The Micro Economy Today Bradley Schiller 15e - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below The Micro Economy Today, 15e (Schiller) Chapter 5 Consumer Choice 1) Sociopsychiatric explanations of consumer behavior include the A) Desire for ego and status. B) Level of …
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The Micro Economy Today Bradley Schiller 15e – Test Bank
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Sample Questions Are Posted Below
The Micro Economy Today, 15e (Schiller)
Chapter 5 Consumer Choice
1) Sociopsychiatric explanations of consumer behavior include the
Answer: A
Explanation: Sociologists offer explanations for our consumption behavior-not just to ‘keep up with the Joneses’ but to surpass them.
Difficulty: 2 Medium
Topic: Determinants of Demand
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
2) Economic explanations of consumer behavior take into consideration
Answer: D
Explanation: Prices and income are just as relevant to consumption decisions as are more basic desires and preferences.
Difficulty: 1 Easy
Topic: Determinants of Demand
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
3) If an individual demands a good, it means that he or she
Answer: B
Explanation: Demand entails both the willingness and the ability to pay for goods and services.
Difficulty: 1 Easy
Topic: Determinants of Demand
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
4) Which of the following is not a determinant of demand?
Answer: C
Explanation: An individual’s demand for a specific product is determined by tastes, income, expectations (for income, prices, tastes), and the availability and price of other goods. The cost of the factor inputs is a determinant of supply.
Difficulty: 1 Easy
Topic: Determinants of Demand
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
5) As compared to sociologists and psychologists, economists accept consumer tastes as given and instead focus on
Answer: A
Explanation: Sociologists and psychologists focus on how consumer desires are formed, but economists focus on how income and price actually affect consumer purchases.
Difficulty: 2 Medium
Topic: Determinants of Demand
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
6) Graphically, as a consumer buys more of a good, the marginal utility line will
Answer: C
Explanation: Total utility increases as a consumer enjoys more units of a product. Due to the law of diminishing marginal utility, marginal utility declines.
Difficulty: 2 Medium
Topic: Determinants of Demand
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
7) When economists refer to the determinants of demand, they are referring to factors that when changed,
Answer: B
Explanation: A movement up or down a demand curve is caused by a change in price. The determinants of demand, such as a change in income, tastes, or the price and availability of other goods, cause the demand curve to shift right or left.
Difficulty: 2 Medium
Topic: Determinants of Demand
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
8) Utility refers to the
Answer: A
Explanation: Economists use the term utility to refer to the expected pleasure, or satisfaction, obtained from goods and services.
Difficulty: 1 Easy
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
9) Marginal utility is
Answer: B
Explanation: The term marginal means ‘the additional.’ So marginal utility is the additional satisfaction a buyer receives from consuming one more unit of a good.
Difficulty: 1 Easy
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
10) Total utility is
Answer: B
Explanation: Total utility can be calculated by summing up all of the marginal utilities that the buyer has enjoyed from each subsequent unit of a good.
Difficulty: 1 Easy
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
11) If a product has a high marginal utility, then
Answer: C
Explanation: One’s desire for a good, or taste, will impact the utility or satisfaction received from the consumption of that good.
Difficulty: 2 Medium
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
12) The marginal utility for a good is computed as
Answer: D
Explanation: Marginal utility refers to the amount of satisfaction one gets from consuming the last unit of a product.
Difficulty: 1 Easy
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
13) The additional pleasure or satisfaction from a good declines as more of it is consumed in a given period. This is the definition of the
Answer: B
Explanation: As a rule, the amount of additional utility we obtain from a product declines as we continue to consume it. For example, the third slice of pizza isn’t as desirable as the first.
Difficulty: 1 Easy
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
14) The law of diminishing marginal utility suggests that
Answer: A
Explanation: The more marginal utility a product delivers, the more a consumer will be willing to pay for it. Marginal utility diminishes as increasing quantities of a product are consumed; therefore consumers are willing to pay progressively less for additional quantities of a product.
Difficulty: 3 Hard
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
15) Josh is eating pizza at his favorite Italian restaurant. Below is his utility from this consumption:
Table 19.1
| Slice of Pizza | Total Utility | Marginal Utility |
| First slice | 20 | 20 |
| Second slice | 39 | 19 |
| Third slice | – | 15 |
| Fourth slice | 59 | – |
Refer to Table 19.1. What is Josh’s total utility from consuming the third slice of pizza?
Answer: B
Explanation: Total utility is the sum of all of the marginal utilities. If you add the 15 marginal utility units that Josh received from consuming the third slice of pizza to the total utility units of 39 he enjoyed from the second slice, 39 + 15 = 54.
Difficulty: 3 Hard
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
16) Josh is eating pizza at his favorite Italian restaurant. Below is his utility from this consumption:
Table 19.1
| Slice of Pizza | Total Utility | Marginal Utility |
| First slice | 20 | 20 |
| Second slice | 39 | 19 |
| Third slice | – | 15 |
| Fourth slice | 59 | – |
Refer to Table 19.1. The marginal utility Josh enjoys from the fourth slice of pizza is
Answer: C
Explanation: Marginal utility is the change in total utility as a buyer consumers more units of a good. The change in marginal utility from the third to the fourth slice of pizza is 59 – 54 = 5.
Difficulty: 3 Hard
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
17) Josh is eating pizza at his favorite Italian restaurant. Below is his utility from this consumption:
Table 19.1
| Slice of Pizza | Total Utility | Marginal Utility |
| First slice | 20 | 20 |
| Second slice | 39 | 19 |
| Third slice | – | 15 |
| Fourth slice | 59 | – |
Refer to Table 19.1. For Josh, diminishing marginal utility begins
Answer: A
Explanation: Once marginal utility falls, diminishing marginal utility is occurring. That happens for Josh after the first slice of pizza because marginal utility falls from 20 to 19.
Difficulty: 3 Hard
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
18) The law of diminishing marginal utility states that
Answer: B
Explanation: Marginal utility falls as buyers consume successive units of a good. This is referred to as the law of diminishing marginal utility.
Difficulty: 1 Easy
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
19) As more satisfaction is achieved from consuming a good with diminishing marginal utility, then total utility
Answer: A
Explanation: As long as marginal utility is positive, total utility must be increasing from consuming a good; but total utility increases by smaller and smaller increments when diminishing marginal utility exists.
Difficulty: 2 Medium
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
20) Jose goes to an all-you-can-eat buffet at a Chinese restaurant and consumes three plates of food. He does not go back for a fourth plate of food because
Answer: C
Explanation: As long as marginal utility is positive, total utility must be increasing; but when marginal utility is negative or zero, consumption of one more good will decrease total utility or not add to utility at all.
Difficulty: 2 Medium
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
21) If marginal utility is negative, then
Answer: B
Explanation: As long as marginal utility is positive, total utility must be increasing; but when marginal utility is negative, consumption of one more good will decrease total utility.
Difficulty: 2 Medium
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
22) Total utility is maximized when
Answer: C
Explanation: As long as marginal utility is positive, total utility must be increasing; but when marginal utility is negative, consumption of one more good will decrease total utility. Therefore total utility is maximized at the consumption level where marginal utility is neither positive nor negative.
Difficulty: 2 Medium
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
23) Most goods can yield
Answer: B
Explanation: As a rule, the amount of additional utility we obtain from a product declines as we continue to consume it. Not every good ultimately reaches negative marginal utility. Yet the more general principle of diminishing marginal utility is experienced daily, and most goods will have negative marginal utility with high degrees of consumption.
Difficulty: 3 Hard
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
24) If a good had a zero price (i.e., the good was free), a rational person would consume
Answer: D
Explanation: As the marginal utility of a good diminishes, so does our willingness to pay. If a good is free, we can keep consuming until additional units of the good provide zero additional utility.
Difficulty: 3 Hard
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
25) Which of the following is not held constant when considering the demand for pizza?
Answer: B
Explanation: The demand curve reflects the quantity of a good consumers are willing and able to buy at alternative prices in a given period, holding constant other factors such as tastes, income, prices of related goods, and expectations.
Difficulty: 3 Hard
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
26) According to the law of demand, ceteris paribus,
Answer: A
Explanation: With a given income level, people are willing and able to buy additional quantities of a good only if its price falls, especially when diminishing marginal utility exists.
Difficulty: 1 Easy
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
27) The four determinants of demand that are held constant when we consider a movement along a demand curve include all of the following except
Answer: A
Explanation: A movement along a demand curve corresponds to a change in price only, holding income, tastes, and the availability of substitutes constant.
Difficulty: 2 Medium
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
28) The market demand for a product is
Answer: D
Explanation: The market demand is the sum of all of the individual demands for that product. The market demand is similar to the individual demand, but differs in the quantities demanded.
Difficulty: 2 Medium
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
29) The law of diminishing marginal utility gives us a deeper understanding of the downward-sloping demand curve because
Answer: C
Explanation: Marginal utility is higher when the first few units of a good are consumed. This corresponds to a point high up on the demand curve, where consumers are more willing to pay a higher price.
Difficulty: 3 Hard
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
30) The ________ of the demand curve corresponds to the idea that the marginal utility for the first few goods is ________.
Answer: C
Explanation: The first few goods consumed have a higher marginal utility. This corresponds to the top of the demand curve, where consumers are willing to pay a higher price if a good has a higher marginal utility.
Difficulty: 2 Medium
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
31) Consumer surplus measures
Answer: A
Explanation: Consumer surplus is the difference between what you are willing to pay and the actual equilibrium price.
Difficulty: 1 Easy
Topic: Consumer Surplus
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
32) Rosa is willing to pay $200 for the iPhone, but the actual price is $400. This means
Answer: B
Explanation: Rosa will not purchase the iPhone because she is not willing to pay the $400 price. If she were willing to pay $500 for the iPhone, she would buy it and enjoy $100 of consumer surplus.
Difficulty: 3 Hard
Topic: Consumer Surplus
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
33) The benefit that consumers get when they buy goods at the equilibrium price but were willing to pay more is called
Answer: C
Explanation: Consumers who actually purchase goods at the market price were willing to pay either more than the actual price or the actual price. This benefit is called the consumer surplus.
Difficulty: 2 Medium
Topic: Consumer Surplus
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
34) The total consumer surplus is shown on a graph as
Answer: B
Explanation: See Figure 19.4 in the textbook. The consumer surplus is the shaded triangle under the demand curve and above the actual or equilibrium price.
Difficulty: 2 Medium
Topic: Consumer Surplus
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
35) Which of the following statements best captures the concept of consumer surplus?
Answer: B
Explanation: Consumer surplus is the difference between the maximum a consumer was willing to pay for a good and the actual price paid.
Difficulty: 2 Medium
Topic: Consumer Surplus
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
36) Evaluating a supply and a demand curve independently, if the equilibrium price rises,
Answer: A
Explanation: The consumer surplus is reduced when the price rises. However, the producer surplus would increase.
Difficulty: 3 Hard
Topic: Consumer Surplus
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
37) The ________ surplus will rise if the price of the good ________.
Answer: B
Explanation: The consumer surplus will increase when prices fall. This increases the surplus between the equilibrium price and the maximum price consumers are willing to pay.
Difficulty: 2 Medium
Topic: Consumer Surplus
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
38) See Figure 19.1. Lu’s consumer surplus is equal to
Answer: D
Explanation: An individual’s consumer surplus is the difference between the maximum she or he is willing to pay and the actual price. Here Lu’s maximum willingness to pay is $600 and the actual price is $100. Her consumer surplus is equal to $600 – $100 = $500.
Difficulty: 2 Medium
Topic: Consumer Surplus
Learning Objective: 05-03 The meaning and use of price discrimination.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
39) Refer to Figure 19.1. The total consumer surplus in this market is equal to
Answer: B
Explanation: The total consumer surplus is the total of the differences between each individual’s maximum willingness to pay and the actual price. The total for the three consumers is ($600 – $100) + ($400 – $100) + ($200 – $100) = $900.
Difficulty: 2 Medium
Topic: Consumer Surplus
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
40) Refer to Figure 19.1. Ben’s consumer surplus is equal to
Answer: D
Explanation: The maximum that Ben is willing to pay for the cell phone is $50, which is below the actual price of $100, so he does not receive any consumer surplus.
Difficulty: 3 Hard
Topic: Consumer Surplus
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
41) Price discrimination occurs when
Answer: C
Explanation: Price discrimination occurs when individuals are charged different prices for the same good.
Difficulty: 1 Easy
Topic: Price Discrimination
Learning Objective: 05-03 The meaning and use of price discrimination.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
42) Price discrimination is ________ in the United States and ________ practiced.
Answer: C
Explanation: Price discrimination is not illegal in the United States and is often exercised by sellers in the auto, airline, and college markets.
Difficulty: 1 Easy
Topic: Consumer Surplus
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
43) When sellers price discriminate,
Answer: A
Explanation: Sellers test the waters by trying to find a price that is the maximum price each individual will pay for the product.
Difficulty: 2 Medium
Topic: Price Discrimination
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
44) Which of these examples is an example of price discrimination?
Answer: C
Explanation: If seniors pay one price at the movie theater, and adults pay a different price, this is an example of price discrimination. Price discrimination occurs when individuals pay different prices for the same good.
Difficulty: 3 Hard
Topic: Price Discrimination
Learning Objective: 05-03 The meaning and use of price discrimination.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
45) Sellers can gain profits from price discrimination because
Answer: A
Explanation: If a seller can charge the maximum price each individual is willing to pay, it can raise its total revenues. Revenue is price times quantity.
Difficulty: 2 Medium
Topic: Price Discrimination
Learning Objective: 05-03 The meaning and use of price discrimination.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
46) Car dealers can easily price discriminate because
Answer: B
Explanation: Individual buyers are at a disadvantage at car dealers because they negotiate a price between themselves and a seller.
Difficulty: 2 Medium
Topic: Price Discrimination
Learning Objective: 05-03 The meaning and use of price discrimination.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
47) Price discrimination works best when
Answer: B
Explanation: A seller is most successful in practicing price discrimination when buyers do not have full information about the prices of the good or the different prices charged to different individuals.
Difficulty: 2 Medium
Topic: Price Discrimination
Learning Objective: 05-03 The meaning and use of price discrimination.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
48) Airline companies engage in price discrimination by
Answer: C
Explanation: Price discrimination occurs when sellers charge different prices to different individuals. Airlines engage in price discrimination when they charge business travelers who have to fly tomorrow a higher price than vacation travelers who have more time to book their travel.
Difficulty: 2 Medium
Topic: Price Discrimination
Learning Objective: 05-03 The meaning and use of price discrimination.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
49) Price discrimination
Answer: C
Explanation: Sellers can take an advantage of price discrimination to get individual buyers to pay their maximum amounts.
Difficulty: 1 Easy
Topic: Price Discrimination
Learning Objective: 05-03 The meaning and use of price discrimination.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
50) Which industry here is unlikely to exhibit price discrimination?
Answer: C
Explanation: Products that are purchased regularly, and that consumers have more information about, tend not to exhibit price discrimination. Airlines, new car sales, and colleges engage in price discrimination.
Difficulty: 2 Medium
Topic: Price Discrimination
Learning Objective: 05-03 The meaning and use of price discrimination.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
51) Assume Amanda always maximizes her total utility given her budget constraint. Every morning for breakfast she has two eggs and three sausages. If the marginal utility of the last egg is 10 utils and the price of eggs is $1 each, what can we say about the marginal utility of the last sausage if the price of each sausage is $2?
Answer: A
Explanation: Optimal consumption implies that the utility-maximizing combination of goods has been found if you can’t increase your total utility by trading one good for another. Therefore, all goods included in the optimal consumption mix yield the same marginal utility per dollar. Amanda’s marginal utility per dollar from eggs is therefore 10, and the sausage utils should be 10 as well.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
52) Suppose Caesar allocates his entire budget to the purchase of soft drinks and chips. The marginal utility of the last bottle of soft drink purchased is 12 utils, and each bottle costs $1.20. The marginal utility of the last bag of chips purchased is 8 utils, and each bag costs $1. In order to maximize his utility, Caesar should
Answer: A
Explanation: To maximize utility, the consumer should choose the good that delivers the most marginal utility per dollar. The marginal utility per dollar from the soft drink is 10 while the marginal utility per dollar from the bag of chips is 8; therefore Caesar should buy more soft drinks and fewer chips.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
53) Maximum utility is achieved when
Answer: C
Explanation: Without budget constraints, a consumer can add to her or his utility by consuming goods with positive marginal utility. Therefore utility will be maximized when marginal utility reaches zero.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
54) A consumer maximizes total utility from a given amount of income when the
Answer: A
Explanation: Optimal consumption implies that the utility-maximizing combination of goods has been found if you can’t increase your total utility by trading one good for another. Therefore, all goods included in the optimal consumption mix yield the same marginal utility per dollar.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
55) Table 19.2
| Quantity Consumed | Total Utility | Marginal Utility |
| 1 | 15 | 15 |
| 2 | 9 | |
| 3 | 30 | |
| 4 | 3 |
In Table 19.2, the marginal utility of the third unit is
Answer: C
Explanation: Marginal utility is the change in total utility obtained by consuming one additional good or service. Total utility increases from 24 to 30 when the third unit is consumed, an increase of 6 utils.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
56) Table 19.2
| Quantity Consumed | Total Utility | Marginal Utility |
| 1 | 15 | 15 |
| 2 | 9 | |
| 3 | 30 | |
| 4 | 3 |
In Table 19.2, the total utility when two units are consumed is
Answer: D
Explanation: The total utility when one unit is consumed is 15 and the second unit adds 9 additional utils, which causes total utility to increase to 24.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
57) Table 19.2
| Quantity Consumed | Total Utility | Marginal Utility |
| 1 | 15 | 15 |
| 2 | 9 | |
| 3 | 30 | |
| 4 | 3 |
In Table 19.2, the total utility when four units are consumed is
Answer: A
Explanation: The total utility when three units are consumed is 30, and the fourth unit adds 3 additional utils, which causes total utility to increase to 33.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
58) Table 19.2
| Quantity Consumed | Total Utility | Marginal Utility |
| 1 | 15 | 15 |
| 2 | 9 | |
| 3 | 30 | |
| 4 | 3 |
In Table 19.2, diminishing marginal utility occurs
Answer: D
Explanation: Because the marginal utility decreases with each additional unit consumed, diminishing marginal utility occurs when the second and subsequent units are consumed.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
59) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit.
Table 19.3
Michael’s Utility Schedule
| Units of Cola | TU of Cola | MU of Cola | Units of Pretzels | TU of Pretzels | MU of Pretzels |
| 1 | 40 | 40 | 1 | 30 | 30 |
| 2 | 32 | 2 | 20 | ||
| 3 | 96 | 24 | 3 | 66 | 16 |
| 4 | 112 | 4 | 78 | ||
| 5 | 124 | 5 | 84 |
In Table 19.3, what is the total utility of two units of cola?
Answer: C
Explanation: The total utility when one unit is consumed is 40, and the second unit adds 32 additional utils, which causes total utility to increase to 72.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
60) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit.
Table 19.3
Michael’s Utility Schedule
| Units of Cola | TU of Cola | MU of Cola | Units of Pretzels | TU of Pretzels | MU of Pretzels |
| 1 | 40 | 40 | 1 | 30 | 30 |
| 2 | 32 | 2 | 20 | ||
| 3 | 96 | 24 | 3 | 66 | 16 |
| 4 | 112 | 4 | 78 | ||
| 5 | 124 | 5 | 84 |
In Table 19.3, what is the marginal utility of the fifth unit of cola?
Answer: B
Explanation: Marginal utility is the change in total utility obtained by consuming one additional good or service. Total utility increases from 112 to 124 when the fifth unit is consumed, an increase of 12 utils.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
61) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit.
Table 19.3
Michael’s Utility Schedule
| Units of Cola | TU of Cola | MU of Cola | Units of Pretzels | TU of Pretzels | MU of Pretzels |
| 1 | 40 | 40 | 1 | 30 | 30 |
| 2 | 32 | 2 | 20 | ||
| 3 | 96 | 24 | 3 | 66 | 16 |
| 4 | 112 | 4 | 78 | ||
| 5 | 124 | 5 | 84 |
In Table 19.3 the marginal utility per dollar of the second cola is
Answer: C
Explanation: The marginal utility per dollar is equal to the marginal utility divided by the price of the product. The marginal utility of the second cola is 32, so the marginal utility per dollar is 32/8=4.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
62) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit.
Table 19.3
Michael’s Utility Schedule
| Units of Cola | TU of Cola | MU of Cola | Units of Pretzels | TU of Pretzels | MU of Pretzels |
| 1 | 40 | 40 | 1 | 30 | 30 |
| 2 | 32 | 2 | 20 | ||
| 3 | 96 | 24 | 3 | 66 | 16 |
| 4 | 112 | 4 | 78 | ||
| 5 | 124 | 5 | 84 |
The marginal utility per dollar of the third pretzel is
Answer: A
Explanation: The marginal utility per dollar is equal to the marginal utility divided by the price of the product. The marginal utility of the third pretzel is 16 and the price of a unit of pretzel is $4. So 16/4 = 4.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
63) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit.
Table 19.3
Michael’s Utility Schedule
| Units of Cola | TU of Cola | MU of Cola | Units of Pretzels | TU of Pretzels | MU of Pretzels |
| 1 | 40 | 40 | 1 | 30 | 30 |
| 2 | 32 | 2 | 20 | ||
| 3 | 96 | 24 | 3 | 66 | 16 |
| 4 | 112 | 4 | 78 | ||
| 5 | 124 | 5 | 84 |
Refer to Table 19.3. Suppose Michael has $28 to spend on cola and pretzels. What combination should he purchase in order to maximize his utility?
Answer: D
Explanation: To maximize utility, the consumer should choose the goods that deliver the most marginal utility per dollar. The first pretzel has a MU per dollar of 7.5, the second pretzel and first cola have a MU per dollar of 5, and the third pretzel and the second coke have a MU per dollar of 4. Once Michael buys three pretzels and two colas, he will have spent his $28 and maximized his utility.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Apply
AACSB: Analytical Thinking
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64) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit.
Table 19.3
Michael’s Utility Schedule
| Units of Cola | TU of Cola | MU of Cola | Units of Pretzels | TU of Pretzels | MU of Pretzels |
| 1 | 40 | 40 | 1 | 30 | 30 |
| 2 | 32 | 2 | 20 | ||
| 3 | 96 | 24 | 3 | 66 | 16 |
| 4 | 112 | 4 | 78 | ||
| 5 | 124 | 5 | 84 |
Refer to Table 19.3. If Michael has $28 dollars to spend, why will three colas and four pretzels not be optimal?
Answer: C
Explanation: Three units of colas will cost 3 ×$8=$24, and four pretzels will cost 4 ×4 = $16. The sum of these is $24 + $16 = $40, which is not affordable given the budget constraint.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
65) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit.
Table 19.3
Michael’s Utility Schedule
| Units of Cola | TU of Cola | MU of Cola | Units of Pretzels | TU of Pretzels | MU of Pretzels |
| 1 | 40 | 40 | 1 | 30 | 30 |
| 2 | 32 | 2 | 20 | ||
| 3 | 96 | 24 | 3 | 66 | 16 |
| 4 | 112 | 4 | 78 | ||
| 5 | 124 | 5 | 84 |
Refer to Table 19.3. If Michael has $40 to spend on cola and pretzels, what is his maximum utility possible?
Answer: B
Explanation: To maximize utility, the consumer should choose the goods that deliver the most marginal utility per dollar at each step. With $40 Michael would consume three colas and four pretzels, which would bring him a total of 174 utils.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
66) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit.
Table 19.3
Michael’s Utility Schedule
| Units of Cola | TU of Cola | MU of Cola | Units of Pretzels | TU of Pretzels | MU of Pretzels |
| 1 | 40 | 40 | 1 | 30 | 30 |
| 2 | 32 | 2 | 20 | ||
| 3 | 96 | 24 | 3 | 66 | 16 |
| 4 | 112 | 4 | 78 | ||
| 5 | 124 | 5 | 84 |
Refer to Table 19.3. If Michael has $48 to spend on cola and pretzels, what combination should he purchase in order to maximize his utility?
Answer: A
Explanation: To maximize utility, the consumer should choose the goods that deliver the most marginal utility per dollar at each step. With $48 Michael would consume four colas and four pretzels.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
67) Refer to Figure 19.2. The total utility of five apples is
Answer: C
Explanation: The total utility derived from consuming a product comes from the marginal utilities of each successive unit. The total utility of five apples is 6 + 5 + 4 + 2 + 1 or 17 utils.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
68) Refer to Figure 19.2. The total utility of two apples is
Answer: D
Explanation: The total utility derived from consuming a product comes from the marginal utilities of each successive unit. The total utility of two apples is 6 + 5 or 11 utils.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
69) Refer to Figure 19.2. Total utility is maximized at
Answer: A
Explanation: As long as marginal utility is positive, total utility must be increasing; but when marginal utility is negative, consumption of one more good will decrease total utility. Therefore total utility is maximized at the consumption level where marginal utility is neither positive nor negative.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
70) Refer to Figure 19.2. With no budget constraint, a rational consumer will consume
Answer: C
Explanation: As long as marginal utility is positive, total utility must be increasing; but when marginal utility is negative, consumption of one more good will decrease total utility. Therefore total utility is maximized at the consumption level where marginal utility is neither positive nor negative.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
71) Refer to Figure 19.2. Diminishing marginal utility begins after
Answer: D
Explanation: The graph shows how marginal utility changes as more apples are consumed. Diminishing marginal utility states that successive consumption of a product will cause the marginal utility to fall. In the graph the marginal utility begins to decline after the first apple.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
72) When choosing among products, consumers look at
Answer: A
Explanation: Rational consumers will want to get the most from their purchases given their limited income. That means they will purchase the items with the highest marginal utility per dollar and that are affordable, given their budget.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
73) A successful advertising campaign will
Answer: A
Explanation: A successful advertising campaign is one that changes consumer tastes and creates brand loyalty, thereby shifting the demand curve for a specific product to the right.
Difficulty: 2 Medium
Topic: Market Demand
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
74) If advertising is successful,
Answer: C
Explanation: Advertising causes an increase in demand, so the demand curve shifts right. In addition, the curve becomes steeper.
Difficulty: 2 Medium
Topic: Market Demand
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
75) The In the News article titled “Men vs. Women: How They Spend” differentiates the spending habits of women and men: “Men spend almost twice as much as women do on electronic equipment … young women spend twice as much money on clothing, personal care items, and their pets.” Which determinant of demand is most likely involved?
Answer: B
Explanation: Even though young men have a little more after-tax income than do young women, the spending habits of women and men reflect differences in tastes where men enjoy entertainment items and women enjoy personal items.
Difficulty: 3 Hard
Topic: Determinants of Demand
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
76) In the article “Men vs. Women: How They Spend,”
Answer: A
Explanation: According to the article, both sexes spend more than they earn annually.
Difficulty: 1 Easy
Topic: Market Demand
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
77) Marginal utility is the
Answer: B
Explanation: Marginal utility is the change in total utility obtained by consuming one additional (marginal) unit of a good or service-for instance, how much additional enjoyment one would get by eating a second candy bar.
Difficulty: 1 Easy
Topic: Choosing Among Products
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
78) An indifference curve shows the
Answer: C
Explanation: Different combinations of two goods may be equally satisfying. An indifference curve is a graphical representation of the combinations of two goods that yield equal total utility.
Difficulty: 1 Easy
Topic: Choosing Among Products
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
79) An indifference map shows
Answer: A
Explanation: An indifference map depicts all the combinations of goods that would yield various levels of satisfaction. A single indifference curve, in contrast, illustrates all combinations that provide a single (equal) level of total utility.
Difficulty: 1 Easy
Topic: Choosing Among Products
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
80) All of the possible combinations of two goods that lie on one indifference curve
Answer: B
Explanation: Each indifference curve represents a certain level of total utility. The consumer is indifferent to the combinations that lie on the same utility curve. That means that all of the combinations on the curve yield the same level of total utility.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
81) Which of the following is used to depict all combinations of goods that are affordable with a given income and given prices?
Answer: D
Explanation: Consumption possibilities are limited by available income. The budget constraint illustrates this limitation.
Difficulty: 1 Easy
Topic: Choosing Among Products
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
82) Any point on the budget constraint
Answer: B
Explanation: Any point on the budget constraint line represents a combination of the two goods that are affordable. Any point beyond the budget constraint line is unaffordable.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
83) If Josh’s income increases, then
Answer: B
Explanation: The end points of the budget constraint are equal to income divided by the price of each good. Hence a larger income is represented by a budget constraint that lies farther from the origin.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
84) The point where the budget constraint and an indifference curve are tangent
Answer: C
Explanation: The objective is to reach the highest indifference curve that is compatible with our budget constraint. We can afford only those consumption combinations that are on or inside the budget line. Therefore, the optimal consumption combination-the one that maximizes the utility of spendable income-lies at the point where the budget line is tangent to (just touches) an indifference curve.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
85) The mix of consumer purchases that maximizes the utility attainable from available income is called the
Answer: C
Explanation: The optimal consumption combination is the one that maximizes the utility of our limited income.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
86) The slope of the budget constraint, when a consumer has reached optimal consumption of two goods, is equal to the
Answer: A
Explanation: The marginal rate of substitution is the rate at which a consumer is willing to exchange one good for another-the slope of the indifference curve. Because the optimal consumption combination is at the point where the budget line is tangent to (just touches) an indifference curve, the slopes will be equal at that point.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
87) The slope of the indifference curve is equal to the
Answer: C
Explanation: The slope of the indifference curve is called the marginal rate of substitution. It is the absolute value of the slope of the indifference curve. It’s equal to the relative marginal utilities of the two goods.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
88) Assume that Anna buys peanut butter and bread. If the price of peanut butter falls, then
Answer: A
Explanation: Whenever the price of a good changes, the budget constraint shifts. If only one price is changed, then only one end of the budget constraint is shifted.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
89) Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated question. Assume the price of Y is $1 per unit. If the price per unit of good X is $3, the consumer would maximize utility at point
Answer: A
Explanation: If the price of Y is $1, one can infer that the maximum spendable income is $30 based on the point where the budget constraint crosses the y-axis. If the price of X is $3, the budget constraint closest to the origin is the limit. Because the optimal consumption combination lies at the point where the budget line is tangent to (just touches) an indifference curve, point A maximizes utility.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
90) Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated question. Assume the price of Y is $1 per unit. If the price per unit of good X is $3, the consumer would maximize utility by consuming
Answer: B
Explanation: If the price of Y is $1, one can infer that the maximum spendable income is $30 based on the point where the budget constraint crosses the y-axis. If the price of X is $3, the budget constraint closest to the origin is the limit. Because the optimal consumption combination lies at the point where the budget line is tangent to (just touches) an indifference curve, point A maximizes utility, which is the combination of 3 X and 21 Y.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
91) Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated question. Assume the price of Y is $1 per unit. If the price per unit of good X is $1, the optimal consumption is found at point
Answer: D
Explanation: If the price of Y is $1, one can infer that the maximum spendable income is $30 based on the point where the budget constraint crosses the y-axis. If the price of X is $1, the budget constraint farthest from the origin is the limit. Because the optimal consumption combination lies at the point where the budget line is tangent to (just touches) an indifference curve, point C maximizes utility.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
92) Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated question. Assume the price of Y is $1 per unit. If the price per unit of good X is $1, the consumer would maximize utility by consuming
Answer: C
Explanation: If the price of Y is $1, one can infer that the maximum spendable income is $30 based on the point where the budget constraint crosses the y-axis. If the price of X is $1, the budget constraint farthest from the origin is the limit. Because the optimal consumption combination lies at the point where the budget line is tangent to (just touches) an indifference curve, point C maximizes utility, which is the combination of 15 X and 15 Y.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
93) Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated question. Assume the price of Y is $1 per unit. In Figure 19.3, given an income of $30 and a price for good Y of $1, which of the following two points represent optimal consumption?
Answer: A
Explanation: If the price of X is $3, the budget constraint closest to the origin is the limit; but if the price of X is $1, the budget constraint farthest from the origin is the limit. Because the optimal combination lies at the point where the budget line is tangent to an indifference curve, point A or point C maximizes utility depending on the price of X.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
94) Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated question. Assume the price of Y is $1 per unit. In Figure 19.3, point E
Answer: C
Explanation: Point E on the graph is a very high level of total utility but given the current budget constraint is not affordable.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
95) Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated question. Assume that the price of both goods X and Y are $1 each. Point D on the graph.
Answer: B
Explanation: Point D is affordable because it lies on the budget constraint line. This point intersects with indifference curve I2, which gives a lower level of utility than point C, which lies on indifference curve I3 and gives the consumer a higher level of utility.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
96) Status and ego considerations in consumption are economic explanations of demand.
Answer: FALSE
Explanation: Status and ego considerations in consumption are sociopsychiatric explanations of demand.
Difficulty: 2 Medium
Topic: Determinants of Demand
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
97) Economists focus on the effect of changes in income and prices in influencing actual consumer purchases.
Answer: TRUE
Explanation: Sociologists may focus on what creates desires, but economists focus on how changes in income and prices affect consumer purchases.
Difficulty: 2 Medium
Topic: Determinants of Demand
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
98) Psychology and sociology focus on what creates desires for goods, but economics focuses on what consumers actually purchase.
Answer: TRUE
Explanation: Economics focuses on what consumers actually purchase and how changes in income and prices affect those purchases. Psychology and sociology focus on factors such as ego or social status that may create desires.
Difficulty: 1 Easy
Topic: Determinants of Demand
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
99) Marginal utility represents the additional satisfaction obtained from one more unit of a good or service.
Answer: TRUE
Explanation: Marginal utility does represent the additional satisfaction from one more unit of a good, and it is found by dividing the change in total utility by the change in quantity.
Difficulty: 1 Easy
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
100) The law of diminishing marginal utility does not apply to goods that a person really enjoys.
Answer: FALSE
Explanation: Even people who love popcorn, for instance, don’t eat endless quantities of it because at some point the satisfaction derived from one more box will decrease.
Difficulty: 2 Medium
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
101) If marginal utility is rising, then total utility must be falling.
Answer: FALSE
Explanation: As long as marginal utility is positive, total utility must be increasing from consuming a good.
Difficulty: 2 Medium
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
102) If there is no budget constraint, utility maximization is achieved when marginal utility is zero.
Answer: TRUE
Explanation: As long as marginal utility is positive, total utility must be increasing; but when marginal utility is negative, consumption of one more good will decrease total utility. Therefore total utility is maximized at the consumption level where marginal utility is neither positive nor negative.
Difficulty: 2 Medium
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
103) Utility maximization is always achieved where total revenue is maximized.
Answer: FALSE
Explanation: Utility maximization is determined by the consumption of a good, whereas total revenue is determined by the price and quantity sold of a good.
Difficulty: 2 Medium
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
104) Market demand is identical to individual demand.
Answer: FALSE
Explanation: Market demand differs from one individual’s demand curve in that the quantities are much larger, and market demand is the sum of all the individual demands for the product in the market.
Difficulty: 2 Medium
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
105) The law of diminishing marginal utility gives us insight into the downward-sloping demand curve because consumers are willing to pay a higher price for goods with high marginal utility.
Answer: TRUE
Explanation: Marginal utility is high when goods are scarce. That corresponds to the top of the demand curve where a high price has a low quantity demanded.
Difficulty: 2 Medium
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
106) An individual’s consumer surplus is the difference between the maximum price that she or he is willing to pay and the actual price.
Answer: TRUE
Explanation: Consumers benefit when they are willing to pay more than the actual price. That difference is called the consumer surplus.
Difficulty: 2 Medium
Topic: Consumer Surplus
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
107) Consumers who actually purchase a good either were willing to pay that price or more.
Answer: TRUE
Explanation: All consumers who purchase the good at the equilibrium price either were willing to pay more or were willing to pay the actual price.
Difficulty: 2 Medium
Topic: Consumer Surplus
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
108) Consumer surplus does not exist because some consumers cannot afford to purchase the product at all.
Answer: FALSE
Explanation: Consumer surplus is defined as the benefit some buyers get when they are actually willing to pay more for a good than the actual price. Remember that demand is the willingness and ability of consumers to purchase a good; there are individuals who cannot afford a good at the market price, but this does not negate the fact that some buyers still enjoy a surplus.
Difficulty: 2 Medium
Topic: Consumer Surplus
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
109) Consumer surplus is represented graphically under the demand curve and below the equilibrium price.
Answer: FALSE
Explanation: The area under the demand curve and above the equilibrium price represents total consumer surplus.
Difficulty: 3 Hard
Topic: Consumer Surplus
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
110) All consumers in the market enjoy a consumer surplus.
Answer: FALSE
Explanation: Consumers who are willing to pay the equilibrium price or more enjoy a consumer surplus. Buyers who are willing to pay less than the equilibrium price do not enjoy a consumer surplus.
Difficulty: 2 Medium
Topic: Consumer Surplus
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
111) Colleges do not engage in price discrimination because it is illegal.
Answer: FALSE
Explanation: Colleges do engage in price discrimination by charging different individuals different amounts of tuition. Price discrimination occurs when sellers charge different prices to individuals.
Difficulty: 2 Medium
Topic: Price Discrimination
Learning Objective: 05-03 The meaning and use of price discrimination.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
112) Price discrimination occurs when stores mark down products for sale.
Answer: FALSE
Explanation: Price discrimination occurs when sellers charge different prices to different individuals. When sales occur, all buyers can enjoy the lower price.
Difficulty: 2 Medium
Topic: Price Discrimination
Learning Objective: 05-03 The meaning and use of price discrimination.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
113) Sellers can increase total revenues by charging different individuals the maximum amount they are willing to pay.
Answer: TRUE
Explanation: If a price is highly negotiable, as occurs at car dealerships, sellers can increase total revenues by getting individuals to pay the highest price they are willing to pay.
Difficulty: 2 Medium
Topic: Price Discrimination
Learning Objective: 05-03 The meaning and use of price discrimination.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
114) Price discrimination typically occurs with products that consumers buy regularly.
Answer: FALSE
Explanation: Price discrimination occurs when buyers do not have full information. That will happen with products that consumers do not buy regularly. Sellers can easily discriminate with products like cars, vacations, and colleges.
Difficulty: 2 Medium
Topic: Price Discrimination
Learning Objective: 05-03 The meaning and use of price discrimination.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
115) Price discrimination is illegal in the United States.
Answer: FALSE
Explanation: Price discrimination as discussed in the textbook is not illegal. Predatory pricing, in which a seller lowers a price below unit cost with the intention of establishing a monopoly, is illegal under the Sherman Antitrust Act.
Difficulty: 2 Medium
Topic: Price Discrimination
Learning Objective: 05-03 The meaning and use of price discrimination.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
116) Price discrimination only occurs when consumers have only partial information about a product’s price and availability.
Answer: FALSE
Explanation: It is easier for a seller to engage in price discrimination when consumers do not have full information about the product’s price or availability.
Difficulty: 2 Medium
Topic: Price Discrimination
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
117) According to consumer choice theory, rational behavior requires that consumers compare the marginal utility of each purchase with its price.
Answer: TRUE
Explanation: Rational behavior requires one to compare the anticipated utility of each expenditure with its price. The smart thing to do, then, is to choose those products that promise to provide the most pleasure for the amount of income available.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
118) Optimal consumption is the mix of consumer goods sold that maximizes utility for producers.
Answer: FALSE
Explanation: Optimal consumption is the mix of consumer goods purchased that maximizes utility for consumers.
Difficulty: 1 Easy
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
119) If the marginal utility per dollar spent for candy bars is higher than the marginal utility per dollar spent for popcorn, you should buy more popcorn and fewer candy bars in order to maximize utility.
Answer: FALSE
Explanation: To maximize utility, the consumer should choose the goods that deliver the most marginal utility per dollar.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
120) Advertisers currently spend about $100 million per year to change the demand for products.
Answer: FALSE
Explanation: Advertisers now spend over $200 billion per year to change our tastes.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-03 The meaning and use of price discrimination.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
121) A successful advertising campaign induces consumers to buy more of a product at any given price than before.
Answer: TRUE
Explanation: A successful advertising campaign is one that changes consumer tastes and creates brand loyalty, thereby shifting the demand curve for a specific product to the right.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
122) Consumer theory predicts that a consumer will purchase the product with the highest marginal utility per dollar.
Answer: TRUE
Explanation: The rational consumer will take into account the additional utility a good will provide, along with its price, because the consumer has limited income. This means that the rational consumer will choose the goods with the highest marginal utility per dollar.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
123) When a rational consumer has stopped buying, she or he will have allocated a limited budget so that the marginal utility per good will be the same.
Answer: FALSE
Explanation: A rational consumer will allocate spending so that the marginal utility per dollar is the same.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
124) An indifference curve represents combinations of two goods that provide an individual the same total utility.
Answer: TRUE
Explanation: Different combinations of two goods may be equally satisfying. An indifference curve is a graphical representation of the combinations of two goods that yield equal total utility.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
125) The farther an indifference curve is from the origin, the more total utility it yields.
Answer: TRUE
Explanation: An indifference map depicts all the combinations of goods that would yield various levels of satisfaction. As the indifference curves move farther from the origin, the level of total utility increases.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
126) A budget constraint line represents combinations of two goods that provide an individual the same total utility.
Answer: FALSE
Explanation: An indifference curve is a graphical representation of the combinations of two goods that yield equal total utility. A budget constraint depicts the limited consumption possibilities.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
127) A consumer can purchase a product that is outside her or his budget constraint if it is on a higher indifference curve.
Answer: FALSE
Explanation: A consumer cannot purchase any good that is outside the budget constraint; it is unaffordable. The rational consumer will purchase a combination of goods that lies on the budget constraint but meets the highest indifference curve, or highest utility.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
128) An indifference curve shows the combinations of two goods that yield the same level of utility.
Answer: TRUE
Explanation: Each indifference curve shows the combination of two goods that yield the same utility. The consumer is ‘indifferent’ to these various combinations that lie on the same utility curve.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
129) The rational consumer chooses a combination of two goods that is on the budget constraint and is tangent to the highest indifference curve possible.
Answer: TRUE
Explanation: The goal of the consumer is to purchase a combination of two goods that is affordable (lies on the budget constraint line) and that yields the highest utility (is tangent to the highest indifference curve).
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
130) Two indifference curves can cross one another.
Answer: FALSE
Explanation: Two indifference curves cannot cross. Each indifference curve shows the combinations of two goods that yield the same level of utility. An indifference map for each individual shows successive indifference curves rising from lower to higher levels of utility. If two curves cross, this would violate the assumption of an equal level of utility presented by the combinations on one indifference curve.
Difficulty: 2 Medium
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
131) Use the law of diminishing utility to explain why a demand curve is typically downward-sloping.
Answer: The greater the quantity of a good that is consumed, the less marginal utility the consumer receives from that good. This implies that the price a consumer is willing to pay for additional units declines. This establishes the typical inverse relationship between price and quantity.
Difficulty: 3 Hard
Topic: The Demand Curve
Learning Objective: 05-01 Why demand curves are downward sloping.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
132) Explain how a successful advertising campaign will affect the demand curve for the product being advertised.
Answer: A successful advertising campaign will shift the demand curve for the product being advertised to the right, inducing consumers to buy more at every price. Advertising may also increase brand loyalty, making the demand curve steeper.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
133) Explain how a rational consumer decides which goods to buy.
Answer: Rational consumers are aware of their budget constraints and are aware of the available products and their prices. In addition, they know how much utility they get from buying each good. The consumers will want to find the combinations of goods that give them the most satisfaction for the money. Buying each product that yields the highest marginal utility per dollar first, and continuing until they exhaust their budgets, will result in the highest total utility. The marginal utility per dollar across all goods in the consumption bundle will be the optimal combination of goods.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
134) Using the concept of the budget constraint and indifference curves, explain how a consumer maximizes total utility.
Answer: Rational consumers maximize total utility given their budget constraints. Each consumer has an indifference map. Each indifference curve shows various combinations of two goods that have the same level of utility. The consumer will maximize total utility of two goods where the highest indifference curve is tangent to the budget constraint line.
Difficulty: 3 Hard
Topic: Choosing Among Products
Learning Objective: 05-04 How consumers maximize utility.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
135) Under what conditions can sellers engage in price discrimination?
Answer: Price discrimination occurs when sellers can charge different individuals or groups different prices for the same product. They can more easily do this if consumers do not have full information about a product and they negotiate a price with each individual separately. This occurs in automobile dealerships, in airline pricing, and with college tuition. It occurs with products that are not purchased regularly.
Difficulty: 3 Hard
Topic: Price Discrimination
Learning Objective: 05-03 The meaning and use of price discrimination.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
136) Explain the benefits consumers enjoy from competitive markets.
Answer: Many consumers in the market are willing to pay a maximum price that is greater than the actual price. The sum of all of those surpluses is the total consumer surplus enjoyed in the market. In addition, consumers benefit from the variety of goods provided by many sellers. This competition helps to determine the equilibrium price in the marketplace.
Difficulty: 2 Medium
Topic: Consumer Surplus
Learning Objective: 05-02 The nature and source of consumer surplus.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
