McGraw-Hill Ryerson

Chapter 8. The Theory of Consumer Choice


1. The reason the substitution effect works to encourage a consumer to buy more of a product when its price decreases 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 less expensive than it was
D. other products are now relatively less expensive than they were



2. Kristin Hansen buys only two goods, food and clothing. Both are normal goods for Kristin. Suppose the price of food decreases. Kristin's consumption of clothing will
A. decrease due to the income effect
B. increase due to the income effect
C. increase due to the substitution effect
D. decrease due to the substitution effect



3. Which of the following best expresses the law of diminishing marginal utility?
A. The more a person consumes of a product, the smaller becomes the utility which he receives from its consumption.
B. The more a person consumes of a product, the smaller becomes the additional utility which she receives as a result of consuming an additional unit of the product.
C. The less a person consumes of a product, the smaller becomes the utility which she receives from its consumption.
D. The less a person consumes of a product, the smaller becomes the additional utility which he receives as a result of consuming an additional unit of the product.



4.
The following table shows a hypothetical total utility schedule for a consumer of chocolate candy bars.
R-1 21a

This consumer begins to experience diminishing marginal utility when he consumes the

A. first candy bar
B. second candy bar
C. third candy bar
D. fourth candy bar



5.
The following table shows a hypothetical total utility schedule for a consumer of chocolate candy bars.
R-1 21a

Marginal utility becomes negative with the consumption of the

A. fourth candy bar
B. fifth candy bar
C. sixth candy bar
D. seventh candy bar



6.
The following table shows a hypothetical total utility schedule for a consumer of chocolate candy bars.
R-1 21a

Based on the data, you can conclude that the

A. marginal utility of the fourth unit is 6
B. marginal utility of the second unit is 27
C. total utility of 5 units is 42
D. total utility of 3 units is 55



7. After eating eight chocolate chip cookies, you are offered a ninth cookie. You turn down the cookie. Your refusal indicates that the
A. marginal utility for chocolate chip cookies is negative
B. total utility for chocolate chip cookies is negative
C. marginal utility is positive for the eighth and negative for the ninth cookie
D. total utility was zero because you ate one cookie and refused the other



8. Other things being equal, demand is likely to be elastic if the marginal utility of a product
A. decreases rapidly as additional units are consumed
B. decreases slowly as additional units are consumed
C. increases rapidly as additional units are consumed
D. increases slowly as additional units are consumed



9. Which of the following is not an essential assumption of marginal-utility theory of consumer behavior?
A. The consumer has a small income.
B. The consumer is rational.
C. Goods and services are not free.
D. Goods and services yield decreasing amounts of marginal utility as the consumer buys more of them.



10. A consumer is making purchases of products A and B such that the marginal utility of product A is 20 and the marginal utility of product B is 30. The price of product A is $10 and the price of product B is $20. The utility- maximizing rule suggests that this consumer should increase consumption of product
A. B and decrease consumption of product A
B. B and increase consumption of product A
C. A and decrease consumption of product B
D. make no change in consumption of A or B



11.
The following table shows the marginal-utility schedules for goods X and Y for a hypothetical consumer. The price of good X is $1 and the price of good Y is $2. The income of the consumer is $9.
R-2 21b

To maximize utility, the consumer will buy

A. 7X and 1Y
B. 5X and 2Y
C. 3X and 3Y
D. 1X and 4Y



12.
The following table shows the marginal-utility schedules for goods X and Y for a hypothetical consumer. The price of good X is $1 and the price of good Y is $2. The income of the consumer is $9.
R-2 21b

When the consumer purchases the utility-maximizing combination of goods X and Y, total utility will be

A. 36
B. 45
C. 48
D. 52



13.
The following table shows the marginal-utility schedules for goods X and Y for a hypothetical consumer. The price of good X is $1 and the price of good Y is $2. The income of the consumer is $9.
R-2 21b

Suppose that the consumer's income increased from $9 to $12. What would be the utility-maximizing combination of goods
X and Y?

A. 5X and 2Y
B. 6X and 3Y
C. 2X and 5Y
D. 4X and 4Y



14. Suppose that the prices of A and B are $3 and $2, respectively, that the consumer is spending her entire income and buying 4 units of A and 6 units of B and that the marginal utility of both the fourth unit of A and the sixth unit of B is 6. It can be concluded that
A. the consumer is in equilibrium
B. the consumer should buy more of A and less of B
C. the consumer should buy less of A and more of B
D. the consumer should buy less of both A and B



15. A decrease in the price of product Z will
A. increase the marginal utility per dollar spent on Z
B. decrease the marginal utility per dollar spent on Z
C. decrease the total utility per dollar spent on Z
D. cause no change in the marginal utility per dollar spent on Z



16. Robert Woods is maximizing his satisfaction consuming two goods, X and Y. If the marginal utility of X is half that of Y, what is the price of X if the price of Y is $1.00?
A. $0.50
B. $1.00
C. $1.50
D. $2.00



17. Summing the marginal utilities of each unit consumed will determine total
A. cost
B. revenue
C. utility
D. consumption



18.
The following table shows total utility data for a consumer for products A and B. Assume that the prices of A and B are $6 and $8, respectively, and that consumer income is $36.
R-3 21c

What is the level of total utility for the consumer in equilibrium?

A. 86
B. 102
C. 108
D. 120



19.
The following table shows total utility data for a consumer for products A and B. Assume that the prices of A and B are $6 and $8, respectively, and that consumer income is $36.
R-3 21c

How many units of the two products will the consumer buy?

A. 1 of A and 4 of B
B. 2 of A and 2 of B
C. 2 of A and 3 of B
D. 3 of A and 4 of B



20.
The following table shows total utility data for a consumer for products A and B. Assume that the prices of A and B are $6 and $8, respectively, and that consumer income is $36.
R-3 21c

If the price of A decreases to $4, then the utility-maximizing combination of the two products is

A. 2 of A and 2 of B
B. 2 of A and 3 of B
C. 3 of A and 3 of B
D. 4 of A and 4 of B



21.
The following table shows total utility data for a consumer for products A and B. Assume that the prices of A and B are $6 and $8, respectively, and that consumer income is $36.
R-3 21c

Which of the following represents the demand curve for A?

A. A
B. B
C. C
D. D



22. The price of water is substantially less than the price of diamonds because
A. the marginal utility of a diamond is significantly less than the marginal utility of a gallon of water
B. the marginal utility of a diamond is significantly greater than the marginal utility of a gallon of water
C. the total utility of diamonds is greater than the total utility of water
D. diamonds have a low marginal utility



23. The full price of a product to a consumer is
A. its market price
B. its market price plus the value of its consumption time
C. its market price less the value of its consumption time
D. the value of its consumption time less its market price



24. A consumer has two basic choices: rent a movie for $4.00 and spend 2 hours of time watching it or spend $15 for dinner at a restaurant that takes 1 hour of time. If the marginal utilities of the movie and the dinner are the same, and the consumer values time at $15 an hour, the rational consumer will most likely
A. rent more movies and buy fewer restaurant dinners
B. buy more restaurant dinners and rent fewer movies
C. buy fewer restaurant dinners and rent fewer movies
D. make no change in the consumption of both



25. Most economists contend that noncash transfers are
A. of greater total utility but of less marginal utility
B. of less total utility but of greater marginal utility
C. more efficient because they do not waste scarce resources
D. less efficient because they may not match recipient's preferences




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