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The Micro Economy Today, 15e (Schiller)

Chapter 5 Consumer Choice

1) Sociopsychiatric explanations of consumer behavior include the

A) Desire for ego and status.

B) Level of income.

C) Level of wealth.

D) Prices of other goods.

Answer: A

Explanation: Sociologists offer explanations for our consumption behavior-not just to ‘keep up

with the Joneses’ but to surpass them.

Difficulty: 2 Medium

Topic: Determinants of Demand

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

2) Economic explanations of consumer behavior take into consideration

A) Ego gratification.

B) Lack of self-confidence.

C) Social status.

D) Prices and income.

Answer: D

Explanation: Prices and income are just as relevant to consumption decisions as are more basic

desires and preferences.

Difficulty: 1 Easy

Topic: Determinants of Demand

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.3) If an individual demands a good, it means that he or she

A) Has a strong desire for the good.

B) Is willing and able to purchase the good at some price.

C) Must need the good.

D) Prefers the good to all other choices.

Answer: B

Explanation: Demand entails both the willingness and the ability to pay for goods and services.

Difficulty: 1 Easy

Topic: Determinants of Demand

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

4) Which of the following is not a determinant of demand?

A) Desire for the good.

B) Income of the consumer.

C) The cost of the factor inputs.

D) The price of other goods.

Answer: C

Explanation: An individual’s demand for a specific product is determined by tastes, income,

expectations (for income, prices, tastes), and the availability and price of other goods. The cost

of the factor inputs is a determinant of supply.

Difficulty: 1 Easy

Topic: Determinants of Demand

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.5) As compared to sociologists and psychologists, economists accept consumer tastes as given

and instead focus on

A) How price will affect actual consumer purchases.

B) How culture affects consumer preferences.

C) How advertising molds consumer desires.

D) What consumers desire.

Answer: A

Explanation: Sociologists and psychologists focus on how consumer desires are formed, but

economists focus on how income and price actually affect consumer purchases.

Difficulty: 2 Medium

Topic: Determinants of Demand

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

6) Graphically, as a consumer buys more of a good, the marginal utility line will

A) Increase as more goods are consumed.

B) Increase steadily and then decline.

C) Continuously decline if diminishing returns are present.

D) Follow the same shape as the total utility line.

Answer: C

Explanation: Total utility increases as a consumer enjoys more units of a product. Due to the law

of diminishing marginal utility, marginal utility declines.

Difficulty: 2 Medium

Topic: Determinants of Demand

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.7) When economists refer to the determinants of demand, they are referring to factors that when

changed,

A) Cause a movement down a demand curve.

B) Cause the demand curve to shift left or right.

C) Influence producer behavior.

D) Cause a movement up one demand curve.

Answer: B

Explanation: A movement up or down a demand curve is caused by a change in price. The

determinants of demand, such as a change in income, tastes, or the price and availability of other

goods, cause the demand curve to shift right or left.

Difficulty: 2 Medium

Topic: Determinants of Demand

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

8) Utility refers to the

A) Satisfaction obtained from a good or service.

B) Additional satisfaction obtained from one more unit of a good or service.

C) Willingness to buy specific quantities of a good or service at a particular price.

D) Decrease in satisfaction as more of a good or service is consumed.

Answer: A

Explanation: Economists use the term utility to refer to the expected pleasure, or satisfaction,

obtained from goods and services.

Difficulty: 1 Easy

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.9) Marginal utility is

A) The sum of the total utility of consuming a certain amount of a good.

B) The change in total utility obtained by consuming one additional unit of a good or service.

C) The diminishing nature of total utility.

D) Always negative or zero.

Answer: B

Explanation: The term marginal means ‘the additional.’ So marginal utility is the additional

satisfaction a buyer receives from consuming one more unit of a good.

Difficulty: 1 Easy

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

10) Total utility is

A) The additional utility from consuming one more unit of a good.

B) The sum of the marginal utilities from the consumption of good.

C) A function that always falls as a buyer enjoys more units of a good.

D) How much utility a seller gets from producing a good.

Answer: B

Explanation: Total utility can be calculated by summing up all of the marginal utilities that the

buyer has enjoyed from each subsequent unit of a good.

Difficulty: 1 Easy

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

11) If a product has a high marginal utility, then

A) Consumers will not purchase any more of the good.

B) The demand curve will be downward-sloping.

C) A consumer is willing to pay a high price for it.

D) Consumers will also have a low total utility.

Answer: C

Explanation: One’s desire for a good, or taste, will impact the utility or satisfaction received

from the consumption of that good.

Difficulty: 2 Medium

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.12) The marginal utility for a good is computed as

A) Total utility divided by quantity.

B) Quantity divided by total utility.

C) The change in quantity divided by total utility.

D) The change in total utility divided by the change in quantity.

Answer: D

Explanation: Marginal utility refers to the amount of satisfaction one gets from consuming the

last unit of a product.

Difficulty: 1 Easy

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

13) The additional pleasure or satisfaction from a good declines as more of it is consumed in a

given period. This is the definition of the

A) Law of demand.

B) Law of diminishing marginal utility.

C) Law of diminishing total utility.

D) Total revenue rule.

Answer: B

Explanation: As a rule, the amount of additional utility we obtain from a product declines as we

continue to consume it. For example, the third slice of pizza isn’t as desirable as the first.

Difficulty: 1 Easy

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.14) The law of diminishing marginal utility suggests that

A) People are willing to buy additional quantities of a good only if its price falls.

B) People will substitute lower-priced goods for more expensive goods, ceteris paribus.

C) Price and quantity demanded are directly related.

D) As marginal utility decreases, the willingness to pay increases.

Answer: A

Explanation: The more marginal utility a product delivers, the more a consumer will be willing

to pay for it. Marginal utility diminishes as increasing quantities of a product are consumed;

therefore consumers are willing to pay progressively less for additional quantities of a product.

Difficulty: 3 Hard

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

15) Josh is eating pizza at his favorite Italian restaurant. Below is his utility from this

consumption:

Table 19.1

Slice of Pizza Total Utility Marginal Utility

First slice 20 20

Second slice 39 19

Third slice – 15

Fourth slice 59 –

Refer to Table 19.1. What is Josh’s total utility from consuming the third slice of pizza?

A) 20 utils.

B) 54 utils.

C) 5 utils.

D) 0 utils.

Answer: B

Explanation: Total utility is the sum of all of the marginal utilities. If you add the 15 marginal

utility units that Josh received from consuming the third slice of pizza to the total utility units of

39 he enjoyed from the second slice, 39 + 15 = 54.

Difficulty: 3 Hard

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.16) Josh is eating pizza at his favorite Italian restaurant. Below is his utility from this

consumption:

Table 19.1

Slice of Pizza Total Utility Marginal Utility

First slice 20 20

Second slice 39 19

Third slice – 15

Fourth slice 59 –

Refer to Table 19.1. The marginal utility Josh enjoys from the fourth slice of pizza is

A) 20 utils.

B) 54 utils.

C) 5 utils.

D) 0 utils.

Answer: C

Explanation: Marginal utility is the change in total utility as a buyer consumers more units of a

good. The change in marginal utility from the third to the fourth slice of pizza is 59 – 54 = 5.

Difficulty: 3 Hard

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.17) Josh is eating pizza at his favorite Italian restaurant. Below is his utility from this

consumption:

Table 19.1

Slice of Pizza Total Utility Marginal Utility

First slice 20 20

Second slice 39 19

Third slice – 15

Fourth slice 59 –

Refer to Table 19.1. For Josh, diminishing marginal utility begins

A) After the first slice of pizza.

B) After the third slice of pizza.

C) After the second slice of pizza.

D) To increase after the first slice of pizza.

Answer: A

Explanation: Once marginal utility falls, diminishing marginal utility is occurring. That happens

for Josh after the first slice of pizza because marginal utility falls from 20 to 19.

Difficulty: 3 Hard

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

18) The law of diminishing marginal utility states that

A) The total utility of consuming the next unit of a good falls.

B) As a consumer enjoys successive units of a good, eventually marginal utility will fall.

C) Marginal utility always falls to zero after two or three units of a good consumed.

D) The total utility of a good rises at a fast rate as more units of a good are consumed.

Answer: B

Explanation: Marginal utility falls as buyers consume successive units of a good. This is referred

to as the law of diminishing marginal utility.

Difficulty: 1 Easy

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.19) As more satisfaction is achieved from consuming a good with diminishing marginal utility,

then total utility

A) Increases at a decreasing rate.

B) Decreases as long as marginal utility is negative.

C) Decreases as long as marginal utility is positive.

D) Is negative as long as marginal utility is decreasing.

Answer: A

Explanation: As long as marginal utility is positive, total utility must be increasing from

consuming a good; but total utility increases by smaller and smaller increments when

diminishing marginal utility exists.

Difficulty: 2 Medium

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

20) Jose goes to an all-you-can-eat buffet at a Chinese restaurant and consumes three plates of

food. He does not go back for a fourth plate of food because

A) The price of the fourth plate is too high.

B) He has reached the point of increasing marginal utility.

C) The marginal utility of the fourth plate would no longer be positive.

D) His total utility would increase with the fourth plate of food.

Answer: C

Explanation: As long as marginal utility is positive, total utility must be increasing; but when

marginal utility is negative or zero, consumption of one more good will decrease total utility or

not add to utility at all.

Difficulty: 2 Medium

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.21) If marginal utility is negative, then

A) Total utility will increase with additional consumption.

B) Total utility will decrease with additional consumption.

C) The good or service being consumed is an inferior good.

D) Total utility is at a minimum.

Answer: B

Explanation: As long as marginal utility is positive, total utility must be increasing; but when

marginal utility is negative, consumption of one more good will decrease total utility.

Difficulty: 2 Medium

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

22) Total utility is maximized when

A) Price is less than marginal utility.

B) Price is equal to marginal utility.

C) Marginal utility is zero.

D) Marginal utility is maximized.

Answer: C

Explanation: As long as marginal utility is positive, total utility must be increasing; but when

marginal utility is negative, consumption of one more good will decrease total utility. Therefore

total utility is maximized at the consumption level where marginal utility is neither positive nor

negative.

Difficulty: 2 Medium

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.23) Most goods can yield

A) Only positive marginal utility.

B) Both positive and negative marginal utility.

C) Only negative marginal utility.

D) Only zero marginal utility.

Answer: B

Explanation: As a rule, the amount of additional utility we obtain from a product declines as we

continue to consume it. Not every good ultimately reaches negative marginal utility. Yet the

more general principle of diminishing marginal utility is experienced daily, and most goods will

have negative marginal utility with high degrees of consumption.

Difficulty: 3 Hard

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

24) If a good had a zero price (i.e., the good was free), a rational person would consume

A) An infinite amount of the good.

B) The good until total utility was zero.

C) The good until the marginal utility was maximized.

D) The good until the marginal utility of the last unit was zero.

Answer: D

Explanation: As the marginal utility of a good diminishes, so does our willingness to pay. If a

good is free, we can keep consuming until additional units of the good provide zero additional

utility.

Difficulty: 3 Hard

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.25) Which of the following is not held constant when considering the demand for pizza?

A) Consumer incomes.

B) The price of pizza.

C) The price of spaghetti (a substitute).

D) Expectations of higher prices for pizzas.

Answer: B

Explanation: The demand curve reflects the quantity of a good consumers are willing and able to

buy at alternative prices in a given period, holding constant other factors such as tastes, income,

prices of related goods, and expectations.

Difficulty: 3 Hard

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

26) According to the law of demand, ceteris paribus,

A) The quantity demanded increases at lower prices.

B) A consumer will purchase more of a good at higher prices than at lower prices.

C) Price and quantity supplied are directly related.

D) The responsiveness of consumer demand to a change in the price of a good is measured by

the price elasticity of demand.

Answer: A

Explanation: With a given income level, people are willing and able to buy additional quantities

of a good only if its price falls, especially when diminishing marginal utility exists.

Difficulty: 1 Easy

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.27) The four determinants of demand that are held constant when we consider a movement along

a demand curve include all of the following except

A) Price.

B) Income.

C) Tastes.

D) Availability and price of substitute goods.

Answer: A

Explanation: A movement along a demand curve corresponds to a change in price only, holding

income, tastes, and the availability of substitutes constant.

Difficulty: 2 Medium

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

28) The market demand for a product is

A) The sum of all of the markets in the area.

B) The sum of all of the marginal utilities among consumers.

C) The total utility received for a good by all consumers in the market.

D) The sum of all of the individual demands for that product.

Answer: D

Explanation: The market demand is the sum of all of the individual demands for that product.

The market demand is similar to the individual demand, but differs in the quantities demanded.

Difficulty: 2 Medium

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.29) The law of diminishing marginal utility gives us a deeper understanding of the downward-

sloping demand curve because

A) Consumers are willing to pay a higher price for a greater quantity.

B) Consumer tastes change due to advertising.

C) When marginal utility is high, we are willing to pay a higher price.

D) Consumers do not respond to a change in price.

Answer: C

Explanation: Marginal utility is higher when the first few units of a good are consumed. This

corresponds to a point high up on the demand curve, where consumers are more willing to pay a

higher price.

Difficulty: 3 Hard

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

30) The ________ of the demand curve corresponds to the idea that the marginal utility for the

first few goods is ________.

A) top; lower

B) bottom; lower

C) top; higher

D) bottom; higher

Answer: C

Explanation: The first few goods consumed have a higher marginal utility. This corresponds to

the top of the demand curve, where consumers are willing to pay a higher price if a good has a

higher marginal utility.

Difficulty: 2 Medium

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.31) Consumer surplus measures

A) The difference between the maximum price a consumer is willing to pay and the price

actually paid.

B) The difference between the minimum price a consumer is willing to pay and the price actually

paid.

C) The difference between the amounts of a good a consumer is willing to pay, and how much of

the good is available for sale.

D) The sum of all of the marginal utilities for that good

Answer: A

Explanation: Consumer surplus is the difference between what you are willing to pay and the

actual equilibrium price.

Difficulty: 1 Easy

Topic: Consumer Surplus

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

32) Rosa is willing to pay $200 for the iPhone, but the actual price is $400. This means

A) Rosa will enjoy a consumer surplus of $200 if she buys the iPhone.

B) Rosa will not buy an iPhone.

C) Rosa will buy this product but will not receive any consumer surplus.

D) The iPhone is overpriced.

Answer: B

Explanation: Rosa will not purchase the iPhone because she is not willing to pay the $400 price.

If she were willing to pay $500 for the iPhone, she would buy it and enjoy $100 of consumer

surplus.

Difficulty: 3 Hard

Topic: Consumer Surplus

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.33) The benefit that consumers get when they buy goods at the equilibrium price but were

willing to pay more is called

A) Marginal utility.

B) The law of demand.

C) Consumer surplus.

D) Maximum price.

Answer: C

Explanation: Consumers who actually purchase goods at the market price were willing to pay

either more than the actual price or the actual price. This benefit is called the consumer surplus.

Difficulty: 2 Medium

Topic: Consumer Surplus

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

34) The total consumer surplus is shown on a graph as

A) The area under the demand curve and below the actual price.

B) The area under the demand curve and above the actual price.

C) The area above the demand curve and above the actual price.

D) The area above the demand curve and below the actual price.

Answer: B

Explanation: See Figure 19.4 in the textbook. The consumer surplus is the shaded triangle under

the demand curve and above the actual or equilibrium price.

Difficulty: 2 Medium

Topic: Consumer Surplus

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.35) Which of the following statements best captures the concept of consumer surplus?

A) “I saw a sale for flowers, so I bought four bundles.”

B) “I was willing to pay $30 for a dozen roses, but I bought them for $20.”

C) “I was willing to pay $30 for roses, but they are selling for $35, so I did not buy.”

D) “I paid $35 for roses last week and just saw them for sale now at $25.”

Answer: B

Explanation: Consumer surplus is the difference between the maximum a consumer was willing

to pay for a good and the actual price paid.

Difficulty: 2 Medium

Topic: Consumer Surplus

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

36) Evaluating a supply and a demand curve independently, if the equilibrium price rises,

A) The consumer surplus will fall.

B) The producer surplus will fall.

C) The consumer surplus will increase.

D) The producer surplus will increase.

Answer: A

Explanation: The consumer surplus is reduced when the price rises. However, the producer

surplus would increase.

Difficulty: 3 Hard

Topic: Consumer Surplus

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

37) The ________ surplus will rise if the price of the good ________.

A) consumer; rises

B) consumer; falls

C) producer; falls

D) total; rises

Answer: B

Explanation: The consumer surplus will increase when prices fall. This increases the surplus

between the equilibrium price and the maximum price consumers are willing to pay.

Difficulty: 2 Medium

Topic: Consumer Surplus

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.38) See Figure 19.1. Lu’s consumer surplus is equal to

A) $100.

B) $200.

C) $300.

D) $500.

Answer: D

Explanation: An individual’s consumer surplus is the difference between the maximum she or he

is willing to pay and the actual price. Here Lu’s maximum willingness to pay is $600 and the

actual price is $100. Her consumer surplus is equal to $600 – $100 = $500.

Difficulty: 2 Medium

Topic: Consumer Surplus

Learning Objective: 05-03 The meaning and use of price discrimination.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.39) Refer to Figure 19.1. The total consumer surplus in this market is equal to

A) $950.

B) $900.

C) $850.

D) $800.

Answer: B

Explanation: The total consumer surplus is the total of the differences between each individual’s

maximum willingness to pay and the actual price. The total for the three consumers is ($600 –

$100) + ($400 – $100) + ($200 – $100) = $900.

Difficulty: 2 Medium

Topic: Consumer Surplus

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.40) Refer to Figure 19.1. Ben’s consumer surplus is equal to

A) $50.

B) $100.

C) $200.

D) $0.

Answer: D

Explanation: The maximum that Ben is willing to pay for the cell phone is $50, which is below

the actual price of $100, so he does not receive any consumer surplus.

Difficulty: 3 Hard

Topic: Consumer Surplus

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.41) Price discrimination occurs when

A) Minorities pay a higher price for a product than everyone else.

B) Sellers charge a higher price than is reasonable.

C) Sellers charge two separate prices for the same product to separate consumers.

D) Sellers charge one price to all consumers but not wholesalers.

Answer: C

Explanation: Price discrimination occurs when individuals are charged different prices for the

same good.

Difficulty: 1 Easy

Topic: Price Discrimination

Learning Objective: 05-03 The meaning and use of price discrimination.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

42) Price discrimination is ________ in the United States and ________ practiced.

A) legal; rarely

B) illegal; widely

C) legal; often

D) illegal; rarely

Answer: C

Explanation: Price discrimination is not illegal in the United States and is often exercised by

sellers in the auto, airline, and college markets.

Difficulty: 1 Easy

Topic: Consumer Surplus

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.43) When sellers price discriminate,

A) They are attempting to charge a price that is the maximum price each individual is willing to

pay.

B) They are trying to pit one group of buyers against another.

C) They are trying to find a minimum price the individual is willing to pay.

D) They are taking an illegal action.

Answer: A

Explanation: Sellers test the waters by trying to find a price that is the maximum price each

individual will pay for the product.

Difficulty: 2 Medium

Topic: Price Discrimination

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

44) Which of these examples is an example of price discrimination?

A) Goods are marked down on sale.

B) Wholesale prices differ from retail prices.

C) Seniors pay one price at the movie theater and adults pay more.

D) Cereal manufacturers put discount coupons inside their cereal boxes.

Answer: C

Explanation: If seniors pay one price at the movie theater, and adults pay a different price, this is

an example of price discrimination. Price discrimination occurs when individuals pay different

prices for the same good.

Difficulty: 3 Hard

Topic: Price Discrimination

Learning Objective: 05-03 The meaning and use of price discrimination.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.45) Sellers can gain profits from price discrimination because

A) Charging different prices based on willingness to pay can increase revenues without

increasing costs.

B) Total expenses are less with price discrimination.

C) Total revenues are maximized when all buyers pay the same price.

D) Different prices charged to different customers can lower total revenue.

Answer: A

Explanation: If a seller can charge the maximum price each individual is willing to pay, it can

raise its total revenues. Revenue is price times quantity.

Difficulty: 2 Medium

Topic: Price Discrimination

Learning Objective: 05-03 The meaning and use of price discrimination.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

46) Car dealers can easily price discriminate because

A) Buyers do not know the car’s price.

B) Sellers negotiate a separate price agreement with each individual buyer.

C) Each seller knows the price but the buyer does not.

D) Buyers get together to collectively negotiate a price.

Answer: B

Explanation: Individual buyers are at a disadvantage at car dealers because they negotiate a

price between themselves and a seller.

Difficulty: 2 Medium

Topic: Price Discrimination

Learning Objective: 05-03 The meaning and use of price discrimination.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.47) Price discrimination works best when

A) Sellers cannot meet collectively.

B) Buyers do not have perfect information about the price.

C) Buyers have information about prices charged to different customers.

D) A product is purchased frequently by consumers.

Answer: B

Explanation: A seller is most successful in practicing price discrimination when buyers do not

have full information about the prices of the good or the different prices charged to different

individuals.

Difficulty: 2 Medium

Topic: Price Discrimination

Learning Objective: 05-03 The meaning and use of price discrimination.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

48) Airline companies engage in price discrimination by

A) Charging unrestricted fares.

B) Giving a temporary price cut.

C) Charging higher prices to customers who must travel on short notice.

D) Engaging in price-fixing.

Answer: C

Explanation: Price discrimination occurs when sellers charge different prices to different

individuals. Airlines engage in price discrimination when they charge business travelers who

have to fly tomorrow a higher price than vacation travelers who have more time to book their

travel.

Difficulty: 2 Medium

Topic: Price Discrimination

Learning Objective: 05-03 The meaning and use of price discrimination.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.49) Price discrimination

A) Is illegal.

B) Rarely occurs in the airline industry.

C) Is a way for sellers to elicit the maximum willingness to pay from buyers.

D) Is a method used by sellers to pit one buyer against the other.

Answer: C

Explanation: Sellers can take an advantage of price discrimination to get individual buyers to

pay their maximum amounts.

Difficulty: 1 Easy

Topic: Price Discrimination

Learning Objective: 05-03 The meaning and use of price discrimination.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

50) Which industry here is unlikely to exhibit price discrimination?

A) Airlines.

B) New cars.

C) Supermarkets.

D) Colleges.

Answer: C

Explanation: Products that are purchased regularly, and that consumers have more information

about, tend not to exhibit price discrimination. Airlines, new car sales, and colleges engage in

price discrimination.

Difficulty: 2 Medium

Topic: Price Discrimination

Learning Objective: 05-03 The meaning and use of price discrimination.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.51) Assume Amanda always maximizes her total utility given her budget constraint. Every

morning for breakfast she has two eggs and three sausages. If the marginal utility of the last egg

is 10 utils and the price of eggs is $1 each, what can we say about the marginal utility of the last

sausage if the price of each sausage is $2?

A) It must be equal to 20 utils.

B) It must be equal to 10 utils.

C) It must be equal to 5 utils.

D) It must be equal to 1 utils.

Answer: A

Explanation: Optimal consumption implies that the utility-maximizing combination of goods

has been found if you can’t increase your total utility by trading one good for another. Therefore,

all goods included in the optimal consumption mix yield the same marginal utility per dollar.

Amanda’s marginal utility per dollar from eggs is therefore 10, and the sausage utils should be 10

as well.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

52) Suppose Caesar allocates his entire budget to the purchase of soft drinks and chips. The

marginal utility of the last bottle of soft drink purchased is 12 utils, and each bottle costs $1.20.

The marginal utility of the last bag of chips purchased is 8 utils, and each bag costs $1. In order

to maximize his utility, Caesar should

A) Buy more soft drinks and fewer chips since he gets more marginal utility per dollar from soft

drinks.

B) Buy more chips and fewer soft drinks because of the lower price for chips.

C) Buy more soft drinks and fewer chips because the soft drink has fewer calories.

D) Not change anything because he has made the choice that gives him the most total utility.

Answer: A

Explanation: To maximize utility, the consumer should choose the good that delivers the most

marginal utility per dollar. The marginal utility per dollar from the soft drink is 10 while the

marginal utility per dollar from the bag of chips is 8; therefore Caesar should buy more soft

drinks and fewer chips.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.53) Maximum utility is achieved when

A) Total revenue is the greatest.

B) The price elasticity of demand is 1.0.

C) Marginal utility is zero.

D) Total utility equals marginal utility.

Answer: C

Explanation: Without budget constraints, a consumer can add to her or his utility by consuming

goods with positive marginal utility. Therefore utility will be maximized when marginal utility

reaches zero.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

54) A consumer maximizes total utility from a given amount of income when the

A) Marginal utility per dollar obtained from the last unit of each good is the same.

B) Marginal utility of the last unit of each good is the same.

C) Total utility obtained from each product is the same.

D) Amount spent for each product is the same.

Answer: A

Explanation: Optimal consumption implies that the utility-maximizing combination of goods

has been found if you can’t increase your total utility by trading one good for another. Therefore,

all goods included in the optimal consumption mix yield the same marginal utility per dollar.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.55) Table 19.2

Quantity Consumed Total Utility Marginal Utility

1 15 15

2 9

3 30

4 3

In Table 19.2, the marginal utility of the third unit is

A) 3.

B) 5.

C) 6.

D) 30.

Answer: C

Explanation: Marginal utility is the change in total utility obtained by consuming one additional

good or service. Total utility increases from 24 to 30 when the third unit is consumed, an

increase of 6 utils.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.56) Table 19.2

Quantity Consumed Total Utility Marginal Utility

1 15 15

2 9

3 30

4 3

In Table 19.2, the total utility when two units are consumed is

A) 6.

B) 9.

C) 15.

D) 24.

Answer: D

Explanation: The total utility when one unit is consumed is 15 and the second unit adds 9

additional utils, which causes total utility to increase to 24.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.57) Table 19.2

Quantity Consumed Total Utility Marginal Utility

1 15 15

2 9

3 30

4 3

In Table 19.2, the total utility when four units are consumed is

A) 33.

B) 30.

C) 6.

D) 3.

Answer: A

Explanation: The total utility when three units are consumed is 30, and the fourth unit adds 3

additional utils, which causes total utility to increase to 33.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.58) Table 19.2

Quantity Consumed Total Utility Marginal Utility

1 15 15

2 9

3 30

4 3

In Table 19.2, diminishing marginal utility occurs

A) With the second and fourth units only.

B) With the first and third units only.

C) Only with the second unit.

D) With all units after the first.

Answer: D

Explanation: Because the marginal utility decreases with each additional unit consumed,

diminishing marginal utility occurs when the second and subsequent units are consumed.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.59) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit.

Table 19.3

Michael’s Utility Schedule

Units of

Cola TU of ColaMU of ColaUnits of PretzelsTU of PretzelsMU of Pretzels

1 40 40 1 30 30

2 32 2 20

3 96 24 3 66 16

4 112 4 78

5 124 5 84

In Table 19.3, what is the total utility of two units of cola?

A) 32.

B) 40.

C) 72.

D) 96.

Answer: C

Explanation: The total utility when one unit is consumed is 40, and the second unit adds 32

additional utils, which causes total utility to increase to 72.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.60) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit.

Table 19.3

Michael’s Utility Schedule

Units of

Cola TU of ColaMU of ColaUnits of PretzelsTU of PretzelsMU of Pretzels

1 40 40 1 30 30

2 32 2 20

3 96 24 3 66 16

4 112 4 78

5 124 5 84

In Table 19.3, what is the marginal utility of the fifth unit of cola?

A) 6.

B) 12.

C) 16.

D) 24.

Answer: B

Explanation: Marginal utility is the change in total utility obtained by consuming one additional

good or service. Total utility increases from 112 to 124 when the fifth unit is consumed, an

increase of 12 utils.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.61) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit.

Table 19.3

Michael’s Utility Schedule

Units of

Cola TU of ColaMU of ColaUnits of PretzelsTU of PretzelsMU of Pretzels

1 40 40 1 30 30

2 32 2 20

3 96 24 3 66 16

4 112 4 78

5 124 5 84

In Table 19.3 the marginal utility per dollar of the second cola is

A) 10.

B) 6.

C) 4.

D) 12.

Answer: C

Explanation: The marginal utility per dollar is equal to the marginal utility divided by the price

of the product. The marginal utility of the second cola is 32, so the marginal utility per dollar is

32/8=4.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.62) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit.

Table 19.3

Michael’s Utility Schedule

Units of

Cola TU of ColaMU of ColaUnits of PretzelsTU of PretzelsMU of Pretzels

1 40 40 1 30 30

2 32 2 20

3 96 24 3 66 16

4 112 4 78

5 124 5 84

The marginal utility per dollar of the third pretzel is

A) 4.

B) 5.

C) 6.

D) 12.

Answer: A

Explanation: The marginal utility per dollar is equal to the marginal utility divided by the price

of the product. The marginal utility of the third pretzel is 16 and the price of a unit of pretzel is

$4. So 16/4 = 4.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.63) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit.

Table 19.3

Michael’s Utility Schedule

Units of

Cola TU of ColaMU of ColaUnits of PretzelsTU of PretzelsMU of Pretzels

1 40 40 1 30 30

2 32 2 20

3 96 24 3 66 16

4 112 4 78

5 124 5 84

Refer to Table 19.3. Suppose Michael has $28 to spend on cola and pretzels. What combination

should he purchase in order to maximize his utility?

A) Three colas and four pretzels.

B) One cola and five pretzels.

C) Three colas and one pretzel.

D) Two colas and three pretzels.

Answer: D

Explanation: To maximize utility, the consumer should choose the goods that deliver the most

marginal utility per dollar. The first pretzel has a MU per dollar of 7.5, the second pretzel and

first cola have a MU per dollar of 5, and the third pretzel and the second coke have a MU per

dollar of 4. Once Michael buys three pretzels and two colas, he will have spent his $28 and

maximized his utility.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.64) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit.

Table 19.3

Michael’s Utility Schedule

Units of

Cola TU of ColaMU of ColaUnits of PretzelsTU of PretzelsMU of Pretzels

1 40 40 1 30 30

2 32 2 20

3 96 24 3 66 16

4 112 4 78

5 124 5 84

Refer to Table 19.3. If Michael has $28 dollars to spend, why will three colas and four pretzels

not be optimal?

A) This combination has less total utility.

B) This combination is affordable but does not maximize utility.

C) This combination is not affordable.

D) This combination has less marginal utility per dollar.

Answer: C

Explanation: Three units of colas will cost 3 ×$8=$24, and four pretzels will cost 4 ×4 = $16.

The sum of these is $24 + $16 = $40, which is not affordable given the budget constraint.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.65) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit.

Table 19.3

Michael’s Utility Schedule

Units of

Cola TU of ColaMU of ColaUnits of PretzelsTU of PretzelsMU of Pretzels

1 40 40 1 30 30

2 32 2 20

3 96 24 3 66 16

4 112 4 78

5 124 5 84

Refer to Table 19.3. If Michael has $40 to spend on cola and pretzels, what is his maximum

utility possible?

A) 40.

B) 174.

C) 190.

D) 208.

Answer: B

Explanation: To maximize utility, the consumer should choose the goods that deliver the most

marginal utility per dollar at each step. With $40 Michael would consume three colas and four

pretzels, which would bring him a total of 174 utils.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.66) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit.

Table 19.3

Michael’s Utility Schedule

Units of

Cola TU of ColaMU of ColaUnits of PretzelsTU of PretzelsMU of Pretzels

1 40 40 1 30 30

2 32 2 20

3 96 24 3 66 16

4 112 4 78

5 124 5 84

Refer to Table 19.3. If Michael has $48 to spend on cola and pretzels, what combination should

he purchase in order to maximize his utility?

A) Four colas and four pretzels.

B) Five colas and two pretzels.

C) Three colas and five pretzels.

D) Five colas and five pretzels.

Answer: A

Explanation: To maximize utility, the consumer should choose the goods that deliver the most

marginal utility per dollar at each step. With $48 Michael would consume four colas and four

pretzels.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.67) Refer to Figure 19.2. The total utility of five apples is

A) 1 utils.

B) 17 utils.

C) 18 utils.

D) 20 utils.

Answer: C

Explanation: The total utility derived from consuming a product comes from the marginal

utilities of each successive unit. The total utility of five apples is 6 + 5 + 4 + 2 + 1 or 17 utils.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.68) Refer to Figure 19.2. The total utility of two apples is

A) 2 utils.

B) 5 utils.

C) 6 utils.

D) 11 utils.

Answer: D

Explanation: The total utility derived from consuming a product comes from the marginal

utilities of each successive unit. The total utility of two apples is 6 + 5 or 11 utils.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.69) Refer to Figure 19.2. Total utility is maximized at

A) 6 apples.

B) 7 apples.

C) 1 apple.

D) 3 apples.

Answer: A

Explanation: As long as marginal utility is positive, total utility must be increasing; but when

marginal utility is negative, consumption of one more good will decrease total utility. Therefore

total utility is maximized at the consumption level where marginal utility is neither positive nor

negative.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.70) Refer to Figure 19.2. With no budget constraint, a rational consumer will consume

A) 0 apples.

B) 1 apple.

C) 6 apples.

D) an infinite number of apples.

Answer: C

Explanation: As long as marginal utility is positive, total utility must be increasing; but when

marginal utility is negative, consumption of one more good will decrease total utility. Therefore

total utility is maximized at the consumption level where marginal utility is neither positive nor

negative.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.71) Refer to Figure 19.2. Diminishing marginal utility begins after

A) The fourth apple.

B) The fifth apple.

C) The third apple.

D) The first apple.

Answer: D

Explanation: The graph shows how marginal utility changes as more apples are consumed.

Diminishing marginal utility states that successive consumption of a product will cause the

marginal utility to fall. In the graph the marginal utility begins to decline after the first apple.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.72) When choosing among products, consumers look at

A) The marginal utility per dollar and their budget constraint.

B) The total utility that will be gained at the end of all consumption.

C) Only their budget.

D) The marginal utility of the good.

Answer: A

Explanation: Rational consumers will want to get the most from their purchases given their

limited income. That means they will purchase the items with the highest marginal utility per

dollar and that are affordable, given their budget.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

73) A successful advertising campaign will

A) Increase the demand for the advertised good.

B) Increase the absolute value of the price elasticity of demand for the advertised good.

C) Cause the quantity supplied of the advertised good to increase.

D) Reduce the perceived utility of the good.

Answer: A

Explanation: A successful advertising campaign is one that changes consumer tastes and creates

brand loyalty, thereby shifting the demand curve for a specific product to the right.

Difficulty: 2 Medium

Topic: Market Demand

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.74) If advertising is successful,

A) The demand becomes more elastic.

B) The demand curve shifts to the left.

C) The demand curve shifts to the right and becomes steeper.

D) The demand curve shifts to the left, and demand becomes more price-elastic.

Answer: C

Explanation: Advertising causes an increase in demand, so the demand curve shifts right. In

addition, the curve becomes steeper.

Difficulty: 2 Medium

Topic: Market Demand

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

75) The In the News article titled “Men vs. Women: How They Spend” differentiates the

spending habits of women and men: “Men spend almost twice as much as women do on

electronic equipment … young women spend twice as much money on clothing, personal care

items, and their pets.” Which determinant of demand is most likely involved?

A) Income.

B) Tastes.

C) Expectations.

D) Other goods (availability and prices).

Answer: B

Explanation: Even though young men have a little more after-tax income than do young women,

the spending habits of women and men reflect differences in tastes where men enjoy

entertainment items and women enjoy personal items.

Difficulty: 3 Hard

Topic: Determinants of Demand

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.76) In the article “Men vs. Women: How They Spend,”

A) Both sexes spend more than they earn.

B) Both sexes make the same annual income.

C) Both sexes spend the same amount of money on clothing purchases.

D) Women earn more than men.

Answer: A

Explanation: According to the article, both sexes spend more than they earn annually.

Difficulty: 1 Easy

Topic: Market Demand

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

77) Marginal utility is the

A) Change in total utility obtained by spending one extra dollar on a good or service.

B) Change in total utility obtained by consuming one extra unit of a good or service.

C) Change in total utility obtained by selling one extra unit of a good or service.

D) Utility received from consuming the optimal combination of goods and services.

Answer: B

Explanation: Marginal utility is the change in total utility obtained by consuming one additional

(marginal) unit of a good or service-for instance, how much additional enjoyment one would get

by eating a second candy bar.

Difficulty: 1 Easy

Topic: Choosing Among Products

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

78) An indifference curve shows the

A) Maximum utility that can be achieved for a given consumer budget.

B) Maximum utility that can be achieved for different amounts of a good.

C) Combinations of goods giving equal utility to a consumer.

D) Optimal consumption combinations between two goods.

Answer: C

Explanation: Different combinations of two goods may be equally satisfying. An indifference

curve is a graphical representation of the combinations of two goods that yield equal total utility.

Difficulty: 1 Easy

Topic: Choosing Among Products

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.79) An indifference map shows

A) A set of indifference curves.

B) One indifference curve.

C) A set of indifference curves and a set of budget constraints.

D) A set of budget constraints and one indifference curve.

Answer: A

Explanation: An indifference map depicts all the combinations of goods that would yield various

levels of satisfaction. A single indifference curve, in contrast, illustrates all combinations that

provide a single (equal) level of total utility.

Difficulty: 1 Easy

Topic: Choosing Among Products

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

80) All of the possible combinations of two goods that lie on one indifference curve

A) Give the consumer the highest possible utility.

B) Yield the same level of utility.

C) Are affordable.

D) Yield the same level of marginal utility.

Answer: B

Explanation: Each indifference curve represents a certain level of total utility. The consumer is

indifferent to the combinations that lie on the same utility curve. That means that all of the

combinations on the curve yield the same level of total utility.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.81) Which of the following is used to depict all combinations of goods that are affordable with a

given income and given prices?

A) An indifference curve.

B) An indifference map.

C) A demand curve.

D) A budget constraint.

Answer: D

Explanation: Consumption possibilities are limited by available income. The budget constraint

illustrates this limitation.

Difficulty: 1 Easy

Topic: Choosing Among Products

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

82) Any point on the budget constraint

A) Gives the consumer the highest level of utility.

B) Represent a combination of two goods that are affordable.

C) Represents combinations of two goods that yield the same utility.

D) Reflects the price of one good divided by the price of another good.

Answer: B

Explanation: Any point on the budget constraint line represents a combination of the two goods

that are affordable. Any point beyond the budget constraint line is unaffordable.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.83) If Josh’s income increases, then

A) His entire budget constraint will shift toward the origin.

B) His entire budget constraint will shift away from the origin.

C) His indifference curves will shift away from the origin.

D) One end of his budget constraint will move away from the origin.

Answer: B

Explanation: The end points of the budget constraint are equal to income divided by the price of

each good. Hence a larger income is represented by a budget constraint that lies farther from the

origin.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

84) The point where the budget constraint and an indifference curve are tangent

A) Represents maximum total revenue.

B) Indicates the optimal level of production.

C) Represents the optimal consumption point.

D) Indicates profit maximization.

Answer: C

Explanation: The objective is to reach the highest indifference curve that is compatible with our

budget constraint. We can afford only those consumption combinations that are on or inside the

budget line. Therefore, the optimal consumption combination-the one that maximizes the utility

of spendable income-lies at the point where the budget line is tangent to (just touches) an

indifference curve.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.85) The mix of consumer purchases that maximizes the utility attainable from available income

is called the

A) Total utility combination.

B) Marginal utility combination.

C) Optimal consumption.

D) Maximum consumption.

Answer: C

Explanation: The optimal consumption combination is the one that maximizes the utility of our

limited income.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

86) The slope of the budget constraint, when a consumer has reached optimal consumption of

two goods, is equal to the

A) Marginal rate of substitution.

B) Cross-price elasticity of the two goods.

C) Total utility for the two goods.

D) Marginal rate of indifference.

Answer: A

Explanation: The marginal rate of substitution is the rate at which a consumer is willing to

exchange one good for another-the slope of the indifference curve. Because the optimal

consumption combination is at the point where the budget line is tangent to (just touches) an

indifference curve, the slopes will be equal at that point.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.87) The slope of the indifference curve is equal to the

A) Ratio of the price of one good to the price of the other good.

B) Income of the consumer.

C) Marginal rate of substitution.

D) Slope of the demand curve.

Answer: C

Explanation: The slope of the indifference curve is called the marginal rate of substitution. It is

the absolute value of the slope of the indifference curve. It’s equal to the relative marginal

utilities of the two goods.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

88) Assume that Anna buys peanut butter and bread. If the price of peanut butter falls, then

A) One end of her budget constraint will move away from the origin.

B) Her entire budget constraint will shift toward the origin.

C) Her entire budget constraint will shift away from the origin.

D) Her indifference curves will shift away from the origin.

Answer: A

Explanation: Whenever the price of a good changes, the budget constraint shifts. If only one

price is changed, then only one end of the budget constraint is shifted.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.89) Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated

question. Assume the price of Y is $1 per unit. If the price per unit of good X is $3, the consumer

would maximize utility at point

A) A.

B) B.

C) C.

D) D.

Answer: A

Explanation: If the price of Y is $1, one can infer that the maximum spendable income is $30

based on the point where the budget constraint crosses the y-axis. If the price of X is $3, the

budget constraint closest to the origin is the limit. Because the optimal consumption combination

lies at the point where the budget line is tangent to (just touches) an indifference curve, point A

maximizes utility.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.90) Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated

question. Assume the price of Y is $1 per unit. If the price per unit of good X is $3, the consumer

would maximize utility by consuming

A) 30 units of Y.

B) 21 units of Y.

C) 10 units of Y.

D) 25 units of Y.

Answer: B

Explanation: If the price of Y is $1, one can infer that the maximum spendable income is $30

based on the point where the budget constraint crosses the y-axis. If the price of X is $3, the

budget constraint closest to the origin is the limit. Because the optimal consumption combination

lies at the point where the budget line is tangent to (just touches) an indifference curve, point A

maximizes utility, which is the combination of 3 X and 21 Y.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.91) Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated

question. Assume the price of Y is $1 per unit. If the price per unit of good X is $1, the optimal

consumption is found at point

A) B

B) D.

C) E.

D) C.

Answer: D

Explanation: If the price of Y is $1, one can infer that the maximum spendable income is $30

based on the point where the budget constraint crosses the y-axis. If the price of X is $1, the

budget constraint farthest from the origin is the limit. Because the optimal consumption

combination lies at the point where the budget line is tangent to (just touches) an indifference

curve, point C maximizes utility.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.92) Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated

question. Assume the price of Y is $1 per unit. If the price per unit of good X is $1, the consumer

would maximize utility by consuming

A) 25 units of Y.

B) 21 units of Y.

C) 15 units of Y.

D) 10 units of Y.

Answer: C

Explanation: If the price of Y is $1, one can infer that the maximum spendable income is $30

based on the point where the budget constraint crosses the y-axis. If the price of X is $1, the

budget constraint farthest from the origin is the limit. Because the optimal consumption

combination lies at the point where the budget line is tangent to (just touches) an indifference

curve, point C maximizes utility, which is the combination of 15 X and 15 Y.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.93) Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated

question. Assume the price of Y is $1 per unit. In Figure 19.3, given an income of $30 and a

price for good Y of $1, which of the following two points represent optimal consumption?

A) A when the price of X is $3 and C when the price of X is $1.

B) B when the price of X is $1 and D when the price of X is $3.

C) A when the price of X is $1 and D when the price of X is $3.

D) B when the price of X is $1 and C when the price of X is $3.

Answer: A

Explanation: If the price of X is $3, the budget constraint closest to the origin is the limit; but if

the price of X is $1, the budget constraint farthest from the origin is the limit. Because the

optimal combination lies at the point where the budget line is tangent to an indifference curve,

point A or point C maximizes utility depending on the price of X.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.94) Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated

question. Assume the price of Y is $1 per unit. In Figure 19.3, point E

A) Is optimal and affordable.

B) Gives the consumer a very high level of utility and is affordable.

C) Is a high level of utility but not affordable.

D) Represents a very low level of utility and is not desirable.

Answer: C

Explanation: Point E on the graph is a very high level of total utility but given the current budget

constraint is not affordable.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.95) Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated

question. Assume that the price of both goods X and Y are $1 each. Point D on the graph.

A) Is not affordable.

B) Is affordable but does not yield the highest utility possible.

C) Is affordable and is the optimal consumption bundle for this individual.

D) Lies on an indifference curve that is not obtainable.

Answer: B

Explanation: Point D is affordable because it lies on the budget constraint line. This point

intersects with indifference curve I2, which gives a lower level of utility than point C, which lies

on indifference curve I3 and gives the consumer a higher level of utility.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.96) Status and ego considerations in consumption are economic explanations of demand.

Answer: FALSE

Explanation: Status and ego considerations in consumption are sociopsychiatric explanations of

demand.

Difficulty: 2 Medium

Topic: Determinants of Demand

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

97) Economists focus on the effect of changes in income and prices in influencing actual

consumer purchases.

Answer: TRUE

Explanation: Sociologists may focus on what creates desires, but economists focus on how

changes in income and prices affect consumer purchases.

Difficulty: 2 Medium

Topic: Determinants of Demand

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

98) Psychology and sociology focus on what creates desires for goods, but economics focuses on

what consumers actually purchase.

Answer: TRUE

Explanation: Economics focuses on what consumers actually purchase and how changes in

income and prices affect those purchases. Psychology and sociology focus on factors such as ego

or social status that may create desires.

Difficulty: 1 Easy

Topic: Determinants of Demand

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.99) Marginal utility represents the additional satisfaction obtained from one more unit of a good

or service.

Answer: TRUE

Explanation: Marginal utility does represent the additional satisfaction from one more unit of a

good, and it is found by dividing the change in total utility by the change in quantity.

Difficulty: 1 Easy

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

100) The law of diminishing marginal utility does not apply to goods that a person really enjoys.

Answer: FALSE

Explanation: Even people who love popcorn, for instance, don’t eat endless quantities of it

because at some point the satisfaction derived from one more box will decrease.

Difficulty: 2 Medium

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

101) If marginal utility is rising, then total utility must be falling.

Answer: FALSE

Explanation: As long as marginal utility is positive, total utility must be increasing from

consuming a good.

Difficulty: 2 Medium

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.102) If there is no budget constraint, utility maximization is achieved when marginal utility is

zero.

Answer: TRUE

Explanation: As long as marginal utility is positive, total utility must be increasing; but when

marginal utility is negative, consumption of one more good will decrease total utility. Therefore

total utility is maximized at the consumption level where marginal utility is neither positive nor

negative.

Difficulty: 2 Medium

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

103) Utility maximization is always achieved where total revenue is maximized.

Answer: FALSE

Explanation: Utility maximization is determined by the consumption of a good, whereas total

revenue is determined by the price and quantity sold of a good.

Difficulty: 2 Medium

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

104) Market demand is identical to individual demand.

Answer: FALSE

Explanation: Market demand differs from one individual’s demand curve in that the quantities

are much larger, and market demand is the sum of all the individual demands for the product in

the market.

Difficulty: 2 Medium

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.105) The law of diminishing marginal utility gives us insight into the downward-sloping demand

curve because consumers are willing to pay a higher price for goods with high marginal utility.

Answer: TRUE

Explanation: Marginal utility is high when goods are scarce. That corresponds to the top of the

demand curve where a high price has a low quantity demanded.

Difficulty: 2 Medium

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

106) An individual’s consumer surplus is the difference between the maximum price that she or

he is willing to pay and the actual price.

Answer: TRUE

Explanation: Consumers benefit when they are willing to pay more than the actual price. That

difference is called the consumer surplus.

Difficulty: 2 Medium

Topic: Consumer Surplus

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

107) Consumers who actually purchase a good either were willing to pay that price or more.

Answer: TRUE

Explanation: All consumers who purchase the good at the equilibrium price either were willing

to pay more or were willing to pay the actual price.

Difficulty: 2 Medium

Topic: Consumer Surplus

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.108) Consumer surplus does not exist because some consumers cannot afford to purchase the

product at all.

Answer: FALSE

Explanation: Consumer surplus is defined as the benefit some buyers get when they are actually

willing to pay more for a good than the actual price. Remember that demand is the willingness

and ability of consumers to purchase a good; there are individuals who cannot afford a good at

the market price, but this does not negate the fact that some buyers still enjoy a surplus.

Difficulty: 2 Medium

Topic: Consumer Surplus

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

109) Consumer surplus is represented graphically under the demand curve and below the

equilibrium price.

Answer: FALSE

Explanation: The area under the demand curve and above the equilibrium price represents total

consumer surplus.

Difficulty: 3 Hard

Topic: Consumer Surplus

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

110) All consumers in the market enjoy a consumer surplus.

Answer: FALSE

Explanation: Consumers who are willing to pay the equilibrium price or more enjoy a consumer

surplus. Buyers who are willing to pay less than the equilibrium price do not enjoy a consumer

surplus.

Difficulty: 2 Medium

Topic: Consumer Surplus

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.111) Colleges do not engage in price discrimination because it is illegal.

Answer: FALSE

Explanation: Colleges do engage in price discrimination by charging different individuals

different amounts of tuition. Price discrimination occurs when sellers charge different prices to

individuals.

Difficulty: 2 Medium

Topic: Price Discrimination

Learning Objective: 05-03 The meaning and use of price discrimination.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

112) Price discrimination occurs when stores mark down products for sale.

Answer: FALSE

Explanation: Price discrimination occurs when sellers charge different prices to different

individuals. When sales occur, all buyers can enjoy the lower price.

Difficulty: 2 Medium

Topic: Price Discrimination

Learning Objective: 05-03 The meaning and use of price discrimination.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

113) Sellers can increase total revenues by charging different individuals the maximum amount

they are willing to pay.

Answer: TRUE

Explanation: If a price is highly negotiable, as occurs at car dealerships, sellers can increase total

revenues by getting individuals to pay the highest price they are willing to pay.

Difficulty: 2 Medium

Topic: Price Discrimination

Learning Objective: 05-03 The meaning and use of price discrimination.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.114) Price discrimination typically occurs with products that consumers buy regularly.

Answer: FALSE

Explanation: Price discrimination occurs when buyers do not have full information. That will

happen with products that consumers do not buy regularly. Sellers can easily discriminate with

products like cars, vacations, and colleges.

Difficulty: 2 Medium

Topic: Price Discrimination

Learning Objective: 05-03 The meaning and use of price discrimination.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

115) Price discrimination is illegal in the United States.

Answer: FALSE

Explanation: Price discrimination as discussed in the textbook is not illegal. Predatory pricing,

in which a seller lowers a price below unit cost with the intention of establishing a monopoly, is

illegal under the Sherman Antitrust Act.

Difficulty: 2 Medium

Topic: Price Discrimination

Learning Objective: 05-03 The meaning and use of price discrimination.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

116) Price discrimination only occurs when consumers have only partial information about a

product’s price and availability.

Answer: FALSE

Explanation: It is easier for a seller to engage in price discrimination when consumers do not

have full information about the product’s price or availability.

Difficulty: 2 Medium

Topic: Price Discrimination

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.117) According to consumer choice theory, rational behavior requires that consumers compare

the marginal utility of each purchase with its price.

Answer: TRUE

Explanation: Rational behavior requires one to compare the anticipated utility of each

expenditure with its price. The smart thing to do, then, is to choose those products that promise

to provide the most pleasure for the amount of income available.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

118) Optimal consumption is the mix of consumer goods sold that maximizes utility for

producers.

Answer: FALSE

Explanation: Optimal consumption is the mix of consumer goods purchased that maximizes

utility for consumers.

Difficulty: 1 Easy

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

119) If the marginal utility per dollar spent for candy bars is higher than the marginal utility per

dollar spent for popcorn, you should buy more popcorn and fewer candy bars in order to

maximize utility.

Answer: FALSE

Explanation: To maximize utility, the consumer should choose the goods that deliver the most

marginal utility per dollar.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.120) Advertisers currently spend about $100 million per year to change the demand for products.

Answer: FALSE

Explanation: Advertisers now spend over $200 billion per year to change our tastes.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-03 The meaning and use of price discrimination.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

121) A successful advertising campaign induces consumers to buy more of a product at any

given price than before.

Answer: TRUE

Explanation: A successful advertising campaign is one that changes consumer tastes and creates

brand loyalty, thereby shifting the demand curve for a specific product to the right.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

122) Consumer theory predicts that a consumer will purchase the product with the highest

marginal utility per dollar.

Answer: TRUE

Explanation: The rational consumer will take into account the additional utility a good will

provide, along with its price, because the consumer has limited income. This means that the

rational consumer will choose the goods with the highest marginal utility per dollar.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.123) When a rational consumer has stopped buying, she or he will have allocated a limited

budget so that the marginal utility per good will be the same.

Answer: FALSE

Explanation: A rational consumer will allocate spending so that the marginal utility per dollar is

the same.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

124) An indifference curve represents combinations of two goods that provide an individual the

same total utility.

Answer: TRUE

Explanation: Different combinations of two goods may be equally satisfying. An indifference

curve is a graphical representation of the combinations of two goods that yield equal total utility.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

125) The farther an indifference curve is from the origin, the more total utility it yields.

Answer: TRUE

Explanation: An indifference map depicts all the combinations of goods that would yield various

levels of satisfaction. As the indifference curves move farther from the origin, the level of total

utility increases.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.126) A budget constraint line represents combinations of two goods that provide an individual

the same total utility.

Answer: FALSE

Explanation: An indifference curve is a graphical representation of the combinations of two

goods that yield equal total utility. A budget constraint depicts the limited consumption

possibilities.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

127) A consumer can purchase a product that is outside her or his budget constraint if it is on a

higher indifference curve.

Answer: FALSE

Explanation: A consumer cannot purchase any good that is outside the budget constraint; it is

unaffordable. The rational consumer will purchase a combination of goods that lies on the budget

constraint but meets the highest indifference curve, or highest utility.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

128) An indifference curve shows the combinations of two goods that yield the same level of

utility.

Answer: TRUE

Explanation: Each indifference curve shows the combination of two goods that yield the same

utility. The consumer is ‘indifferent’ to these various combinations that lie on the same utility

curve.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.129) The rational consumer chooses a combination of two goods that is on the budget constraint

and is tangent to the highest indifference curve possible.

Answer: TRUE

Explanation: The goal of the consumer is to purchase a combination of two goods that is

affordable (lies on the budget constraint line) and that yields the highest utility (is tangent to the

highest indifference curve).

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

130) Two indifference curves can cross one another.

Answer: FALSE

Explanation: Two indifference curves cannot cross. Each indifference curve shows the

combinations of two goods that yield the same level of utility. An indifference map for each

individual shows successive indifference curves rising from lower to higher levels of utility. If

two curves cross, this would violate the assumption of an equal level of utility presented by the

combinations on one indifference curve.

Difficulty: 2 Medium

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

131) Use the law of diminishing utility to explain why a demand curve is typically downward-

sloping.

Answer: The greater the quantity of a good that is consumed, the less marginal utility the

consumer receives from that good. This implies that the price a consumer is willing to pay for

additional units declines. This establishes the typical inverse relationship between price and

quantity.

Difficulty: 3 Hard

Topic: The Demand Curve

Learning Objective: 05-01 Why demand curves are downward sloping.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.132) Explain how a successful advertising campaign will affect the demand curve for the product

being advertised.

Answer: A successful advertising campaign will shift the demand curve for the product being

advertised to the right, inducing consumers to buy more at every price. Advertising may also

increase brand loyalty, making the demand curve steeper.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

133) Explain how a rational consumer decides which goods to buy.

Answer: Rational consumers are aware of their budget constraints and are aware of the available

products and their prices. In addition, they know how much utility they get from buying each

good. The consumers will want to find the combinations of goods that give them the most

satisfaction for the money. Buying each product that yields the highest marginal utility per dollar

first, and continuing until they exhaust their budgets, will result in the highest total utility. The

marginal utility per dollar across all goods in the consumption bundle will be the optimal

combination of goods.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

134) Using the concept of the budget constraint and indifference curves, explain how a consumer

maximizes total utility.

Answer: Rational consumers maximize total utility given their budget constraints. Each

consumer has an indifference map. Each indifference curve shows various combinations of two

goods that have the same level of utility. The consumer will maximize total utility of two goods

where the highest indifference curve is tangent to the budget constraint line.

Difficulty: 3 Hard

Topic: Choosing Among Products

Learning Objective: 05-04 How consumers maximize utility.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.135) Under what conditions can sellers engage in price discrimination?

Answer: Price discrimination occurs when sellers can charge different individuals or groups

different prices for the same product. They can more easily do this if consumers do not have full

information about a product and they negotiate a price with each individual separately. This

occurs in automobile dealerships, in airline pricing, and with college tuition. It occurs with

products that are not purchased regularly.

Difficulty: 3 Hard

Topic: Price Discrimination

Learning Objective: 05-03 The meaning and use of price discrimination.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

136) Explain the benefits consumers enjoy from competitive markets.

Answer: Many consumers in the market are willing to pay a maximum price that is greater than

the actual price. The sum of all of those surpluses is the total consumer surplus enjoyed in the

market. In addition, consumers benefit from the variety of goods provided by many sellers. This

competition helps to determine the equilibrium price in the marketplace.

Difficulty: 2 Medium

Topic: Consumer Surplus

Learning Objective: 05-02 The nature and source of consumer surplus.

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

No reproduction or distribution without the prior written onsent of McGraw-Hill Education.

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