Question 1

If water is essential for life, while diamonds are not, then why is water cheaper than diamonds?

Accepted Answer

A)  Because the marginal utility of water is high but the total utility is low. 
B)  Because the total utility generated by diamonds is larger than the total utility generated by water. 
C)  Because most people do not understand their total need for water. 
D)  Because water is abundant, the marginal utility of water is low, and price reflects marginal utility, not total utility. 
A)  Because the marginal utility of water is high but the total utility is low. 
B)  Because the total utility generated by diamonds is larger than the total utility generated by water. 
C)  Because most people do not understand their total need for water. 
D)  Because water is abundant, the marginal utility of water is low, and price reflects marginal utility, not total utility.

Question 2

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:

Accepted Answer

A)  substitution effect. 
B)  income effect. 
C)  revenue effect. 
D)  consumer price effect. 
A)  substitution effect. 
B)  income effect. 
C)  revenue effect. 
D)  consumer price effect.

Question 3

Utility theory assumes that marginal utility:

Accepted Answer

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. 
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.

Question 4

Which of the following statements is true ?

Accepted Answer

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. 
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.

Question 5

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

Accepted Answer

A)  income effect. 
B)  substitution effect. 
C)  elasticity effect. 
D)  monetary effect. 
A)  income effect. 
B)  substitution effect. 
C)  elasticity effect. 
D)  monetary effect.

Question 6

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

Accepted Answer

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. 
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.

Question 7

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

Accepted Answer

A)  neither X nor Y. 
B)  more of X and less of Y. 
C)  more of Y. 
D)  more of both X and Y. 
A)  neither X nor Y. 
B)  more of X and less of Y. 
C)  more of Y. 
D)  more of both X and Y.

Question 8

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?

Accepted Answer

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. 
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.

Question 9

Exhibit 6-5 Marginal utility data for desserts
 
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?

Accepted Answer

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. 
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.

Question 10

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

Accepted Answer

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. 
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.

Question 11

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

Accepted Answer

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. 
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.

Question 12

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

Accepted Answer

A)  total utility is decreasing. 
B)  marginal utility is diminishing. 
C)  the price is high. 
D)  income is decreasing. 
A)  total utility is decreasing. 
B)  marginal utility is diminishing. 
C)  the price is high. 
D)  income is decreasing.

Question 13

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

Accepted Answer

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. 
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.

Question 14

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

Accepted Answer

A)  water and diamond paradox. 
B)  law of diminishing marginal utility. 
C)  law of total utility. 
D)  marginal-utility-to-price ratio equalization rule. 
A)  water and diamond paradox. 
B)  law of diminishing marginal utility. 
C)  law of total utility. 
D)  marginal-utility-to-price ratio equalization rule.

Question 15

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

Accepted Answer

A)  6 utils. 
B)  8 utils. 
C)  10 utils. 
D)  30 utils. 
A)  6 utils. 
B)  8 utils. 
C)  10 utils. 
D)  30 utils.

Question 16

Exhibit 6-1 Total utility for good X
 
As shown in Exhibit 6-1, the law of diminishing marginal utility is first observed at the:

Accepted Answer

A)  first unit. 
B)  second unit. 
C)  third unit. 
D)  fourth unit. 
A)  first unit. 
B)  second unit. 
C)  third unit. 
D)  fourth unit.

Question 17

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

Accepted Answer

A)  5 utils per dollar. 
B)  9 utils per dollar. 
C)  13 utils per dollar. 
D)  22 utils per dollar. 
A)  5 utils per dollar. 
B)  9 utils per dollar. 
C)  13 utils per dollar. 
D)  22 utils per dollar.

Question 18

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.

Accepted Answer

If marginal utilities per dollar are ini

Question 19

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

Accepted Answer

A)  1, 2, 4, 8. 
B)  8, 4, 1, 2. 
C)  4, 8, 2, 1. 
D)  8, 4, 2, 1. 
A)  1, 2, 4, 8. 
B)  8, 4, 1, 2. 
C)  4, 8, 2, 1. 
D)  8, 4, 2, 1.

Question 20

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

Accepted Answer

A)  substitution effect. 
B)  income effect. 
C)  consumer equilibrium effect. 
D)  price effect. 
A)  substitution effect. 
B)  income effect. 
C)  consumer equilibrium effect. 
D)  price effect.

Exam 6: Consumer Choice Theory

If water is essential for life, while diamonds are not, then why is water cheaper than diamonds?

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:

Utility theory assumes that marginal utility:

Which of the following statements is true ?

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

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

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?

Exhibit 6-5 Marginal utility data for desserts 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 state of consumer equilibrium for two goods consumed exists when the:

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

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

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

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

Exhibit 6-1 Total utility for good X As shown in Exhibit 6-1, the law of diminishing marginal utility is first observed at the:

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.

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

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

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Understanding Direct and Inverse Relationships between Variables

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