Chapter 5, Multiple choice:
1. Suppose you have a limited money income and you are purchasing products A and B
whose prices happen to be the same. To maximize your utility you should purchase A
and B in such amounts that:
A) their marginal utilities are the same.
B) their total utilities are the same.
C) their marginal and total utilities are proportionate.
D) the income and substitution effects associated with each are equal.
2. Ben is exhausting his money income consuming products A and B in such quantities
that MU /P = 5 and MU /P = 8. Ben should purchase:
a a b b
A) more of A and less of B.
B) more of B and less of A.
C) more of both A and B.
D) less of both A and B.
Use the following to answer question 3:
The following total utility data is for products L and M. Assume that the prices of L and M are $3
and $4 respectively and that the consumer's income is $18.
Units of L Total utility Units of M Total utility
1 9 1 16
2 15 2 28
3 18 3 36
4 20 4 40
5 21 5 42
3. Refer to the above data. How many units of the two products will the consumer
A) 3 of L and none of M
B) 4 of L and 2 of M
C) 3 of L and 5 of M
D) 2 of L and 3 of M
4. If a product has a diminishing but positive marginal utility, then:
A) a reduction in consumption by one unit will increase total utility.
B) the product cannot be an inferior good.
C) total utility increases at a diminishing rate.
D) total utility decreases at a diminishing rate.
Page 1 5. The marginal utility of leisure time appears to:
A) be the same even for people with widely different incomes.
B) be exempt from the law of diminishing marginal utility.
C) increase as the quantity of available leisure time decreases.
D) equal zero for successful business executives.
6. A consumer's demand curve for a product is downsloping because:
A) total utility falls below marginal utility as more of a product is consumed.
B) marginal utility diminishes as more of a product is consumed.
C) time becomes less valuable as more of a product is consumed.
D) the income and substitution effects precisely offset each other.
7. An increase in the price of product A will:
A) increase the marginal utility per dollar spent on A.
B) decrease the marginal utility per dollar spent on A.
C) not affect the marginal utility per dollar spent on A.
D) cause utility-maximizing consumers to buy more of A.
8. Most economists contend that:
A) noncash transfers are more efficient than cash transfers.
B) noncash transfers are less efficient than cash transfers.
C) noncash and cash transfers are equally efficient.
D) government can assess consumer preferences better than can consumers themselves.
9. George consumes only two goods, pizza and compact discs. Both are normal goods for
George. Suppose the price of pizza decreases. George's consumption of compact discs
A) increase due to the income effect.
B) increase due to the substitution effect.
C) increase due to a negative income elasticity.
D) remain unchanged, since the income elasticity of pizza is greater than 0.
10. A consumer is in equilibrium and is spending income in such a way that the marginal
utility of product X is 40 units and Y is 16 units. The unit price of X is $5. The price of
A) $1 per unit.
B) $2 per unit.
C) $3 per unit.
D) $4 per unit.
11. The diamond-water paradox occurs because:
A) the price of a product is related to its total utility, not its marginal utility.
B) the price of a product is related to its marginal utility, not its total utility.
C) water is, in fact, very scarce in certain regions of the world.
D) diamonds are more useful than water. Use the following to answer question 12:
The following marginal utility data is for products X and Y. Assume that the prices of X and Y are
$4 and $2 respectively and that the consumer's income is $18.
Units Marginal Units Marginal
of X utility, X of Y util