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Chapter 6—Consumer Choice Theory
MULTIPLE CHOICE
1. Utility is most closely defined by which of the following terms?

a. Useful. c. Necessary.
b. Worthiness. d. Satisfaction.
ANS: D PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
STA: DISC: Utility and consumer choice
TOP: From Utility to the Law of Demand KEY: Bloom's: Knowledge
2. The ability of a good to satisfy a want refers to its:

a. usefulness. c. worthiness.
b. utility. d. necessity.
ANS: B PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
3. In the context of consumer choice theory, utility means:

a. usefulness.
b. satisfaction.
c. practicality.
d. boring.
e. action.
4. A util represents a unit of measurement for the:

a. dollars a consumer spends on a good.
b. profit a firm makes from producing a good.
c. way a consumer will respond to a change in price.
d. happiness a person obtains from consuming a good.
e. way a producer will respond to a change in price.
TOP: From Utility to the Law of Demand KEY: Bloom's: Comprehension
5. The term utility refers to the:

a. usefulness of a good in relation to its scarcity.
b. necessity of a good.
c. price of a good.
d. number of goods a consumer has.
e. pleasure or satisfaction a consumer receives upon consuming a good.
ANS: E PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
6. A util:
a. can measure satisfaction with factual accuracy.
b. is not a valid concept.
c. applies to a good but not to a service.
d. is purely a fictitious measure of the satisfaction a consumer derives from a product.
e. can be used in place of money in some countries.
7. ____ is the subjective measure of the physical and mental satisfaction that is anticipated from
consumption.
a. Demand
b. Supply
c. Recognition
d. Utility
e. Cognition
8. Utility is:
a. easily measured, because all people derive the same utility from consumption.
b. easily measured, because it is an objective concept.
c. easily measured, because it is a subjective concept.
d. hard to measure, because it is a subjective concept.
e. hard to measure, because it is an objective concept.
ANS: D PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
9. What term do economists use to refer to the satisfaction that an individual expects to receive from
consuming a good or service?
a. Utility.
b. Response.
c. Usability.
d. Demand.
e. Desirable.
ANS: A PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
10. Utility refers to the:

a. relationship of demand to the supply of a product.
b. satisfaction a consumer experiences after a good or service is purchased.
c. satisfaction a consumer expects to receive from a good or service.
d. ability of a good or a service to have value in the marketplace.
e. usefulness of the product consumed.
ANS: C PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
11. Utility is defined as the:

a. sense of pleasure or satisfaction derived from consuming goods and services.
b. cost of acquiring goods and services.
c. profits consumers earn from consuming goods and services.
d. monetary value to consumers of goods and services.
e. desire to consume goods and services.
12. The utility of a good is:

a. different for different consumers.
b. the same for all consumers.
c. constant no matter how much is consumed.
d. related to the cost of producing it.
e. easily measured.
13. If utility is not maximized, then:

a. some change in consumption will increase satisfaction.
b. no change in consumption will increase utility.
c. only a change in income will increase utility.
d. only a change in price will increase utility.
e. the principle of diminishing marginal utility does not hold.
ANS: A PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
14. Which of the following best describes the economic concept of utility?
a. Utility is the total number of units a consumer buys.
b. Utility measures the usefulness of goods, such as tools or food, and so goods such as
artwork or attractive landscaping by definition has no utility.
c. Utility measures the satisfaction, or pleasure, that people receive from consuming a good
or service.
d. None of the above are correct.
15. When total utility is at a maximum, marginal utility is:

a. zero.
b. positive.
c. negative.
d. one.
e. infinite.
16. A rational consumer should not consume more of a good when:

a. total utility is decreasing.
b. marginal utility is diminishing.
c. both a and b.
d. income is decreasing.
e. the price is high.
ANS: A PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic
TOP: From Utility to the Law of Demand KEY: Bloom's: Analysis
17. John loves to travel. He would never turn down the opportunity to go on a trip. This means that, for
John:
a. the total utility of travel always increases.
b. marginal utility of travel never decreases.
c. the law of diminishing marginal utility does not apply to travel.
d. marginal utility of travel is always zero.
e. extra travel yields zero consumer surplus.
18. The marginal utilities associated with the first 4 units of consumption of good Y are 10, 12, 9, and 7,
respectively. What is the total utility associated with the third unit?
a. 3.
b. 9.
c. 25.
d. 31.
e. The amount cannot be determined from the marginal utilities.
ANS: D PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic
TOP: From Utility to the Law of Demand KEY: Bloom's: Application
19. The marginal utilities associated with the first 5 units of consumption of good Y are 15, 15, 10, 7, and
3, respectively. What is the total utility associated with those 5 units?
a. 5.
b. −12.
c. 12.
d. 35.
e. 50.
ANS: E PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic
20. Generally speaking, as more of a particular good is purchased, a consumer's marginal utility ____ and
total utility ____.
a. increases; decreases
b. decreases; increases
c. increases; increases
d. decreases; decreases
e. generalizations cannot be made
ANS: B PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
21. Which of the following statements is true about the total utility provided by a good?
a. Total utility can never be negative.
b. Total utility is maximized when marginal utility is maximized.
c. Total utility continues to increase as more of the good is consumed.
d. Total utility is maximized when marginal utility is zero (for total utility > 0).
e. Total utility is maximized when marginal utility is zero (for total utility < 0).
22. Consumers tend to maximize:

a. marginal utility.
b. marginal utility per dollar.
c. total utility.
d. money holdings.
e. consumer surplus.
23. The conceptual measure of the satisfaction a person obtains by consuming all the units of a good or
service during a given time period is:
a. total product. c. total utility.
b. total revenue. d. total product.
ANS: C PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
24. Total utility is measured by a mythical unit called the:
a. bliss unit. c. pleasure unit.
b. useful unit. d. util.
25. The fact that a gallon of gasoline commands a higher market price than a gallon of water indicates that:
a. gasoline is an economic good but water is not.
b. the marginal utility of gasoline is greater than the marginal utility of a gallon of water.
c. the average utility of a gallon of gasoline is greater than the average utility of a gallon of
water.
d. the total utility of gasoline exceeds the total utility of water.
ANS: B PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic
26. Which of the following is true about marginal utility?

a. Marginal utility is total utility divided by the total quantity consumed.
b. Marginal utility is the change in total utility divided by the change in total quantity
demanded.
c. Marginal utility is the satisfaction that a consumer experiences from all the units of a good
or service consumed.
d. None of the above are true.
27. Marginal utility (MU) equals:

a. P/Q.
b. Q/TU.
c. PQ/TU.
d. TU/P.
e. TU/Q.
ANS: E PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
28. If water is essential for life, while diamonds are not, then why is water cheaper than diamonds?
a. Because most people would rather die with a big diamond ring than live without one.
b. Because the total utility generated by diamonds is larger than the total utility generated by
water.
c. Because most people do not understand their total need for water.
d. Because water is abundant, the marginal utility of water is low, and price reflects marginal
utility, not total utility.
29. Marginal utility is the change in:
a. total utility when an extra unit of output is produced.
b. marginal utility when an extra unit of output is consumed.
c. total utility when an extra unit of output is consumed.
d. marginal utility when an extra unit of output is produced.
e. average utility when an extra unit of output is consumed.
30. On Thanksgiving, Jake's mother gives him a huge platter of food. If Jake were to keep eating just to
please his mother (even when he really wanted to stop), his marginal utility would be:
a. the same as his total utility.
b. large.
c. minus one.
d. positive.
e. negative.
31. Utility theory assumes that marginal utility:

a. increases as an individual consumes more of a product.
b. decreases as an individual consumes more of a product.
c. is zero as long as the individual derives utility from the product.
d. is constant as long as the individual derives utility from the product.
e. is constant as long as the individual derives satisfaction from the product.
32. Bonnie gets her hair cut at her usual salon and is very happy with the results. Later that afternoon, she
goes to the mall and sees that a hair salon is giving away free haircuts only on that day. If Bonnie does
not take advantage of the giveaway, it is because the:
a. marginal utility of the next haircut would be zero or negative.
b. marginal utility of the next haircut would increase.
c. marginal utility of the next haircut would be zero or positive.
d. total utility of both haircuts would be zero or negative.
e. total utility of both haircuts would be higher than just one haircut.
33. If finding the last stamp to complete your collection makes you happier than finding the first, then:
a. marginal utility is zero.
b. marginal utility is negative.
c. total utility is decreasing.
d. total utility is constant.
e. marginal utility is not diminishing.
34. Tina's marginal utility of her first piece of cake is 15, while Jerry's marginal utility of his first piece of
cake is 24. An economist would conclude that:
a. Tina likes cake more than Jerry likes cake.
b. Jerry likes cake more than Tina likes cake.
c. Tina likes cake less than Jerry likes cake.
d. Jerry likes cake less than Tina likes cake.
e. we can't make a comparison to see who values cake more.
35. If total utility is falling, marginal utility is:

a. positive.
b. negative
c. positive, but declining.
d. either positive or negative.
e. zero.
36. At the point where total utility is at its peak, marginal utility is:
a. zero.
b. positive.
c. negative.
d. positive, but declining.
e. positive, but increasing.
37. If the marginal utility of each good consumers buy does not diminish but remains constant, we should
witness consumers:
a. buying no goods at all.
b. spending all of their income on the good with the highest MU.
c. buying one of each good.
d. buying only the least expensive goods.
e. become indifferent to what goods they buy.
38. Marginal utility is defined as:

a. the extra satisfaction the consumer receives from an extra $1 of income.
b. the total level of satisfaction a consumer receives upon the consumption of a certain
number of goods.
c. the number of hours a consumer would be willing to work to receive a certain product.
d. the extra satisfaction a person derives from consuming an additional unit of a good.
e. a comparison of the utility a good provides with the price of that good.
39. A utility-maximizing consumer would never purchase a good if the:

a. MU/P is positive. c. marginal utility is negative.
b. marginal utility is positive. d. none of these is correct.
40. Marginal utility can be measured by the change in:

a. total utility / the change in quantity.
b. income / the change in utility.
c. quantity / the change in income.
d. price / the change in utility.
e. income / the change in price.
41. The change in total utility due to a 1-unit change in the quantity consumed is:
a. marginal utility.
b. average utility.
c. per capita utility.
d. total utility.
e. the principle of diminishing marginal utility.
42. Marginal utility is measured by:

a. a ray from the origin to a point on the total utility curve.
b. the change in total utility for a 1-unit change in the quantity consumed.
c. total utility divided by total quantity consumed.
d. the first utility minus the last utility.
e. average utility multiplied by the total quantity consumed.
43. The total utilities associated with the first 5 units of consumption of good X are 15, 30, 40, 47, and 50,
respectively. What is the marginal utility associated with the third unit?
a. 15.
b. 70.
c. 85.
d. 10.
e. 45.
44. As a general rule, marginal utility will be less:

a. as less of the good is consumed.
b. as more of the good is consumed.
c. when average utility is at a maximum.
d. only when the good is inferior.
e. when satisfaction is less than cost.
45. A fall in marginal utility reflects:

a. the water and diamond paradox.
b. the law of supply.
c. the principle of diminishing marginal utility.
d. decreased consumption of a good.
e. the fact that total utility must be declining.
46. Marginal utility will generally decrease when:

a. more of a particular good is consumed.
b. less of a particular good is consumed.
c. average utility is the least.
d. per capita utility is the least.
e. the TU curve's slope is positive rather than negative.
47. As more bananas are consumed, other things constant, marginal utility tends to decrease at:
a. the same rate for all people.
b. the same rate for all goods for a given person.
c. the same rate for all people.
d. different rates for different people and for other goods.
e. different rates for different people, but at the same rate as other goods.
48. If marginal utility is positive, then total utility is:

a. constant.
b. negative.
c. increasing.
d. decreasing.
e. zero.
49. Suppose that for Merv the marginal utility of $50-per-serving caviar is 100 and the marginal utility of
$1-per-serving popcorn is 10. For his snack, Merv should buy:
a. the caviar if he has the $50; otherwise, the popcorn.
b. the caviar if he has the $50; otherwise, nothing.
c. the popcorn, whether he has the $50 or not.
d. one serving each of the caviar and popcorn, if he has $51.
e. five servings of popcorn for each serving of caviar.
ANS: C PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic
50. Suppose that the price of telephones decreases. If more are purchased then:
a. the total utility of telephones will decrease.
b. the total utility of telephones will be unchanged.
c. the marginal utility of telephones will likely increase.
d. the marginal utility of telephones will likely decrease.
e. both a and d.
51. The amount by which an additional unit of a good or service increases a consumer's total utility is:
a. marginal bliss. c. marginal utility.
b. marginal benefit. d. marginal.
52. Marginal utility is best computed as the ratio of:

a. total utility to change in quantity consumed.
b. the change in total utility to total quantity consumed.
c. total quantity consumed to total utility.
d. the change in total utility to change in quantity consumed.
53. Assume the total utilities corresponding to the first four units of a product consumed are 8, 12, 14, and
15, respectively. The marginal utility of the second unit consumed is:
a. 0. c. 12.
b. 4. d. 20.
54. Assume the total utilities corresponding to the first four units of a product consumed are 8, 12, 14, 15,
respectively. The marginal utility of the third unit consumed is:
a. 2. c. 3
b. 14. d. 34.
55. As more Big Macs are consumed each day, the marginal utility that a person gets from each additional
Big Mac:
a. rises at a steady rate. c. remains constant.
b. decreases. d. accelerates.
56. "I'm tired of eating muffins for breakfast. Today, I'm trying a bagel." These statements most clearly
reflect the:
a. law of increasing returns to scale. c. law of diminishing marginal utility.
b. second law of demand. d. law of comparative advantage.
57. Which of the following most directly reflects the law of diminishing marginal utility?
a. After watching two football games, Terry decides to watch a third game.
b. A sports fan enjoys watching Monday night football rather than going to the theater.
c. After listening to three compact discs, Kim decides to go bowling rather than listen to a
fourth disc.
d. A musician receives the biggest ovation of the evening after playing the final number of a
recital.
58. The statement "as more of a good is consumed, the utility a person derives from each additional unit
diminishes" is known as the:
a. water and diamond paradox.
b. law of diminishing marginal utility.
c. law of total utility.
d. marginal-utility-to-price ratio equalization rule.
e. law of diminishing demand.
59. If the price of a good falls, the marginal utility per dollar spent on that good:
a. also falls.
b. stays the same.
c. rises.
d. will rise or fall, depending on the consumer.
e. remains unchanged, provided the consumer buys no more of the good.
60. "As consumption of a good increases, the extra satisfaction received from consuming an additional
unit of the good decreases." This statement is known as the law of:
a. demand.
b. increasing costs.
c. diminishing marginal utility.
d. diminishing marginal returns.
e. total utility.
61. If the price of a product rises, consumers buy less of the good because the:
a. MU/P of the good falls below the MU/P of other goods.
b. MU/P of the good rises above the MU/P of other goods.
c. marginal utility of the good diminishes.
d. total utility of the good diminishes.
e. marginal utility of the good rises.
62. The principle of diminishing marginal utility says that:

a. as more of a good or service is consumed, demand decreases.
b. as more of a good or service is consumed, the price will rise.
c. the marginal utility of additional units consumed increases.
d. an increase in income causes demand to increase.
e. the marginal utility of additional units consumed decreases.
ANS: E PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
63. Diminishing marginal utility means that as you consume more of a good, other things constant, the:
a. total satisfaction you obtain from consuming this good falls.
b. total amount produced falls.
c. marginal product falls.
d. additional satisfaction you obtain from each additional unit of the good falls.
e. total satisfaction you obtain from each extra good becomes constant.
64. Which of the following is true, according to the law of diminishing marginal utility?
a. The marginal utility of Diane's second Coke is greater than the marginal utility of her third
pretzel, other things constant.
b. The marginal utility of Diane's second Coke is greater than the marginal utility of Ken's
third pretzel, other things constant.
c. The marginal utility of Diane's second Coke is greater than the marginal utility of her third
Coke, other things constant.
d. The total utility of two Cokes is greater than the total utility of three Cokes, other things
constant.
e. The marginal utility of Diane's second Coke is greater than the marginal utility of Ken's
third Coke, other things constant.
65. According to the law of diminishing marginal utility, the marginal utility curve is ____.
a. vertical c. upward sloping.
b. flat. d. downward sloping.
66. The law of diminishing marginal utility is the principle that the marginal utility curve ____ as people
consume more of a product in a given period.
a. rises. c. remains unchanged.
b. falls. d. first falls and then rises.
67. The law of diminishing marginal utility indicates that the marginal utility curve is:
a. downward sloping.
b. upward sloping.
c. U-shaped.
d. flat.
e. vertical.
68. If the first four units of a good consumed have marginal utilities of 8, 4, 2, and 1, respectively, this
trend is an indication of the:
a. law of consumer equilibrium. c. law of diminishing consumer surplus.
b. law of diminishing marginal utility. d. law of supply.
69. The law of diminishing marginal utility exists for the first four units of a good if they have marginal
utilities of:
a. 1, 2, 4, 8. c. 4, 8, 2, 1.
b. 8, 4, 1, 2. d. 8, 4, 2, 1.
70. Suppose the law of diminishing marginal utility holds for coffee. As a person drinks more coffee
during the day, the total utility he or she receives will:
a. increase faster and faster. c. remain constant.
b. fall steadily. d. rise, but at slower and slower rates.
71. The demand curve is downward-sloping because of the law of ____.

a. diminishing marginal utility c. consumer equilibrium
b. diminishing consumer equilibrium d. diminishing utility maximization
Exhibit 6-1 Total utility for good X
Total utility (utils) 0 80 120 148 160 155

Quantity consumed per day 0 1 2 3 4 5
72. As shown in Exhibit 6-1, the marginal utility for the second unit consumed is:
a. 0. c. 80.
b. 40. d. 200.
73. As shown in Exhibit 6-1, the marginal utility for the fifth unit consumed is:
a. 305. c. 5.
b. 155. d. 0.
74. As shown in Exhibit 6-1, the law of diminishing marginal utility is first observed at the:
a. first unit.
b. second unit.
c. third unit.
d. fourth unit.
e. fifth unit.
Exhibit 6-2 Total utility for hamburgers, fries, and Cokes
Total Utility Total Utility Total Utility

from Hamburgers from Fries from Cokes
1 hamburger (100 utils) 1 order of fries (30 utils) 1 Coke (40 utils)
2 hamburgers (180 utils) 2 orders of fries (50 utils) 2 Cokes (60 utils)
3 hamburgers (240 utils) 3 orders of fries (60 utils) 3 Cokes (70 utils)
75. In Exhibit 6-2 assume that the price of hamburgers is $2 each, fries cost 50 cents each, and Cokes cost
$1 each. What is the marginal utility of having a second order of fries?
a. 10 utils. c. 30 utils.
b. 20 utils. d. 50 utils.
76. In Exhibit 6-2, assume that the price of hamburgers is $2 each, fries cost 50 cents each, and Cokes cost
$1 each. Suppose the consumer has $6 to spend on hamburgers, fries, and Cokes. Which of the
following meals gives the consumer the most utility?
a. 3 hamburgers, no fries, and no Cokes.
b. 2 hamburgers, no fries, and 2 Cokes.
c. 2 hamburgers, 2 orders of fries and 1 Coke.
d. 1 hamburger, 2 orders of fries, and 3 Cokes.
77. In Exhibit 6-2, assume that the price of hamburgers is $2 each, fries cost 50 cents each, and Cokes cost
$1 each. Suppose the consumer has $6 to spend on hamburgers, fries, and Cokes. In the consumer
equilibrium, what is the marginal utility per dollar for each of the three goods?
a. 20 utils per dollar. c. 90 utils per dollar.
b. 40 utils per dollar. d. 270 utils per dollar.
78. If Mr. Smith thinks the last dollar spent on shirts yields less satisfaction than the last dollar spent on
cola, and Smith is a utility-maximizing consumer, he should:
a. decrease his spending on cola.
b. decrease his spending on cola and increase his spending on shirts.
c. increase his spending on shirts.
d. increase his spending on cola and decrease his spending on shirts.
79. A local restaurant offers an "all you can eat" ribs special. You pay $11.95, and then you can eat as
many servings as you desire at no additional cost. It would follow that you will stop eating when:
a. your marginal utility (or value) derived from eating another serving is zero.
b. your total utility (or value) derived from all of the servings consumed just equals $11.95.
c. your marginal utility (or value) derived from another serving equals $11.95.
d. it is physically impossible for you to eat any more.
80. If John's marginal benefit derived from the consumption of another candy bar is greater than the price
of the candy bar:
a. John will not purchase any more candy bars.
b. John will increase his total satisfaction by purchasing the candy bar.
c. the opportunity cost of the candy bar is lower than the price.
d. John will decrease his total utility if he purchases the candy bar.
81. If Jane's marginal benefit as a consumer in the jeans market is larger than the price of a pair of jeans:
a. Jane will not purchase any more jeans.
b. Jane can benefit by purchasing more jeans.
c. the opportunity cost of a pair of jeans is lower than the price.
d. Jane will decrease her total utility by purchasing more jeans.
82. If Mr. McLean thinks the last dollar spent on bowling yields more satisfaction than the last dollar spent
on hamburgers, and McLean is a utility-maximizing consumer, he should:
a. bowl less, so the marginal satisfaction from expenditures in this area will increase.
b. spend more on hamburgers, so total satisfaction from that activity will increase.
c. eliminate spending on hamburgers.
d. bowl more and spend less on hamburgers.
83. If Mr. Smith thinks the last dollar spent on shirts yields more satisfaction than the last dollar spent on
cola, and Smith is a utility-maximizing consumer, he should:
a. decrease his spending on cola.
b. decrease his spending on cola and increase his spending on shirts.
c. increase his spending on shirts.
d. increase his spending on cola and decrease his spending on shirts.
84. Consumer equilibrium is a condition in which total utility cannot increase by spending more of a given
budget on one good and spending ____ on another good.
a. an equal amount c. less
b. more d. zero
85. A state of consumer equilibrium for two goods consumed exists when the:
a. marginal utility of all goods is the same for the last dollar spent on each good.
b. marginal utility per dollar's worth of two goods is the same for the last dollar spent on
each good.
c. price of two goods is the same for the last dollar spent on each good.
d. marginal cost per dollar spent on two goods is the same.
86. Consumers should continue to rearrange their consumption of two goods until:
a. the prices of the two goods are equal for the last dollar spent on each good.
b. marginal utility is the same for each good for the last dollar spent on each good.
c. the marginal utility per dollar's worth of the two goods is the same for the last dollar spent
on each good.
d. the same amount of each is purchased.
87. The consumer equilibrium condition for two goods is achieved by equating the:
a. marginal utility of one to the price of the other for the last dollar spent on each good.
b. prices of both goods for the last dollar spent on each good.
c. marginal utilities of both goods for the last dollar spent on each good.
d. ratios of marginal utility to the price of both goods for the last dollar spent on each good.
88. Suppose that an individual consumes just two goods: Big Macs and milkshakes. In order to reach
consumer equilibrium, the individual must arrange the consumption of Big Macs and milkshakes so
that the:
a. marginal utility of the two goods is equal for the last dollar spent on each good.
b. ratio of marginal utility to price is the same for both goods for the last dollar spent on each
good.
c. ratio of marginal utility of milkshakes to the marginal utility of Big Macs is 1 for the last
dollar spent on each good.
d. price paid for the two goods is the same.
89. Total utility is maximized in the consumption of two goods by equating the:
a. prices of both goods for the last dollar spent on each good.
b. marginal utilities of both goods for the last dollar spent on each good.
c. ratios of marginal utility to the price of both goods for the last dollar spent on each good.
d. marginal utility of one good to the price of the other.
90. A consumer buys only food and clothing. If the quantity of food bought increases while that of
clothing remains the same, the marginal utility of food will:
a. fall, but not as fast as the marginal utility of clothing falls.
b. rise, but not as fast as the marginal utility of clothing rises.
c. rise relative to the marginal utility of clothing.
d. fall relative to the marginal utility of clothing.
91. Assume a consumer purchases a combination of goods X and Y such that MUx / −Px = 20 units of
utility per dollar and MUy / Py = 10 units of utility per dollar. To maximize utility, the consumers
should buy:
a. neither X nor Y.
b. less of both X and Y.
c. more of both X and Y.
d. more of X and less of Y.
e. less of X and more of Y.
92. Assume that an individual consumes only hotdogs and colas and that the last hotdog consumed yields
15 utils and the last cola 10 utils. If the price of a hotdog is $1 and the price of a cola is $.50, we can
conclude that the:
a. consumer should consume more hotdogs and less cola.
b. price of hotdogs is too high.
c. consumer should consume fewer hotdogs and more cola.
d. consumer is in equilibrium.
93. Assume that an individual consumes only coffee and bagels and that the last cup of coffee yields 12
utils and the last bagel 6 utils. If the price of a cup of coffee is $1 and the price of the bagel is $.50, we
can conclude that the:
a. consumer should consume more coffee and fewer bagels.
b. price of coffee is too high relative to bagels.
c. consumer should consume less coffee and more bagels.
d. consumer is in equilibrium.
Exhibit 6-3 Marginal utility data for goods X and Y
Marginal utility of Marginal utility of

Units of good X good X Units of good Y good Y
1 20 1 14
2 16 2 12
3 12 3 10
4 8 4 8
5 4 5 6
94. As shown in Exhibit 6-3, assume that the price of both goods is $1 per unit. To maximize total utility
without a budget, you should consume:
a. neither X nor Y.
b. more of X and less of Y.
c. less of X and more of Y.
d. more of both X and Y.
e. less of both X and Y.
95. As shown in Exhibit 6-3, assume that the price of both goods is $1 per total unit, and your budget is
$8. If you consume 4 units of good X and 1 unit of good Y. To maximize utility, you should consume:
a. neither X nor Y.
c. less of X and more of Y.
96. As shown in Exhibit 6-3, assume that the price of good X is $2 per unit and the price of good Y is $1
per unit and your budget is $11. If you consume 3 units of good X and 4 units of good Y and maximize
utility, you should consume:
a. neither X nor Y.
b. more of X.
c. more of Y.
97. As shown in Exhibit 6-3, assume that the price of good X is $1 per unit and the price of good Y is $2
per unit and your budget is $13. If you consume 4 units of good X and 2 units of good Y and maximize
utility, you should consume:
a. neither X nor Y.
c. more of Y.
98. According to the utility model of consumer demand, the demand curve is downward-sloping because
of the law of:
a. diminishing marginal utility. c. consumer equilibrium.
b. diminishing consumer equilibrium. d. diminishing utility maximization.
Exhibit 6-4 Total utility for multiplex tickets, video rentals, and popcorn
Total Utility Total Utility Total Utility

from Multiplex Tickets from Video Rentals from Popcorn
1 movie (30 utils) 1 video (14 utils) 1 bag (8 utils)
2 movies (54 utils) 2 videos (24 utils) 2 bags (13 utils)
99. In Exhibit 6-4, assume the Multiplex tickets cost $6 each, video rentals cost $2 each, and bags of
popcorn cost $1 each. What is the marginal utility of renting a third video?
a. 6 utils. c. 10 utils.
b. 8 utils. d. 30 utils.
popcorn cost $1 each. Suppose the consumer has $12 per week to spend on multiplex tickets, video
rentals, and popcorn. What combination of goods will give the consumer the most utility?
a. 1 movie, 3 videos, and no popcorn.
b. 1 movie, 2 videos, and 2 bags of popcorn.
c. 1 movie, 1 video, and 4 bags of popcorn.
d. 2 movies, no videos, and no bags of popcorn.
popcorn cost $1 each. Suppose the consumer has $12 per week to spend on multiplex tickets, video
rentals, and popcorn. In the consumer equilibrium, what is the marginal utility per dollar for each of
the three goods?
a. 5 utils per dollar. c. 13 utils per dollar.
b. 9 utils per dollar. d. 22 utils per dollar.
102. Suppose a consumer wants to obtain the highest possible satisfaction from goods purchased on a fixed
budget. Which of the following must be equal for all goods?
a. Total utility. c. Average utility.
b. Marginal utility. d. Marginal utility per dollar.
103. Consider a consumer who spends all income on only two goods: bread and wine. An extra loaf of
bread would give the consumer 10 extra util, while an extra bottle of wine would give the consumer 60
extra utils. Bread costs 50¢ per loaf, and wine costs $6 per bottle. In this situation, the consumer:
a. could increase utility by buying more bread and less wine.
b. could increase utility by purchasing more wine and less bread.
c. has maximized utility and attained consumer equilibrium.
d. is violating the law of diminishing marginal utility.
104. Suppose a consumer is spending his or her entire budget. In order to obtain the most satisfaction from
his or her purchases, all goods should:
a. provide the same marginal utility per dollar.
b. be consumed in equal quantities.
c. have identical marginal utilities.
d. give the consumer matching amounts of total utility.
105. Consider a consumer who spends all income on only two goods: pizza and soda. An extra slice of
pizza would give the consumer 60 extra utils, while an extra can of soda would give the consumer 20
extra utils. Pizza costs $3 per slice, and soda costs $1 per can. In this situation, the consumer:
a. is buying too much pizza and not enough soda.
b. should purchase more pizza and less soda.
c. has maximized his or her total utility.
d. needs to equate the marginal utilities for pizza and soda.
106. Which of the following statements is true?

a. Total utility is the extra satisfaction from the consumption of a good or service.
b. Marginal utility is the amount of satisfaction received from all the units of a good or
service consumed.
c. The law of diminishing marginal utility states that as more of a good or service is
consumed total utility decreases.
d. Consumer equilibrium is a combination of goods and services consumed which maximizes
total utility from a given budget.
107. If a consumer wishes to maximize satisfaction given limited income and MUx/Px < MUy/Py then the
consumer should:
a. do nothing because she/he is in equilibrium.
b. buy more of X and less of Y.
c. buy more of Y and less of X.
d. buy more of both X and Y.
e. buy less of both X and Y.
108. Consumer equilibrium exists when:

a. the marginal utility of each good and service consumed is equal.
b. the total utility of each good and service consumed is equal.
c. the marginal utility of each good and service consumed equals its price.
d. ratio of marginal utility to price for all goods and services is equal.
Exhibit 6-5 Marginal utility data for desserts
Quantity Brownies Ice Cream Pie

1 20 18 16
2 18 17 13
3 15 14 9
4 12 11 7
5 10 8 5
109. Refer to Exhibit 6-5. Each dessert is priced at $1. If you had $10 to spend on desserts, which of the
following combinations of goods would you buy?
a. 5 units of brownies, 4 units of ice cream, and 1 unit of pie.
b. 4 units of brownies, 5 units of ice cream, and 1 unit of pie.
c. 4 units of brownies, 4 units of ice cream, and 2 units of pie.
d. 4 units of brownies, 3 units of ice cream, and 3 units of pie.
e. 3 units of brownies, 4 units of ice cream, and 3 units of pie.
Exhibit 6-6 Marginal utility for data for clothes and amusement
Quantity Clothes Amusement

1 15 20
2 13 18
3 10 15
4 8 12
5 6 10
110. Refer to Exhibit 6-6. Clothes and amusements are priced at $10 each. The marginal utility per dollar
for the first unit of amusement is:
a. 0.5.
b. 1.5.
c. 2.0.
d. 5.0.
e. 20.0.
111. Refer to Exhibit 6-6. 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 2 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.
112. Refer to Exhibit 6-6. 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. Both b and c are true.
e. The quantity demanded for amusement goods will remain constant.
113. The MU/P equalization principle means consumers will exhaust their expenditure budget so that, in the
end, the MU/P ratio is:
a. zero for each good.
b. higher for goods the consumer wants the most.
c. maximized for the goods the consumer wants the most.
d. higher than TU/P.
e. the same for each good.
114. 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. as happy as possible, since he is already maximizing total utility.
115. If Allison's marginal utility of her 100th dollar of income is greater than Brad's marginal utility of his
10th dollar, then we can conclude:
a. money means more to Allison.
b. money means more to Brad.
c. Brad is richer than Allison.
d. Allison is richer than Brad.
e. nothing, since we can't make interpersonal utility comparisons.
116. If I buy 3 cups of coffee, paying $1 for each cup, and I would have been willing to pay up to $3 for the
first cup, up to $2 for the second cup, and up to $1 for the third cup, then my consumer surplus is:
a. $6.
b. $5.
c. $3.
d. $2.
e. $1.
117. Carla is spending all her income on only two goods: apples and bananas. The price of an apple is $2
and the price of a banana is $1. If Carla's marginal utility of an apple is 4 and her 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. her current amounts of apples and bananas to maximize total utility.
118. Suppose that 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 today 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.
Exhibit 6-7 Marginal utility for sandwiches and sodas
Quantity Sandwiches Sodas

1 10 5
2 8 4
3 6 3
4 3 1
5 −1 0
119. Refer to Exhibit 6-7. If the price of a sandwich is $1 and the price of a soda is $1, Marian should spend
her first dollar on a ____ and her second dollar on a ____.
a. sandwich; soda
b. sandwich; sandwich
c. soda; sandwich
d. soda; soda
e. neither good should be purchased since she has diminishing marginal utility
120. Refer to Exhibit 6-7. Diminishing marginal utility for sandwiches sets in after the ____ sandwich.
a. first
b. second
c. third
d. fourth
e. fifth
121. Refer to Exhibit 6-7. If price of a sandwich is $1, the price of a soda is $1, and income is $5, Marian
should buy ____ sandwiches and ____ sodas.
a. five; zero
b. four; one
c. three; two
d. two; two
e. one; four
122. 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 must 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 must buy more Y to find a new optimal
combination.
d. MU/P of good Y to decrease, so the consumer now must buy more Y to find a new
optimal combination.
e. the demand for good X and good Y will not change.
123. Eric is maximizing his total utility through his choices of two goods: clothes and food. His marginal
utility of clothes is 60 and his marginal utility of food is 12. The price of clothes is $20. What must be
the price of food?
a. 12.
b. 6.
c. 4.
d. 1.
e. 0.
124. Georgia has a MU/P of 10 for tennis lessons, a MU/P of 6 for sewing lessons, and a U/P of 2 for
cooking lessons. In order to maximize utility, she should:
a. take more cooking lessons.
b. take more sewing lessons.
c. take more tennis lessons.
d. stay with her current choices.
e. take fewer lessons of each choice.
Exhibit 6-8 Bea's total utility of 3-minute telephone calls
Quantity of Total Utility of

3-Minute Calls Telephone Calls
0 0
1 15
2 28
3 38
4 45
5 50
6 48
125. Refer to Exhibit 6-8. Bea's marginal utility of her second telephone call is:
a. 28.
b. 15.
c. 13.
d. 10.
e. 1.
126. Refer to Exhibit 6-8. Diminishing returns set in after which telephone call?
a. The first.
b. The second.
c. The third.
d. The fifth.
e. The sixth.
127. If a consumer allocates income between goods A and B, total utility is maximized when:
a. the marginal utility of A = the marginal utility of B.
b. the marginal utility of A = the marginal utility of B = 0.
c. the price of A = price of B.
d. marginal utility of A / price of A = marginal utility of B / price of B = 0.
e. marginal utility of A / price of A = marginal utility of B / price of B.
128. If good A has a marginal utility of 30 and a price of $5, and good B has a marginal utility of 10 and a
price of $2, then:
a. good A is a better buy than good B.
b. good B is a better buy than good A.
c. goods A and B are of equal value to this consumer.
d. neither good A nor B is worth the money.
e. goods A and B should both be purchased.
129. If a consumer is spending all of his/her income in a manner where MUa / Pa = MUb / Pb, then the
consumer:
a. should increase the consumption of A and decrease the consumption of B.
b. is maximizing his/her utility.
c. should increase the consumption of B and decrease the consumption of A.
d. should increase the consumption of both A and B.
e. should decrease the purchases of both A and B.
130. If a consumer is spending all of his/her income in a manner where MUa / Pa is greater than MUb / Pb,
then the consumer:
a. is maximizing his/her utility.
b. should increase his/her purchases of B and decrease the purchases of A.
c. should spend more money on both goods.
d. should spend less money on both goods.
e. should increase the purchases of A and decrease the purchases of B.
131. Suppose a consumer is spending all of his/her income on two goods, A and B, in a manner where MUa
= 15 and MUb = 75, and the Pa = $3 and the Pb = $15, then the consumer:
132. Suppose a consumer is spending all of his/her income on two goods, A and B, in a manner where MUa
= 15 and MUb = 80, and the Pa = $5 and the Pb = $20. Then the consumer:
133. If a consumer is maximizing his/her utility for a given income, the:

a. marginal utility for every good purchased would be the same.
b. marginal utility per dollar spent for all goods would be the same.
c. marginal utility per dollar for all goods would be at a maximum.
d. total expenditure on each good would be the same.
e. number of units of each good consumed would be the same.
134. A utility-maximizing consumer is currently spending all of his/her income on two products, A and B.
The MU of the last unit of A consumed is 50, the price of A is $25, and the price of B is $10. The MU
of the last unit of B consumed is:
a. 50.
b. 5.
c. 2.
d. 20.
e. cannot determine from this limited information
135. If a consumer is indifferent between 5 units of A and 8 units of B, then the consumer would:
a. also be indifferent between 4 units of A and 9 units of B.
b. also be indifferent between 8 units of A and 5 units of B.
c. prefer 6 units of A and 8 units of B.
d. give up 1 unit of A if he/she could acquire 2 units of B.
e. not trade product A in exchange for any units of product B.
136. Suppose you have spent your entire budget and for all the goods you purchase the marginal utilities per
dollar spent are identical. Which of the following is true?
a. You are being irrational.
b. You can increase your utility by reallocating your income.
c. You will reduce your utility if you allocate income in any other way.
d. You are minimizing your marginal utility.
e. You can avoid diminishing marginal utility.
137. When the price of a good falls, consumers may increase the quantity consumed because they have
greater total purchasing power. This statement describes the:
a. substitution effect. c. consumer equilibrium effect.
b. income effect. d. price effect.
TOP: Income and Substitution Effects and the Law of Demand KEY: Bloom's: Comprehension
138. The income effect refers to a change in:

a. income because of changes in the CPI.
b. the quantity demanded of a good because of a change in the buyer's real income.
c. the quantity demanded of a good because of a change in the buyer's money income.
d. none of these.
139. Assume the price of pizza decreases. As a result, your real income increases and you increase the
quantity of pizza purchased each month. This is an example of the:
a. substitution effect. c. revenue effect.
b. income effect. d. consumer price effect.
140. Assume the price of Coca-Cola increases. As a result, your real income decreases and you decrease the
quantity of Coca-Cola purchased each month. This is an example of the:
a. income effect. c. revenue effect.
b. consumer price effect. d. substitution effect.
141. According to the income effect, when the price of automobiles rises, people buy fewer automobiles
because:
a. they substitute other forms of transportation for driving.
b. the nominal amount of their paychecks is smaller.
c. the purchasing power of their income is reduced.
d. their demand for automobiles is very elastic.
142. Assume the price of good X increases. As a result, your real income decreases and you decrease the
quantity of good X purchased each month. This is an example of the:
a. income effect.
b. consumer price effect.
c. revenue effect.
d. substitution effect.
e. all of these.
143. JoAnn considers cola and plain sparkling water to be good substitutes. Suppose the price of sugar, a
key ingredient used to produce cola, falls. According to the substitution effect, which of the following
is most likely to occur?
a. JoAnn will purchase less cola and more sparkling water.
b. JoAnn will purchase more cola and less sparkling water.
c. JoAnn will purchase more of all goods due to her higher real income.
d. JoAnn's demand curve will decrease (shift in), causing her to purchase less cola.
TOP: Income and Substitution Effects and the Law of Demand KEY: Bloom's: Analysis
144. Which of the following is the best example of the substitution effect?
a. Joe buys fewer apples and more oranges as the result of an increase in the price of apples.
b. Joe buys more apples when his income increases.
c. Joe buys an apple slicer when the price of apples decreases.
d. Joe buys less sugar as the result of an increase in price of apples.
145. An increase in the consumption of a good resulting from a reduction in price that makes the good
cheaper in relation to other goods is called the:
a. substitution effect. c. real balance effect.
b. income effect. d. inelasticity effect.
TOP: Income and Substitution Effects and the Law of Demand KEY: Bloom's: Knowledge
146. Which of the following would cause a consumer to purchase less of a good when the price of the good
rises?
a. The income effect c. Both a and b
b. The substitution effect d. Neither a nor b
147. When the price of a good falls, consumers buy more of the good because it is cheaper relative to
competing goods. This statement describes the:
a. consumer equilibrium effect. c. income effect.
b. price effect. d. substitution effect.
148. According to the substitution effect, a decrease in the price of a product leads to an increase in the
quantity demanded because buyers:
a. purchase more complementary goods. c. purchase fewer substitute goods.
b. purchase more substitute goods. d. have more real income.
149. Assume the price of Advil increases. As a result, you decrease the quantity of Advil purchased each
month and purchase more Tylenol. This is an example of the:
a. income effect. c. consumption effect.
b. utility effect. d. substitution effect.
150. Assume the price of Nikes decreases. As a result, consumers increase the quantity of Nikes purchased
each year and purchase fewer Reeboks. This is an example of the:
a. substitution effect. c. utility effect.
b. income effect. d. consumption effect.
151. When Pepsi becomes more expensive relative to other beverages, people will purchase less Pepsi. This
observation is known as the:
a. diamond-water paradox. c. substitution effect.
b. law of diminishing marginal utility. d. income effect.
152. Assume the price of Levi jeans increases. As a result, you decrease the quantity of Levi jeans
purchased each month and purchase more Lee jeans. This is an example of the:
a. consumption effect. c. income effect.
b. utility effect. d. substitution effect.
153. JoAnn considers cola and plain sparkling water to be good substitutes. Suppose the price of sugar, a
key ingredient used to produce cola, falls. According to the income effect, which of the following is
most likely to occur?
a. JoAnn will purchase less cola and more sparkling water.
b. JoAnn will purchase more cola and less sparkling water.
c. JoAnn will purchase more of most goods due to her higher real income.
d. JoAnn's demand curve will decrease (shift in), causing her to purchase less cola.
154. When a reduction in the price of a good allows a consumer to purchase more of all goods, this effect is
called the:
a. income effect. c. elasticity effect.
b. substitution effect. d. monetary effect.
155. When the price of a normal good falls, then:

a. both the income and substitution effects combine to cause the quantity demanded to
increase.
b. the substitution effect will cause people to buy more because the good is relatively less
expensive.
c. the income effect will cause people to buy more because of the increased purchasing
power associated with the lower price.
d. all of these.
TOP: Income and Substitution Effects and the Law of Demand KEY: Bloom's: Analysis
TRUE/FALSE
1. The utility of a good measures its usefulness.
ANS: F PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

2. Utils are used by economists to measure the satisfaction a person obtains from consuming a good.
ANS: T PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

3. The utility of a good measures its satisfaction rather than its usefulness.
4. The total utility of a good is equal to the marginal utility of the last unit consumed.

5. As we move down a person’s demand curve, marginal utility declines.

6. As an individual consumes more of a good, the marginal utility of that good declines.

7. If total utility increases from 10 to 15 for the second unit of a good consumed, the marginal utility of
the second unit is 25.

8. Water is plentiful in most of the world, so its price and total utility are low.
ANS: F PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic

9. If total utility increases from 10 to 15 for the second unit of a good consumed, the marginal utility of
the second unit is 5.

10. Marginal utility measures the increase in total utility you derive from consuming one more unit of a
good.

11. Marginal utility is always a positive number.
ANS: F PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic

12. A rational consumer will always shift a dollar from a good whose marginal-utility-to-price ratio is
lower to one whose marginal-utility-to-price is higher.
ANS: T PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic

13. The marginal utility curve is downward sloping.

14. Typically, marginal utility is higher when a person consumes less of a good.

15. Typically, total utility derived decreases as more of a good is consumed.
ANS: F PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic

16. The law of diminishing marginal utility states that marginal utility must diminish after the first unit of
consumption of every good or service.

17. The law of diminishing marginal utility implies that the marginal utility of my tenth pistachio nut is
less than the marginal utility of my third pistachio nut, other things constant.

18. The law of diminishing marginal utility implies that the marginal utility of my fifth hot dog is less than
the marginal utility of my second soda, other things constant.

19. The law of diminishing marginal utility states that total utility increases by smaller and smaller
increments as more of a good is consumed.

20. Marginal utility tends to fall as a person increases his or her consumption.

21. Consumer equilibrium requires that the marginal utility per dollar spent be the same for all goods.

22. Consuming one more of a good increases its marginal-utility-to-price ratio, and consuming one less of
the other good lowers its marginal-utility-to-price ratio.

23. If the price of a good decreases, the resulting increase in the quantity purchased decreases the marginal
utility of the good.
ANS: T PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic

24. Consumer equilibrium requires that the marginal utility per dollar spent be unequal for all goods.

25. A utility-maximizing consumer equalizes marginal utilities per dollar spent across all goods.

26. The income effect is the concept that changes in consumption of a good result from changes in
purchasing power.

27. According to the income effect, lower prices give people more purchasing power with which to
increase the quantity demanded of goods.

28. The income effect is the concept that changes in consumption of a good result from changes in
government spending.
29. The substitution effect is the concept that changes in consumption of a good result from changes in the
relative price of a competing good.

30. Changes in relative prices create substitution effects.

TOP: Income and Substitution Effects and the Law of Demand KEY: Bloom's: Knowledge
31. The substitution effect is the concept that changes in consumption of a good result from changes in the
relative price of a jointly consumed good.

ESSAY
1. Use the idea of interpersonal comparisons of utility to argue for a progressive income tax system
where people in higher income brackets are charged higher tax rates on their extra income.
ANS:
Since the marginal utility of money diminishes for each individual, it seems reasonable to suppose that
the utility a rich person derives from his/her marginal dollar is less than the utility a poor person
derives from his/her marginal dollar. If the rich person doesn't get as much utility from his/her
marginal dollar, then it won't hurt them as much to tax it away as it would hurt a poor person.
PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic

2. Michael spends $10 a month on Pez dispensers and Superman action figures. His marginal-utility-to-
price ratio for the Pez dispensers is 40, while his marginal-utility-to-price ratio for Superman action
figures is 47. Explain why Michael is not maximizing his utility and how can he change his behavior
to increase his utility?
ANS:
To maximize utility, one must consume the combination of goods where the marginal-utility-to-price
ratios of the goods are equal. Since 40 is less than 47, Michael is not maximizing his utility. He should
buy more Superman figures and fewer Pez dispensers. This would lower the marginal-utility-to-price
ratio of Superman figures and raise the marginal-utility-to-price ratio of Pez dispensers.

3. Lori plans to buy a convertible this weekend. Her two favorite cars are the BMW, which would give
her 160,000 utils of satisfaction, and the Mitsubishi Eclipse Spyder, which would give her only
124,000 utils of satisfaction. The BMW that she wants sells for $37,220, while the Mitsubishi sells for
$28,200. She can afford either car.
a. Which car will she buy in order to maximize her utility?

b. To what price will her second choice have to fall to get her to make her first choice?
ANS:
a. She will buy the Mitsubishi, because its marginal-utility-to-price ratio, 4.397, is higher
than the marginal-utility-price ratio for the BMW (4.03).
b. If the price of the BMW falls to $34,114.17 = 160,000 / 4.397, she will be indifferent
between the two. If the price of the BMW falls to $34,114.16, she will buy the BMW.

4. Justin Field just stopped at the Exxon station on the way to campus and bought four Butterfinger candy
bars, two 20-ounce bottles of grape-watermelon Snapple, and 10 gallons of gas. His marginal-utility-
to-price ratios are 3.21 for the Butterfingers, 4.8 for the Snapples, and 5.7 for the gas. Explain why this
set of purchases did not maximize Ryan's utility and how could he have increased his utility.
ANS:
He has not maximized utility because the marginal-utility-to-price ratios are not equal. He should have
bought fewer Butterfingers and more gas. We can't be sure whether he should buy more, fewer, or the
same number of Snapples to increase his utility, given the information in the question.

5. Show, using utility theory, why a consumer who is initially maximizing her utility will alter her
consumption pattern in response to a change in the price of a good.
ANS:
If marginal utilities per dollar are initially equal across all goods, a fall in the price of one will raise the
marginal utility per dollar consumed on that good. She can increase total utility by allocating more
dollars toward that good.


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Microeconomics For Today 8th Edition Tucker Test Bank Download

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Test Bank for Microeconomics for Today 8th

Edition Tucker 1133435068 9781133435068

Download full test bank at:

Chapter 6—Consumer Choice Theory

1. Utility is most closely defined by which of the following terms?

2. The ability of a good to satisfy a want refers to its:

3. In the context of consumer choice theory, utility means:

4. A util represents a unit of measurement for the:

5. The term utility refers to the:

10. Utility refers to the:

11. Utility is defined as the:

12. The utility of a good is:

13. If utility is not maximized, then:

15. When total utility is at a maximum, marginal utility is:

16. A rational consumer should not consume more of a good when:

22. Consumers tend to maximize:

26. Which of the following is true about marginal utility?

27. Marginal utility (MU) equals:

31. Utility theory assumes that marginal utility:

35. If total utility is falling, marginal utility is:

38. Marginal utility is defined as:

39. A utility-maximizing consumer would never purchase a good if the:

40. Marginal utility can be measured by the change in:

42. Marginal utility is measured by:

44. As a general rule, marginal utility will be less:

45. A fall in marginal utility reflects:

46. Marginal utility will generally decrease when:

48. If marginal utility is positive, then total utility is:

52. Marginal utility is best computed as the ratio of:

62. The principle of diminishing marginal utility says that:

71. The demand curve is downward-sloping because of the law of ____.

Exhibit 6-1 Total utility for good X

Total utility (utils) 0 80 120 148 160 155

Exhibit 6-2 Total utility for hamburgers, fries, and Cokes

Total Utility Total Utility Total Utility

Exhibit 6-3 Marginal utility data for goods X and Y

Marginal utility of Marginal utility of

Total Utility Total Utility Total Utility

106. Which of the following statements is true?

108. Consumer equilibrium exists when:

Exhibit 6-5 Marginal utility data for desserts

Quantity Brownies Ice Cream Pie

Quantity Clothes Amusement

Quantity Sandwiches Sodas

Exhibit 6-8 Bea's total utility of 3-minute telephone calls

Quantity of Total Utility of

133. If a consumer is maximizing his/her utility for a given income, the:

138. The income effect refers to a change in:

155. When the price of a normal good falls, then:

1. The utility of a good measures its usefulness.

ANS: F PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

ANS: T PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

ANS: F PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

5. As we move down a person’s demand curve, marginal utility declines.

ANS: T PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

ANS: T PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

ANS: F PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

ANS: F PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic

ANS: T PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

ANS: T PTS: 1 DIF: Easy NAT: BUSPROG: Analytic

11. Marginal utility is always a positive number.

ANS: F PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic

ANS: T PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic