Question 1

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:

Accepted Answer

A)  increase faster and faster. 
B)  fall steadily. 
C)  remain constant. 
D)  rise, but at slower and slower rates. 
A)  increase faster and faster. 
B)  fall steadily. 
C)  remain constant. 
D)  rise, but at slower and slower rates.

Question 2

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

Accepted Answer

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. 
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.

Question 3

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

Accepted Answer

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. 
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.

Question 4

Exhibit 6-1 Total utility for good X
 
As shown in Exhibit 6-1, the marginal utility for the second unit consumed is:

Accepted Answer

A)  0. 
B)  40. 
C)  80. 
D)  200. 
A)  0. 
B)  40. 
C)  80. 
D)  200.

Question 5

Which of the following best describes the economic concept of utility?

Accepted Answer

A)  Utility is the total number of units a consumer buys. 
B)  Utility measures the usefulness of goods, such as tools or food, and so goods such as artwork or attractive landscaping by definition has no utility. 
C)  Utility measures the satisfaction, or pleasure, that people receive from consuming a good or service. 
D)  Utility and price are interchangeable values. 
A)  Utility is the total number of units a consumer buys. 
B)  Utility measures the usefulness of goods, such as tools or food, and so goods such as artwork or attractive landscaping by definition has no utility. 
C)  Utility measures the satisfaction, or pleasure, that people receive from consuming a good or service. 
D)  Utility and price are interchangeable values.

Question 6

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

Accepted Answer

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)  The quantity demanded for amusement goods will remain constant. 
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)  The quantity demanded for amusement goods will remain constant.

Question 7

If utility is not maximized, then:

Accepted Answer

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. 
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.

Question 8

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

Accepted Answer

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. 
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.

Question 9

The subjective measure of the physical and mental satisfaction that is anticipated from consumption is called

Accepted Answer

A)  demand. 
B)  supply. 
C)  recognition. 
D)  utility. 
A)  demand. 
B)  supply. 
C)  recognition. 
D)  utility.

Question 10

Justin stopped at the gas station on the way to campus and bought four candy bars, two 20-ounce bottles of juice, and 10 gallons of gas. His marginal-utility-to-price ratios are 3.2 for the candy bars, 4.8 for the juice, 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.

Accepted Answer

He has not maximized utility because the

Question 11

Generally speaking, as more of a particular good is purchased, a consumer's marginal utility

Accepted Answer

A)  increases and total utility decreases. 
B)  decreases and total utility increases. 
C)  increases and total utility increases. 
D)  decreases and total utility decreases. 
A)  increases and total utility decreases. 
B)  decreases and total utility increases. 
C)  increases and total utility increases. 
D)  decreases and total utility decreases.

Question 12

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:

Accepted Answer

A)  money means more to Allison. 
B)  money means more to Brad. 
C)  Brad is richer than Allison. 
D)  nothing, since we can't make interpersonal utility comparisons. 
A)  money means more to Allison. 
B)  money means more to Brad. 
C)  Brad is richer than Allison. 
D)  nothing, since we can't make interpersonal utility comparisons.

Question 13

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

Accepted Answer

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. 
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.

Question 14

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

Accepted Answer

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 rises. 
D)  total utility of the good diminishes. 
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 rises. 
D)  total utility of the good diminishes.

Question 15

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

Accepted Answer

A)  also falls. 
B)  stays the same. 
C)  rises. 
D)  will rise or fall, depending on the consumer. 
A)  also falls. 
B)  stays the same. 
C)  rises. 
D)  will rise or fall, depending on the consumer.

Question 16

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

Accepted Answer

A)  purchase more complementary goods. 
B)  purchase more substitute goods. 
C)  purchase fewer substitute goods. 
D)  have more real income. 
A)  purchase more complementary goods. 
B)  purchase more substitute goods. 
C)  purchase fewer substitute goods. 
D)  have more real income.

Exam 6: Consumer Choice Theory

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:

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

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

Exhibit 6-1 Total utility for good X As shown in Exhibit 6-1, the marginal utility for the second unit consumed is:

Which of the following best describes the economic concept of utility?

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

If utility is not maximized, then:

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

The subjective measure of the physical and mental satisfaction that is anticipated from consumption is called

Generally speaking, as more of a particular good is purchased, a consumer's marginal utility

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:

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

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

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

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

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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