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Multiple Choice Questions: Utility Theory

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1. To say that you can't have too much of a good thing means that for any good that you enjoy (say pizza),
a. higher consumption will always lead to greater utility
b. higher consumption will cause utility to increase at an increasing rate
c. higher consumption will increase utility but only up to a point; after that utility will start to decrease
d. it is valid to measure utility in utils
2. Which of the following goods is most likely to display increasing marginal utility over some range?
a. chicken during the 1920s, when it was considered a luxury good
b. paint, which you need in an amount sufficient to paint at least one entire room
c. lobsters, which are so expensive that you must eat two to get your money's worth
d. all of the above
3. The principle of diminishing marginal utility means that when Sarah eats pizza, her satisfaction from the second slice of pizza is probably
a. greater than that from the first
b. equal to that from the first
c. less than that from the first
d. not comparable to that from the first
4. James finds a new job that doubles his income. He adjusts his consumption. From this we know that for every normal good James buys
a. James's marginal utility per dollar will rise
b. James's marginal utility per dollar will fall
c. James's marginal utility per dollar will stay constant
d. James's total utility will fall
5. You go to an "all-you-can-eat" buffet. If you maximize utility, the marginal utility of the last bite that you eat will be
a. equal to the price of the buffet
b. as high as possible
c. zero
d. dependent on how much you like the buffet
6. Suzy knows she has maximized her utility, because she is on her budget constraint and
a. consumption of good X equals consumption of good Y
b. what is spent on good X equals what is spent on good Y
c. MUx/Px = MUy/Py
d. MUx = MUy
7. Benny spends all his money buying wine and cheese. The marginal utility of the last bottle of wine is 60, and the marginal utility of the last block of cheese is 30. The price of wine is $3, and the price of cheese is $2. Benny
a. is buying wine and cheese in the utility-maximizing amounts
b. should buy more wine and less cheese
c. should buy more cheese and less wine
d. is spending too much money on wine and cheese

8. At the optimal consumption bundle
a. the marginal utility of all goods consumed is equal
b. the marginal utility per dollar spent is equal for all goods consumed
c. the price of all goods consumed is equal
d. none of the above are true
9. The market demand curve
a. is the horizontal summation of the individual demand curve of all consumers
b. is the vertical summation of the individual demand curve of all consumers
c. cannot be derived from the individual demand curve of all consumers
d. has no relation to individual demand
10. The income effect of a price change is the effect on the consumption of a good
a. due to a change in income when all prices change in the same proportion
b. due to a change in purchasing power caused by a change in the price of the good
c. due to a change in income caused by a change in the price of labor
d. due to a change in income sufficient to offset the effect of a price change

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https://brainmass.com/economics/utility/multiple-choice-questions-utility-theory-255053

Solution Preview

1. To say that you can't have too much of a good thing means that for any good that you enjoy (say pizza),
********a. higher consumption will always lead to greater utility**********
You consume something only if it provides utility, and if you can never have enough it means every unit adds to your utility.
b. higher consumption will cause utility to increase at an increasing rate
c. higher consumption will increase utility but only up to a point; after that utility will start to decrease
d. it is valid to measure utility in utils

2. Which of the following goods is most likely to display increasing marginal utility over some range?
a. chicken during the 1920s, when it was considered a luxury good
*********b. paint, which you need in an amount sufficient to paint at least one entire room********
Since you cannot leave a room with a few strokes of paint!
c. lobsters, which are so expensive that you must eat two to get your money's ...

Solution Summary

The set consists of various multiple choice questions about utility theory like what is the law of diminishing marginal utility, when should we consume something based on utility and price, etc.

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Microeconomic Multiple Choice Questions

1) Which of the following is a normative statement ?
A) Next year inflation rate will be under 4%(B) Consumers will buy more gasoline over Christmas Holiday even if the price of gas is 10 cent higher than it was during the Thanksgiving Holiday(C) the government cuts in welfare spending impose an unfair hardship on the poor.(D) the current butter surplus is the result of federal policies.

2) A point inside a production possibilities frontier :
A) Could indicate that the resource are misallocated(B) Is more efficient that a point on the production possibilities frontier (C) Reflects the fact that more technology needs to be developed to fully employ all resources(D) Implies that too much labor and not enough capital is being used.

3) A reduction in the price of a good
A) Shifts the goods demand curve leftward and also decrease the quantity demanded(B) Shifts the goods demand curve leftward but does not decrease the quantity demanded(C) Does not shift the goods demand curve leftward but does decrease the quantity demanded(D) Neither shifts the goods demand curve leftward nor decrease the quantity demanded.

4) The demand for movies is unit elastic if:
A) A 5% decrease in the price leads to an infinite increase in the quantity demanded.(B) A 5% increase in the price leads to a 5% decrease in the quantity demanded.(C) Any increase in the price leads to a 2% decrease in the quantity demanded (D) A 5 % increase in the price leads to a 5% increase in total revenue.

5) Producers' total revenue will increase if
A) Income increase and the good is an inferior good(B) the price rise and demand is elastic (C) the price rises and the demand is inelastic (D) Income falls and the goods is a normal good

6) Competitive market will generally produce
A) Too much of a public good (B) Too little of a public good (C)The efficient amount of a public good (D) The efficient amount of a public good in a short run but not in the long run.

7) Underproduction implies that for the last unit produced:
A)Marginal social benefits exceeds marginal social cost (B) Marginal social benefits equals marginal social cost(C) Marginal social cost exceeds marginal social benefit (D) the deadweight lose is zero.

8) A sale tax will be divided so that:
A) The buyer pay the full amount if supply is perfectly inelastic(B) the seller pay the full amount if supply is perfectly inelastic. (C) the seller pay the full amount if supply is perfectly elastic (D) Both buyer and seller pays some of the tax if the supply is perfectly elastic

9)Dean spend all his income on movies and soda. Movies cost $6 each and soda cost $.50 a can. In a diagram with movies on the horizontal axis and soda on the vertical axis Dean budge line:
A) becomes steeper to the right (B) Becomes shallower to the right(C) has a constant positive slope (D) has a constant negative slope

10) Sarah consume only strawberries and cream, and she is spending all of her income. Her marginal utility of her last dish of strawberries is 200 and her marginal utility of her last pint of cream is 200. The price of strawberries is $1.00 per dish and the price of cream is $2.00 per pint. To maximize her utility, Sarah should
A)Buy more strawberries and less cream(B) Buy more cream and less strawberries (C) Not change her purchase of strawberry cream.(D) Definitely buy no cream at her consumer equilibrium.

11) Marginal utility theory concludes that a decrease in the price for a good increases the quantity demanded and
A)Increase the demand for substitutes (B) Decrease the demand for complements (C) Increase income (D) increase total utility

12) Suppose that Dave has $200 to spend per week and buys only magazine and pizza. The price of pizza is $10 and the price of a magazine is $5. What is Dave real income in terms of the magazines?
A)20. (B) 40 (C) 200. (D) 10.

13)Any point a given indifference curve is
A) Inferior to any point on the indifference curve(B) Preferred to any point on the indifference curve(C) Definitely affordable (D) Definitely unaffordable

13) A chief reason firms gives employees bonuses based on the firms profit is to cope with
A) The tax laws (B) The law of diminishing returns (C) the principal-agent problem (D) unions

14)If a firm's marginal product of labor is less than its average product of labor then an increase in the quantity of labor it employs definitely will:
A) Decrease the total product (B) Decrease its average product of labor (C) increase its marginal product of labor (D) not change its average product of labor

15) A firms average variable cost is $60, its fixed cost is $3000 and its output is 600units Its average cost is :
A) less than $58 (B)between $58 and $62. (C) between $62 and $64 (D) more than $64

16) When economies of scale are present, the LRAC curve touches each short-run ATC curve
A) To the left of the ATC curve's minimum point (B) To the right of the ATC curve's minimum point (C)at the ATC curve's minimum point (D) No points
17) In a perfect competitive firm's marginal cost exceeds its marginal revenue at its current output. To increase its profit the firm will
A)lower its prices (B) raise it prices (C) decrease its output (D) increase its output

18)In demand for its product is elastic, a monopoly's:
A) Total revenue is unchanged when the firm lower its prices(B)Total revenue decrease when the firm lower its price(C) Marginal revenue is positive (D) Marginal revenue is zero.

19)Compared to a single -price monopoly, a perfectly competitive industry produces
A) less output and has a lower price(B) ) less output and has a higher price(C)more output and has a lower price(D) more output and has a lower price

20)A price discriminating monopolist charges lower prices to customers with
A) lower supply elasticities. (B) Higher supply elasticities (C) lower average willingness to pay (D) higher average willingness to pay

21) In the dominant firm model of oligopoly the dominant firm charges
A) a lower price than larger firms (B) the same price as the smaller firms (C) a higher price than the smaller firms (D) a price equal to its marginal revenue

22) According to economic model of public choice the object of politicians is to
A) promote the social interest (B) get elected and remain in office (C) maximize free-ridership (D) maximize total public utility

23) According to capture theory, regulation occurs because a
A) small group of loser from regulation loses a great deal per person(B) small group of winners from regulation gains a great deal per person(C) large groups of winners from regulation gains only a small amount per person. (D) deadweight loss escape market discipline
24) Although the effects of antitrust law have varied over the years the overall thrust appears to have been to
A)reduce deadweight loss as suggested by the capture theory (B) reduce deadweight loss as suggested by the social interest theory(C) increase producer surplus as suggested by the capture theory (D) increase producer surplus as suggested by the social interest theory

25) Public universities, by charging tuition
A)Below the marginal cost of education, decrease the number of student (B) Below the marginal cost of education, increase the number of student (C) above the marginal cost of education decrease the number of students(D) above the marginal cost of education increase the number of students

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