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Chapter 20
Consumer Choice
20.1 Utility Theory
1) In economics, another term for satisfaction is
A) income elasticity. B) price elasticity.
C) utility. D) marginal productivity.
2) The amount of pleasure or satisfaction derived from consumption of a good is called
A) elasticity. B) utility.
C) consumer surplus. D) demand.
3) Suppose that Homer derives 45 utils of total utility from eating 4 donuts and 55 utils of total
utility from eating 5 donuts. What is Homer s marginal utility from eating the 5th donut?
A) 10 B) 45 C) 55 D) 100
4) Utility analysis helps economists understand
A) how people make decisions about what they buy and how much.
B) how to eliminate opportunity costs.
C) how to eliminate scarcity.
D) none of the above.
5) Which of the following is NOT true of utility?
A) It represents the want satisfying power of a good.
B) It is measured using a representative unit called a util.
C) The utility that a good provides depends on a consumer s preferences.
D) Utility can be measured objectively.
6) The utility that people experience from the consumption of a good depends on
A) their income level.
B) their tastes and preferences.
C) total sales of the good.
D) how much shopping time they spent obtaining the good.
7) Economists use what term to describe the want satisfying power of a good?
A) Demand B) Utility
C) Marginal propensity to consume D) Income elasticity
8) In economics, utility is defined as
A) the want satisfying power of a good or service.
B) the usefulness of a good or service.
C) the utilitarian value of a good or service.
D) the objective measure of the desirability of a good or service.
9) In economic utility analysis, consumer tastes and preferences are assumed
A) to be determined by income. B) to be influenced by the prices of goods.
C) given and stable for an individual. D) given but rapidly changeable.
10) A representative unit that measures the want satisfying power of a good is
A) a margin. B) purchasing power.
C) income. D) a util.
11) Which English philosopher set out to develop an arithmetic formula for measuring happiness
and along the way invented the util?
A)
J
ohn Maynard Keynes B) Milton Friedman
C)
J
eremy Bentham D) Adam Smith
12) Marginal utility is measured as
A) utility per unit of production.
B) extra output divided by extra utility.
C) output of a good or service divided by price.
D) extra utility from each additional good consumed.
13) Marginal utility is
A) the utility received from consuming one unit of a good.
B) the change in total utility due to a one unit change in the quantity of a good consumed.
C) the total utility received from consuming a certain quantity of a good divided by the
quantity.
D) the utility received by the last consumer of a good.
14) To calculate marginal utility, divide the change in total utility by
A) the number of units consumed.
B) the price of the product.
C) the change in the number of units consumed.
D) the consumer s subjective level of preference.
15) The term marginal means
A) total. B) cumulative. C) subjective. D) additional.
16) When economists refer to people making decisions at the margin
,
they mean that we compare
________ benefits with ________ costs.
A) total; total B) total; incremental
C) additional; additional D) additional; marginal
17) The concept of marginality is important in economics because
A) individuals make decisions at the margin.
B) marginal decisions indicate a lack of importance.
C) individuals make decisions based on tastes only.
D) large expenditures are the only factor influencing consumption.
18) Marginal utility can be thought of as
A) the incremental change in a person s total satisfaction level from the buying of a good.
B) the total change in satisfaction from buying a good.
C) the additional cost of that next good purchased.
D) the opportunity cost of buying the next good.
19) If total utility is decreasing, then marginal utility is
A) negative. B) positive. C) zero. D) increasing.
20) If total utility is increasing, then marginal utility is
A) negative. B) positive. C) zero. D) decreasing.
21) If total utility is unchanged, then marginal utility is
A) negative. B) positive. C) zero. D) increasing.
Quantity of Total Utility Total Utility
Movies Mary John
3 100 190
4 140 250
5 170 300
6 190 340
7 200 370
8 210 390
9 210 405
10 200 415
11 190 420
22) According to the above table, Mary s marginal utility from watching the 6th movie is
A) 190 units of utility. B) 40 units of utility.
C) 10 units of utility. D) 20 units of utility.
23) According to the above table, John s marginal utility from watching the 9th movie is
A) 405 units of utility. B) 0 units of utility.
C) 15 units of utility. D) 10 units of utility.
24) According to the above table, Mary s marginal utility from watching the 4th movie is
A) 140 units of utility. B) 40 units of utility.
C) 60 units of utility. D) 30 units of utility.
25) Refer to the above table. What is the marginal utility for the 10th unit for Mary and for John?
A) Mary: 10; John: 10 B) Mary: 10; John 10
C) Mary: 220; John 450 D) Mary: 0; John: 0
26) The total utility from consuming 8 units of a good is 155. The marginal utility of the 8th unit is 7
and the marginal utility of the 7th unit is 11. The total utility from consuming 6 units of the good
is
A) 173. B) 144. C) 137. D) 130.
Quantity Total Utility
per Week Michelle Robert David Lauren
0 0 0 0 0
1 50 1000 60 60
2 99 1900 120 130
3 147 2700 180 220
4 194 3400 240 310
5 240 4000 300 425
6 285 4500 360 575
7 329 4900 420 900
8 372 5200 480 1275
9 414 5400 540 1770
27) According to the above table, what is Lauren s marginal utility of the 4th unit?
A) 90 B) 220 C) 310 D) 115
28) According to the above table, what is Michelle s marginal utility of the 8th unit?
A) 372 B) 43 C) 42 D) 44
29) According to the above table, what is Robert s marginal utility of the 5th unit?
A) 60 B) 4500 C) 600 D) 500
30) According to the above table, what is David s marginal utility of the 7th unit?
A) 420 B) 400 C) 120 D) 60
31) When the total utility from consuming one good is maximized, marginal utility is
A) maximized. B) minimized. C) zero. D) positive.
32) If two units of a good provide 7 utils and the marginal utility of the third unit of the good is 2
utils, what is the total utility from consuming three units of the good?
A) 3 utils B) 7 utils C) 9 utils D) 10 utils
33) Marginal utility is defined as
A) the increase in utility divided by the total number of units consumed.
B) the total utility divided by the total number of units consumed.
C) the change in total utility divided by the change in number of units consumed.
D) the number of units consumed divided by the total utility.
34) Consumers are most satisfied when
A) all of their income has been saved.
B) the total level of utility is as high as possible.
C) goods are bought on sale.
D) they save more than they spend.
35) Utility refers to
A) the usefulness of a good or service.
B) the value of a good or service.
C) the want satisfying power of a good or service.
D) the degree to which a good or service is needed.
36) The want satisfying power of a good or service is known as
A) purchasing power. B) utility.
C) consumer optimum. D) principle of substitution.
37) A good synonym for utility is
A) marginal. B) need. C) practical. D) satisfaction.
38) The concept of utility is
A) subjective so that there can be no true measurement of someone s utility.
B) subjective so measurement of someone s utility must be done scientifically.
C) objective so that devices can be developed that would measure a person s utility.
D) objective so that psychologists can measure utility and compare one person s utility with
that of another person.
39) Economists infer that a consumer receives more utility from one good than another by
A) giving consumers surveys about the utility they receive from the goods.
B) observing the consumer s behavior.
C) the logic of the models used.
D) means of introspection and speculation.
40) Utility analysis is the analysis of
A) how consumers decide how to spend their money.
B) the formation of tastes and preferences.
C) the psychology of decision making.
D) consumer decision making based on utility maximization.
41) The analysis of consumer decision making based on utility maximization is known as
A) specialization analysis. B) consumption analysis.
C) utility analysis. D) market analysis.
42) At a ball game we can observe people eating hot dogs, chips, and burgers. If all are priced the
same and we observe Michelle eating a hot dog and David eating a hamburger, we can conclude
that
A) Robert will be eating chips.
B) Michelle likes hot dogs better than David does and David likes hamburgers better than
Michelle does.
C) Michelle derives the same amount of utility from eating a hot dog as David derives from
eating a hamburger.
D) at this time Michelle derives more utility from eating a hot dog than from eating either a
hamburger or chips, while David derives more utility from eating a hamburger than from
eating either a hot dog or chips.
43)
J
uan and Sophia have decided to stop studying economics and get a bite to eat. Juan wants to go
for a pizza and Sophia wants a hamburger. They decide to go for pizza. What can we conclude
from this?
A)
J
uan always gets more utility from pizza than Sophia does.
B) Sophia gets less utility from pizza than she could from a hamburger.
C) Sophia will get negative utility from the pizza.
D) Utility analysis does not work here since Sophia did not eat a hamburger.
44) A representative unit by which utility is measured is
A) a util. B) utility.
C) marginal utility. D) ordinal utility.
45) In cardinal utility analysis
A) numbers can be assigned to utility.
B) it is recognized that numbers can not be assigned to utility.
C) the concept of marginal utility exists while in ordinal utility analysis marginal utility does
not exist.
D) marginal utility always increases as more of a good is consumed.
46) Marginal utility is
A) the utility received by the last consumer of a good.
B) the total utility received from consuming a given quantity of a good divided by the
number of units consumed.
C) the change in total utility from consuming an additional unit of a good.
D) the utility received from consuming the first unit of a good.
47) The change in the total utility as a result of increasing consumption by one unit is known as
A) marginal utility. B) average utility.
C) proportional utility. D) utils.
48) The rate of change in total utility equals
A) marginal utility.
B) the change in marginal utility associated with eating all the quantities a person can handle.
C) the change in marginal utility divided by the change in quantity.
D) the rate of change in marginal utility divided by the price.
49)
J
ohn has just eaten another potato chip and his total utility increased. This means that John s
marginal utility for this additional potato chip is
A) positive.
B) negative.
C) zero.
D) not determinable without more information.
50)
J
ohn has just eaten another potato chip and his total utility decreased. This means that John s
marginal utility for this additional potato chip is
A) positive.
B) negative.
C) zero.
D) not determinable without more information.
51) Karen has decided that she would enjoy eating another cookie. Which of the following
statements is consistent with Karen s decision?
A) Karen s marginal utility has decreased with a corresponding decrease in total utility.
B) Karen s marginal and total utility remain unchanged.
C) Karen s marginal utility has decreased but it is unclear what has happened to total utility.
D) Karen s total utility has increased but it is unclear what has happened to her marginal
utility.
52) A well known athlete loves cupcakes. He receives 200 utils for the first cupcake, an additional
160 for the second, an additional 120 for the third, another 80 for the fourth, and another 40 for
the fifth. The marginal utility of the fourth cupcake is ________ and the total utility of
consuming four cupcakes is ________.
A) 40; 80 B) 80; 600 C) 80; 560 D) 40; 40
53) Sam loves cookies. She receives 200 utils for one cookie, 360 for two cookies, 480 for the third,
560 for four cookies, and 600 for five cookies. The marginal utility of the third cookie is
A) 120 B) 480
C) 80 D) unable to determine
Quantity of Movies Michelle s Total Robert s Total
Watched per Week Utility per Week Utility per Week
0 0 0
1 100 100
2 195 190
3 270 270
4 340 340
5 390 400
6 420 350
7 435 390
8 445 420
9 450 440
10 440 450
54) Refer to the above table. The marginal utility of the 6th movie for Michelle is
A) 25 units of utility. B) 30 units of utility.
C) 35 units of utility. D) 40 units of utility.
55) Refer to the above table. The marginal utility of the 5th movie for Michelle is
A) 40 units of utility. B) 50 units of utility.
C) 60 units of utility. D) 390 units of utility.
56) Refer to the above table. The marginal utility of the 7th movie for Michelle is
A) 15 units of utility. B) 20 units of utility.
C) 35 units of utility. D) 435 units of utility.
57) Refer to the above table. The marginal utility of the 2nd movie for Robert is
A) 95 units of utility. B) 90 units of utility.
C) 80 units of utility. D) 190 units of utility.
58) Refer to the above table. The marginal utility of the 5th movie for Robert is
A) 400 units of utility. B) 50 units of utility.
C) 60 units of utility. D) 70 units of utility.
59) Refer to the above table. The marginal utility of the 8th movie for Robert is
A) 30 units of utility. B) 20 units of utility.
C) 420 units of utility. D) 30 units of utility.
60) Refer to the above table. What is the marginal utility for the 10th unit for Michelle and for
Robert?
A) Michelle: 50; Robert: 50 B) Michelle: 15; Robert: 20
C) Michelle: 10; Robert: 10 D) Michelle: 10; Robert: 10
61) Refer to the above table. What is the marginal utility for the 3rd unit for Michelle and for
Robert?
A) Michelle: 10; Robert: 20 B) Michelle: 75; Robert: 75
C) Michelle: 75; Robert: 80 D) Michelle: 270; Robert: 270
62) Refer to the above table. In examining the utility schedules for Michelle and Robert, we can
conclude that
A) they like movies the same.
B) they like the third movie the same.
C) Michelle likes movies more than Robert does.
D) they both received the same satisfaction from watching the fourth movie.
63) The total utility of consuming 6 units of a good is 255. The marginal utility of the 6th unit is 45
and the marginal utility of the 5th unit is 60. The total utility of consuming 5 units of the good is
A) 300. B) 150. C) 210. D) 195.
64) When you buy something, you do so because of the satisfaction you expect to receive from
having and using that good. Another term that can be used for satisfaction is
A) need. B) purchasing power.
C) utility. D) price elasticity.
65) Economists once believed utility could be measured. The philosophical school based on the
thought known as utilitarianism was developed by the English philosopher
A)
J
eremy Bentham. B) Henri Leconte.
C)
J
ohn Lennon. D) Bernard Mandeville.
66) Kathleen eats three TV dinners. The third TV dinner makes Kathleen sick. This means that for
Kathleen
A) the third TV dinner has little utility.
B) the third TV dinner has negative utility.
C) the opportunity cost of TV dinners is high.
D) TV dinners must be inexpensive.
67) Marginal utility
A) at first rises and then declines as a person consumes more of a good or service.
B) can be thought of as being the equivalent to total utility.
C) equals the total satisfaction from consumption of goods and services.
D) is stable, but then as a person consumes more of a good or service, has a propensity to
increase.
68) The additional utility or satisfaction that one derives from consuming one more unit of any
good or service is referred to as
A) total utility. B) substantive utility.
C) average utility. D) marginal utility.
69) The change in total utility derived when a customer consumes one more unit of a good or
service is called
A) total utility. B) marginal utility.
C) average utility. D) final utility.
70) The equation for the calculation of marginal utility is
A) total utility/number of units consumed.
B) change in total utility/number of units consumed.
C) change in total utility/change in number of units consumed.
D) total utility/change in number of units consumed.
71) In economics, the term marginal refers to
A) total. B) a change in the total.
C) negative. D) inverse.
72) Utility analysis assumes that the consumer s tastes and preferences are
A) dependent on income and education. B) predetermined and stable.
C) dependent on national origin. D) dependent on geographic location.
73) At the point at which total utility is at a maximum,
A) marginal utility is at a minimum. B) marginal utility is negative.
C) marginal utility is zero. D) marginal utility is equal to total utility.
74) Total satisfaction is maximized when
A) marginal utility is positive. B) marginal utility is negative.
C) marginal utility is zero. D) marginal utility is equal to total utility.
75) As more of a product is consumed, total utility increases up to a point at which
A) marginal utility increases at an increasing rate.
B) marginal utility increases at a constant rate.
C) marginal utility decreases.
D) marginal utility will initially decrease, then increase.
76) When marginal utility is negative, total utility is
A) increasing at a decreasing rate. B) zero.
C) at its maximum. D) decreasing.
77) When marginal utility is positive, total utility is
A) increasing. B) zero.
C) at its minimum. D) decreasing.
78) When marginal utility is zero, total utility is
A) increasing. B) at its maximum.
C) at its minimum. D) decreasing.
79) The marginal utility derived from viewing the next movie DVD is the
A) average utility per minute of viewing.
B) additional utility from viewing the DVD.
C) average utility per hour of viewing.
D) additional utility from viewing the first minute of the DVD.
80) A rational consumer will NEVER purchase a product when its
A) marginal utility is negative.
B) total utility is increasing at a decreasing rate.
C) marginal utility is decreasing.
D) total utility is decreasing at an increasing rate.
81) Economists assume that people make decisions regarding consumption based on comparing
A) additional units of satisfaction with additional costs.
B) average satisfaction with additional costs.
C) average satisfaction with average costs.
D) additional units of satisfaction with average costs.
82) If the commercial is correct that every additional bite tastes as good as the first, the marginal
utility from consuming more of the advertised product must be
A) increasing. B) decreasing. C) constant. D) zero.
83) If you and a group of friends have been consuming large quantities of liquid beverages on a hot
summer afternoon and you decide to refrain from any additional consumption, it can be
concluded that
A) total utility has reached a minimum and the marginal utility of an additional drink would
be large.
B) total utility has reached a maximum and the marginal utility of an additional drink would
be small.
C) total utility has reached a maximum and the marginal utility of an additional drink would
be zero.
D) total utility has reached a minimum and the marginal utility of an additional drink would
be negative.
84) If marginal utility is zero,
A) a rational consumer will consume one more unit.
B) a rational consumer will consume one less unit next time.
C) a rational consumer will not consume additional units beyond this point.
D) a rational consumer will consume one more unit if the price is zero.
85) A certain athlete loves donuts. He receives 100 units of utility for the first donut, an additional
80 for the second, an additional 60 for the third, another 40 for the fourth, and another 20 for the
fifth. The marginal utility of the fourth donut is ________ and the total utility from consuming
four donuts is ________.
A) 40; 40 B) 40; 280 C) 140; 280 D) 280; 100
86) If the total utility derived from consuming three oysters was 40 utils and the total utility derived
from consuming four oysters was 52 utils, what was the marginal utility derived from the
consumption of the fourth oyster?
A) 92 utils B) 52 utils
C) 12 utils D) It is impossible to determine.
87) Assuming that the marginal utility of the first four pieces of candy was 30, 28, 24, and 18
respectively, how much total utility was derived from eating the first three pieces of candy?
A) 58 B) 82 C) 54 D) 100
88) Utility analysis is the analysis of
A) the formation of tastes and preferences.
B) the differences of tastes and preferences across individuals.
C) the consumption decisions of people based on utility maximization.
D) how consumers determine the utility they receive from consumption.
89) The utility analysis theory assumes that consumers try to
A) maximize their average utility.
B) maximize their marginal utility.
C) maximize the difference between total and marginal utility.
D) maximize their total utility.
90) What is utility and what are its characteristics?
91) What is marginal utility? Why is the term marginal important in utility analysis?
