Q: Which formula correctly expresses marginal utility?

$MU = \frac{\text{Change in total utility}}{\text{Change in number of units consumed}}$

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 of each additional unit eventually declines.

Question 2

Suppose a consumer spends all their income on two goods, A and B. The consumer reaches optimum satisfaction when:

Accepted Answer

The marginal utility per dollar spent on A equals the marginal utility per dollar spent on B.

Question 3

If the price of digital apps falls from $5 to $4 and the consumer’s income remains constant, what is the most likely result according to utility theory?

Accepted Answer

The consumer will buy more apps, and marginal utility will fall.

Question 4

Which formula correctly expresses marginal utility?

Accepted Answer

$MU = \frac{	ext{Change in total utility}}{	ext{Change in number of units consumed}}$

Question 5

A consumer is deciding between buying wireless earbuds and stylus pens. If the marginal utility per dollar spent on earbuds is higher than that for pens, what should the consumer do to maximize utility?

Accepted Answer

Buy more earbuds and fewer stylus pens.

Question 6

What is the substitution effect?

Accepted Answer

The tendency to replace expensive goods with cheaper alternatives when relative prices change.

Question 7

Which of the following best describes the real-income effect?

Accepted Answer

The change in purchasing power when the price of one good changes, holding income and other prices constant.

Question 8

Why does the demand curve slope downward according to utility theory?

Accepted Answer

Because as price falls, consumers buy more, and marginal utility per unit falls.

Question 9

Which of the following is NOT a necessary assumption for the law of diminishing marginal utility to hold?

Accepted Answer

Consumers must behave irrationally.

Question 10

A consumer is indifferent between two combinations of goods. What does this mean?

Accepted Answer

Both combinations yield the same total satisfaction.

Question 11

What is the marginal rate of substitution (MRS) between two goods?

Accepted Answer

The rate at which a consumer is willing to give up one good to get one more unit of another good, keeping total satisfaction constant.

Question 12

Which of the following best describes a budget constraint?

Accepted Answer

All possible combinations of goods that can be purchased with a specific budget at fixed prices.

Question 13

Graphically, the consumer optimum is found at:

Accepted Answer

The intersection of the budget constraint and the highest indifference curve.

Question 14

If the price of one good decreases while the price of another and income remain constant, what happens to the budget line?

Accepted Answer

It rotates outward, allowing more of the cheaper good to be purchased.

Question 15

Which equation represents the rule for consumer optimum when choosing between goods A and B?

Accepted Answer

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

Question 16

Bounded rationality implies that:

Accepted Answer

Consumers are limited in their ability to analyze every possible choice.

Question 17

Which real-world example best illustrates diminishing marginal utility?

Accepted Answer

A person enjoys each slice of pizza less than the previous one.

Question 18

Why might a consumer choose to buy a $1,650 Canada Goose jacket and a $100 plain white T-shirt?

Accepted Answer

Because the marginal utility per dollar spent on each item is equal at the consumer optimum.

Question 19

Which of the following statements about indifference curves is correct?

Accepted Answer

Indifference curves are convex to the origin.

Question 20

The diamond-water paradox demonstrates that:

Accepted Answer

Marginal utility determines the price of a good, not total utility.

Consumer Choice: Utility Theory and Optimization in Microeconomics chapter 7

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