Question 1

Which of the following best describes the law of diminishing marginal utility?

Accepted Answer

As a consumer consumes more units of a good, the marginal utility from each additional unit decreases.

Question 2

Suppose Alison spends all her income on juice and burritos. If the marginal utility per dollar spent on juice is greater than that for burritos, what should Alison do to maximize her total utility?

Accepted Answer

Buy more juice and less burritos.

Question 3

The utility-maximizing rule for two goods, X and Y, can be expressed as:

Accepted Answer

$$ \frac{MU_X}{P_X} = \frac{MU_Y}{P_Y} $$

Question 4

If the price of juice increases, what happens to the marginal utility per dollar spent on juice at the previous consumption level?

Accepted Answer

It decreases.

Question 5

Which of the following statements about the substitution effect is correct?

Accepted Answer

It refers to the change in quantity demanded due to a change in the relative price of a good, holding real income constant.

Question 6

A fall in the price of a normal good will lead to:

Accepted Answer

An increase in quantity demanded due to both the income and substitution effects.

Question 7

Which of the following is a necessary condition for a Giffen good?

Accepted Answer

The good must be an inferior good and take a large proportion of household expenditure.

Question 8

Consumer surplus is best described as:

Accepted Answer

The difference between the total value consumers place on a good and the amount they actually pay.

Question 9

If Moira is willing to pay $$6 for the first litre of milk but only pays 1$$, what is her consumer surplus for that litre?

Accepted Answer

$$ 5 $$

Question 10

The paradox of value is resolved by recognizing that:

Accepted Answer

Price is determined by both supply and demand, and consumers purchase until marginal value equals price.

Question 11

Which of the following best explains why water has a low price but a high total value?

Accepted Answer

The supply of water is plentiful, so the marginal value of the last unit consumed is low.

Question 12

If a consumer’s marginal utility from the last dollar spent on good X is less than that from good Y, what should the consumer do?

Accepted Answer

Buy more of good Y and less of good X.

Question 13

Which of the following is true about conspicuous consumption goods?

Accepted Answer

They are consumed for their snob appeal, but the market demand curve is still likely negatively sloped.

Question 14

Suppose the price of a normal good falls. Which of the following best describes the combined effect on quantity demanded?

Accepted Answer

Both the substitution and income effects increase quantity demanded.

Question 15

If the area under the demand curve and above the market price line represents consumer surplus, what does the area under the market price line represent?

Accepted Answer

Total expenditure by consumers.

Question 16

Which equation represents the marginal utility per dollar spent on good X?

Accepted Answer

$$ \frac{MU_X}{P_X} $$

Question 17

A consumer is maximizing utility when:

Accepted Answer

The marginal utility per dollar spent is equal for all goods.

Question 18

Which of the following is NOT a plausible reason for a positively sloped demand curve for a good?

Accepted Answer

The good is a normal good with a large income effect.

Question 19

If the substitution effect of a price change outweighs the income effect for an inferior good, what happens to the demand curve?

Accepted Answer

It remains negatively sloped.

Question 20

Which of the following best describes real income?

Accepted Answer

Income expressed in terms of the purchasing power of money income.

Consumer Behaviour: Utility, Demand, and Consumer Surplus

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