Question 1

A local restaurant offers an "all you can eat" ribs special.You pay $11.95,and then you can eat as many servings as you desire at no additional cost.It would follow that you will stop eating when
A)your marginal utility (or value)derived from eating another serving is zero.
B)your total utility (or value)derived from all of the servings consumed just equals $11.95.
C)your marginal utility (or value)derived from another serving equals $11.95.
D)it is physically impossible for you to eat any more.

Accepted Answer

According to the law of diminishing marginal utility, as a person consumes more of a good, the marginal utility derived from each additional unit decreases. Therefore, at some point, the marginal utility will become zero, and the person will no longer want to eat another serving. This is the point at which the person will stop eating the ribs, not because they have reached a certain total utility level or because they have reached a financial value equivalent to the initial cost.

Question 2

Which of the following would be the best example of consumer surplus?
A)Jane does not get cell-phone service because she feels that it is worth less than the $30 a month fee.
B)Sam pays $8 for a haircut that is worth $10 to him.
C)Ralph buys a house for $104,000,the maximum amount that he would be willing to pay for it.
D)Sue purchases a book for $20 and uses a credit card to pay for it.

Accepted Answer

Consumer surplus refers to the difference between the maximum amount a consumer is willing to pay for a good or service and the actual price they pay. In option B, Sam pays $8 for a haircut that he values at $10, which means he gains $2 in consumer surplus. None of the other options demonstrate consumer surplus.

Question 3

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 listening to three compact discs,Kim decides to go bowling rather than listen to a fourth disc.
D)A musician receives the biggest ovation of the evening after playing the final number of a recital.

Accepted Answer

The law of diminishing marginal utility states that as a consumer consumes more and more of a good or service, the additional satisfaction (or utility) from each additional unit consumed will eventually decrease. Option C directly reflects this as Kim decides to do something else instead of consuming another unit (in this case listening to a fourth CD) because the additional satisfaction would be less than the previous units. Options A, B, and D do not directly reflect the law of diminishing marginal utility.

Question 4

"I like ice cream,but after eating homemade ice cream last night,I want to have something else for dessert today." This statement most clearly reflects
A)the budget constraint.
B)consumer irrationality.
C)the second law of demand: Price elasticity increases with time.
D)the law of diminishing marginal utility.

Accepted Answer

The statement reflects the law of diminishing marginal utility, which states that the more of a good that is consumed, the less satisfaction (utility) a person derives from each additional unit consumed. Therefore, after consuming homemade ice cream, the person has reached a point of diminishing marginal utility and desires a different dessert to increase their overall satisfaction.

Question 5

If a Krispy Kreme doughnut shop near campus increases its prices by 5 percent,but revenues from its sales are unchanged,the price elasticity of demand for the services offered by the doughnut shop must be
A)elastic.
B)of unitary elasticity.
C)inelastic.
D)equal to 0.5.

Accepted Answer

The answer of If a Krispy Kreme doughnut shop near...

Question 6

If the price of gasoline goes up,and Dan now buys fewer candy bars because he has to spend more on gas,this would best be explained by
A)the substitution effect.
B)the income effect.
C)the highly elastic demand for gasoline.
D)all of the above.

Accepted Answer

The answer of If the price of gasoline goes up,and...

Question 7

Diminishing marginal utility means that
A)as you consume more of a good,other things constant,the total satisfaction you obtain from consuming this good tends to fall.
B)as you hire more labor,other things constant,the total amount produced begins to fall.
C)as you consume more of a good,other things constant,the additional satisfaction you obtain from each additional unit of the good tends to fall.
D)as you consume more of a good,other things constant,the extra satisfaction you obtain from each additional unit becomes negative.

Accepted Answer

Diminishing marginal utility means that as you consume more of a good, other things constant, the additional satisfaction you obtain from each additional unit of the good tends to fall. In other words, the marginal utility of each additional unit of the good decreases as you consume more of it.

Question 8

Elaine values the utility of her first cup of coffee at $1;a second cup,$.75;and a third cup,$.50.If Elaine drinks three cups of coffee for breakfast,her marginal utility is equal to
A)$.50,the value of her last cup of coffee.
B)$1.00,the value of her first cup of coffee.
C)$2.25.
D)$1.50.

Accepted Answer

Marginal utility is the additional utility that one receives from consuming one more unit of a good. In this case, Elaine's marginal utility for the first cup is $1, for the second cup is $0.75 - $1 = -$0.25 (since the second cup is worth less to her than the first cup), and for the third cup is $0.50 - $0.75 = -$0.25 (again, the third cup is worth less to her than the second cup). Since the marginal utility of the third cup is negative, the best choice for Elaine would be to only consume the first two cups, resulting in a total utility of $1 + $0.75 = $1.75.

Question 9

If Sarah's income rises by 20 percent,and,as a result,she purchases 40 percent more designer clothing,her income elasticity for designer clothing is
A)0.5.
B)1.0.
C)2.0.
D)Not enough information is given to answer this question.

Accepted Answer

Income elasticity of demand = (% change in quantity demanded) / (% change in income)
Here, Sarah's income has risen by 20% and her quantity demanded for designer clothing has risen by 40%. So, income elasticity = (40%/20%) = 2.0. Therefore, the answer is C.

Question 10

If Mr.Smith thinks the last dollar spent on shirts yields less satisfaction than the last dollar spent on cola,and 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.

Accepted Answer

The answer of If Mr.Smith thinks the last dollar spent...

Question 11

Suppose that the quantity of DVD players sold increased from 200 to 400 when the price fell from $225 to $175.Over this price range,the absolute value of the price elasticity of demand for DVD players is
A)0.25.
B)0.375.
C)1.0.
D)2.67.
E)4.0.

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price.

Percentage change in quantity demanded = ((New Quantity - Old Quantity) / Old Quantity) * 100% 
= ((400-200) / 200) * 100% 
= 100%

Percentage change in price = ((New Price - Old Price) / Old Price) * 100% 
= ((175-225) / 225) * 100% 
= -22.22% (negative sign indicates a price decrease)

Using the formula for price elasticity:

Price elasticity of demand = (Percentage change in quantity demanded) / (Percentage change in price)

= (100%) / (-22.22%)

= -4.5 (Note that the negative sign can be ignored as elasticity is a measure of responsiveness and negative sign only indicates the direction of change, not the magnitude)

Absolute value of price elasticity of demand = 4.5

Therefore, the closest choice is option D (2.67 is not close enough, and the other options are too low).

Question 12

If the price of a good is $0,a consumer will
A)consume an infinite quantity.
B)consume all units with positive marginal utility.
C)consume the entire amount supplied.
D)consume until total utility becomes 0.

Accepted Answer

The answer of If the price of a good is...

Question 13

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

Accepted Answer

Marginal utility is the change in total utility when an extra unit of output is consumed. It measures the additional satisfaction or usefulness that a consumer derives from consuming one more unit of a good or service.

Question 14

The marginal value of a commodity to a consumer
A)increases as more of the good is consumed.
B)is exactly equal to price for all units purchased by the consumer.
C)is measured by the height of the individual consumer's demand curve.
D)is equal to the area above the price and below the individual consumer's demand curve.

Accepted Answer

The answer of The marginal value of a commodity to...

Question 15

A 10 percent increase in the price of sugar reduces sugar consumption by about 5 percent.The increase causes households to
A)spend more on sugar.
B)spend less on sugar.
C)spend the same amount on sugar.
D)consume more goods like coffee and tea that are complements of sugar.

Accepted Answer

The answer of A 10 percent increase in the price...

Question 16

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.

Accepted Answer

The higher market price of gasoline compared to water can be explained by the concept of marginal utility, which refers to the additional satisfaction or usefulness gained from consuming one more unit of a good. The marginal utility of gasoline is typically higher than that of water because gasoline has more uses and is more scarce, leading to the higher market price.

Question 17

After eating six chocolate candy bars in ten minutes,Jody says,"You would have to pay me to eat another chocolate candy bar!" This statement best illustrates
A)the law of demand.
B)the substitutability among goods.
C)the law of diminishing marginal utility.
D)that chocolate candy bars are an inferior good.

Accepted Answer

Jody's statement illustrates the law of diminishing marginal utility, which states that as a person consumes more of a good or service, the additional satisfaction or utility they receive from each additional unit consumed will eventually decrease. In this case, Jody has reached a point where the satisfaction she receives from consuming additional chocolate candy bars has decreased to the point where she would only continue consuming them if she were paid to do so.

Question 18

Studies indicate that the demand for fresh tomatoes is much more elastic than the demand for salt.These findings reflect that
A)tomatoes are a necessity while salt is a luxury.
B)it takes longer for consumers to adjust to a change in the price of salt than to a change in the price of tomatoes.
C)salt will not spoil as easily as fresh tomatoes.
D)more good substitutes exist for fresh tomatoes than for salt.

Accepted Answer

Elasticity of demand is a measure of how responsive consumers are to a change in the price of a product. If the demand for a product is more elastic, it means that consumers are more responsive to changes in price. Therefore, option D is correct because if more good substitutes exist for a product, consumers are more likely to switch to those substitutes if the price of the original product increases, making the demand for that product more elastic. For example, if the price of tomatoes increases, consumers may switch to other vegetables like cucumbers or bell peppers, whereas if the price of salt increases, consumers may not have many alternatives and therefore, may not respond as strongly to the price change.

Question 19

Suppose the state of New York imposes a one dollar per pack tax on cigarettes,which increases their price by 30 percent,and as a result,the quantity sold declines by 20 percent.The price elasticity of demand for cigarettes is equal to
A)-0.20.
B)-0.67.
C)-1.50.
D)-3.00.

Accepted Answer

The answer of Suppose the state of New York imposes...

Question 20

The principle of diminishing marginal utility says that
A)as more of a good or service is consumed,demand will decrease.
B)as more of a good or service is consumed,the price will rise.
C)the marginal utility of additional units consumed will increase.
D)the marginal utility of additional units consumed will decline.

Accepted Answer

Diminishing marginal utility is the principle that states that as more of a good or service is consumed, the marginal utility or satisfaction from each additional unit will decline. The initial units provide a high level of satisfaction, but as more units are consumed, the level of satisfaction gradually decreases, eventually reaching a point where consuming more units provides no additional satisfaction. This is an important concept in economics because it helps to explain why demand curves slope downwards and why consumers are willing to pay less for additional units of a good or service.

Quiz 20: Consumer Choice and Elasticity

A local restaurant offers an "all you can eat" ribs special.You pay $11.95,and then you can eat as many servings as you desire at no additional cost.It would follow that you will stop eating when

Which of the following would be the best example of consumer surplus?

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

"I like ice cream,but after eating homemade ice cream last night,I want to have something else for dessert today." This statement most clearly reflects

If a Krispy Kreme doughnut shop near campus increases its prices by 5 percent,but revenues from its sales are unchanged,the price elasticity of demand for the services offered by the doughnut shop must be

If the price of gasoline goes up,and Dan now buys fewer candy bars because he has to spend more on gas,this would best be explained by

Diminishing marginal utility means that

Elaine values the utility of her first cup of coffee at $1;a second cup,$.75;and a third cup,$.50.If Elaine drinks three cups of coffee for breakfast,her marginal utility is equal to

If Sarah's income rises by 20 percent,and,as a result,she purchases 40 percent more designer clothing,her income elasticity for designer clothing is

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

Suppose that the quantity of DVD players sold increased from 200 to 400 when the price fell from $225 to $175.Over this price range,the absolute value of the price elasticity of demand for DVD players is

If the price of a good is $0,a consumer will

Marginal utility is the change in

The marginal value of a commodity to a consumer

A 10 percent increase in the price of sugar reduces sugar consumption by about 5 percent.The increase causes households to

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

After eating six chocolate candy bars in ten minutes,Jody says,"You would have to pay me to eat another chocolate candy bar!" This statement best illustrates

Studies indicate that the demand for fresh tomatoes is much more elastic than the demand for salt.These findings reflect that

Suppose the state of New York imposes a one dollar per pack tax on cigarettes,which increases their price by 30 percent,and as a result,the quantity sold declines by 20 percent.The price elasticity of demand for cigarettes is equal to

The principle of diminishing marginal utility says that