Question 1

If total utility is falling, marginal utility is:

Accepted Answer

A)   positive.
B)   negative
C)   positive, but declining.
D)   zero. B

Question 2

The principle of diminishing marginal utility says that:

Accepted Answer

A)   as more of a good or service is consumed, demand decreases.
B)   as more of a good or service is consumed, the price will rise.
C)   the marginal utility of additional units consumed decreases.
D)   an increase in income causes demand to increase. C

Question 3

Melinda considers lattes and coffee to be good substitutes. Suppose the price of milk, a key ingredient used to produce lattes, falls. According to the income effect, which of the following is most likely to occur?

Accepted Answer

A)   Melinda will purchase fewer lattes and more coffee.
B)   Melinda will purchase more lattes and less coffee.
C)   Melinda will purchase more of most goods due to her higher real income.
D)   Melinda's demand curve will decrease (shift in) , causing her to purchase fewer lattes. C

Question 4

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

Accepted Answer

A)   gasoline is an economic good but water is not.
B)   the marginal utility of gasoline is greater than the marginal utility of a gallon of water.
C)   the average utility of a gallon of gasoline is greater than the average utility of a gallon of water.
D)   the total utility of gasoline exceeds the total utility of water.

Question 5

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

Accepted Answer

A)   income effect.
B)   utility effect.
C)   consumption effect.
D)   substitution effect.

Question 6

If a consumer wishes to maximize satisfaction given limited income and MUx/Px

Accepted Answer

A)   buy less of both X and Y.
B)   buy more of X and less of Y.
C)   buy more of Y and less of X.
D)   buy more of both X and Y.

Question 7

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

Accepted Answer

A)   3.
B)   9.
C)   25.
D)   31.

Question 8

The term utility refers to the:

Accepted Answer

A)   pleasure or satisfaction a consumer receives upon consuming a good.
B)   necessity of a good.
C)   price of a good.
D)   number of goods a consumer has.

Question 9

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

Accepted Answer

A)   2.
B)   14.
C)   4.
D)   34.

Question 10

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

Accepted Answer

A)   12.
B)   6.
C)   4.
D)   1.

Question 11

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

Accepted Answer

A)   Joe buys fewer apples and more oranges as the result of an increase in the price of apples.
B)   Joe buys more apples when his income increases.
C)   Joe buys an apple slicer when the price of apples decreases.
D)   Joe buys less sugar as the result of an increase in price of apples.

Question 12

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

Accepted Answer

A)   the total utility of telephones will decrease.
B)   the total utility of telephones will be unchanged.
C)   the marginal utility of telephones will likely increase.
D)   the marginal utility of telephones will likely decrease.

Question 13

Exhibit 6-7 Marginal utility for sandwiches and sodas

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

Accepted Answer

A)   five; zero
B)   four; one
C)   three; two
D)   two; two

Question 14

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

Accepted Answer

A)   decrease his spending on cola.
B)   decrease his spending on cola and increase his spending on shirts.
C)   increase his spending on shirts.
D)   increase his spending on cola and decrease his spending on shirts.

Question 15

Exhibit 6-7 Marginal utility for sandwiches and sodas

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

Accepted Answer

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

Question 16

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

Accepted Answer

The answer of Use the idea of interpersonal comparisons of...

Question 17

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

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

Accepted Answer

A)   less of both X and Y.
B)   more of X and less of Y.
C)   less of X and more of Y.
D)   more of both X and Y.

Question 18

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. In the consumer equilibrium, what is the marginal utility per dollar for each of the three goods?

Accepted Answer

A)   20 utils per dollar.
B)   40 utils per dollar.
C)   90 utils per dollar.
D)   270 utils per dollar.

Question 19

If marginal utility is positive, then total utility is:

Accepted Answer

A)   constant.
B)   negative.
C)   increasing.
D)   decreasing.

Question 20

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

Accepted Answer

A)   rises at a steady rate.
B)   decreases.
C)   remains constant.
D)   accelerates.

Exam 6: Consumer Choice Theory