Exercise No.

1 Consumer Behavior

Name: LAGO, MARY GRETCHEN L. Course & Section: BS ACCTY 1-2

Directions: Each of the questions or incomplete statements below is followed by five

suggested answers or completions. Select the one that is best in each case and write the
correct letter of your anwer in the space provided for.

1. Utility is the
A) benefit or satisfaction that a person gets from the consumption of a good or service
B) measure of how useful a resource is in the production process
C) measure of productivity associated with a good or service
D) economic term for consumption possibilities
E) All of the above
2. If Ann gets 100 units of utility from reading a book and 500 units of utility from
playing with her cat, we know that Ann
A) does not enjoy reading books
B) does not enjoy playing with her cat
C) prefers reading a book to playing with her cat
D) prefers playing with her cat to reading a book
E) None of the above
3. As more of a good is consumed, total utility
A) increases
B) decreases
C) remains the same
D) becomes negative and then turns positive
E) All of the above
4. Marginal utility is equal to which of the following
A) total income divided by the price of the product
B) the change in total utility from consuming one more unit of a good
C) the satisfaction obtained from consuming any number of units of a good
D) none of the above is correct
E) All of the above are correct
5. The first four dinner rolls Joan consumes have total utility of 15, 27, 37, and 45
respectively. What is the marginal utility of the 4th dinner roll?
A) 124 units of utility
B) 45 units of utility
C) 11.25 units of utility
D) 8 units of utility
E) None of the above is correct
6. The goal of a consumer is to
A) acquire the largest possible quantity of goods
B) acquire the largest possible variety of goods
C) maximize utility
D) save money
E) All of the above
 7. The utility maximizing rule says that consumers must
A)only allocate the entire available budget
B) only make the marginal utility per dollar spent the same for all goods
C) both allocate the entire budget and make the marginal utility per dollar spent the same
for all goods
D) either allocate the available budget or make the marginal utility per dollar spent the
same
E) None of the above
8. In a given time period, a person consumes more and more of a good and enjoys
each additional unit less and is willing to pay less for it, because of:
A)diminishing returns
B)diminishing marginal product
C)diminishing marginal utility
D)increasing costs
E)None of the above
9. If your MU/P for gas is > than your MU/P for food, what should you do in order to
maximize utility?
A) spend less on gas
B) spend more on food
C) both
D) Neither
E) All of the above

Answer the next question(s) 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.

10. Refer to the above table. If the consumer buys both product X and product Y,
how much will the consumer buy of each to maximize utility?
A) 4X and 2Y
B) 3X and 4Y
C) 4X and 3Y
D) 5X and 3Y
E) None of the above
11. Which best expresses the law of diminishing marginal utility?
A) The more of a product is consumed, the smaller is the total utility from the product
B) The less of a product is consumed,the greater is the marginal utility of the product
C) The more of a product is consumed, the greater is the total utility from the product
D) The less of a product consumed, the smaller is marginal utility of the product
E) None of the above
12. Chris spent his entire income on two goods. At his current consumption, the
marginal utility of Y is 12 and the marginal utility of Z is 4. If the price of Y is $2.00 and
the price of Z is $1, then to what should he do to maximize utility?
A) consume more Y and Z
B) consume more Z and less Y
C) consumer more Y and less Z
D) maintain his consumption
E) None of the above
13. Which of the following is true if consuming one unit of a good yields 100 utils
and consuming the second unit of the good increases satisfaction by 20 utils?
A) the MU of the 1st unit is 20
B) the MU of the 2nd unit is 80
C) the MU of the 2nd unit is 120
D) the total utility of consuming 2 units is 120
E) None of the above
14. A consumer makes purchases of anexisting product X such that the marginal
utility is 10 and the price is $5. The consumer also tries a new product Y and at the
current level of consumption it has a marginal utility of 8 and a price of $1. The
utility-maximizing rule suggests that this consumer should:
A) Increase consumption of product X and decrease consumption of product Y.
B) Increase consumption of product X and increase consumption of product Y.
C) Increase consumption of product Y and decrease consumption of product X.
D) Decrease consumption of product Y and decrease consumption of product X.
E) All of the above
15. Refer to the above table. Suppose that the consumer's income increased from $20
to $30. What would be the utility-maximizing combination of products X and Y?
A) 3X and 3Y
B) 4X and 4Y
C) 5X and 4Y
D) 5X and 5Y
E) None of the above
 Exercise No. 2 Consumer Behavior

Name: LAGO, MARY GRETCHEN L.

Course & Section: _ BS ACCTY 1-2

Critical Thinking Questions

1) Think back to a purchase that you made recently. How would you describe
your thinking before you made that purchase?

I recently decided to buy new shoes for my PE class since my old ones were
worn out. I think about the satisfaction i'll get in purchasing this, the benefits and the
factors that will hinder me from obtaining this like "can I afford it?, "is it really worth
it to purchase? I also check the quality of the shoes to determine how long it will last.

2) Would you expect marginal utility to rise or fall with additional

consumption of a good? Why?

Yes, with each additional unit of consumption, marginal utility decreases. This
is because each unit of consumed goods creates less utility, and we value the
first unit more than the second, and so on.

3) If people do not have a complete mental picture of total utility for every
level of consumption, how can they find their utility-maximizing
consumption choice?

People who do not have a complete mental picture of the total utility make
decisions on the margin, eo they will continue to consume as long as the marginal
utility from consumption remains positive. when the utility gained from additional
consumption reaches zero, utility id maximized, and no further consumption takes
place.
 Exercise No. 3 Consumer Behavior (Indifference Curve, Budget Line &
Equilibrium at Tangency)

Name: LAGO, MARY GRETCHEN L. Course & Section: BS ACCTY 1-2

Directions: Each of the questions or incomplete statements below is followed by five

suggested answers or completions. Select the one that is best in each case and write the
correct letter of your anwer in the space provided for.

1) Which of the following statements is not true with regard to the standard
properties of indifference curves?
A. Indifference curves are downward sloping
B. Indifference curves do not cross each other
C. Higher indifference curves are preferred to lower ones
D. Indifference curves are bowed outward
E. All of the above
2) Which of the following statements is not true with regard to the standard
properties of indifference curves?
A. Indifference curves are downward sloping
B. Indifference curves do not cross each other
C. Higher indifference curves are preferred to lower ones
D. Indifference curves are bowed outward
E. All of the above
3) Indifference curves measure the consumer's willingness to trade one good for
another good while maintaining a constant level of satisfaction
A. True B. False C. Either A or B D. Neither A or B E. Incomplete information
4) The limit on the consumption bundles that a consumer can afford is known as
A. An indifference curve
B. The marginal rate of substitution
C. The budget constraint
D. The consumption limit
E. All of the above
5) Suppose a consumer must choose between the consumption of sandwiches and
pizza. If we measure the quantity of pizza on the horizontal axis and the quantity of
sandwiches on the vertical axis, and if the price of pizza is $10 and the price of a
sandwich is $5, then the slope of the budget constraint is
A. 5 B. 10 C. 2 D. 1/2 E. None of the above
6) If income and prices were both to double, the budget line would
A. Shift outward in a parallel fashion
B. Shift inward in a parallel fashion
C. Stay the same
D. Rotate inward
E. Rotate outward
7) A budget constraint is a set of commodity bundles that provide the consumer with
the same level of satisfaction
B. True B. False C. Either A or B D. Neither A or B E. Incomplete information
 8) Which of the following is true about the consumer's optimum consumption bundle?
A. At the optimum, The indifference curve is tangent to the budget constraint
B.The slope of the indifference curve equals the slope of the budget constraint
C. The relative prices of the two goods equals the marginal rate of substitution
D. All of the above are true
E. None of the above are true
9) A consumer is in equilibrium at the point of tangency of his indifference curve and
the price line because .
A. He does not want to go beyond it
B. He cannot go beyond it
C. He cannot go below it
D. He is confused
E. All of the above
10) Which of the following is correct?
A. Budget lines are linear and upward sloping; indifference curves are downward sloping
and concave to the
origin.
B. Budget lines are linear and downward sloping; indifference curves are downward
sloping and concave to
the origin.
C. Budget lines are linear and downward sloping; indifference curves are downward
sloping and convex to
the origin.
D. Budget lines are downward sloping and convex to the origin; indifference curves are
linear and downward
sloping.

11) Refer to the diagram above where xy is the relevant budget line and I1, I2, and I3
are indifference curves. The equilibrium position for the consumer is at:
A. any point on xy.
B. point M.
C. point K.
D. point J
E. None of the above
 12) Refer to the diagram above where xy is the relevant budget line and I1, I2, and I3
are indifference curves. Point M:
A. is the consumer's equilibrium position.
B. is unobtainable.
C. is inferior to point N.
D. entails the highest attainable level of total utility
E. None of the above
13) Assume a diagram in which a budget line is imposed on an indifference map. a
consumer will maximize her utility:
A. At any point where the budget line and an indifference curve intersect.
B. At either point where the budget line intersects the horizontal and vertical axes.
C. Where the budget line is tangent to an indifference curve.
D. Where the ratio of the two product prices equals the reciprocal of the consumer's
income.
E. All of the above
14) To maximize utility a consumer should allocate money income so that the:
A. Elasticity of demand on all products purchased is the same.
B. Marginal utility obtained from the last dollar spent on each product is the same.
C. Total utility derived from each product consumed is the same.
D. Marginal utility of the last unit of each product consumed is the same.
E. All of the above
15) Refer to the above data. If the consumer has a money income of $52 and the
prices of j and k are $8 and $4 respectively, the consumer will maximize her utility by
purchasing:
A. 2 units of j and 7 units of k.
B. 5 units of j and 5 units of k.
C. 4 units of j and 5 units of k
D. 6 units of j and 3 units of k
E. None of the above
 Exercise No. 4 Consumer Behavior (Indifference Curve, Budget Line &
Equilibrium at Tangency)

Name: LAGO, MARY GRETCHEN L. Course & Section: BS ACCTY 1-2

Critical Thinking Questions

1) What point is preferred along an indifference curve?

It is preferred to have higher indifference curves than lower ones. More items
are preferred over fewer ones by consumers.Some people prefer to consume more
rather than few goods.

2) How can you tell which indifference curves represent higher or lower levels of
utility?

Higher indifference curve denotes a higher level of satisfaction or utility.

Higher indifference curve represents large bundle of goods, which means more utility
because of monotonic preference. While lower indifference curve represents opposite.

3) Why does the consumer get the maximum satisfaction when the indifference
curve is tangent to the budget line?

4) How does a consumer achieve equilibrium given an indifference curve and

budget line?

A consumer achieves equilibrium when the satisfaction derived from the consumption
is maximum and has no intention to change. And when the indifference curve and the budget
line are given, a consumer achieves equilibrium at a point where the consumer's highest
indifference curve is tangent to the budget line.
 Exercise No. 5 Consumer Behavior (Utility Maximizing Rule)

Name: LAGO, MARY GRETCHEN L. Course & Section: BS ACCTY 1-2

Utility Maximizing Rule

You have an income of P56. The price of sandwich is P8 and the price of juice is P 4.

The utility received from consuming sandwich and juice is given below.

PROBLEM: How many sandwiches and juices should be bought to maximize utility?
What is the total utility?

Number Total Margina MU/Pric Numbe Total Margina MU/Pric

of Utility l Utility e of r of utilit l Utility e of juice
sandwiche of of sandwic juices y of of juice
s sandwic sandwic h juice
h h

0 0 0 0
1 64 1 40
2 120 2 76
3 168 3 108
4 208 4 136
5 240 5 160
6 264 6 180
7 280 7 196