can conclude:

a.	money means more to Allison.
b.	money means more to Brad.
c.	Brad is richer than Allison.
d.	Allison is richer than Brad.
e.	nothing, since we can’t make interpersonal utility comparisons.

 

 

ANS:  E                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

113. If I buy 3 cups of coffee, paying $1 for each cup, and I would have been willing to pay up to $3 for the first cup, up to $2 for the second cup, and up to $1 for the third cup, then my consumer surplus is:

a.	$6.
b.	$5.
c.	$3.
d.	$2.
e.	$1.

 

 

ANS:  C                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

114. Carla is spending all her income on only two goods: apples and bananas. The price of an apple is $2 and the price of a banana is $1. If Carla’s marginal utility of an apple is 4 and her marginal utility of a banana is 3, she should consume:

a.	more apples and fewer bananas to maximize total utility.
b.	more bananas and fewer apples to maximize total utility.
c.	more apples and more bananas to maximize total utility.
d.	fewer apples and fewer bananas to maximize total utility.
e.	her current amounts of apples and bananas to maximize total utility.

 

 

ANS:  B                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

115. Suppose that Fernando allocates his lunch money to pizza and Coke. A Coke costs $1 and a slice of pizza costs $1.50. The marginal utility of the last slice of pizza Fernando ate today was 30, and the marginal utility of his last Coke was 25. Fernando spent all of his lunch money. From this information, we can conclude that:

a.	Fernando allocated his money in a way that maximized his total utility.
b.	Fernando’s total utility would have been higher if he had purchased more Coke and less pizza.
c.	Fernando’s total utility would have been higher if he had purchased more pizza and less Coke.
d.	Fernando could have increased his total utility by purchasing more Coke but the same quantity of pizza.
e.	Fernando could have increased his total utility by purchasing more pizza but the same quantity of Coke.

 

 

ANS:  B                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

Exhibit 6-7 Marginal utility for sandwiches and sodas

 

Quantity	Sandwiches	Sodas
1	10	5
2	8	4
3	6	3
4	3	1
5	-1	0

 

 

116. Refer to Exhibit 6-7. If the price of a sandwich is $1 and the price of a soda is $1, Marian should spend her first dollar on a ____ and her second dollar on a ____.

a.	sandwich; soda
b.	sandwich; sandwich
c.	soda; sandwich
d.	soda; soda
e.	neither good should be purchased since she has diminishing marginal utility

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   SA

 

117. Refer to Exhibit 6-7. Diminishing marginal utility for sandwiches sets in after the ____ sandwich.

a.	first
b.	second
c.	third
d.	fourth
e.	fifth

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   SA

 

118. Refer to Exhibit 6-7. If price of a sandwich is $1, the price of a soda is $1, and income is $5, Marian should buy ____ sandwiches and ____ sodas.

a.	five; zero
b.	four; one
c.	three; two
d.	two; two
e.	one; four

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

119. If a consumer is choosing the optimal combinations of two goods X and Y, and then the price of good Y decreases, this causes:

a.	MU/P of good X to increase, so the consumer now must buy more X to find a new optimal combination.
b.	demand for good X to increase.
c.	MU/P of good Y to increase, so the consumer now must buy more Y to find a new optimal combination.
d.	MU/P of good Y to decrease, so the consumer now must buy more Y to find a new optimal combination.
e.	the demand for good X and good Y will not change.

 

 

ANS:  C                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

120. Eric is maximizing his total utility through his choices of two goods: clothes and food. His marginal utility of clothes is 60 and his marginal utility of food is 12. The price of clothes is $20. What must be the price of food?

a.	12.
b.	6.
c.	4.
d.	1.
e.	0.

 

 

ANS:  C                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

121. Georgia has a MU/P of 10 for tennis lessons, a MU/P of 6 for sewing lessons, and a U/P of 2 for cooking lessons. In order to maximize utility, she should:

a.	take more cooking lessons.
b.	take more sewing lessons.
c.	take more tennis lessons.
d.	stay with her current choices.
e.	take fewer lessons of each choice.

 

 

ANS:  C                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

Exhibit 6-8 Bea’s total utility of 3-minute telephone calls

 

Quantity of 3-Minute Calls	Total Utility of Telephone Calls
0	0
1	15
2	28
3	38
4	45
5	50
6	48

 

 

122. Refer to Exhibit 6-8. Bea’s marginal utility of her second telephone call is:

a.	28.
b.	15.
c.	13.
d.	10.
e.	1.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

123. Refer to Exhibit 6-8. Diminishing returns set in after which telephone call?

a.	The first.
b.	The second.
c.	The third.
d.	The fifth.
e.	The sixth.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   SA

 

124. If a consumer allocates income between goods A and B, total utility is maximized when:

a.	the marginal utility of A = the marginal utility of B.
b.	the marginal utility of A = the marginal utility of B = 0.
c.	the price of A = price of B.
d.	marginal utility of A / price of A = marginal utility of B / price of B = 0.
e.	marginal utility of A / price of A = marginal utility of B / price of B.

 

 

ANS:  E                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   RE

 

125. If good A has a marginal utility of 30 and a price of $5, and good B has a marginal utility of 10 and a price of $2, then:

a.	good A is a better buy than good B.
b.	good B is a better buy than good A.
c.	goods A and B are of equal value to this consumer.
d.	neither good A nor B is worth the money.
e.	goods A and B should both be purchased.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

126. If a consumer is spending all of his/her income in a manner where MU_a/ P_a = MU_b / P_b, then the consumer:

a.	should increase the consumption of A and decrease the consumption of B.
b.	is maximizing his/her utility.
c.	should increase the consumption of B and decrease the consumption of A.
d.	should increase the consumption of both A and B.
e.	should decrease the purchases of both A and B.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   RE

 

127. If a consumer is spending all of his/her income in a manner where MU_a/ P_a is greater than MU_b / P_b, then the consumer:

a.	is maximizing his/her utility.
b.	should increase his/her purchases of B and decrease the purchases of A.
c.	should spend more money on both goods.
d.	should spend less money on both goods.
e.	should increase the purchases of A and decrease the purchases of B.

 

 

ANS:  E                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   RE

 

128. Suppose a consumer is spending all of his/her income on two goods, A and B, in a manner where MU_a = 15 and MU_b = 75, and the P_a = $3 and the P_b = $15, then the consumer:

a.	is maximizing his/her utility.
b.	should increase his/her purchases of B and decrease the purchases of A.
c.	should spend more money on both goods.
d.	should spend less money on both goods.
e.	should increase the purchases of A and decrease the purchases of B.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

129. Suppose a consumer is spending all of his/her income on two goods, A and B, in a manner where MU_a = 15 and MU_b = 80, and the P_a = $5 and the P_b = $20. Then the consumer:

a.	is maximizing his/her utility.
b.	should increase his/her purchases of B and decrease the purchases of A.
c.	should spend more money on both goods.
d.	should spend less money on both goods.
e.	should increase the purchases of A and decrease the purchases of B.

 

 

ANS:  B                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

130. If a consumer is maximizing his/her utility for a given income, the:

a.	marginal utility for every good purchased would be the same.
b.	marginal utility per dollar spent for all goods would be the same.
c.	marginal utility per dollar for all goods would be at a maximum.
d.	total expenditure on each good would be the same.
e.	number of units of each good consumed would be the same.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   RE

 

131. A utility-maximizing consumer is currently spending all of his/her income on two products, A and B. The MU of the last unit of A consumed is 50, the price of A is $25, and the price of B is $10. The MU of the last unit of B consumed is:

a.	50.
b.	5.
c.	2.
d.	20.
e.	cannot determine from this limited information

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   SA

 

132. If a consumer is indifferent between 5 units of A and 8 units of B, then the consumer would:

a.	also be indifferent between 4 units of A and 9 units of B.
b.	also be indifferent between 8 units of A and 5 units of B.
c.	prefer 6 units of A and 8 units of B.
d.	give up 1 unit of A if he/she could acquire 2 units of B.
e.	not trade product A in exchange for any units of product B.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

133. Suppose you have spent your entire budget and for all the goods you purchase the marginal utilities per dollar spent are identical. Which of the following is true?

a.	You are being irrational.
b.	You can increase your utility by reallocating your income.
c.	You will reduce your utility if you allocate income in any other way.
d.	You are minimizing your marginal utility.
e.	You can avoid diminishing marginal utility.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

134. When the price of a good falls, consumers may increase the quantity consumed because they have greater total purchasing power. This statement describes the:

a.	substitution effect.
b.	income effect.
c.	consumer equilibrium effect.
d.	price effect.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               REF:   Full: 160 | Mic: 160

TOP:   Income effect                                  TYP:   RE

 

135. The income effect refers to a change in:

a.	income because of changes in the CPI.
b.	the quantity demanded of a good because of a change in the buyer’s real income.
c.	the quantity demanded of a good because of a change in the buyer’s money income.
d.	none of these.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               REF:   Full: 160 | Mic: 160

TOP:   Income effect                                  TYP:   RE

 

136. Assume the price of pizza decreases. As a result, your real income increases and you increase the quantity of pizza purchased each month. This is an example of the:

a.	substitution effect.
b.	income effect.
c.	revenue effect.
d.	consumer price effect.

 

 

ANS:  B                    PTS:   1                    DIF:    Medium         REF:   Full: 160 | Mic: 160

TOP:   Income effect                                  TYP:   RE

 

137. Assume the price of Coca-Cola increases. As a result, your real income decreases and you decrease the quantity of Coca-Cola purchased each month. This is an example of the:

a.	income effect.
b.	consumer price effect.
c.	revenue effect.
d.	substitution effect.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 160 | Mic: 160

TOP:   Income effect                                  TYP:   RE

 

138. According to the income effect, when the price of automobiles rises, people buy fewer automobiles because:

a.	they substitute other forms of transportation for driving.
b.	the nominal amount of their paychecks is smaller.
c.	the purchasing power of their income is reduced.
d.	their demand for automobiles is very elastic.

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 160 | Mic: 160

TOP:   Income effect                                  TYP:   RE

 

139. Assume the price of good X increases. As a result, your real income decreases and you decrease the quantity of good X purchased each month. This is an example of the:

a.	income effect.
b.	consumer price effect.
c.	revenue effect.
d.	substitution effect.
e.	all of these.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 160 | Mic: 160

TOP:   Income effect                                  TYP:   RE

 

140. JoAnn considers cola and plain sparkling water to be good substitutes. Suppose the price of sugar, a key ingredient used to produce cola, falls. According to the substitution effect, which of the following is most likely to occur?

a.	JoAnn will purchase less cola and more sparkling water.
b.	JoAnn will purchase more cola and less sparkling water.
c.	JoAnn will purchase more of all goods due to her higher real income.
d.	JoAnn’s demand curve will decrease (shift in), causing her to purchase less cola.

 

 

ANS:  B                    PTS:   1                    DIF:    Difficult         REF:   Full: 160 | Mic: 160

TOP:   Substitution effect                           TYP:   CA

 

141. Which of the following is the best example of the substitution effect?

a.	Joe buys fewer apples and more oranges as the result of an increase in the price of apples.
b.	Joe buys more apples when his income increases.
c.	Joe buys an apple slicer when the price of apples decreases.
d.	Joe buys less sugar as the result of an increase in price of apples.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 160 | Mic: 160

TOP:   Substitution effect                           TYP:   SA

 

142. An increase in the consumption of a good resulting from a reduction in price that makes the good cheaper in relation to other goods is called the:

a.	substitution effect.
b.	income effect.
c.	real balance effect.
d.	inelasticity effect.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 160 | Mic: 160

TOP:   Substitution effect                           TYP:   RE

 

143. Which of the following would cause a consumer to purchase less of a good when the price of the good rises?

a.	The income effect
b.	The substitution effect
c.	Both a and b
d.	Neither a nor b

 

 

ANS:  C                    PTS:   1                    DIF:    Medium         REF:   Full: 160 | Mic: 160

TOP:   Substitution and income effect         TYP:   SA

 

144. When the price of a good falls, consumers buy more of the good because it is cheaper relative to competing goods. This statement describes the:

a.	consumer equilibrium effect.
b.	price effect.
c.	income effect.
d.	substitution effect.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               REF:   Full: 160 | Mic: 160

TOP:   Substitution effect                           TYP:   RE

 

145. According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity demanded because buyers:

a.	purchase more complementary goods.
b.	purchase more substitute goods.
c.	purchase fewer substitute goods.
d.	have more real income.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               REF:   Full: 160 | Mic: 160

TOP:   Substitution effect                           TYP:   RE

 

146. Assume the price of Advil increases. As a result, you decrease the quantity of Advil purchased each month and purchase more Tylenol. This is an example of the:

a.	income effect.
b.	utility effect.
c.	consumption effect.
d.	substitution effect.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         REF:   Full: 160 | Mic: 160

TOP:   Substitution effect                           TYP:   RE

 

147. Assume the price of Nikes decreases. As a result, consumers increase the quantity of Nikes purchased each year and purchase fewer Reeboks. This is an example of the:

a.	substitution effect.
b.	income effect.
c.	utility effect.
d.	consumption effect.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 160 | Mic: 160

TOP:   Substitution effect                           TYP:   RE

 

148. When Pepsi becomes more expensive relative to other beverages, people will purchase less Pepsi. This observation is known as the:

a.	diamond-water paradox.
b.	law of diminishing marginal utility.
c.	substitution effect.
d.	income effect.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               REF:   Full: 160 | Mic: 160

TOP:   Substitution effect                           TYP:   RE

 

149. Assume the price of Levi jeans increases. As a result, you decrease the quantity of Levi jeans purchased each month and purchase more Lee jeans. This is an example of the:

a.	consumption effect.
b.	utility effect.
c.	income effect.
d.	substitution effect.

 

 

ANS:  D                    PTS:   1                    DIF:    Medium         REF:   Full: 160 | Mic: 160

TOP:   Substitution effect                           TYP:   RE

 

150. JoAnn considers cola and plain sparkling water to be good substitutes. Suppose the price of sugar, a key ingredient used to produce cola, falls. According to the income effect, which of the following is most likely to occur?

a.	JoAnn will purchase less cola and more sparkling water.
b.	JoAnn will purchase more cola and less sparkling water.
c.	JoAnn will purchase more of most goods due to her higher real income.
d.	JoAnn’s demand curve will decrease (shift in), causing her to purchase less cola.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               REF:   Full: 160 | Mic: 160

TOP:   Income effect                                  TYP:   SA

 

151. When a reduction in the price of a good allows a consumer to purchase more of all goods, this effect is called the:

a.	income effect.
b.	substitution effect.
c.	elasticity effect.
d.	monetary effect.

 

 

ANS:  A                    PTS:   1                    DIF:    Medium         REF:   Full: 160 | Mic: 160

TOP:   Income effect                                  TYP:   RE

 

152. When the price of a normal good falls, then:

a.	both the income and substitution effects combine to cause the quantity demanded to increase.
b.	the substitution effect will cause people to buy more because the good is relatively less expensive.
c.	the income effect will cause people to buy more because of the increased purchasing power associated with the lower price.
d.	all of these.

 

 

ANS:  D                    PTS:   1                    DIF:    Difficult         REF:   Full: 160 | Mic: 160

TOP:   Income and substitution effects        TYP:   CA

 

TRUE/FALSE

 

1. The utility of a good measures its usefulness.

 

ANS:  F                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   RE

 

2. Utils are used by economists to measure the satisfaction a person obtains from consuming a good.

 

ANS:  T                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   RE

 

3. The utility of a good measures its satisfaction rather than its usefulness.

 

ANS:  T                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Utility             TYP:   RE

 

4. The total utility of a good is equal to the marginal utility of the last unit consumed.

 

ANS:  F                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Total utility     TYP:   RE

 

5. As an individual consumes more of a good, the marginal utility of that good declines.

 

ANS:  T                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

6. If total utility increases from 10 to 15 for the second unit of a good consumed, the marginal utility of the second unit is 25.

 

ANS:  F                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

7. Water is plentiful in most of the world, so its price and total utility are low.

 

ANS:  F                    PTS:   1                    DIF:    Difficult         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   CA

 

8. If total utility increases from 10 to 15 for the second unit of a good consumed, the marginal utility of the second unit is 5.

 

ANS:  T                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

9. Marginal utility measures the increase in total utility you derive from consuming one more unit of a good.

 

ANS:  T                    PTS:   1                    DIF:    Easy               REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

10. Marginal utility is always a positive number.

 

ANS:  F                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

11. A rational consumer will always shift a dollar from a good whose marginal-utility-to-price ratio is lower to one whose marginal-utility-to-price is higher.

 

ANS:  T                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

12. The marginal utility curve is downward sloping.

 

ANS:  T                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   RE

 

13. Typically, marginal utility is higher when a person consumes less of a good.

 

ANS:  T                    PTS:   1                    DIF:    Medium         REF:   Full: 154 | Mic: 154

TOP:   Marginal utility                               TYP:   SA

 

14. Typically, total utility derived decreases as more of a good is consumed.

 

ANS:  F                    PTS:   1                    DIF:    Medium         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   RE

 

15. The law of diminishing marginal utility states that marginal utility must diminish after the first unit of consumption of every good or service.

 

ANS:  F                    PTS:   1                    DIF:    Difficult         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   CA

 

16. The law of diminishing marginal utility implies that the marginal utility of my tenth pistachio nut is less than the marginal utility of my third pistachio nut, other things constant.

 

ANS:  T                    PTS:   1                    DIF:    Easy               REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   SA

 

17. The law of diminishing marginal utility implies that the marginal utility of my fifth hot dog is less than the marginal utility of my second soda, other things constant.

 

ANS:  F                    PTS:   1                    DIF:    Easy               REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   SA

 

18. The law of diminishing marginal utility states that total utility increases by smaller and smaller increments as more of a good is consumed.

 

ANS:  T                    PTS:   1                    DIF:    Medium         REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing marginal utility                                  TYP:   RE

 

19. Marginal utility tends to fall as a person increases his or her consumption.

 

ANS:  T                    PTS:   1                    DIF:    Easy               REF:   Full: 157 | Mic: 157

TOP:   Law of diminishing utility                TYP:   RE

 

20. Consumer equilibrium requires that the marginal utility per dollar spent be the same for all goods.

 

ANS:  T                    PTS:   1                    DIF:    Easy               REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   RE

 

21. Consuming one more of a good increases its marginal-utility-to-price ratio, and consuming one less of the other good lowers its marginal-utility-to-price ratio.

 

ANS:  F                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

22. If the price of a good decreases, the resulting increase in the quantity purchased decreases the marginal utility of the good.

 

ANS:  T                    PTS:   1                    DIF:    Difficult         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   CA

 

23. Consumer equilibrium requires that the marginal utility per dollar spent be unequal for all goods.

 

ANS:  F                    PTS:   1                    DIF:    Easy               REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   RE

 

24. A utility-maximizing consumer equalizes marginal utilities per dollar spent across all goods.

 

ANS:  T                    PTS:   1                    DIF:    Medium         REF:   Full: 158 | Mic: 158

TOP:   Consumer equilibrium                     TYP:   RE

 

25. The income effect is the concept that changes in consumption of a good result from changes in purchasing power.

 

ANS:  T                    PTS:   1                    DIF:    Easy               REF:   Full: 160 | Mic: 160

TOP:   Income effect                                  TYP:   RE

 

26. According to the income effect, lower prices give people more purchasing power with which to increase the quantity demanded of goods.

 

ANS:  T                    PTS:   1                    DIF:    Medium         REF:   Full: 160 | Mic: 160

TOP:   Income effect                                  TYP:   RE

 

27. The income effect is the concept that changes in consumption of a good result from changes in government spending.

 

ANS:  F                    PTS:   1                    DIF:    Easy               REF:   Full: 160 | Mic: 160

TOP:   Income effect                                  TYP:   RE

 

28. The substitution effect is the concept that changes in consumption of a good result from changes in the relative price of a competing good.

 

ANS:  T                    PTS:   1                    DIF:    Easy               REF:   Full: 160 | Mic: 160

TOP:   Substitution effect                           TYP:   RE

 

29. Changes in relative prices create substitution effects.

 

ANS:  T                    PTS:   1                    DIF:    Easy               REF:   Full: 160 | Mic: 160

TOP:   Substitution effect                           TYP:   RE

 

30. The substitution effect is the concept that changes in consumption of a good result from changes in the relative price of a jointly consumed good.

 

ANS:  F                    PTS:   1                    DIF:    Easy               REF:   Full: 160 | Mic: 160

TOP:   Substitution effect                           TYP:   RE

 

ESSAY

 

1. Use the idea of interpersonal comparisons of utility to argue for a progressive income tax system where people in higher income brackets are charged higher tax rates on their extra income.

 

ANS:

Since the marginal utility of money diminishes for each individual, it seems reasonable to suppose that the utility a rich person derives from his/her marginal dollar is less than the utility a poor person derives from his/her marginal dollar. If the rich person doesn’t get as much utility from his/her marginal dollar, then it won’t hurt them as much to tax it away as it would hurt a poor person.

 

PTS:   1                    REF:   Full: 154 | Mic: 154

 

2. Michael spends $10 a month on Pez dispensers and Superman action figures. His marginal-utility-to-price ratio for the Pez dispensers is 40, while his marginal-utility-to-price ratio for Superman action figures is 47. Explain why Michael is not maximizing his utility and how can he change his behavior to increase his utility?

 

ANS:

To maximize utility, one must consume the combination of goods where the marginal-utility-to-price ratios of the goods are equal. Since 40 is less than 47, Michael is not maximizing his utility. He should buy more Superman figures and fewer Pez dispensers. This would lower the marginal-utility-to-price ratio of Superman figures and raise the marginal-utility-to-price ratio of Pez dispensers.

 

PTS:   1                    REF:   Full: 158 | Mic: 158

 

3. Lori plans to buy a convertible this weekend. Her two favorite cars are the BMW, which would give her 160,000 utils of satisfaction, and the Mitsubishi Eclipse Spyder, which would give her only 124,000 utils of satisfaction. The BMW that she wants sells for $37,220, while the Mitsubishi sells for $28,200. She can afford either car.

 

a.	Which car will she buy in order to maximize her utility?
b.	To what price will her second choice have to fall to get her to make her first choice?

 

 

ANS:

a.	She will buy the Mitsubishi, because its marginal-utility-to-price ratio, 4.397, is higher than the marginal-utility-price ratio for the BMW (4.03).
b.	If the price of the BMW falls to $34,114.17 = 160,000 / 4.397, she will be indifferent between the two. If the price of the BMW falls to $34,114.16, she will buy the BMW.

 

 

PTS:   1                    REF:   Full: 158 | Mic: 158

 

4. Justin Field just stopped at the Exxon station on the way to campus and bought four Butterfinger candy bars, two 20-ounce bottles of grape-watermelon Snapple, and 10 gallons of gas. His marginal-utility-to-price ratios are 3.21 for the Butterfingers, 4.8 for the Snapples, and 5.7 for the gas. Explain why this set of purchases did not maximize Ryan’s utility and how could he have increased his utility.

 

ANS:

He has not maximized utility because the marginal-utility-to-price ratios are not equal. He should have bought fewer Butterfingers and more gas. We can’t be sure whether he should buy more, fewer, or the same number of Snapples to increase his utility, given the information in the question.

 

PTS:   1                    REF:   Full: 158 | Mic: 158

 

5. Show, using utility theory, why a consumer who is initially maximizing her utility will alter her consumption pattern in response to a change in the price of a good.

 

ANS:

If marginal utilities per dollar are initially equal across all goods, a fall in the price of one will raise the marginal utility per dollar consumed on that good. She can increase total utility by allocating more dollars toward that good.

 

PTS:   1                    REF:   Full: 158 | Mic: 158