Question 1

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

Accepted Answer

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

Question 2

Suppose a consumer is maximizing utility by purchasing two goods, X and Y. If the price of X increases, what should the consumer do to continue maximizing utility?

Accepted Answer

Decrease consumption of X and increase consumption of Y.

Question 3

If a consumer’s marginal utility per dollar spent on juice is greater than that for burritos, what should the consumer do to maximize total utility?

Accepted Answer

Buy more juice and less burritos.

Question 4

Which equation represents the utility-maximizing condition for two goods, X and Y?

Accepted Answer

$$ \frac{MU_x}{P_x} = \frac{MU_y}{P_y} $$

Question 5

A consumer is willing to pay $$20 for the first unit of a good, 16 $$for the second, $$13 for the third, 9 $$for the fourth, and $$4 for the fifth. If the market price is 10$$, how many units will the consumer buy?

Accepted Answer

3 units

Question 6

Which of the following best explains the downward slope of the demand curve?

Accepted Answer

The law of diminishing marginal utility and the substitution effect.

Question 7

If the price of a normal good decreases, what is the expected direction of the income effect?

Accepted Answer

It will increase the quantity demanded.

Question 8

Which of the following statements about consumer surplus is correct?

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay and what they actually pay.

Question 9

Which of the following is an example of the substitution effect?

Accepted Answer

A consumer buys more apples when the price of apples falls, substituting away from oranges.

Question 10

The paradox of value refers to which of the following observations?

Accepted Answer

Goods with high total value, like water, may have low prices, while goods with low total value, like diamonds, may have high prices.

Question 11

Suppose a consumer’s budget is $$10, the price of good X is 2$$, and the price of good Y is $1. If the marginal utility of X is 8 and the marginal utility of Y is 3, is the consumer maximizing utility?

Accepted Answer

No, because $$ \frac{MU_X}{P_X} \u003e \frac{MU_Y}{P_Y} $$

Question 12

If a good is inferior, what is the direction of the income effect when its price falls?

Accepted Answer

The income effect will decrease the quantity demanded.

Question 13

Which of the following best describes total utility?

Accepted Answer

The full satisfaction resulting from the consumption of a product.

Question 14

A consumer is considering buying more of good X. The marginal utility per dollar spent on X is currently less than that for good Y. What should the consumer do?

Accepted Answer

Buy less of good X and more of good Y.

Question 15

Which of the following is NOT an assumption required for comparing total and marginal utility?

Accepted Answer

Individuals have unlimited income.

Question 16

If the marginal utility of the last dollar spent on product X is 5 and on product Y is 10, and both products cost $1, what should the consumer do to maximize utility?

Accepted Answer

Buy more of product Y and less of product X.

Question 17

Which of the following best describes the relationship between the marginal utility curve and the demand curve?

Accepted Answer

They have the same shape because both reflect diminishing marginal utility.

Question 18

Which of the following is a real-world example of the substitution effect?

Accepted Answer

A commuter switches from driving to public transit when gas prices rise.

Question 19

If a product is consumed mainly for its 'snob appeal,' what does economic theory predict about its market demand curve?

Accepted Answer

It will be negatively sloped, as with most goods.

Question 20

Which formula represents the consumer’s budget constraint for two goods X and Y?

Accepted Answer

$$ income = P_x x + P_y y $$

Consumer Behaviour: Marginal Utility, Demand, and Consumer Surplus

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