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4. To say that some people enjoy consumer surplus means that they
a. pay less than they would have been willing to pay for a good
b. are accomplished shoppers who only purchase products that are good values
c. pay exactly what a good is worth to them
d. only purchase items that are on sale since the sale increases the marginal utility-to-price ratio
e. pay a price that is higher than they expected to pay for an item
6. The marginal-utility-to-price ratio tells us that if the price of a good falls, then, ceteris paribus
a. its marginal-utility-to-price ratio falls
b. its marginal-utility-to-price ratio rises
c. its marginal utility falls
d. its marginal utility rises
e. consumers buy less of the good
10. Suppose that Jessica’s MU/P is 8 for swimming lessons, 12 for voice lessons, and 4 for
piano lessons. In order for Jessica to maximize total utility, she should definitely
a. take more swimming lessons
b. take more voice lessons
c. take more piano lessons
d. find some other activities because the values for MU/P are very low
e. take fewer lessons of each type
11. Suppose that Ron paid a scalper (a seller in the black market for tickets) $300 for a
ticket to see the Rolling Stones and his true willingness to pay was $500. We can be
sure that
a. the ticket scalper extracted all the possible consumer surplus from Ron
b. Ron’s consumer surplus was low because he paid more than face value for the ticket
c. Ron’s consumer surplus was the $60 face value of the ticket
d. Ron’s marginal-utility-to-price ratio for the concert was extremely high compared
to that for other goods
e. Ron enjoyed $200 of consumer surplus from the purchase
12. Suppose that development of oil fields around the Caspian Sea leads to an increase in the
world supply of gasoline. This change in the market for gasoline would lead to
a. an increase in the equilibrium price and lower consumer surplus
b. a decrease in the equilibrium price and greater consumer surplus
c. an increase in the equilibrium price and greater consumer surplus
d. a decrease in the equilibrium price and lower consumer surplus
e. no change in consumer surplus
13. Suppose that George goes to his favorite ice cream store and buys three single -dip cones,
the first for three dollars, the second for two dollars, and the third for one dollar, but enjoys
no consumer surplus from the experience. We know that George must
a. have paid the same price for each cone
b. have been cheated by the ice cream store-owner
c. not like ice cream very much
d. have paid prices for the cones that correspond to points on his demand curve
e. not have maximized total utility that day
15. An increase in the price of a good causes people to buy less of it because
a. the demand for the good decreases
b. they have less income to spend on the good
c. the marginal utility from additional units of consumption of the good decreases
d. the marginal-utility-to-price ratio for the good decreases
e. consumer surplus from consumption of the good decreases
6 CHAPTER 5 MARGINAL UTILITY AND CONSUMER CHOICE
16. If there is diminishing marginal utility of income, then it may increase social welfare
(assuming that it is reasonable to compare utility levels among people) to increase taxes
on
a. the incomes of the rich and give the funds to the poor
b. the incomes of the poor to provide funds for job training
c. cigarettes
d. the incomes of the poor and give it to the richer classes
e. consumption goods
17. Producer surplus can be represented graphically in a demand and supply diagram as the
a. area between price and the supply curve
b. slope of the demand curve
c. elasticity of the demand curve
d. area above the demand curve
e. area between the demand curve and price
18. One might argue that French chefs understand the law of diminishing marginal utility better
than American chefs because
a. French chefs are able to price their meals higher than American chefs
b. the French serve many courses of small portions, keeping the marginal utility of each one high
c. the French focus on large portions and unlimited trips to the salad bar, keeping total utility high
d. the only way to get people to eat American cuisine is to keep prices very low,
suggesting a low marginal utility
e. the waiters in French restaurants are instructed to help customers to equate the MU/P
among different menu items by carefully explaining the various choices
19. Suppose that your roommate comes back to the dormitory exclaiming about what a great
deal she got on a new shirt that she would have purchased at the regular price for $35, but
she bought on sale for $6. An appropriate response would be to
a. make an interpersonal comparison of utility and remark that the shirt is ugly and not
worth even $6 to you
b. suggest that your roommate is now enjoying $29 of consumer surplus
c. suggest that the shirt was on sale because it has a low marginal utility
d. suggest that your roommate’s total utility from the shirt is 35 utils
e. suggest that your roommate’s total utility from the shirt is at least $29
20. A consumer who has spent all of her income on clothes and food and finds that her
marginal-utility-to- price ratio is higher for clothes than for food should, in the future,
rearrange purchases to maximize total utility by
a. purchasing more food and less clothes
b. purchasing more of both commodities
c. purchasing more clothes and less food
d. purchasing less of both commodities
e. paying closer attention to the law of diminishing marginal utility for both commodities
INTRO TO MICROECONOMICS 7
The following questions relate to the interdisciplinary and theoretical perspectives in the text.
21. Research on the marginal utility of money by sociologists and political scientists suggests that
a. most people have an overwhelming desire for more income because more goods increase their utility
b. people are far happier in rich countries than in poor countries because more
consumption goods are available
c. hard work that increases income is rewarding because it increases consumption and utility
d. the marginal utility of income above the subsistence level is not very great
e. material possessions are more important to happiness than friends, family, and health
8 CHAPTER 5 MARGINAL UTILITY AND CONSUMER CHOICE
22. Suppose that you are an engineering major and you are required to take English 101, the
writing class required of all first-year students. You aren’t a great writer but at least you
know that every sentence needs a subject, a verb, and the appropriate modifiers. You can
earn a B grade in the class in 100 hours of out-of- class work, whereas, the average first
year student requires 150 hours of work to earn a B. In this case, you enjoy
a. no consumer surplus
b. 50 hours of consumer surplus
c. no producer surplus
d. 50 hours of producer surplus
e. the market price for a B grade in English 101, which is only 100 hours
23. Which of the following activities is least likely to exhibit the law of diminishing marginal utility?
a. a student answering multiple choice questions for an economics course
b. a wealthy individual shopping for a third luxury car
c. a child at a new school making ten new friends at once
d. a track athlete at practice running the 400 meter dash ten times in a row
e. a rock musician playing a “hit” song in concert for the 100th time
1. Which of the following is true about combinations of goods represented by an indifference curve?
a. the marginal utilities of the combinations decrease, descending along the curve
b. combinations are equally preferred to one another
c. the marginal utilities of the combinations increase, descending along the curve
d. each combination matches its price
e. they lie on a straight line
2. A budget line
a. represents the total value of all combinations on an indifference curve
b. is determined by a set of prices, indicating combinations of goods a consumer can
buy with given income
c. is derived by consumers to fix the combinations of goods they can buy and how much they can save
d. is an equation representing what a consumer would buy if income matched prices
e. curves inward (is concave) to the origin.
4. Indifference curves that are downward sloping and convex to the origin reflect
a. the abandonment of utility theory with the indifference curve approach
b. the increasing marginal utility of certain goods
c. the increasing ease of substituting one good for another
d. the declining marginal rate of substitution
e. the rising marginal rate of substitution
112 CHAPTER 5 MARGINAL UTILITY AND CONSUMER CHOICE
5. Suppose a consumer, with an income of $100, faces a $1 price for soda and a $2 price for
hot dogs. The consumer's budget line will intersect the hot dog and soda axes at
a. 100 hot dogs and 50 sodas
b. 50 hot dogs and 100 sodas
c. 100 hot dogs and 200 sodas
d. 75 hot dogs and 150 sodas
e. points that cannot be determined without an indifference map
6. Given the information in question 6, suppose that the price of hot dogs increases to $4
each. This price increase would result in all of the following except
a. a change in the soda intercept
b. a decrease in the maximum number of hot dogs that can be purchased
c. a shift to an indifference curve corresponding to a lower utility level for the consumer
d. a possible decrease in soda consumption since hot dogs and sodas are complementary goods
e. a nonparallel shift in the budget constraint toward the origin
7. Suppose the consumer's income in questions 5 and 6 increases to $200. If the prices of
sodas and hot dogs are $1 and $2, respectively, the increase in income would result in all
of the following except
a. a doubling of each intercept to the axes for sodas and hot dogs
b. a change in the shape of the consumer's indifference curves
c. a shift to an indifference curve corresponding to a higher utility level for the consumer
d. a parallel shift in the budget constraint
e. an increase in either or both soda and hot dog consumption
8. One problem with the marginal-utility-to-price ratio approach to understanding the law of demand is that
a. it forces us to make interpersonal comparisons of utility
b. the measurement of utility seems so unrealistic
c. people find it impossible to rank their preferences
d. many times, the law of diminishing marginal utility is violated
e. the theory is useless for the development of tax policies
10. A demand curve that is derived using the indifference curve approach will
a. be more sensitive to income changes than one derived using the marginal-utility-to-price ratio approach
b. have the same characteristics as one derived using the marginal-utility-to-price ratio approach
c. allow for interpersonal comparisons of utility to be made with precision
d. show a declining marginal rate of substitution
INTRO TO MICROECONOMICS 113
e. be more likely to have a positive slope than one derived using the marginal-
utility-to-price ratio approach
114 MULTIPLE CHOICE QUESTIONS.MULTIPLE CHOICE UTILITY
CHAPTER 5 MARGINAL QUESTIONS
AND CONSUMER CHOICE
(a) Marshall
(d) Gossen
(a) Marshall
(d) Gossen
(b) Samualson
(d) Slutsky
INTRO TO MICROECONOMICS 115
5. Total utility curve
a. Always rises
c. Always falls
6. Marginal utility is
7. Total utility is
(a) Constant
(b) Negative
(c) Increasing
(d) Decreasing
(a) Positive
(b) Negative
(c) Zero
(d) Increasing
13. When individuals income rises (everything remain the same) his demand for a
normal good
(a) Rises
(b) Falls
(d) negative
14. When individuals income falls (everything remain the same) his demand for a
normal good
(a) Rises
(b) Falls
(d) Negative
15. When individuals income falls (everything remain the same) his demand for
an inferior good
118 (a) Rises CHAPTER 5 MARGINAL UTILITY AND CONSUMER CHOICE
(b) Falls
(c) L shaped
(b) Slopes of both indifference curve and income price line are equal
(c) Slopes of both indifference curve and income price line are opposite
(d) Both income price line and indifference curve are parallel.
(d) Is increasing
41. Which method is used by Hicks to eliminate the income effect when price of a
product is changed
(a) Compensating variation in income
45. In the fundamental theorem of consumption and to prove the law of demand,
Samualson uses
46. If negative income effect is greater than positive substitution effect : price
effect will be
(a) Zero
(b) Negative
(c) Positive
47. If negative income effect is greater than positive substitution effect : the
product will be
(a) A normal good
49. If negative income effect is less than positive substitution effect : the product
will be
(a) A normal good
INTRO TO MICROECONOMICS 1
50. Which of the following statement is FALSE with regard to marginal utility
51. Which of the following statement is TRUE with regard to total utility
54. The reason the substitution effect works to encourage a consumer to buy less of a
product when its price increases is:
(a) the real income of the consumer has been increased.
(b) the real income of the consumer has been decreased.
(c) the product is now relatively more expensive than it was before.
(d) other products are now relatively more expensive than they were before.
Page 1
255. George consumes only two goods, pizza and
CHAPTER compact discs.
5 MARGINAL Both AND
UTILITY are normal goodsCHOICE
CONSUMER for
George. Suppose the price of pizza decreases. George's consumption of compact discs
will:
(a) increase due to the income effect.
(b) increase due to the substitution effect.
(c) increase due to a negative income elasticity.
(d) remain unchanged, since the income elasticity of pizza is greater than 0.
59. Which situation is consistent with the law of diminishing marginal utility?
(a) The more pizza Henry eats, the more he enjoys another slice.
(b) The more pizza Henry eats, the less he enjoys another slice.
(c) Henry's marginal utility from eating pizza becomes positive after
eating three slices.
(d) Henry's marginal utility from eating pizza reaches a maximum when total
utility is zero.
60. Children who refuse to eat Brussels sprouts at dinner are making the statement that
the marginal utility of Brussels sprouts is:
(a) zero. C) positive, but decreasing.
(b) negative. D) less than the total utility.
61. When marginal utility is decreasing but positive, total utility is:
(a) increasing at a decreasing rate. C) increasing at an increasing rate.
(b) decreasing at a decreasing rate. D) decreasing at an increasing rate.
62. A consumer with a fixed income will maximize utility when each good is purchased in
amounts such that the:
(a) total utility is the same for each good.
(b) marginal utility of each good is maximized.
(c) marginal utility per dollar spent is the same for all goods.
(d) marginal ut ility per dollar spent is maximized for each good.
Page 3
64. If you know that the marginal utility per dollar spent on product Alpha is less than the marginal utility per dollar
spent on product Beta, consumers who spend all their income on these two products can:
4 CHAPTER
(a) maximize total utility but 5 MARGINAL
not marginal utility. UTILITY AND CONSUMER CHOICE
(b) maximize marginal utility but not total utility.
(c) increase total utility by buying more of Beta and less of Alpha.
(d) increase total utility by buying more of Alpha and less of Beta.
Answer the next question(s) based on the table below showing the marginal utility schedules for product X and
product Y for a hypothetical consumer. The price of product X is $4 and the price of product Y is $2. The income of the
consumer is $20.
Product X Product Y
Quantity MUx Quantity MUy
1 32 1 24
2 28 2 20
3 24 3 16
4 20 4 12
5 16 5 8
65. Refer to the above table. If the consumer can only buy product X, how much will the consumer buy and what will
be the total utility?
(a) 4X and 20 B) 4X and 104 C) 5X and 16 D) 5X and 120
66. Refer to the above table. If the consumer buys both product X and product Y, how much will the consumer buy
of each to maximize utility?
(a) 4X and 2Y B) 3X and 4Y C) 4X and 3Y D) 5X and 3Y
67. Refer to the above table. When the consumer purchases the utility- maximizing combination of product X
and product Y, total utility will be:
A) 72. B) 84. C) 136. D) 156.
68. A consumer is in equilibrium and is spending income in such a way that the marginal utility of product X is 40
units and Y is 16 units. The unit price of X is $5. The price of Y is:
(a) $1 per unit. B) $2 per unit. C) $3 per unit. D) $4 per unit.
Use Figure 8.5 for the next two questions. 5. Suppose that the price of a movie rises and nothing
FIGURE 8.5 else changes. This change means the budget line
Multiple Choice Questions 4 and 5 a. rotates around the vertical intercept and becomes
steeper.
b. rotates around the vertical axis and becomes
Soda (six-packs per month)
flatter.
c. shifts rightward and becomes steeper.
d. shifts rightward and does not change its slope.
10. Diminishing marginal rate of substitution means 13. Which of the following statements about Figure 8.6
that is correct?
a. the budget line has a negative slope. a. Point a is preferred to point d, but a is not
b. the budget line does not shift when people’s affordable.
preferences change. b. The consumer is indifferent between points d
c. indifference curves might have a positive slope. and c, but c is more affordable.
d. indifference curves will be concave. c. Point b is preferred to point d , but b is not
affordable.
11. If two goods are perfect substitutes, their d. Both points a and d cost the same, but a is pre-
a. indifference curves are positively sloped straight ferred to d.
lines.
b. indifference curves are negatively sloped straight 14. What is the best affordable point of consumption?
lines. a. a
c. indifference curves are L-shaped. b. b
d. marginal rate of substitution is infinity. c. c
d. d
12. If the indifference curves between two goods are L-
shaped, the goods are 15. A consumer is in equilibrium when the consump-
a. complementary goods. tion point is on
b. substitute goods. a. the budget line.
c. normal goods. b. an indifference curve.
d. inferior goods. c. the highest indifference curve that just touches
the budget line.
Predicting Consumer Behavior d. None of the above.
Use Figure 8.6 for the next two questions.
16. Which of the following is true when the consumer is
FIGURE 8.6
at the best affordable point?
Multiple Choice Questions 13 and
a. The point is on the budget line and highest at-
14 tainable indifference curve.
Hot dogs (quantity per month)
18. When the price of an orange falls, the income effect 22. The new consumer equilibrium is at point
a. increases the consumption of oranges if oranges a. a.
are a normal good. b. b.
b. increases the consumption of oranges if oranges c. c.
are an inferior good. d. d.
c. always increases the consumption of oranges.
d. always decreases the consumption of oranges. 23. When you examine the effect from a change in price
while (hypothetically) changing income to keep the
19. When oranges fall in price, the substitution effect consumer on the same indifference curve, you are
a. increases the consumption of oranges if oranges examining the
are a normal good. a. price effect.
b. increases the consumption of oranges if oranges b. income effect.
are an inferior good. c. substitution effect.
c. always increases the consumption of oranges. d. ceterus paribus effect.
d. always decreases the consumption of oranges.
24. When the price of a normal good falls, the income
Use Figure 8.7 for the next three questions. effect the quantity demanded and the substi-
FIGURE 8.7 tution effect the quantity demanded.
Multiple Choice Questions 20, 21, a. increases; increases
22 b. increases; decreases
Tacos (quantity per month)
c. decreases; increases
d. decreases; decreases
a