Deck 6: Consumer Choice and Demand

Question 1

The law of diminishing marginal utility states that

A)total utility falls as more of a good is consumed, other things constant
B)total utility falls as marginal utility falls, other things constant
C)marginal utility falls as total utility increases, other things constant
D)marginal utility falls as more of a good is consumed, other things constant
E)marginal utility falls as less of a good is consumed, other things constant

Answer 1

D

Question 2

Marginal utility is negative only when quantity demanded is negative.

Answer 2

False

Question 3

)Consumer preferences

A)do not vary from one consumer to another
B)have little to do with personal tastes and income
C)are not influenced by the utility of goods
D)are individual evaluations of goods and services
E)can be objectively measured and compared across individuals

Answer 3

D

Question 4

Utility is

A)the sense of pleasure or satisfaction derived from consuming goods and services
B)the cost of acquiring goods and services
C)the profit consumers earn from consuming goods and services
D)the monetary value to consumers of goods and services
E)the desire to consume goods and services

Question 5

Which of the following is true of units of utility?

A)Each unit is worth $1.
B)They cannot be compared across consumers.
C)They apply to goods but not to services.
D)They do not exist for very wealthy individuals.
E)They are negative for inferior goods.

Question 6

The law of diminishing marginal utility implies it is possible that themarginal utility of my tenth pistachio nut is less than the marginal utility ofmy third pistachio nut, other things constant.

Question 7

Economists assume people's tastes are

A)determined solely by advertising
B)relatively stable over time
C)quite variable
D)irrelevant to utility analysis
E)identical

Question 8

The law of diminishing marginal utility implies that the marginal utility ofmy fifth hot dog is less than the marginal utility of my second soft drink,other things constant.

Question 9

Which of the following statements concerning utility is correct?

A)It is possible to precisely measure the utility an individual receives from consuming a particular good or
Service
B)It is always possible to determine whether Dalene or Juloy gets more utility from consuming two units of the
Same good
C)The utility of goods can be measured while the same is not true for services
D)Utility is a subjective measure of satisfaction an individual receives from consuming a good or service
E)It is only useful if there is no scarcity

Question 10

As a consumer buys more of a good, total utility eventually becomesnegative.

Question 11

Positive marginal utility implies increasing total utility.

Question 12

.If marginal utility is negative, total utility is negative.

Question 13

Marginal utility is the

A)overall satisfaction obtained from consuming a good
B)additional satisfaction obtained from consuming one more unit of a good
C)average satisfaction obtained from consuming a good
D)the change in satisfaction obtained from consuming

Question 14

Marginal utility can be objectively measured and compared from oneindividual to another.

Question 15

Different people may have different tastes, but their tastes do not changeover time.

Question 16

Marginal utility is a measure

A)of total utility derived from consuming a given amount of a good
B)of the total utility gained from consuming an extra unit of a good
C)computed by dividing total utility by the amount of a good consumed
D)determined by production conditions in a market
E)of the cost associated with consuming one more unit of a good

Question 17

Utility is

A)easily measured because all people derive the same utility from consumption
B)easily measured because it is an objective concept
C)easily measured because it is a subjective concept
D)hard to measure because it is a subjective concept
E)hard to measure because it is an objective concept

Question 18

Which of the following statements cannot be made regarding consumerpreferences?

A)Pat enjoys her second cotton candy less than her first.
B)Bill enjoys his second cotton candy as much as the first.
C)Arnie enjoys two cotton candies more than one cotton candy.
D)Arnie enjoys two cotton candies more than Pat enjoys one cotton candy.
E)Bill and Arnie enjoy their second cotton candy less than they do their first.

Question 19

Total utility can be calculated as the

A)sum of all marginal utilities
B)price paid for one unit of a good
C)product of all marginal utilities
D)total expenditure on all units of a good the consumer buys
E)difference between the marginal utilities of the first and last units of a good

Question 20

Demand curves usually slope downward because of the income andsubstitution effects, and because of the law of diminishing marginal utility.

Question 21

Carvel advertises a football­shaped ice cream cake for $7; you can buy asecond one for only $4.What do they know about consumer preferences?

A)Consumers would never buy a second ice cream cake.
B)Two cakes are worth less to the consumer than one.
C)Marginal utility of ice cream cakes diminishes.
D)Consumers only value the first cake at $4.
E)Consumers value all cakes they eat at $4.

Question 22

The law of diminishing marginal utility states that as you consume more andmore of a good, other things constant,

A)total utility eventually rises
B)marginal utility can become positive
C)marginal utility approaches, but never becomes, zero
D)total utility can never become negative
E)marginal utility eventually declines

Question 23

In Exhibit 6­3, the total utility of consuming three scones is

A)34
B)6
C)22
D)12
E)24

Question 24

Which of the following sayings describes the concept of diminishingmarginal utility?

A)time is money
B)penny wise and pound foolish
C)absence makes the heart grow fonder
D)a penny saved is a penny earned
E)a fool and his money are soon parted

Question 25

Newspaper vending machines illustrate that publishers believe

A)the average utility of two identical papers is zero or less
B)the total utility from two identical newspapers is zero or less
C)the marginal utility of a second identical newspaper is zero or less
D)the marginal utility of a second identical newspaper is greater than the marginal utility of the first
Newspaper
E)the total utility from two identical newspapers is less than the total utility from the first newspaper

Question 26

Negative marginal utility means that

A)total utility is also negative
B)marginal utility increases as additional units are consumed
C)the price of the product increases as additional units are consumed
D)the total revenue spent on the product decreases as more of the product is purchased
E)total utility decreases as additional units are consumed

Question 27

In Exhibit 6­1, what is the marginal utility of the third pretzel?

A)5
B)10
C)15
D)­0.15
E)55

Question 28

The reason that you don't drink five cups of coffee at breakfast is that

A)the marginal utility of extra cups of coffee eventually diminishes
B)most people cannot afford five cups
C)the total utility of coffee rises as you consume more cups
D)the price of coffee rises as you buy more cups
E)the marginal satisfaction derived from cups of coffee remains constant

Question 29

In Exhibit 6­2, where does marginal utility first begin to diminish?

A)sometime after the first unit consumed
B)sometime after the second unit consumed
C)sometime after the third unit consumed
D)sometime after the fourth unit consumed
E)sometime after the fifth unit consumed

Question 30

The marginal utility of a second copy of today's New York Times is

A)infinite
B)practically zero
C)positive and greater than the marginal utility of the first copy
D)equal to the marginal utility of the first copy
E)50 cents

Question 31

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 hire more labor, other things constant, the marginal product begins to fall
D)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
E)as you consume more of a good, other things constant, the extra satisfaction you obtain from each
Extra good becomes negative

Question 32

If marginal utility is positive, then total utility is

A)constant
B)negative
C)increasing
D)decreasing
E)0

Question 33

Joe the Economist tells his wife, Jane, that he wants to spend a weekendfishing with his friends.She replies, "You don't love me anymore." Justbefore she hits Joe with a croquet mallet, Joe explains to her that she hasconfused the concepts of

A)marginal utility and price
B)income and price
C)marginal utility and total utility
D)love and death
E)consumer surplus and utility

Question 34

"The marginal utility received from each additional unit of a good consumeddeclines, other things constant." This is a statement of the law of

A)increasing marginal returns
B)marginal rate of substitution
C)supply
D)diminishing marginal utility
E)demand

Question 35

"The second glass of Evian water was very good.May I have another?"Which of the following is necessarily true regarding this statement?

A)The marginal utility of the second glass is negative.
B)The marginal utility of the second glass is less than the marginal utility of the first glass.
C)The marginal utility of the second glass is positive.
D)The water is free.
E)The marginal utility of the third glass is negative.

Question 36

"I don't feel so good.I shouldn't have had that last doughnut." Whichstatement best describes this situation?

A)The marginal utility of the last doughnut was positive.
B)The marginal utility of doughnuts is still increasing.
C)The total utility from eating doughnuts is negative.
D)The marginal utility of the last doughnut was negative.
E)The marginal utility of the next doughnut will be positive.

Question 37

The law of diminishing marginal utility implies that the marginal utility ofmy fifth waffle is less than the marginal utility of my friend's secondwaffle, other things constant.

Question 38

In Exhibit 6­3, the marginal utility of consuming the fourth scone is

A)4
B)7
C)6
D)24
E)2

Question 39

If other things constant, as more bananas are consumed, marginal utilityeventually

A)decreases at the same rate for all people
B)decreases at the same rate for all goods for a given person
C)increases at the same rate for all people
D)decreases at different rates for different people and for other goods
E)decreases at different rates for different people but at the same rate as other goods for an individual

Question 40

In Exhibit 6­3, the marginal utility of consuming the second scone is

A)12
B)9
C)8
D)19
E)6

Question 41

When a consumer spends income so that the ratio of marginal utilities(MUs) of all goods purchased equals the ratio of their prices, the consumeris

A)maximizing marginal utility
B)spending too much on all goods
C)maximizing total utility
D)beyond the point of diminishing marginal utility
E)behaving in opposition to the principal of rational behavior

Question 42

If Dalene's marginal benefit from consuming another cookie is greater thanthe price of the cookie, then

A)Dalene will not purchase any more cookies
B)the opportunity cost of the cookie is lower than the price
C)Dalene's utility will decrease if she purchases the cookie
D)Dalene will increase her total satisfaction by purchasing the additional cookie
E)she has purchased too many cookies

Question 43

When income is allocated to two goods, x and y, consumer equilibriumoccurs when

A)MUx = MUy
B)MUx = MUy, and the budget is exhausted
C)MUx/Py = PUx/Py
D)MUx/Py = PUx/Py, and some money is not spent
E)MUx/Py = PUx/Py, and the budget is exhausted

Question 44

If Ellie Mae spends her income on possum and biscuits and the price ofpossum is three times the price of biscuits, then when Ellie Mae maximizestotal utility, she will buy

A)equal quantities of possum and biscuits
B)three times as much possum as biscuits
C)three times as many biscuits as portions of possum
D)biscuits and possum until the marginal utility of possum is three times the marginal utility of biscuits
E)biscuits and possum until the marginal utility of biscuits is three times the marginal utility of possum

Question 45

If a good is offered to you free of charge, then you

A)never stop consuming it
B)stop consuming it when its marginal utility begins to fall
C)stop consuming it when its marginal utility begins to increase
D)stop consuming it when its marginal utility equals 0
E)stop consuming it when its total utility equals 0

Question 46

Assume that you allocate your income to calzones and juice and that youhave not yet spent your entire budget.If the marginal utility of a fourthcalzone is 100 and the marginal utility of a third glass of juice is 50, youwould

A)eat a fourth calzone because it has a higher marginal utility
B)drink a third glass of juice because you've had less juice
C)consider the total utility received so far from calzones and juice before deciding what to consume
Next
D)consider the relative prices of calzones and juice before deciding what to consume next
E)consider whether or not marginal utility is diminishing before deciding what to consume next

Question 47

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

A)consume all units that have positive total utility
B)consume an infinite quantity
C)consume all units with positive marginal utility
D)consume the entire amount supplied
E)consume until total utility becomes 0

Question 48

Suppose Enid could increase her total utility by purchasing one more bookand one less video rental.Which of the following is true?

A)The marginal utility of video rentals exceeds the marginal utility of books.
B)The marginal utility of books exceeds the marginal utility of video rentals.
C)The marginal utility of video rentals is negative.
D)The marginal utility per dollar spent on books exceeds that of video rentals.
E)Total utility is at a maximum.

Question 49

If the marginal utility of each good a consumer buys does not diminish butremains constant, we should see consumers

A)buying no goods at all
B)spending all of their income on the good with the highest marginal utility
C)buying one unit of each good
D)buying only the least expensive good
E)leaving the store in total confusion

Question 50

.A free good (price = $0) will be consumed up to the point at which itsmarginal utility is zero.

Question 51

Suppose you go to a wedding reception that has free drinks.What is likelyto be the marginal utility of the last drink you had?

A)infinite
B)0
C)1
D)less than 0
E)greater than 1

Question 52

Assume that you allocate your income to calzones and juice and that youhave not yet spent your entire budget.If the marginal utility of a fourthcalzone is 100 and the marginal utility of a third glass of juice is 50, youwould

A)eat a fourth calzone because it has higher marginal utility
B)drink a third glass of juice
C)drink a third glass of juice if its price is lower than the price of calzones
D)drink a third glass of juice if its price is less than half the price of the calzone
E)drink a third glass of juice because it has lower marginal utility

Question 53

A consumer maximizes utility when the marginal utilities of all goods

A)having positive money prices that are equal to zero
B)are equal
C)are maximized
D)are equal to the opportunity costs for all goods that are considered necessities
E)are exactly proportional to their market prices

Question 54

A utility­maximizing consumer equalizes marginal utilities across all goods.

Question 55

Exhibit 6­6 Consider Exhibit 6­6.Which of the following best describes what it revealsabout total and marginal utility for baseball game tickets?

A)Marginal utility is constantly pulling total utility down, until eventually it becomes negative.
B)Marginal utility is constantly pulling total utility up and will continue to increase total utility as long as the
Person consumes more goods.
C)Marginal utility is constantly pulling total utility up, but by less each time.
D)At first marginal utility is positive and pulls total utility up but at a decreasing rate; then marginal utility
Becomes negative and pulls total utility down.
E)At first marginal utility is positive and pulls total utility up, but then it becomes negative and makes
Total utility become negative as well.

Question 56

Suppose that for Jason the marginal utility of $50­per­serving caviar is 100and the marginal utility of $1­per­serving popcorn is 10.For his snack,Jason 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)one serving each of the caviar and popcorn, if he has $51
E)five servings of popcorn for each serving of caviar

Question 57

The fact that the washroom usually has paper towels left (free to theconsumer) suggests that the marginal utility of paper towels quicklydiminishes to 0 for each consumer.

Question 58

In Exhibit 6­3, the marginal utility of consuming the first scone is

A)0
B)2
C)8
D)9
E)10

Question 59

Consumers must understand the law of diminishing marginal utility in orderto maximize their satisfaction.

Question 60

As long as scarcity exists,

A)product prices play no role in utility maximization
B)income plays no role in utility maximization
C)income and product prices must both be considered in utility maximization
D)consumers maximize utility by consuming all products until their marginal utility is zero
E)product prices will be zero

Question 61

Basil is maximizing his utility from consuming tea and crumpets.If themarginal utility of the last crumpet was 32 units of utility and the prices oftea and crumpets are $4 and $8, respectively, what was the marginal utilityof the last cup of tea Basil consumed?

A)2 units of utility
B)12 units of utility
C)$6
D)128 units of utility
E)16 units of utility

Question 62

Suppose you eat at a restaurant that serves clams at a fixed price and crablegs at a price that varies based on market conditions.Each week, themarginal utility you attach to an order of crab legs is 100, and the marginalutility of an order of clams is 50.One week you have crab legs, but the nextweek you have clams.This means that

A)you are irrational
B)your tastes must have changed
C)the price of clams dropped below the price of crab legs
D)the price of crab legs increased
E)the price of crab legs must have increased to more than twice that of clams

Question 63

Question 64

If the price of a good falls, the marginal utility per dollar received fromconsuming a specific unit of that good

A)also falls
B)stays the same
C)rises
D)will rise or fall, depending on the consumer
E)remains unchanged, provided the consumer buys no more of the good

Question 65

Suppose a glass of orange juice has a price of $2 and a glass of soft drinkhas a price of $1.If the consumer is maximizing utility,

A)juice must have higher MU than soda drink
B)the soft drink must have higher MU than juice
C)both must have equal MU
D)consumers would buy more soda drink than orange juice
E)the consumer would buy twice as much orange juice as soft drink

Question 66

The law of diminishing marginal utility may be illustrated by a person

A)buying additional goods after getting a pay raise
B)eating more twinkies but enjoying them less
C)giving some of income to a needy person
D)who spends more hours studying than do his fellow students
E)buying goods so long as their marginal utility is greater than zero

Question 67

Suppose Lorna will buy more sweaters if the price of sweaters rises.She isviolating the

A)law of supply
B)law of increasing costs
C)law of large numbers
D)law of diminishing costs
E)law of demand

Question 68

In order to derive a demand curve for cheese, we would change

A)income and hold other things constant
B)tastes and hold other things constant
C)the price of other goods and hold everything else constant
D)the price of cheese and hold other things constant
E)the price of all goods, including cheese and hold other things constant

Question 69

Fernando allocates his lunch money between pizza and Coke.A Coke has aprice of $1 and a slice of pizza has a price of $1.50.The marginal utility ofthe last slice of pizza Fernando ate today was 30, and the marginal utility ofhis last Coke was 25.Fernando spent all of his lunch money.From thisinformation we can conclude that

A)Fernando allocated his money in a way that maximized his total utility
B)Fernando's total utility would have been greater if he had purchased more Coke and less pizza
C)Fernando's total utility would have been greater if he had purchased more pizza and less Coke
D)Fernando could have increased his total utility by purchasing more Coke but the same quantity of pizza
E)Fernando could have increased his total utility by purchasing more pizza but the same quantity of Coke

Question 70

Your marginal utility of a third waffle is 10 and your marginal utility of asecond piece of ham is 30.If you eat the third waffle, which of thefollowing must be true?

A)You are irrational.
B)You prefer waffles.
C)The price of a waffle is less than one third the price of a piece of ham.
D)The price of a waffle is more than the price of a piece of ham.
E)The price of a waffle is three times the price of a piece of ham.

Question 71

Suppose you have spent your entire budget and, for all the goods youpurchase, the marginal utilities per dollar spent are identical.Which of thefollowing is true?

A)You are being irrational.
B)You can increase your utility by reallocating your income.
C)You will reduce your utility if you allocate income in any other way.
D)You are minimizing your marginal utility.
E)You can avoid diminishing marginal utility.

Question 72

When residential water users are charged a flat monthly rate for water, themarginal cost of an extra thousand gallons of water to a household is zero.

Question 73

.

Question 74

If by purchasing a little more milk and a little less ice cream you couldincrease your total utility,

A)the MU of milk must be greater than that of ice cream
B)the MU of ice cream must be greater than that of milk
C)the MU/P of milk must be greater than that of ice cream
D)milk must be cheaper than ice cream
E)the MU of milk will increase

Question 75

..Suppose you have $30 to spend on either bowling or billiards.A game ofbilliards costs you $4, and bowling costs $2 per game.Using the informationin Exhibit 6­7, determine the utility­maximizing combination of bowling andbilliards.

A)four billiards games, four games of bowling
B)five billiards games, two games of bowling
C)three billiards games, eight games of bowling
D)five billiards games, five games of bowling
E)twelve games of bowling

Question 76

A utility­maximizing consumer who is considering two goods, x and y,would allocate her budget in such a way that

A)MUx = MUy
B)MUx > MUy
C)MUx/Px > MUy/Py
D)MUx/Px = MUy/Py
E)MUx/Px < MUy/Py

Question 77

Which of the following varies along a given demand curve?

A)consumer preferences
B)prices of substitutes
C)prices of complements
D)the price of the good itself
E)income

Question 78

The law of diminishing marginal utility explains why an individual's demandcurve is elastic.

Question 79

If Arnold thinks his last dollar spent golfing yields less satisfaction than thelast dollar spent on movies, and Arnold is a utility­maximizing consumer, heshould

A)golf more so that the total satisfaction from this activity will increase
B)spend less on movies so that the marginal satisfaction from expenditures in this area will increase
C)golf less and spend more on movies
D)eliminate golfing from his schedule
E)golf more since it costs less

Question 80

.