Deck 5: The Demand Curve and the Behavior of Consumers

Question 1

Exhibit 5-2
Refer to Exhibit 5-2. The marginal utility of the third unit is

A) smaller than the marginal utility of the second unit.
B) smaller than the marginal utility of the fourth unit.
C) smaller than the marginal utility of the fifth unit.
D) smaller than the marginal utility of the sixth unit.
E) impossible to calculate given the available information.

Answer 1

smaller than the marginal utility of the second unit.

Question 2

Marginal utility is the

A) utility that an individual gains from consuming an additional unit of a good.
B) minimum utility that a person must receive from a good in order to consume it.
C) cost that an individual bears in consuming another unit of a good.
D) total opportunity cost of consuming a good.
E) amount of utility that an individual gains from consuming a good.

Answer 2

utility that an individual gains from consuming an additional unit of a good.

Question 3

Exhibit 5-1
Refer to Exhibit 5-1. At 4 cans of soda, total utility is

A) 27 units.
B) 9 units.
C) 189 units.
D) 135 units.
E) 162 units.

Answer 3

162 units.

Question 4

Economists assume that people

A) act to maximize marginal utility.
B) experience diminishing marginal utility of income.
C) act to increase utility.
D) cannot compare the value of goods.
E) prefer less to more.

Question 5

Utility is

A) the total amount of a good or service a consumer consumes.
B) social welfare.
C) the usefulness of a good.
D) an indicator of individual preferences.
E) how well something works for its intended purpose.

Question 6

Exhibit 5-3
Exhibit 5-3 shows Alison's total utility from consuming yogurt. Which of the following is true?

A) The marginal utility of the second cup of yogurt is 1 unit of utility.
B) The marginal utility of the third cup of yogurt is 20 units of utility.
C) The marginal utility of the fourth cup of yogurt is 1 unit of utility.
D) The marginal utility of the fourth cup of yogurt is 21 units of utility.
E) The marginal utility of the first cup of yogurt is 0.

Question 7

Exhibit 5-2

-Refer to Exhibit 5-2. Which of the following statements is true?

A) The equation to obtain the marginal utility of the third unit is 89 - 35.
B) The marginal utility for the first unit cannot be calculated.
C) The marginal utility of the fourth unit is 28 units of utility.
D) The marginal utility of the sixth unit is 20 units of utility.
E) Total utility is increasing faster with each additional unit.

Question 8

The additional satisfaction gained from consuming one more unit of a product or service is

A) marginal utility.
B) total utility.
C) the same for every person.
D) average utility.
E) not measurable.

Question 9

When marginal utility is positive but decreasing, an increase in quantity decreases total utility.

Question 10

Economists refer to utility as the

A) satisfaction that a producer receives from selling a good.
B) satisfaction that a consumer receives from consuming a good.
C) revenue that a seller receives from selling a good.
D) price that a consumer pays for a good.
E) difference between the value and the price of a good.

Question 11

To obtain utility, a consumer must

A) do unto others as he or she would have them do unto him or her.
B) save.
C) consume.
D) work.
E) be happy.

Question 12

For most goods, the marginal utility of additional units consumed of almost any good

A) is always positive.
B) is always negative.
C) decreases.
D) increases.
E) remains the same.

Question 13

Marginal utility is

A) always greater than total utility.
B) utility that is not as good as normal utility.
C) not related to total utility.
D) always positive.
E) the extra utility derived from consuming one additional unit of a good or service.

Question 14

Marginal utility can be positive, zero, or negative.

Question 15

Exhibit 5-1
Refer to Exhibit 5-1. As the individual consumes each additional can of soda, total utility

A) increases by 9 units of utility.
B) increases at a decreasing rate.
C) stays constant.
D) increases at an increasing rate.
E) decreases by 9 units of utility.

Question 16

Total utility is the

A) change in utility a person receives from consuming a good.
B) change in utility a person receives from consuming a good divided by the price of that good.
C) total amount of satisfaction a person receives from consuming a good.
D) price a person pays for consuming a good.
E) total amount of satisfaction a person receives from consuming a good divided by the price of that good.

Question 17

As more of a good is consumed by an individual,

A) marginal utility increases.
B) total utility initially increases.
C) price falls.
D) price increases.
E) total utility stays constant.

Question 18

In utility analysis, it is assumed that marginal utility decreases as consumption of a product decreases.

Question 19

Generally speaking, when the utility from good A is greater than the utility from good B,

A) good B is preferred compared to good A.
B) good B will be consumed.
C) good A is preferred compared to good B.
D) good B is more useful than good A.
E) good A is more useful than good B.

Question 20

Exhibit 5-2
Refer to Exhibit 5-2. Total utility

A) and marginal utility are decreasing.
B) cannot be calculated.
C) is decreasing, but marginal utility is increasing.
D) is increasing, but marginal utility is decreasing.
E) and marginal utility are increasing.

Question 21

Marginal utility is used to compare behavior among different consumers.

Question 22

Economists generally agree that a comparison between the marginal utility of one person with that of another

A) should be made.
B) is inappropriate.
C) is appropriate only if one good is considered at a time.
D) is generally appropriate.
E) is appropriate only between two individuals and one good at a time.

Question 23

When there is an increase in the consumption of one good and a decrease in the consumption of another, utility

A) might increase, decrease, or stay constant.
B) always stays constant.
C) might increase or decrease, but usually stays constant.
D) always decreases.
E) always increases.

Question 24

As tastes and preferences differ from person to another, so too is marginal utility.

Question 25

Economists assume that marginal utility cannot be negative.

Question 26

If an individual's preferences can be illustrated using the concept of utility, why can't individuals' utilities be compared?

Question 27

Refer to the table below. Calculate the total utility of 4 cans of Coca-Cola.

Question 28

Which of the following is false about the assumptions that economists make about utility?

A) Utility can be used to rank alternative combinations of consumption.
B) Consumers can be worse off with too much of a good.
C) Utility levels cannot be used to compare consumer preferences of different people.
D) Marginal utility increases at a decreasing rate.
E) The units used to measure utility do not matter.

Question 29

In looking at the consumption of two or more goods,

A) changes in the amount of one good consumed might affect the amount of utility gained from one or more other goods.
B) the utility from one good is always independent of how much of any other good is consumed.
C) utility from some goods must be added, whereas utility from others must be subtracted.
D) utility from all of the goods must be multiplied to get total utility.
E) a change in the quantity of one good consumed always affects the amount of utility derived from all other goods.

Question 30

If the marginal utility of consuming one pound of apples is 200 units for John and 50 units for Jane, we can conclude

A) that John will eat four times more apples than Jane.
B) that John will eat the same amount of apples as Jane.
C) that John will eat four times fewer apples than Jane.
D) that John and Jane will not eat any apples.
E) nothing about how many apples John will eat compared to Jane.

Question 31

Utility is easily measured by economists using a unit of measure called a util.

Question 32

Exhibit 5-4
The numbers inside the box below give the utility from consuming the amount of apples and the number of cans of cola shown outside the box.
Refer to Exhibit 5-4. Which of the following is the combination that gives the first preference?

A) 1 apple and 1 can of cola
B) 4 apples and 4 cans of cola
C) 3 apples and 4 cans of cola
D) 4 apples and 3 cans of cola
E) 2 apples and 2 cans of cola

Question 33

Using the information in Exhibit 5-4, which of the following combinations is preferred to 3 apples and 2 cans of cola?

A) 4 apples and 1 can of cola
B) 3 apples and 2 cans of cola
C) 1 apple and 4 cans of cola
D) 2 apples and 3 cans of cola
E) 2 apples and 2 cans of cola

Question 34

Total utility always increases when a person increases the consumption of one good while reducing the consumption of another.

Question 35

Explain how it is possible for marginal utility to decrease as total utility increases.

Question 36

Suppose that Joe and Jane have been eating hotdogs until only one is left. Jane claims that she should get the last hotdog because she is hungrier. Jane has made a(n)

A) price elasticity statement.
B) positive comparison.
C) interpersonal utility comparison.
D) irrational statement.
E) average comparison.

Question 37

The marginal utility of consuming a good increases at a decreasing rate.

Question 38

The total amount of money that you can spend on goods and services within a month is your monthly

A) utility.
B) income.
C) budget constraint.
D) wealth.
E) quota.

Question 39

When utility derived from many goods is multiplied or divided by any number, the new utility measure indicates

A) a different set of preferences for the highest and the lowest quantities of goods consumed, but the same preferences for the middle quantities.
B) the same preferences as before.
C) a different set of preferences only for the highest quantities of goods consumed.
D) a different set of preferences only for the lowest quantities of goods consumed.
E) an entirely different set of preferences.

Question 40

Which of the following statements regarding the consumption of more than one good is true?

A) Utility initially increases when consumption of one or more goods increases.
B) Utility increases when less of only one good is consumed.
C) Utility decreases when more of only one good is consumed.
D) Utility does not necessarily increase if more of all goods are consumed.
E) If less of all goods is consumed, utility might increase, decrease, or stay the same.

Question 41

Suppose a consumer can spend $1,000 on food and clothing. The price of food is $5 per unit and the price of clothing is $20 per unit. Also suppose the consumer was consuming 100 units of food and 25 units of clothing, and then the price of food rose to $10. Which of the following statements is true?

A) The maximum amount of food the consumer can buy is 100 units.
B) The maximum amount of clothing the consumer can buy is 25 units.
C) The maximum amount of food the consumer can buy is 50 units.
D) If the consumer does not reduce food consumption, clothing consumption can be 12.5 units, at best.
E) The consumer can consume 50 units of clothing.

Question 42

Which of the following statements is true about the substitution and income effects of an increase in the price of a good?

A) The net effect of the substitution and income effects results in a decrease in the quantity demanded of the good.
B) Both the substitution and income effects predict that the quantity demanded of the good increases.
C) The substitution effect predicts that the quantity demanded of the good increases, but the income effect predicts that the quantity demanded of the good decreases.
D) The substitution effect predicts that the quantity demanded of the good decreases, but the income effect predicts that the quantity demanded of the good increases.
E) Neither the substitution effect nor the income effect provides any prediction about changes in the quantity demanded of the good.

Question 43

Which of the following represents the substitution effect of an increase in the price of apples?

A) A decrease in the consumer's real income
B) A decrease in the quantity of apples purchased
C) A decrease in the quantities of all goods purchased by the consumer
D) A shift of consumption from other goods to apples
E) A decrease in the opportunity cost of consuming apples

Question 44

The budget constraint is the set of all prices of the goods an individual regularly consumes.

Question 45

The slope of the budget constraint is affected by the

A) consumer's income level.
B) relative price of goods being consumed.
C) consumer's preferences.
D) preferences of other consumers.
E) amount of goods in the market.

Question 46

Suppose Monica has $20 to spend on pizza and soda. The price of a slice of pizza is $1.00 and the price of a can of soda is $.75. Which of the following is the most affordable bundle for maximizing her utility?

A) 20 slices of pizza and 10 cans of soda
B) 10 slices of pizza and 20 cans of soda
C) 4 slices of pizza and 17 cans of soda
D) 7 slices of pizza and 17 cans of soda
E) 20 slices of pizza and 25 cans of soda

Question 47

The income effect of an increase in the price of computers may include all of the following except a decrease in

A) the number of computers the consumer will purchase.
B) other goods that the consumer will purchase.
C) the consumer's actual, or nominal, budget.
D) the consumer's real income.
E) most goods that the consumer will purchase.

Question 48

The budget constraint

A) is the lower limit on a consumer's spending.
B) is the maximum utility an individual can achieve.
C) has to do with a consumer's willingness to spend.
D) expresses a consumer's preferences.
E) is the maximum a consumer can spend on goods and services.

Question 49

Suppose that Joe has $50 to spend on food and clothing. If Joe now has $100, then it is most likely that he will

A) increase both food and clothing consumption.
B) increase food consumption but decrease clothing consumption.
C) decrease food consumption but increase clothing consumption.
D) decrease both food and clothing consumption.
E) not change food or clothing consumption.

Question 50

The budget constraint

A) is the combined price of all goods and services an individual can consume.
B) is the total amount of money an individual can spend on goods and services per period of time.
C) is the maximum amount of money an individual can gain without earning it.
D) applies only to society as a whole, not to individuals.
E) is the total amount of utility an individual can receive from goods and services per period of time.

Question 51

An increase in income

A) causes a change in consumer preferences.
B) causes total utility to increase.
C) does not shift a consumer's demand.
D) is assumed to have no effect on consumer expenditures.
E) has no effect on a consumer's budget constraint.

Question 52

The term utility maximization means that

A) individuals consume to gain as much utility as possible, given the limits of the budget constraint.
B) total utility does not change with a change in income.
C) once utility is at its maximum, leftover income can be saved.
D) individuals consume the maximum amount of a good that the budget constraint makes possible.
E) individuals maximize their usefulness to society.

Question 53

The budget constraint cannot be affected by an individual's preferences.

Question 54

Suppose music CDs and movie DVDs give the same utility to Jane, and she has $200 to spend on music CDs and movie DVDs. The price of a movie DVD is $15, and the price of a music CD is $10. Which of the following is the most affordable bundle for maximizing her utility?

A) 10 music CDs and 5 movie DVDs
B) 10 music CDs and 10 movie DVDs
C) 5 music CDs and 5 movie DVDs
D) 15 music CDs and 5 movie DVDs
E) 5 music CDs and 10 movie DVDs

Question 55

Economists generally assume that a consumer

A) consumes until marginal utility is equal to zero.
B) consumes until total utility is equal to zero.
C) maximizes her marginal utility given her budget constraint.
D) maximizes her total utility given her budget constraint.
E) minimizes her spending given her budget constraint.

Question 56

An increase in the price of a good

A) increases the quantity of the good demanded by a consumer.
B) decreases the total utility of the consumer.
C) changes the consumer's preferences.
D) increases the number of combinations of goods a consumer can purchase.
E) has no effect on the maximum combinations of goods the consumer can purchase.

Question 57

The maximum combinations of goods and services a consumer can buy because he or she has a limited amount of money to spend is called the

A) production possibilities.
B) marginal propensity to consume.
C) maximum total utility curve.
D) indifference curve.
E) budget constraint.

Question 58

Suppose the price of a pair of shoes is $20 and the price of a shirt is $10. Suppose further that a consumer can spend a maximum of $100 on shirts and shoes. Which of the following is the most affordable bundle for maximizing the consumer's utility?

A) 10 shirts and 5 pairs of shoes
B) 2 shirts and 4 pairs of shoes
C) 4 shirts and 2 pairs of shoes
D) Only 4 pairs of shoes
E) 5 shirts and 10 pairs of shoes

Question 59

An increase in the income of a family raises the slope of the family's budget constraint.

Question 60

A point on the budget constraint represents the fact that the consumer spends less than her or his income.

Question 61

Marginal benefit is dependent on

A) which country's currency is used to measure it.
B) preferences.
C) the law of demand.
D) total utility.
E) production costs.

Question 62

Why is an individual willing to buy more of a good when its price falls?

Question 63

An individual buys more of a good at lower prices than at higher prices because

A) at lower prices, total utility is greater than price.
B) at lower prices, marginal benefit is greater than price over a greater quantity of the good than at higher prices.
C) at lower prices, marginal utility is greater than price over a greater quantity of the good than at higher prices.
D) marginal benefit increases.
E) marginal benefit falls more slowly than price.

Question 64

The income effect of a change in the price of a good is illustrated by a shift of the demand curve.

Question 65

Exhibit 5-5
Refer to Exhibit 5-5. The maximum amount that a consumer is willing to pay for the tenth unit of the good is

A) $0.
B) $2.5.
C) $5.0.
D) $7.5.
E) impossible to determine given the available information.

Question 66

An increase in income causes a consumer's budget constraint to shift outward.

Question 67

Marginal benefit is the

A) change in total expenditures as a result of buying one more unit of a good.
B) maximum amount a consumer is willing to pay for one more unit of a good.
C) change in total utility that results from consuming one more unit of a good.
D) same as total benefit.
E) price of a good.

Question 68

The change in total benefit as measured by willingness to pay for one more unit of a good is called

A) marginal benefit.
B) marginal cost.
C) marginal utility.
D) total utility.
E) product price.

Question 69

What is the difference between the income effect and substitution effect of a change in the price of a good?

Question 70

If price and marginal benefit are equal for an individual, and preferences and income do not change, the individual can be induced to buy more of a good only by

A) decreasing marginal benefit.
B) decreasing price.
C) increasing marginal utility.
D) decreasing marginal utility.
E) increasing price.

Question 71

Does an increase in income always increase demand? Why or why not?

Question 72

To maximize utility, the amount that a consumer is willing to pay for one more unit of a good must equal the marginal benefit of that unit of good.

Question 73

The height of a demand curve represents the

A) value that a consumer is willing to pay for a good.
B) price that a producer wishes to charge for a good.
C) price that a consumer must pay the producer of a good.
D) minimum value that consumers consider about a good.
E) total volume of exchange in a market.

Question 74

Suppose an individual's income is $1,000, and all of it is spent on food and clothing. If the price of food is $10 and the price of clothing is $25, calculate the maximum amount of food that can be consumed. Do the same for clothing. Finally, calculate how much food and clothing can be consumed if half of the income is spent on each.

Question 75

Utility maximization implies that the total utility of the consumer can be maximized only when the price of a good increases.

Question 76

Like marginal utility, marginal benefit

A) measures satisfaction for a consumer.
B) is used to analyze government behavior.
C) decreases with increased consumption of a good.
D) is a purely theoretical, immeasurable quantity.
E) is a dollar measure.

Question 77

A change in the price of a good causes a change in the combination of goods consumed within the budget constraint.

Question 78

A change in the price of a good changes a consumer's budget constraint and causes a shift of the demand curve.

Question 79

If a consumer is already consuming a good and is willing to pay a maximum of $100 for one more unit of it, then the total benefit from consuming the good is $100.

Question 80

Utility maximization implies that a change in income results in a movement along a demand curve.