Deck 7: Consumer Choice and Elasticity

Question 1

If a consumer always buys goods rationally,then

A)the total utilities of the different goods consumed will be equal.
B)the average utilities of the different goods consumed will be equal.
C)the marginal utility per dollar spent on all goods will be equal.
D)the marginal utility of the different goods consumed will be equal.

Answer 1

the marginal utility per dollar spent on all goods will be equal.

Question 2

If a consumer receives 20 units of utility from consuming two candy bars,and 25 units of utility from consuming three candy bars,the marginal utility of the third candy bar is

A)25 utility units.
B)20 utility units.
C)5 utility units.
D)unknown as more information is needed to determine the answer.

Answer 2

5 utility units.

Question 3

Consumers maximize total utility within their budget constraint by

A)buying the cheapest goods they can find.
B)buying whatever they like the best.
C)buying the goods with the largest marginal utility per dollar spent.
D)spending the same dollar amount for each good.

Answer 3

buying the goods with the largest marginal utility per dollar spent.

Question 4

An item has utility for a consumer if it

A)is scarce.
B)has a high price.
C)is something everyone else wants.
D)generates enjoyment or satisfaction.

Question 5

The law of diminishing marginal utility states that

A)eventually total utility falls as more of a good is consumed,other things constant.
B)the extra satisfaction from consuming a good decreases as more of a good is consumed,other things constant.
C)the extra satisfaction from consuming a good increases slowly as more of a good is consumed,other things constant.
D)when the extra satisfaction from consuming a good becomes negative,total utility starts falling,other things constant.

Question 6

Marginal utility can be

A)negative.
B)zero.
C)positive.
D)positive,negative or zero.

Question 7

Economists assume that the goal of consumers is to

A)do as little work as possible to survive.
B)make themselves as well off as possible.
C)expend all their income.
D)consume as much as possible.

Question 8

If,when you consume another piece of candy,your marginal utility is zero,then

A)you want more candy.
B)you have maximized your total utility from consuming candy.
C)you have not yet reached the point of diminishing marginal utility.
D)you should consume less candy.

Question 9

Marginal utility is the

A)total satisfaction received from consuming a given number of units of a product.
B)average satisfaction received from consuming a product.
C)extra satisfaction received from consuming one more unit of a product.
D)satisfaction achieved when a consumer has had enough of a product.

Question 10

Suppose your marginal utility from consuming the 3rd slice of cake is zero,then your total utility from consuming cake is

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

Question 11

If total utility increases at a decreasing rate as a consumer consumes more coffee,then marginal utility must

A)remains constant.
B)increase also.
C)decrease.
D)be negative.

Question 12

As a consumer consumes more and more of a product in a particular time period,eventually marginal utility

A)rises.
B)is constant.
C)declines.
D)fluctuates.

Question 13

Total utility

A)cannot decrease as a person consumes more and more of a good.
B)has a constant rate of increase as a person consumes more and more of a good.
C)is equal to the sum of the marginal utilities of all units consumed.
D)is negative when marginal utility is declining.

Question 14

If a consumer receives 22 units of marginal utility for consuming the first can of soda,20 units from consuming the second,and 15 from the third,the total utility of consuming the three units is

A)57 utility units.
B)35 utility units.
C)15 utility units.
D)unknown as more information is needed to determine the answer.

Question 15

If a consumer receives 20 units of utility from consuming two candy bars,and 25 units of utility from consuming three candy bars,the marginal utility of the second candy bar is

A)25 utility units.
B)20 utility units.
C)5 utility units.
D)unknown as more information is needed to determine the answer.

Question 16

If,as a person consumes more and more of a good,each additional unit adds less satisfaction than the previous unit consumed,we are seeing the workings of

A)the law of demand.
B)the law of supply.
C)the law of increasing marginal opportunity cost.
D)the law of diminishing marginal utility.

Question 17

If your total satisfaction increases when you consume another unit,your marginal utility must be

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

Question 18

Which of the following is likely to occur as the result of the law of diminishing marginal utility?

A)Petra's utility from her second apple was less than her satisfaction from her first orange.
B)Hudson enjoyed his second slice of pizza more than his first.
C)Sabine's utility from her first granola bar is greater than Rachel's utility from her second granola bar.
D)Wesley enjoyed his second bottle of iced tea less than his first bottle,other things constant.

Question 19

Consumers have to make tradeoffs in deciding what to consume because

A)not all goods give them the same amount of satisfaction.
B)the prices of goods vary.
C)they are limited by a budget constraint.
D)there are not enough of all goods produced.

Question 20

Utility is

A)easily measured in units called utils.
B)subjective and difficult to measure.
C)the consumption of a quasi-public good like electricity or natural gas.
D)the production of a quasi-public good like electricity or natural gas.

Question 21

Suppose Joe is maximizing total utility within his budget constraint.If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20,then,using the rule of equal marginal utility per dollar spent,the extra satisfaction received from the last shirt must be

A)2,000 units of utility.
B)500 units of utility.
C)100 units of utility.
D)80 units of utility.

Question 22

A consumer maximizes her total utility from a bundle of goods when her marginal utility from each good is equal.

Question 23

If Callum is consuming his utility maximizing bundle and the price of one good rises,what happens to the marginal utility per dollar spent on this good (MU/P),and what should Callum do?

A)MU/P has increased and Callum should buy more of this good.
B)MU/P has increased and Callum should buy less of this good.
C)MU/P has decreased and Callum should buy more of this good.
D)MU/P has decreased and Callum should buy less of this good.

Question 24

Avner is maximizing total utility by buying sports magazines and protein supplements.For him to buy more sports magazines,

A)the price of protein supplements.has to fall.
B)the price of sports magazines has to fall.
C)the price of sports magazines has to rise.
D)Since Avner is maximizing his utility,nothing can change the consumption of sports magazines.

Question 25

Table 7-2
Table 7-2 above shows Keira's utility from soup and sandwiches.The price of soup is $2 per cup and the price of a sandwich is $3.Keira has $18 to spend on these two goods.
Refer to Table 7-2.If Keira maximizes her utility,how many units of each good should she buy?

A)1 cup of soup and 5 sandwiches
B)3 cups of soup and 4 sandwiches
C)6 cups of soup and 2 sandwiches
D)4 cups of soup and 3.5 sandwiches

Question 26

If Ewan is consuming his utility maximizing bundle and the price of one good falls,what happens to the marginal utility per dollar spent on this good (MU/P),and what should Ewan do?

A)MU/P has increased and Ewan should buy more of this good.
B)MU/P has increased and Ewan should buy less of this good.
C)MU/P has decreased and Ewan should buy more of this good.
D)MU/P has decreased and Ewan should buy less of this good.

Question 27

The economic model of consumer behavior explains how consumers' tastes and preferences are formed.

Question 28

Most people would prefer to drive a luxury car that has all the options,but more people buy less expensive cars even though they could afford the luxury car because

A)car buyers are irrational.
B)the total utility of less expensive cars is greater than that of luxury cars.
C)the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars.
D)luxury cars cost a lot more than non-luxury cars.

Question 29

Adhira buys chocolates and almonds.She has 3 bars of chocolates and 4 bags of almonds.The marginal utility of the third chocolate bar is 18 units of utility and the marginal utility from the fourth bag of almonds is also 18.Is Adhira maximizing her utility?

A)Yes,the marginal utility from the last unit of each good is equal.
B)No,she must buy 1 more chocolate bar to equate her quantities of the two goods.
C)No,she must buy cut back to 3 bags of almonds to equate her quantities of the two goods.
D)No,without information on her income and the prices of the two goods,we cannot answer the question.

Question 30

If you received negative marginal utility from consuming the 4th slice of pizza,then your total utility from 4 slices of pizza must be less than your total utility from 3 slices of pizza.

Question 31

Table 7-1
Keegan has $30 to spend on Pita Wraps and Bubble Tea.The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3.Table 7-1 shows his total utility from different quantities of the two items.
Refer to Table 7-1.If Keegan can drink all the bubble tea he wants for free,how many glasses will he consume?

A)4 glasses
B)5 glasses
C)6 glasses
D)7 glasses

Question 32

If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit,and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased,she

A)is maximizing total utility and does not want to change their consumption of ankle socks or bandanas.
B)wants to consume more ankle socks and fewer bandanas.
C)wants to consume more of bandanas and fewer ankle socks.
D)wants to consume less of both ankle sock and bandanas.

Question 33

When diminishing marginal utility sets in,total utility must be negative.

Question 34

Table 7-2
Table 7-2 above shows Keira's utility from soup and sandwiches.The price of soup is $2 per cup and the price of a sandwich is $3.Keira has $18 to spend on these two goods.
Refer to Table 7-2.Holding prices constant,when Keira's income changed from $18 to $23,what happens to her total utility and to the marginal utilities of the last cup of soup and the last sandwich purchased?

A)Her total utility increases but the marginal utilities of the last cup of soup and the last sandwich consumed decrease.
B)Her total utility,the marginal utility of the last cup of soup consumed and the marginal utility of the last sandwich consumed,all increase.
C)Her total utility decreases but the marginal utilities of the last cup of soup and the last sandwich consumed increase.
D)Her total utility and the marginal utility of the last cup of soup consumed increase but marginal utility of the last sandwich consumed decreases.
E)Her total utility and the marginal utility of the last sandwich consumed increase but marginal utility of the last cup of soup consumed decreases.

Question 35

Table 7-2
Table 7-2 above shows Keira's utility from soup and sandwiches.The price of soup is $2 per cup and the price of a sandwich is $3.Keira has $18 to spend on these two goods.
Refer to Table 7-2.Holding prices constant,when Keira's income changed from $18 to $23,her utility maximizing bundle changed.Based on your answers to her optimal choices at the two income levels,what type of goods are soup and sandwiches?

A)Soup is an inferior good and sandwiches are a normal good.
B)Soup is a normal good and sandwiches are an inferior good.
C)Both soup and sandwiches are normal goods.
D)Both soup and sandwiches are inferior goods.

Question 36

Table 7-1
Keegan has $30 to spend on Pita Wraps and Bubble Tea.The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3.Table 7-1 shows his total utility from different quantities of the two items.
Refer to Table 7-1.What is Keegan's optimal consumption bundle?

A)3 pita wraps and 3 bubble teas
B)3 pita wraps and 4 bubble teas
C)4 pita wraps and 2 bubble teas
D)5 pita wraps and 0 bubble teas

Question 37

If Marlowe obtains 9 units of utility per dollar spent on apples and 6 units of utility per dollar spent on oranges,then Marlowe

A)is maximizing total utility.
B)should buy more apples and fewer oranges.
C)should buy more oranges and fewer apples.
D)should buy fewer oranges and fewer apples.

Question 38

Carolyn spends her income on popular magazines and music CDs.If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility,she buys

A)both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased.
B)both goods until the marginal utility of the last magazine purchased is four times the marginal utility of the last CD purchased.
C)four times as much magazines as CDs.
D)four times as much CDs as magazines.

Question 39

Table 7-2
Table 7-2 above shows Keira's utility from soup and sandwiches.The price of soup is $2 per cup and the price of a sandwich is $3.Keira has $18 to spend on these two goods.
Refer to Table 7-2.What is Keira's marginal utility per dollar spent on the third cup of soup?

A)72 units of utility
B)36 units of utility
C)12 units of utility
D)6 units of utility

Question 40

Table 7-2
Table 7-2 above shows Keira's utility from soup and sandwiches.The price of soup is $2 per cup and the price of a sandwich is $3.Keira has $18 to spend on these two goods.
Refer to Table 7-2.Suppose Keira's income increases from $18 to $23 but prices have not changed.What is her utility maximizing bundle now?

A)6 cups of soup and 5 sandwiches
B)4 cups of soup and 5 sandwiches
C)5 cups of soup and 4 sandwiches
D)5 cups of soup and 5 sandwiches

Question 41

Eliza consumes 12 cappuccinos and 8 apple turnovers per week.The price of cappuccino is $4 each and apple turnovers are $1 each.
a.What is the amount of income allocated to cappuccino and apple turnover consumption?
b.What is the price ratio (the price of cappuccino relative to the price of apple turnovers)?
c.Explain the meaning of the price ratio you computed.
d.If Eliza maximize utility,what is the ratio of the marginal utility of cappuccino to the marginal utility of apple turnovers?
e.If the price of apple turnovers falls,will Eliza consume more apple turnovers,fewer apple turnovers or the same amount of apple turnovers? Explain your answer using the rule of equal marginal utility per dollar.

Question 42

Giffen goods

A)are theoretical and have never been discovered in the real world.
B)have not existed since prior to the Industrial Revolution.
C)were proven to exist in the 1890s by Sir Robert Giffen.
D)were not shown to actually exist until 2006.

Question 43

Figure 7-1
Refer to Figure 7-1.Which of the following statements is true?

A)Quantities Q₀ and Q₁ are the utility-maximizing quantities of hoagies at two different prices of hoagies.
B)Quantities Q₀ and Q₁ may not necessarily be the utility-maximizing quantities of hoagies at two different prices because we have no information on the consumer's budget or the price of other goods.
C)Quantity Q₀ could be a utility-maximizing choice if the price is $5.75,but quantity Q₁ may not be because we have no information on the marginal utility per dollar when price changes.
D)Quantities Q₀ and Q₁ are derived independently of the utility-maximizing model.

Question 44

Arnie Ziffel has $20 per week to spend on any combination of pineapples and green tea.The price of a pineapple is $4 and the price of a bottle of green tea is $2.The table below shows Arnie's utility values.Use the table to answer the questions that follow the table.
a.Complete the table by filling in the blank spaces.
b.Suppose Arnold purchases 4 pineapples and 2 bottles of green tea.Is he consuming the optimal consumption bundle? If so,explain why.If not,what combination should he buy and why?

Question 45

Each price-quantity combination on a consumer's demand curve shows the utility-maximizing quantity at the given price.

Question 46

The demand curve for a Giffen good is

A)non-linear but downward-sloping.
B)vertical.
C)upward-sloping.
D)non-existent.

Question 47

What is the common feature displayed by the following items? a.eating in a newly opened "fusion" cuisine restaurant
B.attending a Red Sox game in Fenway Park
C.wearing Lucky Brand designer jeans

A)They are all highly inelastic goods.
B)The consumption of these goods takes place privately.
C)The consumption of these goods takes place publicly.
D)They tend to be consumed by better educated people.

Question 48

Figure 7-1
Refer to Figure 7-1.When the price of hoagies increases from $5.00 to $5.75,quantity demanded decreases from Q₁ to Q₀.This change in quantity demanded is due to

A)the price and output effects.
B)the income and substitution effects.
C)the fact that marginal willingness to pay falls.
D)the law of diminishing marginal utility.

Question 49

Along a downward-sloping linear demand curve,

A)the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities increase.
B)the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities remain constant.
C)the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases.
D)the marginal utility from the consumption of each unit of the good rises and the total utility from consuming larger quantities remain constant.

Question 50

After getting an A on your economics exam,you decide to go to your favorite Mexican restaurant to celebrate.You are having trouble deciding whether to order the chipotle chicken chimichanga or the cilantro seafood enchiladas.Use the rule of equal marginal utility per dollar to determine which one to purchase: (a)the chimichanga for $8 which gives you 120 units of utility,or (b)the enchiladas for $15 which gives you 195 units of utility?

Question 51

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good,with an income effect larger than its substitution effect,a good must be ________ and make up a ________ portion of a consumer's budget.

A)a normal good;very small
B)an inferior good;very small
C)a normal good;very large
D)an inferior good;very large

Question 52

The demand curve for an inferior good can never be downward-sloping.

Question 53

The income effect of a price increase for a Giffen good outweighs the substitution effect.

Question 54

What is a Giffen good?

Question 55

What is marginal utility and what is the law of diminishing marginal utility?

Question 56

The demand curve for a luxury good is upward-sloping.

Question 57

In order to derive an individual's demand curve for salmon,we would observe what happens to the utility-maximizing bundle when we change

A)income and hold everything else constant.
B)tastes and preferences and hold everything else constant.
C)the price of the product and hold everything else constant.
D)the price of a close substitute and hold everything else constant.

Question 58

What must be true in terms of the income effect,the substitution effect,and the type of good for the good's demand curve to be upward sloping?

Question 59

Consider the following factors: a.culture
B.religion
C.customs
D.prices
E.income
Which of the factors above are likely to influence the choices consumers make?

A)a,d,and e only
B)all the factors except b
C)all the factors except c
D)d and e only
E)all the factors listed

Question 60

A Giffen good could be either a normal good or an inferior good.

Question 61

Firms pay famous individuals to endorse their products because

A)apparently demand is affected not just by the number of people who use a product but also by the type of person that uses the product.
B)the firms are irrational and are wasting advertising expenditures.
C)famous people obviously know what are the best goods and services.
D)famous people only consume high quality products.

Question 62

Jamal,Lawson and Kyle have been standing in line for almost an hour waiting to be served at Kirala,a popular new Japanese restaurant.It is possible that some of the people in line won't be served at all before the restaurant closes.Which of the following could explain why the restaurant does not simply raise prices high enough to eliminate the lines? a.In situations where consumption takes place publicly,demand for the product is also influenced by how many other people are buying the product.Consequently,a popular restaurant that increased its prices enough to eliminate lines might find that it had also eliminated its popularity.
B.Firms may sometimes not raise their prices for fear that it violates people's sense of fairness and might alienate customers.
C.The demand for restaurant meals is relatively elastic and if the firm raise prices it will lower its profits.

A)a only
B)a and b only
C)a and c only
D)a,b,and c

Question 63

Many economists do not believe that network externalities lock consumers into the use of products that have technology inferior to other,similar products.These economists believe that

A)consumers are always rational.
B)in practice,the gains from using a superior technology exceed the losses consumers incur from switching costs.
C)there is no good evidence that switching costs exist.
D)the government will prevent products with inferior technology from being sold to consumers.

Question 64

By hiring Justin Bieber to advertise its electronics Buy Back program,Best Buy is hoping to change its image and reach a new,younger target market.By using celebrities such as Bieber to endorse products,companies are hoping that its customers will respond positively and business will increase.All of the following are reasons why celebrity endorsements may increase sales for advertised products except

A)consumers may believe that celebrities have more information than they do about the advertised product.
B)consumers may feel closer to celebrities if they purchase the products being endorsed.
C)consumers can be sure that a company would not pay a large sum for a celebrity to endorse its product unless the product is the best available in the market.
D)consumers may believe they will appear more fashionable if they purchase products endorsed by certain celebrities.

Question 65

Economists would refer to the increase in product sales because of celebrity endorsements as being the result of

A)network externalities.
B)the endowment effect.
C)social influence.
D)the ultimatum game.

Question 66

A good is path dependent when

A)consumers get utility from consuming goods that others are consuming,such as restaurants.
B)the first technology that was adopted has an advantage over a better technology that came later.
C)people who move location follow the path of people who moved before them.
D)it can only be used in one way.

Question 67

Research by Daniel Kahneman,Jack Knetch,and Richard Thaler has shown that companies like airlines were explicitly able to include a fuel surcharge in their prices because

A)consumers had no choice but to pay the price of the surcharges due to the lack of competition in the industry.
B)a government-imposed price ceiling on airline ticket prices left the airlines not other way to cover the increase in costs.
C)adding a separate fuel surcharge to the price of airline tickets did not actually increase the price of the tickets.
D)consumers see it as fair for firms to raise prices after an increase in costs.

Question 68

Which of the following is an experiment which tests whether fairness is important in consumer decision making?

A)the fair trade principle
B)the ultimatum game
C)the preferential treatment game
D)the behavioral experiment

Question 69

Once a product becomes established,network externalities may create ________ costs that make consumers reluctant to buy a new product with better technology.

A)external
B)implicit
C)switching
D)marginal

Question 70

Many airlines have not reduced or eliminated fuel surcharges despite the price of oil dropping.A logical reason for this is that the decline in fuel prices

A)shifted the supply curve for airline tickets to the left,and at the same time an increase in demand for airline tickets shifted the demand curve to the right,so prices did not decline.
B)shifted the supply curve for airline tickets to the right,and at the same time a decrease in demand for airline tickets shifted the demand curve to the left,so prices still increased.
C)shifted the supply curve for airline tickets to the right,and at the same time an increase in demand for airline tickets shifted the demand curve to the right,so prices still increased.
D)shifted the supply curve for airline tickets to the left,and at the same time a decrease in demand for airline tickets shifted the demand curve to the left,so prices did not decline.

Question 71

Which of the following does not explain why consumers buy products that many other consumers are already buying?

A)technology
B)the satisfaction people derive by being viewed as "fashionable"
C)cost-effective way to gather information about a product
D)differences in tastes and preferences

Question 72

Identify the one statement that does not demonstrate how social effects influence consumer choice.

A)Students in an Economics class are required to purchase a textbook assigned by the professor.
B)There is utility gained from consuming goods or services that others are consuming.
C)Some products that people consume are determined by the social popularity of the products.
D)Companies such as Zappos.com and Netflix invite their consumers to write reviews about their experience with their products which are then posted on the internet for others to see.

Question 73

A significant downside to network externalities is that

A)there may be large switching costs to consumers of changing products so that consumers end up using products with inferior technologies.
B)firms may network with unethical suppliers or distributors.
C)the costs of hiring celebrity endorsements may be very high.
D)there may be large switching costs to firms changing technologies.

Question 74

A network externality occurs when

A)there is production cost savings from being networked with suppliers.
B)there is production cost savings from being networked with buyers.
C)the usefulness of a good is affected by how many others use the good.
D)the usefulness of a good is affected by celebrities who use the good.

Question 75

Consider a good whose consumption takes place publicly.Your decision to buy that good depends

A)both on the characteristics of the product and on how many other people are buying the good.
B)only on the characteristics of the good.
C)only on how many other people buy the good.
D)only on the price of the good.

Question 76

All of the following products are most likely to have significant network externalities except

A)cat food.
B)cell phones.
C)popular board games.
D)fax machines.

Question 77

Which of the following is used to explain why a consumer's willingness to buy Microsoft Office increases as the number of other people who use Microsoft Office increases?

A)network externalities
B)market failure
C)diminishing marginal utility
D)the income effect of a price change

Question 78

For which of the following products is social influence likely to have the greatest impact?

A)toothpaste
B)restaurants
C)high-blood pressure medication
D)school textbook

Question 79

One explanation for the increase in product sales because of celebrity endorsements is that people seem to receive ________ from goods they believe are popular.

A)more utility
B)diminishing utility
C)greater network externalities
D)increased path dependency

Question 80

A standard which came to the market first,such as the QWERTY letter layout in typewriters,can become entrenched (this layout is still used in computer keyboards today).What is this phenomenon called?

A)network externalities
B)path dependency
C)sunk cost
D)comparative advantage