MULTIPLE CHOICE: Write your answer on the space provided before each number. Write CAPITAL LETTER.

Erasure
or alteration of an answer is considered wrong.

___ 1. Ethel cannot consume at a point to the right of her d. demand for; increases; quantity demanded of;
budget line, because this point is decreases
_______________.
a. unaffordable ___ 8. Lucy buys only magazines and CDs. Both are
b. inefficient normal goods. Lucy's income increases, but the
c. expensive prices of magazines and CDs do not change.
d. not preferred Marginal utility theory predicts that Lucy will
__________________.
___ 2. Andy prefers playing baseball to playing hockey. a. buy more magazines and more CDs
If he spends his first hour of recreation this week b. increase her marginal utility from both
playing baseball his _______ will be _______ if magazines and CDs
he spends that hour playing hockey. c. substitute magazines for CDs
a. total utility; the same as d. substitute CDs for magazines
b. marginal utility; the same as
c. marginal utility; less than
d. total utility; greater than ___ 9. Sally and Eric are the only people in an economy.
Sally buys 3 bottles of water when the price is $2
___ 3. The principle of diminishing marginal utility a bottle and 4 bottles of water when the price is $1
means that as you spend more and more hours a bottle. Eric buys 10 bottles of water when he
watching television, your total utility from price is $0.50 a bottle and 5 bottles of water when
television will _______ and your marginal utility the price is $1 a bottle. In the market for water,
from each additional hour of television will the quantity demanded ____________________.
_______. a. increases as the price falls
a. decrease; decrease b. increases as the price rises
b. increase; increase c. at $2 a bottle is 8 bottles
c. increase; decrease d. at $1 a bottle is 4 bottles
d. decrease; increase
___ 10. Rembrandt paintings are expensive and not as
___ 4. Ricky is in a consumer equilibrium. Given the vital for life as milk, which is cheap. Marginal
prices of goods, Ricky has allocated all his utility theory explains this paradox of value: The
income such that his marginal utility per dollar total utility from a Rembrandt painting is
spent is ___________ for _______ goods. ________ than the total utility from milk, and the
a. equal; normal marginal utility from a Rembrandt painting is
b. maximized; all _________ than the marginal utility from milk.
c. equal; all a. smaller; larger
d. maximized; essential b. smaller; smaller
c. larger; larger
___ 5. Fred spends all of his income on two goods: d. larger; smaller
videos and CDs. If Fred's marginal utility per
dollar spent on videos is greater than his marginal ___ 11. The satisfaction that a person receives from
utility per dollar spent on CDs, Fred can consuming a good or service is called
______________ his total utility by buying ______________.
______________. a. total utility
a. increase; more videos and fewer CDs b. marginal utility
b. maximize; fewer videos and fewer CDs c. utility
c. increase; more CDs and fewer videos d. marginal benefit
d. maximize; more videos and more CDs
___ 12. Marginal utility theory assumes that when Sally
___ 6. Emma consumes only orange juice and bread and consumes more of a good that she likes, her
she buys the quantities that maximizes her total _________________.
utility. Now, the price of orange juice falls. Emma a. income increases
will buy _______ orange juice and her marginal b. total utility is maximized
utility from orange juice __________. c. marginal utility increases
a. more; decreases d. total utility increases
b. more; does not change
c. the same quantity; does not change ___ 13. Mark's marginal utility from reading books is the
d. less; increases _______ when he reads ____________ .
___ 7. Marginal utility theory predicts that as the price of a. total utility he gets; one more book
coffee rises, the __________ a substitute for b. change in his total utility; one additional book
coffee ______________ and the ______________ c. consumer surplus he gets; books
coffee __________. d. change in his total utility; more books
a. demand for; decreases; demand for; increases
b. supply of; decreases; supply of; increases ___ 14. As you consume more and more of any good,
c. supply of; increases; demand for; decreases you experience ___________________ utility.

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 a. diminishing marginal decrease
b. negative marginal c. fewer; fewer; increase; increase
c. diminishing total d. more; fewer; decrease; decrease
d. increasing marginal
___ 18. Steve is in a consumer equilibrium. Then, the
___ 15. With a given income and prices of goods, price of a car wash decreases from $6 to $4. Steve
Marcus will be in a consumer equilibrium if increases the number of car washes he buys each
______________________. week ____________.
a. he maximizes his total utility a. and increases his marginal utility
b. his marginal utility from all goods is the same b. so that the marginal utility per dollar spent on
c. he purchases the same amounts of all goods car washes is the same as it was when the price
d. he saves some of his income for the future was $6
c. and increases his total utility
___ 16. Roberta spends all of her income on two items, d. only if his income increases
staplers and paper clips. If the price of a stapler
increases, you predict that there will be a _______ ___ 19. Which of the following statements is true?
Roberta's demand curve for staplers and a a. Utility is gained by wanting a good.
_______ Roberta's demand curve for paper clips. b. Utility theory predicts that marginal utility
a. leftward shift of; movement along diminishes as more of any good is consumed.
b. movement along; leftward shift of c. Utility units are observable.
c. rightward shift of; leftward shift of d. Total utility is greater than or equal to marginal
d. movement along; rightward shift of utility.

___ 17. Jeremiah spends all of his income on oranges ___ 20. Kirk consumes normal goods. If Kirk's income
and cookies, which are normal goods. If increases and the prices of all goods remain
Jeremiah's income decreases, he will buy unchanged, his marginal utility from each good
__________ oranges and __________ cookies. will _______ and his total utility will _______.
His marginal utility from oranges will a. increase; increase
____________ and his marginal utility from b. increase; decrease
cookies will _____________. c. decrease; increase
a. fewer; fewer; decrease; increase d. decrease; decrease
b. the same quantity of; fewer; remain constant;

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