Practice_Ch7_ - Chapter 7 Practice Test Consumer Behavior...

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Chapter 7 Practice Test Consumer Behavior 1. The utility of a particular good: a. is the same for everyone, even if its usefulness differs from person to person b. measures the products usefulness c. increases at a constant rate d. increases at a decreasing rate Answer: d Feedback: Utility is the subjective satisfaction one derives from a good. The law of diminishing marginal utility suggests that utility increases at a decreasing rate. 2. Answer the next question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K. Units of J MU j Units of K MU k 1 20 1 48 2 18 2 40 3 16 3 32 4 14 4 24 5 12 5 16 6 10 6 8 7 8 7 4 Refer to the table. If this consumer has an income of $26 and the prices of J and K are $2 and $4 respectively, the consumer will maximize her utility by purchasing: a. 7 units of J and 3 units of K b. 5 units of J and 4 units of K c. 3 units of J and 5 units of K d. 1 units of J and 6 units of K Answer: b Feedback: Divide each of the entries in the MU j column by $2 and each of the entries in the MU k column by $4 to obtain the marginal utilities in terms of per dollar spent on each good. The first dollar will be spent on K because it provides 12 units of utility, whereas J would provide only 10 units of utility. Continue in this manner, purchasing the next unit of the good with the highest marginal utility per dollar until income is exhausted. At this point, the marginal utility per dollar of each good will be the same—6 units of utility per dollar in this example. 3. Jim enjoys both peanut butter sandwiches and bologna sandwiches in his lunch. A drop in the price of peanut butter increases the marginal utility per dollar of peanut butter and causes Jim to buy less bologna to restore maximum utility. This best illustrates the: a. law of diminishing marginal utility b. income effect c. substitution effect d. law of increasing total utility Answer: c Feedback: The substitution effect of a price decrease refers to the impact on quantity demanded because this good is now relatively less expensive compared to its substitutes.
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4. Answer the next question on the basis of the following table which shows Ann’s total utility derived from drinking soft drinks. Soft drinks per day Total utility (utils) 1 20 2 35 3 45 4 50 Refer to the table. Ann’s marginal utility of the third soft drink per day is: a. 45 utils b. 5 utils c. 100 utils d. 10 utils Answer: d Feedback: Marginal utility is the change in total utility. Ann’s marginal utility of the third soft drink is 45 – 35 = 10 utils. 5. If one sums the marginal utilities of each unit consumed, one obtains: a. the demand curve b. maximum marginal utility c. total income d. total utility Answer: d Feedback: Since marginal utility is the amount added to total utility from each successive unit consumed, adding these together would find total utility. 6. Answer the next question on the basis of the following table which shows a consumer’s total utility for
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Practice_Ch7_ - Chapter 7 Practice Test Consumer Behavior...

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