Question 1

If a consumer is maximizing his/her utility for a given income, the:

Accepted Answer

A)  marginal utility for every good purchased would be the same. 
B)  marginal utility per dollar spent for all goods would be the same. 
C)  marginal utility per dollar for all goods would be at a maximum. 
D)  total expenditure on each good would be the same.

Question 2

In the theory of consumer choice, when a person is choosing which good or service to consume, how does he or she select the units of good or service to consume?

Accepted Answer

A)  ​The person selects the good or service based on need. 
B)  ​The person selects the units of a good or service that generates the greatest marginal utility. This process continues until there budget is spent. 
C)  ​The person selects the units of a good or service that generates the greatest marginal utility per dollar spent. This process continues until the person's budget is spent. 
D)  ​The person randomly selects what they buy until the budget is spent. ​

Question 3

If total utility from consuming two cups of coffee is 20 utils, and if the total utility from consuming three cups of coffee is 25 utils, then which of the following is the marginal utility of the third cup of coffee?

Accepted Answer

A)  0. 
B)  5. 
C)  20. 
D)  25.

Question 4

The demand curve is downward-sloping because of the law of

Accepted Answer

A)  diminishing marginal utility. 
B)  diminishing consumer equilibrium. 
C)  consumer equilibrium. 
D)  diminishing utility maximization.

Question 5

Consumer equilibrium exists when:

Accepted Answer

A)  the marginal utility of each good and service consumed is equal. 
B)  the total utility of each good and service consumed is equal. 
C)  the marginal utility of each good and service consumed equals its price. 
D)  ratio of marginal utility to price for all goods and services is equal.

Question 6

Greg spends his entire budget on two goods: he plays video games at the mall arcade and he buys pizza. He discovers that his MU/P of video games is lower than his MU/P of pizza. From this, we know that he would be:

Accepted Answer

A)  as happy as possible, since he is already maximizing total utility. 
B)  happier eating less pizza and playing more video games. 
C)  happier eating more pizza and playing fewer video games. 
D)  indifferent to which selection he makes.

Question 7

On Thanksgiving, Jake's mother gives him a huge platter of food. If Jake were to keep eating just to please his mother (even when he really wanted to stop), his marginal utility would be:

Accepted Answer

A)  the same as his total utility. 
B)  large. 
C)  negative. 
D)  positive.

Question 8

As a general rule, marginal utility will be less:

Accepted Answer

A)  as less of the good is consumed. 
B)  as more of the good is consumed. 
C)  when average utility is at a maximum. 
D)  only when the good is inferior.

Question 9

A utility-maximizing consumer is currently spending all of his/her income on two products, A and B. The MU of the last unit of A consumed is 50, the price of A is $25, and the price of B is $10. The MU of the last unit of B consumed is:

Accepted Answer

A)  50. 
B)  5. 
C)  2. 
D)  20.

Question 10

Assume the price of Coca-Cola increases. As a result, your real income decreases and you decrease the quantity of Coca-Cola purchased each month. This is an example of the:

Accepted Answer

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

Question 11

Suppose that for Merv the marginal utility of $50-per-serving caviar is 100 and the marginal utility of $1-per-serving popcorn is 10. For his snack, Merv should buy:

Accepted Answer

A)  the caviar if he has the $50; otherwise, the popcorn. 
B)  the caviar if he has the $50; otherwise, nothing. 
C)  the popcorn, whether he has the $50 or not. 
D)  five servings of popcorn for each serving of caviar.

Question 12

When the price of a good falls, consumers buy more of the good because it is cheaper relative to competing goods. This statement describes the:

Accepted Answer

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

Question 13

Assume that an individual consumes only coffee and bagels and that the last cup of coffee yields 12 utils and the last bagel 6 utils. If the price of a cup of coffee is $1 and the price of the bagel is $.50, we can conclude that the:

Accepted Answer

A)  consumer should consume more coffee and fewer bagels. 
B)  price of coffee is too high relative to bagels. 
C)  consumer should consume less coffee and more bagels. 
D)  consumer is in equilibrium.

Question 14

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

Refer to Exhibit 6-6. Clothes and amusements are priced at $10 each. If you had a budget of $50, which of the following combinations of goods would you buy?

Accepted Answer

A)  4 units of clothes and 1 unit of amusement. 
B)  3 units of clothes and 2 units of amusement. 
C)  2 units of clothes and 3 units of amusement. 
D)  1 unit of clothes and 4 units of amusement.

Question 15

Assume the price of good X increases. As a result, your real income decreases and you decrease the quantity of good X purchased each month. This is an example of the:

Accepted Answer

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

Question 16

Suppose a consumer wants to obtain the highest possible satisfaction from goods purchased on a fixed budget. Which of the following must be equal for all goods?

Accepted Answer

A)  Total utility. 
B)  Marginal utility. 
C)  Average utility. 
D)  Marginal utility per dollar.

Question 17

Assume that an individual consumes only hotdogs and colas and that the last hotdog consumed yields 15 utils and the last cola 10 utils. If the price of a hotdog is $1 and the price of a cola is $.50, we can conclude that the:

Accepted Answer

A)  consumer should consume more hotdogs and less cola. 
B)  price of hotdogs is too high. 
C)  consumer should consume fewer hotdogs and more cola. 
D)  consumer is in equilibrium.

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. What is the marginal utility of having a second order of fries?

Accepted Answer

A)  10 utils. 
B)  20 utils. 
C)  30 utils. 
D)  50 utils.

Question 19

If finding the last stamp to complete your collection makes you happier than finding the first, then:

Accepted Answer

A)  marginal utility is zero. 
B)  marginal utility is negative. 
C)  total utility is decreasing. 
D)  marginal utility is not diminishing.

Question 20

John loves to travel. He would never turn down the opportunity to go on a trip. This means that, for John:

Accepted Answer

A)  the total utility of travel always increases. 
B)  marginal utility of travel never decreases. 
C)  the law of diminishing marginal utility does not apply to travel. 
D)  marginal utility of travel is always zero.

Exam 6: Consumer Choice Theory