Deck 7: Consumer Choice: Utility Theory and Insights From Neuroscience

Question 1

Refer to Figure 7.1.The marginal utility of the third movie rental is:

A)1.
B)3.
C)9.33.
D)28.

Answer 1

B

Question 2

Refer to Figure 7.2.The marginal utility of the third video game rental is:

A)1.
B)3.
C)4.
D)22.

Answer 2

C

Question 3

Refer to Figure 7.3.The marginal utility from the fourth slice of pie is:

A)2.
B)3.
C)4.
D)8.

Answer 3

A

Question 4

Table 7.1
Refer to Table 7.1.Diminishing marginal utility sets in after the ________ cup of coffee per day.

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

Question 5

Table 7.1
Refer to Table 7.1.The total utility of five donuts per day is:

A)60.
B)70.
C)65.
D)78.

Question 6

Refer to Figure 7.3.The total utility from consuming 4 slices of pie is:

A)8.
B)2.
C)15.
D)17.

Question 7

Table 7.2
Refer to Table 7.2.The marginal utility of the fourth slice of pie per day is:

A)20.
B)75.
C)15.
D)3.

Question 8

Table 7.1
Refer to Table 7.1.The total utility of the five cups of coffee per day is:

A)70.
B)80.
C)90.
D)75.

Question 9

Refer to Figure 7.3.The total utility from consuming 2 slices of pie is:

A)12.
B)7.
C)15.
D)4.

Question 10

Refer to Figure 7.2.The ________ movie rental has a marginal utility of zero.

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

Question 11

The satisfaction experienced from consuming a good or service is referred to as:

A)utility.
B)marginal utility.
C)the law of diminishing marginal utility.
D)all of the above

Question 12

Brandon eats four tacos a on a Sunday night but admits each slice of pizza doesn't taste as delicious as the previous one.This suggests that for Brandon:

A)the marginal utility of a slice of pizza is positive but decreasing.
B)the marginal utility of a slice of pizza is negative but increasing.
C)the total utility of slice of pizza is declining by larger and larger increments.
D)the total utility of slice of pizza is increasing by larger and larger increments.

Question 13

Table 7.1
Refer to Table 7.1.The marginal utility of the third cup of coffee per day is:

A)35.
B)15.
C)20.
D)25.

Question 14

Refer to Figure 7.1.The ________ movie rental has a marginal utility of zero.

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

Question 15

Table 7.1
Refer to Table 7.1.The marginal utility of the third donut per day is:

A)60.
B)15.
C)20.
D)75.

Question 16

Refer to Figure 7.1.Increasing the number of movies rented from 3 to 4 will cause total utility to:

A)increase.
B)decrease.
C)stay the same.
D)none of these.

Question 17

The budget line shows:

A)the different combinations of two goods that a consumer can buy.
B)the quantity of a single good that a consumer is willing to buy at different prices.
C)the maximized utility from a good.
D)none of the above

Question 18

Refer to Figure 7.1.The marginal utility of the second movie rental is:

A)10.
B)12.5.
C)25.
D)40.

Question 19

Refer to Figure 7.2.The marginal utility of the first video game rental is:

A)10.
B)8.
C)25.
D)40.

Question 20

Table 7.2
Refer to Table 7.2.Diminishing marginal utility sets in after the ________ slice of pie per day.

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

Question 21

Utility can be thought of as the same as:

A)opportunity cost.
B)satisfaction.
C)choice.
D)none of the above.

Question 22

Suppose that Erin spends all of her income on two goods,pizza and fiction novels.If the price of pizza rises then:

A)the current marginal utility per dollar spent on pizza will rise.
B)the current marginal utility per dollar spent on pizza will fall.
C)the current marginal utility per dollar spent on fiction novels will rise.
D)the current marginal utility per dollar spent on fiction novels will fall.

Question 23

The equimarginal rule:

A)equates the marginal utility per dollar spent on each good purchased.
B)states that in order to maximize utility the consumer should buy more of those goods with a high marginal utility.
C)states that in order to maximize utility the consumer should buy more of those goods that cost less.
D)none of the above

Question 24

Table 7.6
Refer to Table 7.6.Pete has $10 to spend.He buys four cookies and three candies.Using the equimarginal rule which of the following is true?

A)Pete is maximizing his utility.
B)Pete is not spending the entire $10.
C)Pete could make himself better off by buying less candy and more cookies.
D)Pete could make himself better off by buying less cookies and more candy.

Question 25

Recall the application about measuring diminishing marginal utility with new techniques,what was shown in the study that the neuroscientists did on subjects and their reaction to varying monetary rewards?

A)It showed that general rewards are subject to diminishing marginal utility.
B)It showed a direct demonstration of the law of diminishing marginal utility.
C)It showed a direct demonstration of the subject's opportunity cost.
D)Nothing was shown in the study.

Question 26

If the marginal utility per dollar is not the same for each good,the consumer could ________ her utility by spending ________ on goods for which the marginal utility per dollar is higher.

A)increase;more
B)increase;less
C)decrease;more
D)minimize;more

Question 27

Table 7.2
Refer to Table 7.2.The total utility of the five slices of pie per day is:

A)95.
B)105.
C)85.
D)75.

Question 28

Juan is consuming 3 sandwiches and 6 sodas.If a sandwich costs twice as much as a soda then:

A)Juan should buy more sodas.
B)Juan should buy more sandwiches.
C)Juan is maximizing his utility if he derives twice as much utility from the last soda as from the last sandwich.
D)Juan is maximizing his utility if he derives twice as much utility from the last sandwich as from the last soda.

Question 29

Table 7.3
Refer to Table 7.3.For the consumer whose preferences are depicted,the marginal utility of the fifth movie is:

A)zero.
B)12.
C)3.
D)6.

Question 30

As more of any one good is consumed in a given period,its:

A)total utility decreases then remains constant.
B)marginal utility decreases.
C)total utility decreases then increases.
D)marginal utility increases.

Question 31

According to the law of diminishing marginal utility:

A)as the consumption of a particular good increases,marginal utility increases.
B)as the consumption of a particular good increases,marginal utility decreases.
C)refers to the idea that total utility is negative.
D)B and C are correct

Question 32

The principle of opportunity cost is:

A)the opportunity cost of something is what someone sacrifices to get it.
B)is the satisfaction of obtaining the best next alternative
C)is the choice someone has to make between two different goods.
D)the cost of paying for something someone needs.

Question 33

Suppose that a consumer is currently spending all of her income on 10 units of good A and 5 units of good B.The price of good A is $4 per unit,the price of good B is $10 per unit,the marginal utility of the last unit of good A consumed is 20,and the marginal utility of the last unit of good B consumed is 60.If the consumer wants to maximize her utility from consuming the two goods she should:

A)consume more of good B and less of good A.
B)consume more of good A and less of good B.
C)continue to consume 10 units of good A and 5 units of good B.
D)consume more of both goods.

Question 34

Maxine has a fixed income per month to spend on goods and services,so in allocating her limited income over a set of goods,she should purchase the goods that:

A)have the highest utility regardless of price.
B)have the highest marginal utility.
C)provide the most utility per dollar spent.
D)have equal marginal utilities.

Question 35

Table 7.3
Refer to Table 7.3.The marginal utility of the first book is:

A)20.
B)22.
C)1.10.
D)21.

Question 36

Table 7.6
Refer to Table 7.6.Pete has $10 to spend.He buys two cookies and four candies.Using the equimarginal rule which of the following is true?

A)Pete is maximizing his utility.
B)Pete is not spending the entire $10.
C)Pete could make himself better off by buying less candy and more cookies.
D)Pete could make himself better off by buying less cookies and more candy.

Question 37

Marginal utility is the:

A)total amount of satisfaction gained by the consumption of a good or service.
B)additional satisfaction gained by the consumption or use of one more unit of something.
C)price of a good relative to the prices of other goods and services.
D)comparison of utility between two different people.

Question 38

Table 7.3
Refer to Table 7.3.The effect of the law of diminishing marginal utility is seen after:

A)the first movie and the first book.
B)the fifth movie and the second book.
C)the eighth movie and eighth book.
D)None of the above;this is a case where the law does not apply.

Question 39

Marginal utility is defined as the:

A)additional utility gained by consuming an extra unit of a good.
B)total utility from all units consumed of a good.
C)total utility from all units consumed divided by the number of units consumed.
D)additional utility gained divided by the price of the good.

Question 40

Consumers should allocate their scarce income so that:

A)the marginal utility for all goods consumed is zero.
B)the marginal utility for all goods consumed is equal.
C)the marginal utility divided by price is equal for all goods consumed.
D)the marginal utility divided by price is maximized for all goods consumed.

Question 41

Which of the following economically explains why consumers are willing to pay less for a consultation than for a surgery?

A)Consumers receive more value from a consultation than a surgery.
B)Consumers receive less value from a consultation than a surgery.
C)Consumers are unable to determine the value from either service.
D)Consumers are unaware of the prices being charged for each of these services.

Question 42

Suppose that Carolyn's current level of consumption, / = 18 and / = 10.Carolyn can increase her utility by increasing her consumption of good Y and reducing her consumption of good X.

Question 43

At George's current level of consumption, / = 7 and / = 9.George can increase his utility by decreasing his consumption of ski trips and increasing his consumption of restaurant meals.

Question 44

The equimarginal rule says that a person will maximize utility by choosing the good for which the marginal utility is the greatest.

Question 45

At her current consumption level,Betty gets twice as much marginal utility from an additional bottle of soda as she does from an additional bottle of water.If she is maximizing her utility,and the price of soda is $2 per bottle then the price of a bottle of water must be:

A)$8.00.
B)$1.00.
C)$2.00.
D)$4.00.

Question 46

Table 7.8
Refer to Table 7.8.Jessy spends no more than $75 per month on movies and eating out.The price of a movie is $8 and the price of a meal out is $15.If Jessy watches two movies per month,what is her marginal utility per dollar?

A)80
B)12
C)10
D)9

Question 47

Table 7.8
Refer to Table 7.8.Jessy spends no more than $75 per month on movies and meals out.Movies cost $8 each and a meal out costs $15.If Jessy eats out three times per month,what is her marginal utility per dollar spent?

A)120
B)8
C)15
D)9

Question 48

When the price of a good falls,the ratio of the marginal utility of that good divided by its price ________ and as a result,consumers purchase ________ of that good.

A)rises;more
B)falls;more
C)rises;less
D)falls;less

Question 49

Additional Application
A study done by a group from the Harvard School of Public Health in 1988 indirectly supported the relationship between the price a consumer pays and the marginal utility the consumer receives for medical services.The study claimed that the charges for surgery were "too high" while charges for doctor consultations and office visits were "too low." An hour of a doctor's time in surgery earned a great deal more than an hour of consultation in the office.If more prevention through consultation could result in less need for surgery,why should the fees for corrective medical surgery be so much greater than the fees for diagnosis and prevention of medical problems? Therefore the Harvard group recommended higher fees for consultation and lower fees for surgery.They determined that such changes would more accurately reflect the value of each service.
Yet consumers willingly pay more for surgery than consultation.Why? Because the marginal utility received from an hour of surgery is determined to be much greater than the marginal utility from an hour of consultation.Consumers allocate their expenditures with an awareness of the ratio of the marginal utility from a good or service to its price.
"Doctors' Fees Called Out of Balance," The Christian Science Monitor,September 29,1988,p.3.
According to the group who conducted the study,the marginal value of a consultation is ________ the price being charged.

A)less than
B)greater than
C)equal to
D)unrelated to

Question 50

One explanation for the development of online music services is:

A)these services will help reduce the incidence of of piracy.
B)consumers do not care about the price they pay for one song.
C)consumers stopped purchasing CDs.
D)the government mandated this market.

Question 51

According to economics,why would a consumer download a song illegally?

A)Most people have a criminal mentality.
B)The expected cost of the act is greater than the expected benefit.
C)There are no other options for most consumers.
D)The expected benefit of the act is greater than the expected cost.

Question 52

Paul is consuming X and Y so that / = 18 and / = 14.Using the equimarginal rule,Paul should:

A)continue to consume the same amount of X and Y,as he is already maximizing utility.
B)consume less of both X and Y.
C)consume more X and less Y.
D)consume less X and more Y.

Question 53

If the results of the study are correct,a typical consumer using the equimarginal rule would be expected to:

A)purchase fewer consultations and more surgeries.
B)purchase the same number of both services.
C)purchase more consultations and fewer surgeries.
D)purchase less of both services.

Question 54

Table 7.7
Refer to Table 7.7.If the price of a soda is $2,the price of a hamburger is $6,and George has $20 of income,George's utility maximizing combination of sodas and hamburgers per day is:

A)4 soda and 2 hamburgers.
B)1 sodas and 3 hamburger.
C)4 sodas and 1 hamburgers.
D)3 sodas and 4 hamburgers.

Question 55

With respect to the equimarginal rule,a person will maximize utility when the:

A)total utility per dollar spent is equalized across products.
B)marginal utility is equalized across products.
C)total utility is equalized across products.
D)marginal utility per dollar spent is equalized across products.

Question 56

A budget line connects the combinations of two goods that exhaust a consumer's budget.

Question 57

The utility-maximizing rule says that a person will maximize utility by choosing goods so that the marginal utility for each good is equal.

Question 58

Table 7.8
Refer to Table 7.8.Jessy spends no more than $75 per month on movies and meals out.Movies cost $8 each and a meal out costs $15.If Jessy wants to maximize her utility she should choose ________ movies and ________ meals out.

A)0;5
B)1;4
C)4;2
D)3;3

Question 59

Dan is consuming coffee and bagels so that / = 15 and / = 9.Using the equimarginal rule,Richard should:

A)continue to consume the same amount of coffee and bagels,as he is already maximizing utility.
B)consume less of both coffee and bagels.
C)consume more coffee and less bagels.
D)consume less coffee and more bagels.

Question 60

Suppose that / < / .This implies that:

A)spending a dollar less on Y and spending a dollar more on X increases utility.
B)spending a dollar less on X,and spending a dollar more on Y increases utility.
C)X is more expensive than Y.
D)Y is more expensive than X.

Question 61

Table 7.5
Table 7.5 shows how the total utility that Alan derives from watching basketball games changes as he watches more and more games each week.Fill in the table.Do the numbers in the table support the law of diminishing marginal utility? Explain.

Question 62

The law of diminishing marginal utility means that total utility must fall as more units of a good are consumed.

Question 63

Table 7.4
Table 7.4 shows how the total utility that Zach derives from eating candy bars changes as he consumes more and more candy bars each day.Fill in the table.Do the numbers in the table support the law of diminishing marginal utility? Explain.

Question 64

Comment on the following statement: "Diminishing marginal utility implies that total utility will fall when an additional unit of a good is consumed."

Question 65

A consumer's budget set does not include all combinations of goods that a consumer can afford given the consumer's income and the prices of the goods.

Question 66

At Hillary's current level of consumption, / = 18 and / = 15.Hillary can increase her utility by increasing her consumption of good X and reducing her consumption of good Y.

Question 67

Total utility is the additional satisfaction received from consuming an additional unit of a product.

Question 68

The budget line and the demand curve are both similar in the way that both show the price of a good that a consumer can buy.

Question 69

If marginal utility is decreasing consuming an additional unit of a product will cause total utility to decline.

Question 70

If marginal utility is positive consuming an additional unit of a product will cause total utility to decline.

Question 71

Kylie spends her income of $150 per week on two goods: movies (which cost $5 each)and books (which cost $10 each).At her current level of consumption,the marginal utility from the last movie consumed is 20 and the marginal utility from the last book consumed is 30.Is Kylie maximizing her utility? Why or why not? If not,what should Kylie do to achieve a higher level of utility?

Question 72

What is the difference between total utility and marginal utility?

Question 73

Colin spends his income of $100 per week on two goods: pizzas (which cost $8 each)and milk (which costs $1 per gallon).At his current level of consumption,the marginal utility from the last pizza consumed is 32 and the marginal utility from the last gallon of milk is 4.Is Colin maximizing his utility? Why or why not? If not,what should Colin do to achieve a higher level of utility?

Question 74

As an individual consumes more of a good,total utility increases and marginal utility decreases.

Question 75

What is the equimarginal rule?

Question 76

If marginal utility is negative consuming an additional unit of a product will cause total utility to decline.

Question 77

What is the law of diminishing marginal utility?

Question 78

What is meant by utility?

Question 79

Utility is not easy to measure and quantify.

Question 80

The law of diminishing marginal utility implies that demand curves will be upward-sloping.