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Ch.

06 Practice MC
1.

The utility of a good or service:


A. is synonymous with usefulness.
B. is the satisfaction or pleasure one gets from consuming it.
C. is easy to quantify.
D. rarely varies from person to person.

2.

The ability of a good or service to satisfy wants is called:


A. utility maximization.
B. opportunity cost.
C. revenue potential.
D. utility.

3.

Refer to the above data. The value for X is:


A. 15.
B. 5.
C. 55.
D. 10.

4.

Refer to the above data. The value for Z is:


A. -5.
B. +5.
C. -10.
D. zero.

5.

A product has utility if it:


A. takes more and more resources to produce successive units of it.
B. violates the law of demand.
C. satisfies consumer wants.
D. is useful.

6.

The law of diminishing marginal utility states that:


A. total utility is maximized when consumers obtain the same amount of utility per unit of each product
consumed.
B. beyond some point additional units of a product will yield less and less extra satisfaction to a
consumer.
C. price must be lowered to induce firms to supply more of a product.
D. it will take larger and larger amounts of resources beyond some point to produce successive units of a
product.

7.

If the price of product X rises, then the resulting decline in the amount purchased will:
A. necessarily increase the consumer's total utility from his total purchases.
B. increase the marginal utility of the last unit consumed of this good.
C. increase the total utility from purchases of this good.
D. reduce the marginal utility of the last unit consumed of this good.

8.

Total utility may be determined by:


A. multiplying the marginal utility of the last unit consumed by the number of units consumed.
B. summing the marginal utilities of each unit consumed.
C. multiplying the marginal utility of the last unit consumed by product price.
D. multiplying the marginal utility of the first unit consumed by the number of units consumed.

9.

Refer to the above diagram. The marginal utility of the third unit of X is:
A. 5.
B. 4.
C. 2.
D. 15.

10. Refer to the above diagram. Marginal utility:


A. increases at an increasing rate.
B. becomes negative after consuming 4 units of output.
C. is found by dividing total utility by the number of units purchased.
D. cannot be calculated from the total utility information.
11. If total utility is increasing, marginal utility:
A. is positive, but may be either increasing or decreasing.
B. must also be increasing.
C. may be either positive or negative.
D. will be increasing at an increasing rate.
12. Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending all her money
income should buy:
A. less of X only if its price rises.
B. more of Y only if its price rises.
C. more of Y and less of X.
D. more of X and less of Y.
13. Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and
MUb/Pb = 8. Ben should purchase:
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.

14. A consumer is maximizing her utility with a particular money income when:
A. the total utility derived from each product consumed is the same.
B. MUa/Pa = MUb/Pb = MUc/Pc = ... = MUn/Pn.
C. MUa = MUb = MUc = ... = MUn.
D. Pa = Pb = Pc = ... = Pn.
15. Assume MUc and MUd represent the marginal utility that a consumer gets from products C and D, the
respective prices of which are Pc and Pd. The consumer will increase his total utility from a specific
money outlay by spending more on C and less on D if initially:
A.
B.
C.
D.
16. If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products b and c in consumer
equilibrium:
A. cannot be determined from the information given.
B. are $105 and $140 respectively.
C. are $105 and $175 respectively.
D. are $100 and $200 respectively.
Answer the question on the basis of the following total utility data 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.

17. Refer to the above data. What level of total utility does the rational consumer realize in equilibrium?
A. 87 utils
B. 104 utils
C. 51 utils
D. 58 utils
18. 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.
19. Frank is purchasing products C and D in utility-maximizing amounts. If the price of C is $4 and the price
of D is $2, then:
A. the marginal utility of D is twice that of C.
B. the marginal utility of D is the same as that of C.
C. the marginal utility of C is twice that of D.
D. the marginal utility of C is four times that of D.
20. The theory of consumer behavior assumes that consumers attempt to maximize:
A. the difference between total and marginal utility.
B. total utility.
C. average utility.
D. marginal utility.

21. When a consumer shifts purchases from product X to product Y the marginal utility of:
A. X falls and the marginal utility of Y rises.
B. X rises and the marginal utility of Y falls.
C. both X and Y rises.
D. both X and Y falls.
22. Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a
$50 ticket for a particular Broadway play. We can conclude that Prashanth:
A. is relatively unappreciative of the arts.
B. obtains more marginal utility from the play than from the hockey game.
C. has a higher "marginal utility to price ratio" for the hockey game than for the play.
D. has recently attended several other Broadway plays.
23. Diminishing marginal utility explains why:
A. the income effect exceeds the substitution effect.
B. the substitution effect exceeds the income effect.
C. supply curves are upsloping.
D. demand curves are downsloping.
24. 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.
Answer the question on the basis of the following marginal utility data 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.

25. Refer to the above data. What quantities of X and Y should be purchased to maximize utility?
A. 2 of X and 1 of Y
B. 4 of X and 5 of Y
C. 2 of X and 5 of Y
D. 2 of X and 6 of Y
26. Refer to the above data. If the price of X decreases to $2, then the utility-maximizing combination of the
two products is:
A. 2 of X and 5 of Y.
B. 4 of X and 6 of Y.
C. 6 of X and 3 of Y.
D. 4 of X and 5 of Y.

27. If the prices of X and Y are $2 and $4 per unit, respectively, and this consumer has $10 in income to
spend, to maximize total utility this consumer should buy:
A. 1 units of X and 1 units of Y.
B. 2 units of X and 2 units of Y.
C. 1 units of X and 2 units of Y.
D. 5 units of X and no units of Y.
28. In introducing the opportunity cost of time into the theory of consumer behavior we find that, all else
equal:
A. one should consume less of time-intensive goods.
B. one should consume more of time-intensive goods.
C. the consumer's equilibrium position is not altered.
D. the marginal utility derived from each product must be multiplied by consumption time in determining
equilibrium.
29. The diamond-water paradox arises because:
A. essential goods may be cheap while nonessential goods may be expensive.
B. the marginal utility of certain products increases, rather than diminishes.
C. essential goods are always higher priced than nonessential goods.
D. we sometimes fail to use money as a standard of value.
30. Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item
is purchased separately?
A. Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as
having a price of zero.
B. MU/P is greater at all-you-can-eat restaurants.
C. People who eat at all-you-can-eat restaurants do not experience diminishing marginal utility.
D.Food at all-you-can-eat restaurants tends to have fewer calories, so consumers feel the need to consume
a greater volume of food.
31. If you receive a gift whose market price is $20, but you consider it to be worth only $10, then:
A. there is a $10 or 50 percent value gain.
B. there may or may not be a value loss.
C. there is a $10 or 50 percent value loss.
D. you can be relatively certain the giver was a sibling or other close relative.
32. According to economists, gift registries, returning gifts for cash refunds, and "recycling gifts":
A. are inefficient because the time spent in these activities is never worth the benefit recipients receive
from doing them.
B. are efficient because the recipient gets exactly what he wants.
C. are more efficient than if givers simply gave cash gifts.
D increase the efficiency of gift-giving because they allow the recipient to consume goods that provide
. greater utility and transfer away those goods that are less satisfying.
33. According to prospect theory, what strategy will firms typically employ with regard to pricing and
packaging their goods, when faced with rising production costs?
A Firms will increase both package sizes and prices, but will increase prices more to communicate to
. consumers that the product has greater value.
B. Firms will reduce package sizes but keep prices the same, thus increasing the per unit price of the
good.
C. Firms will keep package sizes the same, but lower prices and attempt to cover the higher costs with
greater revenue.
D According to prospect theory, the choice of strategy doesn't matter, as consumers are generally able to
. recognize price increases regardless of what form they take.

34. According to the concept of framing effects:


A. advertising power is limited because of the inability of firms to change consumers' perspectives.
B. all people will assign the same utility to a given situation, regardless of their previous status quo.
C. whether a new situation is viewed as a gain or a loss depends on one's starting position.
D. firms should never raise prices or reduce wages.
35. Suppose that Dairy Barn Foods produces a regular sour cream with 10 grams of fat per serving, and
a "low fat" sour cream with only 5 grams of fat per serving (assume that this is still considered a lot of fat
to consume per serving). According to prospect theory, how should Dairy Barn promote its "low fat" sour
cream?
A. It should make no mention of fat content, either in absolute terms, or relative to its regular sour cream.
B. It should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream.
C. It should advertise that the "low fat" sour cream has only 5 grams of fat per serving.
D. It won't matter what strategy Dairy Barns use, as consumers are sufficiently informed as to not be
affected by the advertising.
36. Josh will receive a salary of $300,000 next year. According to prospect theory:
A. Josh will be happy with that amount regardless of what he has made in the past.
B. Josh will only be happy with that salary if everyone else around him makes less than he does.
C. Josh will only be happy with that salary if his cost of living has not increased.
D. Josh's satisfaction with that salary depends on how much he made in the past.
37. Why do credit card companies typically require small minimum payment amounts on their customers'
monthly credit card statements?
A.Credit card companies are concerned that their customers will be put in financial distress if required to
make higher payments.
B Credit card companies want to promote faster repayment, and customers will be encouraged to pay
. more each month if they're able to pay well beyond the minimum.
C Credit card companies want to increase profits by promoting slower repayment, and actual customer
. payments will be anchored by the smaller payment requirements.
D. Credit card companies actually charge the highest minimum payment they are allowed by law to
charge.
38. Because of "mental accounting:"
A. people are better able to process price changes than changes in product sizes.
B. people tend to be less risk averse.
C. people pay too little on their monthly credit card bills.
D. people isolate purchases and sometimes make irrational decisions.
39. Alex was willing to pay $50 for the new World Cup soccer ball. When he received it as a gift, he was
willing to sell it, but for no less than $80. According to behavioral economists:
A. Alex's behavior is consistent with the endowment effect.
B. Alex's behavior is irrational because of inconsistent anchoring.
C. Alex should sell the ball if he's offered any amount over $50.
D. Alex's behavior is irrational because his frame has changed.
40. According to the "endowment effect:"
A.people are willing to pay more for things they don't own, than they would have to receive to give up
something they already have.
B. people feel gains and losses with equal intensity.
C. people assign higher values to things they own than things they don't.
D. the intensity of feelings from gains and losses depends on how much wealth one possesses.

41. (Last Word) Participation in company retirement savings programs has increased dramatically
because:
A. participation was required by the company.
B. enrollment in these programs was set as the default option and workers had to request to be unenrolled.
C not being enrolled in these programs was set as the default options, and people's aversion to being told
. what to do prompted many to request enrollment.
D. endowment effects encourage greater saving.
42. The budget line shows:
A. the amount of product A that a consumer is willing to give up to obtain one more unit of product B.
B. all possible combinations of two goods that can be purchased, given money income and the prices of
the goods.
C. all equilibrium points on an indifference map.
D. all possible combinations of two goods that yield the same level of utility to the consumer.
43. Which of the following statements is not correct?
A. A reduction in money income will shift the budget line to the right.
B. A reduction in money income accompanied by an increase in product prices will necessarily shift the
budget line to the left.
C. An increase in product prices will shift the budget line to the left.
D. An increase in money income will shift the budget line to the right.

44. Refer to the budget line shown in the diagram above. If the consumer's money income is $20, the:
A. prices of C and D cannot be determined.
B. price of C is $2 and the price of D is $4.
C. consumer can obtain a combination of 5 units of both C and D.
D. price of C is $4 and the price of D is $2.
45. Refer to the budget line shown in the diagram above. Given the same money income, reductions in the
prices of both products C and D will:
A. shift the budget line outward on the horizontal axis, but leave it anchored at "10" on the vertical axis.
B. shift the budget line to the left.
C. shift the budget line to the right.
D. have no effect on the budget line.
46. Refer to the budget line shown in the diagram above. The absolute value of the slope of the budget line
is:
A. MUC/MUD.
B. one-half.
C. PD/PC.
D. PC/PD.

47. A change in the slope of a budget line is solely the result of a change in:
A. consumer preferences.
B. the price of one good relative to the other.
C. money income.
D. the slope of the indifference curve that is tangent to the budget line.

48. The movement of the budget line from BB to bb in the above figure suggests that income has:
A. increased and the price of X has decreased.
B. fallen and the price of Y has increased.
C. fallen and the price of Y has decreased.
D. decreased but there have been no price changes.

49. If the budget line shifts from BB to bb in the above diagram we can infer that the:
A. price of Y has increased and the price of X has decreased.
B. price of Y has decreased and the price of X has increased.
C. prices of both X and Y have increased.
D. prices of both X and Y have decreased.
50. The slope of a budget line reflects the:
A. elasticity of demand for the two products.
B. price ratio of the two products.
C. amount of the consumer's income.
D. utility ratio of the two products.
51. Assume initially that the price of X (measured on the horizontal axis) is $9 and the price of Y (measured
on the vertical axis) is $4. If the price of X now declines to $6, the budget line will:
A. be unaffected.
B. shift outward on the vertical axis.
C. shift inward on the horizontal axis.
D. shift outward on the horizontal axis.

52. The indifference curve in the above diagram yields Juan 100 units of utility. If Juan's money income were
to increase by 20 percent, the indifference curve would:
A. shift leftward.
B. shift rightward.
C. become steeper.
D. not be affected.
53. An indifference curve shows all:
A. possible equilibrium positions on an indifference map.
B. equilibrium combinations of two products that are obtainable with a given money income.
C. combinations of two products yielding the same total utility to a consumer.
D. possible combinations of two products that a consumer can purchase, given her income and the prices
of the products.
54. The marginal rate of substitution measures the:
A. magnitude of the substitution effect.
B. total utility received by a consumer when equilibrium is achieved.
C. extra utility that a consumer derives from successive units of a product.
D. consumer's willingness to substitute one product for another so that total utility will remain constant.
55. The marginal rate of substitution:
A.may increase or decrease on a given indifference curve, depending on whether the substitution or the
income effect is dominant.
B. increases as one moves southeast along an indifference curve.
C. is constant at all points on the budget line.
D. declines as one moves southeast along an indifference curve.
56. Which of the following is correct?
A. Budget lines are linear and upsloping; indifference curves are downsloping and concave to the origin.
B. Budget lines are linear and downsloping; indifference curves are downsloping and concave to the
origin.
C. Budget lines are linear and downsloping; indifference curves are downsloping and convex to the
origin.
D. Budget lines are downsloping and convex to the origin; indifference curves are linear and
downsloping.

57. Refer to the above diagram where xy is the relevant budget line and I1, I2, and I3 are indifference curves.
The equilibrium position for the consumer is at:
A. any point on xy.
B. point M.
C. point K.
D. point J.

58. In the above diagram:


A. the consumer is indifferent between points A and B, but neither point maximizes his utility.
B. the consumer is indifferent between points A and B and either point will maximize his utility.
C. any combination of X and Y entailing more of Y and less of X than shown at B would be preferred.
D. any combination of X and Y entailing more of X and less of Y than shown at A would be preferred.

59. Refer to the above diagram. The budget line shift which moves the consumer's equilibrium position from
point A to point B suggests:
A. an increase in the quantity of Y demanded.
B. a decrease in the quantity of Y demanded.
C. a leftward shift in the demand curve for Y.
D. a rightward shift in the demand curve for Y.

60. (Consider This) A topographical map shows successively higher equal-elevation lines, whereas an
indifference map shows successively higher levels of total:
A. utility.
B. revenue.
C. profit.
D. cost.

Ch. 06 Practice MC Key


1. B
2. D
3. A
4. A
5. C
6. B
7. B
8. B
9. B
10. B
11. A
12. D
13. B
14. B
15. C
16. B
17. C
18. B
19. C
20. B
21. B
22. C
23. D
24. B
25. C
26. D
27. C
28. A
29. A
30. A
31. C
32. D
33. B
34. C
35. B
36. D

37. C
38. D
39. A
40. C
41. B
42. B
43. A
44. D
45. C
46. D
47. B
48. B
49. A
50. B
51. D
52. D
53. C
54. D
55. D
56. C
57. C
58. A
59. A
60. A

Ch. 06 Practice MC Summary


Category
# of Questions
AACSB: Analytic
32
AACSB: Reflective Thinking
28
Bloom's: Level 1 Remember
15
Bloom's: Level 2 Understand
15
Bloom's: Level 3 Apply
16
Bloom's: Level 4 Analyze
9
Bloom's: Level 5 Evaluate
5
Difficulty: 1 Easy
15
Difficulty: 2 Medium
31
Difficulty: 3 Hard
14
Learning Objective: 0611
01 Define and explain the relationship between total utility; marginal utility; and the law of diminishing marginal utility.
Learning Objective: 06-02 Describe how rational consumers maximize utility by comparing the marginal utility-to18
price ratios of all the products they could possibly purchase.
Learning Objective: 06-03 Explain how a demand curve can be derived by observing the outcomes of price changes in the utility2
maximization model.
Learning Objective: 06-04 Discuss how the utility1
maximization model helps highlight the income and substitution effects of a price change.
Learning Objective: 06-05 Relate how behavioral economics and prospect theory shed light on many consumer behaviors.
9
Learning Objective: 0619
06 (Appendix) Relate how the indifference curve model of consumer behavior derives demand curves from budget lines; indifferen
ce curves; and utility maximization.
McConnell - Chapter 06
73
Status: New
10
Topic: Applications and extensions
5
Topic: Budget lines
10
Topic: Derivation of the demand curve
1
Topic: Efficiently functioning markets
1
Topic: Equilibrium at tangency; equivalency at equilibrium
2
Topic: Indifference curves
6
Topic: Law of diminishing marginal utility
11
Topic: Prospect theory
9
Topic: Theory of consumer behavior
11
Topic: Utility maximization and the demand curve
5
Type: Graph
11
Type: Table
6