TBChap 007

Chapter 07
Utility Maximization
Multiple Choice Questions
1. The satisfaction or pleasure one gets from consuming a good or service is called:
A. Price
B. Utilit
y
C. Income
D. Profits
2. The utility from a specific product is:
A. Determined by a consumer's income

B. Determined by the price of the product
C. A measure of one's preference or taste for it
D. Constant as one consumes more units of it
3. Total utility is best defined as the:
A. Change in marginal utility multiplied by the price of a product

B. Maximum amount of satisfaction from consuming a product
C. Total satisfaction received from consuming a given amount of a product
D. Additional satisfaction received from consuming one more unit of a product
4. Which of the following statements is correct?
A. Marginal utility is the cumulation or summation of total utility

B. Total utility is the cumulation or summation of marginal utility
C. Total utility is the product of multiplying price times marginal utility
D. Total utility is the change in marginal utility as quantity consumed increases
5. Which of the following defines marginal utility?
A. The change in total utility divided by the price of a product

B. The maximum amount of satisfaction from consuming a product
C. The total satisfaction derived from a certain amount of the product
D. The additional satisfaction from consuming one more unit of a product
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6. Which best expresses the law of diminishing marginal utility?
A. The more of a product is consumed, the smaller is the total utility from the product
B. The less of a product is consumed, the greater is the marginal utility of the product
C. The more of a product is consumed, the greater is the total utility from the product
D. The less of a product consumed, the smaller is marginal utility of the product
7. After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your
refusal indicates that the:
A. Marginal utility for four pizza slices is negative

B. Total utility for five pizza slices is negative
C. Marginal utility is positive for the fourth slice and negative for the fifth slice
D. Marginal utility for the fourth slice is the largest among all slices
8. When diminishing marginal utility starts happening as a person consumes more and more of a given good:
A. Total utility will diminish

B. Total utility will increase at a diminishing rate
C. Marginal utility will become negative
D. Total utility will become negative
9. Which situation is consistent with the law of diminishing marginal utility?
A. The more pizza Joe eats, the more he enjoys an additional slice
B. The more pizza Joe eats, the less he enjoys an additional slice
C. Joe's marginal utility from eating pizza becomes positive after eating three slices
D. Joe's marginal utility from eating pizza reaches a maximum when total utility is zero
A. When marginal utility is decreasing, an increase in the quantity consumed will decrease total utility
B. When marginal utility is positive, an increase in the quantity consumed will decrease total utility
C. When marginal utility is positive, an increase in the quantity consumed will increase total utility
D. When marginal utility is zero, an increase in the quantity consumed will make total utility zero
11. Children who dislike Brussels sprouts exemplify the notion that the marginal utility of Brussels sprouts is:
A. Zero
B. Negative
C. Positive, but decreasing
D. Less than the total utility
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12.
Refer to the above table. What is the marginal utility of the fourth unit?
A. 36
B. 44
C. 80
D. 116
13.
Refer to the above table. The addition of which unit has the greatest marginal utility?
A. Fifth
B. Sixth
C. Seventh
D. Eighth
14.
Refer to the above table. At what consumption level for this product does diminishing marginal utility set
in?
A. 4 units
B. 5 units
C. 8 units
D. 7 units
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15. The table below shows the utility schedule for a consumer of candy bars.
Refer to the above table. This consumer begins to experience diminishing marginal utility when consuming
the:
A. Third candy bar

B. Fourth candy bar
C. Sixth candy bar
D. Seventh candy bar
Refer to the above table. Marginal utility becomes negative with the consumption of the:
A. Not shown in the table; marginal utility remains positive throughout

B. Fifth candy bar
C. Sixth candy bar
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Refer to the above table. Based on the data in the above table you can conclude that the:
A. Marginal utility of the fourth unit is 96

B. Marginal utility of the third unit is 18
C. Total utility of 2 units is 16
D. Total utility of 6 units is 35
Refer to the above table. The consumption of which bar yields the greatest marginal utility?
A. Third
B. Fourth
C. Sixth
D. Second
19. If total utility is increasing, then marginal utility:
A. Must be declining
B. Must be increasing
C. Must be increasing at an increasing rate
D. May either be increasing or decreasing, but it must be greater than zero
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20. If a product has a diminishing, but positive, marginal utility, then:
A. Total utility decreases at an increasing rate

B. Total utility will become negative
C. Total utility increases at a diminishing rate
D. Total utility decreases at a diminishing rate
21. Suppose that football tickets at your university are given away for free, and that there are still empty seats
for all games. Ignoring all other costs of going to the games, you should continue attending until your:
A. Total utility stops increasing

B. Marginal utility begins to diminish
C. Marginal utility stops increasing
D. Total utility reaches zero
22. The table below shows a consumer's utility schedule.
Refer to the above table. Marginal utility begins to diminish with the consumption of the:
A. Fifth unit
B. Fourth unit
C. Third unit
D. Second unit
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Refer to the above table. Based on the data, you can conclude that the consumer:
A. Receives increasing marginal utility from consuming the first three units
B. Experiences diminishing marginal utility after consuming the first unit
C. Experiences diminishing marginal utility only after consuming the fourth unit
D. Will never consume just one unit of the product
24. When total utility reaches a maximum, then marginal utility is:
A. Increasing
B. Decreasing
C. At a minimum
D. Equal to zero
25. If total utility has reached a maximum level, and assuming that diminishing marginal utility already applies,
then what will happen as the consumer consumes additional units of the product?
A. Marginal utility of the additional units will be greater than zero

B. Total utility will turn negative
C. Marginal utility of the additional units will turn negative
D. Total utility will increase at a diminishing rate
26. If the total utility from consuming the fifth unit of a product is 6 and the total utility from all five units is
162, then the total utility from consuming four units must be:
A. 168
B. 27
C. 156
D. 972
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27. If the total utility from consuming five units of a product is 245, and the marginal utility of a sixth unit is 5,
then the total utility from consuming six units would be:
A. 240
B. 250
C. 49
D. 1225
28. To the average consumer, the marginal utility of a second copy of today's newspaper is:
A. Constant
B. Increasing
C. Close to zero
D. Close to one
29. The reason why people are charged for an additional can of soda they get from a soda machine, but are not
charged for an additional paper taken from a newspaper dispensing machine, is that the marginal utility of
an additional:
A. Soda is close to zero, but the marginal utility of an additional paper diminishes slowly
B. Soda diminishes slowly, but the marginal utility of an additional paper is close to zero
C. Soda increases by more than that of the newspaper as consumption increases
D. Newspaper increases by more than that of soda as consumption increases
30. Which of the following is an assumption of theory of consumer behavior described in this chapter?
A. The consumer's income increases as prices of goods increase

B. Each good that a consumer consumes has a price
C. The consumer oftentimes is not sure about her preferences
D. Marginal utility increases as more units of a good is consumed
31. Which of the following is not an assumption of the theory of consumer behavior described in this chapter?
A. The consumer has make decisions within a given budget constraint

B. The consumer experiences diminishing marginal utility from consuming goods
C. The consumer's tastes and preferences continually change within the period studied
D. The consumer aims to get maximum total utility out of a given budget
32. A consumer with a fixed income will maximize utility when each good is purchased in amounts such that
the:
A. Total utility is the same for each good

B. Marginal utility of each good is maximized
C. Marginal utility per dollar spent is the same for all goods
D. Marginal utility per dollar spent is maximized for each good
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33. In deciding what to buy, the consumer will choose the good with the:
A. Highest marginal utility

B. Lowest price
C. Highest marginal utility-to-price ratio
D. Lowest marginal utility-to-price ratio
34. A consumer makes purchases of an existing product X such that the marginal utility is 10 and the price is
$5. The consumer also tries a new product Y and at the current level of consumption it has a marginal
utility of 8 and a price of $1. The utility-maximizing rule suggests that this consumer should:
A. Increase consumption of product X and decrease consumption of product Y

B. Increase consumption of product X and increase consumption of product Y
C. Increase consumption of product Y and decrease consumption of product X
D. Decrease consumption of product Y and decrease consumption of product X
35. Assume that a consumer purchases a combination of product A and product B such that the MU a/Pa = 8 and
MUb/Pb = 6. To maximize utility without spending more money, the consumer should:
A. Purchase less of product A and more of product B

B. Purchase more of product A and less of product B
C. Purchase more of both product A and product B
D. Make no change in purchases of products A and B
36. Assume that product Alpha and product Beta are both priced at $1 per unit and that Ellie has $20 to spend
on Alpha and Beta. She buys 8 units of Alpha and 12 units of Beta. The marginal utility of Alpha is 40 and
the marginal utility of Beta is 20. This indicates that:
A. Ellie should make no change in consumption

B. Given another dollar, Ellie should buy an additional unit of Beta
C. In order to maximize utility, Ellie should buy more of Beta and less of Alpha
D. In order to maximize utility, Ellie should buy more of Alpha and less of Beta
37. "Consumer equilibrium" refers to the situation when the consumer is getting:
A. The highest total utility out of spending a given budget on various goods
B. The highest marginal utility out of spending a given budget on various goods
C. Equal marginal utility values from each product consumed
D. Equal total utility values from each product consumed
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38. A child is given $4 of pocket money to be spent on either hard candies or chocolates. Chocolates cost 40
cents and hard candies 80 cents each. The marginal utilities derived from each product are as shown in the
following table:
Refer to the above table. Based on taste and preference alone, which good does the child prefer?
A. Chocolates
B. Hard candies
C. The child equally likes chocolates and hard candies
D. One cannot tell from the given data
following table:
Refer to the above table. If the child buys either chocolates or hard candies one piece at a time, what will be
his first two purchases?
A. A hard candy, followed by another hard candy

B. A hard candy, followed by a chocolate
C. A chocolate, followed by a hard candy
D. A chocolate, followed by another chocolate
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following table:
Refer to the above table. Which combination would give the child the maximum utility out of spending
$4?
A. 6 chocolates and 2 hard candies

B. 4 chocolates and 3 hard candies
C. 2 chocolates and 4 hard candies
D. 0 chocolates and 5 hard candies
41. Answer the question based on the table below showing the marginal utility schedules for product X and
product Y for a hypothetical consumer. The price of product X is $4 and the price of product Y is $2. The
income of the consumer is $20.
Refer to the above table. If the consumer buys product X or product Y one unit at a time, which of the
following will the consumer's first two purchases be?
A. A first unit of X followed by a first unit of Y

B. A first unit of X followed by a second unit of X
C. A first unit of Y followed by a first unit of X
D. A first unit of Y followed by a second unit of Y
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Refer to the above table. If the consumer buys both product X and product Y, how much will the consumer
buy of each in order to maximize utility?
A. 4X and 2Y
B. 3X and 4Y
C. 4X and 3Y
D. 5X and 3Y
Refer to the above table. When the consumer purchases the utility-maximizing combination of product X
and product Y, total utility will be:
A. 72
B. 84
C. 136
D. 156
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Refer to the above table. Suppose that the consumer's income increased from $20 to $30. What would be
the utility-maximizing combination of products X and Y?
A. 3X and 3Y
B. 4X and 4Y
C. 5X and 4Y
D. 5X and 5Y
45. A consumer is making purchases of products Alpha and Beta such that the marginal utility of product
Alpha is 30 and the marginal utility of product Beta is 40. The price of product Alpha is $5 and the price of
product Beta is $10. The utility-maximizing rule suggests that this consumer should:
A. Increase consumption of product Beta and decrease consumption of product Alpha

B. Increase consumption of product Beta and increase consumption of product Alpha
C. Increase consumption of product Alpha and decrease consumption of product Beta
D. Make no change in the consumption of Alpha or Beta
46. A consumer is in equilibrium and is spending income in such a way that the marginal utility of product X is
40 units and that of Y is 16 units. If the unit price of X is $5, then the price of Y must be:
A. $1 per unit
B. $2 per unit
C. $3 per unit
D. $4 per unit
47. Assume that a consumer purchases a combination of products Y and Z and that the MU y/Py = 25 and
MUz/Pz = 20. To maximize utility, without spending more money, the consumer should:
A. Purchase less of Y and more of Z

B. Purchase more of Y and less of Z
C. Purchase more of both Y and Z
D. Make no change in Y and Z
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49. Sharon purchases two products with a given fixed budget, orange juice and soda. Her marginal utility from
orange juice is 60 and her marginal utility from soda is 30. The price of a bottle of orange juice is $2.00 and
the price of soda is $1.00. These data suggest that:
A. Sharon is maximizing her utility from the given fixed budget

B. Sharon should buy more orange juice and less soda
C. Sharon should buy more soda and less orange juice
D. Sharon should buy less orange juice and soda
50. Betty is maximizing her satisfaction from spending her budget on two items, movie rentals and music
downloads. If her marginal utility from the last movie rental is twice that from the last music download,
what is the price of a movie rental if the price of a music download is $.80?
A. $0.40
B. $0.80
C. $1.20
D. $1.60
51. Assume that A and B are both priced at $1 per unit and that Mary has $10 to spend on A and B. She buys 6
units of A and 4 units of B. The marginal utility of the final unit of A bought is 12 and that of B is 8. This
indicates that:
A. Mary's consumption is in equilibrium

B. Given another dollar, Mary should buy an additional unit of B
C. In order to maximize utility, Mary should buy more of B and less of A
D. In order to maximize utility, Mary should buy more of A and less of B
52. In spending all his income on beer and pizza, Fred finds that the marginal utility of the last pizza he
consumed is 8, and the marginal utility of the last bottle of beer is 4. The price of a bottle of beer is $1.50.
If Fred has maximized his utility, the price of pizza must be:
A. $0.75
B. $1.00
C. $3.00
D. $4.50
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53. Mr. Samuelson's current rates of purchase are such that the marginal utility of slacks is 18 and the marginal
utility of ties for him is 5. If slacks and ties are priced at $12 and $2 respectively, it can be concluded that
Mr. Samuelson:
A. Is spending too much on slacks and not enough on ties

B. Is spending too much on ties and not enough on slacks
C. Is spending his income in such a way as to maximize his satisfaction
D. Should buy six times as many ties as he does slacks
54. The goal of a rational consumer is to maximize:
A. The quantities of all goods consumed

B. The MU/P of all goods consumed
C. Marginal utility of all goods consumed
D. Total utility from all goods consumed
55. The table below shows the marginal-utility schedules for goods A and B for a hypothetical consumer. The
price of good A is $1 and the price of good B is $2. The income of the consumer is $8.
Refer to the above table. To maximize utility, the consumer will buy:
A. 2 A and 3 B
B. 4 A and 2 B
C. 4 B
D. 6 A and 1 B
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Refer to the above table. If the price of B falls to $1, while the price of A and the consumer's income stay
the same, what would be the utility-maximizing combination of goods A and B?
A. 5 A and 3 B
B. 4 A and 4 B
C. 3 A and 5 B
D. 2 A and 6 B
Refer to the above table. If the price of A decreases, while the price of B and the consumer's income stay
the same, we would expect:
A. MU/P of A to increase, and the consumers will thus buy less of B

B. MU/P of A to increase, and the consumers will thus buy less of A
C. MU/P of A to decrease, and the consumers will thus buy less of B
D. MU/P of A to decrease, and the consumers will thus buy less of A
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58. A downsloping demand curve can be derived for a normal product by increasing its price in the consumer-
behavior model and noting:
A. The increase in the utility-maximizing quantity of that product demanded

B. The decrease in the utility-maximizing quantity of that product demanded
C. A substitution effect that encourages more consumption of that product
D. An income effect that encourages more consumption of that product
59. Suppose that a consumer who spends her budget on X and Y is initially at equilibrium. If the price of X
increases, then the MU/P of X will:
A. Decrease and the consumer will respond by buying more Y and less X
B. Decrease and the consumer will respond by buying more X and less Y
C. Increase and the consumer will respond by buying more Y and less X
D. Increase and the consumer will respond by buying more X and less Y
60. When the price of a product falls for a normal good, the:
A. Income and substitution effects will encourage consumers to purchase more of the product
B. Income and substitution effects will encourage consumers to purchase less of the product
C. Substitution effect will encourage consumers to purchase less of the product and the income effect will
encourage them to purchase more
D. Substitution effect will encourage consumers to purchase more of the product and the income effect will
encourage them to purchase less
61. When the price of a product rises for an inferior good, the:
C. Substitution effect will encourage consumers to purchase less of the product but the income effect will
encourage them to purchase more
D. Substitution effect will encourage consumers to purchase more of the product but the income effect will
encourage them to purchase less
62. The reason the substitution effect works to encourage a consumer to buy less of a product when its price
increases is:
A. The real income of the consumer has been increased

B. The real income of the consumer has been decreased
C. The product is now relatively more expensive than it was before
D. Other products are now relatively more expensive than they were before
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63. Assume that Tonya consumes only two products, pizza and potato chips, out of a given budget. Both are
normal goods for Tonya. If the price of pizza decreases, then Tonya's consumption of pizza will:
A. Decrease due to the income effect

B. Decrease due to the substitution effect
C. Increase due to the income effect
D. Increase due to the law of diminishing marginal utility
64. The substitution effect:
A. Is generally so weak that its effect cannot be predicted

B. For an increase in the relative price of a good is sometimes positive, but sometimes negative
C. Measures the change in the quantity demanded of a good from a change in its relative price
D. Measures the change in the quantity of a good demanded brought about by a change in real income
associated with a change in the price of the good
65. An increase in the price of product X causes a decrease in the quantity demanded for product X. One basic
explanation for this is:
A. The law of increasing opportunity cost

B. The price-elasticity effect
C. The law of supply
D. The law of diminishing marginal utility
66. If the price of a good increases, the substitution effect will:
A. Always tend to make the quantity decrease, while the income effect could go either way
B. Always tend to make the quantity increase, while the income effect could go either way
C. Go either way, but the income effect will always make the quantity increase
D. Go either way, but the income effect will always make the quantity decrease
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67. The table below shows the total utility data for products X and Y. Assume that the prices of X and Y are $3
and $4, respectively, and that consumer income is $18.
Refer to the above table. How many units of the two products will the consumer buy, to get maximum
utility?
A. 1 of X and 4 of Y
B. 2 of X and 2 of Y
C. 2 of X and 3 of Y
D. 3 of X and 4 of Y
Refer to the above table. If the price of X decreases to $2, then the utility-maximizing combination of the
two products is:
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Refer to the above table. Which of the following price-quantity schedules would represent the demand for
X in the $2 and $3 price-range?
A. Option A
B. Option B
C. Option C
D. Option D
70. The increase in demand for iPad tablet computers can be explained by:
A. An increase in the technology used to produce iPads, making the supply of iPads increase
B. An increase in the price of laptop computers, making their MU/P decrease
C. The enhanced versatility and storage capacity of iPads, making their MU/P increase
D. An increase in the income of buyers, making the demand for iPads increase
71. Many people buy no more than one iPad because:
A. There's always a shortage of iPads

B. The MU/P of a second iPad is quite low for many people
C. The price of iPads has increased significantly
D. iPads have quickly become obsolete
72. Understanding the water and diamond paradox is valuable because it explains why:
A. Diamonds have many substitutes

B. Water is more important than diamonds
C. The prices of products are not necessarily measures of the products' usefulness
D. Consumer spending on diamonds has increased while spending on water has decreased
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73. The price of diamonds is substantially greater than the price of water because:
A. The total utility of water is greater than the total utility of diamonds
B. The total utility of diamonds is greater than the total utility of water
C. The marginal utility of the last unit of a diamond is significantly greater than the marginal utility of the
last gallon of water consumed by a typical person
D. The marginal utility of the last unit of a diamond is significantly less than the marginal utility of the last
gallon of water consumed by a typical person
74. The fact that an ounce of gold is priced higher than an ounce of chocolate suggests that:
A. The marginal utility of the last unit of gold consumed is greater than the marginal utility of the last unit
of chocolate consumed
B. The total utility of gold is greater than the total utility of chocolate
C. Gold is a normal good while chocolate is an inferior good
D. There are many substitutes for chocolate, but few for gold
75. A consumer has two basic choices: rent a DVD movie for $4.00 and spend 2 hours watching it, or spend
$13 for a miniature golf game that takes 1 hour. If the marginal utilities of the movie and the miniature golf
game are equal, and the consumer values time at $12 an hour, the rational consumer will most likely:
A. Rent the movie instead of playing miniature golf

B. Play miniature golf instead of renting the movie
C. Be indifferent between the movie and the miniature golf game
D. Not have enough basis for making a utility-maximizing decision
76. Assume a round of golf requires four hours of leisure time, and attending a concert requires two hours. If
the price of a round of golf is $40 and the price of a concert is $80, ceteris paribus, Joe will play:
A. Golf but not attend concerts, since golf is cheaper

B. Golf twice as often as he attends concerts
C. Less golf whenever he receives a large raise
D. Relatively less golf and attend relatively more concerts whenever his leisure time becomes more scarce
77. The marginal utility of leisure time appears to:
A. Be the same even for people with widely different incomes

B. Be exempt from the law of diminishing marginal utility
C. Increase as the quantity of available leisure time decreases
D. Equal zero for successful business executives
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78. You can drive from Kansas City to St. Louis in five hours. You can fly between both cities in two hours.
The price of an airline ticket is $150. The cost of driving between the cities is $50. About what hourly wage
would make the "full" cost of driving equal the "full" cost of flying, where "full" cost includes the value of
time?
A. $17
B. $21
C. $29
D. $33
79. An increase in the productivity of labor over time will:
A. Decrease the value of time

B. Increase the value of time
C. Decrease the demand for labor-saving devices
D. Decrease the demand for consumer goods and services
80. A consumer has two basic choices in making a trip: rent a car for $30.00 a day and spend two days of travel
to the destination, or spend $400 for an airplane ticket and fly to the destination in two hours. The marginal
utilities of the car rental and the airline ticket are the same. The consumer values time at $5 an hour. The
rational consumer will most likely:
A. Rent a car
B. Buy an airline ticket
C. Find the full cost of the two modes to be equal
D. Not make the trip
81. If consumption of a good is subsidized by the government, then the MU/P of that good among consumers
will:
A. Decrease
B. Become negative
C. Increase
D. Not be affected
82. The financing of health care through insurance has:
A. Decreased absolute total expenditures on health care

B. Resulted in consumers directly paying less than the full price of health care
C. Increased the marginal utility of health care services
D. Made no change in health care consumption
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83. Health insurance often pays 80 percent of health care cost. This situation will encourage the rational
consumer to:
A. Consume less health care because the cost is too expensive

B. Obtain health insurance that pays less than 80 percent of medical care costs
C. Use more medical services than they would if they had to paid the full price
D. Eliminate their health care coverage because it does not cover 100 percent of the cost
84. If you purchase a gift worth $25 for your sister, but your sister would be willing to pay only $10 is she
bought the item for herself, then the:
A. Total utility of the gift is $35

B. Total utility of the gift is $15
C. Marginal utility of the gift is $15
D. Loss of value in the gift is $15
85. From the viewpoint of potential criminals, the probability of being fined or imprisoned:
A. Raises the marginal utility of criminal behavior

B. Lowers the marginal utility of criminal behavior
C. Raises the marginal cost or "price" of criminal behavior
D. Lowers the marginal cost or "price" of criminal behavior
86. Many people do not steal or commit fraud because to them, the resulting feelings of guilt and uneasiness
make the:
A. Marginal utility of the act increase

B. Marginal utility of the act decrease
C. Marginal cost of the act increase
D. Marginal cost of the act decrease
87. When DVD players start becoming obsolete then, to potential thieves, the:
A. Marginal utility of stealing them increases

B. Marginal utility of stealing them decreases
C. Marginal cost of stealing them increases
D. Marginal cost of stealing them decreases
True / False Questions
88. Marginal utility is the accumulation of the total utility from successive units of a good or service
consumed.
True False
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89. The law of diminishing marginal utility suggests that the total utility that a consumer derives from a
product will increase slower and slower as more of the product is consumed.
True False
90. If total utility increases as consumption of a good increases, then marginal utility must be increasing also.
True False
91. With diminishing marginal utility, if a consumer reduces her consumption of a good, then her marginal
utility from that good would increase.
True False
92. The price of chicken = 5 while the price of pork = 9. If, after spending her entire budget, the consumer has
MU of chicken = 6 while the MU of pork = 12, then the consumer should have bought more chicken and
less pork in order to increase his total utility.
True False
93. If the price of a good increases, it will tend to make the MU-to-P ratio for the good rise and the good
becomes more attractive to the buyer.
True False
94. The law of diminishing marginal utility implies that in order to induce a buyer to buy more of a product, the
seller must lower its price.
True False
95. The income effect of a price-increase for a normal good causes an increase in the consumption of the good.
True False
96. The substitution effect of a price-decrease for a good causes an increase in the consumption of the good,
regardless of whether the good is normal or inferior.
True False
97. An increase in the real income of a consumer is one result from an increase in the price of a product that the
consumer is buying.
True False
98. The income and substitution effects will both induce the consumer to buy more of a normal good when its
price decreases.
True False
99. Someone who pays $800 to fly from one city to another instead of paying only $100 for a bus trip between
the two cities is making an irrational choice and is thus not maximizing his utility.
True False
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100. If consumers are convinced by ads that Brand X has a lot more value than they originally thought, then the
MU/P of X will decrease.
True False
101. A graph that shows the maximum combinations of two goods which a consumer can purchase with a given
money income is:
A. The production possibilities curve

B. An indifference curve
C. A demand curve
D. A budget line
102. The ratio of the prices of two products that a consumer would buy with a given fixed income is equivalent
to the:
A. Marginal rate of substitution

B. Slope of the budget line
C. Income elasticity of demand for the two products
D. Price elasticity of demand for the two products
103. A decrease in the prices of two products that a consumer buys out of a constant budget would cause the
consumer's:
A. Indifference curves to shift outward from the origin

B. Indifference curves to shift inward to the origin
C. Budget line to shift outward from the origin
D. Budget line to shift inward to the origin
104. A leftward shift of a consumer's budget line to a position parallel with the original one could indicate that
the:
A. Price of one product has decreased in relation to the other

B. Prices of both products have decreased in the same proportion
C. Consumer's money income has increased and the prices of both products have also increased but
proportionately less
D. Consumer's money income has increased but the prices of both products have increased proportionately
more
7-25
105. Suppose a consumer has an income of $16, the price of A is $2, and the price of B is $1. Which of the
following combinations is on the consumer's budget line?
A. 4A and 9B
B. 5A and 6B
C. 6A and 6B
D. 3A and 8B
106. If a consumer has an income of $200, the price of X is $5, and the price of Y is $10, the maximum quantity
of X the consumer is able to purchase is:
A. 5
B. 10
C. 20
D. 40
107. A consumer has an income of $200, and the price of X is $5 while the price of Y is $10. If the consumer
buys 8 units of X, then the maximum quantity of Y that she could also buy is:
A. 16
B. 18
C. 20
D. 14
108. The income of a consumer is $40, the price of A is $8, and the price of B is $4. If the quantity of A is
measured vertically, then the slope of the budget line is:
A. 0.5
B. 1.0
C. 2.0
D. 2.5
7-26
109.
Refer to the above graph. The shift of the budget line from AB to CD is consistent with:
A. A decrease in money income

B. A decrease in the prices of both Goods 1 and 2
C. An increase in the prices of both Goods 1 and 2
D. A decrease in the price of Good 1, and an increase in the price of Good 2
110.
Refer to the diagram above. Cheri's budget line shifts inward from CD to AB. Which statement below is
consistent with this shift?
A. Both prices double, while her income also doubles

B. Both prices increase by 20 percent, while her income increases by 15 percent
C. Both prices decrease by 10 percent, while her income falls by 15 percent
D. Both prices decrease by 10 percent, while her income falls by 6 percent
7-27
111.
Refer to the above graphs. Which graph shows a change in the price of X, but no changes in the price of Y
and in the buyer's budget?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
7-28
112.
Refer to the above graphs. Which graph shows a change in the buyer's income, but no changes in the prices
of X and Y?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
7-29
113.
Refer to the above graphs. Which graph shows an increase in the prices of X and Y, but no change in the
buyer's budget?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
7-30
114.
Refer to the above graphs. Which graph shows an increase in the price of X and a decrease in the price of
Y?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
7-31
115.
Refer to the above graphs. Pizza and beer are the only two goods Jon consumes. The price of beer is $2.00
per pitcher and pizza is $1.25 per slice. If Jon has only $10 to spend for the evening, which graph
represents the set of possible combinations of beer and pizza that he can buy?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
116. An indifference curve shows:
A. The maximum combinations of two products which a consumer can afford to buy, given prices and the
consumer's income
B. The quantities of two products a consumer is willing to buy at different income levels
C. All combinations of two products from which the consumer derives a specific level of total utility
D. Combinations of two products which yield the same marginal utilities
117. If two combinations of goods X and Y give a consumer equal satisfaction, then these two combinations
must both be on the same:
A. Budget line
B. Indifference curve
C. Demand curve
D. Supply curve
7-32
118. The marginal rate of substitution of beef for chicken is the:
A. Number of units of chicken the consumer is prepared to give up to obtain one more unit of beef
B. Number of units of beef the consumer is prepared to give up as income falls
C. Number of units of beef the consumer must sacrifice to obtain one more unit of chicken
D. Rate at which units of beef may be exchanged for units of chicken
119. The table shows an indifference schedule for several combinations of X and Y.
Refer to the above table. How much of X is the consumer willing to give up to obtain the fourth unit of Y?
A. 1
B. 2
C. 3
D. 4
Refer to the above table. In moving from combination b to c, the consumer:
A. Gets 1 unit of X for 1 unit of Y

B. Gets 2 units of X for 2 units of Y
C. Gets 3 units of X for 1 unit of Y
D. Gives up 4 units of X for 1 unit of Y
7-33
Refer to the above table. In moving from combination a to e, the marginal rate of substitution of X for Y:
A. Increases
B. Decreases
C. Stays the same
D. Decreases and then increases
122.
The graph above shows part of a consumer's indifference map for units of coffee and tea, where I1 and I2
represent indifference curves. Which of the following statements is correct?
A. The consumer prefers E to F

B. The consumer prefers C to A
C. The consumer likes B and D equally well
D. The consumer likes D better than E
7-34
123.
Refer to the graph above. What could cause the consumer equilibrium point to shift from point a to point
b?
A. The consumer's income increased

B. The price of good 1 decreased
C. The price of good 1 increased
D. The consumer's income decreased
124.
Refer to the graph above. As the consumer equilibrium point to shifts from point a to point b:
A. The consumer's purchase of good 2 decreases even though its price stays constant
B. The slope of the budget line decreases because the price of good 1 increased
C. The marginal utility of good 1 increases and the marginal utility of good 2 decreases
D. The consumer's total utility decreases
7-35
125. To derive the demand curve of a product in indifference curve analysis, the:
A. Budget line is assumed to stay in a fixed position

B. Money income of the consumer is assumed to be variable
C. The prices of both products are assumed to be variable
D. Tastes and preferences of the consumer are assumed to be fixed
126.
At point X on the graph above, which depicts a consumer's indifference curve for goods A and B and the
relevant budget constraint line, we know that:
A. MUA/PA = MUB/PB
B. PA = PB
C. MUA = MUB
D. MUA/PA > MUB/PB
127. A consumer allocates all income between two products, A and B. If, on an indifference map, the
equilibrium position shifts onto a higher indifference curve, then:
A. The consumer must be purchasing more of both products

B. The relative prices of A and B must have changed
C. The prices of A and B must have increased
D. Total utility must have increased
7-36
128.
In the graph above, the change in the individual's preferences indicated by a shift from indifference curve
A to indifference curve B will result in:
A. A decrease in demand for good Y

B. No change in the demand for good Y
C. A decrease in demand for good X
D. An increase in demand for good X
129.
Given the indifference curve and budget line above, which of the following must be true at point A?
A. MUA/PA < MUB/PB

B. MUA/PA > MUB/PB
C. MUA/PA = MUB/PB
D. PA/PB = MUB/MUA
7-37
130.
Given the indifference curve and budget line above, this individual:
A. Prefers B to A, but B costs more

B. Prefers B to A, and they cost the same
C. Is indifferent between A and B, but A costs less
D. Is indifferent between A and B, and they cost the same
131.
In the diagram above, suppose the consumer is currently exhausting his or her income at a point where the
marginal rate of substitution of apples for oranges is greater than 5/4. That is, MUA/MU0 > 5/4. To maximize
utility, the consumer should move from point:
A. a to e
B. b to e
C. c to e
D. d to e
7-38
132.
Refer to the above graph. Suppose you had tastes as described by the indifference curves above. If your
income was $100, Px = 20 and Py = 25, which combination of X and Y would maximize your utility?
A. 5X and 0Y
B. 0X and 4Y
C. 3X and 1Y
D. 5X and 4Y
133.
A. 3X and 0Y
B. 0X and 9Y
C. 3X and 9Y
D. 1X and 6Y
7-39
134.
Consider the diagram above, where E is the consumer's original equilibrium position. We know good X is
not a normal good if, as income increases, the consumer's new equilibrium position is at point:
A. A
B. B
C. C
D. D
135.
The graph above shows two indifference curves and QR and QS represent different budget lines. A change
in the equilibrium position on the diagram from point 1 to point 2 could result, other things being equal,
from:
A. An increase in the price of B

B. A decrease in the price of A
C. A decrease in the consumer's money income
D. An equal percentage increase in the consumer's money income and in the price of B
7-40
136. If a consumer is initially in equilibrium, an increase in money income will:
A. Move the consumer to a new equilibrium on a lower indifference curve

B. Move the consumer to a new equilibrium on a higher indifference curve
C. Make the slope of the consumer's indifference curves steeper
D. Have no effect on the equilibrium position
137.
Given the indifference map and budget constraint lines above, what is the demand curve for sweaters?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
7-41
138.
Given the indifference curves for an individual as shown above, if the price of good Y = $1, it can be
determined that two points on his or her demand curve for good X are:
A. (PX = $1, QdX = 10); (PX = $2, QdX = 14)

B. (PX = $1, QdX = 7); (PX = $.50, QdX = 14)
C. (PX = $.50, QdX = 7); (PX = $1, QdX = 10)
D. (PX = $2, QdX = 20); (PX = $1, QdX = 10)
139.
The individual demand curve that is implied by the budget constraints and indifference curves above will
be:
A. Perfectly elastic
B. Relatively elastic
C. Perfectly inelastic
D. Relatively inelastic
7-42
140.
In the graph above, a decrease in the price of good Y will result in:

B. An increase in demand for good Y
C. An increase in demand for good X
D. A decrease in demand for good X
141.
Graph I above shows E.T.'s equilibrium choices of beer and candy for three different prices of beer. (I 1, I2,
and I3 are indifference curves. The price of a package of candy is constant at $1.00.) Letting PC represent
the price of beer, which demand curve (d) above is consistent with graph I?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
7-43
142.
Recently the price of lentil beans increased. As a result Lincoln residents noticed that their neighbor,
Rasputin, increased his consumption of lentils and decreased his consumption of steak. Rasputin said his
utility had declined. Many citizens made donations to the "Rasputin Relief Fund." Rasputin was given a
cash grant equal to the amount he claimed to need to regain his initial utility level. Happy and thankful,
Rasputin rushed off to the store to make his new purchases. Each graph above shows two indifference
curves for Rasputin, I1 and I2, and the two budget constraints, B1 and B2, that he faced. Let E1 represent
Rasputin's initial equilibrium, E2 equal his equilibrium following the increase in the price of lentils, E3 his
equilibrium after receiving the cash from the relief fund. Which graph above is consistent with Rasputin's
claims in the above story?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
7-44
143.
Suppose an individual's budget line moved as shown above. Which of the four pairs of graphs, each
showing the demand for Good X and a separate demand for Good Y, is the most consistent with the given
change in the top graph?
A. Pair A
B. Pair B
C. Pair C
D. Pair D
144. In a topographic map, each line represents a particular elevation above sea level, and in an indifference
map each line represents a particular level of:
A. Total utility
B. Marginal utility
C. Income
D. Demand
145. The budget line shows all the combinations of two products which the consumer can buy, given money
income and product prices.
True False
7-45
146. If the quantity of X is measured on the horizontal axis and the quantity of Y on the vertical, then the slope
of the budget line is equal to the price of X divided by the price of Y.
True False
147. A parallel shift in a budget line is caused by changes in a consumer's level of satisfaction.
True False
148. A change in the relative prices for two goods can be shown as a parallel shift in a consumer's budget line.
True False
149. Indifference curves are convex to the origin due to diminishing marginal rates of substitution.
True False
150. Indifference curves and budget lines can be used to derive an individual's demand curve for a product.
True False
151. The consumer will select that point on the budget line which puts the consumer on the highest attainable
indifference curve.
True False
152. A consumer maximizes total utility when she or he purchases the combination of the two products at which
her or his budget line is tangent to an indifference curve.
True False
153. An increase in the price of a product normally enables a consumer to reach a higher indifference curve.
True False
154. It is possible that as a result of the budget line shifting outwards, the consumer will buy less of a product.
True False
7-46
Chapter 07 Utility Maximization Answer Key
1. The satisfaction or pleasure one gets from consuming a good or service is called:
A. Price
B. Utilit
y
C. Income
D. Profits
AACSB: Analytic
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Define and explain the relationship between total utility; marginal utility; and the law of diminishing marginal
utility.
Topic: Law of Diminishing Marginal Utility
2. The utility from a specific product is:
A. Determined by a consumer's income

B. Determined by the price of the product
C. A measure of one's preference or taste for it
D. Constant as one consumes more units of it
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
utility.
3. Total utility is best defined as the:
A. Change in marginal utility multiplied by the price of a product

B. Maximum amount of satisfaction from consuming a product
C. Total satisfaction received from consuming a given amount of a product
D. Additional satisfaction received from consuming one more unit of a product
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
utility.
7-47
A. Marginal utility is the cumulation or summation of total utility

B. Total utility is the cumulation or summation of marginal utility
C. Total utility is the product of multiplying price times marginal utility
D. Total utility is the change in marginal utility as quantity consumed increases
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
utility.
5. Which of the following defines marginal utility?
A. The change in total utility divided by the price of a product

B. The maximum amount of satisfaction from consuming a product
C. The total satisfaction derived from a certain amount of the product
D. The additional satisfaction from consuming one more unit of a product
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
utility.
6. Which best expresses the law of diminishing marginal utility?
A. The more of a product is consumed, the smaller is the total utility from the product
B. The less of a product is consumed, the greater is the marginal utility of the product
C. The more of a product is consumed, the greater is the total utility from the product
D. The less of a product consumed, the smaller is marginal utility of the product
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
utility.
7-48
7. After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your
refusal indicates that the:
A. Marginal utility for four pizza slices is negative

B. Total utility for five pizza slices is negative
C. Marginal utility is positive for the fourth slice and negative for the fifth slice
D. Marginal utility for the fourth slice is the largest among all slices
AACSB: Reflective Thinking

Blooms: Apply
utility.
8. When diminishing marginal utility starts happening as a person consumes more and more of a given
good:
A. Total utility will diminish

B. Total utility will increase at a diminishing rate
C. Marginal utility will become negative
D. Total utility will become negative
AACSB: Analytic
Blooms: Understand
utility.
9. Which situation is consistent with the law of diminishing marginal utility?
A. The more pizza Joe eats, the more he enjoys an additional slice
B. The more pizza Joe eats, the less he enjoys an additional slice
C. Joe's marginal utility from eating pizza becomes positive after eating three slices
D. Joe's marginal utility from eating pizza reaches a maximum when total utility is zero

Blooms: Understand
utility.
7-49
A. When marginal utility is decreasing, an increase in the quantity consumed will decrease total utility
B. When marginal utility is positive, an increase in the quantity consumed will decrease total utility
C. When marginal utility is positive, an increase in the quantity consumed will increase total utility
D. When marginal utility is zero, an increase in the quantity consumed will make total utility zero
AACSB: Analytic
Blooms: Understand
utility.
11. Children who dislike Brussels sprouts exemplify the notion that the marginal utility of Brussels sprouts
is:
A. Zero
B. Negative
C. Positive, but decreasing
D. Less than the total utility

Blooms: Apply
utility.
12.
Refer to the above table. What is the marginal utility of the fourth unit?
A. 36
B. 44
C. 80
D. 116
AACSB: Analytic
Blooms: Apply
utility.
7-50
13.
Refer to the above table. The addition of which unit has the greatest marginal utility?
A. Fifth
B. Sixth
C. Seventh
D. Eighth
AACSB: Analytic
Blooms: Apply
utility.
14.
Refer to the above table. At what consumption level for this product does diminishing marginal utility
set in?
A. 4 units
B. 5 units
C. 8 units
D. 7 units
AACSB: Analytic
Blooms: Apply
utility.
7-51
Refer to the above table. This consumer begins to experience diminishing marginal utility when
consuming the:
A. Third candy bar

B. Fourth candy bar
C. Sixth candy bar
AACSB: Analytic
Blooms: Apply
utility.
Refer to the above table. Marginal utility becomes negative with the consumption of the:
A. Not shown in the table; marginal utility remains positive throughout

B. Fifth candy bar
C. Sixth candy bar
AACSB: Analytic
Blooms: Apply
utility.
7-52
Refer to the above table. Based on the data in the above table you can conclude that the:
A. Marginal utility of the fourth unit is 96

B. Marginal utility of the third unit is 18
C. Total utility of 2 units is 16
D. Total utility of 6 units is 35
AACSB: Analytic
Blooms: Apply
utility.
Refer to the above table. The consumption of which bar yields the greatest marginal utility?
A. Third
B. Fourth
C. Sixth
D. Second
AACSB: Analytic
Blooms: Apply
7-53
utility.
19. If total utility is increasing, then marginal utility:
A. Must be declining
B. Must be increasing
C. Must be increasing at an increasing rate
D. May either be increasing or decreasing, but it must be greater than zero
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
utility.
20. If a product has a diminishing, but positive, marginal utility, then:
A. Total utility decreases at an increasing rate

B. Total utility will become negative
C. Total utility increases at a diminishing rate
D. Total utility decreases at a diminishing rate
AACSB: Analytic
Blooms: Understand
utility.
21. Suppose that football tickets at your university are given away for free, and that there are still empty
seats for all games. Ignoring all other costs of going to the games, you should continue attending until
your:
A. Total utility stops increasing

B. Marginal utility begins to diminish
C. Marginal utility stops increasing
D. Total utility reaches zero

Blooms: Apply
Difficulty: 3 Hard
utility.
7-54
Refer to the above table. Marginal utility begins to diminish with the consumption of the:
A. Fifth unit
B. Fourth unit
C. Third unit
D. Second unit
AACSB: Analytic
Blooms: Apply
utility.
Refer to the above table. Based on the data, you can conclude that the consumer:
A. Receives increasing marginal utility from consuming the first three units
B. Experiences diminishing marginal utility after consuming the first unit
C. Experiences diminishing marginal utility only after consuming the fourth unit
D. Will never consume just one unit of the product
AACSB: Analytic
Blooms: Apply
utility.
7-55
24. When total utility reaches a maximum, then marginal utility is:
A. Increasing
B. Decreasing
C. At a minimum
D. Equal to zero
AACSB: Analytic
Blooms: Remember
utility.
25. If total utility has reached a maximum level, and assuming that diminishing marginal utility already
applies, then what will happen as the consumer consumes additional units of the product?
A. Marginal utility of the additional units will be greater than zero

B. Total utility will turn negative
C. Marginal utility of the additional units will turn negative
D. Total utility will increase at a diminishing rate
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
utility.
26. If the total utility from consuming the fifth unit of a product is 6 and the total utility from all five units is
162, then the total utility from consuming four units must be:
A. 168
B. 27
C. 156
D. 972
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
utility.
7-56
27. If the total utility from consuming five units of a product is 245, and the marginal utility of a sixth unit
is 5, then the total utility from consuming six units would be:
A. 240
B. 250
C. 49
D. 1225
AACSB: Analytic
Blooms: Apply
utility.
28. To the average consumer, the marginal utility of a second copy of today's newspaper is:
A. Constant
B. Increasing
C. Close to zero
D. Close to one
AACSB: Analytic
Blooms: Apply
utility.
29. The reason why people are charged for an additional can of soda they get from a soda machine, but are
not charged for an additional paper taken from a newspaper dispensing machine, is that the marginal
utility of an additional:
A. Soda is close to zero, but the marginal utility of an additional paper diminishes slowly
B. Soda diminishes slowly, but the marginal utility of an additional paper is close to zero
C. Soda increases by more than that of the newspaper as consumption increases
D. Newspaper increases by more than that of soda as consumption increases
AACSB: Analytic
Blooms: Apply
utility.
7-57
30. Which of the following is an assumption of theory of consumer behavior described in this chapter?
A. The consumer's income increases as prices of goods increase

B. Each good that a consumer consumes has a price
C. The consumer oftentimes is not sure about her preferences
D. Marginal utility increases as more units of a good is consumed
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-02 Describe how rational consumers maximize utility by comparing the marginal utility-to-price ratios of all the
products they could possibly purchase.
Topic: Theory of Consumer Behavior
31. Which of the following is not an assumption of the theory of consumer behavior described in this
chapter?
A. The consumer has make decisions within a given budget constraint

B. The consumer experiences diminishing marginal utility from consuming goods
C. The consumer's tastes and preferences continually change within the period studied
D. The consumer aims to get maximum total utility out of a given budget
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
32. A consumer with a fixed income will maximize utility when each good is purchased in amounts such
that the:
A. Total utility is the same for each good

B. Marginal utility of each good is maximized
C. Marginal utility per dollar spent is the same for all goods
D. Marginal utility per dollar spent is maximized for each good
AACSB: Analytic
Blooms: Understand
7-58
33. In deciding what to buy, the consumer will choose the good with the:
A. Highest marginal utility

B. Lowest price
C. Highest marginal utility-to-price ratio
D. Lowest marginal utility-to-price ratio
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
34. A consumer makes purchases of an existing product X such that the marginal utility is 10 and the price
is $5. The consumer also tries a new product Y and at the current level of consumption it has a marginal
utility of 8 and a price of $1. The utility-maximizing rule suggests that this consumer should:
A. Increase consumption of product X and decrease consumption of product Y

B. Increase consumption of product X and increase consumption of product Y
C. Increase consumption of product Y and decrease consumption of product X
D. Decrease consumption of product Y and decrease consumption of product X
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
35. Assume that a consumer purchases a combination of product A and product B such that the MU a/Pa = 8
and MUb/Pb = 6. To maximize utility without spending more money, the consumer should:
A. Purchase less of product A and more of product B

B. Purchase more of product A and less of product B
C. Purchase more of both product A and product B
D. Make no change in purchases of products A and B
AACSB: Analytic
Blooms: Apply
7-59
36. Assume that product Alpha and product Beta are both priced at $1 per unit and that Ellie has $20 to
spend on Alpha and Beta. She buys 8 units of Alpha and 12 units of Beta. The marginal utility of Alpha
is 40 and the marginal utility of Beta is 20. This indicates that:
A. Ellie should make no change in consumption

B. Given another dollar, Ellie should buy an additional unit of Beta
C. In order to maximize utility, Ellie should buy more of Beta and less of Alpha
D. In order to maximize utility, Ellie should buy more of Alpha and less of Beta
AACSB: Analytic
Blooms: Apply
37. "Consumer equilibrium" refers to the situation when the consumer is getting:
A. The highest total utility out of spending a given budget on various goods
B. The highest marginal utility out of spending a given budget on various goods
C. Equal marginal utility values from each product consumed
D. Equal total utility values from each product consumed
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
7-60
cents and hard candies 80 cents each. The marginal utilities derived from each product are as shown in
the following table:
Refer to the above table. Based on taste and preference alone, which good does the child prefer?
A. Chocolates
B. Hard candies
C. The child equally likes chocolates and hard candies
D. One cannot tell from the given data
AACSB: Analytic
Blooms: Understand
7-61
Refer to the above table. If the child buys either chocolates or hard candies one piece at a time, what
will be his first two purchases?
A. A hard candy, followed by another hard candy

B. A hard candy, followed by a chocolate
C. A chocolate, followed by a hard candy
D. A chocolate, followed by another chocolate
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
7-62
Refer to the above table. Which combination would give the child the maximum utility out of spending
$4?
A. 6 chocolates and 2 hard candies

B. 4 chocolates and 3 hard candies
C. 2 chocolates and 4 hard candies
D. 0 chocolates and 5 hard candies
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
product Y for a hypothetical consumer. The price of product X is $4 and the price of product Y is $2.
The income of the consumer is $20.
Refer to the above table. If the consumer buys product X or product Y one unit at a time, which of the
following will the consumer's first two purchases be?
A. A first unit of X followed by a first unit of Y

B. A first unit of X followed by a second unit of X
C. A first unit of Y followed by a first unit of X
D. A first unit of Y followed by a second unit of Y
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
7-63
Refer to the above table. If the consumer buys both product X and product Y, how much will the
consumer buy of each in order to maximize utility?
A. 4X and 2Y
B. 3X and 4Y
C. 4X and 3Y
D. 5X and 3Y
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Refer to the above table. When the consumer purchases the utility-maximizing combination of product
X and product Y, total utility will be:
A. 72
B. 84
C. 136
D. 156
AACSB: Analytic
Blooms: Apply
7-64
Difficulty: 3 Hard
Refer to the above table. Suppose that the consumer's income increased from $20 to $30. What would
be the utility-maximizing combination of products X and Y?
A. 3X and 3Y
B. 4X and 4Y
C. 5X and 4Y
D. 5X and 5Y
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
45. A consumer is making purchases of products Alpha and Beta such that the marginal utility of product
Alpha is 30 and the marginal utility of product Beta is 40. The price of product Alpha is $5 and the price
of product Beta is $10. The utility-maximizing rule suggests that this consumer should:
A. Increase consumption of product Beta and decrease consumption of product Alpha

B. Increase consumption of product Beta and increase consumption of product Alpha
C. Increase consumption of product Alpha and decrease consumption of product Beta
D. Make no change in the consumption of Alpha or Beta
AACSB: Analytic
Blooms: Apply
7-65
46. A consumer is in equilibrium and is spending income in such a way that the marginal utility of product
X is 40 units and that of Y is 16 units. If the unit price of X is $5, then the price of Y must be:
A. $1 per unit
B. $2 per unit
C. $3 per unit
D. $4 per unit
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard

AACSB: Analytic
Blooms: Apply

AACSB: Analytic
Blooms: Apply
7-66
49. Sharon purchases two products with a given fixed budget, orange juice and soda. Her marginal utility
from orange juice is 60 and her marginal utility from soda is 30. The price of a bottle of orange juice is
$2.00 and the price of soda is $1.00. These data suggest that:
A. Sharon is maximizing her utility from the given fixed budget

B. Sharon should buy more orange juice and less soda
C. Sharon should buy more soda and less orange juice
D. Sharon should buy less orange juice and soda
AACSB: Analytic
Blooms: Apply
50. Betty is maximizing her satisfaction from spending her budget on two items, movie rentals and music
downloads. If her marginal utility from the last movie rental is twice that from the last music download,
what is the price of a movie rental if the price of a music download is $.80?
A. $0.40
B. $0.80
C. $1.20
D. $1.60
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
51. Assume that A and B are both priced at $1 per unit and that Mary has $10 to spend on A and B. She
buys 6 units of A and 4 units of B. The marginal utility of the final unit of A bought is 12 and that of B
is 8. This indicates that:
A. Mary's consumption is in equilibrium

B. Given another dollar, Mary should buy an additional unit of B
C. In order to maximize utility, Mary should buy more of B and less of A
D. In order to maximize utility, Mary should buy more of A and less of B
AACSB: Analytic
Blooms: Apply
7-67
52. In spending all his income on beer and pizza, Fred finds that the marginal utility of the last pizza he
consumed is 8, and the marginal utility of the last bottle of beer is 4. The price of a bottle of beer is
$1.50. If Fred has maximized his utility, the price of pizza must be:
A. $0.75
B. $1.00
C. $3.00
D. $4.50
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
53. Mr. Samuelson's current rates of purchase are such that the marginal utility of slacks is 18 and the
marginal utility of ties for him is 5. If slacks and ties are priced at $12 and $2 respectively, it can be
concluded that Mr. Samuelson:
A. Is spending too much on slacks and not enough on ties

B. Is spending too much on ties and not enough on slacks
C. Is spending his income in such a way as to maximize his satisfaction
D. Should buy six times as many ties as he does slacks
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
54. The goal of a rational consumer is to maximize:
A. The quantities of all goods consumed

B. The MU/P of all goods consumed
C. Marginal utility of all goods consumed
D. Total utility from all goods consumed
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
7-68
55. The table below shows the marginal-utility schedules for goods A and B for a hypothetical consumer.
The price of good A is $1 and the price of good B is $2. The income of the consumer is $8.
Refer to the above table. To maximize utility, the consumer will buy:
A. 2 A and 3 B
B. 4 A and 2 B
C. 4B
D. 6 A and 1 B
AACSB: Analytic
Blooms: Apply
Refer to the above table. If the price of B falls to $1, while the price of A and the consumer's income
stay the same, what would be the utility-maximizing combination of goods A and B?
A. 5 A and 3 B
B. 4 A and 4 B
C. 3 A and 5 B
D. 2 A and 6 B
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
7-69
Refer to the above table. If the price of A decreases, while the price of B and the consumer's income
stay the same, we would expect:
A. MU/P of A to increase, and the consumers will thus buy less of B

B. MU/P of A to increase, and the consumers will thus buy less of A
C. MU/P of A to decrease, and the consumers will thus buy less of B
D. MU/P of A to decrease, and the consumers will thus buy less of A
AACSB: Analytic
Blooms: Apply
Learning Objective: 07-03 Explain how a demand curve can be derived by observing the outcomes of price changes in the utility-
maximization model.
Topic: Utility Maximization and the Demand Curve
58. A downsloping demand curve can be derived for a normal product by increasing its price in the
consumer-behavior model and noting:
A. The increase in the utility-maximizing quantity of that product demanded

B. The decrease in the utility-maximizing quantity of that product demanded
C. A substitution effect that encourages more consumption of that product
D. An income effect that encourages more consumption of that product
AACSB: Analytic
Blooms: Remember
maximization model.
7-70
59. Suppose that a consumer who spends her budget on X and Y is initially at equilibrium. If the price of X
increases, then the MU/P of X will:
A. Decrease and the consumer will respond by buying more Y and less X
B. Decrease and the consumer will respond by buying more X and less Y
C. Increase and the consumer will respond by buying more Y and less X
D. Increase and the consumer will respond by buying more X and less Y
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
maximization model.
60. When the price of a product falls for a normal good, the:
C. Substitution effect will encourage consumers to purchase less of the product and the income effect
will encourage them to purchase more
D. Substitution effect will encourage consumers to purchase more of the product and the income effect
will encourage them to purchase less
AACSB: Analytic
Blooms: Understand
Learning Objective: 07-04 Discuss how the utility-maximization model helps highlight the income and substitution effects of a price change.
61. When the price of a product rises for an inferior good, the:
C. Substitution effect will encourage consumers to purchase less of the product but the income effect
will encourage them to purchase more
D. Substitution effect will encourage consumers to purchase more of the product but the income effect
will encourage them to purchase less
AACSB: Analytic
Blooms: Understand
7-71
62. The reason the substitution effect works to encourage a consumer to buy less of a product when its price
increases is:
A. The real income of the consumer has been increased

B. The real income of the consumer has been decreased
C. The product is now relatively more expensive than it was before
D. Other products are now relatively more expensive than they were before
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
63. Assume that Tonya consumes only two products, pizza and potato chips, out of a given budget. Both are
normal goods for Tonya. If the price of pizza decreases, then Tonya's consumption of pizza will:
A. Decrease due to the income effect

B. Decrease due to the substitution effect
C. Increase due to the income effect
D. Increase due to the law of diminishing marginal utility
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
64. The substitution effect:
A. Is generally so weak that its effect cannot be predicted

B. For an increase in the relative price of a good is sometimes positive, but sometimes negative
C. Measures the change in the quantity demanded of a good from a change in its relative price
D. Measures the change in the quantity of a good demanded brought about by a change in real income
associated with a change in the price of the good
AACSB: Analytic
Blooms: Remember
7-72
65. An increase in the price of product X causes a decrease in the quantity demanded for product X. One
basic explanation for this is:
A. The law of increasing opportunity cost

B. The price-elasticity effect
C. The law of supply
D. The law of diminishing marginal utility
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
maximization model.
66. If the price of a good increases, the substitution effect will:
A. Always tend to make the quantity decrease, while the income effect could go either way
B. Always tend to make the quantity increase, while the income effect could go either way
C. Go either way, but the income effect will always make the quantity increase
D. Go either way, but the income effect will always make the quantity decrease
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
67. The table below shows the total utility data for products X and Y. Assume that the prices of X and Y are
$3 and $4, respectively, and that consumer income is $18.
Refer to the above table. How many units of the two products will the consumer buy, to get maximum
utility?
AACSB: Analytic
Blooms: Apply
maximization model.
7-73
Refer to the above table. If the price of X decreases to $2, then the utility-maximizing combination of
the two products is:
AACSB: Analytic
Blooms: Apply
maximization model.
Refer to the above table. Which of the following price-quantity schedules would represent the demand
for X in the $2 and $3 price-range?
A. Option A
B. Option B
C. Option C
D. Option D
AACSB: Analytic
Blooms: Apply
7-74
maximization model.
70. The increase in demand for iPad tablet computers can be explained by:
A. An increase in the technology used to produce iPads, making the supply of iPads increase
B. An increase in the price of laptop computers, making their MU/P decrease
C. The enhanced versatility and storage capacity of iPads, making their MU/P increase
D. An increase in the income of buyers, making the demand for iPads increase
AACSB: Analytic
Blooms: Apply
Learning Objective: 07-05 Give examples of several real-world phenomena that can be explained by applying the theory of consumer
behavior.
Topic: Applications and Extensions
71. Many people buy no more than one iPad because:
A. There's always a shortage of iPads

B. The MU/P of a second iPad is quite low for many people
C. The price of iPads has increased significantly
D. iPads have quickly become obsolete
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
behavior.
72. Understanding the water and diamond paradox is valuable because it explains why:
A. Diamonds have many substitutes

B. Water is more important than diamonds
C. The prices of products are not necessarily measures of the products' usefulness
D. Consumer spending on diamonds has increased while spending on water has decreased
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
behavior.
7-75
73. The price of diamonds is substantially greater than the price of water because:
A. The total utility of water is greater than the total utility of diamonds
B. The total utility of diamonds is greater than the total utility of water
C. The marginal utility of the last unit of a diamond is significantly greater than the marginal utility of
the last gallon of water consumed by a typical person
D. The marginal utility of the last unit of a diamond is significantly less than the marginal utility of the
last gallon of water consumed by a typical person
AACSB: Analytic
Blooms: Remember
behavior.
74. The fact that an ounce of gold is priced higher than an ounce of chocolate suggests that:
A. The marginal utility of the last unit of gold consumed is greater than the marginal utility of the last
unit of chocolate consumed
B. The total utility of gold is greater than the total utility of chocolate
C. Gold is a normal good while chocolate is an inferior good
D. There are many substitutes for chocolate, but few for gold
AACSB: Analytic
Blooms: Remember
behavior.
75. A consumer has two basic choices: rent a DVD movie for $4.00 and spend 2 hours watching it, or spend
$13 for a miniature golf game that takes 1 hour. If the marginal utilities of the movie and the miniature
golf game are equal, and the consumer values time at $12 an hour, the rational consumer will most
likely:
A. Rent the movie instead of playing miniature golf

B. Play miniature golf instead of renting the movie
C. Be indifferent between the movie and the miniature golf game
D. Not have enough basis for making a utility-maximizing decision
AACSB: Analytic
Blooms: Apply
behavior.
7-76
76. Assume a round of golf requires four hours of leisure time, and attending a concert requires two hours.
If the price of a round of golf is $40 and the price of a concert is $80, ceteris paribus, Joe will play:
A. Golf but not attend concerts, since golf is cheaper

B. Golf twice as often as he attends concerts
C. Less golf whenever he receives a large raise
D. Relatively less golf and attend relatively more concerts whenever his leisure time becomes more
scarce
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
behavior.
77. The marginal utility of leisure time appears to:
A. Be the same even for people with widely different incomes

B. Be exempt from the law of diminishing marginal utility
C. Increase as the quantity of available leisure time decreases
D. Equal zero for successful business executives
AACSB: Analytic
Blooms: Remember
behavior.
78. You can drive from Kansas City to St. Louis in five hours. You can fly between both cities in two
hours. The price of an airline ticket is $150. The cost of driving between the cities is $50. About what
hourly wage would make the "full" cost of driving equal the "full" cost of flying, where "full" cost
includes the value of time?
A. $17
B. $21
C. $29
D. $33
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
behavior.
7-77
79. An increase in the productivity of labor over time will:
A. Decrease the value of time

B. Increase the value of time
C. Decrease the demand for labor-saving devices
D. Decrease the demand for consumer goods and services
AACSB: Analytic
Blooms: Remember
behavior.
80. A consumer has two basic choices in making a trip: rent a car for $30.00 a day and spend two days of
travel to the destination, or spend $400 for an airplane ticket and fly to the destination in two hours. The
marginal utilities of the car rental and the airline ticket are the same. The consumer values time at $5 an
hour. The rational consumer will most likely:
A. Rent a car
B. Buy an airline ticket
C. Find the full cost of the two modes to be equal
D. Not make the trip
AACSB: Analytic
Blooms: Apply
behavior.
81. If consumption of a good is subsidized by the government, then the MU/P of that good among
consumers will:
A. Decrease
B. Become negative
C. Increase
D. Not be affected
AACSB: Analytic
Blooms: Understand
behavior.
7-78
82. The financing of health care through insurance has:
A. Decreased absolute total expenditures on health care

B. Resulted in consumers directly paying less than the full price of health care
C. Increased the marginal utility of health care services
D. Made no change in health care consumption
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
behavior.
83. Health insurance often pays 80 percent of health care cost. This situation will encourage the rational
consumer to:
A. Consume less health care because the cost is too expensive

B. Obtain health insurance that pays less than 80 percent of medical care costs
C. Use more medical services than they would if they had to paid the full price
D. Eliminate their health care coverage because it does not cover 100 percent of the cost
AACSB: Analytic
Blooms: Apply
behavior.
84. If you purchase a gift worth $25 for your sister, but your sister would be willing to pay only $10 is she
bought the item for herself, then the:
A. Total utility of the gift is $35

B. Total utility of the gift is $15
C. Marginal utility of the gift is $15
D. Loss of value in the gift is $15
AACSB: Analytic
Blooms: Apply
behavior.
7-79
85. From the viewpoint of potential criminals, the probability of being fined or imprisoned:
A. Raises the marginal utility of criminal behavior

B. Lowers the marginal utility of criminal behavior
C. Raises the marginal cost or "price" of criminal behavior
D. Lowers the marginal cost or "price" of criminal behavior

Blooms: Apply
behavior.
86. Many people do not steal or commit fraud because to them, the resulting feelings of guilt and uneasiness
make the:
A. Marginal utility of the act increase

B. Marginal utility of the act decrease
C. Marginal cost of the act increase
D. Marginal cost of the act decrease

Blooms: Apply
behavior.
87. When DVD players start becoming obsolete then, to potential thieves, the:
A. Marginal utility of stealing them increases

B. Marginal utility of stealing them decreases
C. Marginal cost of stealing them increases
D. Marginal cost of stealing them decreases

Blooms: Apply
behavior.
7-80
88. Marginal utility is the accumulation of the total utility from successive units of a good or service
consumed.
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
utility.
89. The law of diminishing marginal utility suggests that the total utility that a consumer derives from a
product will increase slower and slower as more of the product is consumed.
TRUE
AACSB: Analytic
Blooms: Understand
utility.
90. If total utility increases as consumption of a good increases, then marginal utility must be increasing
also.
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
utility.
91. With diminishing marginal utility, if a consumer reduces her consumption of a good, then her marginal
utility from that good would increase.
TRUE
AACSB: Analytic
Blooms: Understand
utility.
92. The price of chicken = 5 while the price of pork = 9. If, after spending her entire budget, the consumer
has MU of chicken = 6 while the MU of pork = 12, then the consumer should have bought more chicken
and less pork in order to increase his total utility.
TRUE
AACSB: Analytic
Blooms: Apply
7-81
93. If the price of a good increases, it will tend to make the MU-to-P ratio for the good rise and the good
becomes more attractive to the buyer.
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
maximization model.
94. The law of diminishing marginal utility implies that in order to induce a buyer to buy more of a product,
the seller must lower its price.
TRUE

Blooms: Understand
Difficulty: 1 Easy
maximization model.
95. The income effect of a price-increase for a normal good causes an increase in the consumption of the
good.
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
96. The substitution effect of a price-decrease for a good causes an increase in the consumption of the good,
regardless of whether the good is normal or inferior.
TRUE
AACSB: Analytic
Blooms: Understand
97. An increase in the real income of a consumer is one result from an increase in the price of a product that
the consumer is buying.
FALSE
AACSB: Analytic
7-82
Blooms: Remember
Difficulty: 1 Easy
98. The income and substitution effects will both induce the consumer to buy more of a normal good when
its price decreases.
TRUE
AACSB: Analytic
Blooms: Understand
99. Someone who pays $800 to fly from one city to another instead of paying only $100 for a bus trip
between the two cities is making an irrational choice and is thus not maximizing his utility.
FALSE
AACSB: Analytic
Blooms: Apply
behavior.
100. If consumers are convinced by ads that Brand X has a lot more value than they originally thought, then
the MU/P of X will decrease.
FALSE
AACSB: Analytic
Blooms: Remember
behavior.
101. A graph that shows the maximum combinations of two goods which a consumer can purchase with a
given money income is:
A. The production possibilities curve

B. An indifference curve
C. A demand curve
D. A budget line
AACSB: Analytic
7-83
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-06 (Appendix) Relate how the indifference curve model of consumer behavior derives demand curves from budget
lines; indifference curves; and utility maximization.
Topic: The Budget Line: What Is Attainable
102. The ratio of the prices of two products that a consumer would buy with a given fixed income is
equivalent to the:
A. Marginal rate of substitution

B. Slope of the budget line
C. Income elasticity of demand for the two products
D. Price elasticity of demand for the two products
AACSB: Analytic
Blooms: Remember
103. A decrease in the prices of two products that a consumer buys out of a constant budget would cause the
consumer's:
A. Indifference curves to shift outward from the origin

B. Indifference curves to shift inward to the origin
C. Budget line to shift outward from the origin
D. Budget line to shift inward to the origin
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
104. A leftward shift of a consumer's budget line to a position parallel with the original one could indicate
that the:
A. Price of one product has decreased in relation to the other

B. Prices of both products have decreased in the same proportion
C. Consumer's money income has increased and the prices of both products have also increased but
proportionately less
D. Consumer's money income has increased but the prices of both products have increased
proportionately more
AACSB: Analytic
Blooms: Remember
Difficulty: 3 Hard
7-84
105. Suppose a consumer has an income of $16, the price of A is $2, and the price of B is $1. Which of the
following combinations is on the consumer's budget line?
A. 4A and 9B
B. 5A and 6B
C. 6A and 6B
D. 3A and 8B
AACSB: Analytic
Blooms: Apply
106. If a consumer has an income of $200, the price of X is $5, and the price of Y is $10, the maximum
quantity of X the consumer is able to purchase is:
A. 5
B. 10
C. 20
D. 40
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
107. A consumer has an income of $200, and the price of X is $5 while the price of Y is $10. If the consumer
buys 8 units of X, then the maximum quantity of Y that she could also buy is:
A. 16
B. 18
C. 20
D. 14
AACSB: Analytic
Blooms: Remember
7-85
108. The income of a consumer is $40, the price of A is $8, and the price of B is $4. If the quantity of A is
measured vertically, then the slope of the budget line is:
A. 0.5
B. 1.0
C. 2.0
D. 2.5
AACSB: Analytic
Blooms: Apply
109.
Refer to the above graph. The shift of the budget line from AB to CD is consistent with:
A. A decrease in money income

B. A decrease in the prices of both Goods 1 and 2
C. An increase in the prices of both Goods 1 and 2
D. A decrease in the price of Good 1, and an increase in the price of Good 2
AACSB: Analytic
Blooms: Apply
7-86
110.
Refer to the diagram above. Cheri's budget line shifts inward from CD to AB. Which statement below is
consistent with this shift?
A. Both prices double, while her income also doubles

B. Both prices increase by 20 percent, while her income increases by 15 percent
C. Both prices decrease by 10 percent, while her income falls by 15 percent
D. Both prices decrease by 10 percent, while her income falls by 6 percent
AACSB: Analytic
Blooms: Apply
7-87
111.
Refer to the above graphs. Which graph shows a change in the price of X, but no changes in the price of
Y and in the buyer's budget?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
7-88
112.
Refer to the above graphs. Which graph shows a change in the buyer's income, but no changes in the
prices of X and Y?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
7-89
113.
Refer to the above graphs. Which graph shows an increase in the prices of X and Y, but no change in
the buyer's budget?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
AACSB: Analytic
Blooms: Apply
7-90
114.
Refer to the above graphs. Which graph shows an increase in the price of X and a decrease in the price
of Y?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
AACSB: Analytic
Blooms: Apply
7-91
115.
Refer to the above graphs. Pizza and beer are the only two goods Jon consumes. The price of beer is
$2.00 per pitcher and pizza is $1.25 per slice. If Jon has only $10 to spend for the evening, which graph
represents the set of possible combinations of beer and pizza that he can buy?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
116. An indifference curve shows:
A. The maximum combinations of two products which a consumer can afford to buy, given prices and
the consumer's income
B. The quantities of two products a consumer is willing to buy at different income levels
C. All combinations of two products from which the consumer derives a specific level of total utility
D. Combinations of two products which yield the same marginal utilities
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Topic: Indifference Curves: What Is Preferred
7-92
117. If two combinations of goods X and Y give a consumer equal satisfaction, then these two combinations
must both be on the same:
A. Budget line
B. Indifference curve
C. Demand curve
D. Supply curve
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
118. The marginal rate of substitution of beef for chicken is the:
A. Number of units of chicken the consumer is prepared to give up to obtain one more unit of beef
B. Number of units of beef the consumer is prepared to give up as income falls
C. Number of units of beef the consumer must sacrifice to obtain one more unit of chicken
D. Rate at which units of beef may be exchanged for units of chicken
AACSB: Analytic
Blooms: Remember
Refer to the above table. How much of X is the consumer willing to give up to obtain the fourth unit of
Y?
A. 1
B. 2
C. 3
D. 4
AACSB: Analytic
Blooms: Apply
7-93
Refer to the above table. In moving from combination b to c, the consumer:
A. Gets 1 unit of X for 1 unit of Y

B. Gets 2 units of X for 2 units of Y
C. Gets 3 units of X for 1 unit of Y
D. Gives up 4 units of X for 1 unit of Y
AACSB: Analytic
Blooms: Apply
Refer to the above table. In moving from combination a to e, the marginal rate of substitution of X for
Y:
A. Increases
B. Decreases
C. Stays the same
D. Decreases and then increases
AACSB: Analytic
Blooms: Apply
7-94
122.
The graph above shows part of a consumer's indifference map for units of coffee and tea, where I1 and I2
represent indifference curves. Which of the following statements is correct?
A. The consumer prefers E to F

B. The consumer prefers C to A
C. The consumer likes B and D equally well
D. The consumer likes D better than E
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Topic: The Indifference Map
7-95
123.
Refer to the graph above. What could cause the consumer equilibrium point to shift from point a to
point b?
A. The consumer's income increased

B. The price of good 1 decreased
C. The price of good 1 increased
D. The consumer's income decreased
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
Topic: Equilibrium at Tangency
124.
Refer to the graph above. As the consumer equilibrium point to shifts from point a to point b:
A. The consumer's purchase of good 2 decreases even though its price stays constant
B. The slope of the budget line decreases because the price of good 1 increased
C. The marginal utility of good 1 increases and the marginal utility of good 2 decreases
D. The consumer's total utility decreases
AACSB: Analytic
7-96
Blooms: Apply
Difficulty: 3 Hard
125. To derive the demand curve of a product in indifference curve analysis, the:
A. Budget line is assumed to stay in a fixed position

B. Money income of the consumer is assumed to be variable
C. The prices of both products are assumed to be variable
D. Tastes and preferences of the consumer are assumed to be fixed
AACSB: Analytic
Blooms: Remember
Topic: The Derivation of the Demand Curve
126.
At point X on the graph above, which depicts a consumer's indifference curve for goods A and B and the
relevant budget constraint line, we know that:
A. MUA/PA = MUB/PB
B. PA = PB
C. MUA = MUB
D. MUA/PA > MUB/PB
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Topic: Equivalency at Equilibrium
7-97
127. A consumer allocates all income between two products, A and B. If, on an indifference map, the
equilibrium position shifts onto a higher indifference curve, then:
A. The consumer must be purchasing more of both products

B. The relative prices of A and B must have changed
C. The prices of A and B must have increased
D. Total utility must have increased
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
128.
In the graph above, the change in the individual's preferences indicated by a shift from indifference
curve A to indifference curve B will result in:

B. No change in the demand for good Y
C. A decrease in demand for good X
D. An increase in demand for good X
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
7-98
129.
Given the indifference curve and budget line above, which of the following must be true at point A?
A. MUA/PA < MUB/PB

B. MUA/PA > MUB/PB
C. MUA/PA = MUB/PB
D. PA/PB = MUB/MUA
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
130.
Given the indifference curve and budget line above, this individual:
A. Prefers B to A, but B costs more

B. Prefers B to A, and they cost the same
C. Is indifferent between A and B, but A costs less
D. Is indifferent between A and B, and they cost the same
AACSB: Analytic
Blooms: Apply
7-99
Difficulty: 3 Hard
131.
In the diagram above, suppose the consumer is currently exhausting his or her income at a point where
the marginal rate of substitution of apples for oranges is greater than 5/4. That is, MUA/MU0 > 5/4. To
maximize utility, the consumer should move from point:
A. a to e
B. b to e
C. c to e
D. d to e
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
7-100
132.
A. 5X and 0Y
B. 0X and 4Y
C. 3X and 1Y
D. 5X and 4Y
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
7-101
133.
A. 3X and 0Y
B. 0X and 9Y
C. 3X and 9Y
D. 1X and 6Y
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
7-102
134.
Consider the diagram above, where E is the consumer's original equilibrium position. We know good X
is not a normal good if, as income increases, the consumer's new equilibrium position is at point:
A. A
B. B
C. C
D. D
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
7-103
135.
The graph above shows two indifference curves and QR and QS represent different budget lines. A
change in the equilibrium position on the diagram from point 1 to point 2 could result, other things
being equal, from:
A. An increase in the price of B

B. A decrease in the price of A
C. A decrease in the consumer's money income
D. An equal percentage increase in the consumer's money income and in the price of B
AACSB: Analytic
Blooms: Apply
136. If a consumer is initially in equilibrium, an increase in money income will:
A. Move the consumer to a new equilibrium on a lower indifference curve

B. Move the consumer to a new equilibrium on a higher indifference curve
C. Make the slope of the consumer's indifference curves steeper
D. Have no effect on the equilibrium position
AACSB: Analytic
Blooms: Remember
7-104
137.
Given the indifference map and budget constraint lines above, what is the demand curve for sweaters?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
7-105
138.
Given the indifference curves for an individual as shown above, if the price of good Y = $1, it can be
determined that two points on his or her demand curve for good X are:
A. (PX = $1, QdX = 10); (PX = $2, QdX = 14)

B. (PX = $1, QdX = 7); (PX = $.50, QdX = 14)
C. (PX = $.50, QdX = 7); (PX = $1, QdX = 10)
D. (PX = $2, QdX = 20); (PX = $1, QdX = 10)
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
7-106
139.
The individual demand curve that is implied by the budget constraints and indifference curves above
will be:
A. Perfectly elastic
B. Relatively elastic
C. Perfectly inelastic
D. Relatively inelastic
AACSB: Analytic
Blooms: Apply
7-107
140.
In the graph above, a decrease in the price of good Y will result in:

B. An increase in demand for good Y
C. An increase in demand for good X
D. A decrease in demand for good X
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
7-108
141.
Graph I above shows E.T.'s equilibrium choices of beer and candy for three different prices of beer. (I 1,
I2, and I3 are indifference curves. The price of a package of candy is constant at $1.00.) Letting PC
represent the price of beer, which demand curve (d) above is consistent with graph I?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
7-109
142.
Recently the price of lentil beans increased. As a result Lincoln residents noticed that their neighbor,
Rasputin, increased his consumption of lentils and decreased his consumption of steak. Rasputin said
his utility had declined. Many citizens made donations to the "Rasputin Relief Fund." Rasputin was
given a cash grant equal to the amount he claimed to need to regain his initial utility level. Happy and
thankful, Rasputin rushed off to the store to make his new purchases. Each graph above shows two
indifference curves for Rasputin, I1 and I2, and the two budget constraints, B1 and B2, that he faced. Let
E1 represent Rasputin's initial equilibrium, E2 equal his equilibrium following the increase in the price of
lentils, E3 his equilibrium after receiving the cash from the relief fund. Which graph above is consistent
with Rasputin's claims in the above story?
A. Graph A
B. Graph B
C. Graph C
D. Graph D
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
7-110
143.
Suppose an individual's budget line moved as shown above. Which of the four pairs of graphs, each
showing the demand for Good X and a separate demand for Good Y, is the most consistent with the
given change in the top graph?
A. Pair A
B. Pair B
C. Pair C
D. Pair D
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
144. In a topographic map, each line represents a particular elevation above sea level, and in an indifference
map each line represents a particular level of:
A. Total utility
B. Marginal utility
C. Income
D. Demand
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
7-111
145. The budget line shows all the combinations of two products which the consumer can buy, given money
income and product prices.
TRUE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
146. If the quantity of X is measured on the horizontal axis and the quantity of Y on the vertical, then the
slope of the budget line is equal to the price of X divided by the price of Y.
TRUE
AACSB: Analytic
Blooms: Remember
Difficulty: 3 Hard
147. A parallel shift in a budget line is caused by changes in a consumer's level of satisfaction.
FALSE
AACSB: Analytic
Blooms: Remember
148. A change in the relative prices for two goods can be shown as a parallel shift in a consumer's budget
line.
FALSE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
7-112
149. Indifference curves are convex to the origin due to diminishing marginal rates of substitution.
TRUE
AACSB: Analytic
Blooms: Remember
150. Indifference curves and budget lines can be used to derive an individual's demand curve for a product.
TRUE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
151. The consumer will select that point on the budget line which puts the consumer on the highest attainable
indifference curve.
TRUE
AACSB: Analytic
Blooms: Remember
152. A consumer maximizes total utility when she or he purchases the combination of the two products at
which her or his budget line is tangent to an indifference curve.
TRUE
AACSB: Analytic
Blooms: Remember
153. An increase in the price of a product normally enables a consumer to reach a higher indifference curve.
FALSE
AACSB: Analytic
Blooms: Remember
7-113
154. It is possible that as a result of the budget line shifting outwards, the consumer will buy less of a
product.
TRUE

Blooms: Apply
Difficulty: 3 Hard
7-114

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Chapter 07

Multiple Choice Questions

2. The utility from a specific product is:

A. Determined by a consumer's income

3. Total utility is best defined as the:

A. Change in marginal utility multiplied by the price of a product

4. Which of the following statements is correct?

A. Marginal utility is the cumulation or summation of total utility

5. Which of the following defines marginal utility?

A. The change in total utility divided by the price of a product

A. Marginal utility for four pizza slices is negative

A. Total utility will diminish

9. Which situation is consistent with the law of diminishing marginal utility?

10. Which of the following statements is correct?

A. Third candy bar

A. Not shown in the table; marginal utility remains positive throughout

A. Marginal utility of the fourth unit is 96

19. If total utility is increasing, then marginal utility:

A. Total utility decreases at an increasing rate

A. Total utility stops increasing

22. The table below shows a consumer's utility schedule.

A. Marginal utility of the additional units will be greater than zero

A. The consumer's income increases as prices of goods increase

A. The consumer has make decisions within a given budget constraint

A. Total utility is the same for each good

A. Highest marginal utility

A. Increase consumption of product X and decrease consumption of product Y

A. Purchase less of product A and more of product B

A. Ellie should make no change in consumption

A. A hard candy, followed by another hard candy

A. 6 chocolates and 2 hard candies

A. A first unit of X followed by a first unit of Y

A. Increase consumption of product Beta and decrease consumption of product Alpha

A. Purchase less of Y and more of Z

A. Purchase less of Y and more of Z

A. Sharon is maximizing her utility from the given fixed budget

A. Mary's consumption is in equilibrium

A. Is spending too much on slacks and not enough on ties

54. The goal of a rational consumer is to maximize:

A. The quantities of all goods consumed

A. MU/P of A to increase, and the consumers will thus buy less of B

A. The increase in the utility-maximizing quantity of that product demanded

A. The real income of the consumer has been increased

A. Decrease due to the income effect

64. The substitution effect:

A. Is generally so weak that its effect cannot be predicted

A. The law of increasing opportunity cost

66. If the price of a good increases, the substitution effect will:

71. Many people buy no more than one iPad because:

A. There's always a shortage of iPads

A. Diamonds have many substitutes

A. Rent the movie instead of playing miniature golf

A. Golf but not attend concerts, since golf is cheaper

77. The marginal utility of leisure time appears to:

A. Be the same even for people with widely different incomes

79. An increase in the productivity of labor over time will:

A. Decrease the value of time

82. The financing of health care through insurance has:

A. Decreased absolute total expenditures on health care

A. Consume less health care because the cost is too expensive

A. Total utility of the gift is $35

A. Raises the marginal utility of criminal behavior