Deck 10: Consumer Choice Theory

Question 1

As long as a person had to pay a positive price for a good,he would never consume to the point where his total utility was falling with additional consumption.

Answer 1

True

Question 2

Marginal utility must be positive.

Answer 2

False

Question 3

If a consumer is maximizing utility,she will purchase quantities of output to the point where the total utility per dollar spent on consumption is equal across all goods.

Answer 3

False

Question 4

Behavioral economists use findings from psychology to explain complex consumer behavior that cannot always be explained by traditional economic models.

Question 5

When a person's income doubles,her consumption of each good will double in order for her to stay in consumer equilibrium.

Question 6

Utility theory is an efficient tool in making interpersonal utility comparisons.

Question 7

At consumer equilibrium income is allocated to purchases so that the ratio of marginal utility to price is equal for different goods.

Question 8

The law of diminishing marginal utility is consistent with the consumer behavior that produces a negatively sloped demand curve.

Question 9

The law of diminishing marginal utility is the reason for upward sloping supply curves.

Question 10

The income effect occurs when an individual switches to another similar good when the price of the preferred good increases.

Question 11

If housing prices have increased for the past 20 years,it is almost certain that prices will increase the following year.

Question 12

If a consumer is maximizing utility,he will purchase quantities of output to the point where the price of the last unit purchased is equal across all goods.

Question 13

If a university cafeteria changes from selling each food item separately to offering all-you-can-eat meals for one low price,one would expect that the marginal utility of the last food item consumed in the cafeteria by the typical student would decrease since more food is now likely to be consumed by students who eat a meal in the cafeteria.

Question 14

If total utility from consuming five cups of cocoa is 10,22,32,41,and 49 utils,respectively,the marginal utility of the fourth cup of coffee is 9.

Question 15

If a coin toss comes up heads five times in a row,on the sixth flip the odds are better that this coin will come up tails.

Question 16

When marginal utility begins to diminish,total utility always diminishes.

Question 17

The total utility from consuming five muffins is 14,24,35,43,and 50 utils,respectively.Marginal utility begins to diminish after consuming the first muffin.

Question 18

Traditional economists base their models of human behavior on simplifying assumptions regarding rationality and decision making.

Question 19

An individual's level of utility is based on fulfillment of needs as opposed to wants.

Question 20

At consumer equilibrium,the level of marginal utility per dollar spent is the same for all consumers.

Question 21

Any combination of goods beyond the budget line is not feasible.

Question 22

Marginal utility:

A) generally increases as more of a good is acquired.
B) generally remains constant as more of a good is acquired.
C) generally decreases as more of a good is acquired.
D) begins to fall when total utility reaches its highest point.

Question 23

As an individual consumes more of a given good or service,the marginal utility of that good to the consumer likely:

A) increases.
B) remains constant.
C) falls.
D) falls and then rises.

Question 24

Total utility:

A) generally diminishes as consumption of a good increases.
B) always increases as consumption increases.
C) increases only as long as marginal utility increases.
D) increases as long as marginal utility is positive.

Question 25

The law of diminishing marginal utility states that:

A) total utility decreases as consumption of a good increases.
B) total utility increases as consumption of a good increases.
C) the increase in total utility from consuming an additional unit decreases as consumption increases.
D) the increase in total utility from consuming an additional unit increases as consumption increases.

Question 26

Higher indifference curves represent lesser satisfaction.

Question 27

For Brent,if the marginal utility of sleeping an extra hour,from 8 a.m.to 9 a.m.,is negative:

A) Brent is better off getting up at 8 a.m. or earlier.
B) Brent is better off getting up at 9 a.m.
C) Brent's total utility from sleeping must be negative.
D) Brent's average utility from every hour he sleeps must be negative.

Question 28

The total utility from consuming five donuts is 9,19,30,38,and 45 utils,respectively.Marginal utility begins to diminish after consuming the ____ donut.

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

Question 29

The budget line is downward sloping,reflecting the fact that you must give up some of one good to get more of the other.

Question 30

If two commodities are perfect complements,the indifference curve is a straight line.

Question 31

The total utility from consuming five cups of coffee is 15,27,37,46,and 54 utils,respectively.The marginal utility of the fourth cup of coffee is:

A) 48.
B) 54.
C) 9.
D) 6.

Question 32

If Tom purchases and consumes an entire Pizza,which of the following is likely to be true?

A) The total utility of the first two pieces will be positive and the marginal utility of the second piece will be negative.
B) The marginal utility of the second piece will be positive and the total utility of the first two pieces will be negative.
C) The total utility of the first two pieces will be positive and the marginal utility of the second piece will be less than the marginal utility of the first piece.
D) The marginal utility of the second piece will be positive and the total utility of the first two pieces will be less than the marginal utility of the first piece.

Question 33

Reduction in quantity demanded of a good when its price increases because of a consumer's decreased purchasing power is termed as:

A) income effect.
B) substitution effect.
C) utility effect.
D) marginal effect.

Question 34

To maximize satisfaction,the consumer must reach the lowest indifference curve that can be reached with a given level of income.

Question 35

The law of diminishing marginal utility helps explain:

A) why most individual demand curves are straight lines.
B) why most supply curves slope upward.
C) why most individual demand curves slope downward.
D) why marginal utility falls when total utility falls.

Question 36

In consumer equilibrium,one dollar's worth of additional gasoline will yield the same marginal utility as one dollar's worth of additional cheese.

Question 37

One of the ugly stepsisters argues that she,rather than Cinderella,should go to the ball because she will derive more utility from it than Cinderella.An economist would:

A) agree, since the ugly stepsister's reasoning is sound.
B) want to know how much utility each will receive from attending the ball in order to determine which woman should attend.
C) point out that making interpersonal utility comparisons is not possible.
D) ask how many balls each woman has attended in order to calculate the marginal utility that each would derive from attending, and then decide who should go to the ball.

Question 38

A consumer's switch to another similar good when the price of the preferred good increases is termed the:

A) income effect.
B) substitution effect.
C) utility effect.
D) marginal effect.

Question 39

For most goods and most people,marginal utility probably:

A) continues to increase as larger quantities are purchased.
B) declines as consumption increases.
C) plummets after the first few units but soon begins to rise.
D) is negative after the first unit of a good is purchased.

Question 40

The amount of added utility that an individual derives from consuming one more unit of a good or service is called:

A) total utility.
B) marginal utility.
C) average utility.
D) diminishing utility.

Question 41

Peanuts are $3 per pound and cashew nuts are $5 per pound.If the marginal utility from consuming the last pound of cashew nuts equals 15 utils,then the marginal utility from consuming the last pound of peanuts in consumer equilibrium should equal:

A) 18 utils.
B) 15 utils.
C) 9 utils.
D) 5 utils.

Question 42

When the incremental satisfaction derived from an additional unit of a good or service decreases as more is consumed,it is known as:

A) consumer equilibrium.
B) marginal benefit.
C) diminishing marginal utility.
D) decreasing opportunity cost.

Question 43

If the marginal utility per dollar spent on Good X exceeds that of Good Y,the utility-maximizing consumer should:

A) buy less of Good X and more of Good Y.
B) buy less of Good Y and more of Good X.
C) buy more of both Good X and Good Y.
D) buy less of both Good X and Good Y.

Question 44

The law of diminishing marginal utility suggests that a demand curve:

A) shows a direct relationship between price and quantity demanded.
B) has a slope equal to zero.
C) has a positive slope.
D) has a negative slope.

Question 45

When a consumer allocates her limited budgetary resources to maximize her well-being,____ is achieved.

A) the elimination of scarcity
B) market equilibrium
C) consumer equilibrium
D) the maximization of marginal utility

Question 46

A university cafeteria changes from offering all-you-can-eat meals for one low price to selling each food item separately.After this change,one would expect that the marginal utility of the last food item consumed in the cafeteria by the typical student would:

A) decrease since less food is now likely to be consumed by students who eat a meal in the cafeteria.
B) increase since less food is now likely to be consumed by students who eat a meal in the cafeteria.
C) not change since the same quantity of food is now likely to be consumed at each meal.
D) decrease since more food is now likely to be consumed by students who eat a meal in the cafeteria.

Question 47

As an individual increases his consumption of onion rings,it is likely that:

A) his marginal utility and total utility both increase.
B) his marginal utility and total utility both decrease.
C) his marginal utility increases and his total utility decreases.
D) his marginal utility decreases and his total utility increases.

Question 48

If a consumer is maximizing utility and then the price of Good A increases:

A) the marginal utility from the consumption of Good A will fall.
B) the marginal utility from the consumption of Good A will remain unchanged.
C) the marginal utility per dollar spent on Good A will decrease.
D) consumption of Good A will increase.

Question 49

Which economist is generally credited with developing utility theory?

A) Adam Smith
B) Alfred Marshall
C) Jeremy Bentham
D) David Ricardo

Question 50

Assume that Michaela's marginal utility from pizza consumption is 10 utils and the price is $2.00 per slice.Further,assume that her marginal utility from scone consumption is 20 utils and the price is $3.00 per scone.Which of the following is true?

A) With her existing budget she should increase her consumption of pizza.
B) With her existing budget she should increase her consumption of scones.
C) She is currently maximizing her utility and should not change the amount of consumption for either good with her current budget.
D) If her budget increases, she should increase her consumption of pizza but not scones.
E) If her budget increases, she should increase her consumption of scones but not pizza.

Question 51

The amount of additional satisfaction derived from an additional unit of a good or service is called:

A) total utility.
B) marginal cost.
C) total cost.
D) marginal utility.

Question 52

"I'm tired of eating muffins for breakfast.Today I am trying a bagel." This statement most clearly reflects the:

A) ceteris paribus condition.
B) the law of supply.
C) law of diminishing marginal utility.
D) law of comparative advantage.

Question 53

If the total utility for eating up to five $2.00 hamburgers is 40,60,70,75,70,respectively,which of the following is true?

A) A rational consumer would choose to eat five hamburgers at the price of $2.00
B) A rational consumer would choose to eat five hamburgers only if the price was reduced to $1.00.
C) A rational consumer would choose to eat five hamburgers only if the 5^th hamburger as free.
D) A rational consumer would have to be compensated to eat the 5^th hamburger.

Question 54

Consumer equilibrium is reached when:

A) an individual spends her entire income.
B) there is no way a consumer, given the available income, could increase her satisfaction.
C) marginal utility begins to diminish.
D) marginal utility is maximized, subject to the available income.

Question 55

Popeye receives a marginal utility of 12 utils for the last can of spinach consumed.If the price of a can of spinach is 50 cents per can,then the marginal utility per dollar spent on the last can of spinach is equal to:

A) 6 utils per dollar.
B) 12 utils per dollar.
C) 18 utils per dollar.
D) 24 utils per dollar.

Question 56

When a consumer maximizes utility subject to a limited income,she allocates income across goods to the point that:

A) the marginal price is the same for all goods.
B) marginal utility is zero.
C) marginal utility is negative.
D) the marginal utility per dollar spent is the same for all goods.

Question 57

Jason buys only music downloads and food with his weekly income.In response to a decrease in the price of downloads,he buys more downloads and less food.As a result,we would expect:

A) the marginal utility of downloads to increase and the marginal utility of food to decrease.
B) the marginal utility of both downloads and food to remain unchanged.
C) the marginal utility of downloads to decrease and the marginal utility of food to increase.
D) the marginal utility of food to become negative.

Question 58

If the marginal benefit Isaac derives from the consumption of another candy bar is greater than the price of the candy bar,then:

A) Isaac will not purchase any more candy bars.
B) Isaac will increase his total satisfaction by purchasing the candy bar.
C) the opportunity cost of the candy bar is less than the price.
D) Isaac's total utility will diminish if he purchases the candy bar.

Question 59

The price of a pound of sirloin steak is five times the price of a pound of ground beef.You are not in consumer equilibrium unless:

A) you consume five times as much ground beef as you do sirloin steak.
B) you consume five times as much sirloin steak as you do ground beef.
C) the total utility you derive from consuming sirloin steak is five times the total utility you derive from consuming ground beef.
D) your marginal utility from the last pound of sirloin steak consumed is five times that of the last pound of ground beef consumed.

Question 60

Which of the following occurs when a consumer equilibrium has been achieved?

A) The marginal utility of the last unit purchased is identical for all goods.
B) The price of the last unit purchased is identical for all goods.
C) An equal amount of income is spent on all goods purchased.
D) The ratio of the marginal utility of each good divided by its price is equal across all goods consumed.

Question 61

A consumer's utility is maximized when:

A) the dollar amount spent on each good is the same.
B) the marginal utility of each good purchased is the same.
C) the price of each good is the same.
D) None of the above are generally true.

Question 62

Jeremy maximizes utility by consuming both iced tea and coffee.Iced tea is priced at $1.50 per bottle and coffee at $2.00 per 16-ounce cup.Which of the following marginal utility pairs is inconsistent with Jeremy's consumer equilibrium at these prices?

A) MU of iced tea = 3; MU of coffee = 4
B) MU of iced tea = 4; MU of coffee = 3
C) MU of iced tea = 6; MU of coffee = 8
D) MU of iced tea = 3/4; MU of coffee = 1

Question 63

Which of the following is not true about utility?

A) Utility varies from individual to individual.
B) Marginal utility tends to decline, the more of a good or service is consumed.
C) When marginal utility is at its maximum, total utility is zero.
D) All of the above are true about utility.

Question 64

Daniel enjoys both soda and pizza,allocating his purchases across these two goods so that his utility is maximized.If Daniel receives one-third as much utility from the last can of soda as from the last slice of pizza,we can say that:

A) the price of pizza is one-third that of soda.
B) the price of pizza is equal to that of soda.
C) the price of pizza is twice that of soda.
D) the price of pizza is three times that of soda.

Question 65

Diminishing marginal utility means that:

A) marginal utility is maximized when consumers get the same amount of total utility from every good they consume.
B) beyond some point, added units of a product provide lower and lower amounts of marginal utility.
C) a consumer would get more utility from the last unit of a good consumed when that good costs $3 than when it costs $1.
D) both (b) and (c) are true.

Question 66

The price of a bagel with cream cheese equals $2 and the price of a donut equals 50 cents.The marginal utility to Joaquin of the last bagel consumed equals 16 utils.If Joaquin maximizes his satisfaction by consuming both bagels and donuts,we would expect the marginal utility of the last donut consumed to equal:

A) 20 utils.
B) 12 utils.
C) 8 utils.
D) 4 utils.

Question 67

Brandon receives a marginal utility of 5,4,3,2,1,and 0 from eating successive donuts.Successive cups of coffee provide him with 9,8,6,4,3,and 2 utils of marginal utility.Donuts cost 50 cents each,coffee costs $1 per cup,and Brandon has $3 to spend.Which of the following options will yield Brandon the greatest utility?

A) six donuts
B) four donuts and one cup of coffee
C) two donuts and two cups of coffee

Question 68

The law of diminishing marginal utility means that:

A) marginal utility is maximized when consumers get the same amount of total utility from every good they consume.
B) total utility is maximized when consumers get the same amount of marginal utility from the last unit of every good they consume.
C) beyond some point, added units of a product provide lower and lower amounts of marginal utility.
D) a consumer would get less utility from the last unit of a good consumed when that good costs $3 than when it costs $1.

Question 69

The price of shrimp is $10.00 per pound and the price of lobster is $15.00 per pound.The marginal utility to Mike of pound of shrimp consumed is 60 utils.If Mike maximizes his satisfaction by consuming both shrimp and lobster,we would expect the marginal utility of the last pound of lobster consumed to equal:

A) 40 utils
B) 60 utils
C) 90 utils
D) 150 utils

Question 70

Cheese is priced at $5 per pound and wine at $10 per bottle.A consumer who enjoys both cheese and wine will not be in consumer equilibrium until the marginal utility of a pound of cheese is:

A) four times that of wine.
B) one-fourth that of wine.
C) two times that of wine.
D) one-half that of wine.

Question 71

Rebecca consumes both iced tea and coffee.Iced tea is priced at $1.50 per bottle and coffee at $2.00 per 16-ounce cup.Which of the following marginal utility pairs is consistent with Rebecca's consumer equilibrium at these prices?

A) MU of iced tea = 1; MU of coffee = 1
B) MU of iced tea = 1; MU of coffee = 2
C) MU of iced tea = 2; MU of coffee = 3
D) MU of iced tea = 3; MU of coffee = 4

Question 72

An individual consumes only hamburgers and milkshakes.The last hamburger consumed yields 25 utils of satisfaction,while the last milkshake consumed yields 10 utils of satisfaction.If the price of a hamburger is $2.50 and the price of a milkshake is $1.50,we can conclude that:

A) the consumer should consume more hamburgers and fewer milkshakes.
B) the consumer should consume more milkshakes and fewer hamburgers.
C) the consumer has achieved consumer equilibrium.
D) the consumer should buy only milkshakes.

Question 73

Grace maximizes her utility by consuming both gourmet cookies and ice cream.If the price of a dozen cookies is three times that of a pint of ice cream,we would expect that:

A) the total utility of a dozen cookies is three times that of a pint of ice cream.
B) the total utility of a dozen cookies is one-third that of a pint of ice cream.
C) the marginal utility of the last dozen cookies is three times that of the last pint of ice cream.
D) the marginal utility of the last dozen cookies is one-third times that of the last pint of ice cream.

Question 74

Collin consumes both corned beef sandwiches and steak sandwiches.Corned beef is priced at $5.00 per sandwich and steak sandwiches are priced at $8.00.Which of the following marginal utility pairs is consistent with Collin's consumer equilibrium at these prices?

A) MU of corned beef sandwich = 1; MU of steak sandwich = 1
B) MU of corned beef sandwich = 1; MU of steak sandwich = 1.6
C) MU of corned beef sandwich = 1.6; MU of steak sandwich = 1
D) MU of corned beef sandwich = 1; MU of steak sandwich = 5

Question 75

Exhibit 10-1 A consumer is faced with choosing between hamburgers and milkshakes that are priced at $2 and $1,respectively.The marginal utility derived from each of the two goods is as follows:
Refer to Exhibit 10-1.How many hamburgers and milkshakes will be consumed each if the consumer maximizes his utility subject to $11 of income each week?

A) 5 hamburgers and 1 milkshake
B) 1 hamburger and 5 milkshakes
C) 4 hamburgers and 3 milkshakes
D) 3 hamburgers and 4 milkshakes

Question 76

Which of the following is true?

A) Total utility is the aggregate level of satisfaction that results from consumption of a given number of goods and services.
B) Marginal utility is the additional satisfaction generated by the last unit of a good that is consumed.
C) Total utility equals marginal utility of the last unit times the number of units consumed.
D) Both a. and b. are true.

Question 77

Which of the following is false?

A) We can be sure that people with more income get less marginal utility from their consumption of a good than those with less income.
B) We can be sure that people with less income get less marginal utility from their consumption of a good than those with more income.
C) We can be sure that those who receive greater marginal utility from consumption of a particular unit of an item receive greater total utility from consumption of that item.
D) All of the above are false.

Question 78

Burritos and margaritas are priced at $3 and $5 each,respectively.If the marginal utility of the last burrito is 15 utils,then,in consumer equilibrium,the marginal utility of the last margarita is:

A) 15 utils.
B) 20 utils.
C) 25 utils.
D) 30 utils.

Question 79

If the price of good A falls,it will:

A) increase a consumer's total utility from the consumption of that good.
B) increase a consumer's marginal utility from consuming the last unit of that good.
C) decrease a consumer's marginal utility from consuming the last unit of that good.
D) do both (a) and (c).

Question 80

Exhibit 10-1 A consumer is faced with choosing between hamburgers and milkshakes that are priced at $2 and $1,respectively.The marginal utility derived from each of the two goods is as follows:
Refer to Exhibit 10-1.How many hamburgers and milkshakes will be consumed if the consumer maximizes his utility subject to $14 of income each week?

A) 4 hamburgers and 5 milkshakes
B) 5 hamburgers and 4 milkshakes
C) 4 hamburgers and 3 milkshakes
D) 3 hamburgers and 4 milkshakes