Utility

Which act of purchase or consumption is most likely to illustrate the law of diminishing marginal utility?

• A the final course of an ‘eat all you can’ banquet to end an evening out

• B the last coin to complete an enthusiast’s coin collection

• C the second of the two rolls of wallpaper needed to decorate a room

• D the tenth driving lesson needed to enable a learner to pass the driving test

An individual consumes goods X and Y. The marginal utility of good X is positive and falling. The consumer is at the point where the ratio of the marginal utility of the two goods is equal to the ratio of their prices. What can be concluded from this information?

• A the consumer will continue to consume additional units of X until marginal utility is zero

• B the consumer will purchase more of X if the price of Y rises

• C total utility will be negative on the additional unit of X consumed

• D total utility will be rising at an increasing rate on the additional unit of X consumed

The table shows the total utility gained by a consumer as they consume more apples. At which level of consumption would the marginal utility be zero?

• A 1

• B 4

• C 5

• D 6

The graph shows the total utility (TU) obtained by a consumer from eating biscuits over a period of one hour. After eating how many biscuits does the consumer’s marginal utility begin to diminish?

• A 3

• B 4

• C 5

• D 6

A consumer has $3 to spend each day on chocolate bars or toffee bars, which all cost $1 each. The table below shows the units of additional satisfaction she gets from consuming each bar. What should she buy to maximise her total utility?

• A 1 chocolate bar and 2 toffee bars

• B 2 chocolate bars and 1 toffee bar

• C 3 chocolate bars

• D 3 toffee bars

The diagram shows a total utility curve for a consumer. At which point does marginal utility equal zero?

• A

• B

• C

• D

A rational consumer chooses what quantities of two products Y and Z to purchase with a given income. MUY and MUZ are the additions to total utility that would result if the consumer were to purchase an additional unit of each product. PY and PZ are the current prices of the two products. Which outcome would represent consumer equilibrium?

• A when MUY = MUZ

• B when MUY x PY = MUZ x PZ

• C when MUY x PZ = MUZ x PY

• D it is not possible to tell from the information available

What is the central principle of marginal utility theory?

• A As more is consumed of a normal good, the additional satisfaction gained increases.

• B Consumers are in equilibrium when the marginal utility gained from good X equals the price of good Y.

• C Consumers are in equilibrium when the ratio of the marginal utility of goods X and Y are equal to the ratio of their prices.

• D Consumers are in equilibrium when the total utility gained from good X is the same as gained from good Y.

In an economy, no-one can be made better off without making someone else worse off. What can be deduced from this?

• A Individuals are the best judges of their own well-being.

• B Individuals can be relied upon to behave rationally.

• C The distribution of income is socially optimal.

• D The economy’s resources are allocated efficiently

The price of good S is $6 and the price of good T is $8. A consumer’s marginal utility for each good is shown. If this consumer wants to maximise total utility, which combination of goods would they consume?

• Goods S -1

  Goods T -1

• Goods S -2

  Goods T -1

• Goods S -3

  Goods T -4

• Goods S -5

  Goods T -5