Microeconomics quiz 2

1. The theory of consumer choice assumes that consumers attempt to maximize

a. the difference between total utility and marginal utility.

b. average utility.

c. total utility.

d. marginal utility.

2. Utility refers to the

a. usefulness of a good or service.

b. satisfaction that results from the consumption of a good.

c. relative scarcity of a good.

d. rate of decline in the demand curve.

3. The law of diminishing marginal utility says that

a. the marginal utility gained by consuming equal successive units of a good will decline as the amount consumed increases.

b. the more of a particular good one consumes, the greater us the utility received from the consumption of that good.

c. the marginal utility gained by consuming equal successive units of a good will increase as the amount consumed increases.

d. the more of a particular product one sells, the less utility one receives from selling.

e. none of the above

4. Which of the following is true?

a. It is possible for total utility to rise as marginal utility falls.

b. Marginal utility is the same as total utility.

c. It is possible for marginal utility to rise as total utility falls.

d. a and c

e. a, b, and c

5. In order for an individual to maximize total utility while consuming only two goods, A and B, that individual must fulfill the condition

a. TUA = TUB.

b. TUA/PA = TUB/PB.

c. MUA = MUB.

d. MUA/PA = MUB/PB.

e. MUB/PB = MUB/PA.

6. We would expect the total utility of water to be high but its marginal utility to be low. Why?

a. Because water is a fluid and we don’t need fluids to live as much as we need food.

b. Because we need water to live and there is so much of it.

c. Because we need water to live and there is very little of it.

d. Because water’s price is low.

e. none of the above

7. To demonstrate the law of demand, suppose the price of good A rises. To restore consumer equilibrium, ________ of good A is purchased in order to ________ the marginal utility of the last unit of it purchased.

a. more, lower

b. more, raise

c. less, lower

d. less, raise

8. The “income effect” indicates that

a. when the price of a good falls, a consumer will be able to buy more of it with a given money income.

b. consumers should substitute among various goods until the marginal utility of the last unit of each good purchased is the same.

c. when the price of a good falls, the lower price will induce the consumer to buy more of that good now that it is relatively cheaper.

d. b and c

e. none of the above

9. Price elasticity of demand is a measure of the responsiveness of quantity demanded to changes in

a. interest rates.

b. price.

c. supply.

d. demand.

10. If the percentage change in quantity demanded is greater than the percentage change in price, demand is

a. inelastic.

b. unit elastic.

c. elastic.

d. perfectly elastic.

e. perfectly inelastic.

11. Which of the following is a determinant of price elasticity of demand?

a. the number of substitutes

b. the percentage of one’s budget spent on the good

c. the amount of time that has passed since a price change

d. b and c

e. all of the above

12. Upon deregulation, firms in a formerly regulated industry feared

that cut throat competition would reduce prices and their revenue.

Competition did force prices down but to the firms' surprise their

revenues increased. The demand curve for the product these firms

produced must be

a. perfectly elastic.

b. elastic.

c. inelastic.

d. perfectly inelastic.