Principles of Economics: Marginal Utility and Consumer Choice

Marginal Utility and Consumer Choice

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1. Tiffany earns $50 a week from her part-time job which she uses to buy CDs and books. To maximize the utility she gets from all her purchases, she will spend her money so that: a. the last CD she purchases has the same price as the last book.
b. she gets the same total utility from CDs as from books.
c. the last unit of every good she purchases has the same marginal utility.

2. As we consume more of any good,: a. total utility decreases and marginal utility decreases.
b. total utility decreases and marginal utility increases.
c. total utility increases and marginal utility decreases.
d. total utility increases and marginal utility increases.

3. The "Law of Demand" says that: a. the quantity demanded of a good is independent of price.
b. consumer demand ultimately decides what will be produced.
c. when the price of a good falls, the quantity purchased will increase.
d. if the price of a good increases, the marginal utility per dollar must increase.

4. Oranges cost $0.50 each, and I plan to buy four of them. But when I get to the store, oranges now cost $0.25 each. As a consequence,: a. the marginal utility per dollar of the fourth orange increases.
b. I will consumer fewer than four oranges.
c. the law of demand has been violated.
d. consumer surplus decreases.

5. Sue has $6 to spend. She purchases 3 candy bars, each priced at $1, and 1 magazine, which has a price of $2. From this we know that: a. the marginal utility of the first magazine must be twice that of the third candy bar.
b. the marginal utility per dollar of the third candy bar consumed must be the same as the marginal utility per dollar of the first magazine consumed.
c. the total utility provided by the 3 candy bars must be greater than the total utility provided by the first magazine.
d. a and b.
e. a, b and c.

6. Sue still has $6 to spend on candy bars, which still have a price of $1 but the price of magazines has increased from $2 to $6. At the old prices, Sue bought 3 candy bars and 1 magazine. At the new prices we would expect Sue to: a. buy 3 candy bars and 1 magazine.
b. buy more than 3 candy bars and no magazines.
c. buy fewer than 3 candy bars because the price of the magazine she buys has gone up.
d. purchase the same goods, since she has the same budget.

7. The fact that Sue chooses fewer magazines in question 4 than in question 3 demonstrates: a. the principle of consumer surplus.
b. the principle of consumer sovereignty.
c. the law of demand.
d. the law of increasing costs.

8. Water is scarce in desert regions, so the marginal utility of the last liter consumed is: a. zero.
b. low.
c. high.
d. equal to price.
e. equal to demand.

9. The difference between the maximum amount a person would have been willing to pay for a good and the amount that a person actually pays is called: a. marginal utility.
b. equalization principle.
c. auction pricing.
d. consumer surplus.
e. a supply curve.

10. The marginal utility curve which is shown in this figure: a. increases, but by smaller and smaller amounts as more is consumed.
b. increases by larger and larger amounts as more is consumed.
c. decreases.
d. none of the above.

11. The total utility curve which is shown in this figure: a. increases, but by smaller and smaller amounts as more is consumed.
b. increases by larger and larger amounts as more is consumed.
c. decreases.
d. none of the above.

12. Utility: a. is a measure of the satisfaction we get from consuming goods and services.
b. can be compared between individuals.
c. is always positive.
d. is all of the above.

13. The marginal utility of a good tells us: a. the satisfaction we gain from our total consumption of a good.
b. the satisfaction we gain from the last unit of the good we consume.
c. the difference between what we pay for a good and how much satisfaction we get from it.
d. whether we should increase our consumption of the good.

14. My Uncle Ed ate four pieces of pie at Thanksgiving dinner and was sick after eating the fourth piece. An economist would say that: a. the fourth piece of pie had negative marginal utility.
b. total utility decreased with the fourth piece of pie.
c. total utility was maximized at less than four pieces of pie.
d. all of the above.
e. none of the above.

15. Total utility: a. is always at least as great as marginal utility.
b. can never decrease.
c. is the same as consumer surplus.
d. is measured in utils per dollar.