Download Multiple Choice Tutorial Chapter 19 Consumer Choice and Demand

Multiple Choice Tutorial
Chapter 6
Consumer Choice
and Demand
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1. The substitution effect describes how
a. an increase in income causes buyers to
purchase different products
b. the opportunities for minorities are
affected by affirmative action’s policies
c. the additional satisfaction from each
additional unit of the product consumed in
a given time period decreases
d. a price increase creates incentives for
buyers to seek alternatives
D. The substitution effect occurs when the
price of a good falls, consumers will
substitute it for other goods, which are now
relatively more expensive.
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2. If the income effect is the only economic
principle operating, when price increases the
quantity
a. demanded of a normal good will increase
b. demanded of an inferior good will increase
c. demanded of a complement will increase
d. demanded of any good will decrease
B. The income effect occurs when a fall in the
price of a good increases consumer’s real
income, making them more able to purchase
all goods, so the quantity demanded increases.
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3. Total utility
a. has all of the following as correct responses
b. decreases as price increases
c. can be used to compare two people’s
experiences
d. depends on individual attitudes and
preferences
D. Utility is the satisfaction received from
consuming a good or service or a collection
of goods and services; satisfaction, sense of
wellbeing.
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4. A word that can be substituted for utility is
a. cost
b. price
c. satisfaction
d. income
C. Same as previous answer.
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5. Economic analysis of utility
a. is used to teach consumers how to spend
their income
b. is used to explain how tastes develop and
why different people have different tastes
c. is used to measure utility objectively and to
compare the utilities of different people
d. assumes that tastes are given and that they
are also stable
D. Economists have little to say about the origin
of tastes or why tastes seem to differ across
individuals - they simply assume that although
people have different tastes, an individual’s
tastes are not changing all the time.
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6. Marginal utility is the
a. overall satisfaction from consuming a good
b. additional satisfaction from consuming one
more unit of a good
c. average satisfaction from consuming a
good
d. the change in satisfaction from consuming
1% more of a good
B. The word margin always means a change or
the last increment. Marginal utility is the
change in total utility derived from a one unit
change in consumption of a good.
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7. Total utility can be measured as
a. the sum of all marginal utilities
b. the sum of all average utilities
c. the total revenue spent on goods and
services
d. the price of a product
A. Total utility is the total satisfaction a
consumer derives form consumption.
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8. The basic hypothesis of utility theory states
that as more of a commodity is consumed
during a given period of time,
a. total utility and marginal utility will both
decrease
b. total utility and marginal utility will both
increase
c. total utility will increase but marginal
utility will eventually decrease
C. Economists assume that the economy is
made up of people who would rather have
more of something then less. However, beyond
a certain point, each additional unit of a good
brings less and less satisfaction to a person.
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9. Newspaper vending machines illustrate that
newspaper publishers believe
a. the average utility of two identical
newspapers is zero or less
b. the total utility from two identical
newspapers is zero or less
c. the marginal utility of a second identical
newspaper is zero or less
d. the marginal utility of a second identical
newspaper is greater than the marginal
utility of the first newspaper
C. If this were not the case people would take
more than one newspaper from the machine.
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10. Using numerical values to measure utility
a. is essential, and is the only way to analyze
utility
b. shows the relationship between total utility
and marginal utility in a simple manner
c. allows us to compare utility between
different consumers
d. is only possible in a world without scarcity
B. A unit measure of utility is called a Util.
The first hamburger bought may bring you
10 utils worth of satisfaction, a second
hamburger may only bring you 7 utils etc.
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11. Negative marginal utility means that
a. total utility is also negative
b. marginal utility is increasing
c. the price of the product is increasing as
additional units are consumed
d. total utility is decreasing as additional units
are consumed
D. If you were forced to eat ten hamburgers
beyond a certain amount, say four, each
hamburger consumed will inflect pain
instead of pleasure.
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12. Given the following total utility
schedule, what is the marginal utility of
the third unit consumed?
Q. Consumed
0
1
2
3
4
T. Utility
0
100
150
180
200
a. 20
b. 30
c. 60
d. 180
B. 180 minus 150 equals 30 utils.
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13. Given the following total utility
schedule, where does marginal utility
begin to diminish?
Q. Consumed
0
1
2
3
4
5
T. Utility
0
100
200
270
320
350
a. 1
b. 2
c. 3
d. 4
e. 5
C. At the third unit marginal utility is 70
whereas in the previous units it is 100.
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14. If a good is offered to a rational individual
for free, she will
a. accept unlimited quantities of the good each
time period
b. stop consuming it when its marginal utility
begins to increase
c. stop consuming it when its marginal utility
begins to diminish
d. stop consuming it when its marginal utility
equals zero
D. When the marginal utility is zero a
consumer receives no satisfaction from
consuming that last unit.
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15. As long as scarcity exists,
a. product prices play no role in utility
maximization
b. income plays no role in utility maximization
c. income and product prices must both be
considered in utility maximization
d. consumers maximize utility by consuming
all products until their marginal utility is
zero
C. The reason why a good has a price is that
there is not enough of it to go around to
everyone who wants it for free. The one’s who
receive the good are those who want it the
most and have the money to pay for it.
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16. In terms of utility theory, equilibrium in the
real world means that
a. households are consuming as much of every
commodity as they would like
b. households have spent their incomes in
such a way that their overall satisfaction is
maximized
c. households have spent their incomes in
such a way that their marginal utility is zero
for every product consumed
B. Economists always assume that consumers
will make choices to maximize their total
utility.
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17. On a hot summer day, an individual decides
to eat three ice-cream sundaes at a price of $2
each. If he is a utility-maximizer, what is the
value of the marginal utility of the fourth
sundae to him that day?
a. less than $2
b. more than $2
c. zero
d. negative
A. This means that the person places a
greater value on his $4 than he does on a
fourth sundae.
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18. The utility-maximizing combinations of
goods occurs when
a. the marginal utility of each good is equal
b. the total utility of each good is equal
c. the quantity consumed of each good is
equal
d. the marginal utility per dollar spent on
each good is equal
D. If a consumer can increase his total utility
by purchasing less of one good and more of
another good, he will do so. This person will
have no incentive to change his spending
priorities if by so doing will not increase his
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total utility.
19. As a utility-maximizer, you would be willing
to pay twice as much for Good X as you pay
for Good Y if
a. Goods X and Y are substitutes for each
other
b. you purchase twice as much of Good Y as
you do of Good X
c. you spend equal amounts on both goods
d. the last unit of Good X you buy is twice as
satisfying as the last unit of Good Y you buy
D. How much you are willing to spend on a
good is determined by how much satisfaction
you think you will derive from the good. 20
20. A utility-maximizing consumer buys only
CDs and books. After all of his income is
spent, he finds that the last CD he bought gave
him 60 units of satisfaction, and the last book
he purchased gave him 30 units of satisfaction.
CDs cost $12 each and books cost $5 each.
Which statement is true?
a. he should buy fewer CDs and fewer books
b. he should buy more CDs and more books
c. he should buy more CDs and fewer books
d. he should buy more books and fewer CDs
D. The last CD has twice as much utility than
the last book, however, the last CD is priced
more than double the last book.
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21. Johanna often buys her favorite soft drink
every week. She will buy cans up to the last
can where her marginal utility is greater than
the price (MU>P).
a. True
b. False
A. TRUE As long as her MU > P she is
placing a greater value on the can of soda
pop than she is the money she has to pay
for the soda pop. At the first unit where
her MU < P she will not buy that can of
pop because she will not give up
something of greater value to receive
something of lower value.
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22. To derive a consumer’s demand curve using
utility analysis, note the effect of the
consumer’s utility-maximizing combination of
goods purchased when
a. the consumer’s marginal utilities change
b. the consumer’s income changes
c. the consumer’s tastes and preferences
change
d. the price of a product changes
D. A demand curve shows how many units will
be demanded at various prices. Therefore,
what is pertinent here is a change in price.
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23. The law of demand states that
a. quantity demanded is inversely related to
price
b. quantity demanded is directly related to
income
c. marginal utility is inversely related to
quantity consumed
d. demand curves are linear
A. The word inverse here means “moves in the
opposite direction.” As the price of a good
increases consumers will tend to buy fewer
units and vice versa.
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24. In animal experiments examining
implications of the law of demand, researchers
a. discovered that the law of demand does not
apply to animal behavior
b. were unable to establish “prices”, so could
not answer the question of whether the law
of demand applies to animal behavior
c. proved that rats will not drink root beer
d. found that animal consumption choices are
consistent with the law of demand
D. Even animals make decisions, eat or not to
eat, stay inside or go outside etc.
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25. Along a consumer’s demand curve, price
reflects
a. the costs of production
b. the dollar value of the total utility from the
good
c. the dollar value of the marginal utility of
each additional unit of the good
d. the maximum quantity which could be
purchased, given income
C. Economists derive demand curves by using
marginal utility analysis. The price that a
consumer is willing to pay for something is
determined by their MU of that last unit.
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26. Consumer surplus is defined as
a. the amount by which quantity supplied
exceeds quantity demanded at the current
market price
b. the amount by which quantity demanded
exceeds quantity supplied at the current
market price
c. the difference between the maximization
amount that a consumer is willing to pay for
a given amount of a good and the amount
that the consumer actually pays
C. Because the price of identical units of a
product is the same at one place at one time,
some people will end up with consumer
surplus, that is, all consumers are different.27
27. If you are willing to pay $250 for a certain
VCR, but you purchase it on sale for $200,
your consumer surplus is
a. impossible to determine from the
information given
b. 1/5 = 0.2
c. $250
d. $50
D. You bought the VCR for less money than
you would be willing to pay for it, precisely
$50 less.
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28. When price decreases, consumer surplus
a. increases
b. remains constant
c. decreases
d. becomes negative
A. In questions like this we always make the
“everything else being equal” assumption.
Everything else being equal, a person’s
consumer surplus will increase as the price of
the good decreases.
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29. Let’s suppose you own a business and you
are considering raising the price of your
product. If the demand curve of your product
faces an inelastic demand curve then the
higher price will increase your total revenue.
A. TRUE
B. FALSE
A. TRUE This is the definition of elasticity. If
you raised your price and the result was a
lower revenue then the product would face an
elastic demand curve.
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30. The market demand curve for a product is
a. the horizontal sum of the demand curves
for each of the individual brands of the
product
b. the horizontal sum of the demand curves of
each of the individual buyers in the market
c. the same as the demand curve facing each
of the individual sellers in the market
d. the same as the individual demand curve of
one of the buyers in the market
B. This is how economists determine the
market demand curve for a product.
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31. Which of the following is not true with
regard to consumer surplus?
a. consumer surplus reflects the net benefit to
consumers from market exchange
b. consumer surplus is zero if the good is
given away for free
c. consumer surplus is used as a measure of
economic welfare
d. consumer surplus can be used to compare
the effects of different market structures
and different tax policies
B. If a good is given away for free when a
person would have been willing to pay
something for that good, then consumer
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surplus is positive.
32. Consumer surplus exists
a. when actual market price is greater than
the equilibrium market price
b. when actual market is less than the
equilibrium market price
c. because producers charge a price that is
greater than the cost of production
d. when consumers pay the same price for
each unit of a good, because the price
reflects only the value of the last unit
purchased to the consumer
A. This means that there are people paying less
for the good than they would be willing to pay
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Last slide viewed
Price
Supply
R
P
K
T
Quantity
Exhibit 19.1
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33. Refer to Exhibit 19-1. Consumer surplus at
market equilibrium is
a. represented by triangle RPT
b. represented by triangle PTK
c. represented by triangle RTK
d. zero
D. Consumer surplus at T is zero because, as a
whole, at this level the quantity demanded
exactly equals the quantity supplied. At
prices above P there will be some consumers
who were willing to pay a higher price but
paid a lower price, thus they experience some
consumer surplus.
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34. A Medicaid experiment in California showed
that a nominal fee of $1 charged for doctors’
visits
a. caused beneficiaries to stop going to the
doctor altogether
b. significantly reduced benefits to those
covered by Medicaid without reducing the
cost of the program to taxpayers
c. reduced the cost of the program to
taxpayers without creating a substantial
burden for recipients
C. Society still benefited from the program
because at one dollar there was considerable
consumer surplus.
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35. The cost of consumption has two
components:
a. the substitution effect and the income effect
b. the law of demand and the law of
diminishing marginal utility
c. the price effect and the income effect
d. the money price and the time price
D. Let’s suppose that you want to see a movie
and tickets are selling for $5, which you think
is a fair price to see the movie. However,
when you get to the theatre the line to get in
extends all the way around the corner. Now,
all of a sudden, the total price to see the
movie is more than just the $5 ticket.
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36. In most markets, each consumer
a. faces the same money price and time price
b. faces different money prices and different
time prices
c. faces the same money price but different
time prices
d. has the same individual demand curve for
the product
C. Wal-Mart may offer low prices, but if I have
to drive 50 miles to get to the nearest WalMart store, my time price is higher than
someone who lives right next to the store.
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37. Your willingness to pay additional dollars
for time-saving goods depends primarily on
a. the opportunity cost of your time
b. your wealth and property
c. your social status
d. the distance between your home and your
workplace
A. Will you do home repairs yourself or hire
someone to do the repairs? Assuming that the
task is a simple one you can do (but time
consuming), your decision will be partly
based on how much money will you be giving
up to do the repairs yourself because you
cannot be making money and doing the
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repairs at the same time.
38. Which of the following people would
probably be least likely to search the
newspaper ads for bargains and clip store
coupons?
a. a retired person
b. an unemployed person
c. a waitress earning $5 an hour
d. an attorney earning $100 an hour
D. The attorney’s opportunity cost of spending
time clipping coupons is very high compared
to someone else who only makes $7 an hour.
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END
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