Question 1

Diminishing marginal utility implies that as an individual consumes more of a good, beyond some point another unit will add:

Accepted Answer

A)   more units of utility than the preceding units.
B)   more pleasure than the preceding unit.
C)   the same pleasure as the preceding unit.
D)   less pleasure than the preceding unit. D

Question 2

Refer to the graph shown.  The diagram demonstrates that an increase in the price of soda will:

Accepted Answer

A)   raise the quantity demanded of soda.
B)   reduce the quantity demanded of soda.
C)   raise the quantity demanded of chocolate bars.
D)   raise the consumer's available income. B

Question 3

When people play the "ultimatum game," in which one person gets to decide how to split a sum of money by offering a share to another person and neither gets anything if the second person rejects the offer, the result is often that the first person offers:

Accepted Answer

A)   something close to 50-50, but the second person rejects this offer.
B)   something close to 50-50, and the second person accepts this offer.
C)   one cent, and the second person accepts this offer.
D)   the full amount, and the second person accepts this offer. B

Question 4

Refer to the graph shown. Total utility is at its maximum at point:

Accepted Answer

A)   A.
B)   B.
C)   C.
D)   D.

Question 5

Using indifference curve analysis, you can identify the point at which a consumer maximizes utility where the slope of the:

Accepted Answer

A)   indifference curve is -1.
B)   budget line is -1.
C)   indifference curve is equal to the slope of the budget constraint.
D)   indifference curve is greater than the slope of the budget constraint.

Question 6

The following table describes utility for consuming cans of soda. At what point does the law of diminishing marginal utility set in? $\begin{array}{|c|c|}
\hline \text { Cans of Soda } & \text { Total utility } \
\hline 1 & 14 \
\hline 2 & 30 \
\hline 3 & 47 \
\hline 4 & 57 \
\hline 5 & 56 \
\hline 6 & 50 \
\hline 7 & 42 \
\hline
\end{array}$

Accepted Answer

A)   Between three and four cans
B)   Between four and five cans
C)   Marginal utility diminishes everywhere.
D)   Marginal utility never diminishes.

Question 7

As a consumer moves along a budget constraint:

Accepted Answer

A)   prices are held constant, but income changes.
B)   income is held constant, but prices change.
C)   prices and income are held constant, but quantities change.
D)   total utility is held constant, but prices and income change.

Question 8

Tom is maximizing utility by buying three packs of bubble gum and four packages of Skittles. Given diminishing marginal utility, if the price of Skittles rises, the principle of rational choice tells us that Tom will buy:

Accepted Answer

A)   more Skittles, raising the opportunity cost of not consuming Skittles.
B)   fewer Skittles, raising the opportunity cost of not consuming Skittles.
C)   more Skittles, lowering the opportunity cost of not consuming Skittles.
D)   fewer Skittles, lowering the opportunity cost of not consuming Skittles.

Question 9

Some kids wait until the school year begins to buy their back-to-school clothes so that they are sure to fit in. Such follow-the-leader behavior is an example of what the text calls:

Accepted Answer

A)   efficient rationality.
B)   focal point equilibrium.
C)   bounded rationality.
D)   rules of thumb.

Question 10

Using the indifference curve model, a demand for X curve is derived by allowing:

Accepted Answer

A)   the price of Y to change and holding the price of X and income constant.
B)   income to change and holding the price of X and the price of Y constant.
C)   the price of X to change and holding the price of Y and income constant.
D)   the price of X and the price of Y to change and holding income constant.

Question 11

Behavioral economists have found that people are more willing to save if saving is the default option, as in the case in which they have to opt out of an automatic payroll deduction savings plan. Economists call this:

Accepted Answer

A)   a rule of the game.
B)   the ultimatum game.
C)   the status quo bias.
D)   efficient rationality.

Question 12

Suppose one Big Mac gives you a marginal utility of 500 and a second Big Mac gives you a marginal utility of 200. The total utility of buying (and eating) two Big Macs is:

Accepted Answer

A)   200.
B)   300.
C)   500.
D)   700.

Question 13

When marginal utility is positive, total utility is:

Accepted Answer

A)   increasing.
B)   decreasing.
C)   zero.
D)   at its minimum.

Question 14

Refer to the graph shown.  Assuming a consumer has $5 to spend, if a soda costs $0.50 and a chocolate bar costs $0.50, the consumer will optimally choose to consume:

Accepted Answer

A)   at point A.
B)   at point B.
C)   10 cans of soda and 0 chocolate bars.
D)   0 cans of soda and 10 chocolate bars.

Question 15

If marginal utility is declining but still positive, total utility is increasing.

Accepted Answer

A) True 
 B)False

Question 16

Suppose that the total utility of consuming the first piece of chewing gum in a packet is 30. This means that marginal utility of consuming the first piece of gum is:

Accepted Answer

A)   zero.
B)   less than 30.
C)   30.
D)   more than 30.

Question 17

A Big Mac meal costs $3.00 and gives you an additional 5 units of utility; a meal at the Four Seasons Hotel costs $27.00 and gives you an additional 45 units of utility. Based only on the information you have, using the theory of rational choice, you most likely would:

Accepted Answer

A)   choose to eat the Big Mac meal.
B)   choose to eat at the Four Seasons Hotel.
C)   be indifferent between eating the Big Mac and eating at the Four Seasons Hotel.
D)   decide that eating at the Four Seasons Hotel is preferable because though the marginal utilities of both meals are the same, the total utility is greater in the case of the meal at the Four Seasons Hotel.

Question 18

The status quo bias implies that:

Accepted Answer

A)   people's actions often are influenced by what they perceive as the default choice.
B)   people are restricted in their choices.
C)   people are biased toward making a mistake.
D)   people do not like making changes.

Question 19

To calculate the marginal utility of consuming the Nth product:

Accepted Answer

A)   subtract additional satisfaction from consuming the (N - 1) th production from the additional satisfaction from consuming the Nth product.
B)   subtract total satisfaction from consuming N - 1 products from total satisfaction from consuming N products.
C)   divide total satisfaction from consuming all N products by the price of the product.
D)   divide total satisfaction from consuming all N products by N.

Question 20

Focal point equilibria are consistent with:

Accepted Answer

A)   rational choice theory.
B)   the "you get what you pay for" rule.
C)   the "follow the leader" rule.
D)   a nonmarket economy.

Exam 19: The Logic of Individual Choice: the Foundation of Supply and Demand