Microeconomics

Tutorial 4

Multiple-Choice Questions (MCQ)

1. Total utility is maximum when marginal utility is

A. Positive
B. Maximum
C. Zero
D. Negative

2. If the total utility for the 3rd and 4th units of a good consumed are 83 and 97
respectively, calculate the marginal utility for the 4 th unit.
A. -14
B. 14
C. 83
D. 97

3. The law of diminishing marginal utility implies that as a person consumes

more and more of a given good
A. Marginal utility will decline
B. Total utility will fall and then rise
C. Marginal utility becomes negative
D. Total utility will decline

4. If the demand price for a pair of sneakers is RM100 and the market price is
RM75, the consumer surplus is
A. RM25
B. RM50
C. RM75
D. RM175

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 5. If price of Banana if RM5, and the price of Rambutan is RM4, which of the
following bundles (Banana, Rambutan) is affordable when your income is
RM25?
A. (0, 7)
B. (3,3)
C. (3,2)
D. (2,4)

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 6. A budget line shows
A. All equilibrium points on an indifference map
B. All possible combinations of 2 goods which yield the same level of utility to
the consumer
C. The amount of product A which a consumer is willing to give up to obtain
one more unit of product B
D. All possible combinations of 2 goods which can be purchased, given
money income and the prices of the goods.

Structured Questions

1. Lee consumes Magnum ice cream and Cadbury Chocolate. His

consumption yields the following total utility, as shown in the table.
Lee has RM52 to spend. The price of Magnum is RM8 and Cadbury
is RM4 each.

Quantity (units) Total Utility

Magnum Ice Cream Cadbury Chocolate
1 56 32
2 104 60
3 136 84
4 160 104
5 170 116
6 176 126
7 178 134

a) Calculate the marginal utility for each good.

Quantity Marginal Utility
(units)
Magnum Cadbury
1
2
3
4
5
6
7

b) How many units of Magnum and Cadbury should Lee buy to maximize his
utility with the income of RM52?

c) What is the total utility received by Lee at equilibrium?

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 d) If Lee’s income decreased to RM28, what quantities of Magnum and Cadbury
should he purchase to maximise utility?

e) What is Lee’s new total utility at equilibrium?

2. State and explain the law of diminishing marginal utility.

3. Explain 4 characteristics of an indifference curve.

4. Define utility, and explain the relationship between total utility and marginal utility.
Please use graphs and/ or table as illustrations.

5. Define consumer surplus. Provide your explanation with appropriate graph.

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