Microeconomics, 4e – Testbank 2 (Hubbard)
Chapter 10 Consumer Choice and Behavioral Economics
10.1 Utility and Consumer Decision Making
1) Economists usually assume that people act in a rational, self-interested way. In explaining
how consumers make choices this means that economists believe
A) consumers will always buy goods and services at the lowest possible prices.
B) consumers spend their incomes to order to accumulate the most goods and services.
C) consumers make choices that will leave them as satisfied as possible given their incomes,
tastes and the prices of goods and services available to them.
D) consumers will spend their incomes and time on activities that benefit themselves as much as
possible, without regard to the welfare of others.
2) The satisfaction a person receives from consuming goods and services is called
A) contentment.
B) psychic income.
C) wealth.
D) utility.
3) The economic model of consumer behavior predicts that
A) consumers will try to earn as much income as they can over their lifetimes.
B) consumers will choose to buy the combination of goods and services that make them as well
off as possible from those combinations that their budgets allow them to buy.
C) consumers will try to accumulate as many goods and services as they can before they die.
D) consumers divide their time between consumption and leisure activities in order to maximize
social welfare.
4) An economist observes two consumers in a supermarket. One of the consumers buys a case of
Coca-Cola and the other buys a case of Pepsi-Cola. Both colas sell for the same price and the
ages and incomes of the consumers are also the same. Based on this information, how would the
economist explain the consumers’ choices?
A) One of the consumers made the wrong choice, but it is impossible to say which one.
B) Both consumers should have considered buying other colas that had lower prices.
C) Both consumers should have purchased less than a case because they would be able to buy
more later.
D) Apparently, the consumers had different tastes.
5) The word “util” has been used by economists in the past as an objective measure of utility.
Today economists believe that
A) utility cannot be measured objectively.
B) utility can be measured objectively because people can use prices of different goods to
measure utility.
C) all of the important conclusions of the economic model of consumer behavior depend on
utility being measured objectively.
D) the util truly is an objective, rather than a subjective, measure of utility.
6) Suppose the marginal utilities for the first three cans of soda are 100, 80 and 60, respectively.
The total utility received from consuming 2 cans is
A) 20.
B) 80.
C) 90.
D) 180.
7) The additional utility that George receives from consuming one more slice of pizza is called
A) average utility.
B) marginal utility.
C) total utility.
D) diminishing utility.
8) Marginal utility is
A) the change in total utility divided by the price of the last unit of a good or service consumed.
B) the change in total utility a person receives from consuming an additional unit of a good or
service.
C) the utility from consuming a given quantity of a good or service.
D) the decrease in total utility from consuming more and more units of a good or service.
9) If marginal utility of apples is diminishing and is a positive amount, consuming one more
apple will cause
A) total utility to decrease.
B) a consumer to get no satisfaction from consuming apples.
C) a consumer’s total utility to increase.
D) a consumer to go beyond her optimal consumption of apples.
10) If Paul decides to buy a $60 ticket to a Cirque du Soleil show rather than a $45 ticket for a
Blue Man Group performance, we can conclude that
A) the marginal utility per dollar spent on Cirque du Soleil is lower than the marginal utility per
dollar spent on Blue Man Group.
B) Paul’s demand for a ticket to see Cirque du Soleil is more elastic than his demand for a ticket
to see Blue Man Group.
C) Paul is not making a rational choice.
D) the marginal utility per dollar spent on Cirque du Soleil is higher than the marginal utility per
dollar spent on Blue Man Group.
11) If the marginal utility Ida Mae receives from eating chicken wings is negative then
A) her total utility from eating chicken wings has fallen.
B) her total utility from eating chicken wings is negative as well.
C) Ida Mae definitely does not like chicken wings.
D) her total utility has risen, but by less from the last chicken wing than from the next to last
chicken wing.
12) If Joey Kobayashi experiences diminishing marginal utility from eating hot dogs then
A) his total utility from eating hot dogs is negative.
B) the marginal utility from the next hot dog Joey eats will be negative.
C) the additional satisfaction he receives from eating another hot dog will be less then the
satisfaction he received from his eating his last hot dog.
D) Joey is maximizing the marginal utility per dollar he receives from eating hot dogs.
13) Optimal decisions are made
A) in the marketplace.
B) if information about prices and marginal utilities is known.
C) when marginal utility is minimized.
D) at the margin.
14) Total utility is maximized in the consumption of two goods by
A) equating the marginal utility for each good consumed.
B) equating the marginal utility per dollar for each good consumed.
C) equating the total utility of each good divided by its price.
D) maximizing expenditure on each good.
15) In making decisions about what to consume, a person’s goal is to
A) allocate her limited income among all the products she wishes to buy so that she receives the
highest total utility.
B) buy low-priced goods rather than high-priced goods.
C) maximize her marginal utility from the goods and services she wishes to buy using her limited
income.
D) consume as many necessities as possible and then, if there is money left over, to buy luxuries.
16) The amount of income a consumer has to spend on goods and services is known as
A) purchasing power.
B) effective demand.
C) a budget constraint.
D) wealth.
17) A budget constraint
A) represents the bundles of consumption that make a consumer equally happy.
B) refers to the limited amount of income available to consumers to spend on good and services.
C) reflects the desire by consumers to increase their income.
D) shows the prices that a consumer chooses to pay for products he consumes.
18) The restriction that a consumer’s total expenditure on goods and services purchased cannot
exceed the income available is referred to as
A) maximizing behavior.
B) economizing behavior.
C) the price constraint.
D) the budget constraint.
19) Which of the following is explained by the law of diminishing marginal utility?
A) The marginal utility of Isabel’s second bottle of Coca-Cola is greater than the marginal utility
of her third bottle of Coca-Cola.
B) The marginal utility of Isabel’s second bottle of Coca-Cola is greater than the marginal utility
of her third pretzel.
C) The marginal utility of Isabel’s second bottle of Coca-Cola is greater than the marginal utility
of her friend Margie’s third pretzel.
D) The total utility of one bottle of Coca-Cola is greater than the total utility of two bottles of
Coca-Cola.
20) Marv Pilson has $50 worth of groceries in a shopping cart at his local Shop ‘n Save. Assume
that the marginal utility per dollar of the liter bottles of soft drink in Marv’s cart equals 50. The
marginal utility per dollar of the boxes of cereal in Marv’s cart equals 20. Marv has only $50 to
spend, but has not yet paid for his groceries. How can Marv increase his total utility without
spending more than $50?
A) Marv should substitute his favorite soft drink or the cereal in his cart for generic brands that
have lower prices.
B) Marv should buy more boxes of cereal and fewer bottles of soft drink.
C) Marv should buy fewer boxes of cereal and more bottles of soft drink.
D) Marv should buy fewer boxes of cereal and fewer bottles of soft drink. He can then spend
more on other items.
Table 10-1
Ice Cream Cones
Lime Fizz Soda
Quantity
MU/P
MU/P
1
15
40
2
12.5
35
3
10
26
4
7.5
18
5
5
15
6
2.5
7
21) Refer to Table 10-1. The table above shows Lee’s marginal utility per dollar from consuming
ice cream cones and cans of Lime Fizz Soda. The price of an ice cream cone is $2 and the price
of Lime Fizz Soda is $1. Use this information to select the correct statement.
A) We cannot determine how many ice cream cones and cans of Lime Fizz Soda Lee will
consume without knowing what his income is.
B) To maximize his utility Lee should consume 1 ice cream cone and 5 cans of Lime Fizz Soda.
C) We cannot determine how many ice cream cones and cans of Lime Fizz Soda will maximize
Lee’s utility because we are given only the marginal utility per dollar values. We also need to
know the marginal utility for each quantity.
D) If Lee has an unlimited budget he will maximize his utility by buying only Lime Fizz Soda.
Table 10-2
Ice Cream Cones
Lime Fizz Soda
Quantity
MU
MU
1
30
40
2
25
35
3
20
26
4
15
18
5
10
15
6
5
7
22) Refer to Table 10-2. The table above shows Lee’s marginal utility from consuming ice cream
cones and cans of Lime Fizz Soda. Select the phrase that completes the following statement. “We
can determine the number of ice cream cones and cans of Lime Fizz Soda Lee should consume
to maximize his utility
A) if we know what Lee’s income is.”
B) if we know what Lee’s income is and the price of an ice cream cone and the price of a can
Lime Fizz Soda.”
C) by adding up the marginal utilities for ice cream cones and Lime Fizz Soda.”
D) if we know the values of the marginal utility per dollar for ice cream cones and Lime Fizz
Soda.”
23) During a study session for an economics exam with three other students, Peter Daltry
commented on an example of a consumer who had to decide the on number of slices of pizza and
cups of Coca-Cola he would consume. Peter explained that “To maximize his utility this
consumer must equate the marginal utility per dollar for pizza and Coca-Cola.” Was Peter’s
analysis correct?
A) Peter described one of the conditions necessary for utility maximization. The consumer also
must equate the marginal utility of pizza and the marginal utility of cups of Coca-Cola.
B) Peter’s statement is correct.
C) Peter’s statement is correct but we must also assume that the consumer is rational.
D) Peter describes one of the conditions necessary for utility maximization. The second
condition is that total spending on both goods must equal the amount available to be spent.
Table 10-3
Steak & Cheese
Steak & Cheese
Grilled Chicken
Grilled Chicken
Quantity
MU
MU/P
MU
MU/P
1
40
10
30
15
2
32
8
24
12
3
20
5
16
8
4
12
3
12
6
5
6
1.5
8
4
6
2
0.5
4
2
24) Refer to Table 10-3. For steak and cheese and grilled chicken sandwiches, the table contains
the values of the marginal utility (MU) and marginal utility per dollar (MU/P) for Mabel Jarvis.
Mabel has $14 to spend on steak and cheese and grilled chicken sandwiches. Which of the
following statements is false?
A) The price of steak and cheese sandwiches is $4. The price of grilled chicken sandwiches is
$2.
B) If Mabel maximizes her utility she will buy three grilled chicken sandwiches.
C) If Mable maximizes her utility she will buy two steak and cheese sandwiches.
D) We do not have enough information to determine how many sandwiches Mabel will buy to
maximize her utility.
25) Refer to Table 10-3. For steak and cheese and grilled chicken sandwiches, the table contains
the values of the marginal utility (MU) and marginal utility per dollar (MU/P) for Mabel Jarvis.
Mabel has $14 to spend on steak and cheese and grilled chicken sandwiches. Which of the
following statements is true?
A) If Mabel maximizes her utility she will buy three steak and cheese sandwiches and two grilled
chicken sandwiches.
B) If Mabel was maximizing her utility when spending $14 and then received an additional $4,
she would receive the most marginal utility per dollar if her next purchase was another grilled
chicken sandwich.
C) Mabel will first buy two steak and cheese sandwiches; then with her remaining $6 she will
buy three grilled chicken sandwiches.
D) To maximize her utility, Mabel will need a total of $36, the income needed to buy 6 steak and
cheese sandwiches and 6 grilled chicken sandwiches.
26) The marginal utility per dollar that Harold Stratton receives from oranges is greater than the
marginal utility per dollar Harold receives from pears. To maximize his utility, what should
Harold do?
A) He should acquire more income so that he can afford to buy more oranges and pears.
B) He should reduce his consumption of both oranges and pears so that he can buy a greater
variety of goods.
C) He should buy fewer pears and more oranges.
D) He should buy fewer oranges and more pears.
27) There are two conditions necessary for a consumer to maximize her utility. One is that the
marginal utilities per dollar spent on each good and service consumed are equal. What is the
other condition?
A) Total spending on all goods and services must equal the amount available to be spent.
B) The consumer must be satisfied with the choices she makes.
C) The total spent on each good and service is the same.
D) The prices of each good and service consumed must not be too high.
Table 10-4
Italian Sub
Italian Sub
Taco
Taco
Taco
Quantity
MU
MU/$4
MU
MU/$2
MU/$1
1
40
10
30
15
30
2
32
8
24
12
24
3
20
5
16
8
16
4
12
3
12
6
12
5
6
1.5
8
4
8
6
2
0.5
4
2
4
28) Refer to Table 10-4, which lists the values of Harry Taber’s marginal utility and marginal
utility per dollar for Italian submarine (sub) sandwiches and tacos. Assume that the price of the
sub sandwiches is $4 and the price of tacos is $2. When Harry’s income is $14 he buys two
Italian sub sandwiches and three tacos. The last column lists the values of the marginal utility per
dollar for tacos when the price of tacos decreases to $1. Complete this statement: As a result of
the change in price
A) Harry’s purchasing power has increased. He will reduce his consumption of tacos so he can
buy one more sub. This is an example of the substitution effect of a price change.
B) Harry’s purchasing power has increased. If tacos are a normal good for Harry he will buy
fewer tacos. This is an example of the income effect of a price change.
C) Harry’s purchasing power has increased. If tacos are a normal good for Harry he will buy
more tacos. This is an example of the income effect of a price change.
D) Harry’s purchasing power has increased. Harry buys fewer tacos. This is an example of the
substitution effect of a price change
29) Refer to Table 10-4, which lists the values of Harry Taber’s marginal utility and marginal
utility per dollar for Italian submarine (sub) sandwiches and tacos. Assume that the price of the
sub sandwiches is $4 and the price of tacos is $2. When Harry’s income is $14 he buys two
Italian sub sandwiches and three tacos. The last column lists the values of the marginal utility per
dollar for tacos when the price of tacos decreases to $1. Complete this statement: As a result of
the change in price, the marginal utility of each taco Harry consumes increases and
A) the substitution effect of the price change will cause Harry to buy more tacos and fewer subs.
B) the substitution effect of the price change will cause Harry to buy more tacos if they are a
normal good, and fewer tacos if they are an inferior good.
C) the substitution effect will cause Harry to buy another sub because his purchasing power has
increased.
D) the substitution effect will cause Harry to buy fewer tacos.
30) Marge buys 5 CDs and 7 DVDs. The marginal utility of the 5th CD and the marginal utility
of the 7th DVD are both equal to 30 utils. Can we say that this is the optimal combination of
CDs and DVDs for Marge?
A) No. We need to know her preferences for CDs and DVDs.
B) Yes.
C) No. We need to know the prices of the CDs and DVDs.
D) No. If this was the optimal combination, the marginal utility per dollar of the 5th CD and the
7th DVD would be equal.
Table 10-5
Quantity of
Burgers
Marginal
Utility
Quantity of
Pepsi
Marginal
Utility
1
20
1
30
2
14
2
10
3
10
3
7
4
3
4
5
5
1
5
1
6
-5
6
0
7
-10
7
-4
Table 10-5 lists Jay’s marginal utilities for burgers and Pepsi. Jay has $7 to spend on these two
goods. The price of a burger is $2 and the price of a can of Pepsi is $1.
31) Refer to Table 10-5. What is Jay’s optimal consumption bundle?
A) 1 burger and 2 Pepsis
B) 2 burgers and 3 Pepsis
C) 3 burgers and 1 Pepsi
D) 3 burgers and 2 Pepsis
32) Refer to Table 10-5. If Jay can eat all the burgers he wants for free, how many burgers will
he consume?
A) 7 burgers
B) 6 burgers
C) 5 burgers
D) 3 burgers
33) Suppose Barry is maximizing his utility from consuming used paperback novels and audio
books. The price of a used novel = $4 and the price of an audio book = $8. If the marginal utility
of the last novel was 32 units of utility (utils) what was the marginal utility of the last audio book
purchased?
A) 2 utils
B) 12 utils
C) 16 utils
D) 64 utils
34) Terence has $50 per week to spend on Subway sandwiches and milkshakes. The price of a
Subway sandwich is $5 and the price of a milkshake is $4. He buys 6 sandwiches and 5
milkshakes. The marginal utility of the 6th sandwich = 25 and the marginal utility of the 5th
milkshake = 24. Which of the following is true?
A) He is not maximizing his utility and should buy more milkshakes.
B) He is maximizing his utility.
C) He is not maximizing his utility and should buy more Subway sandwiches.
D) He is not maximizing his utility because he is not spending all of his income.
35) Suppose Renee can increase her total utility from consuming video rentals and books by
buying one more book and renting one fewer video. Which of the following is true?
A) The marginal utility of video rentals is negative.
B) The marginal utility per dollar spent on books exceeds that of video rentals.
C) The marginal utility of the last book consumed exceeds the marginal utility of the last video
rental consumed.
D) The marginal utility of the last video rental consumed exceeds the marginal utility of the last
book consumed.
Table 10-6
Quantity of
Beer (glasses)
Total Utility
Quantity of
Pizza (slices)
Total Utility
1
25
1
20
2
45
2
35
3
60
3
45
4
65
4
50
5
69
5
52
6
70
6
52
Table 10-6 shows Antonio’s utility from beer and pizza.
36) Refer to Table 10-6. What is Antonio’s marginal utility from consuming the fifth beer?
A) 4 utils
B) 13.6 utils
C) 69 utils
D) 134 utils
37) Refer to Table 10-6. Suppose Antonio has $10 to spend and the price of beer = $2 per glass
and the price of pizza = $2 per slice. How many of each good will he consume when he
maximizes his utility?
A) 2 glasses of beer, 1 slice of pizza
B) 2 glasses of beer, 3 slices of pizza
C) 3 glasses of beer, 2 slices of pizza
D) 4 glasses of beer, 5 slices of pizza
38) If Lisa spends her income on veggie burgers and pints of soy milk and the price of veggie
burgers is three times the price of a pint of soy milk, then when Lisa maximizes her utility she
will buy
A) both goods until the marginal utility of veggie burgers is three times the marginal utility of
soy milk.
B) three times as many veggie burgers as pints of soy milk.
C) three times as many pints of soy milk as veggie burgers.
D) both goods until the marginal utility of a pint of soy milk is three times the marginal utility of
veggie burgers.