Question 1

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

Accepted Answer

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

Question 2

Suppose a consumer’s marginal utility from the first, second, and third taco is 10, 8, and 6 utils, respectively. What is the total utility after consuming three tacos?

Accepted Answer

$$10 + 8 + 6 = 24$$

Question 3

A rational consumer will maximize utility by allocating their income such that:

Accepted Answer

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

Question 4

Given the utility-maximizing rule, which equation must hold for two goods, A and B?

Accepted Answer

$$\frac{MU_A}{P_A} = \frac{MU_B}{P_B}$$

Question 5

If the price of oranges falls from $$2 to 1 $$and the consumer’s income and preferences remain unchanged, what is the most likely effect on the quantity of oranges demanded?

Accepted Answer

The quantity demanded will increase due to both the substitution and income effects.

Question 6

Which of the following best explains why the demand curve is downward sloping?

Accepted Answer

Diminishing marginal utility and the resulting substitution and income effects.

Question 7

A consumer is choosing between apples and oranges. If $$MU_{apple}/P_{apple} \u003e MU_{orange}/P_{orange}$$, what should the consumer do to maximize utility?

Accepted Answer

Buy more apples and fewer oranges.

Question 8

The diamond-water paradox can be explained by which economic concept?

Accepted Answer

The price of a good is determined by its marginal utility, not its total utility.

Question 9

How does the opportunity cost of time affect consumer choices, such as why business executives pay more for faster travel?

Accepted Answer

Executives have a higher opportunity cost of time, so they are willing to pay more to save time.

Question 10

Why do most people prefer cash gifts over noncash gifts of the same value?

Accepted Answer

Cash allows consumers to maximize their own utility based on their preferences.

Question 11

Which of the following best describes the substitution effect?

Accepted Answer

A change in the price of a good makes it more or less expensive relative to other goods, leading consumers to substitute toward the cheaper good.

Question 12

A consumer’s total utility from tacos is maximized when:

Accepted Answer

Marginal utility from the last taco consumed is zero.

Question 13

If a consumer’s marginal utility per dollar spent on apples is less than that for oranges, what should the consumer do?

Accepted Answer

Buy more oranges and fewer apples.

Question 14

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

Accepted Answer

A decrease in the price of bread increases a consumer’s real income, allowing them to buy more bread and other goods.

Question 15

Which formula represents the utility-maximizing rule for two goods, X and Y?

Accepted Answer

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

Question 16

A criminal decides to rob a store after weighing the potential gain against the risk of getting caught. This behavior is best explained by:

Accepted Answer

The theory of utility maximization, where the criminal compares marginal benefit and marginal cost.

Question 17

If society wants to reduce property crime, which policy would be most effective according to economic theory?

Accepted Answer

Increase the marginal cost of committing crimes (e.g., harsher penalties or higher probability of getting caught).

Consumer Choice and Utility Maximization: Study Notes

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