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Multiple Choice Questions: Utility Theory

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

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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