ECO 1104 Lecture Notes - Marginal Utility, Consumer Choice, Ceteris Paribus
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1. Economists use ____________ as a measure of the relative level of satisfaction when someone consumes a good or service.
| consumer happiness |
| utility |
| a happiness index |
| a satisfaction index |
2. Sue likes brownies. However, Sue notices that the more brownies she eats the less satisfaction she receives from each extra brownie. We can say that Sue is experiencing ___________________ from each extra brownie.
| sugar sickness |
| total utility |
| diminishing marginal utility |
| increasing marginal utility |
3. When total utility is maximized, the marginal utility will be
| positive. |
| zero. |
| negative. |
| none of these. |
4. Consider Dirk and Lee. They are both eating pizza. Which of the following statements is true regarding their satisfaction and utility?
| Dirk and Lee both receive 10 utils from eating pizza. |
| Dirk and Lee both receive the same level of satisfaction from eating pizza. |
| Dirk gets more twice as much satisfaction as Lee from eating pizza. |
| It is difficult to determine because the utility is subjective. |
5. For many products, the total utility curve is
| strictly increasing because of increasing marginal utility. |
| strictly decreasing because of diminishing marginal utility. |
| increasing initially because of increasing marginal utility, but eventually decreases. |
| increasing initially at a decreasing rate because of diminishing marginal utility but eventually decreases. |
6. When consumers get the biggest bang for the buck, we say they
| used the loudest gun in hunting season. |
| reached a consumer optimum. |
| minimized consumer satisfaction. |
| maximized marginal utility. |
7. By choosing to consume at the consumer optimum, consumers will
| maximize their total utility. |
| minimize their total utility. |
| maximize the amount they spend on each good. |
|
minimize the amount they spend on each good. |
8. A consumer is in equilibrium when consuming two goods when which of the following holds?
| MUa/ Pa = MUb/ Pb |
| MUa/ Ph =MUb/ Pa |
| Pa/ MUa = Pb/ MUb |
| MUa x Pa = MUbxPb |
9. If the marginal utility of good 1 is 15 and its price is $3, and the marginal utility of good 2 is 12, and its price is $4, then the consumer
| has achieved a consumer optimum. |
| should increase his or her consumption of good 1. |
| should increase his or her consumption of good 2. |
| should decrease his or her consumption of good 1. |
10.Suppose the price of an iPod decrease and the price of HD TVs remains the same; what noticeable effect(s) occur(s)?
| the substitution effect only |
| the real-income effect only |
| the substitution effect and real-income effect, if there is a noticeable change in purchasing power |
| the substitution effect and real-income effect, if there isnât a noticeable change in purchasing power |
11. The ______________ paradox was described by Adam Smith in 1776.
| diamond-carbon |
| diamond-water |
| diamond-life |
| water-utility |
12. What is the key to solving the diamond-water paradox?
| more water and fewer diamonds |
| marginal utility |
| total utility |
| consumer demand |
13. When solving the diamond-water paradox we notice that the marginal utility of
| diamonds are equal to the marginal utility of water. |
| diamonds are greater than the marginal utility of water. |
| diamonds are less than the marginal utility of water. |
| water is equal to its price, and therefore lower than the marginal utility of diamonds. |
14. The consumer surplus for water is
| greater than that for diamonds because water is nonessential. |
| greater than that for diamonds because water is essential. |
| less than that for diamonds because water is nonessential. |
| less than that for diamonds because water is essential. |
15. Suppose a consumer consumes only diamonds and water, and the price of diamonds increases. All else being equal, a consumerâs marginal utility for diamonds
| decreases and the marginal utility for water stays the same. |
| increases and the marginal utility for water decreases. |
| decreases and the marginal utility for water increases. |
| increases and the marginal utility for water stays the same. |
When deciding consumption levels of more than one good, the utility-maximizing rule states that you are maximizing utility when
| the marginal utility o two goods are equal | ||
| the marginal utility of two goods are zero | ||
| the ratio of marginal utility to price of two goods is zero | ||
| the ratio of marginal utility to price for the two goods are equal |
10 points
QUESTION 2
My brother says the law of diminishing marginal utility is nonsense because he is way happier after his sixth beer than after his first one. Pick the best response.
| He has a point, maybe this is something behavioral economists should take a look at. | ||
| True, but marginal utility refers only to the utility gained (or lost) by drinking that last beer, not to his total utility | ||
| There are always exceptions, but in general this law will hold. | ||
| True, but the law of diminishing marginal utility is really just saying that eventually he will prefer a glass of wine to another beer. |
10 points
QUESTION 3
Frank spends $75 on 10 magazines and 25 newspapers. The magazines cost $5 each and the newspapers cost $2.50 each. Suppose that his marginal utility from the final magazine is 10 utils while his marginal utility from the final newspaper is also 10 utils. According to the utility-maximizing rule, Frank should:
| Reallocate spending from magazines to newspapers | ||
| Reallocate spending from newspapers to magazines | ||
| Be satisfied because he is already maximizing his total utility | ||
| None of the above |
10 points
QUESTION 4
Marginal utility can be:
| Positive, negative, or zero | ||
| Decreasing but not negative | ||
| Positive or negative, but not zero | ||
| Positive, but not negative |
10 points
QUESTION 5
In economics, a product provides utility if it:
| is useful | ||||||||||||||
| violates the law of demand | ||||||||||||||
| takes more and more resources to produce successive units of it | ||||||||||||||
| satisfies consumer wants Which of the following is true of an indifference curve?
|
budget line
marginal utility
complete property of preferences
market demand
consumption bundle
substitution effect
Giffen good
total effect
income effect
transitive property of preferences
indifference curves
utility
the marginal rate of substitution
utility function
|
1. |
_____ |
The satisfaction or benefit that consumers receive from consuming goods or services.
|
|
2. |
________________ _ |
A particular combination of specific quantities of goods or services |
|
3. |
________________ _ |
Consumers can rank all conceivable bundles of goods or services |
|
4. |
_____ |
If A is preferred to B, and B is preferred to C, then A is always preferred to C. |
|
5. |
_____ |
Equation showing a consumerâs perception of the total utility forthcoming from consuming each bundle of goods and services. |
|
6. |
_____ |
A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility. |
|
7. |
_____ |
The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed. |
|
8. |
_____ |
The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant. |
|
9. |
_____ |
The line showing all bundles of goods that can be purchased at given prices if the entire income is spent. |
|
10. |
_____ |
The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes. |
|
11. |
_____ |
The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes. |
|
12. |
________________ _ |
The sum of the substitution and income effects. |
|
13. |
_____ |
A good for which quantity demanded varies directly with price, causing an upward sloping demand curve. |
|
14. |
_____ |
A list of prices and the corresponding quantity consumers are willing and able to purchase at each price. |
