Question 1

Which of the following best describes the Law of Diminishing Marginal Utility?

Accepted Answer

As more of a good is consumed, the marginal utility from each additional unit decreases.

Question 2

Suppose a consumer has $$26 to spend on digital apps (priced at 5 $$each) and wireless earbuds (priced at $$3 each). If the marginal utility per dollar spent on the last app purchased is 7.3$ and on the last earbud purchased is 7.3$, what does this indicate about the consumer's allocation?

Accepted Answer

The consumer has reached the consumer optimum.

Question 3

If the marginal utility of the 3rd digital app is $$40$$ utils and the price is $$5$$, what is the marginal utility per dollar spent for this unit?

Accepted Answer

$$8$$

Question 4

A consumer is deciding between buying coffee and tea, both priced at $$2. If $$the marginal utility of the last cup of coffee is $$10$$ utils and the marginal utility of the last cup of tea is $$8$$ utils, what should the consumer do to maximize utility?

Accepted Answer

Buy more coffee and less tea.

Question 5

Which of the following equations represents the consumer optimum condition for two goods, $$A$$ and $$B$$?

Accepted Answer

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

Question 6

If a consumer’s total utility from consuming 4 digital apps is $$20$$ utils and from 3 apps is $$19$$ utils, what is the marginal utility of the 4th app?

Accepted Answer

$$1$$

Question 7

Why is water, which is essential to life, typically much cheaper than diamonds, which are not essential?

Accepted Answer

Because the marginal utility of water is lower due to its abundance.

Question 8

A consumer derives $$25$$ utils from the first wireless earbud and $$22$$ utils from the second. If each earbud costs $$3$$, what is the marginal utility per dollar spent on the second earbud?

Accepted Answer

$$7.33$$

Question 9

If the price of digital apps falls from $$5 to$$ $$4$$, what happens to the marginal utility per dollar spent on apps, assuming marginal utility decreases with additional consumption?

Accepted Answer

It increases, leading the consumer to buy more apps until the marginal utility per dollar is equalized across goods.

Question 10

A consumer spends all their income on two goods and finds that $$\frac{MU_{apps}}{P_{apps}} \u003e \frac{MU_{earbuds}}{P_{earbuds}}. $$What should the consumer do to maximize utility?

Accepted Answer

Buy more apps and fewer earbuds.

Question 11

Which of the following statements about total and marginal utility is correct?

Accepted Answer

Marginal utility is the change in total utility from consuming one more unit of a good.

Question 12

A consumer is considering buying a Canada Goose jacket for $$1,650$$ because they derive high utility from it. This is an example of:

Accepted Answer

Utility maximization based on individual preferences.

Question 13

If a consumer’s marginal utility from the 5th digital app is $$28.5$$ utils and the price is $$5$$, what is the marginal utility per dollar spent?

Accepted Answer

$$5.7$$

Question 14

Which of the following best explains why consumers do not spend all their income on the good with the highest total utility?

Accepted Answer

Because maximizing total utility does not guarantee maximizing marginal utility per dollar spent.

Question 15

If the marginal utility per dollar spent on digital apps is $$8$$ and on wireless earbuds is $$6$$, what should the consumer do?

Accepted Answer

Buy more digital apps.

Question 16

A consumer’s total utility from 0 to 6 digital apps is: $$0, 10, 16, 19, 20, 20, 18. $$What is the marginal utility of the 6th app?

Accepted Answer

$$-2$$

Question 17

Which of the following is NOT a requirement for reaching the consumer optimum?

Accepted Answer

Maximizing total utility from one good only.

Question 18

If a consumer’s marginal utility from the 4th wireless earbud is $$15$$ utils and the price is $$3$$, what is the marginal utility per dollar spent?

Accepted Answer

$$5$$

Question 19

Which of the following best describes utility analysis in microeconomics?

Accepted Answer

It is the analysis of consumer decision making based on utility maximization.

Chapter 7: Consumer Choice – Utility Theory and Optimizing Consumption

Study Guide - Practice Questions

Study Guide - Flashcards