Question 1

As an individual consumes more of a particular good, the total level of utility derived from that consumption usually

Accepted Answer

A)  increases at a constant rate. 
B)  increases at an increasing rate. 
C)  increases at a decreasing rate. 
D)  decreases at an increasing rate. 
A)  increases at a constant rate. 
B)  increases at an increasing rate. 
C)  increases at a decreasing rate. 
D)  decreases at an increasing rate.

Question 2

If incomes fall, then

Accepted Answer

A)  the budget constraint shifts inward. 
B)  the budget constraint shifts out. 
C)  there is no change in the budget constraint. 
D)  there is no relationship between the budget constraint and income. 
A)  the budget constraint shifts inward. 
B)  the budget constraint shifts out. 
C)  there is no change in the budget constraint. 
D)  there is no relationship between the budget constraint and income.

Question 3

If marginal utility is zero

Accepted Answer

A)  total utility increases at a decreasing rate. 
B)  total utility increases at an increasing rate. 
C)  total utility is at a maximum. 
D)  people will consume more of the good only if the price is zero. 
A)  total utility increases at a decreasing rate. 
B)  total utility increases at an increasing rate. 
C)  total utility is at a maximum. 
D)  people will consume more of the good only if the price is zero.

Question 4

A consumer is at an optimum when the price of one good she has been consuming decreases. As a result

Accepted Answer

A)  the value of the marginal utility of the last unit consumed has increased. 
B)  the value of the marginal utility of the last unit consumed has decreased. 
C)  the price of the other good must decrease too. 
D)  the marginal utility of the last dollar spent on this good is now greater than the marginal utility of the last dollar spent on other goods. 
A)  the value of the marginal utility of the last unit consumed has increased. 
B)  the value of the marginal utility of the last unit consumed has decreased. 
C)  the price of the other good must decrease too. 
D)  the marginal utility of the last dollar spent on this good is now greater than the marginal utility of the last dollar spent on other goods.

Question 5

The real-income effect shows that

Accepted Answer

A)  a decrease in the price of a good increases the purchasing power of the consumer's income. 
B)  if the consumer's income rises, he or she buys more of inferior goods and less of normal goods. 
C)  if a good is inferior, a decrease in the purchasing power of income results in less of the good being consumed. 
D)  when the price of a good rises, consumers are able to buy more of other goods because of the increase in the purchasing power of income. 
A)  a decrease in the price of a good increases the purchasing power of the consumer's income. 
B)  if the consumer's income rises, he or she buys more of inferior goods and less of normal goods. 
C)  if a good is inferior, a decrease in the purchasing power of income results in less of the good being consumed. 
D)  when the price of a good rises, consumers are able to buy more of other goods because of the increase in the purchasing power of income.

Question 6

The analysis of consumer decision making based on utility maximization is known as

Accepted Answer

A)  specialization analysis. 
B)  consumption analysis. 
C)  utility analysis. 
D)  market analysis. 
A)  specialization analysis. 
B)  consumption analysis. 
C)  utility analysis. 
D)  market analysis.

Question 7

Which English philosopher set out to develop an arithmetic formula for measuring happiness and along the way invented the util?

Accepted Answer

A)  John Maynard Keynes 
B)  Milton Friedman 
C)  Jeremy Bentham 
D)  Adam Smith 
A)  John Maynard Keynes 
B)  Milton Friedman 
C)  Jeremy Bentham 
D)  Adam Smith

Question 8

A consumer has spent all of his income on pizza and movies. The price of a piece of pizza is $1 and the price of a movie is $6. The marginal utility of the last piece of pizza is 5 and the marginal utility of the last movie is 24. The consumer has

Accepted Answer

A)  maximized utility. 
B)  not maximized utility. He should cut back on movies and buy more pizza. 
C)  not maximized utility. He should cut back on pizza and buy more movies. 
D)  not maximized utility. He should cut back consumption of each good. 
A)  maximized utility. 
B)  not maximized utility. He should cut back on movies and buy more pizza. 
C)  not maximized utility. He should cut back on pizza and buy more movies. 
D)  not maximized utility. He should cut back consumption of each good.

Question 9

Suppose a family purchases 10,000 gallons of water a year at 20 cents a gallon and one diamond ring at a price of $1,000. Can we conclude that the diamond ring provides more utility to the family than water? Explain.

Accepted Answer

No. In fact, the water provides more tot

Question 10

-If the price of A is $3 and the price of B is $5, then, in a consumer optimum

Accepted Answer

A)  the quantity purchased of B must be 60 percent of the quantity of A purchased. 
B)  the quantity purchased of B must be 67 percent of the quantity of A purchased. 
C)  the marginal utility of B must be 67 percent more than the marginal utility of A. 
D)  the marginal utility of A must equal 3 and the marginal utility of B must equal 5. 
A)  the quantity purchased of B must be 60 percent of the quantity of A purchased. 
B)  the quantity purchased of B must be 67 percent of the quantity of A purchased. 
C)  the marginal utility of B must be 67 percent more than the marginal utility of A. 
D)  the marginal utility of A must equal 3 and the marginal utility of B must equal 5.

Question 11

The real-income and the substitution effects reinforce each other by

Accepted Answer

A)  increasing the consumption of good B when the price of A falls. 
B)  increasing the consumption of both goods A and B when income increases. 
C)  decreasing the consumption of good A when the price of good B falls. 
D)  decreasing the consumption of good A when the price of good A increases. 
A)  increasing the consumption of good B when the price of A falls. 
B)  increasing the consumption of both goods A and B when income increases. 
C)  decreasing the consumption of good A when the price of good B falls. 
D)  decreasing the consumption of good A when the price of good A increases.

Question 12

-Use the above figure. The optimal position for the consumer is at

Accepted Answer

A)  J or L. 
B)  M. 
C)  K. 
D)  N. 
A)  J or L. 
B)  M. 
C)  K. 
D)  N.

Question 13

-The price of product X is $3, the price of product Y is $2, and you have $18 to spend. What combination of product X and product Y will give you the most satisfaction?

Accepted Answer

A)  5 units of product X; 1 unit of product Y 
B)  4 units of product X and 3 units of product Y 
C)  2 units of product X and 5 units of product Y 
D)  3 units of product X and 5 units of product Y 
A)  5 units of product X; 1 unit of product Y 
B)  4 units of product X and 3 units of product Y 
C)  2 units of product X and 5 units of product Y 
D)  3 units of product X and 5 units of product Y

Question 14

Utility theory assumes that a consumer tries to

Accepted Answer

A)  maximize her average utility. 
B)  maximize her marginal utility. 
C)  maximize the difference between total and marginal utility. 
D)  maximize her total utility. 
A)  maximize her average utility. 
B)  maximize her marginal utility. 
C)  maximize the difference between total and marginal utility. 
D)  maximize her total utility.

Question 15

-Refer to the above figure. Given the indifference map and budget constraint represented above, what would make all possible points attainable for the individual to consume?

Accepted Answer

A)  an increase in the price of Good X 
B)  a decrease in income 
C)  an increase in the price of Good Y 
D)  a decrease in the price of Good X 
A)  an increase in the price of Good X 
B)  a decrease in income 
C)  an increase in the price of Good Y 
D)  a decrease in the price of Good X

Question 16

If marginal utility is positive but diminishing, then

Accepted Answer

A)  average utility must be negative. 
B)  total utility must also be diminishing. 
C)  total utility must be positive. 
D)  marginal utility must be more than total utility. 
A)  average utility must be negative. 
B)  total utility must also be diminishing. 
C)  total utility must be positive. 
D)  marginal utility must be more than total utility.

Question 17

If a restaurant guest said, "Every bite, including the last bite, tasted as good as the first," then the marginal utility for her

Accepted Answer

A)  is decreasing. 
B)  is increasing. 
C)  is constant. 
D)  is positive. 
A)  is decreasing. 
B)  is increasing. 
C)  is constant. 
D)  is positive.

Question 18

In a restaurant we can observe people consuming coffee, tea, and juices. All are priced the same. If Ann consumes coffee and Bob consumes a juice, we can conclude that

Accepted Answer

A)  Carl, another restaurant guest, will be drinking tea. 
B)  Ann likes coffee more than Bob does, and Bob likes juices more than Ann does. 
C)  Ann derives more utility from coffee than from tea or juices, and Bob derives more utility from juices than from tea or coffee. 
D)  the utility Ann receives from coffee consumption equals the utility that Bob receives from consuming juices. 
A)  Carl, another restaurant guest, will be drinking tea. 
B)  Ann likes coffee more than Bob does, and Bob likes juices more than Ann does. 
C)  Ann derives more utility from coffee than from tea or juices, and Bob derives more utility from juices than from tea or coffee. 
D)  the utility Ann receives from coffee consumption equals the utility that Bob receives from consuming juices.

Question 19

-Use the above figure. The consumer's choice changes from YA to YB. Which of the following statements about good Y is TRUE?

Accepted Answer

A)  price has increased and the quantity demanded has risen. 
B)  price has decreased and the quantity demanded has risen. 
C)  price has decreased and the quantity demanded has fallen. 
D)  price has increased and the quantity demanded has fallen. 
A)  price has increased and the quantity demanded has risen. 
B)  price has decreased and the quantity demanded has risen. 
C)  price has decreased and the quantity demanded has fallen. 
D)  price has increased and the quantity demanded has fallen.

Question 20

In utility analysis, a consumer's tastes and preferences are assumed to be

Accepted Answer

A)  dependent on income and education. 
B)  predetermined and constant. 
C)  dependent on national origin. 
D)  non-existent 
A)  dependent on income and education. 
B)  predetermined and constant. 
C)  dependent on national origin. 
D)  non-existent

Exam 20: Consumer Choice

As an individual consumes more of a particular good, the total level of utility derived from that consumption usually

If incomes fall, then

If marginal utility is zero

A consumer is at an optimum when the price of one good she has been consuming decreases. As a result

The real-income effect shows that

The analysis of consumer decision making based on utility maximization is known as

Which English philosopher set out to develop an arithmetic formula for measuring happiness and along the way invented the util?

A consumer has spent all of his income on pizza and movies. The price of a piece of pizza is $1 and the price of a movie is $6. The marginal utility of the last piece of pizza is 5 and the marginal utility of the last movie is 24. The consumer has

Suppose a family purchases 10,000 gallons of water a year at 20 cents a gallon and one diamond ring at a price of $1,000. Can we conclude that the diamond ring provides more utility to the family than water? Explain.

-If the price of A is $3 and the price of B is $5, then, in a consumer optimum

The real-income and the substitution effects reinforce each other by

-Use the above figure. The optimal position for the consumer is at

-The price of product X is $3, the price of product Y is $2, and you have $18 to spend. What combination of product X and product Y will give you the most satisfaction?

Utility theory assumes that a consumer tries to

-Refer to the above figure. Given the indifference map and budget constraint represented above, what would make all possible points attainable for the individual to consume?

If marginal utility is positive but diminishing, then

If a restaurant guest said, "Every bite, including the last bite, tasted as good as the first," then the marginal utility for her

In a restaurant we can observe people consuming coffee, tea, and juices. All are priced the same. If Ann consumes coffee and Bob consumes a juice, we can conclude that

-Use the above figure. The consumer's choice changes from YA to YB. Which of the following statements about good Y is TRUE?

In utility analysis, a consumer's tastes and preferences are assumed to be

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