Chapter 7 - test bank of the textbook, suit for quiz PDF

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Essentials of Economics, 3e (Hubbard/O'Brien) Chapter 7 Consumer Choice and Elasticity 7.1 Utility and Consumer Decision Making 1) Economists assume that the goal of consumers is to A) do as little work as possible to survive. B) make themselves as well off as possible. C) expend all their income. D) consume as much as possible. Answer: B Diff: 1 Page Ref: 200 Topic: Rational Decision Making *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 2) Utility is A) easily measured in units called utils. B) subjective and difficult to measure. C) the consumption of a quasi-public good like electricity or natural gas. D) the production of a quasi-public good like electricity or natural gas. Answer: B Diff: 1 Page Ref: 200 Topic: Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 3) Marginal utility is the A) total satisfaction received from consuming a given number of units of a product. B) average satisfaction received from consuming a product. C) extra satisfaction received from consuming one more unit of a product. D) satisfaction achieved when a consumer has had enough of a product. Answer: C Diff: 1 Page Ref: 201 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 1 Copyright © 2013 Pearson Education, Inc.

4) As a consumer consumes more and more of a product in a particular time period, eventually marginal utility A) rises. B) is constant. C) declines. D) fluctuates. Answer: C Diff: 1 Page Ref: 201 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 5) If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is A) 57 utility units. B) 35 utility units. C) 15 utility units. D) unknown as more information is needed to determine the answer. Answer: A Diff: 1 Page Ref: 201 Topic: Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 6) If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is A) 25 utility units. B) 20 utility units. C) 5 utility units. D) unknown as more information is needed to determine the answer. Answer: C Diff: 1 Page Ref: 201 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None

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7) If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the second candy bar is A) 25 utility units. B) 20 utility units. C) 5 utility units. D) unknown as more information is needed to determine the answer. Answer: D Diff: 2 Page Ref: 201 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 8) Total utility A) cannot decrease as a person consumes more and more of a good. B) has a constant rate of increase as a person consumes more and more of a good. C) is equal to the sum of the marginal utilities of all units consumed. D) is negative when marginal utility is declining. Answer: C Diff: 2 Page Ref: 201 Topic: Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 9) If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of A) the law of demand. B) the law of supply. C) the law of increasing marginal opportunity cost. D) the law of diminishing marginal utility. Answer: D Diff: 1 Page Ref: 201 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None

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10) The law of diminishing marginal utility states that A) eventually total utility falls as more of a good is consumed, other things constant. B) the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant. C) the extra satisfaction from consuming a good increases slowly as more of a good is consumed, other things constant. D) when the extra satisfaction from consuming a good becomes negative, total utility starts falling, other things constant. Answer: B Diff: 1 Page Ref: 201 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 11) Marginal utility can be A) negative. B) zero. C) positive. D) positive, negative or zero. Answer: D Diff: 1 Page Ref: 201 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 12) Which of the following is likely to occur as the result of the law of diminishing marginal utility? A) Petra's utility from her second apple was less than her satisfaction from her first orange. B) Hudson enjoyed his second slice of pizza more than his first. C) Sabine's utility from her first granola bar is greater than Rachel's utility from her second granola bar. D) Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant. Answer: D Diff: 2 Page Ref: 201 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 4 Copyright © 2013 Pearson Education, Inc.

13) If, when you consume another piece of candy, your marginal utility is zero, then A) you want more candy. B) you have maximized your total utility from consuming candy. C) you have not yet reached the point of diminishing marginal utility. D) you should consume less candy. Answer: B Diff: 2 Page Ref: 201 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 14) Consumers have to make tradeoffs in deciding what to consume because A) not all goods give them the same amount of satisfaction. B) the prices of goods vary. C) they are limited by a budget constraint. D) there are not enough of all goods produced. Answer: C Diff: 1 Page Ref: 201 Topic: Budget Constraint *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 15) If your total satisfaction increases when you consume another unit, your marginal utility must be A) increasing. B) decreasing. C) negative. D) positive. Answer: D Diff: 1 Page Ref: 201 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None

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16) If total utility increases at a decreasing rate as a consumer consumes more coffee, then marginal utility must A) remains constant. B) increase also. C) decrease. D) be negative. Answer: C Diff: 2 Page Ref: 201 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 17) An item has utility for a consumer if it A) is scarce. B) has a high price. C) is something everyone else wants. D) generates enjoyment or satisfaction. Answer: D Diff: 1 Page Ref: 201 Topic: Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 18) Suppose your marginal utility from consuming the 3rd slice of cake is zero, then your total utility from consuming cake is A) maximized. B) decreasing. C) negative. D) increasing. Answer: A Diff: 2 Page Ref: 201 Topic: Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None

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19) Consumers maximize total utility within their budget constraint by A) buying the cheapest goods they can find. B) buying whatever they like the best. C) buying the goods with the largest marginal utility per dollar spent. D) spending the same dollar amount for each good. Answer: C Diff: 2 Page Ref: 201-202 Topic: Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 20) If a consumer always buys goods rationally, then A) the total utilities of the different goods consumed will be equal. B) the average utilities of the different goods consumed will be equal. C) the marginal utility per dollar spent on all goods will be equal. D) the marginal utility of the different goods consumed will be equal. Answer: C Diff: 2 Page Ref: 201-202 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None

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Table 7-1 Quantity of Quantity of Total Utility Pita Wraps Bubble Tea 1 60 1 2 102 2 3 132 3 4 144 4 5 144 5 6 138 6 7 128 7

Total Utility 40 70 91 106 112 115 115

Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3. Table 7-1 shows his total utility from different quantities of the two items. 21) Refer to Table 7-1. What is Keegan's optimal consumption bundle? A) 3 pita wraps and 3 bubble teas B) 3 pita wraps and 4 bubble teas C) 4 pita wraps and 2 bubble teas D) 5 pita wraps and 0 bubble teas Answer: B Diff: 2 Page Ref: 204-205 Topic: Utility Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: Solved Problem: Finding the Optimal Level of Consumption 22) Refer to Table 7-1. If Keegan can drink all the bubble tea he wants for free, how many glasses will he consume? A) 4 glasses B) 5 glasses C) 6 glasses D) 7 glasses Answer: C Diff: 2 Page Ref: 204-205 Topic: Utility Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: Solved Problem: Finding the Optimal Level of Consumption

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23) Carolyn spends her income on popular magazines and music CDs. If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility, she buys A) both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased. B) both goods until the marginal utility of the last magazine purchased is four times the marginal utility of the last CD purchased. C) four times as much magazines as CDs. D) four times as much CDs as magazines. Answer: A Diff: 3 Page Ref: 201-204 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 24) Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be A) 2,000 units of utility. B) 500 units of utility. C) 100 units of utility. D) 80 units of utility. Answer: D Diff: 2 Page Ref: 201-204 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None

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25) Avner is maximizing total utility by buying sports magazines and protein supplements. For him to buy more sports magazines, A) the price of protein supplements. has to fall. B) the price of sports magazines has to fall. C) the price of sports magazines has to rise. D) Since Avner is maximizing his utility, nothing can change the consumption of sports magazines. Answer: B Diff: 2 Page Ref: 201-204 Topic: Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 26) Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because A) car buyers are irrational. B) the total utility of less expensive cars is greater than that of luxury cars. C) the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars. D) luxury cars cost a lot more than non-luxury cars. Answer: C Diff: 2 Page Ref: 201-204 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 27) If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she A) is maximizing total utility and does not want to change their consumption of ankle socks or bandanas. B) wants to consume more ankle socks and fewer bandanas. C) wants to consume more of bandanas and fewer ankle socks. D) wants to consume less of both ankle sock and bandanas. Answer: B Diff: 2 Page Ref: 201-204 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 10 Copyright © 2013 Pearson Education, Inc.

28) If Marlowe obtains 9 units of utility per dollar spent on apples and 6 units of utility per dollar spent on oranges, then Marlowe A) is maximizing total utility. B) should buy more apples and fewer oranges. C) should buy more oranges and fewer apples. D) should buy fewer oranges and fewer apples. Answer: B Diff: 2 Page Ref: 201-204 Topic: Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 29) If Callum is consuming his utility maximizing bundle and the price of one good rises, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Callum do? A) MU/P has increased and Callum should buy more of this good. B) MU/P has increased and Callum should buy less of this good. C) MU/P has decreased and Callum should buy more of this good. D) MU/P has decreased and Callum should buy less of this good. Answer: D Diff: 2 Page Ref: 201-204 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None 30) If Ewan is consuming his utility maximizing bundle and the price of one good falls, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Ewan do? A) MU/P has increased and Ewan should buy more of this good. B) MU/P has increased and Ewan should buy less of this good. C) MU/P has decreased and Ewan should buy more of this good. D) MU/P has decreased and Ewan should buy less of this good. Answer: A Diff: 2 Page Ref: 201-204 Topic: Marginal Utility *: Recurring Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Reflective Thinking Special Feature: None Table 7-2 11 Copyright © 2013 Pearson Education, Inc.

Quantity of Quantity of Total Utility Total Utility Sandwiches Soup (cups) 1 40 1 45 2 60 2 75 3 72 3 102 4 82 4 120 5 88 5 135 6 90 6 145 Table 7-2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods. 31) Refer to Table 7-2. What is Keira's marginal utility per dollar spent on the third cup of soup? A) 72 units of utility B) 36 units of utility C) 12 units of utility D) 6 units of utility Answer: D Diff: 1 Page Ref: 204-205 Topic: Marginal Utility Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Analytic Skills Special Feature: Solved Problem: Finding the Optimal Level of Consumption 32) Refer to Table 7-2. If Keira maximizes her utility, how many units of each good should she buy? A) 1 cup of soup and 5 sandwiches B) 3 cups of soup and 4 sandwiches C) 6 cups of soup and 2 sandwiches D) 4 cups of soup and 3.5 sandwiches Answer: B Diff: 2 Page Ref: 204-205 Topic: Utility Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Analytic Skills Special Feature: Solved Problem: Finding the Optimal Level of Consumption

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33) Refer to Table 7-2. Suppose Keira's income increases from $18 to $23 but prices have not changed. What is her utility maximizing bundle now? A) 6 cups of soup and 5 sandwiches B) 4 cups of soup and 5 sandwiches C) 5 cups of soup and 4 sandwiches D) 5 cups of soup and 5 sandwiches Answer: B Diff: 2 Page Ref: 204-205 Topic: Utility Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Analytic Skills Special Feature: Solved Problem: Finding the Optimal Level of Consumption 34) Refer to Table 7-2. Holding prices constant, when Keira's income changed from $18 to $23, her utility maximizing bundle changed. Based on your answers to her optimal choices at the two income levels, what type of goods are soup and sandwiches? A) Soup is an inferior good and sandwiches are a normal good. B) Soup is a normal good and sandwiches are an inferior good. C) Both soup and sandwiches are normal goods. D) Both soup and sandwiches are inferior goods. Answer: C Diff: 2 Page Ref: 204-205 Topic: Utility Learning Outcome: Micro 10: Explain how the factors of utility and budgets influence consumer decisions AACSB: Analytic Skills Special Feature: Solved Problem: Finding the Optimal Level of Consumption

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35) Refer to Table 7-2. Holding prices constant, when Keira's income changed from $18 to $23, what happens to her total utility and to the marginal utilities of the last cup of soup and the last sandwich purchased? A) Her total utility increases but the marginal utilities of the last cup of soup and the last sandwich consumed decrease. B) Her total utility, the marginal utility of the last cup of soup consumed and the marginal utility of the last sandwich consumed, all increase. C) Her total utility decreases but the marginal utilities of the last cup of soup and the last sandwich consumed increase. D) Her total utility and the marginal utility of the last cup of soup consumed increase but marg...