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Chapter 7 Practice Test Consumer Behavior   1

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Chapter 7 Practice Test

Consumer Behavior

 

1. The utility of a particular good:

a. is the same for everyone, even if its usefulness differs from person to person

b. measures the products usefulness

c. increases at a constant rate

d. increases at a decreasing rate

 

 

2. Answer the next question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K.

 

Units of J	MUj		Units of K	MUk
1	20		1	48
2	18		2	40
3	16		3	32
4	14		4	24
5	12		5	16
6	10		6	8
7	8		7	4

 

Refer to the table.  If this consumer has an income of $26 and the prices of J and K are $2 and $4 respectively, the consumer will maximize her utility by purchasing:

a. 7 units of J and 3 units of K

b. 5 units of J and 4 units of K

c. 3 units of J and 5 units of K

d. 1 units of J and 6 units of K

 

 

3. Jim enjoys both peanut butter sandwiches and bologna sandwiches in his lunch.  A drop in the price of peanut butter increases the marginal utility per dollar of peanut butter and causes Jim to buy less bologna to restore maximum utility.  This best illustrates the:

a. law of diminishing marginal utility

b. income effect

c. substitution effect

d. law of increasing total utility

 

 

4. Answer the next question on the basis of the following table which shows Ann’s total utility derived from drinking soft drinks.

 

Soft drinks per day	Total utility (utils)
1	20
2	35
3	45
4	50

 

Refer to the table.  Ann’s marginal utility of the third soft drink per day is:

a. 45 utils

b. 5 utils

c. 100 utils

d. 10 utils

 

 

5. If one sums the marginal utilities of each unit consumed, one obtains:

a. the demand curve

b. maximum marginal utility

c. total income

d. total utility

 

 

6. Answer the next question on the basis of the following table which shows a consumer’s total utility for products A, B, C, and D.

 

Units of Product	TUA	TUB	TUC	TUD
1	11	28	12	17
2	21	49	22	30
3	30	63	30	39
4	38	70	36	44
5	45	70	40	45

 

Refer to the table.  Marginal utility declines most rapidly for product:

a. A

b. B

c. C

d. D

 

 

 

 

 

 

7. True or false: The high marginal utility of water explains the diamond-water paradox.

a. True

b. False

 

 

8. Suppose the prices of products X and Y are $5 and $10, respectively.  For a specific consumer who is currently exhausting her total income, the total utility from X is 100, while the total utility from Y is 200.  The marginal utility of X and Y are both equal to 8.  From this information, we can conclude:

a. she is maximizing total utility

b. she should purchase relatively more X

c. she should purchase relatively more Y

d. nothing about whether she is maximizing total utility

 

 

9. Suppose the price of X is $4 and the price of Y is $2.  In order to maximize total utility, a consumer should allocate purchases such that:

a. the marginal utility of each good is the same

b. the marginal utility of X is half that of Y

c. the marginal utility of X is twice that of Y

d. the total utility of X is half that of Y

 

 

10. Suppose that Karen used to buy one latte every weekday, but she has cut back her purchases to just one per week.  Her decision is best explained by:

a. the income effect only

b. the substitution effect only

c. complementary effect only

d. both income and substitution effects

 

 

11. True or false: Even millionaires face a budget constraint.

a. True

b. False

 

 

 

 

 

12. If you are purchasing two products whose prices are P_x = $3 and P_y = $9, in order to maximize your utility you should purchase:

a. three times as much X as Y

b. X and Y such that their marginal utilities are one third of their total utilities

c. X and Y such that the marginal utility of X is one third the marginal utility of Y

d. X and Y such that the total utility of X is three times the total utility of Y

 

 

13. Suppose your supervisor at work gives you a basket for “employee recognition day” containing food items with a combined market value of $25.  Then (ignoring any satisfaction you derive from your supervisor’s thoughtfulness):

a. you would likely have preferred $25 cash instead

b. you would likely be indifferent between this gift and $25 cash instead

c. your supervisor likely was a good judge of your food preferences

d. you likely preferred this to an alternative gift of $25 cash

 

 

14. Kevin received 80 total units of utility from the first four chips he consumed.  If the marginal utilities of the first, second, and third chips are 20, 25, and 20, respectively, the marginal utility of the fourth chip is:

a. 65 units of utility

b. 20 units of utility

c. 15 units of utility

d. unknown, since Kevin’s utility does not conform to the usual rules

 

 

15. High medical expenditures in the U.S. may be partially explained by noting that:

a. insurance reduces the consumer’s price below its actual market price

b. insurance raises the employer’s price above its actual market price

c. time costs are a relatively high proportion of the price of medical goods

d. medical care is not subject to the law of demand

 

 

16. True or false: Both an increase in money income and an increase in prices will shift the budget constraint to the right.

a. True

b. False

 

 

17. Jacquee and Shariff have identical preferences but Shariff has a lower opportunity cost of time.  We should expect that, compared to Jacquee, Shariff:

a. will have a higher marginal utility of income

b. will have a higher her total utility of income

c. will consume fewer time-intensive commodities

d. will consume more time-intensive commodities

 

 

18. Joan occasionally enjoys wine with her meals.  However, her marginal utility of wine diminishes the more wine she consumes per month.  We can conclude that:

a. Joan’s demand for wine is inelastic

b. Joan’s demand for wine is downward sloping

c. an decrease in the price of wine will decrease Joan’s total utility

d. a decrease in the price of wine will increase Joan’s marginal utility

 

 

19. Suppose Josh is currently consuming 7 apples and 14 oranges per week.  Further suppose he would receive the same utility from consuming 8 apples and 10 oranges per week.  If apples cost $2.00 each and oranges cost $1.00 each:

a. Josh could increase his utility by consuming relatively more apples

b. Josh could increase his utility by consuming relatively more oranges

c. Josh is maximizing his utility at his current consumption levels

d. More information is required to determine if Josh should change his consumption of apples and oranges

 

 

20. The price of apples decreases and Josh responds by buying more apples and fewer oranges.  Accordingly, the:

a. marginal utility of both apples and oranges will decrease

b. marginal utility of both apples and oranges will increase

c. marginal utility of apples will increase and oranges will decrease

d. marginal utility of apples will decrease and oranges will increase

 

 

 

 

 

 

 

 

21. Which of the following is consistent with maximum utility?

a. The marginal utility of each product is the same

b. The total utility of each product is the same

c. The marginal utility of each product is zero

d. The marginal utility per dollar of each product is the same

 

 

22. Tulia consumes only two goods, burgers and tacos.  Burgers cost $3 and tacos cost $2 each.  Her marginal utility of burgers is 12 utils.  If Tulia is maximizing utility, the marginal utility of tacos is:

a. 18

b. 12

c. 9

d. 8

 

 

23. Which one of the following is inconsistent with the law of diminishing marginal utility?  Jenny’s marginal utility of cookies:

a. increases for the first two, but falls for each successive cookie

b. falls with each successive cookie

c. falls for the first four cookies, but increases for each successive cookie

d. turns negative after the fifth cookie

 

 

24. When offered another helping of mashed potatoes at dinner, your dinner guest passes but asks for a second glass of wine.  We can conclude that your guest’s:

a. marginal utility of wine is positive but marginal utility of mashed potatoes is zero or negative

b. total utility of mashed potatoes is less than her total utility of wine

c. total utility of mashed potatoes exceeds her total utility of wine

d. marginal utility of mashed potatoes is decreasing but marginal utility of wine is increasing

 

 

25. True or false: All else equal, people will eat more at an all-you-can-eat buffet than at a traditional ala carte restaurant.

a. True

b. False

 

 

 

26. Answer the next question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K.

 

Units of J	MUj		Units of K	MUk
1	20		1	48
2	18		2	40
3	16		3	32
4	14		4	24
5	12		5	16
6	10		6	8
7	8		7	4

 

Refer to the table.  If this consumer has an income of $32 and the prices of J and K are both $4, the consumer will maximize her utility by purchasing:

a. 1 units of J and 7 units of K

b. 3 units of J and 5 units of K

c. 4 units of J and 4 units of K

d. 6 units of J and 2 units of K

 

 

27. Answer the next question on the basis of the following table which shows a consumer’s total utility for products A, B, C, and D.

 

Units of Product	TUA	TUB	TUC	TUD
1	11	28	12	17
2	21	49	22	30
3	30	63	30	39
4	38	70	36	44
5	45	70	40	45

 

Refer to the table.  The consumer would purchase five units of product B:

a. only if its price is zero

b. as long as its price is less than $70

c. only if the prices of all four goods are zero

d. as long as its price is less than $14

 

28. Suppose that the marginal utilities per dollar of goods X and Y are 4 and 2, respectively.  Further suppose the prices of the two goods are $10 and $5.  If the consumer is just exhausting his income, he:

a. should buy relatively more X and less Y

b. should buy relatively more Y and less X

c. is currently maximizing utility

d. may or may not be maximizing utility—more information is required

 

 

29. Suppose the price of a compact disc (CD) is half that of a DVD.  A consumer who purchases both DVDs and CDs will allocate her income between them such that:

a. the marginal utility of CDs is double that of DVDs

b. the marginal utility of CDs is half that of DVDs

c. the marginal utility per dollar of CDs is double that of DVDs

d. the marginal utility per dollar of CDs is half that of DVDs

 

 

30. Tonya currently rents four DVDs per week for $4 each and plays 2 rounds of golf, priced at $10 per nine-hole round.  She values her time at $8 per hour and it takes 2 hours either to watch a DVD or play a round of golf.  The marginal utilities of a DVD and a round of golf are 40 and 60, respectively. Based on the information, Tonya should:

a. play more golf and watch fewer DVDs

b. play less golf and watch more DVDs

c. play less golf and watch fewer DVDs

d. play more golf and watch more DVDs