Deck 7: Consumer Choice: Maximizing Utility and Behavioral Economics

Question 1

Indifference curves are generally downward sloping and concave to the origin.

Answer 1

False

Question 2

The absolute value of the slope of the budget constraint is also known as the marginal rate of substitution.

Answer 2

False

Question 3

Economists assume that the goal of consumers is to maximize total utility.

Answer 3

True

Question 4

Research presented in the textbookbook shows that people are more likely to spend a larger percentage of money received from the government when it is called a "tax bonus" than they would if it were called a "tax rebate."

Question 5

If Dan's marginal utility from eating one apple is 100 utils and Jorge's marginal utility from eating one apple is 200 utils, it follows that Jorge likes apples more than Dan, assuming that Dan and Jorge measure the marginal utility of apples in exactly the same way.

Question 6

An indifference curve shows all the combinations of bundles of two goods a person can purchase given a fixed amount of income.

Question 7

Economists use the term utility to mean usefulness.

Question 8

Adam Smith observed that often things that have the greatest value in use, or are the most useful, have a relatively low price, and things that have little or no value in use have a high price.

Question 9

A good can have high total utility and low marginal utility.

Question 10

Indifference curves are generally downward sloping, they are convex to the origin, and they do not cross.

Question 11

Marginal utility is computed by dividing total utility by the quantity consumed of a good.

Question 12

Economists assume that the goal of consumers is to maximize marginal utility.

Question 13

Marginal utility is always a positive number.

Question 14

It is possible for total utility to rise as marginal utility falls.

Question 15

Economists David Zizzo and Andrew Oswald found that the majority of their study participants made themselves worse off in order to make someone else worse off.

Question 16

If total utility is a positive number, marginal utility must also be a positive number.

Question 17

Research presented in the textbook shows that people are more concerned with their absolute income position in a group than their relative income position in the group.

Question 18

When people treat some dollars differently than others, they are said to be compartmentalizing .

Question 19

Consumer equilibrium occurs at the point where the slope of the budget constraint is equal to the slope of the indifference curve.

Question 20

For the consumer, a point on an indifference curve that lies farther from the origin is preferable compared to those points that are closer to the origin.

Question 21

The point where the slope of the budget constraint equals the slope of the indifference curve is termed consumer equilibrium .

Question 22

Consumers tend to equate total utilities per dollar spent.

Question 23

Behavioral economists contend that the traditional economic framework always accurately depicts human behavior.

Question 24

Suppose Will receives 190 utils from consuming one banana and 280 utils from consuming two bananas. What is the marginal utility of the second banana?

A)470 utils
B)235 utils
C)90 utils
D)280 utils

Question 25

The law of diminishing marginal utility can be stated as follows:

A)As the amount of a good consumed increases, the sum (total)of satisfaction received tends to decrease at a constant rate.
B)As the amount of a good consumed increases, the additional satisfaction gained from consuming additional units tends to decrease.
C)As the amount of a good consumed decreases, the additional satisfaction gained from consuming additional units tends to increase.
D)As the amount of a good consumed increases, the sum (total)of satisfaction received tends to decrease at a diminishing rate.

Question 26

Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 80, 116, 136, 150, respectively. The marginal utility of the sixth wing is __________ utils.

A)14
B)136
C)20
D)22.7

Question 27

Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 30, 50, 65, 72, respectively. In this situation we have __________ marginal utility, which is generally __________ in the analysis of consumer choice.

A)increasing; assumed
B)increasing; not assumed
C)diminishing; assumed
D)diminishing; not assumed

Question 28

Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 80, 116, 136, 146, respectively. The marginal utility of the seventh wing is __________ utils.

A)14
B)146
C)10
D)20.9

Question 29

The diamond-water paradox is the observation that

A)those things that have the greatest price often have little value in exchange and those things that have the lowest price often have the greatest value in exchange.
B)those things that have the greatest value in use often have little value in exchange and those things that have little value in use often have the greatest value in exchange.
C)those things that have the least value in use often have little value in exchange and those things that have the greatest value in use often have the greatest value in exchange.
D)those things that have the least price often have little value in exchange and those things that have the greatest price often have the greatest value in exchange.

Question 30

Total utility is defined as the

A)change in marginal utility a person derives from the consumption of a good.
B)change in total utility a person derives from the consumption of a good divided by the price of that good.
C)change in total utility a person derives from the consumption of a good divided by the change in the consumption of that good.
D)sum of the amounts of satisfaction a person receives from consuming a good.
E)change in total utility a person derives from the consumption of a good.

Question 31

The law of diminishing marginal utility says that

A)the marginal utility gained by consuming equal successive units of a good will decline as the amount consumed increases.
B)the more of a particular good one consumes, the greater is the utility received from the consumption of that good.
C)the marginal utility gained by consuming equal successive units of a good will increase as the amount consumed increases.
D)the more of a particular product one sells, the less utility one receives from selling.

Question 32

Which of the following is true?

A)It is possible for total utility to rise as marginal utility falls.
B)Marginal utility is the same as total utility.
C)As marginal utility falls, total utility always falls.
D)As marginal utility falls, total utility always rises.

Question 33

Suppose Alice receives 150 utils from consuming one hamburger and 70 utils from consuming a second hamburger. What is the marginal utility of the second hamburger?

A)220 utils
B)150 utils
C)70 utils
D)0 utils

Question 34

A util is an artificial construct used as a means of measuring the

A)price of a good.
B)satisfaction one receives from the consumption of a good.
C)costs of producing a good.
D)difference between the price and the value of a good.

Question 35

When an economist talks about utility, she is talking about

A)a company that provides electricity, water, gas, etc.
B)the satisfaction, in terms of price, that a producer receives from selling his product.
C)the satisfaction that results from the consumption of a good.
D)the amount of one good that a person is willing to give up in order to get a unit of another good.
E)the satisfaction that results from the consumption of a good minus the price that must be paid to get the good.

Question 36

Marginal utility is defined as the

A)change in marginal utility a person derives from the consumption of a good.
B)change in total utility a person derives from the consumption of a good divided by the price of that good.
C)change in total utility a person derives from the consumption of a good divided by the change in the quantity of the good consumed.
D)sum of the amounts of satisfaction a person receives from consuming a good.
E)change in total utility a person derives from the consumption of a good divided by the value in use of that good.

Question 37

Suppose you are consuming a particular good and you could somehow give back the last unit you consumed. What would happen to total and marginal utility (assuming that the marginal utility of the unit given back is positive)?

A)Both total and marginal utility would decrease.
B)Both total and marginal utility would increase.
C)Total utility would increase but marginal utility would decrease.
D)Total utility would decrease but marginal utility would increase.
E)There would be no change in marginal utility but total utility would decrease.

Question 38

Suppose you are eating slices of pizza and after consuming the first slice you receive 14 utils of total utility, after the second you receive 22 utils of total utility, and after the third 25 utils of total utility. Then

A)the law of diminishing marginal utility is not applicable because your total utility is increasing instead of diminishing.
B)your total utility is 61 utils.
C)your total utility is 25 utils, and the marginal utility of the first slice is 8 utils (22 - 14).
D)your total utility is 25 utils, and the marginal utility of the third slice is 3 utils.

Question 39

Marginal utility analysis can be used to illustrate the law of demand.

Question 40

Economists contend that the goal of individuals is to maximize marginal utility.

Question 41

Suppose you just finished your third plateful of Thanksgiving dinner and it yielded zero units of additional satisfaction. Should you go back for more?

A)Why not? Since the third plateful gave you zero units, the fourth can't give you any less than zero.
B)No way. You could get negative utility from the fourth plateful.
C)Yes or no. It won't make any difference because your total utility is at its peak.
D)Yes. If you received zero units of satisfaction from the third, then obviously the law of diminishing marginal utility is not working in this case.

Question 42

Suppose the government provides peanut butter to everyone free of charge and everyone consumes it to the point at which he receives no additional satisfaction from another spoonful. According to economics, is this necessarily good?

A)Yes, because everyone is satisfied.
B)No, because there might be some cases where the resources used to produce peanut butter could have been better used to produce more of other products.
C)Yes, because the law of diminishing marginal utility indicates that in order to get the greatest amount of satisfaction from the use of resources, people should consume as much of every good as they can.
D)Yes, because of the law of supply.

Question 43

Suppose the marginal utility (MU)of a paperback books is 60 utils and each book costs $10, while the MU of a hamburger is 50 utils and each costs $7.50. If you consume one movie and buy one hamburger per week, are you attaining consumer equilibrium?

A)Yes, so there is no need to change.
B)No. You need to buy more books and fewer hamburgers to move toward consumer equilibrium.
C)No. You need to buy more hamburgers and fewer books to move toward consumer equilibrium.
D)There is not enough information to answer the question.

Question 44

Which of the following statements is true with respect to utility theory?

A)The less you have of any one good, the less you would be willing to pay for one more unit of it.
B)The less you have of any one good, the more you would be willing to pay for one more unit of it.
C)The amount you have of any one good does not influence the price you would be willing to pay for it, but it does affect the marginal utility received from consuming a particular unit.
D)The higher the marginal utility received from consuming good X, the lower the marginal utility received from consuming good Y.

Question 45

Ari is currently consuming 10 hot dogs and 8 hamburgers per week. The last hot dog she consumed yielded 20 utils while the last hamburger she ate gave her 25 utils. If hot dogs cost $2 and hamburgers cost $2.50, is Ari consuming the correct quantities of these two goods to be in consumer equilibrium?

A)No, she should consume more hamburgers and fewer hot dogs.
B)No, she should consume more hot dogs and fewer hamburgers.
C)Yes, so there is no need to change her eating habits.
D)There is not enough information to answer the question.

Question 46

We would expect the total utility of water to be high but its marginal utility to be low. Why?

A)Because water is a fluid and we don't need fluids to live as much as we need food.
B)Because we need water to live and there is so much of it.
C)Because we need water to live and there is very little of it.
D)Because water's price is low.

Question 47

Because there are so few diamonds in the world, the consumption of diamonds

A)takes priority over the consumption of water.
B)takes place at relatively high marginal utility.
C)takes place at relatively low marginal utility.
D)is more important than the consumption of water.

Question 48

We take one dollar from a pauper and give it to a millionaire. Assuming a diminishing marginal utility of money,

A)total utility in the economy must rise.
B)total utility in the economy must fall.
C)total utility in the economy must remain the same.
D)we cannot say whether or not total utility changes.

Question 49

We would expect the total utility of diamonds to be __________ than the total utility of water and the marginal utility of diamonds to be __________ than the marginal utility of water.

A)higher; higher
B)lower; lower
C)higher; lower
D)lower; higher

Question 50

Suppose you could quantify the amount of satisfaction you receive from consuming ice cream in money terms. You might say, "I expect to get $3 worth of satisfaction from this ice cream cone." According to traditional economic theory, if the price of this ice cream cone were $3.25, would you buy one?

A)Ye, since the marginal benefit from consuming the ice cream cone is greater than the marginal cost.
B)Yes, since the marginal cost of consuming the ice cream cone is greater than the marginal benefit.
C)No, since the marginal cost of consuming the ice cream cone is greater than the marginal benefit.
D)No, since the marginal benefit from consuming the ice cream cone is greater than the marginal cost.

Question 51

If a person is receiving greater marginal utility per dollar from consuming one good than another, it follows that he or she is

A)maximizing disutility.
B)not maximizing utility.
C)maximizing utility.
D)There is not enough information to answer the question.

Question 52

In which of the following settings is an interpersonal utility comparison being made?

A)Brandon says, "I got a lot more satisfaction out of eating pizza than today than I did yesterday."
B)Stephanie says, "I don't know what Taylor is feeling or thinking; I can't read a person's heart or mind."
C)David says to Maria, "I know you like economics a lot more than I do."
D)Wendy says, "I got a lot less satisfaction from studying today than I did last week."

Question 53

Jackson says that his fifth game of chess gave him greater utility than his first, and therefore the law of diminishing marginal utility does not hold. An economist who believes that marginal utility definitely and always declines with the consumption of equal successive units of a good will likely say

A)the fifth game of chess is a different good than the first game of chess.
B)there are exceptions to the law of diminishing marginal utility.
C)the law of diminishing marginal utility does not apply to board games.
D)each and every game of chess is identical to one another.

Question 54

Suppose for a consumer the marginal utility (MU)of bread is 20 utils and the MU of milk is 10 utils; the price of bread is $3 and the price of milk is $1. Given this,

A)more utility per dollar is gained from consuming bread than milk.
B)more utility per dollar is gained from consuming milk than bread.
C)the same amount of utility per dollar is gained from consuming milk as bread.
D)the consumer is in consumer equilibrium.

Question 55

You and your roommate are eating pizza and have already consumed all but the last slice. Your roommate claims that he is hungrier than you and therefore should get the last slice of pizza. Your roommate has made

A)a diamond-water paradox.
B)an interpersonal utility comparison.
C)an elasticity comparison.
D)a marginal error.

Question 56

We take one dollar from a millionaire and give it to a pauper. Assuming a diminishing marginal utility of money,

A)total utility in the economy must rise.
B)total utility in the economy must fall.
C)total utility in the economy must remain the same.
D)we cannot say whether or not total utility changes.

Question 57

Rich has $100,000 and Poore has $1,000. Which of these statements is most strongly supported by the theory of consumer choice?

A)An extra dollar given to Rich is worth less to him than his 100,000th dollar.
B)An extra dollar is worth less to Rich than it is to Poore.
C)An extra dollar is worth less to Poore than it is to Rich.
D)Rich's 1,000th dollar is worth more to Rich than Poore's 1,000th dollar is worth to Poore.
E)Rich's 100,000th dollar is worth to Rich exactly what Poore's 1,000th dollar is worth to Poore.

Question 58

Economists usually assume that money has __________ marginal utility.

A)increasing
B)constant
C)decreasing
D)zero

Question 59

Which of the following statements is false ?

A)A millionaire definitely receives less utility from an additional dollar than a poor person.
B)A poor person definitely receives less utility from an additional dollar than a rich person.
C)A millionaire definitely receives the same utility from an additional dollar as a poor person.
D)A millionaire generally receives less utility from an additional dollar than a poor person.
E)We do not know if any of the statements are true or false, because we do not know how much utility one person receives relative to another.

Question 60

Dan is currently consuming 10 Cokes and 5 slices of pizza per week such that the marginal utility of the tenth Coke is 12 utils and that of the fifth slice of pizza is also 12 utils. How should Dan redirect his purchases so as to attain consumer equilibrium?

A)He should buy more pizza slices and less Coke.
B)He should buy fewer pizza slices and more Coke.
C)He is currently attaining consumer equilibrium and should not redirect his purchases.
D)He could gain more satisfaction by buying less of both and more of something else.
E)There is not enough information to answer the question.

Question 61

Joe is currently in consumer equilibrium by consuming cheese and crackers, such that the last cracker consumed yielded 8 utils and the last piece of cheese consumed yielded 12 utils. Assume the price of crackers is two cents per cracker and the price of cheese is three cents per piece. If the price of crackers increases to four cents, Joe should __________ his consumption of crackers and his marginal utility from crackers will __________ and also __________ his consumption of cheese and his marginal utility from cheese will __________.

A)increase; increase; increase; increase
B)increase; increase; decrease; decrease
C)increase; decrease; increase; decrease
D)decrease; increase; decrease; increase
E)decrease; increase; increase; decrease

Question 62

A consumer is in equilibrium if he or she derives the same

A)total utility from each good consumed.
B)total utility per dollar spent on each good consumed.
C)marginal utility from each good consumed.
D)marginal utility per dollar spent on each good consumed.

Question 63

Which of the following statements is true?

A)If a consumer is in equilibrium, it does not necessarily follow that he or she is also achieving the greatest total utility.
B)If a consumer is in equilibrium, it necessarily follows that he or she is also achieving the greatest total utility.
C)If a consumer is attaining the greatest marginal utility, then it necessarily follows that he or she is also achieving the greatest total utility.
D)If a consumer is attaining the greatest total utility, then it necessarily follows that he or she is also achieving the greatest marginal utility.

Question 64

In order for an individual to achieve consumer equilibrium through the consumption of two goods, A and B, that individual must fulfill the condition

A)TU_A = TU_B.
B)TU_A\P_A = TU_B\P_B.
C)MU_A = MU_B.
D)MU_A\P_A = MU_B\P_B.
E)MU_B\P_A = MU_A\P_B.

Question 65

Given that MU_X\P_X

A)can never maximize total utility.
B)have maximized total utility.
C)can increase total utility by buying more of X and less of Y.
D)can increase total utility by buying more of Y and less of X.

Question 66

According to the traditional theory of marginal utility as presented in the textbookbook, as more units of a good are acquired, the consumer's marginal utility

A)always continues to rise.
B)diminishes.
C)remains constant.
D)may diminish at first, but it must eventually rise.
E)may rise at first, but it must eventually become constant.

Question 67

To an economist, utility refers to the

A)usefulness of a good or service.
B)satisfaction that results from the consumption of a good.
C)relative scarcity of a good.
D)rate of decline in the demand curve.

Question 68

Suppose that the total utility from consuming one unit of good Z is 80 utils, the total utility from consuming two units of good Z is 125 utils, and the total utility from consuming three units of good Z is 160 utils.  The marginal utility received from consuming the third unit of good Z is

A)365 utils.
B)35 utils.
C)45 utils.
D)50 utils.

Question 69

Given two goods, X and Y, their prices, P_X and P_Y, a consumer is in equilibrium when the last dollar spent on X yields

A)zero marginal utility for Y.
B)the same marginal utility as if all the money were spent on Y.
C)a smaller marginal utility than the last dollar spent on Y.
D)the same marginal utility as the last dollar spent on Y.

Question 70

Suppose a consumer is purchasing Coke and pretzels in quantities such that she is achieving consumer equilibrium. Then the price of Coke decreases. The consumer will likely __________ her consumption of Coke and the marginal utility of Coke will __________ while the total utility from Coke will __________.

A)increase; increase; increase
B)increase; decrease; decrease
C)increase; decrease; increase
D)decrease; increase; increase
E)decrease; decrease; decrease

Question 71

The theory of consumer choice assumes that consumers attempt to maximize

A)the difference between total utility and marginal utility.
B)average utility.
C)total utility.
D)marginal utility.

Question 72

Diamonds are more expensive than water because

A)markets do not always reflect value.
B)they have fewer uses.
C)they are relatively scarce and they yield higher marginal utility.
D)they yield higher total utility.

Question 73

To resolve the diamond-water paradox, it is important to note that under most circumstances,

A)the marginal utility of water is lower than the marginal utility of diamonds.
B)the marginal utilities of water and diamonds are about the same.
C)the marginal utility of water is higher than the marginal utility of diamonds.
D)the marginal utilities of water and diamonds are inversely related.
E)the marginal utilities of water and diamonds are directly related.

Question 74

Suppose Valerie is consuming lipstick (L)and eye shadow (E)and nothing else. MU_L = 40 and MU_E = 36. The price of eye shadow is $9, and the price of lipstick is $15. What should Valerie do?

A)Consume more eye shadow and less lipstick.
B)Consume more lipstick and less eye shadow.
C)Consume less of both.
D)Consume more of both.
E)Not change her consumption of either good.

Question 75

If the marginal utility of a good is negative, then

A)consumers should buy less of it.
B)consumers will consume it only if it is free.
C)consumers should buy more of it to make its marginal utility positive.
D)the law of diminishing marginal utility is being violated.

Question 76

Suppose that a consumer purchases a combination of X and Y such that MU_X\P_X = 15 utils per dollar and MU_Y \P_Y = 10 utils per dollar. To maximize utility, the consumer should buy

A)less of X and more of Y.
B)more of X and less of Y.
C)more of both X and Y.
D)less of both X and Y.
E)neither X nor Y.

Question 77

The law of diminishing marginal utility helps to explain

A)the direct relationship between price and quantity supplied.
B)the law of demand.
C)why the production possibilities frontier is typically bowed-out.
D)why the production possibilities frontier is typically a straight line.

Question 78

Given two goods, X and Y, and their prices, P_X and P_Y a consumer will maximize total utility by allocating expenditures such that

A)MU_X\P_Y = MU_Y\P_X.
B)P_Y\MU_X = P_X\MU_Y.
C)MU_X\P_X = MU_Y \P_Y.
D)MU_X = P_X = MU_Y = P_Y = MU_$.
E)MU_X = MU_Y = P_X = P_Y = MU_$.

Question 79

Suppose a consumer is purchasing Coke (c)and pretzels (p)in quantities such that he is achieving consumer equilibrium. Then the price of Coke increases. Which of the following will be true?

A)MU_C\P_C = MU_P\P_P
B)MU_C\P_C > MU_P\P_P
C)MU_C\P_C
D)We cannot say for certain what will happen to the MU_C\P_C relative to the MU_P\P_P.

Question 80

Suppose that the total utility from consuming one unit of good X is 87 utils, the total utility of two units of good X is 150 utils, and the total utility of three units of good X is 180 utils.  The marginal utility of the third unit is

A)30 utils.
B)417 utils.
C)63 utils.
D)139 utils.