Deck 7: Utility Maximization

Question 1

If total utility increases as consumption of a good increases, then marginal utility must be increasing also.

Answer 1

False

Question 2

Marginal utility is the accumulation of the total utility from successive units of a good or service consumed.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

With diminishing marginal utility, if a consumer reduces her consumption of a good, then her marginal utility from that good would increase.

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

The law of diminishing marginal utility suggests that the total utility that a consumer derives from a product will increase slower and slower as more of the product is consumed.

Question 12

The law of diminishing marginal utility implies that in order to induce a buyer to buy more of a product, the seller must lower its price.

Question 13

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

Question 14

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 15

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

Question 16

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

Question 17

If the price of a good increases, it will tend to make the MU to P ratio for the good rise and the good becomes more attractive to the buyer.

Question 18

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

Question 19

The price of chicken = $5, while the price of pork = $9. If, after spending her entire budget, the consumer has MU of chicken = 6, while the MU of pork = 12, then the consumer should have bought more chicken and less pork in order to increase her total utility.

Question 20

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

Question 21

The income and substitution effects will both induce the consumer to buy more of a normal good when its price decreases.

Question 22

Each point on a single indifference curve reflects the same level of total utility for a consumer.

Question 23

A parallel shift in a budget line is caused by changes in a consumer's level of satisfaction.

Question 24

If the quantity of X is measured on the horizontal axis and the quantity of Y on the vertical, then the slope of the budget line is equal to the price of X divided by the price of Y.

Question 25

Someone who pays $800 to fly from one city to another instead of paying only $100 for a bus trip between the two cities is making an irrational choice and is thus not maximizing his utility.

Question 26

A change in the relative prices for two goods can be shown as a parallel shift in a consumer's budget line.

Question 27

As a consumer moves down a given indifference curve, his or her total utility will diminish.

Question 28

An increase in the real income of a consumer is one result from an increase in the price of a product that the consumer is buying.

Question 29

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 30

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

Question 31

It is possible for a consumer's indifference curves to intersect.

Question 32

The substitution effect of a price decrease for a good causes an increase in the consumption of the good, regardless of whether the good is normal or inferior.

Question 33

In moving northeasterly from the origin, we encounter indifference curves that reflect higher and higher levels of total utility.

Question 34

Indifference analysis assumes that utility is numerically measurable.

Question 35

Indifference curves are convex to the origin due to diminishing marginal rates of substitution.

Question 36

If consumers are convinced by ads that Brand X has a lot more value than they originally thought, then the MU/P of X will decrease.

Question 37

A rational consumer will try to achieve the highest indifference curve that his or her income will allow.

Question 38

The budget line shows all the combinations of two products that the consumer can buy, given money income and product prices.

Question 39

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

Question 40

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

Question 41

Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility)that a consumer would get from successive quantities of products J and K. If the consumer has money income of $36 and the prices of J and K are $4 and $4 respectively, the consumer will maximize her utility by purchasing

A)2 units of J and 7 units of K.
B)6 units of J and 3 units of K.
C)5 units of J and 4 units of K.
D)4 units of J and 5 units of K.

Question 42

Refer to the table. What is the marginal utility of the sixth unit?

A)42
B)102
C)252
D)226

Question 43

It is possible that as a result of the budget line shifting outward, the consumer will buy less of a product.

Question 44

Indifference curves and budget lines can be used to derive an individual's demand curve for a product.

Question 45

The consumer will select that point on the budget line which puts him or her on the highest attainable indifference curve.

Question 46

If the total utility from consuming six units of a product is 43 and the marginal utility of a seventh unit is 6, then the total utility from consuming seven units would be

A)37.
B)49.
C)7.
D)42.

Question 47

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)marginal utility of the fourth unit is 96.
B)total utility of 5 units is 88.
C)total utility of 2 units is 16.
D)marginal utility of the sixth unit is 5.

Question 48

The first Pepsi yields Craig 15 units of utility and the second yields him an additional 13 units of utility. His total utility from threecans of Pepsi is 40 units of utility. The marginal utility of the third Pepsi is

A)27 units of utility.
B)28 units of utility.
C)12 units of utility.
D)40 units of utility.

Question 49

A consumer maximizes total utility when she or he purchases the combination of the two products at which her or his budget line is tangent to an indifference curve.

Question 50

Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $3 and $4, respectively. The marginal utility of the last units of A and B are 15 and 24, respectively. These data suggest that Ms. Thomson

A)has preferences that are at odds with the principle of diminishing marginal utility.
B)considers A and B to be complementary goods.
C)should buy more A and less B.
D)should buy more B and less A.

Question 51

An increase in the price of a product normally enables a consumer to reach a higher indifference curve.

Question 52

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $6 and $2, respectively, and that the consumer's income is $22 How many units of the two products will the rational consumer purchase?

A)3 of L and 3 of M
B)4 of L and 2 of M
C)2 of L and 4 of M
D)2 of L and 5 of M

Question 53

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)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 54

If MU a/ Pₐ = 20/$3 = MU b/ Pᵦ = 70/? = MU c/ P_c = 100/?, the prices of products B and C in consumer equilibrium

A)cannot be determined from the information given.
B)are $10.5 and $15, respectively.
C)are $12 and $20, respectively.
D)are $15 and $10.5, respectively.

Question 55

If the marginal utility from consuming the fifth unit of a product is 6 and the total utility from all five units is 162, then the total utility from consuming four units must be

A)168.
B)27.
C)156.
D)972.

Question 56

The marginal utility of the last unit of apples consumed is 10, and the marginal utility of the last unit of bananas consumed is 15. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium?

A)$3 and $2
B)$2 and $3
C)$15 and $10
D)$25 and $30

Question 57

Ben is exhausting his money income consuming products A and B in such quantities that MU a/ Pₐ = 7 and MU b/ Pᵦ = 9. Ben should purchase

A)more of A and less of B.
B)more of B and less of A.
C)more of both A and B.
D)less of both A and B.

Question 58

Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility)that a consumer would get from successive quantities of products J and K. What level of total utility is realized from the equilibrium combination of J and K, if the consumer has a money income of $26 and the prices of J and K are $8 and $2, respectively?

A)190 utils
B)168 utils
C)220 utils
D)60 utils

Question 59

The table shows a consumer's utility schedule. Based on the data in the table, you can conclude that the

A)marginal utility of the second unit is 14.
B)total utility of 3 units is 54.
C)total utility of 4 units is 5.
D)marginal utility of the fifth unit is 2.

Question 60

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 75 utils and the marginal utility of the last bag is 100 utils. The prices of soda and pretzels are $0.5 per bottle and $0.6 per bag, respectively. It can be concluded that

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

Question 61

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 $3, and the price of product Y is $2. The income of the consumer is $15. If the consumer buys both product X and product Y, how much will the consumer buy of each in order to maximize utility?

A)4X and 2Y
B)3X and 3Y
C)2X and 4Y
D)1X and 5Y

Question 62

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $25 What level of total utility does the rational consumer realize in equilibrium?

A)162 utils
B)86 utils
C)58 utils
D)51 utils

Question 63

The table shows the total utility data for products X and Y. Assume that the prices of X and Y are $2 and $4, respectively, and that consumer income is $18. How many units of the two products will the consumer buy to get maximum utility?

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

Question 64

Assume that a consumer purchases a combination of products Y and Z and that the MU y/ Pᵧ = 22 and MU z/ P_z = 25. To maximize utility, without spending more money, the consumer should

A)purchase less of Z and more of Y.
B)purchase more of Z and less of Y.
C)purchase more of both Y and Z.
D)make no change in the quantities Y and Z.

Question 65

If you purchase a gift worth $12 for your sister, but your sister would be willing to pay only $8 if she bought the item for herself, then the

A)total utility of the gift is $20.
B)total utility of the gift is $4.
C)marginal utility of the gift is $4.
D)loss of value in the gift is $4.

Question 66

A consumer is making purchases of products Alpha and Beta such that the marginal utility of product Alpha is 63 and the marginal utility of product Beta is 40. The price of product Alpha is $9, and the price of product Beta is $5. The utility-maximizing rule suggests that, to stay within a given budget constraint, this consumer should

A)increase consumption of product Alpha and decrease consumption of product Beta.
B)increase consumption of product Beta and increase consumption of product Alpha.
C)increase consumption of product Beta and decrease consumption of product Alpha.
D)make no change in the consumption of Alpha or Beta.

Question 67

A consumer currently spends a given budget on two goods, X and Y, in such quantities that the marginal utility of X is 12 and the marginal utility of Y is 8. The unit price of X is $3 and the unit price of Y is $4. The utility-maximizing rule suggests that this consumer should

A)decrease consumption of product X and increase consumption of product Y.
B)decrease consumption of product X and decrease consumption of product Y.
C)decrease consumption of product Y and increase consumption of product X.
D)stick with the current consumption mix because it yields maximum utility.

Question 68

A child is given $5.20 of pocket money to be spent on either hard candies or chocolates. Chocolates cost 40 cents and hard candies 80 cents each. The marginal utilities derived from each product are as shown in the following table. Which combination would give the child the maximum utility out of spending $5.20?

A)8 chocolates and 2 hard candies
B)5 chocolates and 4 hard candies
C)3 chocolates and 5 hard candies
D)2 chocolates and 4 hard candies

Question 69

Assume that a consumer purchases a combination of products Y and Z and that the MU y/ Pᵧ = 48/8 and MU z/ P_z = 30/5. To maximize utility, without spending more money, the consumer should

A)purchase less of Z and more of Y.
B)purchase more of Z and less of Y.
C)purchase more of both Y and Z.
D)make no change in the quantities Y and Z.

Question 70

A consumer is in equilibrium and is spending income in such a way that the marginal utility of product X is 40 units and that of Y is 32 units. If the unit price of X is $5, then the price of Y must be

A)$5 per unit.
B)$4 per unit.
C)$8 per unit.
D)$7 per unit.

Question 71

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 $3, and the price of product Y is $2. The income of the consumer is $18. If the consumer buys product X or product Y one unit at a time, which of the following will the consumer's first two purchases be?

A)a first unit of X followed by a first unit of Y
B)a first unit of X followed by a second unit of X
C)a first unit of Y followed by a second unit of Y
D)a first unit of Y followed by a first unit of X

Question 72

A consumer has an income of $100, and the price of X is $2, while the price of Y is $4. If the consumer buys 20 units of X, then the maximum quantity of Y that she could also buy is

A)15
B)25
C)40
D)10

Question 73

If a consumer has an income of $100, the price of X is $2, and the price of Y is $4, what is the maximum quantity of Y the consumer is able to purchase?

A)400
B)100
C)50
D)25

Question 74

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 $30. If the consumer buys both product X and product Y, how much will the consumer buy of each in order to maximize utility?

A)3X and 3Y
B)4X and 4Y
C)5X and 4Y
D)5X and 5Y

Question 75

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

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

Question 76

The table shows the marginal-utility schedules for goods A and B for a hypothetical consumer. The price of good A is $1, and the price of good B is $2. The income of the consumer is $8. If the consumer spends the given budget and gets maximum utility out of it, then she is receiving how much satisfaction from each dollar spent on the final unit of good B consumed?

A)14 utils per dollar
B)7 utils per dollar
C)9 utils per dollar
D)2 utils per dollar

Question 77

Assume that a consumer purchases a combination of product A and product B such that the MUₐ /Pₐ = 3 and MUᵦ /Pᵦ = 5. To maximize utility without spending more money, the consumer should

A)purchase more of product A and less of product B.
B)purchase less of product A and more of product B.
C)purchase more of both product A and product B.
D)make no change in purchases of products A and B.

Question 78

Suppose a consumer has an income of $24, the price of A is $3, and the price of B is $1. Which of the following combinations is on the consumer's budget line?

A)4A and 10B
B)2A and 18B
C)8A and 24B
D)5A and 7B

Question 79

A child is given $4 of pocket money to be spent on either hard candies or chocolates. Chocolates cost 40 cents and hard candies 80 cents each. The marginal utilities derived from each product are as shown in the following table. If the child buys either chocolates or hard candies one piece at a time, what will be his first two purchases?

A)a hard candy, followed by another hard candy
B)a hard candy, followed by a chocolate
C)a chocolate, followed by a hard candy
D)a chocolate, followed by another chocolate

Question 80

Frank is purchasing products C and D in utility-maximizing amounts. If the price of C is $6 and the price of D is $3, then

A)the marginal utility of D is twice that of C.
B)the marginal utility of D is the same as that of C.
C)the marginal utility of C is twice that of D.
D)the relationship between the marginal utility of C and D cannot be determined.