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 additional satisfaction from each additional unit decreases.

Question 2

Suppose the marginal utility of the third slice of pizza is 8 utils and the price per slice is $2. What is the marginal utility per dollar for the third slice?

Accepted Answer

$$\frac{8}{2} = 4$$ utils per dollar

Question 3

A consumer has $$10 to spend on pizza and Coke. Pizza costs 2 $$per slice and Coke costs $1 per cup. If the marginal utility per dollar spent on pizza is 5 and on Coke is 10, what should the consumer do to maximize utility?

Accepted Answer

Buy more Coke and less pizza.

Question 4

If the price of pizza falls from $$2 to 1.50$$, which of the following effects will NOT occur?

Accepted Answer

The consumer will buy less pizza because it is now cheaper.

Question 5

Which equation represents the rule for maximizing utility when choosing between two goods, X and Y?

Accepted Answer

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

Question 6

A consumer spends all their income on two goods, A and B. If $$\frac{MU_A}{P_A} \u003e \frac{MU_B}{P_B}$$, what should the consumer do?

Accepted Answer

Buy more of good A and less of good B.

Question 7

Which of the following is an example of a network externality?

Accepted Answer

The value of a social media platform increases as more people join.

Question 8

If a consumer does not spend all their budget, what is the likely result?

Accepted Answer

Their total utility will be less than if they had spent their entire budget.

Question 9

Which of the following best describes the income effect?

Accepted Answer

The change in quantity demanded resulting from a change in purchasing power due to a price change.

Question 10

Why might a company choose not to raise prices even if it could increase profits?

Accepted Answer

To avoid being perceived as unfair by consumers.

Question 11

Taylor Swift’s use of 'verified fans' to sell concert tickets at a discount is an example of:

Accepted Answer

A business balancing fairness and profit maximization.

Question 12

If a consumer’s total utility from consuming 3 slices of pizza is 46 utils and from 4 slices is 52 utils, what is the marginal utility of the fourth slice?

Accepted Answer

$$52 - 46 = 6$$ utils

Question 13

Which of the following is NOT a condition for maximizing utility?

Accepted Answer

Purchasing only one good.

Question 14

If the marginal utility per dollar spent on Coke is less than that on pizza, what should the consumer do?

Accepted Answer

Buy more pizza and less Coke.

Question 15

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

Accepted Answer

A consumer buys more pizza when its price falls, making it cheaper relative to Coke.

Question 16

Which of the following statements about utility is correct?

Accepted Answer

Utility is the satisfaction a consumer receives from consuming goods and services.

Question 17

If a consumer’s marginal utility per dollar spent on two goods is equal, and they have spent their entire budget, what can we conclude?

Accepted Answer

The consumer has maximized their utility.

Question 18

Which of the following is a real-world example of a network externality leading to market failure?

Accepted Answer

Consumers continue to use QWERTY keyboards even though better alternatives exist.

Consumer Choice and Behavioral Economics: Study Notes

Study Guide - Practice Questions

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