Deck 5: Happiness, Utility, and Consumer Choice

Question 1

According to the water and diamond paradox, the value of a good to a person depends on how many utils are derived from the first unit of a good consumed.

Answer 1

False

Question 2

The law of diminishing marginal utility does not apply to interpersonal comparisons of utility.

Answer 2

True

Question 3

If the MU/P for video rentals is 5 and the MU/P for movie theaters is 8, this person should go to movie theaters more often and rent fewer videos.

Answer 3

True

Question 4

If someone experiences diminishing marginal utility when eating a restaurant meal, he or she should not eat the restaurant meal.

Question 5

When there is diminishing marginal utility of money, a person would prefer to be poor.

Question 6

A concert-goer who had been willing to pay up to $150 for a ticket, but who pays a scalper $125 for one, experiences a consumer surplus of $25.

Question 7

A decrease in the price of a good that is measured on the horizontal axis will cause the budget constraint to rotate outward (with a new larger intercept on the horizontal axis).

Question 8

Money is not subject to the law of diminishing marginal utility.

Question 9

If total utility is positive, marginal utility must also be positive.

Question 10

Consumer surplus is the difference between the minimum amount a person would be willing to pay for a good and the amount the person actually paid.

Question 11

Economists must actually measure the utilities of goods to determine demand.

Question 12

There is a paradox that water has a high marginal utility, yet we value it little, while diamonds have a low marginal utility, while we value them highly.

Question 13

A consumer purchases just two goods: X and Y. If the price of one good X rises, the consumer buys less of good X and the same amount of good Y.

Question 14

For a given price, a decrease in demand will decrease consumer surplus.

Question 15

Indifference curves are typically shaped like total utility curves.

Question 16

The water and diamond paradox can be explained with the law of diminishing marginal utility and the comparative availability of water and diamonds.

Question 17

Moving from one curve to another in an indifference map always increases utility.

Question 18

The budget constraint 12,000 = 2X + 4Y has a slope equal to -2 where Y is on the vertical axis.

Question 19

A change in a consumer's feelings about the desirability of a good will result in an altered slope of the budget constraint.

Question 20

As population of a region increases, the consumer's demand curve for a product will shift.

Question 21

-Referring to Exhibit E-1, where Y represents income and Y/14, Y/10, and Y/8 are the values for the intercepts of the budget lines along the horizontal axis, a point (quantity,price) on the demand curve for bacon would be

A) 14, $7
B) 10, $5
C) 2, $7
D) 6, $10
E) 6, $5

Question 22

Sam McGarrity inherited $500,000 upon his favorite aunt's death. After this event it was observed by the local butcher that Sam was purchasing more steaks than in the past even though the butcher's advertising had provided no new information about his steaksin the past year. Most likely,

A) the relative cost of the butcher's steaks decreased
B) the relative cost of the butcher's steaks increased
C) Sam had seen industry ads about the benefits of red meat
D) Sam's indifference map shifted
E) Sam's income increased

Question 23

You have one free movie to give away. Susie Wong would receive 75 units of utility from the pass while Ralph Zilda would get 90 units of utility from the pass. Movie tickets sell for $8 at the theater. You want to create the most satisfaction possible by giving away the pass. Who should the movie be given to?

A) Susie because her current utility is lower.
B) Ralph because he will receive the most total utility.
C) Ralph because his marginal utility per dollar is higher.
D) Not Susie because her marginal utility is lower.
E) There is not enough information to decide.

Question 24

-Refer to Exhibit E-3 (on the previous page). Clothes and amusements are priced at $10 each. If you had a budget of $50, which of the following combinations of goods would you buy?

A) 4 units of clothes and 1 unit of amusement
B) 3 units of clothes and 3 units of amusement
C) 2 units of clothes and 3 units of amusement
D) 1 unit of clothes and 4 units of amusement
E) 5 units of clothes and 5 units of amusement

Question 25

-Refer to Exhibit E-3. Your budget is $50. The price of amusement goods is $10. If the price of clothes falls to $4, which of the following statements is true?

A) The marginal-utility-to-price ratio for clothes will decrease.
B) The marginal-utility-to-price ratio for clothes will increase.
C) The quantity demanded of clothes will decrease.
D) There will be no change in the quantity demanded of clothes or amusements.
E) The quantity demanded for amusement goods will remain constant.

Question 26

Economists call the difference between what you pay for a good and what you would have been willing to pay for it a(n)

A) budget deficit
B) consumer deficit
C) consumer marginal benefit
D) consumer surplus
E) economic benefit

Question 27

If the price of a soda is $0.50, and the marginal utility of the first soda consumed is valued at $2, then the consumer surplus of that first soda is

A) $0.50
B) $1.50
C) $2.00
D) $2.50
E) $4.00

Question 28

Consumer surplus increases as

A) the market price of a good decreases
B) firms exit the market
C) fewer consumers purchase a good
D) taxes on a good increase
E) a good is no longer available for sale

Question 29

-Refer to Exhibit E-4 (on the following page), which represents Chad's demand for bicycle rentals. At the equilibrium price of $4, Chad will demand how many hours of bicycle rental?

A) 0
B) 1
C) 2
D) 3
E) 4

Question 30

-Refer to Exhibit E-4, which represents Chad's demand for bicycle rentals. If the bicycle rental equilibrium price is $4 an hour, Chad's consumer surplus for his first hour of bicycle rental is

A) $0
B) $2
C) $4
D) $6
E) $8

Question 31

-Refer to Exhibit E-4, which represents Chad's demand for bicycle rentals. If the bicycle rental equilibrium price is $4 an hour, Chad's consumer surplus for his third hour of bicycle rental is

A) $0
B) $2
C) $4
D) $6
E) $8

Question 32

-Refer to Exhibit E-4, which represents Chad's demand for bicycle rentals. If the bicycle rental equilibrium price is $4 an hour, Chad's total consumer surplus is

A) $0
B) $2
C) $4
D) $6
E) $8

Question 33

Which of the following is a substitute way of describing what economists mean by the concept of utility?

A) money
B) displeasure
C) satisfaction
D) action
E) practicality

Question 34

Lisa Beth loves bananas and derives 10 utils of total utility eating the first one. When she consumes a second banana, her total utility increases to 15 utils. Eating the third raises her total utility to 18 utils. Economists reading her likes and dislikes conclude that

A) because the total utility of the first is 10, she is better off consuming that one and no more
B) because the marginal utility of the third banana is 18/3 = 6 utils, she would be better off adding that third to consumption because 6 utils is still better than zero
C) the marginal utility of the second banana is 8 utils, which means she should not eat it
D) the marginal utility of the first banana is zero, even though total utility is 10 utils because at zero bananas, total utility is zero
E) the marginal utility of the third banana is 3 utils, which conforms to the law of diminishing marginal utility

Question 35

Suppose you're looking for a new living room sofa and discover that the local store is running a Presidents' Day sale. You are delighted because if you end up buying the sofa, the sale will

A) increase the marginal utility you derive from that sofa
B) increase your consumer surplus
C) reduce your consumer surplus
D) decrease the marginal utility you derive from that sofa
E) increase the total utility you derive from that sofa

Question 36

Utility theory assumes that marginal utility of a good

A) increases as an individual consumes more of the good
B) decreases as an individual consumes more of the good
C) is greater than total utility as long as total utility is greater than zero
D) is constant as long as the individual derives utility from the good
E) is greater than total utility as long as marginal utility is greater than zero

Question 37

When marginal utility is negative, then total utility is

A) positive
B) decreasing
C) zero
D) increasing
E) infinite

Question 38

Given whatever income they have, consumers make consumption choices to maximize the

A) total utility of the goods they consume
B) marginal utility of the goods they consume
C) average utility of each good they consume
D) number of goods they buy
E) prices of goods they buy

Question 39

According to the law of diminishing marginal utility, the fifth pair of gloves that Mary receives for Christmas makes her

A) as happy as she was while receiving the first pair
B) less happy than she was while receiving the first pair
C) more happy than she was while receiving the first pair
D) consider that fifth pair as having zero marginal utility
E) total utility decrease

Question 40

If the total utility Jack receives from 10 gallons of gasoline is 16, and the total utility Jack receives from 11 gallons of gasoline is 20, the marginal utility of the 11th gallon of gasoline is

A) 1
B) 4
C) 7
D) 20
E) 21

Question 41

If Justin is willing to pay as much as $100 for a ticket to see the Rolling Stones, but is able to buy a ticket for $55, then he has a(n)

A) consumer surplus of $45
B) consumer deficit of $45
C) marginal utility of $45
D) marginal utility of $55
E) total utility of $155

Question 42

If Jenna buys a CD at a price of $10, she gets a consumer surplus of $20. This means she

A) does not have enough money to buy the CD
B) will not buy the CD since marginal utility is not high enough
C) was willing to pay as much as $30 for the CD
D) was willing to pay as much as $20 for the CD
E) will have $30 left over after she buys the CD

Question 43

Walter is just learning how to ski. He states that every time he goes skiing, he has more fun than the last time. This means his marginal utility of skiing is

A) increasing
B) constant
C) decreasing
D) zero
E) negative

Question 44

The law of demand (downward-sloping demand curve)is based on the idea of

A) maximum total utility
B) minimum marginal utility
C) total utility divided by quantity of the good consumed
D) law of diminishing marginal utility
E) consumers minimize total utility

Question 45

The MU/P equalization principle means consumers will spend their income (budget) so that the MU/P ratio of the goods consumed is

A) zero for each good
B) higher for goods the consumer wants the most (highest marginal utility)
C) maximized for the goods the consumer wants the most (highest marginal utility)
D) higher than TU/P
E) the same for each good

Question 46

Greg spends his entire budget on two goods: he plays video games at the mall arcade and he buys pizza. He discovers that his MU/P of video games is lower than his MU/P of pizza. From this, we know that he would be

A) happier eating less pizza and playing fewer video games
B) happier eating less pizza and playing more video games
C) happier eating more pizza and playing fewer video games
D) indifferent to which selection he makes
E) less happy if he made any change because he has obviously bought the quantities that maximize his total utility

Question 47

If the marginal utility of Jordyn's 100th dollar of income is 40 utils and the marginal utility of Joshua's 10th dollar is 135 utils, we know

A) money means more to Jordyn than to Joshua
B) money means more to Joshua than to Jordyn
C) Jordyn has more income than Joshua
D) Joshua has more income than Jordyn
E) nothing, since we can't make interpersonal utility comparisons

Question 48

Suppose I buy 3 cups of coffee at the price of $1 each. I would have been willing to pay $3 for that marvelous first cup, pay even $2 for the second cup, and $1-the market price-for the third cup. My consumer surplus is

A) $6
B) $5
C) $3
D) $2
E) $1

Question 49

Carla spends all her income on two goods: apples and bananas. The price of an apple is $2 and the price of a banana is $1. If the marginal utility of an apple to Carla is 4 and the marginal utility of a banana is 3, she should consume

A) more apples and fewer bananas to maximize total utility
B) more bananas and fewer apples to maximize total utility
C) more apples and more bananas to maximize total utility
D) fewer apples and fewer bananas to maximize total utility
E) exactly what she is consuming because she always makes the most rational choice each time she spends a dollar.

Question 50

A util represents a unit of measurement for the

A) dollars a consumer spends on a good
B) consumer surplus earned when paying less than he/she would have been willing to spend
C) way a consumer responds to a change in price
D) happiness a person obtains from consuming a good
E) consumer surplus a person acquires when buying a good at less than market price

Question 51

In the "Interdisciplinary Perspective" titled "A Philosophical Critique on the Marginal Utility of Money," the basic point made is that

A) the law of diminishing marginal utility does not apply to money
B) marginal utility always increases at an increasing rate for money
C) once basic needs are met, additional income or wealth does not increase happiness
D) most of the theories advanced by economists are flawed
E) the total utility function for money has a downward slope

Question 52

The water and diamond paradox is called a paradox because the

A) total utility of water is higher than the total utility of diamonds but its marginal utility is lower than that of diamonds so, in the end, water appears to be less valuable than diamonds
B) total and marginal utility of diamonds are higher than that of water even though we tend to think of water being more valuable
C) marginal utility of water is higher than the marginal utility of diamonds but its total utility is lower than that of diamonds so, in the end, diamonds appear to be less valuable than water
D) total and marginal utility of water is higher than that of diamonds so, in the end, water appears to be less valuable than diamonds
E) marginal utility of diamonds is low because diamonds are scarce while the marginal utility of water is high because it is so valuable

Question 53

Suppose Fernando allocates his lunch money to pizza and Coke. A Coke costs $1 and a slice of pizza costs $1.50. The marginal utility of the last slice of pizza Fernando ate was 30, and the marginal utility of his last Coke was 25. Fernando spent all of his lunch money. From this information, we can conclude that

A) Fernando allocated his money in a way that maximized his total utility
B) Fernando's total utility would have been higher if he had purchased more Coke and less pizza
C) Fernando's total utility would have been higher if he had purchased more pizza and less Coke
D) Fernando could have increased his total utility by purchasing more Coke but the same quantity of pizza
E) Fernando could have increased his total utility by purchasing more pizza but the same quantity of Coke

Question 54

The relative scarcity of water in desert societies causes the marginal utility of the last unit consumed to be

A) zero
B) low
C) high
D) equal to price
E) equal to demand

Question 55

If a consumer is choosing the optimal combinations of two goods X and Y, and then the price of good Y decreases, this causes

A) MU/P of good X to increase, so the consumer now should buy more X to find a new optimal combination
B) demand for good X to increase
C) MU/P of good Y to increase, so the consumer now should buy more Y to find a new optimal combination
D) MU/P of good Y to decrease, so the consumer now should buy more Y to find a new optimal combination
E) the demand for good X and good Y will not change because utility does not depend on price

Question 56

The difference between the maximum amount a person would be willing to pay for a good and the amount that a person actually pays is called

A) marginal utility
B) equalization principle
C) auction pricing
D) consumer surplus
E) demand responsiveness

Question 57

Many social policies, such as progressive income tax systems, are based on the idea that

A) everyone values money the same
B) politicians are more responsive to the interests of the rich
C) interpersonal comparisons of utility, however difficult, can be made
D) the poor have a lower consumer surplus than the rich
E) everyone has the same utility function

Question 58

The MU/P of a good will decrease when there is a(n)

A) fall in the price of the good
B) increase in its marginal utility
C) increase in the price of a good
D) increase in consumer surplus
E) decrease in income

Question 59

If a runner's demand for bottled water increases, and the market price remains unchanged, the runner's consumer surplus

A) falls because the difference between what the runner is willing to pay and price decreases
B) falls because the marginal utility of bottled water falls when the demand curve shifts to the left
C) remains constant because price doesn't change
D) increases
E) is zero

Question 60

A graph that shows all the equally preferred combinations of two goods is called a(n)

A) demand curve
B) supply curve
C) consumer surplus curve
D) equalization curve
E) indifference curve

Question 61

A series of ascending indifference curves is called

A) a demand curve
B) a budget constraint
C) an indifference map
D) marginal-utility-to-price ratio curves
E) consumer surplus

Question 62

Indifference curves are convex because of the diminishing

A) law of demand
B) income
C) prices
D) choices to consumers
E) marginal rates of substitution

Question 63

The optimal consumer choice is where the indifference curve

A) crosses (intersects) the budget line
B) lies above the budget line
C) lies below the budget line
D) is tangent to the budget line
E) is parallel to the budget line

Question 64

If we allow interpersonal comparisons of utility, and the law of diminishing marginal utility holds, then what can we reasonably suppose about the marginal utility of Bill Gates' millionth dollar?

A) It is less than the marginal utility of your hundredth dollar.
B) It is more than the marginal utility of your hundredth dollar.
C) It is equal to the marginal utility of your hundredth dollar.
D) It is equal to zero.
E) It yields higher satisfaction than your hundredth dollar.

Question 65

Indifference curves located closer to the origin

A) are less preferred to those located farther away from the origin
B) are more preferred to those located farther away from the origin
C) cannot be tangent to a budget line
D) eventually become straight lines that coincide with the budget line
E) represent preferences that are not rational

Question 66

If Nick consumes only two goods, oranges and plums, and he increases his consumption of oranges, then

A) the price of oranges must have increased
B) Nick's income must have increased
C) plums and oranges must be complements
D) he must reduce his consumption of plums to remain on the same indifference curve
E) Nick's MU/P of oranges will now increase

Question 67

-Refer to Exhibit E-7. The marginal utility of the fifth apple is equal to

A) 20
B) 115
C) 95
D) 12.5
E) 130

Question 68

The source of the water and diamond paradox results from a confusion about

A) luxuries and necessities
B) who uses what goods
C) the extraordinary role played by consumer surplus in the case of diamonds
D) which good lies on the indifference curve
E) the role that total and marginal utilities play in determining value

Question 69

For a person in a desert community, as compared to being in a non-desert community,water would have

A) lower marginal utility and lower total utility
B) lower marginal utility and higher total utility
C) higher marginal utility and lower total utility
D) higher marginal utility and higher total utility
E) zero marginal utility, but higher total utility

Question 70

Diamonds have a high marginal utility because they

A) are considered to be so useful
B) have such high total utility
C) have high consumer surplus
D) are so scarce
E) are so expensive

Question 71

If a box of strawberries has a marginal utility to you of 30 and its price is $5, while a box of blueberries has a marginal utility to you of 10 and its price is $2, then if you were thinking of the next purchase

A) strawberries are a better buy than blueberries
B) blueberries are a better buy than strawberries
C) either blueberries or strawberries will do, you value them equally
D) neither will do because one has a higher marginal utility while the other has a lower price
E) you should buy both strawberries and blueberries

Question 72

Suppose that Dianne Lindsay spends all her income on two goods, A and B, in a manner in which their marginal utility to price ratios are equal, i.e., MU_a/P_a = MU_b/P_b. If at that time the price of A is higher than the price of B, then she

A) should increase her consumption of A and decrease her consumption of B because the marginal utility of A is higher
B) is already maximizing her total utility and should make no change
C) should increase the consumption of B and decrease the consumption of A because the price of B is lower
D) should increase the consumption of both A and B since the ratios are equal
E) has made an irrational choice

Question 73

Suppose that Dianne Lindsay spends all her income on two goods, A and B, in a manner in which the marginal utility to price ratios are not equal, MU_a/P_a is greater thanMU_b/P_b. If at that time the price of A is higher than the price of B, then she

A) is already maximizing her total utility and should make no change
B) should increase her purchases of B and decrease her purchases of A because the price of A is higher
C) should increase her purchases of B and decrease her purchases of A because the marginal utility of A is higher
D) should lower the price of good A relative to good B
E) should increase her purchases of A and decrease her purchases of B

Question 74

Suppose Dianne Lindsay spends all her income on two goods, A and B, in a manner in which MU_a = 15 and MU_b = 75, and P_a = $3 and P_b = $15, then she

A) is already maximizing her total utility and should make no change
B) should increase her purchases of B and decrease her purchases of A because MU_b is higher than MU_a
C) should raise MU_a so that the MU_a/P_a ratio is higher and therefore buy more of A and less of B
D) should raise MU_a so that the MU_a/P_a ratio is higher and therefore buy more of B and less of A
E) should increase her purchases of A and decrease her purchases of B because the price of A is lower

Question 75

Suppose Fred honestly tells the car dealer that the maximum amount he's willing to pay for a Ford Focus is $20,000. The dealer says, "You're in luck! We have one on the lot for$20,000." Which of the following statements is true?

A) The dealer's consumer surplus is $20,000.
B) Fred and the dealer share $20,000 of consumer surplus.
C) Fred's consumer surplus is $20,000.
D) Fred receives no consumer surplus.
E) The car is not worth $20,000.

Question 76

Suppose that Tracy Stuart spends all of her income on two goods, A and B, in a manner in which MU_a = 15 and MU_b = 80, and the P_a = $5 and the P_b = $20. Then she

A) is already maximizing her total utility and should make no change
B) should increase her purchases of B and decrease her purchases of A
C) should raise MU_a so that the MU_a/P_a ratio is higher, giving her reason to buy more of A and less of B
D) should raise MU_a so that the MU_a/P_a ratio is higher, giving her reason to buy more of B and less of A
E) should increase her purchases of A and decrease her purchases of B

Question 77

Kurt Gerdenich receives a consumer surplus while buying eggplants at the farmer's market if

A) the value he places on the eggplants is less than their price
B) he gets a higher total utility from buying eggplants than from buying any other good
C) the price of eggplants is less than the price of other goods that he values the same as eggplants
D) only a few eggplants are available for sale
E) the value he places on eggplants is greater than their price

Question 78

The textbook reveals the secret of French cuisine. It is that

A) French food is highly nutritious and its taste creates high total utility
B) they provide only small portions of many courses so that the marginal utility of each course is high
C) they provide large portions of few courses so that the total utility of the meal is high
D) they provide large portions of many courses so that both the marginal and total utility of each course offered in the meal is high
E) time matters; the French meal lasts for hours, increasing the total utility of the meal

Question 79

Judy Carl has been eyeing for weeks a Prada handbag (made in Milan, Italy) in the store window at Neiman-Marcus. She is willing to pay $250 for it (a birthday gift for herself,she rationalizes) if the price ever came down to that. Well, she is in luck! It goes on salefor $200, down from $325. She rushes in to make the purchase. She not only gets the handbag, but also a consumer surplus of

A) $125
B) $50
C) $200
D) $75
E) $375

Question 80

There are few laws in economics. One is this: "As consumption of a good increases, the extra satisfaction received from consuming an additional unit of the good decreases."This is known as the law of

A) demand
B) diminishing total utility
C) diminishing marginal utility
D) diminishing marginal returns
E) total utility