Practice Topic 3

The main focus of utility theory is to:

• Explain government spending

• Determine how producers maximize output

• Show how consumers allocate their income

• Measure a country's total income

Consumers need to make choices because:

• Prices of goods are the same

• Time and money are unlimited

• Resources are scarce but wants are unlimited

• Companies force them to buy certain products

According to the law of diminishing marginal utility:

• Each extra unit of consumption increases satisfaction

• The more we consume, the less satisfaction we get from the next unit

• Utility always increases with more consumption

• Total utility decreases with each unit consumed

The law of equi-marginal utility suggests that consumers:

• Spend all their money on one good

• Seek maximum satisfaction by balancing utility per Ringgit

• Choose only free goods

• Always choose cheaper goods regardless of preference

Which is not an assumption of the indifference curve theory?

• Consumers behave rationally

• Income is constant

• Utility is measurable

• Marginal rate of substitution diminishes

A budget line shows:

• All affordable combinations of two goods given a budget

• Maximum production output

• The most expensive product bundles

• The total market income

Mei Ling eats 4 pieces of sushi and gains 80 utils in total. What is her average utility per sushi?

• 10

• 20

• 30

• 40

Johan drinks one glass of juice and gets 15 utils. The second glass increases his total utility to 26 utils. What is the marginal utility of the second glass?

• 10

• 11

• 12

• 13

Marginal rate of substitution refers to:

• The rate at which a producer hires workers

• The rate at which a consumer gives up one good for another while maintaining satisfaction

• The extra utility from consuming an additional unit

• The total amount spent on both goods

Rational behaviour in economics means:

• Spending money randomly

• Making choices to maximize satisfaction

• Avoiding consumption

• Ignoring product prices