Deck 19: The Logic of Individual Choice: the Foundation of Supply and Demand

Question 1

John is maximizing utility when consuming two goods: French fries and hot dogs. If the marginal utility from the last box of fries John consumed is 60 and the marginal utility of the last hot dog John consumed is 120 and hot dogs cost $1.00 apiece, a box of fries must cost $0.50.

Answer 1

True

Question 2

Steve has two choices for taking classes. Each is three credits and meets three hours a week, so we assume they have equal monetary costs. If Steve chooses to take a modern dance class instead of an economics class, it must be that for Steve the opportunity cost of taking a modern dance class exceeds the opportunity cost of taking an economics class.

Answer 2

False

Question 3

When the ratios of the marginal utility to the price of goods are equal, you're maximizing utility.

Answer 3

True

Question 4

To calculate the total utility of consuming N quantity of a product:

A) add the additional satisfaction of consuming each product up to N and multiply by its price.
B) add the total satisfaction of consuming each product up to N.
C) multiply the additional satisfaction from consuming the Nth product by its price.
D) multiply total satisfaction from consuming N products by N.

Question 5

If you sign up for a class and then drop it mid-semester, you must not have been making a rational choice when you were enrolling in classes.

Question 6

According to the principle of rational choice, a consumer should spend money on those goods which provide the most marginal utility per dollar.

Question 7

The following table lists the utility that Sarah receives from consuming bananas at $0.25 a banana. What is the marginal utility of consuming the fourth banana? $\begin{array}{|c|c|}\hline \text {Number of bananas}& \text {Total utility}\\\hline 0 & 0 \\\hline 1 & 10 \\\hline 2 & 22 \\\hline 3 & 32 \\\hline 4 & 40 \\\hline 5 & 46 \\\hline\end{array}$

A) 40
B) 32
C) 8
D) 2

Question 8

The underlying psychological foundation of individual choice and economic reasoning is:

A) generosity.
B) focal point equilibrium.
C) bounded rationality.
D) self-interest.

Question 9

John is maximizing utility by choosing to spend 90 minutes reading a chapter in The Theory of Moral Sentiments, which will give him 450 units of utility, instead of spending 20 minutes reading a chapter of Atlas Shrugged, which will give him 200 units of utility. (Assume marginal utility decreases slowly.)

Question 10

The total satisfaction one gets from one's consumption of a product is called:

A) marginal utility.
B) a unit of utility.
C) total utility.
D) minimum utility.

Question 11

The consumption of an additional unit of a good provides additional satisfaction, which is called:

A) total benefit.
B) marginal social benefit.
C) average utility.
D) marginal utility.

Question 12

Suppose there is diminishing, but not negative, marginal utility and no inflation. If the price of labor goes up, a worker will supply more labor. (Hint: The worker measures his marginal costs in terms of hours worked.)

Question 13

The following table lists the utility that Gwen receives from consuming bananas at $0.25 apiece. What is the total utility of consuming three bananas? $\begin{array}{|c|c|}\hline \text {Number of bananas}& \text {Total utility}\\\hline 0 & 0 \\\hline 1 & 10 \\\hline 2 & 22 \\\hline 3 & 32 \\\hline 4 & 40 \\\hline 5 & 46 \\\hline\end{array}$

A) 46
B) 30
C) 8
D) 2

Question 14

To calculate the marginal utility of consuming the Nth product:

A) subtract additional satisfaction from consuming the (N - 1)^th production from the additional satisfaction from consuming the N^th product.
B) subtract total satisfaction from consuming N - 1 products from total satisfaction from consuming N products.
C) divide total satisfaction from consuming all N products by the price of the product.
D) divide total satisfaction from consuming all N products by N.

Question 15

Total utility refers to the:

A) total satisfaction one gets from the consumption of a product.
B) satisfaction one gets from the consumption of an additional unit of a product.
C) maximum satisfaction one can get from the consumption of a good.
D) satisfaction one gets from the consumption of an additional unit of a product times its price.

Question 16

Mary is maximizing utility by eating three pancakes and two eggs. The principle of rational choice says that if there is diminishing marginal utility and the price of eggs rises, Mary will choose to eat more pancakes and fewer eggs.

Question 17

The principle of diminishing marginal utility states that people don't enjoy consuming more of a good.

Question 18

If MU_A/P_A> MU_B /P_B, an individual should choose to consume more of good A.

Question 19

Focal point equilibria definitely violate the principle of rational choice.

Question 20

If marginal utility is declining but still positive, total utility is increasing.

Question 21

What is the total utility of five cans of soda? $$\begin{array} { | c | c | c | } \hline \text { Cans of Sada } & \text { Total utility } & \text { Marginal utility } \\\hline 1 & 14 & \\\hline 2 & & 12 \\\hline 3 & 36 & \\\hline 4 & 44 & 6 \\\hline 5 & & \\\hline\end{array}$$

A) 6
B) 8
C) 50
D) 44

Question 22

When marginal utility of consuming a good is zero, total utility is:

A) increasing.
B) decreasing.
C) zero.
D) at its maximum.

Question 23

Popeye cannot eat enough free spinach. With this information, we know that Popeye's:

A) marginal utility for spinach never falls.
B) total utility for spinach is always rising.
C) total utility for spinach is falling.
D) marginal utility for spinach is falling.

Question 24

Jack Sprat could eat no fat, his wife could eat no lean. And so betwixt them both, they licked the platter clean. Which of the following is true about Jack and his wife?

A) Marginal utility of fat is negative for Jack; marginal utility of lean is negative for his wife.
B) Marginal utility of fat is falling for Jack; marginal utility of lean is falling for his wife.
C) Marginal utility of lean is negative for Jack; marginal utility of fat is negative for his wife.
D) Marginal utility of lean is rising for Jack; marginal utility of fat is rising for his wife.

Question 25

If the total utility curve is a straight line, the marginal utility curve would be a:

A) downward-sloping line.
B) a flat line with a slope of zero.
C) an upward-sloping line with a slope of 1.
D) a vertical line.

Question 26

Refer to the graph shown. Between points C and D, marginal utility is:

A) decreasing, and so total utility is falling.
B) positive, and so total utility is increasing.
C) positive, and so total utility is falling.
D) decreasing, and so total utility is at its maximum.

Question 27

If Steve willingly consumes another slice of pizza, you can be sure that his marginal utility is:

A) rising.
B) falling.
C) positive.
D) negative.

Question 28

When marginal utility is positive, total utility is:

A) increasing.
B) decreasing.
C) zero.
D) at its minimum.

Question 29

Suppose that when you consume the third piece of chicken, total utility rises from 420 to 520. Marginal utility for the third piece of chicken is:

A) 520.
B) 420.
C) 140.
D) 100.

Question 30

Refer to the following table. Fill in the table and answer the following question: What is the marginal utility of the ninth can of soda? $$\begin{array} { | c | c | c | } \hline \text { Cans of Sadn } & \text { Tatal utility } & \text { Marginal utility } \\\hline 6 & 54 & \\\hline 7 & & 6 \\\hline 8 & & 0 \\\hline 9 & 54 & \\\hline\end{array}$$

A) ?6 units of utility
B) 0 units of utility
C) 2 units of utility
D) 54 units of utility

Question 31

Suppose that the total utility of consuming the first piece of chewing gum in a packet is 30. This means that marginal utility of consuming the first piece of gum is:

A) zero.
B) less than 30.
C) 30.
D) more than 30.

Question 32

What is the marginal utility of the fourth can of soda? $\begin{array}{c}\begin{array}{|c|} \hline \text {Cans of Soda}\\\hline1\\\hline2\\\hline3\\\hline4\\\hline5\\\hline \end{array}\begin{array}{c|} \hline \text {Total utility}\\ \hline14\\ \hline\\ \hline36\\ \hline44\\ \hline\\ \hline \end{array}\begin{array}{c|} \hline \text {Marginal utility}\\ \hline\\ \hline12\\ \hline\\ \hline\\ \hline6\\ \hline\end{array}\end{array}$

A) 44 units of utility
B) 10 units of utility
C) 8 units of utility
D) 2 units of utility

Question 33

Refer to the graph shown. Total utility is at its maximum at point:

A) A.
B) B.
C) C.
D) D.

Question 34

As long as total utility is increasing, we know that marginal utility is:

A) positive.
B) decreasing.
C) increasing.
D) negative.

Question 35

The following table lists the utility that Steve receives from consuming oranges at $0.50 apiece. What is the marginal utility of increasing consumption from two to three oranges? $\begin{array}{|c|c|}\hline \text {Number af aranges}& \text {Total utility}\\\hline 0 & 0 \\\hline 1 & 4 \\\hline 2 & 9\\\hline 3 & 15 \\\hline 4 & 20 \\\hline 5 & 24 \\\hline\end{array}$

A) 3
B) 6
C) 5
D) 12

Question 36

Suppose one Big Mac gives you a marginal utility of 500 and a second Big Mac gives you a marginal utility of 200. The total utility of buying (and eating) two Big Macs is:

A) 200.
B) 300.
C) 500.
D) 700.

Question 37

Refer to the following graph. Marginal utility is:

A) negative between A and B.
B) negative between B and C.
C) negative between C and D.
D) not negative anywhere along the total utility curve.

Question 38

Refer to the graph shown. Between points B and D, marginal utility is:

A) increasing, and so total utility is falling.
B) positive, and so total utility is increasing.
C) positive, and so total utility is falling.
D) increasing, and so total utility is at its maximum.

Question 39

Refer to the following figure. Geri likes avocados; each additional avocado she consumes adds as much to her total utility as did the previous one. Which of the four graphs best represents Geri's marginal utility curve for avocados?

A) A
B) B
C) C
D) D

Question 40

Refer to the following graph. The marginal utility curve associated with this total utility curve is:

A) a downward-sloping curve.
B) a flat line with a slope of zero.
C) an upward-sloping curve.
D) indeterminate.

Question 41

The principle of diminishing marginal utility states that:

A) you don't enjoy consuming more of a good.
B) you enjoy consuming more of a good if it is good.
C) as you consume more of a good, you enjoy the additional units less than you did the previous units.
D) as you consume more of a good, you enjoy the additional units more than you did the initial units.

Question 42

The principle of diminishing marginal utility states that marginal utility:

A) is negative.
B) is positive.
C) is always falling.
D) falls after some point.

Question 43

You're maximizing utility when:

A) (MU of X)/ (P of X) > (MU of Y)/ (P of Y).
B) (MU of X)/(P of X) < (MU of Y)/(P of Y).
C) (MU of X)/(P of X) = (MU of Y)/(P of Y).
D) (MU of X)/(P of Y) = (MU of Y)/(P of X).

Question 44

The principle of diminishing marginal utility says that as you consume more of an item, beyond some point the:

A) additional units of consumption will yield more units of utility than the previous units.
B) total satisfaction will decrease.
C) additional units of consumption will yield fewer additional units of utility than the previous unit.
D) price of additional units of consumption will be less than the price of the previous unit.

Question 45

Given a fixed level of spending, you will maximize utility when the:

A) total satisfaction from both goods is maximized regardless of cost.
B) marginal satisfactions are maximized.
C) ratios of the total utilities to their prices are equal.
D) ratios of the marginal utilities to their prices are equal.

Question 46

The following table describes utility for consuming cans of soda. Fill in the blank spaces and answer the following question: At what point does the law of diminishing marginal utility set in? $$\begin{array} { | c | c | c | } \hline \text { Cans of Sada } & \text { Total utility } & \text { Marginal utility } \\\hline 1 & 14 & \\\hline 2 & & 12 \\\hline 3 & 36 & \\\hline 4 & 44 & 6 \\\hline 5 & & \\\hline\end{array}$$

A) Between three and four cans
B) Between four and five cans
C) Marginal utility diminishes everywhere.
D) Marginal utility never diminishes.

Question 47

Faced with a hundred pounds of strawberries, the rational individual will eat:

A) all of the strawberries.
B) strawberries until the satisfaction from the last strawberry is maximized.
C) strawberries until the satisfaction from eating strawberries is maximized.
D) strawberries until the satisfaction from eating the last strawberry begins to fall.

Question 48

Diminishing marginal utility implies that as an individual consumes more of a good, beyond some point another unit will add:

A) more units of utility than the preceding units.
B) more pleasure than the preceding unit.
C) the same pleasure as the preceding unit.
D) less pleasure than the preceding unit.

Question 49

The following table describes utility for consuming cans of soda. At what point does the law of diminishing marginal utility set in? $\begin{array}{|c|c|}\hline \text { Cans of Soda } & \text { Total utility } \\\hline 1 & 14 \\\hline 2 & 30 \\\hline 3 & 47 \\\hline 4 & 57 \\\hline 5 & 56 \\\hline 6 & 50 \\\hline 7 & 42 \\\hline\end{array}$

A) Between three and four cans
B) Between four and five cans
C) Marginal utility diminishes everywhere.
D) Marginal utility never diminishes.

Question 50

Joan is deciding where to spend her spring break. If she goes to Cancún, Mexico, the trip will give her 9,000 units of utility and will cost her $300. If she travels to Florida instead, the trip will give her 8,000 units of utility and will cost her only $200. Joan will do best going to:

A) Mexico because her total pleasure will be greater.
B) Florida because her total cost will be lower.
C) Mexico because her pleasure per dollar will be greater.
D) Florida because her pleasure per dollar will be greater.

Question 51

Suppose Paul has chosen a combination of two goods, A and B, such that the marginal utility per dollar spent for good A (MU_A/P_A) is .6 and the marginal utility per dollar spent for good B (MU_B/P_B) is 1. To increase utility with the same amount of money, Paul should:

A) increase the number of B consumed and decrease the number of A consumed.
B) increase the number of A consumed and decrease the number of B consumed.
C) increase the number of both A and B consumed.
D) do nothing; he cannot increase total utility.

Question 52

Jason is faced with two options: A BMW costing $40,000 gives him an additional 800 units of utility, and a laser printer costing $1,000 gives him an additional 25 units of utility. Rational choice theory would predict that he would choose:

A) to purchase the BMW.
B) to purchase the laser printer.
C) it is impossible to choose because the goods have different prices.
D) it is impossible to choose because BMWs and laser printers are fundamentally different goods with different purposes.

Question 53

According to the law of diminishing marginal utility:

A) total utility is always falling.
B) total utility is always rising.
C) after some point, total utility falls.
D) after some point, the rate of change in total utility declines.

Question 54

In choosing between two products, a rational consumer will choose the product that gives her the:

A) greatest total utility regardless of cost.
B) least marginal utility per dollar.
C) highest cost per additional unit of utility.
D) lowest cost per additional unit of utility.

Question 55

According to the law of diminishing marginal utility, after some point:

A) the more we buy of something, the more it costs.
B) the more we consume of something, the less each additional unit adds to our satisfaction.
C) people should spend all of their income on one good.
D) the more we consume of something, the smaller the total satisfaction received from that good.

Question 56

Suppose that a haircut will give Dawn 2,000 units of utility and cost her $40, whereas a manicure costs $25 and yields 1,000 units of utility. Most likely Dawn should:

A) choose the haircut because each unit of utility will cost her $0.02 compared with $0.025 for the nails.
B) choose the nails because she will obtain 50 units of utility per dollar compared with 40 units of utility per dollar for the haircut.
C) be indifferent between the two choices.
D) choose the haircut because she will receive 50 units of utility per dollar compared with 45 units of utility per dollar for the nails.

Question 57

Given that price is constant, the lower the marginal utility of a good as more of the good is consumed the:

A) less you are willing to buy of it.
B) more you are willing to buy of it.
C) fewer substitutes there are.
D) more substitutes there are.

Question 58

To choose, based on the principle of rational choice, among combinations of goods with a cost in money, one must compare:

A) total utility of the combination of goods and their price.
B) total utility only.
C) marginal utility of each additional good and its price.
D) marginal utility only.

Question 59

Given a set amount of money, goods A and B both give the same marginal utility at current levels of consumption but good A costs twice as much as good B. You should:

A) consume more of good A and less of good B.
B) consume more of good B and less of good A.
C) keep consuming the current amounts of both good A and good B.
D) realize that you don't have enough information to answer the question.

Question 60

A Big Mac meal costs $3.00 and gives you an additional 5 units of utility; a meal at the Four Seasons Hotel costs $27.00 and gives you an additional 45 units of utility. Based only on the information you have, using the theory of rational choice, you most likely would:

A) choose to eat the Big Mac meal.
B) choose to eat at the Four Seasons Hotel.
C) be indifferent between eating the Big Mac and eating at the Four Seasons Hotel.
D) decide that eating at the Four Seasons Hotel is preferable because though the marginal utilities of both meals are the same, the total utility is greater in the case of the meal at the Four Seasons Hotel.

Question 61

Steve is currently maximizing utility by consuming three fried eggs and four strips of bacon. From this you can conclude that the:

A) marginal utility of the third fried egg equals the marginal utility of the fourth strip of bacon.
B) total utility of the three eggs equals the total utility of the four strips of bacon.
C) opportunity cost of not consuming the third fried egg equals the opportunity cost of not consuming the fourth strip of bacon.
D) price of eggs and bacon are the same.

Question 62

Tom is maximizing utility by buying three packs of bubble gum and four packages of Skittles. Given diminishing marginal utility, if the price of Skittles rises, the principle of rational choice tells us that Tom will buy:

A) more Skittles, raising the opportunity cost of not consuming Skittles.
B) fewer Skittles, raising the opportunity cost of not consuming Skittles.
C) more Skittles, lowering the opportunity cost of not consuming Skittles.
D) fewer Skittles, lowering the opportunity cost of not consuming Skittles.

Question 63

Joe is maximizing utility by consuming three colas at $2 apiece and four hot dogs. The last cola gave him 200 units of utility, and the last hot dog gave him 300 units of utility. The price of each hot dog is:

A) $3.00.
B) $1.50.
C) $1.00.
D) $0.50.

Question 64

A Jackson Pollock painting can cost $1.2 million, whereas a poster reproduction of the same painting costs only about $15. The reason is that:

A) the total utility of Jackson Pollock paintings is greater than the total utility of Jackson Pollock posters.
B) the marginal utility of Jackson Pollock paintings is greater than the marginal utility of Jackson Pollock posters.
C) the opportunity cost of Jackson Pollock paintings is greater than the opportunity cost of Jackson Pollock posters.
D) Jackson Pollock paintings have more substitutes than Jackson Pollock posters.

Question 65

The slower the marginal utility declines as more of a good is consumed the:

A) greater the elasticity of demand.
B) smaller the elasticity of demand.
C) smaller the opportunity cost of the good.
D) larger the opportunity cost of the good.

Question 66

Crackerjacks cost twice as much as Doritos. Fred maximizes utility by buying eight boxes of Crackerjacks and some number of bags of Doritos. If the last box of Crackerjacks gives Fred 100 units of utility, you can conclude that:

A) Fred has also bought 16 bags of Doritos.
B) the marginal utility of the last bag of Doritos Fred bought is 50 units.
C) the total utility of the bags of Doritos Fred bought is 200 units.
D) Fred has also bought four bags of Doritos.

Question 67

If the price of Alpo increases from $0.50 to $1, Mr. Tightwad, a utility-maximizing consumer, would spend his $4 on which of the following?

A) 4 McBurgers
B) 3 McBurgers and 1 can of Alpo
C) 2 McBurgers and 2 cans of Alpo
D) 1 McBurger and 3 cans of Alpo

Question 68

The price of a McDonald's dinner is $5; the price of a Burger King dinner is $5. The marginal utility you would get from the next McDonald's dinner is 15; the marginal utility you would get from the next Burger King dinner is 20. You should:

A) consume more McDonald's dinners.
B) consume more Burger King dinners.
C) not consume either Burger King or McDonald's dinners.
D) realize you cannot make a rational decision.

Question 69

If the average utility of good A is 15 and the average utility of good B is 25, you should:

A) consume more of good A and less of good B.
B) consume more of good B and less of good A.
C) keep consuming the current amounts of both good A and good B.
D) realize that you don't have enough information to answer the question.

Question 70

If the price of one can of Alpo is $0.50 and the price of each McBurger is $1, which of the following would Ms. Tightwad, a utility-maximizing consumer, buy with her $4?

A) 4 McBurgers
B) 3 McBurgers and 2 cans of Alpo
C) 2 McBurgers and 4 cans of Alpo
D) 1 McBurger and 6 cans of Alpo

Question 71

Suppose Jane has chosen a combination of two goods, A and B, such that MU/P of good A is 10 (MU_A/P_A = 10), and the MU/P of good B is 10 (MU_B/P_B = 10). To increase utility with the same amount of money, Jane should:

A) increase the number of B consumed.
B) increase the number of A consumed.
C) increase the number of A and B consumed.
D) do nothing; she cannot increase utility with the same amount of money.

Question 72

If the price of one Weight Watchers' frozen dinner is $2 and the price of one dozen jelly doughnuts is $3, which of the following would Kent, a utility maximizing consumer, buy with his $6?

A) three frozen dinners
B) two frozen dinners and two dozen jelly doughnuts
C) one frozen dinner and four dozen jelly doughnuts
D) two dozen jelly doughnuts

Question 73

Joe is maximizing utility by consuming three colas at $2 apiece and four hot dogs at $3 apiece. The last cola gave him 200 units of utility. How many units of utility did the last hot dog give him?

A) 133.33
B) 300
C) 10
D) 600

Question 74

Suppose Jack purchases four rolls of brown paper for which he receives 100 units of total utility and two quarts of vinegar for which he receives 50 units of total utility. Assuming Jack maximizes utility, if the price of brown paper is $2 a roll, the cost of two quarts of vinegar must be:

A) $1 a quart.
B) $2 a quart.
C) $0.50 a quart.
D) It is impossible to tell.

Question 75

Refer to the following table. At this level of consumption of goods A and B, the consumer: $$\begin{array} { | l | c | c | } \hline & \text { Gand A } & \text { Gand B } \\\hline \text { Marpinal utility } & 100 & 500 \\\hline \text { Price } & \mathbf { \$ 2 0 } & \$ 50 \\\hline\end{array}$$

A) is maximizing satisfaction for the given expenditure.
B) could increase total satisfaction for a given expenditure by increasing the consumption of A and decreasing that of B.
C) could increase total satisfaction for a given expenditure by increasing the consumption of B and decreasing that of A.
D) should consume only A.

Question 76

The opportunity cost of consuming good A is lower than the opportunity cost of consuming good B. This means that good:

A) A has a higher marginal utility.
B) B has a higher marginal utility.
C) A has a higher marginal utility per dollar.
D) B has a higher marginal utility per dollar.

Question 77

If the price of one Weight Watchers frozen dinner is $2 and the price of one dozen jelly doughnuts is $1, which of the following would Kent, a utility-maximizing consumer, buy with his $6?

A) 3 frozen dinners
B) 2 frozen dinners and 2 dozen jelly doughnuts
C) 1 frozen dinner and 4 dozen jelly doughnuts
D) 6 dozen jelly doughnuts

Question 78

The last Big Mac that Eva consumes costs $2.00 and gives her 24 units of utility. The last Whopper she consumes costs $1.50 and gives her 18 units of utility. Eva is maximizing her utility. If the price of the Whopper falls to $1.30 and given diminishing marginal utility, Eva should:

A) consume more Big Macs and fewer Whoppers.
B) consume more Whoppers and fewer Big Macs.
C) keep consuming the current amounts of both Big Macs and Whoppers.
D) realize that she doesn't have enough information to answer the question.

Question 79

The faster marginal utility declines the:

A) greater the elasticity of demand.
B) smaller the elasticity of demand.
C) smaller the opportunity cost of the good.
D) larger the opportunity cost of the good.

Question 80

If the marginal utilities are constant for travel and food and the marginal utility per dollar of travel is 50 and the marginal utility per dollar of food is 30:

A) the total utility of food and travel is 80.
B) we can gain 20 units of net utility by spending one less dollar on food and one more dollar on travel.
C) we can gain 20 units of net utility by spending one more dollar on food and one less dollar on travel.
D) we can gain 30 units of net utility by spending one less dollar on food and one more dollar on travel.