Chapter 10Consumer Choice Theory

TRUE/FALSE 1. Utility is the satisfaction or enjoyment derived from consumption. 2. Marginal utility is the satisfaction received from all units of a good that are consumed. 3. When marginal utility begins to diminish, total utility always diminishes. 4. If a consumer is maximizing utility, she will purchase quantities of output to the point where the marginal utility per dollar spent on consumption is equal across all goods. 5. As long as the marginal utility of the last unit consumed is positive, total utility will fall if a person consumes less of a good. 6. As long as a person had to pay a positive price for a good, he would never consume to the point where his marginal utility was falling with additional consumption. 7. A person could receive a higher marginal utility from the last diamond she purchases than from the last ounce of water she purchases, yet receive less total utility from diamonds than from water. 8. If total utility from consuming five cups of cocoa is 13, 25, 35, 44, and 52 utils, respectively, the marginal utility of the fourth cup of coffee is 9. 9. If Phil says, You would have to pay me to eat another cookie now, it would imply that his marginal utility from consuming one more cookie now was negative.

MULTIPLE CHOICE 1. The increase in total utility that one receives from eating an additional piece of sushi is called a. marginal utility. b. interpersonal utility. c. marginal cost. d. average utility. e. average cost. 2. Marginal utility is a. the total satisfaction derived from consuming all goods. b. always the total satisfaction derived from consuming the first unit of a good. c. always positive. d. always negative. e. the change in total satisfaction derived from consuming one more unit of a particular good. 3. As one eats more and more oranges a. his total utility falls, but the marginal utility of each orange rises.

b. his marginal utility rises as long as the total utility derived from the oranges remains positive. c. his total utility rises, as does the marginal utility of each orange. d. his total utility rises as long as the marginal utility of the oranges is positive, but the marginal utility of each additional orange likely falls.

4. Total utility will decline when a. marginal utility is falling. b. marginal utility is rising. c. marginal utility equals zero. d. marginal utility is constant. e. marginal utility is negative. 5. When total utility is at its maximum a. marginal utility is negative. b. marginal utility is positive. c. marginal utility is at its maximum. d. marginal utility equals zero. e. marginal utility stops decreasing and starts increasing. 6. The total utility from consuming five slices of pizza is 11, 18, 24, 29, and 32 utils, respectively. The marginal utility of the third slice of pizza is a. 11. b. 7. c. 18. d. 6. e. 53. 7. The total utility from consuming five sushi rolls is 12, 23, 33, 42, and 45 utils, respectively. Marginal utility begins to diminish after consuming the ____ sushi roll. a. first b. second c. third d. fourth e. None of the above are correct; marginal utility does not diminish. 8. The law of diminishing marginal utility implies that the more of a commodity you consume, the a. more you value additional units of output. b. less you value additional units of output. c. happier you are. d. higher the price that is paid for the commodity. 9. When a consumer spends her income on goods and services in such a way that her utility is maximized, she reaches a. monetary equilibrium. b. market equilibrium. c. consumer equilibrium. d. marginal equilibrium. 10. Hamburgers cost $2 and hot dogs cost $1, and Juan is in consumer equilibrium. What must be true about the marginal utility of the last hamburger Juan consumes?

a. The marginal utility of the last hamburger consumed must be less than that of the last hot dog. b. The marginal utility of the last hamburger consumed must be equal to that of the last hot dog. c. The marginal utility of the last hamburger consumed must be greater than that of the last hot dog. d. The marginal utility of the last hamburger consumed must be equal to zero. 11. Melissa spent the week at an amusement park and used all of her money on rides and popcorn. Both rides and bags of popcorn are priced at $1 each. Melissa realizes that the last bag of popcorn she consumed increased her utility by 40 utils, while the marginal utility of her last ride was only 20 utils. What should Melissa have done differently to increase her satisfaction? a. reduced the number of bags of popcorn she consumed and increased the number of rides b. increased the number of bags of popcorn she consumed and reduced the number of rides c. decreased both the number of bags of popcorn and rides consumed d. increased both the number of bags of popcorn and rides consumed e. nothing, as her utility was maximized 12. The total utility derived from consuming scoops of ice cream can be found by a. multiplying the marginal utility of the last scoop consumed by the number of scoops consumed. b. multiplying the marginal utility of the last scoop consumed by the price of a scoop of ice cream. c. dividing the marginal utility of the last scoop consumed by its price. d. summing the marginal utilities of each scoop consumed. e. multiplying together the marginal utilities of each scoop of ice cream consumed. 13. In consumer equilibrium a. the marginal utility from consumption is the same across all goods. b. individuals consume so as to maximize their total satisfaction, given limited income. c. the ratio of the marginal utility of each good divided by its price is equal across all goods consumed. d. all of the above are true. e. all of the above are generally true except a.