Microeconomics, 4e (Hubbard/O’Brien)
Chapter 10 Consumer Choice and Behavioral Economics
10.1 Utility and Consumer Decision Making
1) Economists assume that the goal of consumers is to
A) do as little work as possible to survive.
B) make themselves as well off as possible.
C) expend all their income.
D) consume as much as possible.
2) Utility is
A) easily measured in units called utils.
B) subjective and difficult to measure.
C) the consumption of a quasi-public good like electricity or natural gas.
D) the production of a quasi-public good like electricity or natural gas.
3) Marginal utility is the
A) total satisfaction received from consuming a given number of units of a product.
B) average satisfaction received from consuming a product.
C) extra satisfaction received from consuming one more unit of a product.
D) satisfaction achieved when a consumer has had enough of a product.
4) As a consumer consumes more and more of a product in a particular time period, eventually
marginal utility
A) rises.
B) is constant.
C) declines.
D) fluctuates.
5) If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20 units
from consuming the second, and 15 from the third, the total utility of consuming the three units
is
A) 57 utility units.
B) 35 utility units.
C) 15 utility units.
D) unknown as more information is needed to determine the answer.
6) If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of
utility from consuming three candy bars, the marginal utility of the third candy bar is
A) 25 utility units.
B) 20 utility units.
C) 5 utility units.
D) unknown as more information is needed to determine the answer.
7) If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of
utility from consuming three candy bars, the marginal utility of the second candy bar is
A) 25 utility units.
B) 20 utility units.
C) 5 utility units.
D) unknown as more information is needed to determine the answer.
8) Total utility
A) cannot decrease as a person consumes more and more of a good.
B) has a constant rate of increase as a person consumes more and more of a good.
C) is equal to the sum of the marginal utilities of all units consumed.
D) is negative when marginal utility is declining.
9) If, as a person consumes more and more of a good, each additional unit adds less satisfaction
than the previous unit consumed, we are seeing the workings of
A) the law of demand.
B) the law of supply.
C) the law of increasing marginal opportunity cost.
D) the law of diminishing marginal utility.
10) The law of diminishing marginal utility states that
A) eventually total utility falls as more of a good is consumed, other things constant.
B) the extra satisfaction from consuming a good decreases as more of a good is consumed, other
things constant.
C) the extra satisfaction from consuming a good increases slowly as more of a good is
consumed, other things constant.
D) when the extra satisfaction from consuming a good becomes negative, total utility starts
falling, other things constant.
11) Marginal utility can be
A) negative.
B) zero.
C) positive.
D) positive, negative or zero.
12) Which of the following is likely to occur as the result of the law of diminishing marginal
utility?
A) Petra’s utility from her second apple was less than her satisfaction from her first orange.
B) Hudson enjoyed his second slice of pizza more than his first.
C) Sabine’s utility from her first granola bar is greater than Rachel’s utility from her second
granola bar.
D) Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant.
13) If, when you consume another piece of candy, your marginal utility is zero, then
A) you want more candy.
B) you have maximized your total utility from consuming candy.
C) you have not yet reached the point of diminishing marginal utility.
D) you should consume less candy.
14) Consumers have to make tradeoffs in deciding what to consume because
A) not all goods give them the same amount of satisfaction.
B) the prices of goods vary.
C) they are limited by a budget constraint.
D) there are not enough of all goods produced.
15) If your total satisfaction increases when you consume another unit, your marginal utility
must be
A) increasing.
B) decreasing.
C) negative.
D) positive.
16) If total utility increases at a decreasing rate as a consumer consumes more coffee, then
marginal utility must
A) remains constant.
B) increase also.
C) decrease.
D) be negative.
17) An item has utility for a consumer if it
A) is scarce.
B) has a high price.
C) is something everyone else wants.
D) generates enjoyment or satisfaction.
18) Suppose your marginal utility from consuming the 3rd slice of cake is zero, then your total
utility from consuming cake is
A) maximized.
B) decreasing.
C) negative.
D) increasing.
19) Consumers maximize total utility within their budget constraint by
A) buying the cheapest goods they can find.
B) buying whatever they like the best.
C) buying the goods with the largest marginal utility per dollar spent.
D) spending the same dollar amount for each good.
20) If a consumer always buys goods rationally, then
A) the total utilities of the different goods consumed will be equal.
B) the average utilities of the different goods consumed will be equal.
C) the marginal utility per dollar spent on all goods will be equal.
D) the marginal utility of the different goods consumed will be equal.
Table 10-1
Quantity of
Pita Wraps
Total Utility
Quantity of
Bubble Tea
Total Utility
1
60
1
40
2
102
2
70
3
132
3
91
4
144
4
106
5
144
5
112
6
138
6
115
7
128
7
115
Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is $6 and the
price of a glass of Bubble Tea is $3. Table 10-1 shows his total utility from different quantities
of the two items.
21) Refer to Table 10-1. What is Keegan’s optimal consumption bundle?
A) 3 pita wraps and 3 bubble teas
B) 3 pita wraps and 4 bubble teas
C) 4 pita wraps and 2 bubble teas
D) 5 pita wraps and 0 bubble teas
22) Refer to Table 10-1. If Keegan can drink all the bubble tea he wants for free, how many
glasses will he consume?
A) 4 glasses
B) 5 glasses
C) 6 glasses
D) 7 glasses
23) Carolyn spends her income on popular magazines and music CDs. If the price of a CD is
four times the price of a magazine and if Carolyn is maximizing her utility, she buys
A) both goods until the marginal utility of the last CD purchased is four times the marginal
utility of the last magazine purchased.
B) both goods until the marginal utility of the last magazine purchased is four times the marginal
utility of the last CD purchased.
C) four times as much magazines as CDs.
D) four times as much CDs as magazines.
24) Suppose Joe is maximizing total utility within his budget constraint. If the price of the last
pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last
shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra
satisfaction received from the last shirt must be
A) 2,000 units of utility.
B) 500 units of utility.
C) 100 units of utility.
D) 80 units of utility.
25) Avner is maximizing total utility by buying sports magazines and protein supplements. For
him to buy more sports magazines,
A) the price of protein supplements. has to fall.
B) the price of sports magazines has to fall.
C) the price of sports magazines has to rise.
D) Since Avner is maximizing his utility, nothing can change the consumption of sports
magazines.
26) Most people would prefer to drive a luxury car that has all the options, but more people buy
less expensive cars even though they could afford the luxury car because
A) car buyers are irrational.
B) the total utility of less expensive cars is greater than that of luxury cars.
C) the marginal utility per dollar spent on the less expensive car is higher than that spent on
luxury cars.
D) luxury cars cost a lot more than non-luxury cars.
27) If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit,
and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she
A) is maximizing total utility and does not want to change their consumption of ankle socks or
bandanas.
B) wants to consume more ankle socks and fewer bandanas.
C) wants to consume more of bandanas and fewer ankle socks.
D) wants to consume less of both ankle sock and bandanas.
28) If Marlowe obtains 9 units of utility per dollar spent on apples and 6 units of utility per dollar
spent on oranges, then Marlowe
A) is maximizing total utility.
B) should buy more apples and fewer oranges.
C) should buy more oranges and fewer apples.
D) should buy fewer oranges and fewer apples.
29) If Callum is consuming his utility maximizing bundle and the price of one good rises, what
happens to the marginal utility per dollar spent on this good (MU/P), and what should Callum
do?
A) MU/P has increased and Callum should buy more of this good.
B) MU/P has increased and Callum should buy less of this good.
C) MU/P has decreased and Callum should buy more of this good.
D) MU/P has decreased and Callum should buy less of this good.
30) If Ewan is consuming his utility maximizing bundle and the price of one good falls, what
happens to the marginal utility per dollar spent on this good (MU/P), and what should Ewan do?
A) MU/P has increased and Ewan should buy more of this good.
B) MU/P has increased and Ewan should buy less of this good.
C) MU/P has decreased and Ewan should buy more of this good.
D) MU/P has decreased and Ewan should buy less of this good.
31) When the price of audio books, a normal good, falls, causing your purchasing power to rise,
you buy more of them due to
A) the substitution effect.
B) the income effect.
C) the deadweight loss effect.
D) the elasticity effect.
32) When the price of summer tank tops falls and you buy more of them because they are
relatively less expensive, this is called
A) the substitution effect.
B) the income effect.
C) the deadweight loss effect.
D) the elasticity effect.
33) The substitution effect of an increase in the price of Raisin Bran refers to
A) the decrease in the demand for Raisin Bran when its price rises.
B) the result that consumers will now switch to a substitute good such as Cheerios, and the
demand curve for Raisin Bran shifts to the left.
C) the fact that the higher price of Raisin Bran lowers consumer’s purchasing power, holding
money income constant.
D) the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, cause
consumers to buy less Raisin Bran.
34) The income effect of an increase in the price of salmon
A) is the change in the demand for salmon when income increases.
B) refers to the relative price effect – salmon is more expensive compared to other types of fish –
which causes the consumer to buy less salmon.
C) refers to the effect on a consumer’s purchasing power which causes the consumer to buy less
salmon, holding all other factors constant.
D) is the change in the demand for other types of fish, say trout, that result from a decrease in
purchasing power.
35) If the price of lattes, a normal good you enjoy, falls,
A) the income and substitution effects offset each other but the price effect leads you to buy
more lattes.
B) both the income and substitution effects lead you to buy more lattes.
C) the income effect which causes you to increase your latte consumption outweighs the
substitution effect which causes you to reduce your latte consumption, resulting in more latte
purchased.
D) the substitution effect which causes you to increase your latte consumption outweighs the
income effect which causes you to reduce your latte consumption, resulting in more latte
purchased.
36) If the price of muffins, a normal good you enjoy, rises,
A) the income and substitution effects offset each other but the price effect leads you to buy
fewer muffins.
B) both the income and substitution effects lead you to buy fewer muffins.
C) the substitution effect which causes you to decrease your muffin consumption outweighs the
income effect which causes you to increase your muffin consumption, resulting in fewer muffins
purchased.
D) the income effect which causes you to decrease your muffin consumption outweighs the
substitution effect which causes you to increase your muffin consumption, resulting in fewer
muffins purchased.
37) The demand curve for corn is downward sloping. If the price of corn, an inferior good, falls,
A) the income effect which causes you to reduce your corn purchases is smaller than the
substitution effect which causes you to increase your corn purchases, resulting in a net increase
in quantity demanded.
B) the income effect which causes you to increase your corn purchases is larger than the
substitution effect which causes you to reduce your corn purchases, resulting in a net increase in
quantity demanded.
C) both the income and substitution effects reinforce each other to increase the quantity
demanded.
D) the income and substitution effects offset each other but the price effect of an inferior good
leads you to buy less corn.
38) The demand curve for canned peas is downward sloping. If the price of canned peas, an
inferior good, rises,
A) the income effect which causes you to reduce your canned peas purchases is smaller than the
substitution effect which causes you to increase your purchases, resulting in a net increase in
quantity demanded.
B) the income effect which causes you to increase your canned peas purchases is smaller than the
substitution effect which causes you to reduce your purchases, resulting in a net decrease in
quantity demanded.
C) both the income and substitution effects reinforce each other to decrease the quantity
demanded.
D) the income and substitution effects offset each other but the price effect of an inferior good
leads you to buy more canned peas.
39) Consider a downward-sloping demand curve. When the price of an inferior good increases,
the income and substitution effects
A) work in the same direction to increase quantity demanded.
B) work in the same direction to decrease quantity demanded.
C) work in opposite directions and quantity demanded increases.
D) work in opposite directions and quantity demanded decreases.
40) Consider a downward-sloping demand curve. When the price of an inferior good decreases,
the income and substitution effects
A) work in the same direction to increase quantity demanded.
B) work in the same direction to decrease quantity demanded.
C) work in opposite directions and quantity demanded increases.
D) work in opposite directions and quantity demanded decreases.
41) Consider a downward-sloping demand curve. When the price of a normal good increases, the
income and substitution effects
A) work in the same direction to increase quantity demanded.
B) work in the same direction to decrease quantity demanded.
C) work in opposite directions and quantity demanded increases.
D) work in opposite directions and quantity demanded decreases.
42) Consider a downward-sloping demand curve. When the price of a normal good decreases,
the income and substitution effects
A) work in the same direction to increase quantity demanded.
B) work in the same direction to decrease quantity demanded.
C) work in opposite directions and quantity demanded increases.
D) work in opposite directions and quantity demanded decreases.
Table 10-2
Quantity of
Soup (cups)
Total Utility
Quantity of
Sandwiches
Total Utility
1
40
1
45
2
60
2
75
3
72
3
102
4
82
4
120
5
88
5
135
6
90
6
145
Table 10-2 above shows Keira’s utility from soup and sandwiches. The price of soup is $2 per
cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods.
43) Refer to Table 10-2. What is Keira’s marginal utility per dollar spent on the third cup of
soup?
A) 72 units of utility
B) 36 units of utility
C) 12 units of utility
D) 6 units of utility
44) Refer to Table 10-2. If Keira maximizes her utility, how many units of each good should she
buy?
A) 1 cup of soup and 5 sandwiches
B) 3 cups of soup and 4 sandwiches
C) 6 cups of soup and 2 sandwiches
D) 4 cups of soup and 3.5 sandwiches
45) Refer to Table 10-2. Suppose Keira’s income increases from $18 to $23 but prices have not
changed. What is her utility maximizing bundle now?
A) 6 cups of soup and 5 sandwiches
B) 4 cups of soup and 5 sandwiches
C) 5 cups of soup and 4 sandwiches
D) 5 cups of soup and 5 sandwiches
46) Refer to Table 10-2. Holding prices constant, when Keira’s income changed from $18 to
$23, her utility maximizing bundle changed. Based on your answers to her optimal choices at the
two income levels, what type of goods are soup and sandwiches?
A) Soup is an inferior good and sandwiches are a normal good.
B) Soup is a normal good and sandwiches are an inferior good.
C) Both soup and sandwiches are normal goods.
D) Both soup and sandwiches are inferior goods.
47) Refer to Table 10-2. Holding prices constant, when Keira’s income changed from $18 to
$23, what happens to her total utility and to the marginal utilities of the last cup of soup and the
last sandwich purchased?
A) Her total utility increases but the marginal utilities of the last cup of soup and the last
sandwich consumed decrease.
B) Her total utility, the marginal utility of the last cup of soup consumed and the marginal utility
of the last sandwich consumed, all increase.
C) Her total utility decreases but the marginal utilities of the last cup of soup and the last
sandwich consumed increase.
D) Her total utility and the marginal utility of the last cup of soup consumed increase but
marginal utility of the last sandwich consumed decreases.
E) Her total utility and the marginal utility of the last sandwich consumed increase but marginal
utility of the last cup of soup consumed decreases.
48) Adhira buys chocolates and almonds. She has 3 bars of chocolates and 4 bags of almonds.
The marginal utility of the third chocolate bar is 18 units of utility and the marginal utility from
the fourth bag of almonds is also 18. Is Adhira maximizing her utility?
A) Yes, the marginal utility from the last unit of each good is equal.
B) No, she must buy 1 more chocolate bar to equate her quantities of the two goods.
C) No, she must buy cut back to 3 bags of almonds to equate her quantities of the two goods.
D) No, without information on her income and the prices of the two goods, we cannot answer the
question.
49) If you received negative marginal utility from consuming the 4th slice of pizza, then your
total utility from 4 slices of pizza must be less than your total utility from 3 slices of pizza.
50) When diminishing marginal utility sets in, total utility must be negative.
51) A consumer maximizes her total utility from a bundle of goods when her marginal utility
from each good is equal.
52) The economic model of consumer behavior explains how consumers’ tastes and preferences
are formed.
53) The income effect of a price increase causes a decrease in the quantity demanded of a normal
good.