Deck 6: Consumer Choice Theory

Question 1

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

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

Answer 1

D

Question 2

Utility theory assumes that marginal utility:

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.

Answer 2

B

Question 3

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

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.

Answer 3

B

Question 4

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

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 5

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?

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

Question 6

Bonnie gets her hair cut at her usual salon and is very happy with the results. Later that afternoon, she goes to the mall and sees that a hair salon is giving away free haircuts only on that day. If Bonnie does not take advantage of the giveaway, it is because the:

A) marginal utility of the next haircut would be zero or negative.
B) marginal utility of the next haircut would increase.
C) marginal utility of the next haircut would be zero or positive.
D) total utility of both haircuts would be zero or negative.

Question 7

Utility is defined as the:

A) sense of pleasure or satisfaction derived from consuming goods and services.
B) cost of acquiring goods and services.
C) profits consumers earn from consuming goods and services.
D) monetary value to consumers of goods and services.

Question 8

A util represents a unit of measurement for the:

A) dollars a consumer spends on a good.
B) profit a firm makes from producing a good.
C) way a consumer will respond to a change in price.
D) happiness a person obtains from consuming a good.

Question 9

If utility is not maximized, then:

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 10

The term utility refers to the:

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 11

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

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 12

When total utility is at a maximum, marginal utility is:

A) zero.
B) positive.
C) negative.
D) one.

Question 13

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?

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

Question 14

If total utility is falling, marginal utility is:

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

Question 15

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

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

Question 16

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

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.

Question 17

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

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

Question 18

Marginal utility is the change in:

A) total utility when an extra unit of output is produced.
B) marginal utility when an extra unit of output is consumed.
C) total utility when an extra unit of output is consumed.
D) average utility when an extra unit of output is consumed.

Question 19

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:

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

Question 20

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

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 21

The principle of diminishing marginal utility says that:

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.

Question 22

If marginal utility is positive, then total utility is:

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

Question 23

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

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 24

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

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 25

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

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

Question 26

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:

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

Question 27

As a general rule, marginal utility will be less:

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 28

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

A) 0.
B) 4.
C) 12.
D) 20.

Question 29

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

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 30

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

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 31

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

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

Question 32

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:

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 33

Marginal utility is defined as:

A) the extra satisfaction the consumer receives from an extra $1 of income.
B) the total level of satisfaction a consumer receives upon the consumption of a certain number of goods.
C) the number of hours a consumer would be willing to work to receive a certain product.
D) the extra satisfaction a person derives from consuming an additional unit of a good.

Question 34

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:

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

Question 35

If the first four units of a good consumed have marginal utilities of 8, 4, 2, and 1, respectively, this trend is an indication of the:

A) law of consumer equilibrium.
B) law of diminishing marginal utility.
C) law of diminishing consumer surplus.
D) law of supply.

Question 36

According to the law of diminishing marginal utility, the marginal utility curve is

A) vertical
B) flat.
C) upward sloping.
D) downward sloping.

Question 37

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

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

Question 38

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

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 39

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

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

Question 40

Which of the following most directly reflects the law of diminishing marginal utility?

A) After watching two football games, Terry decides to watch a third game.
B) A sports fan enjoys watching Monday night football rather than going to the theater.
C) After watching three episodes of her favorite show, Kim decides to go bowling rather than watch a fourth episode.
D) A musician receives the biggest ovation of the evening after playing the final number of a recital.

Question 41

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:

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 42

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?

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 43

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:

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 44

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:

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 45

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:

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

Question 46

If Jane's marginal benefit as a consumer in the jeans market is larger than the price of a pair of jeans:

A) Jane will not purchase any more jeans.
B) Jane can benefit by purchasing more jeans.
C) the opportunity cost of a pair of jeans is lower than the price.
D) Jane will decrease her total utility by purchasing more jeans.

Question 47

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?

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

Question 48

Assume a consumer purchases a combination of goods X and Y such that MU_x / P_x = 20 units of utility per dollar and MU_y / P_y = 10 units of utility per dollar. To maximize utility, the consumers should buy:

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

Question 49

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?

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

Question 50

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?

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

Question 51

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

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 52

A consumer buys only food and clothing. If the quantity of food bought increases while that of clothing remains the same, the marginal utility of food will:

A) fall, but not as fast as the marginal utility of clothing falls.
B) rise, but not as fast as the marginal utility of clothing rises.
C) rise relative to the marginal utility of clothing.
D) fall relative to the marginal utility of clothing.

Question 53

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:

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 54

Exhibit 6-1 Total utility for good X

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

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

Question 55

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?

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 56

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:

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 57

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?

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 58

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?

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

Question 59

If John's marginal benefit derived from the consumption of another candy bar is greater than the price of 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 60

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?

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

Question 61

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?

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 62

If a consumer wishes to maximize satisfaction given limited income and MU_x/P_x

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 63

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:

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 64

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

Refer to Exhibit 6-6. Clothes and amusements are priced at $10 each. The marginal utility per dollar for the first unit of amusement is:

A) 0.5.
B) 1.5.
C) 2.0.
D) 5.0.

Question 65

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:

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 66

Consumer equilibrium exists when:

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 67

Consider a consumer who spends all income on only two goods: pizza and soda. An extra slice of pizza would give the consumer 60 extra utils, while an extra can of soda would give the consumer 20 extra utils. Pizza costs $3 per slice, and soda costs $1 per can. In this situation, the consumer:

A) is buying too much pizza and not enough soda.
B) should purchase more pizza and less soda.
C) has maximized his or her total utility.
D) needs to equate the marginal utilities for pizza and soda.

Question 68

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.

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

Question 69

Exhibit 6-7 Marginal utility for sandwiches and sodas

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

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

Question 70

Michael spends $10 a month on Pez dispensers and Superman action figures. His marginal-utility-to-price ratio for the Pez dispensers is 40, while his marginal-utility-to-price ratio for Superman action figures is 47. Explain why Michael is not maximizing his utility and how can he change his behavior to increase his utility?

Question 71

Which of the following statements is true ?

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 72

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.

Question 73

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.

Question 74

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

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 75

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) 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 76

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?

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

Question 77

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

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 78

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 ?

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 79

Exhibit 6-7 Marginal utility for sandwiches and sodas

Refer to Exhibit 6-7. If the price of a sandwich is $1 and the price of a soda is $1, Marian should spend her first dollar on a ____ and her second dollar on a ____.

A) sandwich; soda
B) sandwich; sandwich
C) soda; sandwich
D) soda; soda

Question 80

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:

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