Review

1.

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.

2.

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi: A. is 26 units of utility. B. is 6 units of utility. C. is 8 units of utility. D. 38 utils.

3.

Marginal utility is the: A. sensitivity of consumer purchases of a good to changes in the price of that good. B. change in total utility realized by consuming one more unit of a good. C. change in total utility realized by consuming another unit of a good divided by the change in the price of that good. D. total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.

4.

To maximize utility a consumer should allocate money income so that the: A. elasticity of demand on all products purchased is the same. B. marginal utility obtained from the last dollar spent on each product is the same. C. total utility derived from each product consumed is the same. D. marginal utility of the last unit of each product consumed is the same.

5.	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.

6.

Mrs. Schultz is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that: A. the two commodities are substitute goods. B. Mrs. Schultz should spend more on pretzels and less on soda. C. Mrs. Schultz should spend more on soda and less on pretzels. D. Mrs. Schultz is buying soda and pretzels in the utility-maximizing amounts.

7.

Answer the next question(s) on the basis of the following two schedules which show the amounts of additional satisfaction (marginal utility) which a consumer would get from successive quantities of products J and K. Units J MUj Units K MUk 1 56 1 32 2 48 2 28 3 32 3 24 4 24 4 20 5 20 5 12 6 16 6 10 7 12 7 8 R-1 REF21032 Refer to the above data. If the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing: A. 2 units of J and 7 units of K. B. 5 units of J and 5 units of K. C. 4 units of J and 5 units of K. D. 6 units of J and 3 units of K.

8.

Answer the next question(s) on the basis of the following two schedules which show the amounts of additional satisfaction (marginal utility) which a consumer would get from successive quantities of products J and K. Units J MUj Units K MUk 1 56 1 32 2 48 2 28 3 32 3 24 4 24 4 20 5 20 5 12 6 16 6 10 7 12 7 8 R-1 REF21032 Refer to the above data. What level of total utility is realized from the equilibrium combination of J and K determined in the previous question? A. 156 utils B. 124 utils C. 276 utils D. 36 utils

9.

Answer the next question(s) on the basis of the following two schedules which show the amounts of additional satisfaction (marginal utility) which a consumer would get from successive quantities of products J and K. Units J MUj Units K MUk 1 56 1 32 2 48 2 28 3 32 3 24 4 24 4 20 5 20 5 12 6 16 6 10 7 12 7 8 R-1 REF21032 Refer to the above data. If the consumer's money income were cut to $28, she would maximize her satisfaction by purchasing: A. 3 units of J and 3 units of K. B. 1 unit of J and 3 units of K. C. 4 units of J and 1 unit of K. D. 2 units of J and 3 units of K.

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