Deck 4: Consumer Decision Making and Consumer Reaction to Price Changes  

Question 1

Goods that bring you utility are goods that

A) enhance your well-being.
B) allow you to save money.
C) have an investment value.
D) are reasonably priced.

Answer 1

enhance your well-being.

Question 2

Total utility derived from consuming one good declines when

A) marginal utility is positive.
B) marginal utility is negative.
C) there is an opportunity cost associated with consuming more of the good.
D) the consumer receives a discounted price for the good.

Answer 2

marginal utility is negative.

Question 3

Marginal utility is the

A) total satisfaction gained from consuming goods or services.
B) additional satisfaction from consuming one more unit of a good or service.
C) additional profit gained from consuming a good or service.
D) total value from consuming goods or services.

Answer 3

additional satisfaction from consuming one more unit of a good or service.

Question 4

When marginal utility is zero,

A) total utility is zero.
B) total utility is equal to marginal utility.
C) total utility is minimized.
D) total utility is maximized.

Question 5

Marginal means

A) average.
B) controversial.
C) undesirable.
D) the incremental change.

Question 6

A rational consumer will never purchase a product when its

A) marginal utility is negative.
B) total utility is decreasing.
C) marginal utility is decreasing.
D) marginal utility is slightly positive.

Question 7

Table 4.3


-After consuming what quantity of pizza does the consumer in Table 4.3 experience diminishing marginal utility?

A) 1
B) 2
C) 3
D) 4

Question 8

Table 4.3


-After consuming what quantity of soda does the consumer in Table 4.3 experience diminishing marginal utility?

A) 1
B) 2
C) 3
D) 4

Question 9

Table 4.3


-In Table 4.3, at how many sodas is the total utility from sodas maximized?

A) 0
B) 1
C) 3
D) 4

Question 10

Table 4.4


-According to Table 4.4, what is the marginal utility of the second CD purchased?

A) 135
B) 100
C) 75
D) 60

Question 11

Table 4.4


-According to Table 4.4, what is the marginal utility of the third CD purchased?

A) 100
B) 75
C) 50
D) 43.5

Question 12

Table 4.4


-According to Table 4.4, what is the total utility when four CDs are purchased?

A) 220
B) 150
C) 135
D) 44

Question 13

Table 4.4


-According to Table 4.4, what is the total utility when five CDs are purchased?

A) 285
B) 245
C) 220
D) 82

Question 14

Table 4.4


-According to Table 4.4, what is the total utility when six CDs are purchased?

A) 260
B) 220
C) 120
D) 65

Question 15

Table 4.4


-What is true of the consumer whose utility values are given in Table 4.4?

A) Her price elasticity of demand for CDs is zero.
B) The number of CDs she chooses to purchase will not change as the price of CDs changes.
C) Her consumption of CDs is characterized by diminishing marginal utility.
D) The marginal utility derived from each CD is constant regardless of the number purchased.

Question 16

Marginal utility

A) is the change in total utility due to a one-unit change in the consumption of a good or service.
B) refers to the satisfaction a consumer gets from finding a low price for a good he desires.
C) will be negative as long as the consumer has to pay for the good.
D) is the total satisfaction derived from the consumption of a given quantity of a good or service.

Question 17

Which of the following statements is TRUE?

A) As the price of a good declines, your marginal utility from consuming it increases.
B) Marginal utility increases as you increase consumption of a good.
C) Saving money always provides more utility than spending it.
D) The marginal utility you expect to derive from a good determines whether you will be willing to buy it at a given price.

Question 18

Table 4.5


-Using Table 4.5, diminishing marginal utility begins after the _____________ glass of water is consumed.

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

Question 19

Table 4.5


-Using Table 4.5, what is the marginal utility of the fourth glass of water?

A) 250
B) 50
C) 25
D) 10

Question 20

Table 4.5


-Using Table 4.5, when does marginal utility become negative?

A) With the third glass of water
B) With the fourth glass of water
C) With the fifth glass of water
D) With the sixth glass of water

Question 21

Table 4.5


-Using Table 4.5, when is total utility maximized?

A) At six glasses of water
B) At five glasses of water
C) At four glasses of water
D) At three glasses of water

Question 22

Price elasticity of demand is the responsiveness

A) of the quantity demanded to changes in price.
B) of the quantity demanded to changes in supply.
C) of the quantity demanded to changes in income.
D) of the quantity demanded to changes in quantity.

Question 23

What do you have to know in order to calculate the price elasticity of demand?

A) How many consumers would like to buy the good but don't because of the price
B) How much was spent on advertising for the good
C) How much marginal utility the average consumer derives from the good
D) How much of the good was purchased at each of two different prices

Question 24

Another term for elasticity is

A) reliability.
B) responsiveness.
C) variability.
D) consumer confidence.

Question 25

Regarding an addictive drug such as heroin, we discover that when the price of heroin increases

A) the quantity demanded rises by a relatively small amount.
B) the quantity demanded rises by a relatively large amount.
C) the quantity demanded falls by a relatively large amount.
D) the quantity demanded falls by a relatively small amount.

Question 26

No matter what the price of coffee is in the cafeteria, Jim spends $20 a week on coffee. We can conclude that

A) Jim's demand for coffee is perfectly elastic.
B) Jim's demand for coffee is perfectly inelastic.
C) Jim buys fewer cups of coffee when the price is higher.
D) Jim buys fewer cups of coffee when the price is lower.

Question 27

When the price elasticity of demand is less than one,

A) the percentage change in quantity demanded is of a smaller magnitude than the percentage change in price.
B) the percentage change in quantity demanded is of a greater magnitude than the percentage change in price.
C) the demand is elastic.
D) consumers do not respond to price changes.

Question 28

When demand is perfectly inelastic,

A) the price elasticity of demand is greater than 1.
B) the demand curve is vertical.
C) the demand curve is horizontal.
D) small changes in price lead to large changes in the quantity demanded.

Question 29

A price increase will cause a relatively large drop in quantity demanded when

A) demand is perfectly inelastic.
B) there is very little time allowed for consumers to react.
C) the consumer has easy access to a number of substitute goods.
D) the price elasticity of demand is 0.

Question 30

If the price elasticity of demand for a product is greater than 1, then

A) higher prices will increase the quantity demanded.
B) higher prices will increase demand for the good.
C) higher prices will reduce demand for the good.
D) consumers are relatively responsive to price changes.

Question 31

If consumers respond to a car dealer's 10 percent price cut by increasing the number of cars demanded by 20 percent, we would conclude that

A) that demand for cars is inelastic.
B) that the price elasticity of demand is 2.
C) that the price elasticity of demand is 0.5.
D) that the car dealer lost sales revenue as a result of the price cut.

Question 32

What situation would make the demand for new housing relatively more price elastic?

A) Construction firms have a difficult time finding experienced carpenters.
B) Home buyers are prosperous, and they don't feel constrained by financial limits.
C) There is a plentiful stock of desirable pre-existing homes.
D) Apartment rents are at an all-time high.

Question 33

The law of diminishing marginal utility implies that

A) people will consume a variety of goods rather than just one good.
B) the demand for all goods will be elastic.
C) the demand for all goods will be inelastic.
D) people become worse off as they consume more.

Question 34

Drew and Jake go to the amusement park, and they each take three rides on the roller coaster. Drew's total utility from the three rides is 85 utils; Jake's total utility is 70. What can we conclude about the marginal utility each of them has derived from the third ride?

A) For Drew, the third ride provided 85 units of marginal utility.
B) For Jake, the third ride brought him no marginal utility.
C) The marginal utility of the third ride was higher for Drew than for Jake.
D) The marginal utility they each expected from the third ride was positive.

Question 35

What does economic theory assume about human behavior?

A) That people consume goods in order to derive utility.
B) That people do not take price into account in deciding what to buy.
C) That rational consumers will spend all of their money.
D) That people are unaware of the opportunity costs associated with consumption.

Question 36

A rational consumer will

A) consider the price of a good as part of his purchase decision.
B) buy all those goods which provide a positive level of utility.
C) spend all of his income on one good.
D) ignore opportunity costs.

Question 37

Lucy gets a bad haircut and afterwards is heard to say, "This haircut was a waste of money." Which of the following is an accurate restatement of Lucy's comment?

A) "I derived no marginal utility from the haircut."
B) "There is no opportunity cost associated with the money I spent on the haircut."
C) "The marginal utility I derived from the haircut is less than I thought it would be."
D) "The hair stylist should be fired."

Question 38

Economic theory asserts that

A) when marginal utility is positive, total utility is negative.
B) when total utility is positive, marginal utility is negative.
C) a lower price of a good allows consumers to purchase a quantity at which the marginal utility of the last unit purchased will be lower.
D) a lower price of a good allows consumers to purchase a quantity at which the marginal utility of the last unit purchased will be higher.

Question 39

Economic theory asserts that

A) if there is one good you like, you will spend all of your income on it.
B) the price of a good will affect whether a consumer chooses to purchase it.
C) changes in income levels do not affect consumer purchases.
D) everyone derives the same marginal utility from consuming the same items.

Question 40

The law of diminishing marginal utility

A) asserts that you become worse off as you consume more.
B) explains why you buy more of one good as its price declines.
C) does not apply to luxury goods.
D) does not apply to essentials, such as food and shelter.

Question 41

Utility is a term economists use to refer to

A) affordability.
B) rationality.
C) expectation.
D) satisfaction.

Question 42

Which one of the following statements is TRUE?

A) The law of diminishing marginal utility does not apply to fashion items that are relatively new on the market.
B) The law of diminishing marginal utility does not apply to expensive items, such as cars, houses, and exotic vacations.
C) Consumers consider the expected marginal utility from a good in deciding whether to buy it.
D) Consumers will only buy goods which are not subject to diminishing marginal utility.

Question 43

The price elasticity of demand is affected by

A) the costs of producing the good.
B) the wages paid to workers who provide the service or produce the good.
C) the number of substitutes consumers can find for the good.
D) the transportation costs of getting the good to market.

Question 44

What would cause demand to be fairly inelastic?

A) There are few substitutes available for the good.
B) The transportation costs of getting the good to market are high.
C) Workers producing are unionized and earn high wages.
D) The good is produced using the most modern technology.

Question 45

What is held constant as we measure the price elasticity of demand?

A) The income level of the consumer.
B) The price of the good in question.
C) The quantity demanded of the good in question.
D) The utility level of the consumer.

Question 46

The price elasticity of demand measures

A) changes in the cost of production in response to changes in the volume of production.
B) changes in the cost of production in response to changes in the number of customers.
C) changes in the wage rate in response to changes in the number of workers hired.
D) changes in the quantity demanded in response to changes in price.

Question 47

The price elasticity of demand measures

A) changes in production cost in response to changes in technology.
B) changes in the cost of production in response to changes in the number of customers.
C) changes in the quantity demanded in response to changes in price.
D) changes in the price in response to changes in quantity demanded.

Question 48

The price elasticity of demand is calculated using information on

A) costs and wages.
B) prices and quantities.
C) taxes and prices.
D) income and prices.

Question 49

Which one of the following would make the demand for airline travel relatively more elastic?

A) A reliable network of long-distance high-speed trains is established.
B) There is a widespread reduction in airline fares.
C) Airline employees grant wage concessions in an attempt to cut operating costs.
D) Budget cuts for highway maintenance lead to a deterioration of the interstate freeway system.

Question 50

Which one of the following would make the demand for satellite subscription TV relatively less elastic?

A) The cost of transmitting satellite signals is lowered.
B) The cost of administering the satellite service is lowered.
C) Cable TV service becomes less widely available.
D) Other networks of wireless entertainment become more widely available.

Question 51

Table 4.6


-According to the data in Table 4.6, what is the elasticity of demand between a price of $20 and a price of $16?

A) 1.25
B) 0.90
C) 0.75
D) 0.60

Question 52

Table 4.6


-According to the data in Table 4.6, what is the elasticity of demand between a price of $16 and a price of $12?

A) 5.82
B) 1.85
C) 0.85
D) 0.58

Question 53

Table 4.6


-According to the data in Table 4.6, what is the elasticity of demand between a price of $12 and a price of $8?

A) 0.36
B) 0.63
C) 0.75
D) 0.90

Question 54

Which one of the following is NOT a determinant of the price elasticity of demand?

A) The number and availability of substitutes
B) The relative importance of this item in the consumer's overall budget
C) The time frame allowed for adjustment
D) The state of technology used in producing the good

Question 55

Which one of the following is TRUE?

A) The relative elasticity of demand decreases as the number of available substitutes increases.
B) Items that take up a small portion of your budget will have a fairly elastic demand.
C) The long-run elasticity of demand for an item will be greater than the short-run elasticity.
D) The demand for items that are labor-intensive in their production methods will be fairly elastic.

Question 56

Generally, toothpaste is a small part of a consumer's income and is a necessity. Therefore, the demand for toothpaste

A) is elastic.
B) is inelastic.
C) is unit-elastic.
D) is perfectly elastic.

Question 57

The longer the price change persists, ceteris paribus,

A) the more consumers develop a preference for the good.
B) the more consumers lose interest in finding substitute goods.
C) the less is the elasticity of demand.
D) the greater the elasticity of demand.

Question 58

If the elasticity of demand for paperback books is -1.7 in the range between $6 and $8, what happens to total consumer expenditures on paperback books when the price rises from $6 to $8?

A) Total consumer expenditures will increase.
B) Total consumer expenditures will decrease.
C) Total consumer expenditures will remain unchanged.
D) We cannot determine what will happen to total consumer expenditures unless we also know something about the publishers' costs.

Question 59

If the elasticity of demand for dry cleaning is -0.85 in the range between $3 and $2 per item, how will total consumer expenditures on dry cleaning be affected when dry cleaners lower prices from $3 to $2?

A) Total consumer expenditures will increase.
B) Total consumer expenditures will decrease.
C) Total consumer expenditures will remain unchanged.
D) We cannot determine what will happen to total consumer expenditures unless we also know something about the dry cleaners' costs.

Question 60

A baker raised his bread prices by 10 percent and found that the quantity of bread sold decreased by 10 percent. What happened to the total amount of sales revenue he took in from bread sales?

A) It remained unchanged.
B) It increased.
C) It decreased.
D) We cannot determine the effect on total revenue unless we also know the slope of the demand curve for bread.

Question 61

An electric utility announced an increase in rates for residential customers. The announcement contained a statement saying that customers could conserve their energy usage and likely would not see any increase in their total monthly electric bill. What is the implication of this statement?

A) That the demand for electricity is perfectly elastic.
B) That the demand for electricity is elastic within the range of the rate increase.
C) That the demand for electricity is inelastic within the range of the rate increase.
D) That the demand for electricity is unit-elastic within the range of the rate increase.

Question 62

The price you are willing to pay for a concert ticket depends on the _________ _________ you expect to derive from attending the concert.

Question 63

In measuring marginal utility, you look at the change in _________ utility.

Question 64

Total utility declines when marginal utility is _________.

Question 65

As the price of a good _________, it allows the consumer to buy a quantity at which the marginal utility of the last unit consumed is lower.

Question 66

Consumers purchase goods because the goods provide _________.

Question 67

If you are buying CD's in the range of quantities for which marginal utility is diminishing, then each CD provides you with _________ marginal utility than did the previous one.

Question 68

Marginal utility is the change in _________ utility resulting from consuming one additional unit of a good.

Question 69

When total utility is maximized, marginal utility is _________.

Question 70

If the numeric value of elasticity is greater than one, we say that demand for the good in question is _________.

Question 71

If the numeric value of elasticity is less than one, we say that demand for the good in question is _________.

Question 72

When there are a variety of substitute goods easily available, then demand for the good in question is relatively _________ elastic.

Question 73

When expenditures on the good in question are a relatively small portion of your income, then your demand for the good in question will be relatively _________ elastic.

Question 74

The observed responsiveness to a given price change is relatively greater when more _________ is allowed for consumers to respond.

Question 75

If a 3 percent price increase leads to a 3 percent decrease in quantity demanded, then the price elasticity of demand is _________.

Question 76

If a 7 percent decrease in price leads to a 7 percent increase in quantity demanded, then the price elasticity of demand is _________.

Question 77

If a 12 percent price decrease leads to a 6 percent increase in quantity demanded, then the price elasticity of demand is _________.

Question 78

If a 4 percent decrease in price leads to a 1 percent increase in quantity demanded, then the price elasticity of demand is _________.

Question 79

If the price elasticity of demand is _________, then demand is perfectly inelastic.

Question 80

A demand curve reflecting a perfectly inelastic demand is _________.