Quiz 06: Consumer Choice and Demand
Dale is willing to pay $300 for a pair of Rollerblades and he purchases them on sale for $200. His consumer surplus is valued at:
$100
Suppose Hannah spends $3 to buy five biscuits. The marginal utility of the fifth biscuit is valued at $0.60. The total utility derived from five biscuits is valued at $4.20. Hannah's consumer surplus is valued at _____.
$1.20
If marginal utility is positive, then total utility is:
INCREASING
"I don't feel so good; I shouldn't have had that last doughnut." Which of the following supports this statement?
The marginal utility of the last doughnut was negative.
Which of the following statements is true?
The time price is usually less for low-wage workers than for high-wage workers.
Marginal utility is the:
additional satisfaction obtained from consuming one more unit of a good.
If total utility can be increased by purchasing a little more milk and a little less ice cream, the:
ratio of marginal utility of milk to its price is greater than that of ice cream
If Jennie spends her income on ice cream and biscuits and the price of ice cream is three times the price of biscuits, then:
she buys biscuits and ice cream until the marginal utility of ice cream is three times the marginal utility of biscuits.
According to the utility theory, in "consumer equilibrium," households have:
spent their incomes in such a way that their overall satisfaction is maximized.
If a good is offered free of charge, one would:
stop consuming it when its marginal utility has declined to zero.
Total utility is the:
sum of all marginal utilities.
The consumer surplus derived from the last unit of a good purchased:
tends to be equal to zero.
Although some tastes do change over time, economists believe that tastes are relatively stable. If tastes were not stable enough, then _____.
the "other-things-constant" assumption required for demand analysis could not be made.
Marginal utility is:
the addition to total satisfaction resulting from an additional unit of consumption.
Along the demand curve for a good, _____.
the dollar value of marginal utility changes
A consumer might buy from a high-priced local hardware store instead of going to a big discount store several miles away because:
the local hardware store is a bargain for people who value time highly.
The reason why Diana does not drink five cups of coffee at breakfast is that:
the marginal utility derived from the fifth cup of coffee is negative.
The marginal utility of a second copy of today's New York Times is:
PRACTICALLY ZERO
Suppose John goes to a wedding reception where free drinks are served. He will drink until the marginal utility of an additional drink is _____.
ZERO
Utility is:
hard to measure because it is a subjective concept.
Jerry consumes three hamburgers at McDonald's. He figures out that the last hamburger he ate was just worth the price he paid for it. If the price of a hamburger is $1, _____.
he has a consumer surplus on the first two hamburgers
Ed is willing to pay a maximum of $200 for a tweed sport coat but buys one for $180. The $20 saved is:
his consumer surplus.
As long as scarcity exists, _____.
income and product prices should both be considered for consumers' utility maximization
At a zero price, the consumer surplus of all buyers in a market:
is equal to the value of the total utility derived from the consumption of goods.
Demand for a service like medical care:
is sensitive to the time component of cost.
When consumers are required to pay a fraction of the cost of their medical treatment:
it increases the financial burden of most consumers.
The law of diminishing marginal utility states that as one consumes more and more of a good, other things constant, _____.
marginal utility eventually declines
Consumer surplus is:
valued by the difference between the maximum price consumers are willing to pay and the amount they actually pay.
After paying the price of admission, Alan enters King's Island Amusement Park near Fujiwara. He sees boards listing the waiting times for each attraction and ride. At that point, Alan's marginal dollar cost of each attraction and ride is:
zero, so he will base his next move on the marginal time costs of each attraction or ride.
Elvis values the first gravy sandwich at $5, the second at $4.50, the third at $4. If he buys three for $4 each, his consumer surplus has a value of:
$1.50
If Joel buys ten floppy disks, which are worth a total of $30 to him, and he pays $1 per disk, his consumer surplus is:
$20
Suppose Debbie is willing to pay $50 for a pair of shoes but has to pay $20 because the shoes are on sale. Her consumer surplus is:
$30
The difference between the maximum amount a person is willing to pay for a given quantity of a good and the amount actually paid for that quantity is known as:
CONSUMER SURPLUS
_____ can be used to compare the effects of different market structures, tax structures, and public programs on consumer well-being.
CONSUMER SURPLUS
Suppose Lorna buys more sweaters even if the price of sweaters rises. Other things constant, she is acting contrary to the law of _____.
DEMAND
Opportunity cost is measurable only when prices are known.
FALSE
A utility-maximizing consumer equalizes marginal utilities across all goods.
FALSE
As a consumer buys more of a good, the total utility from consumption of the good always increases at an increasing rate.
FALSE
Consumers must understand the economist's law of diminishing marginal utility in order to maximize their satisfaction.
FALSE
For any given price, the more elastic is the demand for a good, the greater will be the consumer surplus.
FALSE
Marginal utility can be objectively measured and compared between one individual and another.
FALSE
Suppose the marginal utility of a unit of good x = MUx, the marginal utility of a unit of good y = MUy, Px= price of a unit of good x, and Py= price of a unit of a good y. If MUx/Px > MUy/Py, the consumer should maintain his or her current allocation of expenditures.
FALSE
The law of diminishing marginal utility explains why an individual's demand curve is elastic.
FALSE
The marginal utility from an additional unit of a good is positive when consumption of an extra unit of the good causes disutility.
FALSE
Suppose Sally allocates her budget between two goods, A and B. She spends her entire income on a combination of A and B, for which the ratio of marginal utility of good A to its price exceeds the ratio of marginal utility of good B to its price. She can increase her total utility by buying:
MORE A AND LESS B
When total utility falls, marginal utility is _____.
NEGATIVE
A business executive who buys a portable computer so that she can work while flying is trying to reduce the cost of traveling.
TRUE
A free good will be consumed up to the point at which its marginal utility is positive.
TRUE
Demand curves usually slope downward because of the income and substitution effects of a price change of a good and the law of diminishing marginal utility.
TRUE
Different people may have different tastes, but their tastes normally do not change rapidly over time.
TRUE
If marginal utility is negative, total utility declines, but is not necessarily negative.
TRUE
Joshua consumes pizza and cola in such a way that the marginal utility of per dollar spent on the last piece of pizza is 3 units and that of the last cola is 1.5 units. Thus, Joshua should spend more on pizza and less on cola in order to maximize his utility.
TRUE
Positive marginal utility implies increasing total utility.
TRUE
Suppose the marginal utility of a unit of good x = MUx, the marginal utility of a unit of good y = MUy, Px= price of a unit of good x, and Py= price of a unit of a good y. If MUx/Px > MUy/Py, the consumer can increase utility by buying more of good x.
TRUE
Suppose the marginal utility of a unit of good x = MUx, the marginal utility of a unit of good y = MUy, Px= price of a unit of good x, and Py= price of a unit of a good y. If MUx/Px > MUy/Py, the consumer should consume more of good x and less of good y.
TRUE
The consumption of goods and services has both a money price and a time price.
TRUE
The fact that paper towels are available free of cost in a washroom suggests that the marginal utility of paper towels diminishes to zero for each individual.
TRUE
The law of diminishing marginal utility states that the marginal utility of my tenth pistachio is less than the marginal utility of my third pistachio, other things constant.
TRUE
The marginal utility of the fifth hot dog is less than the marginal utility of the second hot dog, other things constant.
TRUE
The market demand curve is the sum of individual quantities demanded at each price.
TRUE
Which of the following is true when the price of a good is zero?
A consumer will consume additional units of the good as long as marginal utility is positive.
Which of the following people is least likely to clip discount coupons?
A high-priced consultant
Which of the following is an example of diminishing marginal utility?
A person eating more Twinkies but enjoying each successive Twinkie less than the previous one
Which of the following people would least likely search the newspaper advertisements for bargains?
An attorney earning $100 per hour
Which of the following statements is not true of consumer preferences?
Arnie enjoys two cotton candies more than Pat enjoys one cotton candy.
Which of the following is true when the price of a good falls?
Consumer surplus always increases.
If Dalene's marginal benefit from consuming another cookie is greater than the price of the cookie, then _____.
Dalene will purchase more cookies as her marginal utility will increase with the additional purchase
Which of the following is true of "cabin fever"?
Each additional cold day adds disutility.
Fernando allocates his lunch money between pizza and Coke. A slice of pizza costs $1.50 and a can of Coke costs $1. The marginal utility of the last slice of pizza Fernando ate that day was 30 units, and the marginal utility of the last can of Coke was 25 units. If Fernando decides to spend all of his lunch money, then identify the correct statement.
Fernando's total utility would have been greater if he had purchased more Coke and less pizza.
Fred truthfully tells a car dealer that the maximum amount he is willing to pay for a Ford Mustang is $20,000. The dealer says, "You're lucky; we have only one left on the lot for $20,000." Which of the following statements is true?
Fred gets no consumer surplus.
Tyrell has $50 to spend on good A and good B per week. The price of good A is $5 and that of good B is $4. He buys six units of good A and five units of good B. The marginal utility of the sixth unit of A is 25 units, and the marginal utility of the fifth unit of B is 20 units. Which of the following is true?
He is maximizing his utility.
Dale spends his entire budget in such a way that the marginal utility per dollar spent on each good is identical. Which of the following is true?
He will reduce his utility if he reallocates his income.
Suppose Jason's marginal utility of the $50-per-serving caviar is 100 units and that of the $1-per-serving popcorn is 10 units. Which of the following combinations of snacks would he prefer to buy?
Irrespective of the amount of money he has, he will always buy popcorn.
Arthur has $7,800 dollars. He goes into an upscale men's store and buys 32 green sweaters, each costing $200. If Arthur has maximized his utility from this purchase, which of the following is the marginal utility of the thirty-third green sweater?
Less than $200
Suppose the marginal utility of a unit of good x = MUx, the marginal utility of a unit of good y = MUy, Px= price of a unit of good x, and Py= price of a unit of a good y. A utility-maximizing consumer who purchases two goods, x and y, allocates her budget in such a way that _____.
MUx/Px = MUy/Py
Carvel advertises a football-shaped ice cream cake for $7; you can buy a second one for only $4. What do they know about consumer preferences?
Marginal utility of ice cream cakes diminishes.
Annie reallocates her budget until the ratios of marginal utilities of goods equal the ratios of their prices. Which of the following is true of Annie's behavior?
She maximizes her total utility derived from the consumption of goods.
If the price of a good increases and an individual's demand is elastic, identify the correct statement about total utility (TU), marginal utility (MU), consumer surplus (CS), and total expenditure (TE).
TU decreases, MU increases, CS decreases, and TE decreases.
Which of the following illustrates the law of diminishing marginal utility?
The marginal utility of Diane's second Coke is greater than the marginal utility of her third Coke, other things constant.
Suppose Enid could increase her total utility by purchasing one more book and one less DVD. Which of the following is true?
The marginal utility of per dollar spent on books exceeds that of DVDs.
"The second glass of Evian water was very good. May I have another?" Which of the following is necessarily true regarding this statement?
The marginal utility of the second glass of water was positive.
Mark's marginal utility of a third waffle is 10 units and marginal utility of a second slice of ham is 30 units. If Mark eats the third waffle, which of the following statements is true?
The price of a waffle is less than one-third the price of a slice of ham.
Basil maximizes his utility by allocating his budget between tea and crumpets. If the marginal utility of his last cup of tea was 24 units of utility and that of his last crumpet was 6 units of utility, then which of the following is true?
The price of tea is four times the price of crumpets.
Which of the following varies along the demand curve for a good?
The price of the good itself
Sally wants to visit Orlando during the week-long spring break. She can get there by bus in two and one-half days or fly there in four hours. The round trip by bus and plane would cost $20 and $200, respectively. Which of the following is not true?
The true cost of going to Orlando is either the time or the money she spends traveling, whichever she values more.
Which of the following is true of units of utility?
They cannot be compared across consumers.
Which of the following statements is true of utility?
Utility is a subjective measure of satisfaction an individual receives from consuming a good or service.
A consumer's utility is maximized when the marginal utilities derived from additional units of goods:
are exactly proportional to their market prices.
People who use drive-through windows at restaurants and eat while on the road:
are likely to have a high opportunity cost of time.
Consumer tastes and preferences:
are relatively stable over time.
Diminishing marginal utility means that:
as one consumes more of a good, other things constant, the additional satisfaction obtained from each additional unit of the good tends to fall.
If medical care is provided free of charge, _____.
beneficiaries will consume it up to the point at which the marginal utility of the final unit is zero
Suppose Annie allocates her income between calzones and juices and that she has not yet spent her entire income. If the marginal utility of a fourth calzone is 100 units and the marginal utility of a third glass of juice is 50 units, she will:
consider the relative prices of calzones and juices before deciding what to consume next.
As price falls along the demand curve for pretzels, _____.
consumer expenditure changes
Utility is determined by _____.
consumer tastes and preferences
A decrease in price along the elastic segment of a demand curve will:
decrease marginal utility and increase total utility.
Consumer preferences:
determine the utility derived from goods.
According to the law of _____, the marginal utility received from each additional unit of a good consumed declines, other things constant.
diminishing marginal utility
While purchasing diamonds and water, a consumer would maximize utility by:
equating the marginal utility per dollar spent on each good.
The law of diminishing marginal utility states that:
marginal utility falls as more of a good is consumed, other things constant.
As a consumer allocates income between good A and good B, total utility is maximized when:
marginal utility of A/price of A = marginal utility of B/price of B
Newspaper vending machines illustrate the publishers' belief that the:
marginal utility of a second identical newspaper is zero or less.
Water is essential to life, while diamonds are not. However, water is cheap and diamonds are expensive. This paradox can be resolved by focusing on:
marginal utility rather than total utility.
Suppose the price of a glass of orange juice is $2 and that of a glass of soft drink is $1. A utility-maximizing consumer would buy:
more glasses of juice as a glass of juice has higher marginal utility than a glass of soft drink.
Arnold is a utility-maximizing consumer. If he thinks his last dollar spent on playing golf yields less satisfaction than the last dollar spent on movies, he should:
play less golf and spend more on movies.
The law of demand states that:
quantity demanded is inversely related to price.
If the price of a good falls, _____.
the marginal utility of per dollar spent on consuming a specific unit of that good rises
As price falls along the demand curve for pretzels, _____.
the marginal valuation of pretzels decreases
Consumers derive consumer surplus when:
the monetary value of total utility is greater than total expenditure.
The cost of consumption has two components, _____.
the money price and the time price
A consumer's willingness to pay additional money for time-saving goods depends primarily on:
the opportunity cost of his or her time.
In order to derive a demand curve for cheese, one would change:
the price of cheese and hold other things constant.
Suppose Shawn dines at a restaurant that serves clams at a fixed price and crab legs at a varied, market-determined price. The marginal utility of an order of crab legs is 100 units, and the marginal utility of an order of clams is 50 units. Shawn orders crab legs in one week but he orders clams in the next week. This means that in the second week:
the price of crab legs has increased more than twice that of clams.
Utility is:
the sense of pleasure or satisfaction derived from consuming goods and services.
If the amount paid for a good by consumers reflected the value of the total benefits they receive from consuming it:
the value of consumer surplus would be zero.
Negative marginal utility implies that:
total utility decreases as additional units of a good are consumed.
