Question 1

Which of the following best expresses the law of diminishing marginal utility?

Accepted Answer

A) The more of a product consumed, the smaller is the total utility from the product. 
B) The less of a product consumed, the greater is the marginal utility of the product. 
C) The more of a product consumed, the greater is the total utility from the product. 
D) The less of a product consumed, the smaller is marginal utility of the product. 
A) The more of a product consumed, the smaller is the total utility from the product. 
B) The less of a product consumed, the greater is the marginal utility of the product. 
C) The more of a product consumed, the greater is the total utility from the product. 
D) The less of a product consumed, the smaller is marginal utility of the product.

Question 2

The law of diminishing marginal utility states that

Accepted Answer

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. 
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.

Question 3

Total utility is best defined as the

Accepted Answer

A) change in marginal utility multiplied by the price of a product. 
B) maximum amount of satisfaction from consuming a product. 
C) total satisfaction received from consuming a given amount of a product. 
D) additional satisfaction received from consuming one more unit of a product. 
A) change in marginal utility multiplied by the price of a product. 
B) maximum amount of satisfaction from consuming a product. 
C) total satisfaction received from consuming a given amount of a product. 
D) additional satisfaction received from consuming one more unit of a product.

Question 4

Refer to the diagram, in which the downsloping lines are budget lines and I₁, I₂, and I₃ comprise an indifference map. The combinations of products M and N indicated by points 1, 3, and 5 are such that

Accepted Answer

A) all three imply the same level of utility. 
B) 1 and 5 imply a higher level of utility than does 3. 
C) 3 implies a higher level of utility than does 1 or 5. 
D) the person is indifferent among the three combinations. 
A) all three imply the same level of utility. 
B) 1 and 5 imply a higher level of utility than does 3. 
C) 3 implies a higher level of utility than does 1 or 5. 
D) the person is indifferent among the three combinations.

Question 5

Describe how marginal utility and demand are related.

Accepted Answer

The utility-maximizing rule an

Question 6

Refer to the diagram, where xy is the relevant budget line and I₁, I₂, and I₃ are indifference curves. If the consumer is initially at point L, he or she should

Accepted Answer

A) strive for point N by obtaining a larger money income. 
B) purchase more of X and less of Y. 
C) remain at that point to maximize utility. 
D) purchase more of Y and less of X. 
A) strive for point N by obtaining a larger money income. 
B) purchase more of X and less of Y. 
C) remain at that point to maximize utility. 
D) purchase more of Y and less of X.

Question 7

Refer to the table. At what consumption level for this product does diminishing marginal utility set in?

Accepted Answer

A) 4 units 
B) 5 units 
C) 8 units 
D) 7 units 
A) 4 units 
B) 5 units 
C) 8 units 
D) 7 units

Question 8

Answer the question 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.   When the consumer purchases the utility-maximizing combination of product X and product Y, total utility will be

Accepted Answer

A) 72. 
B) 84. 
C) 136. 
D) 156. 
A) 72. 
B) 84. 
C) 136. 
D) 156.

Question 9

The goal of a rational consumer is to maximize

Accepted Answer

A) the quantities of all goods consumed. 
B) the MU/P of all goods consumed. 
C) marginal utility of all goods consumed. 
D) total utility from all goods consumed. 
A) the quantities of all goods consumed. 
B) the MU/P of all goods consumed. 
C) marginal utility of all goods consumed. 
D) total utility from all goods consumed.

Question 10

The table shows the utility schedule for a consumer of candy bars.   Based on the data in the table, you can conclude that the

Accepted Answer

A) marginal utility of the fourth unit is 96. 
B) marginal utility of the third unit is 18. 
C) total utility of 2 units is 16. 
D) total utility of 6 units is 35. 
A) marginal utility of the fourth unit is 96. 
B) marginal utility of the third unit is 18. 
C) total utility of 2 units is 16. 
D) total utility of 6 units is 35.

Question 11

A leftward shift of a consumer's budget line to a position parallel with the original one could indicate that the

Accepted Answer

A) price of one product has decreased in relation to the other. 
B) prices of both products have decreased in the same proportion. 
C) consumer's money income has increased and the prices of both products have also increased but proportionately less. 
D) consumer's money income has increased but the prices of both products have increased proportionately more. 
A) price of one product has decreased in relation to the other. 
B) prices of both products have decreased in the same proportion. 
C) consumer's money income has increased and the prices of both products have also increased but proportionately less. 
D) consumer's money income has increased but the prices of both products have increased proportionately more.

Question 12

The income effect of a price increase for a normal good causes an increase in the consumption of the good.

Accepted Answer

A) True 
 B)False

Question 13

The substitution effect suggests that when consumers judge product quality by price, they will substitute high-priced products for low-priced products.

Accepted Answer

A) True 
 B)False

Question 14

Suppose you have a limited money income and you are purchasing products A and B, whose prices happen to be the same. To maximize your utility, you should purchase A and B in such amounts that

Accepted Answer

A) their marginal utilities are the same. 
B) their total utilities are the same. 
C) their marginal and total utilities are proportionate. 
D) the income and substitution effects associated with each are equal. 
A) their marginal utilities are the same. 
B) their total utilities are the same. 
C) their marginal and total utilities are proportionate. 
D) the income and substitution effects associated with each are equal.

Question 15

Suppose that MU x/ Pₓ exceeds MU y/ Pᵧ . To maximize utility, the consumer who is spending all her money income should buy

Accepted Answer

A) less of X only if its price rises. 
B) more of Y only if its price rises. 
C) more of Y and/or less of X. 
D) more of X and/or less of Y. 
A) less of X only if its price rises. 
B) more of Y only if its price rises. 
C) more of Y and/or less of X. 
D) more of X and/or less of Y.

Question 16

The satisfaction or pleasure one gets from consuming a good or service is called

Accepted Answer

A) price. 
B) utility. 
C) income. 
D) profits. 
A) price. 
B) utility. 
C) income. 
D) profits.

Question 17

Marginal utility can be

Accepted Answer

A) positive, but not negative. 
B) positive or negative, but not zero. 
C) positive, negative, or zero. 
D) decreasing, but not negative. 
A) positive, but not negative. 
B) positive or negative, but not zero. 
C) positive, negative, or zero. 
D) decreasing, but not negative.

Question 18

Answer the question on the basis of the following marginal utility data for products X and Y. Assume that the prices of X and Y are $4 and $2, respectively, and that the consumer's income is $18.   If the price of X decreases to $2, then the utility-maximizing combination of the two products is

Accepted Answer

A) 2 of X and 5 of Y. 
B) 4 of X and 6 of Y. 
C) 6 of X and 3 of Y. 
D) 4 of X and 5 of Y. 
A) 2 of X and 5 of Y. 
B) 4 of X and 6 of Y. 
C) 6 of X and 3 of Y. 
D) 4 of X and 5 of Y.

Question 19

The graph shows two indifference curves, and QR and QS represent different budget lines. A change in the equilibrium position on the diagram from point 1 to point 2 could result, other things being equal, from

Accepted Answer

A) an increase in the price of B. 
B) a decrease in the price of A. 
C) a decrease in the consumer's money income. 
D) an equal percentage increase in the consumer's money income and in the price of B. 
A) an increase in the price of B. 
B) a decrease in the price of A. 
C) a decrease in the consumer's money income. 
D) an equal percentage increase in the consumer's money income and in the price of B.

Question 20

Why is it not sufficient to just compare the marginal utility of two goods when maximizing utility?

Accepted Answer

Because the goods may have different pri

Exam 7: Utility Maximization

Which of the following best expresses the law of diminishing marginal utility?

The law of diminishing marginal utility states that

Total utility is best defined as the

Refer to the diagram, in which the downsloping lines are budget lines and I₁, I₂, and I₃ comprise an indifference map. The combinations of products M and N indicated by points 1, 3, and 5 are such that

Describe how marginal utility and demand are related.

Refer to the diagram, where xy is the relevant budget line and I₁, I₂, and I₃ are indifference curves. If the consumer is initially at point L, he or she should

Refer to the table. At what consumption level for this product does diminishing marginal utility set in?

The goal of a rational consumer is to maximize

The table shows the utility schedule for a consumer of candy bars. Based on the data in the table, you can conclude that the

A leftward shift of a consumer's budget line to a position parallel with the original one could indicate that the

The income effect of a price increase for a normal good causes an increase in the consumption of the good.

The substitution effect suggests that when consumers judge product quality by price, they will substitute high-priced products for low-priced products.

Suppose you have a limited money income and you are purchasing products A and B, whose prices happen to be the same. To maximize your utility, you should purchase A and B in such amounts that

Suppose that MU x/ Pₓ exceeds MU y/ Pᵧ . To maximize utility, the consumer who is spending all her money income should buy

The satisfaction or pleasure one gets from consuming a good or service is called

Marginal utility can be

Answer the question on the basis of the following marginal utility data for products X and Y. Assume that the prices of X and Y are $4 and $2, respectively, and that the consumer's income is $18. If the price of X decreases to $2, then the utility-maximizing combination of the two products is

The graph shows two indifference curves, and QR and QS represent different budget lines. A change in the equilibrium position on the diagram from point 1 to point 2 could result, other things being equal, from

Why is it not sufficient to just compare the marginal utility of two goods when maximizing utility?

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

Elasticity

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, RD, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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