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Topic 5

This document contains 11 multiple choice questions that test understanding of concepts related to consumer behavior and utility maximization, including: - The definition of a product having utility - The law of diminishing marginal utility, which states that additional units of a product yield less extra satisfaction - How to calculate marginal and total utility from consumption data - Why consumer demand curves slope downward - The conditions for a consumer to maximize utility given prices and income - Assumptions of consumer theory, such as rational behavior and limited income - Whether total utility must always decline if marginal utility is diminishing - How to determine if a consumer should buy more or less of two goods based on marginal utility and price The questions cover

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343 views3 pages

Topic 5

This document contains 11 multiple choice questions that test understanding of concepts related to consumer behavior and utility maximization, including: - The definition of a product having utility - The law of diminishing marginal utility, which states that additional units of a product yield less extra satisfaction - How to calculate marginal and total utility from consumption data - Why consumer demand curves slope downward - The conditions for a consumer to maximize utility given prices and income - Assumptions of consumer theory, such as rational behavior and limited income - Whether total utility must always decline if marginal utility is diminishing - How to determine if a consumer should buy more or less of two goods based on marginal utility and price The questions cover

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Multiple choice - topic 5

1: A product has utility if it:


A: takes more and more resources to produce successive units of it.
B: violates the law of demand.
C: satisfies consumer wants.
D: is useful.

2: The ‘law of diminishing marginal utility’ states that:

A: total utility is maximised when consumers obtain the same amount of utility, per unit, of
each product consumed.
B: beyond some point, additional units of a given product will yield less and less extra
satisfaction to a consumer.
C: the price must be lowered, in order to induce firms to supply more of a product.
D: it will take larger and larger amounts of resources, beyond some point, to produce
successive units of a product.

3.: The first meat pie yields, for Craig, 18 units of utility and the second yields him an
additional 12 units of utility. His total utility from three meat pies is 38 units of utility. The
marginal utility of the third meat pie:

A: is 26 units of utility.
B: is 6 units of utility.
C: is 8 units of utility.
D: cannot be determined from the information given.

4: Total utility may be determined by:

A: multiplying the marginal utility of the last unit consumed by the number of units
consumed.
B: summing the marginal utilities of each unit consumed.
C: multiplying the marginal utility of the last unit consumed by product price.
D: multiplying the marginal utility of the first unit consumed by the number of units
consumed.

5: A consumer's demand curve for a product is downsloping because:

A: total utility falls below marginal utility as more of a product is consumed.


B: marginal utility diminishes as more of a product is consumed.
C: time becomes less valuable as more of a product is consumed.
D: the income and substitution effects precisely offset each other.

6: Suppose that MUx/Px for good X exceeds MUy/Py for good Y. To maximise utility, the
consumer who is exhausting his/her money income, should buy:
A: less of X only if its price rises.
B: more of Y only if its price rises.
C: more of Y and less of X.
D: more of X and less of Y.

Test bank t/a Economic Principles by Jackson et al. 4-1


The following two schedules show the amounts of additional satisfaction (marginal utility)
which a consumer would get from successive quantities of products J and K.

Units Units
of J MUj of K MUk
1 56 1 32
2 48 2 28
3 32 3 24
4 24 4 20
5 20 5 12
6 16 6 10
7 12 7 8

7: Refer to the above information. If the consumer has a money income of $52 and the prices
of J and K are $8 and $4 respectively, the consumer will maximise his/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.

8: A consumer is maximising his/her utility with a given money income when:

A: the total utility derived from each product consumed is the same.
B: MUa/Pa = MUb/Pb = MUc/Pc = … = MUn/Pn
C: MUa = MUb = MUc = … = MUn
D: Pa = Pb = Pc = … = Pn

9: The theory of consumer behaviour assumes:

A: that consumers behave rationally in that they seek to maximise their satisfactions.
B: that the consumer has a limited income.
C: that consumers know how much marginal utility they obtain from successive units of
various products.
D: all of the above.

10: If marginal utility is diminishing, total utility must also be declining.

A: True
B: False

11: If PA = 5 and MUA = 10, while PB = 1 and MUB = 3, the consumer should buy more of
good B and less of good A.

A: True
B: False

Test bank t/a Economic Principles by Jackson et al. 4-2


Test bank t/a Economic Principles by Jackson et al. 4-3

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