ECN 104 Lecture Notes - Lecture 5: Opportunity Cost, Distant Relatives, Complementary Good
6 Jun 2018
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Chapter5ConsumerChoiceandUtilityMaximization
Copyright (c) 2010 McGraw-Hill Ryerson Limited. Page1
CHAPTER 5
Consumer Choice and Utility Maximization
Topic Question numbers
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5.1 The law of diminishing marginal utility 1-26
Terminology 1-3
Total utility and marginal utility 4-22
Marginal utility and demand 23-26
5.2 The theory of consumer choice 27-69
Consumer choice and budget constraint 27-28
Utility-maximizing rule 29-38
A numerical example 39-47
Algebraic restatement 48-69
5.3 Utility maximizing and the demand curve 70-84
Deriving the demand schedule and curve 70-71
Income and substitution effects 72-84
5.4 Applications and extensions 85-105
iPods 85-87
The diamond—water paradox 88-92
The value of time 93-99
Cash and noncash gifts 100-105
The last word 106-109
True-false 110-128
Appendix to Chapter 5:
A5.1 Indifference curve analysis 129-207
The budget line: What is attainable 129-159
Indifference curves: What is preferred 160-171
The indifference map 172-177
Equilibrium at tangency 178-184
Equivalency at equilibrium 185-186
The derivation of the demand curve 187-194
Income and substitution effects 195-203
True-False Questions 204-214
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Chapter5ConsumerChoiceandUtilityMaximization
Copyright©2010McGraw-HillRyersonLimited
Page2
1. A product has utility if it:
A) takes more and more resources to produce successive units of it.
B) violates the law of demand.
C) satisfies consumer wants.
D) is useful.
Ans: C Level: Easy Main Topic: 5.1 The law of diminishing marginal utility
Page: 111-112 Subtopic: Terminology Type: Definition
2. Utility refers to the:
A) satisfaction which a consumer derives from a good or service.
B) rate of decline in a product demand curve.
C) relative scarcity of a product.
D) usefulness of a product.
Ans: A Level: Easy Main Topic: 5.1 The law of diminishing marginal utility
Page: 111-112 Subtopic: Terminology Type: Definition
3. Which of the following statements is correct?
A) Utility and usefulness are synonymous.
B) The marginal utility derived from successive units of a product tends to be similar
for all consumers.
C) Because utility is not measurable, the utility-maximizing rule provides no useful
insights as to consumer behaviour.
D) A product may yield utility, but not be functionally useful.
Ans: D Level: Easy Main Topic: 5.1 The law of diminishing marginal utility
Page: 111-112 Subtopic: Terminology Type: Application
4. Which of the following best defines the total utility?
A) the change in marginal utility multiplied by the price of a product
B) the maximum amount of satisfaction from consuming a product
C) the total satisfaction received from consuming a particular amount of a product
D) the additional satisfaction received from consuming one more unit of a product
Ans: C Level: Easy Main Topic: 5.1 The law of diminishing marginal utility
Page: 112 Subtopic: Total utility and marginal utility Type: Definition
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Chapter5ConsumerChoiceandUtilityMaximization
Copyright©2010McGraw-HillRyersonLimited
Page3
5. Total utility may be determined by:
A) multiplying the marginal utility of the last unit consumed by the number of units
consumed.
B) summing the marginal utilities of each unit consumed.
C) multiplying the marginal utility of the last unit consumed by product price.
D) multiplying the marginal utility of the first unit consumed by the number of units
consumed.
Ans: B Level: Moderate Main Topic: 5.1 The law of diminishing marginal utility
Page: 112 Subtopic: Total utility and marginal utility Type: Application
6. 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 received from consuming as much of the product that is
available for consumption
D) the additional satisfaction received from consuming one more unit of a product
Ans: D Level: Easy Main Topic: 5.1 The law of diminishing marginal utility
Page: 112 Subtopic: Total utility and marginal utility Type: Definition
7. Marginal utility is the:
A) sensitivity of consumer purchases of a good to changes in the price of that good.
B) change in total utility realized by consuming one more unit of a good.
C) change in total utility realized by consuming another unit of a good divided by the
change in the price of that good.
D) total utility associated with the consumption of a certain number of units of a good
divided by the number of units consumed.
Ans: B Level: Easy Main Topic: 5.1 The law of diminishing marginal utility
Page: 112 Subtopic: Total utility and marginal utility Type: Definition
8. The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12
units of utility. His total utility from three Pepsis is 38 units of utility. The marginal
utility of the third Pepsi:
A) is 26 units of utility.
B) is 6 units of utility.
C) is 8 units of utility.
D) is 38 units of utility.
Ans: C Level: Moderate Main Topic: 5.1 The law of diminishing marginal utility
Page: 112 Subtopic: Total utility and marginal utility Type: Calculation
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Document Summary
Chapter 5 consumer choice and utility maximization: a product has utility if it: takes more and more resources to produce successive units of it. violates the law of demand. satisfies consumer wants. is useful. C: utility refers to the: satisfaction which a consumer derives from a good or service. rate of decline in a product demand curve. relative scarcity of a product. usefulness of a product. Ans: a level: easy main topic: 5. 1 the law of diminishing marginal utility. Page: 111-112 subtopic: terminology type: definition h: which of the following statements is correct, utility and usefulness are synonymous. The marginal utility derived from successive units of a product tends to be similar for all consumers. Because utility is not measurable, the utility-maximizing rule provides no useful insights as to consumer behaviour. z: a product may yield utility, but not be functionally useful. l.
