Chapter 6
Practice Quiz
Consumer Choice Theory
1
1. As an individual consumes more of a given
good, the marginal utility of that good to the
consumer
a. rises at an increasing rate.
b. rises at a decreasing rate.
c. falls.
d. rises.
C. As a consumer consumes more and more of
anything, the satisfaction received on the last
unit becomes less and less with each unit.
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2. The amount of added utility that a consumer
gains from the consumption of one more
unit of a good is called
a. incremental utility.
b. total utility.
c. diminishing utility.
d. marginal utility.
D. The word “margin” means that last
unit or the last increment.
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3. A certain consumer buys only food and compact
discs. If the quantity of food bought increases,
while that of compact discs remains the same, the
marginal utility of food will
a. fall relative to the marginal utility of compact
discs.
b. rise relative to the marginal utility of compact
discs.
c. rise, but not as fast as the marginal utility of
compact discs falls.
d. fall, but not as fast as the marginal utility of
compact discs falls.
A. As more units of food are purchased, the
marginal utility diminishes, while that of
compact disks remains the same.
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4. Rational consumers will continue to
consume two goods until
a. the marginal utility per dollar’s worth of
the two goods is the same.
b. the marginal utility is the same for each
good.
c. the prices of the two goods are equal.
d. the prices of the two goods are unequal.
A. If a consumer can raise his/her marginal
utility by purchasing more of a good, more
units of that good will be purchased. At the
point that marginal utility cannot be
increased by purchasing more units of either
good, the consumer will stop purchasing.
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5. Assume a person’s consumption of just the
right amounts of pork and chicken is in
equilibrium. We can conclude that the
a. marginal utility of pork must equal the
marginal utility of chicken.
b. price of pork must equal the price of chicken.
c. ratio of marginal cost to price must be the same
in both the pork and the chicken markets.
d. ratio of marginal utility to price must be the
same for pork and chicken.
D. In terms of satisfaction, the two goods
become identical at the point of equilibrium.
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6. Assume an individual consumes only milk and
doughnuts, and has arranged consumption so
that the last glass of milk yields 12 utils and
the last doughnut 6 utils. If the price of milk is
$1 per glass and the price of a doughnut is
$.50, we can conclude that the
a. consumer should consume less milk and
more doughnuts.
b. price of milk is too high relative to
doughnuts.
c. consumer should consume more milk and
fewer doughnuts.
d. consumer is in equilibrium.
D. At this point, the ratio of utils to price is
the same.
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7. Suppose an individual consumes pizza and
cola. To reach consumer equilibrium, the
individual must consume pizza and cola so
that the
a. price paid for the two goods is the same.
b. marginal utility of the two goods is equal.
c. ratio of marginal utility to price is the
same for both goods.
d. ratio of marginal utility of cola to
marginal utility of pizza is 1.
C. When the ratio of utils to price is the same
for two goods, the consumer cannot increase
his/her satisfaction by buying more of either.
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8. A state of consumer equilibrium for goods
consumed prevails when the
a. marginal utility of all goods is the same.
b. marginal utility per dollar’s worth of two
goods is the same.
c. price of two goods is the same.
d. marginal cost per dollar spent on two
goods is the same.
B. When the marginal utility of two goods is the
same, the consumer cannot increase his/her
level of satisfaction by purchasing more of
either good.
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9. The change in quantity demanded resulting
from a change in purchasing power is
known as the
a. income effect.
b. substitution effect.
c. law of demand.
d. consumer equilibrium effect.
A. When prices decline the purchasing power
of the consumer increases, and vice versa.
Therefore, a change in prices has the same
effect on the buying power of the consumer
as if his/her income had changed.
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Exhibit 4
Total Utility for Multiplex Tickets, Video Rentals, and
Popcorn
Total Utility
from Multiplex
Tickets
1 movie (30 utils)
Total Utility
from Video
Rentals
Total Utility
from Popcorn
1 video (14 utils)
1 bag (8 utils)
2 movies (54 utils) 2 videos (24 utils)
2 bags (13 utils)
3 movies (72 utils) 3 videos (30 utils)
3 bags (15 utils)
4 movies (84 utils) 4 videos (32 utils)
4 bags (16 utils)
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10. In Exhibit 4, assume Multiplex tickets cost
$6 each, video rentals cost $2 each, and
bags of popcorn cost $1 each. What is the
marginal utility of renting a third video?
a. 6 utils.
b. 8 utils.
c. 10 utils.
d. 30 utils.
A. If the total utility for 2 videos is 24 utils
and the total utility for 3 videos is 30 utils,
the additional utils added by the third
video is 6.
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11. In Exhibit 4, assume Multiplex tickets cost $6
each, video rentals cost $2 each, and bags of
popcorn cost $1 each. Suppose the consumer
has $12 per week to spend on Multiplex
tickets, video rentals, and popcorn. What
combination of goods will give the consumer
the most utility?
a. 1 movie, 3 videos, and no popcorn.
b. 1 movie, 2 videos, and 2 bags of popcorn.
c. 1 movie, 1 video, and 4 bags of popcorn.
d. 2 movies, no video, and no bags of popcorn.
B. 67 total utils are achieved with this
combination, a yields 60 utils, c yields 60
utils and d yields 54 utils.
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12. In Exhibit 4, assume the Multiplex tickets cost $6 each,
video rentals cost $2 each, and bags of popcorn cost $1
each. Suppose the consumer has $12 per week to spend on
multiplex tickets, video rentals, and popcorn. In consumer
equilibrium, what is the marginal utility per dollar for each
of the three goods?
a. 5 utils per dollar
b. 9 utils per dollar
c. 13 utils per dollar
d. 22 utils per dollar
A. First compute the marginal utility for each item. Second, divide the
price for each item into the MU of each item. Third, the consumer
purchases items according to the highest MU/$1. The result in order
of purchase is 1 bag of popcorn, 1 video rental, 1 movie ticket, 1 bag
of popcorn and 1 video rental for a total of $12.
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13. The law of diminishing marginal utility
exists for the first four units of a good if
they have marginal utilities of
a. 1, 2, 4, 8
b. 8, 4, 1, 2
c. 4, 8, 2, 1
d. 8, 4, 2, 1
D. The law of diminishing marginal utility
states that the marginal utility must fall as
more is consumed. This is true only for
answer d.
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14. The demand curve is downward sloping
because of the law of
a. diminishing marginal utility.
b. diminishing consumer equilibrium.
c. consumer equilibrium.
d. diminishing utility maximization.
A. Since the marginal utility falls for each
additional unit of a good consumed, the
consumer will only purchase more of a good
at a lower price (the law of demand).
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15. The total utilities associated with the first 5 units
of consumption of good X are 15, 30, 40, 47, and
50, respectively. What is the marginal utility
associated with the third unit?
a. 15
b. 70
c. 85
d. 10
e. 45
D. The marginal utility is computed as the
difference between 30 utils for the second
unit and 40 utils for the third unit, which is
10 marginal utils.
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