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Consumer Theory

Total questions: 20

Worksheet time: 19mins

Name

Class

Date

When marginal utility is falling but positive, total utility will:

Decrease at an increasing rate

Remain constant

Increase at an increasing rate

Increase at a decreasing rate

Assume Pat spends all of her $ on 4 apples & 4 candy bars. Her MU of the 4th apple is 20 utils, and her MU of the 4th candy bar is 40 utils. If an apple costs $1.00 and a candy bar $0.50, to maximize utility Pat should:

Purchase more of both goods

Maintain the current purchase of 4 of each

Buy more apples and fewer candy bars

Buy fewer apples and more candy bars

The table shows the dollar value of the total benefit Edward receives from buying various quantities of volleyballs. What is the marginal benefit received from buying the 3rd volleyball?

$20

$30

$35

$125

Which of the following is true if consuming one unit of a good yields 100 utils and consuming the second unit of the good increases satisfaction by 20 utils?

The total utility of consuming two units is 120

The marginal utility of the first unit is 20

The marginal utility of the second unit is 120

The marginal utility of the second unit is 80 utils

Butch is currently spending his entire lunch budget on 3 sodas and 4 hot dogs. At his current level of consumption, his marginal utility for sodas is 5 utils and his marginal utility for hot dogs is 10 utils. In order to maximize his total utility, Butch should:

Consume more sodas & fewer hot dogs regardless of prices

Consume more hot dogs & fewer sodas regardless of prices

Maintain current consumption if sodas are $1 each and hot dogs are $2 each

Maintain current consumption if sodas are $2 each and hot dogs are $1 each

Which of the following is a key assumption of consumer choice theory?

As income rises, consumers buy more of all goods

Marginal utility is always increasing

Consumers do not consider the opportunity costs of purchases

Consumers try to maximize their utility

Oscar spent his entire income on only two goods: good X and good Y. At his current consumption of the two goods, the marginal utility of X is 8 and the marginal utility of Y is 2. If the price of X is $4.00 and the price of Y is $0.50, then to maximize his total utility, Oscar should have:

bought more X and more Y

bought more X and less Y

bought less X and more Y

maintained his current consumption

According to the law of diminishing marginal utility, which of the following is true?

The additional satisfaction received from consuming extra units of a good decreases as consumption of the good increases

Total satisfaction decreases as more units of a good are consumed

The additional satisfaction received from consuming extra units of a good decreases as consumption of the good decreases

When marginal utility is decreasing, total utility is decreasing

Jane spends all her weekly allowance to buy only two goods: soda and apples. According to the table above, if her preferences are characterized by the law of diminishing marginal utility, then which of the following statements is correct?

Jane is maximizing her utility

Jane can buy more soda and fewer apples to maximize her utility

Jane can buy more apples and less soda to maximize her utility

Jane can buy more apples and the same amount of soda to maximize her utility

10.

Which one of the following statements about maximizing consumer utility between the purchase of two different goods is true?

The marginal utility of the last two units of each good consumed should be equal

The marginal utility per dollar of the last two units of each good consumed should be equal

The marginal utility per dollar of the last two units of each good consumed should be zero

The price per unit of each good consumed should be equal

11.

The slope of the budget constraint equals the of the goods.

(a)

12.

The slope of an indifference curve is called the

(a)

13.

Indifference curves are downward sloping because

a consumer likes both the goods

a consumer doesn't like both the goods

a consumer likes one good and not the other

None of the above

14.

When the two goods are perfect substitutes

MRS is constant

Indifference curves are straight lines

Both (a) and (b)

Neither (a) nor (b)

15.

When the two goods are perfect complements, say right shoes and left shoes

A consumer cares just about the number of pairs of shoes

The indifference curves are right angles

both (a) and (b)

neither (a) nor (b)

16.

At the consumer's optimum point,

Indifference curve is tangent to the budget line

MRS equals the relative price

both (a) and (b)

neither (a) nor (b)

17.

Income effect of the price change refers to the change in consumption

that results from

being at a point on an indifference curve with a different MRS

that reduces consumer's welfare

that results from the movement to higher IC

None of the above

18.

The demand curve is upward sloping

in case of giffen good

when for inferior goods, income effect of price change dominates the substitution effect

both (a) and (b)

neither (a) nor (b)

19.

Labor supply curve is upward sloping when

the substitution effect of change in wage rate is greater than the income effect

the income effect of change in wage rate is greater than the substitution effect

the income effect of change in wage rate is equal to the substitution effect

None of the above

20.

An increase in interest rate causes decrease in savings when

the substitution effect of increase in interest rate is greater than the income effect

the income effect of increase in interest rate is greater than the substitution effect

the substitution effect of increase in interest rate is equal to the income effect

None of the above

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Consumer Theory

Total questions: 20

Worksheet time: 19mins

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