Deck 8: Consumer Choice

Question 1

The table given below depicts the total utility derived from the consumption of a good. Table 6.1
According to Table 6.1, the total utility from consuming all 5 units is _____.

A)13
B)55
C)64
D)188
E)303

Answer 1

55

Question 2

_____ is the lack of satisfaction yielded after consuming too much of the same product.

A)Diminishing marginal utility
B)Disutility
C)Total utility
D)Marginal utility
E)Cardinal utility

Answer 2

Disutility

Question 3

_____ is a measure of the total satisfaction derived from consuming a quantity of some good or service.

A)Disutility
B)Diminishing marginal utility
C)Total utility
D)Marginal utility
E)Ordinal utility

Answer 3

Total utility

Question 4

If a consumer purchases more of a product, then most likely the marginal utility of _____.

A)that product decreases
B)that product remains the same
C)other products decreases
D)other products increases
E)that product increases

Question 5

When marginal utility is negative, total utility is _____.

A)increasing
B)at a minimum
C)equal to zero
D)decreasing
E)at a maximum

Question 6

When economists describe the theory of consumer choice, they

A)portray people as simple and methodical with perfectly predictable patterns of behavior.
B)assert that consumers decide which goods and services give them the greatest utility within their limited incomes.
C)point out that consumers rarely consider utility in their purchase decisions;they look at other factors like convenience, peer behavior, and price.
D)assert that the retail price is the only variable consumers really consider in making their purchasing decisions.
E)admit that consumer behavior is random and there is no credible economic theory to explain the phenomenon.

Question 7

Suppose two out for coffee and donuts at the local donut store.The first donut you eat tastes incredibly good.The second one also tastes pretty good.The third donut seems just okay.With the fourth donut you are turning somewhat green.The fifth donut makes you sick.Your friend, an economist, describes your experience as the principle of:

A)utility maximization.
B)irrationality in consumer behavior.
C)instant gratification.
D)differing tastes and preferences.
E)diminishing marginal utility.

Question 8

When attempting to explain why a consumer purchases a Ford automobile instead of a Honda automobile or a Compaq computer instead of an IBM computer, an economist would assert:

A)that the consumer is making a decision based on what gives him maximum utility.
B)that everyone knows Hondas are superior to Fords;the consumer cannot possibly be maximizing his utility.
C)that everyone knows IBM computers are superior to Compaq computers;the consumer may be maximizing his utility at the margin, but is not maximizing total utility.
D)that there is no standard explanation for consumer choices because consumers have varied tastes and preferences.
E)that since rationality is bounded by lack of information, a consumer purchases goods based on convenience than on utility maximization.

Question 9

To economists, feelings such as peace, serenity, religious devotion, and self-esteem are captured in the concept known as _____.

A)rational self-interest
B)utility
C)profit
D)total revenue
E)surplus

Question 10

Marginal utility is _____.

A)always greater than total utility
B)utility that is not as good as normal utility
C)the extra utility derived from consuming one additional unit of a good or service
D)always positive
E)not related to total utility

Question 11

The law of diminishing marginal utility states that:

A)the marginal utility of the last unit consumed of any good is less than the marginal utility of all other products consumed.
B)as more of a good or service is consumed, ceteris paribus, its marginal utility relative to the marginal utility of other products increases.
C)as more of a good or service is consumed, its marginal utility decreases.
D)as more of a good or service is consumed, its marginal utility relative to other products remains the same.
E)the marginal utility of all products consumed must be equal.

Question 12

The prices that people are willing to pay for goods and services mostly depend on:

A)the total utility derived from the goods.
B)the marginal utility derived from the goods.
C)the availability of the goods.
D)the cost of producing the goods.
E)whether the goods are legal since the laws affect the position of both supply and demand curves.

Question 13

Total utility is maximized when _____.

A)marginal utility is maximized
B)marginal utility is the same for all goods consumed
C)marginal utility per dollar expenditure is maximized
D)marginal utility per dollar expenditure is the same for all goods consumed
E)any change in purchasing from good A to good B reduces marginal satisfaction

Question 14

The additional satisfaction that a consumer receives from one more unit of a good or service is known as _____.

A)marginal utility
B)total utility
C)disutility
D)profit
E)the law of diminishing marginal utility

Question 15

Due to the law of diminishing marginal utility, _____.

A)the first unit of a product offers more satisfaction than the last unit of the same product
B)the marginal utility curve is upward sloping
C)when marginal utility becomes negative, total utility increases
D)there is more satisfaction with each unit of good consumed
E)when marginal utility becomes positive, total utility declines

Question 16

If the marginal utility of a product is diminishing relative to the marginal utility of other products, then _____.

A)the consumer is in equilibrium
B)the consumer has been purchasing relatively less of the product
C)the consumer has been purchasing relatively more of the product
D)the price of this product must have increased
E)the price of the product must have decreased

Question 17

As a consumer eats additional pieces of pizza, total utility will _____.

A)always keep increasing
B)always keep decreasing
C)keep increasing until dissatisfaction sets in
D)keep decreasing until dissatisfaction sets in
E)initially keep decreasing until it becomes zero and then increase

Question 18

Total utility is determined by:

A)multiplying the quantity purchased by the price of the good.
B)finding the additional utility gained from consuming one more unit of product.
C)summing the marginal utilities for each successive unit of product consumed.
D)summing the number of units of a good consumed.
E)dividing the marginal utility derived from consuming a good by its price.

Question 19

Utility is most closely defined as _____.

A)the purchasing power of individuals
B)welfare maximization
C)a medium of exchange
D)satisfaction
E)an opportunity cost

Question 20

_____ is the change in total utility that occurs because one more unit of the good is consumed or acquired.

A)Total utility
B)Marginal utility
C)Disutility
D)Diminishing marginal utility
E)Expected utility

Question 21

According to Table 6.1, which of the following units of the good yields disutility?

A)Units 1 and 4
B)Units 2 and 3
C)Unit 3
D)Units 3, 4, and 5
E)Units 4 and 5

Question 22

When marginal utility is positive and increasing, then

A)total utility must be negative.
B)total utility must be increasing at an increasing rate.
C)total utility must be increasing at a decreasing rate.
D)total utility is decreasing.
E)total utility is at its maximum point.

Question 23

Refer to Table 6.2.The law of diminishing marginal utility holds _____.

A)for any number of avocados
B)up to five avocados
C)only for one or two avocados
D)only after five avocados are consumed
E)for the first three avocados

Question 24

Suppose that there are five bottles of lemonade, each of which gives the consumer the same level of utility.According to the law of diminishing marginal utility, how can one receive the highest utility?

A)Consume all five bottles in the next hour
B)Consume all five bottles today
C)Consume all five bottles in one day next week
D)Consume two bottles today and three tomorrow
E)Consume one bottle each day for the next five days

Question 25

Suppose a friend gives you two pieces of gum, and you decide to have one piece now and save the other for tomorrow.You do this because:

A)the total utility you get from the two pieces of gum will be higher tomorrow.
B)the marginal utility you get from the second piece will be higher tomorrow.
C)the marginal utility you get from the second piece will be higher today.
D)the marginal utility you get from the first piece will be less today.
E)the total utility you get from the two pieces will be less tomorrow.

Question 26

The table given below records the total utility derived from the consumption of avocados. Table 6.2
According to Table 6.2, the marginal utility of the third avocado is _____.

A)12
B)8
C)48
D)18
E)4

Question 27

According to Table 6.2, marginal utility is negative _____.

A)for any number of avocados
B)up to five avocados
C)only for one or two avocados
D)only after five avocados are consumed
E)only after the first avocado is consumed

Question 28

Marginal utility diminishes more quickly:

A)the less durable the good is.
B)the greater the number of consumers consuming the good.
C)the shorter the time period between two successive consumptions.
D)the greater the number of firms producing the good.
E)the cheaper the good is.

Question 29

According to Table 6.2, marginal utility is positive _____.

A)for any number of avocados
B)for up to five avocados
C)for one or two avocados
D)only after five avocados are consumed
E)for the first four avocados

Question 30

According to Table 6.1, marginal utility _____.

A)increases from the first unit to the third unit and then declines
B)decreases from the third unit to the fifth unit only
C)increases from the first unit to the third unit and decreases from the third unit to the fifth unit
D)decreases from the first unit to the fifth unit
E)increases from the fourth unit

Question 31

Which of the following statements about marginal utility is correct?

A)When marginal utility is negative, an increase in the quantity will increase total utility.
B)When marginal utility is decreasing, an increase in quantity will decrease total utility.
C)When marginal utility is positive, an increase in quantity will decrease total utility.
D)When marginal utility is zero, an increase in quantity will leave total utility unchanged.
E)When total utility is increasing, marginal utility will be negative.

Question 32

Which one of the following is based on the idea that marginal utility of income diminishes as income increases?

A)Progressive taxation
B)Capital controls
C)Minimum wages
D)Price controls
E)Employee compensation regulations

Question 33

If one were to plot the data from Table 6.1 (with utility on the vertical axis and quantity of the good on the horizontal axis):

A)the total utility curve would begin to decline after the second unit of the good.
B)the marginal utility curve would begin to decline after the third unit of the good.
C)the marginal utility curve would intersect the horizontal axis at the third unit of the good.
D)the marginal utility curve would intersect the horizontal axis at the second unit of the good.
E)the total utility curve would rise from the first unit to the fifth unit.

Question 34

The total utility of the consumer diminishes whenever:

A)he or she buys an additional unit of a good.
B)his or her marginal utility decreases.
C)his or her total utility increases at a decreasing rate.
D)the last unit consumed of a particular good is distasteful or provides dissatisfaction.
E)other consumers are also purchasing the product.

Question 35

In the theory of utility, it is assumed that marginal utility:

A)increases as consumption of a product increases.
B)is always zero irrespective of any increase or decrease in consumption.
C)remains constant when consumption of a product increases.
D)diminishes as consumption of a product increases.
E)remains constant when consumption of a product decreases.

Question 36

An "all you can eat" restaurant illustrates the economic principle:

A)of consumers' inability to maximize their total utility.
B)that economic theory clearly breaks down under certain circumstances.
C)that marginal utility is always positive.
D)that consumers will stop eating when marginal utility is zero.
E)that consumers will stop eating when total utility is zero.

Question 37

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

A)increasing.
B)at a minimum.
C)equal to zero.
D)decreasing.
E)at a maximum.

Question 38

According to the law of diminishing utility, _____.

A)the same tax rate should be applied to every dollar
B)the rich people should have a lower tax rate
C)the rich people should have a higher tax rate
D)the total burden on the society from a tax will be less if proportional taxation is used
E)the poorer people should have a lower tax rate

Question 39

If total utility increases by smaller and smaller amounts as more units of a product are consumed, then marginal utility is:

A)decreasing and is a negative amount.
B)decreasing and is a positive amount.
C)zero.
D)increasing and is a negative amount.
E)increasing and is a positive amount.

Question 40

It is often observed that, over the same period of time and for the same good, marginal utility declines rapidly for some consumers and very little for others.This observation illustrates:

A)that economic theory is of little value in explaining consumer behavior.
B)that consumers are not identical.
C)tastes and preferences should not be included in any discussion of consumer choice.
D)tastes and preferences among consumers are quite similar.
E)that if consumers weren't identical, economic theory would not be able to provide insight into consumer behavior.

Question 41

To decide which of two goods is the better buy, a consumer should compare the products' _____.

A)marginal utilities
B)total utilities
C)marginal utilities per dollar
D)total utilities per dollar
E)disutility

Question 42

Suppose the prices of goods X, Y, and Z are $4, $1, and $5, respectively, and the last unit purchased of good X has a marginal utility MU_x = 16 utils.At the point of equilibrium, the marginal utility of the last unit purchased of goods Y and Z will be:

A)MU_y = 16 utils and MU_z = 16 utils, respectively.
B)MU_y = 8 utils and MU_z = 2 utils, respectively.
C)MU_y = 4 utils and MU_z = 20 utils, respectively.
D)MU_y = 2 utils and MU_z = 4 utils, respectively.
E)MU_y = 12 utils and MU_z = 20 utils, respectively.

Question 43

If MU_X / P_X < MU_Y / P_Y then this consumer:

A)will buy less of X and more of Y.
B)will buy more of X and more of Y.
C)is in equilibrium.
D)will buy more of X and less of Y.
E)will buy less of X and less of Y.

Question 44

Derek has $1 to spend at the grocery store.An apple, an orange, and a banana cost $.50 each.If Derek's MU_A/P_A (ratio of marginal utility to price)of an apple is 45, MU_O/P_O of an orange is 38, and MU_B/P_B of a banana is 52, he will purchase a(n)_____ first and a(n)_____ second.

A)apple;orange
B)orange;apple
C)banana;orange
D)banana;apple
E)orange;banana

Question 45

If MU_x / P_x = MU_Y / P_Y then _____.

A)the consumer should purchase same quantity of X and Y.
B)the consumer should purchase less X
C)the consumer is maximizing utility
D)the consumer should purchase more Y
E)the consumer is minimizing utility

Question 46

Mr.Rational has $27 that he plans to spend purchasing 5 units of good X (priced at $3 per unit)and 6 units of good Y (priced at $2 per unit).The marginal utility of the fifth unit of X is 30, and the marginal utility of the sixth unit of Y is 30.If Mr.Rational is a utility maximizer, he should:

A)not buy anything.
B)buy more of X and less of Y.
C)buy less of X and more of Y.
D)buy X and Y in the quantities indicated.
E)but less of X and even lesser than that of Y.

Question 47

In order to maximize utility, consumers _____.

A)continue to make purchases until the marginal utility of each good is zero
B)compare the marginal utilities of the last dollar spent on each good
C)equate the total utilities of each good consumed
D)continue to purchase a good until total utility is equal to zero
E)will continue purchasing till diminishing marginal utility is not achieved

Question 48

Because incomes are limited, purchasing one thing means not being able to purchase other things.This indicates that:

A)marginal utility diminishes.
B)marginal utility is constant.
C)people will allocate their income among goods so as to achieve the most satisfaction.
D)people will allocate their income among goods so that the marginal utilities of all goods is equal.
E)people will allocate their income among goods so that the marginal utilities of all goods is zero.

Question 49

A ten-year-old boy spent his allowance on a soccer ball and a baseball glove.He said he could not be happier buying anything else.The price of the ball was $5, while the price of the glove was $10.If the marginal utility he received from the ball was 15 utils, then:

A)the marginal utility he received from expenditure on the glove was 3 utils.
B)the marginal utility he received from expenditure on the glove was 30 utils.
C)the total utility per dollar he received from expenditure on the glove was 3 utils.
D)the total utility per dollar he received from expenditure on the glove was 10 utils.
E)the marginal utility he received from the expenditure of the glove was 10 utils

Question 50

As the price of a good increases:

A)that good will yield less satisfaction per dollar than before.
B)consumers will have more real income to spend on other goods.
C)the quantity demanded of that good will also increase.
D)the utility-maximizing quantity of that good willl not change.
E)consumers will buy the good and substitute away from other goods.

Question 51

According to utility theory, a consumer is in equilibrium when:

A)total income is spent.
B)marginal utility per dollar spent for a good is maximized.
C)total utility per unit of a good is maximized.
D)total utility per dollar spent is equal for all goods.
E)marginal utility per dollar spent is equal for all goods.

Question 52

Assume MU_X = 30 utils, MU_Y = 15 utils, P_X = $2 and P_Y = $0.50.This consumer:

A)should buy less of X and less of Y.
B)is in equilibrium.
C)should buy more of X and less of Y.
D)should buy less of X and more of Y.
E)should buy more of X and more of Y.

Question 53

The equimarginal principle illustrates:

A)that consumers are essentially robots.
B)that people behave irrationally.
C)that people behave in rather consistent ways in order to maximize happiness.
D)that people behave in rather inconsistent ways.
E)that people will spend all their incomes.

Question 54

Jason is trying to decide whether to buy a bagel or a muffin for breakfast.The bagel costs $.50 and has a marginal utility of 5.The muffin costs $1 and has a marginal utility of 20.Which should he buy, and why?

A)The muffin, because it has a higher marginal utility
B)The muffin, because it has a lower marginal utility per dollar
C)The bagel, because it costs less
D)The bagel, because it has a higher marginal utility per dollar
E)The muffin, because it has a higher marginal utility per dollar

Question 55

If a dinner guest was serious when she said that she could never get enough of your cooking, you would conclude that the marginal utility of your cooking for her was _____.

A)negative
B)decreasing
C)increasing at an increasing rate
D)positive
E)less than total utility

Question 56

Assume that a consumer purchases a combination of products X and Y and the MU_x / P_x = 75 utils per dollar and MU_y / P_y = 50 utils per dollar.To maximize utility without spending more dollars, the consumer should buy:

A)more of both X and Y.
B)less of Y only if the price of Y increases.
C)more of Y and less of X.
D)more of X and less of Y.
E)less of both X and Y.

Question 57

In economic theory, the idea of the equimarginal principle, or consumer equilibrium, means:

A)consumers appear to be similar in their buying habits, which explains why prices are almost always in equilibrium.
B)to maximize utility, consumers allocate all of their incomes among goods so as to equate the total utility of all units of goods purchased.
C)to maximize utility, consumers must allocate their scarce incomes among only the cheapest products available.
D)to maximize utility, consumers must allocate their scarce incomes among goods so as to equate the marginal utilities per dollar of expenditure on the last unit of each good purchased.
E)the marginal utilities among luxury goods are always equal among certain high income earners.

Question 58

Consumers should allocate their income so that the marginal utility associated with the:

A)first dollar spent is equal for all goods.
B)last dollar spent is equal for all goods.
C)last dollar spent is lower for high-priced items than for lower- priced items.
D)first dollar spent is greater for high-priced items than for lower-priced items.
E)first dollar spent is less for high-priced items than for lower-priced items.

Question 59

As long as the marginal utilities per dollar obtained from the last unit of all products consumed are the same, _____.

A)the consumer is in equilibrium and will not reallocate income
B)the consumer is not in equilibrium and will reallocate income
C)the consumer is most likely operating a budget deficit
D)the consumer is not maximizing utility
E)the government will recognize this as an intolerable disequilibrium and will most likely intervene by imposing a tax and reallocate the consumer's income

Question 60

Jen spent her weekly allowance of $110 on clothes and cosmetics.Assume that she had allocated $100 to shoes and $10 to lipsticks and is in equilibrium.What can you conclude from her purchase decisions?

A)She likes shoes ten times as much as she likes lipsticks
B)Jen liked the last pair of shoes ten times as much as the last tube of lipstick
C)Jen purchased ten pairs of shoes for each tube of lipstick
D)She likes lipsticks ten times as much as she likes shoes
E)She purchased ten pairs of shoes for each tube of lipstick

Question 61

_____ is the understanding that perfect information is not likely to be available, and that as a result people make decisions that in hindsight look irrational, but in reality are the rational results of a brain that is economizing.

A)Reasoning
B)Parametric determinism
C)Rational ignorance
D)Bounded rationality
E)Dynamic inconsistency

Question 62

The study of decision making that assumes people are rational in a broad sense, even if they do not have complete and perfect information is called _____.

A)rational economics
B)reasonable economics
C)understandable economics
D)behavioral economics
E)optimal economics

Question 63

Which of the following statements concerning income and substitution effects is nottrue?

A)Income and substitution effects cause the demand curve to slope downward.
B)When the price of a good falls, real purchasing power increases and consumers can purchase more of all goods.
C)The substitution effect describes the situation where more of a good whose price has fallen is purchased and less of all other goods is purchased.
D)A price decrease of one good cannot cause the income effect.
E)Income and substitution effects are related to diminishing marginal utility and consumer equilibrium.

Question 64

The table below shows the total utility associated with various units of goods X and Y. Table 6.5
Refer to Table 6.5.Given that the price of good X is $2 per unit, the price of good Y is $5 per unit, and that the consumer spends a total of $14 on both goods, what is the total utility associated with the utility-maximizing combination?

A)84
B)154
C)172
D)Indeterminate
E)215

Question 65

Following a decrease in the price of a good or service, an individual will purchase more of the now less expensive good and less of other more expensive goods.This is known as the _____ effect.

A)income
B)endowment
C)substitution
D)price
E)scale

Question 66

In effect, people feel that driving is safer than flying and also prefer to do so because of _____.

A)anchoring
B)overconfidence
C)status quo
D)loss aversion
E)familiarity

Question 67

When the price of a good changes, the substitution effect occurs because:

A)the consumers' real income measured in terms of that good changes.
B)the relative price of that good changes compared to other goods in the consumption bundle.
C)the total utility of that good changes.
D)the marginal utility of that good changes.
E)consumers have an incentive to substitute irrational behavior for rational behavior.

Question 68

The demand curve for a product can be derived from consumer equilibrium by:

A)altering the prices of all other products.
B)altering consumer incomes.
C)shifting consumer preferences.
D)altering the price of the good itself.
E)knowing the demand curves for all other products.

Question 69

In labor markets, a change in the wage rate has both an income and a substitution effect.An increase in wages causes an increase in real income but at the same time it increases the relative price of leisure for the worker.If the increase in the wage rate causes an individual to work less:

A)the income effect will dominate the substitution effect.
B)the substitution effect will dominate the income effect.
C)the substitution and the income effects will cancel each other out.
D)then leisure will be referred to as an inferior good.
E)the increase in wage rates will cause an increase in the supply of labor.

Question 70

The demand curve slopes downward because of:

A)diminishing marginal utility and consumer equilibrium.
B)the fact that consumers cannot decide how much they want to pay for goods and services.
C)the fact that suppliers cannot decide how much to charge for the goods and services they supply.
D)the fact that consumer tastes and preferences change rapidly.
E)the fact that consumers are fickle, which makes pricing a good or service very difficult.

Question 71

The demand curve for a product slopes downward and to the right because:

A)total utility decreases as more of the product is consumed.
B)total utility derived from both, the product and its substitutes is the same.
C)marginal utility of the product diminishes as more of the product is consumed.
D)there are no substitutes for the product.
E)when the price falls, the income effect causes consumers to buy less of the product.

Question 72

The income and substitution effects of a price change occur because:

A)consumer incomes are not constant.
B)consumer substitution rates are not constant.
C)income and substitution effects never occur simultaneously.
D)of diminishing marginal utility and the equimarginal principle.
E)of increasing marginal utility and the equimarginal principle.

Question 73

When a good becomes more expensive, it yields less satisfaction per dollar, so consumers buy less of it and more of other goods.This is called the _____ effect.

A)substitution
B)income
C)replacement
D)augmentation
E)disbursement

Question 74

The term _____ refers to the idea that the value people place on money depends on where that money comes from.

A)decision making
B)psychological pricing
C)mental accounting
D)marketing mix
E)anchoring

Question 75

If the price of videotapes decreases, then the _____.

A)marginal utility of videotapes will decrease
B)marginal utility of videotapes will increase
C)marginal utility per dollar of videotapes will decrease
D)marginal utility per dollar of videotapes will increase
E)total utility of videotapes will increase

Question 76

A consumer is in equilibrium when:

A)his or her marginal utility derived from each good is maximized.
B)each dollar spent on each item provides more and more satisfaction.
C)each dollar spent on each item provides less and less satisfaction.
D)the last dollar spent on each item provides the same additional satisfaction as that dollar would if spent on any other item.
E)his or her average utility for each item is the same.

Question 77

The table below shows the total utility associated with various units of goods X and Y. Table 6.5
Refer to Table 6.5.Given that the price of good X is $2 per unit, the price of good Y is $5 per unit, and that the consumer spends a total of $14 on both goods, what is the total utility associated with the utility-maximizing combination?

A)84
B)154
C)172
D)Indeterminate
E)215

Question 78

Suppose the price of beef declines by $0.50 per pound at the supermarket.Consumers of beef immediately increase their purchases of beef.This illustrates:

A)the fact that beef is an inferior good.
B)the cross-elasticity effect of a price decrease.
C)the substitution effect of a price decrease.
D)the fact that beef is an economic bad.
E)the income effect of rise in price.

Question 79

Buyers who are persuaded to take a product home to try it out, _____.

A)are likely to return the product later
B)are lucky the seller is not concerned about the buyers' credit ratings
C)like to try the product out
D)have no money to pay at the time
E)will be reluctant to return the product when payment is due

Question 80

The _____ effect indicates that an individual's income can buy more of all goods when the price of one good declines, everything else held constant.

A)scale
B)endowment
C)substitution
D)price
E)income