Deck 7: Utility Maximization

Question 1

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.

Answer 1

summing the marginal utilities of each unit consumed.

Question 2

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.

Answer 2

marginal utility obtained from the last dollar spent on each product is the same.

Question 3

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.

Answer 3

increase the marginal utility of the last unit consumed of this good.

Question 4

Suppose that MUx/Px exceeds MUy/Py.To maximize utility, the consumer who is spending all her money income should buy

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 5

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.

Question 6

Where total utility is at a maximum, marginal utility is

A)negative.
B)positive and increasing.
C)zero.
D)positive but decreasing.

Question 7

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.

Question 8

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.

Question 9

The marginal utility of the last unit of apples consumed is 12, and the marginal utility of the last unit of bananas consumed is 8.What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium?

A)$4 and $6
B)$6 and $4
C)$8 and $12
D)$16 and $9

Question 10

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.

Question 11

A consumer is maximizing her utility with a particular money income when

A)the total utility derived from each product consumed is the same.
B)MUa/Pa = MUb/Pb = MUc/Pc = ...= MUn/Pn.
C)MUa = MUb = MUc = ...= MUn.
D)Pa = Pb = Pc = ...= Pn.

Question 12

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.

Question 13

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.

Question 14

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.

Question 15

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.

Question 16

If a rational consumer is in equilibrium, which of the following conditions will hold true?

A)MUa = MUb = MUc = ...= MUn.
B)The marginal utility of each good purchased will be zero.
C)The marginal utility of the last dollar spent on each good purchased will be the same.
D)The total utility obtained from each good purchased will be the same.

Question 17

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

A)utility maximization.
B)opportunity cost.
C)revenue potential.
D)utility.

Question 18

Mrs.Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils.The prices of soda and pretzels are $0.60 per bottle and $0.40 per bag, respectively.It can be concluded that

A)the two commodities are substitute goods.
B)Mrs.Arnold should spend more on pretzels and less on soda.
C)Mrs.Arnold should spend more on soda and less on pretzels.
D)Mrs.Arnold is buying soda and pretzels in the utility-maximizing amounts.

Question 19

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.

Question 20

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.

Question 21

Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately?

A)Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero.
B)MU/P is consistently greater at all-you-can-eat restaurants.
C)People who eat at all-you-can-eat restaurants do not experience diminishing marginal utility.
D)Food at all-you-can-eat restaurants tends to have fewer calories, so consumers feel the need to consume a greater volume of food.

Question 22

Which of the following statements is correct?

A)Both cash and noncash gift-giving cause value losses.
B)Neither cash nor noncash gift-giving causes value losses.
C)Noncash gift-giving creates a value loss, but cash gifts do not.
D)Cash gifts create a value loss, but noncash gifts do not.

Question 23

What do the income effect, the substitution effect, and diminishing marginal utility have in common?

A)All are required to explain the utility-maximizing position of a consumer.
B)They are all empirically measurable.
C)They all help explain the upsloping supply curve.
D)They all help explain the downsloping demand curve.

Question 24

"Essential" water is cheaper than "nonessential" diamonds because

A)new industrial uses for diamonds have been discovered.
B)the supply of water is great relative to demand and the supply of diamonds is small relative to demand.
C)although the total utility of diamonds is greater, their marginal utility is small.
D)the supply of diamonds is great relative to demand and the supply of water is small relative to demand.

Question 25

Which of the following has been a significant factor in the ability of iPads to compete effectively against laptop and desktop computers?

A)iPads are often superior to laptop and desktop computers in their ability to create content.
B)A scarcity of production capacity has curtailed the manufacture of laptop and desktop computers.
C)Many consumers perceive that iPads are superior to laptops and desktop computers for the consumption of digital media.
D)The prices of laptops and desktop computers have increased dramatically.

Question 26

According to economists, gift registries, returning gifts for cash refunds, and "recycling gifts"

A)are inefficient because the time spent in these activities is never worth the benefit recipients receive from doing them.
B)are equally efficient because the recipient gets exactly what he wants.
C)are more efficient than if givers simply gave cash gifts.
D)increase the efficiency of gift-giving because they allow the recipient to consume goods that provide greater utility and transfer away those goods that are less satisfying.

Question 27

Assume you are spending your full budget and purchasing such amounts of X and Y that the marginal utility from the last units consumed is 40 and 20 utils, respectively.Assume (a) the prices of X and Y are $8 and $4 respectively; (b) it takes 3 hours to consume a unit of X and 1 hour to consume a unit of Y; and (c) your time is worth $2 per hour.You

A)should substitute X for Y until the marginal utility per hour is the same for both products.
B)are consuming X and Y in the optimal amounts.
C)should consume less of Y and more of X.
D)should consume less of X and more of Y.

Question 28

How did Apple overcome consumers' diminishing marginal utility for iPads?

A)Apple lowered the price of iPads so that previous buyers would purchase another unit.
B)Apple introduced new features to entice previous buyers to purchase new models.
C)Apple ignored the problem and focused solely on attracting new buyers.
D)Apple was unable to overcome the problem and has faced steadily declining sales.

Question 29

When a consumer shifts purchases from product X to product Y, the marginal utility of

A)X falls and the marginal utility of Y rises.
B)X rises and the marginal utility of Y falls.
C)both X and Y rises.
D)both X and Y falls.

Question 30

If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products B and C in consumer equilibrium

A)cannot be determined from the information given.
B)are $105 and $140, respectively.
C)are $105 and $175, respectively.
D)are $100 and $200, respectively.

Question 31

Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play.We can conclude that Prashanth

A)is relatively unappreciative of the arts.
B)obtains more marginal utility from the play than from the hockey game.
C)has a higher "marginal utility-to-price ratio" for the hockey game than for the play.
D)has recently attended several other Broadway plays.

Question 32

The fact that most medical care purchases are financed through insurance

A)has no effect on health care consumption because aggregate costs are the same regardless of payment method.
B)reduces the amount of health care consumed by raising the price of additional units of care.
C)has decreased health care costs and therefore reduced aggregate health care expenditures.
D)increases the amount of health care consumed by reducing the price of additional units of care.

Question 33

Most economists contend that

A)noncash gifts are more efficient than cash gifts.
B)noncash gifts are less efficient than cash gifts.
C)noncash and cash gifts are equally efficient.
D)government can assess consumer preferences better than can consumers themselves.

Question 34

Diminishing marginal utility explains why

A)the income effect exceeds the substitution effect.
B)the substitution effect exceeds the income effect.
C)supply curves are upsloping.
D)demand curves are downsloping.

Question 35

Susie buys two goods: rounds of golf and massages.Suppose that the price of a round of golf is $20 and the price of a massage is $30.In a typical week, Susie will play two rounds of golf, getting 20 utils of satisfaction from the second round.She normally buys three massages each week, with the third giving her 30 utils of satisfaction.If she were to buy a fourth massage in a week, it would give her 20 utils of satisfaction.If the price of massages is reduced to $15, which of the following outcomes might we expect to occur?

A)Susie would leave her consumption choices unchanged because of diminishing marginal utility in the consumption of massages.
B)Susie would buy more massages and fewer rounds of golf, as predicted by the income effect.
C)Susie would buy more massages and more rounds of golf, as predicted by the substitution effect.
D)Susie would buy more massages and fewer rounds of golf, as predicted by the substitution effect.

Question 36

The theory of consumer behavior assumes that consumers attempt to maximize

A)the difference between total and marginal utility.
B)total utility.
C)average utility.
D)marginal utility.

Question 37

The diamond-water paradox occurs because

A)the price of a product is related to its total utility, not its marginal utility.
B)the price of a product is related to its marginal utility, not its total utility.
C)water is, in fact, very scarce in certain regions of the world.
D)diamonds are more useful than water.

Question 38

Noncash gifts

A)increase the utility of recipients by introducing them to products they have not consumed before.
B)reduce recipient utility relative to a cash gift because noncash gifts often fail to match recipient preferences.
C)entail as much utility as do cash gifts.
D)increase the utility of recipients because many people are uncertain of their own preferences.

Question 39

A consumer's demand curve for a product is downsloping because

A)total utility falls below marginal utility as more of a product is consumed.
B)marginal utility diminishes as more of a product is consumed.
C)time becomes less valuable as more of a product is consumed.
D)the income and substitution effects precisely offset each other.

Question 40

If you receive a gift whose market price is $20, but you consider it to be worth only $10, then

A)there is a $10, or 50 percent, value gain.
B)there may or may not be a value loss.
C)there is a $10, or 50 percent, value loss.
D)you can be relatively certain the giver was a sibling or other close relative.

Question 41

When the price of a product falls, the income effect induces the consumer to purchase more of it, while the substitution effect prompts her to buy less.

Question 42

The consumer demand curve for a product is downsloping because marginal utility is constant when price declines.

Question 43

The income effect explains an exception to the law of demand.

Question 44

Noncash gift-giving involves value loss when the marginal utility of the gift to the receiver is less than the product price.

Question 45

(Last Word) All of the following would reduce property crime by increasing its "price," except

A)imposing greater penalties for those who are caught and convicted.
B)using more sophisticated security systems.
C)enhancing the legitimate earnings of potential criminals.
D)cutting out the middlemen ("fences") by selling stolen goods via Internet auction sites.

Question 46

Any combination of goods lying outside of the budget line

A)implies that the consumer is not spending all his income.
B)yields less utility than any point on the budget line.
C)yields less utility than any point inside the budget line.
D)is unattainable, given the consumer's income.

Question 47

When total utility is at a maximum, marginal utility is zero.

Question 48

If marginal utility is diminishing, total utility must also be declining.

Question 49

When a consumer shifts purchases from X to Y, the marginal utility of X falls and the marginal utility of Y rises.

Question 50

Marginal utility is total utility divided by the number of units consumed.

Question 51

(Consider This) When the federal government started requiring restaurants to print calorie counts next to menu items,

A)restaurants changed their prices, systematically lowering prices for healthier items and raising prices for high-calorie entrees.
B)there was no meaningful change in consumption behavior, indicating that marginal utility is driven solely by tastes for the food items and not by health information.
C)consumption of higher calorie items decreased, suggesting consumers' marginal utility for these items dropped.
D)consumption of higher-calorie items increased, contrary to the law's objective.

Question 52

A change in the slope of a budget line is solely the result of a change in

A)consumer preferences.
B)the price of one good relative to the other.
C)money income.
D)the slope of the indifference curve that is tangent to the budget line.

Question 53

When a consumer has maximized total utility, he or she cannot increase total utility by reallocating expenditures among different products.

Question 54

The substitution effect suggests that when consumers judge product quality by price, they will substitute high-priced products for low-priced products.Topic: Income and Substitution Effects Topic: Utility
Maximization and the Demand Curve

Question 55

The limited money income of consumers results in a so-called budget constraint.

Question 56

(Consider This) When the federal government started requiring restaurants to print calorie counts next to menu items, some people increased their consumption of higher-calorie items.Whichof the following best explains this phenomenon?

A)Consumers at restaurants are systematically irrational.
B)Consumers are more interested in maximizing calories per dollar than health per dollar.
C)Restaurants lowered the prices of healthier items, signaling to consumers that they are less appealing.
D)Restaurants cut portion sizes on all items to reduce calorie counts.

Question 57

A rational consumer will cease purchasing a product at that quantity where marginal utility begins to diminish.

Question 58

If money income increases and the prices of products A and B both increase, then the budget line

A)must shift to the right.
B)must shift to the left.
C)may shift either to the right or the left, or not at all.
D)will no longer be tangent to an indifference curve.

Question 59

(Last Word) Most people do not steal, because

A)stolen goods are subject to the law of diminishing marginal utility.
B)the marginal utilities of stolen goods are negative.
C)their marginal costs, including guilt costs, are too high.
D)stolen goods can only be sold at deep discounts.

Question 60

Increases in product prices shift the consumer's

A)budget line to the right.
B)budget line to the left.
C)indifference curves to the left.
D)indifference curves to the right.

Question 61

Graphically, the consumer maximizes total utility where the budget line is tangent to an indifference curve.

Question 62

The slope of a budget line reflects the

A)elasticity of demand for the two products.
B)price ratio of the two products.
C)amount of the consumer's income.
D)utility ratio of the two products.

Question 63

An indifference map implies that

A)money income is constant, but the prices of the two products vary directly with the quantities purchased.
B)the two products under consideration are perfectly substitutable for one another.
C)a consumer is better off to be at some point high on a given curve as opposed to a point low on the same curve.
D)curves farther from the origin yield higher levels of total utility.

Question 64

With a fixed money income, an increase in the price of one good and a decrease in the price of the other will cause the new budget line to intersect the original budget line.

Question 65

Edith is buying products X and Y with her money income.Suppose her budget line shifts rightward (outward).This might be the result of

A)the prices of X and Y increasing while her money income remains constant.
B)her money income decreasing while the prices of X and Y remain constant.
C)her money income increasing more than increases in the prices of X and Y.
D)none of these.

Question 66

Which of the following is correct?

A)Budget lines are linear and upsloping; indifference curves are downsloping and concave to the origin.
B)Budget lines are linear and downsloping; indifference curves are downsloping and concave to the origin.
C)Budget lines are linear and downsloping; indifference curves are downsloping and convex to the origin.
D)Budget lines are downsloping and convex to the origin; indifference curves are linear and downsloping.

Question 67

At each point on an indifference curve,

A)money income is the same.
B)the prices of the two products are the same.
C)total utility is the same.
D)marginal utility is the same.

Question 68

In drawing a particular budget line, money income and the prices of the two products are fixed.

Question 69

An indifference curve

A)may be either upsloping or downsloping, depending on whether the two products are complements or substitutes.
B)is downsloping and convex to the origin.
C)is upsloping and has a constant slope.
D)is downsloping and concave to the origin.

Question 70

The marginal rate of substitution

A)may increase or decrease on a given indifference curve, depending on whether the substitution or the income effect is dominant.
B)increases as one moves southeast along an indifference curve.
C)is constant at all points on the budget line.
D)declines as one moves southeast along an indifference curve.

Question 71

Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3.Also assume that money income is $60.The absolute value of the slope of the resulting budget line is

A)5.
B)1/5.
C)4.
D) 20

Question 72

Assume initially that the price of X (the quantity of which is measured on the horizontal axis) is $9 and the price of Y (the quantity of which is measured on the vertical axis) is $4.If the price of X now declines to $6, the budget line will

A)be unaffected.
B)shift outward on the vertical axis.
C)shift inward on the horizontal axis.
D)shift outward on the horizontal axis.

Question 73

(Consider This) The lines on a topographical map are analogous to a(n)

A)series of demand curves.
B)series of supply curves.
C)indifference map.
D)series of budget constraints.

Question 74

Indifference curve analysis

A)presumes, as does utility analysis, that satisfaction is numerically measurable.
B)presumes, unlike utility analysis, that satisfaction is numerically measurable.
C)presumes only that the consumer can say one combination of two goods yields more or less utility than some other combination.
D)is in conflict with the idea of a downsloping demand curve.

Question 75

(Consider This) A topographical map shows successively higher equal-elevation lines, whereas an indifference map shows successively higher levels of total

A)utility.
B)revenue.
C)profit.
D)cost.

Question 76

A budget line shows the

A)alternative combinations of two goods that a consumer can purchase with a given money income.
B)alternative combinations of two goods that will yield the same level of total utility to a consumer.
C)quantities of a particular good that a consumer will buy at various prices.
D)ratio of money income to product price.

Question 77

Indifference curves are linear, and budget lines are convex to the origin.

Question 78

An indifference curve shows all

A)possible equilibrium positions on an indifference map.
B)equilibrium combinations of two products that are obtainable with a given money income.
C)combinations of two products yielding the same total utility to a consumer.
D)possible combinations of two products that a consumer can purchase, given her income and the prices of the products.

Question 79

The marginal rate of substitution measures the

A)magnitude of the substitution effect.
B)total utility received by a consumer when equilibrium is achieved.
C)extra utility that a consumer derives from successive units of a product.
D)consumer's willingness to substitute one product for another so that total utility will remain constant.

Question 80

Assume the price of product Y (the quantity of which is plotted on the vertical axis) is initially $15 and the price of X (the quantity of which is plotted on the horizontal axis) is initially $3.Assume money income is initially $60.If the prices of Y and X now increase to $30 and $6, respectively, and money income increases to $120, then the budget line will

A)shift rightward and become steeper.
B)shift rightward and become flatter.
C)shift rightward, but its slope will not change.
D)be unchanged.