Question 1

Which of the following best describes a consumer's budget line?

Accepted Answer

It shows the boundary between affordable and unaffordable combinations of goods and services.

Question 2

Lisa has $40 to spend each month. Movies cost $8 each and cola costs $4 per case. If Lisa spends all her money on cola, how many cases can she buy?

Accepted Answer

10 cases

Question 3

What does the concept of utility measure in microeconomics?

Accepted Answer

The satisfaction or benefit a person receives from consuming a good or service.

Question 4

If the marginal utility of the first can of cola is 15 units and the marginal utility of the second can is 10 units, what is the total utility after consuming two cans?

Accepted Answer

$25$

Question 5

Which formula correctly calculates the marginal utility per dollar spent on movies if the marginal utility of movies is $MU_m$ and the price of a movie is $P_m$?

Accepted Answer

$MU_m \div P_m$

Question 6

According to the law of diminishing marginal utility, what happens as a consumer consumes more units of a good?

Accepted Answer

Marginal utility from each additional unit decreases.

Question 7

Lisa is in consumer equilibrium when she allocates her budget such that:

Accepted Answer

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

Question 8

If the price of movies falls, what is the immediate effect on the marginal utility per dollar spent on movies ($MU_m/P_m$)?

Accepted Answer

It increases.

Question 9

Suppose Lisa's marginal utility from movies is $MU_m = 16$ and the price of a movie is $P_m = 8$. Her marginal utility from cola is $MU_c = 8$ and the price of cola is $P_c = 4$. Is Lisa maximizing her utility?

Accepted Answer

Yes, because $MU_m/P_m = MU_c/P_c$

Question 10

If Lisa's income increases from $40$ to $56$, what is the likely effect on her consumption of movies and cola, assuming both are normal goods?

Accepted Answer

She will consume more of both goods.

Question 11

Which of the following is NOT a result of consumer equilibrium?

Accepted Answer

Marginal utility from all goods is maximized.

Question 12

If the price of cola rises, what happens to the quantity of cola demanded, according to marginal utility theory?

Accepted Answer

It decreases.

Question 13

Which rule should a consumer follow to maximize total utility?

Accepted Answer

Allocate income so that $MU_x/P_x = MU_y/P_y$ for all goods $x$ and $y$.

Question 14

If the marginal utility per dollar spent on movies is greater than that for cola, what should the consumer do to maximize utility?

Accepted Answer

Buy more movies and less cola.

Question 15

If the price of a banana increases, what happens to the quantity demanded according to marginal utility theory?

Accepted Answer

There is a movement upward along the demand curve for bananas.

Question 16

Suppose a consumer can buy either pizzas or hamburgers. The price of a hamburger is $P_h = 1$ and the price of a pizza is $P_p = 2$. If $MU_h$ is the marginal utility of hamburgers and $MU_p$ is the marginal utility of pizzas, what must be true at equilibrium?

Accepted Answer

$MU_h/P_h = MU_p/P_p$

Question 17

If Lisa's marginal utility from movies is $MU_m = 8$, marginal utility from cola is $MU_c = 20$, price of movies is $P_m = 4$, and price of cola is $P_c = 4$, what should Lisa do to maximize her utility?

Accepted Answer

Buy more cola and less movies.

Question 18

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

Accepted Answer

The utility from eating the second hamburger is less than the first.

Question 19

If Lisa is in consumer equilibrium and her income increases, what happens?

Accepted Answer

Her total utility increases.

Consumer Choice and Marginal Utility Theory: Microeconomics Study Notes

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