Question 1

The utility of a good or service
A) is synonymous with usefulness.
B) is the satisfaction or pleasure one gets from consuming it.
C) is easy to quantify.
D) rarely varies from person to person.

Accepted Answer

Utility refers to the satisfaction or pleasure derived from the consumption of a good or service, rather than its mere usefulness, ease of quantification, or uniformity across individuals.

Question 2

The theory of consumer behavior assumes that
A) consumers behave rationally, attempting to maximize their satisfaction.
B) consumers have unlimited money incomes.
C) consumers do not know how much marginal utility they obtain from successive units of various products.
D) marginal utility is constant.

Accepted Answer

The theory of consumer behavior is based on the assumption that consumers behave rationally and attempt to maximize their satisfaction or utility. This is known as the rational behavior assumption, and it forms the foundation of modern microeconomic theory. The other options are not accurate; consumers typically have limited money incomes, and they can usually estimate how much marginal utility they obtain from successive units of a product. Marginal utility is also not constant but rather decreasing as more of a product is consumed.

Question 3

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is
A) 26 units of utility.
B) 6 units of utility.
C) 8 units of utility.
D) 38 units of utility.

Accepted Answer

To find the marginal utility of the third Pepsi, we need to calculate the difference between the total utility of the third Pepsi and the total utility of the first two Pepsis. So, the marginal utility of the third Pepsi is:

Marginal utility of the third Pepsi = Total utility of three Pepsis - Total utility of first two Pepsis
Marginal utility of the third Pepsi = 38 units of utility - (18 units of utility + 12 units of utility)
Marginal utility of the third Pepsi = 8 units of utility

Therefore, the best choice is C) 8 units of utility.

Question 4

Which of the following is correct?
A) There is no firm mathematical relationship between marginal utility and total utility.
B) Total utility is equal to the change in marginal utility from consuming an additional unit of a product.
C) If marginal utility is diminishing and is a positive amount, total utility will increase.
D) If marginal utility is diminishing, total utility must also be diminishing.

Accepted Answer

If marginal utility is diminishing and is a positive amount, total utility will increase. This is because each additional unit consumed adds less and less to the marginal utility, but still adds to the total utility. Therefore, the total utility will continue to increase as long as the marginal utility is positive, even if it is diminishing. Option A is incorrect as there is a mathematical relationship between marginal utility and total utility, as the latter is the sum of the former for all units consumed. Option B is incorrect as total utility is the sum of all the marginal utilities of all the units consumed, not just the change in marginal utility from consuming an additional unit. Option D is incorrect, as total utility can still increase as long as marginal utility is positive, even if it is diminishing.

Question 5

Marginal utility can be
A) positive, but not negative.
B) positive or negative, but not zero.
C) positive, negative, or zero.
D) decreasing, but not negative.

Accepted Answer

Marginal utility can be positive, negative, or zero. If the additional unit of a good or service increases satisfaction, it has a positive marginal utility. If it decreases satisfaction, it has a negative marginal utility. If it has no impact on satisfaction, it has a zero marginal utility. Therefore, option C is correct as it encompasses all three possibilities.

Question 6

If the price of product X rises, then the resulting decline in the amount purchased will
A) necessarily increase the consumer's total utility from his total purchases.
B) increase the marginal utility of the last unit consumed of this good.
C) increase the total utility from purchases of this good.
D) reduce the marginal utility of the last unit consumed of this good.

Accepted Answer

When the price of a product increases, consumers tend to buy less of it. According to the law of diminishing marginal utility, as the quantity consumed of a good decreases, the marginal utility (satisfaction) derived from the last unit consumed increases because the consumer is now getting less of that good, making each unit more valuable to them.

Question 7

The ability of a good or service to satisfy wants is called
A) utility maximization.
B) opportunity cost.
C) revenue potential.
D) utility.

Accepted Answer

The ability of a good or service to satisfy wants is called utility. Utility refers to the level of satisfaction or enjoyment that a consumer derives from consuming a particular good or service. Therefore, option D is the correct choice. Option A (utility maximization) is not correct as utility maximization refers to the process of maximizing the level of satisfaction or happiness that a consumer derives from consuming a given basket of goods and services, rather than the inherent ability of a good or service to satisfy wants. Option B (opportunity cost) is not correct as opportunity cost refers to the cost of sacrificing the next best alternative when making a choice. Option C (revenue potential) is not correct as revenue potential refers to the maximum amount of revenue that a company can potentially generate from selling a particular product or service.

Question 8

Marginal utility is the
A) sensitivity of consumer purchases of a good to changes in the price of that good.
B) change in total utility obtained by consuming one more unit of a good.
C) change in total utility obtained by consuming another unit of a good divided by the change in the price of that good.
D) total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.

Accepted Answer

Marginal utility is defined as the additional utility that a consumer derives from consuming one more unit of a good. It is the change in total utility obtained by consuming one more unit of a good. Therefore, option B is the correct choice. Options A, C, and D are not accurate definitions of marginal utility.

Question 9

The law of diminishing marginal utility explains why
A) supply curves slope upward.
B) demand curves slope downward.
C) addicts can never get enough.
D) people will only consume their favorite goods and not try new things.

Accepted Answer

The law of diminishing marginal utility states that as a consumer consumes more of a good or service, the utility or satisfaction gained from each additional unit decreases. This explains why demand curves slope downward - as the price of a good increases, consumers will demand less of it because each additional unit provides less and less satisfaction.

Question 10

Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is
A) zero.
B) positive, but declines rapidly.
C) negative.
D) positive, but less than the ticket price.

Accepted Answer

Mary's statement suggests that the ticket price is greater than the marginal utility she would receive from attending the event, meaning the marginal utility is negative. Therefore, Mary would not attend the event even if given a free ticket.

Question 11

Utility refers to the
A) satisfaction that a consumer derives from a good or service.
B) rate of decline in a product demand curve.
C) relative scarcity of a product.
D) usefulness of a product.

Accepted Answer

Utility is the satisfaction or usefulness that a consumer derives from a good or service. It is a key concept in economics and is used to understand and predict consumer behavior.

Question 12

If total utility is increasing, marginal utility 
A) is positive but may be either increasing or decreasing.
B) must also be increasing.
C) may be either positive or negative.
D) will be increasing at an increasing rate.

Accepted Answer

When total utility is increasing, it means that the addition of the last unit consumed is bringing more satisfaction to the consumer. This indicates that marginal utility is positive. However, it is not necessary for marginal utility to be increasing like total utility. It may start to decrease after a certain point where the consumer starts to experience diminishing marginal utility. Therefore, choice A is the best answer.

Question 13

To maximize utility, a consumer should allocate money income so that the
A) elasticity of demand on all products purchased is the same.
B) marginal utility obtained from the last dollar spent on each product is the same.
C) total utility derived from each product consumed is the same.
D) marginal utility of the last unit of each product consumed is the same.

Accepted Answer

To maximize utility, a consumer should allocate their money income so that the marginal utility per dollar spent on each product is equal. This ensures that the consumer is getting the maximum satisfaction possible from their spending, as no reallocation of spending could give them more utility. This principle is known as the equi-marginal principle.

Question 14

The law of diminishing marginal utility states that
A) total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed.
B) beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.
C) price must be lowered to induce firms to supply more of a product.
D) it will take larger and larger amounts of resources beyond some point to produce successive units of a product.

Accepted Answer

The law of diminishing marginal utility states that as a consumer consumes more and more units of a product, each successive unit will yield less additional satisfaction or utility than the previous unit consumed. In other words, beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.

Question 15

A product has utility if it
A) takes more and more resources to produce successive units of it.
B) violates the law of demand.
C) satisfies consumer wants.
D) is useful.

Accepted Answer

Utility refers to the satisfaction or usefulness that a consumer derives from a good or service. Therefore, the correct answer is C - a product has utility if it satisfies consumer wants. Choices A and B are incorrect because they do not relate to the concept of utility. Choice D is partially correct but does not fully capture the idea of utility as it refers only to the usefulness of a product, while utility encompasses both usefulness and satisfaction.

Question 16

Refer to the diagram. The marginal utility of the third unit of X is 
A) 5.
B) 4.
C) 2.
D) 15.

Accepted Answer

The answer of Refer to the diagram. The marginal utility...

Question 17

While eating at Alex's "Pizza by the Slice" restaurant, Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed and would only receive 5 units of satisfaction from consuming a second slice, at the same price. Based on this information, we can conclude that
A) Alex may have to lower the price to convince Kara to buy a second slice.
B) Kara will not eat a second slice, even if it is given to her at no charge.
C) Kara will definitely want to buy a second slice of pizza.
D) even if Kara buys a second slice, she will not buy a third slice.

Accepted Answer

Diminishing marginal utility means that the additional satisfaction Kara gets from consuming each additional slice of pizza decreases. Therefore, Alex may need to lower the price to make the second slice appealing enough for Kara to purchase, given that her satisfaction from the second slice is less than from the first.

Question 18

Total utility may be determined by
A) multiplying the marginal utility of the last unit consumed by the number of units consumed.
B) summing the marginal utilities of each unit consumed.
C) multiplying the marginal utility of the last unit consumed by product price.
D) multiplying the marginal utility of the first unit consumed by the number of units consumed.

Accepted Answer

Total utility is the overall satisfaction or happiness that a consumer derives from consuming a certain quantity of a product. It is determined by summing the marginal utilities of each unit consumed, because marginal utility measures the additional satisfaction obtained from consuming one additional unit of a product. Therefore, the sum of the marginal utilities of all units consumed gives us the total utility.

Question 19

Which of the following statements about utility is true?
A) It is the same as usefulness.
B) Total utility diminishes as soon as additional units of a good are consumed.
C) Utility is objectively determined, meaning a good should provide the same satisfaction to whomever consumes it.
D) Utility is difficult to measure quantitatively.

Accepted Answer

Utility is a subjective measure of the satisfaction or pleasure an individual derives from consuming a good or service. As a subjective measure, it is difficult to measure quantitatively and varies between individuals. Option A is incorrect because usefulness and utility may not be the same thing. Option B is incorrect because total utility may continue to increase even if the marginal utility of additional units consumed decreases. Option C is incorrect because utility is subjective and varies between individuals.

Question 20

Where total utility is at a maximum, marginal utility is
A) negative.
B) positive and increasing.
C) zero.
D) positive but decreasing.

Accepted Answer

At the point where total utility is at a maximum, marginal utility is zero. This is because at this point, the consumer has consumed enough of the good to satisfy their wants and needs to the fullest extent, so any additional unit of the good will not provide any additional utility. Therefore, the marginal utility becomes zero.

Quiz 7: Utility Maximization

The utility of a good or service

The theory of consumer behavior assumes that

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is

Which of the following is correct?

Marginal utility can be

If the price of product X rises, then the resulting decline in the amount purchased will

The ability of a good or service to satisfy wants is called

Marginal utility is the

The law of diminishing marginal utility explains why

Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is

Utility refers to the

If total utility is increasing, marginal utility

To maximize utility, a consumer should allocate money income so that the

The law of diminishing marginal utility states that

A product has utility if it

Refer to the diagram. The marginal utility of the third unit of X is

Total utility may be determined by

Which of the following statements about utility is true?

Where total utility is at a maximum, marginal utility is