Chapter 5-Demand

 Practice Questions

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question.

1) Joe is shopping for a new computer. A computer can be delivered to Joe's home for 1)
$1,200. Alternatively, Joe can pick up the same computer at the warehouse for
$1,000. How should Joe buy the computer?
A) Joe should drive to the warehouse if his cost of driving to the warehouse is greater
than $200.
B) Joe should drive to the warehouse if his cost of driving to the warehouse is less than
$200.
C) Joe should drive to the warehouse because the $200 he would save by driving to the
warehouse is more than 10% of the purchase price.
D) Joe should drive to the warehouse because $1,000 is less than $1,200.

2) The tendency for consumers to purchase more of a good or service as its price falls is 2)
captured by:
A) the law of supply. B) the law of increasing cost.
C) the law of demand. D) the Low-Hanging Fruit Principle.

3) During Thanksgiving you participated in a pumpkin-pie eating contest. You really 3)

enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth
one you became ill and lost the contest. After the third pie, your total utility
A) stayed the same.
B) was zero.
C) increased, but by less than for the first three pies.
D) decreased.

4) Sven likes to water ski, but can only water ski during the one week each year when 4)
he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The
first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven
slept in and then skied for seven hours, which was fun but not as much fun as the
first day. The third day, Sven skied for six hours, but was starting to get a bit bored
by the end. The fourth day, Sven skied for four hours and then took a nap. On the
fifth day of Sven's vacation, Sven went blueberry picking all day. Sven's total utility
________ with each hour that he skied.
A) decreased B) increased
C) remained constant D) first increased than decreased

5) As Lynn eats more pizza, we would typically expect her marginal utility from eating 5)
pizza to:
A) stay the same. B) decrease.
C) increase. D) equal the price of pizza.

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6) Suppose Chris's marginal utility from the first taco he eats is 15, and his marginal 6)
utility from the second taco he eats is 12. One can infer that:
A) Chris's average utility from eating two tacos is 27.
B) Chris should eat one taco.
C) Chris's total utility from eating two tacos is 27.
D) Chris should eat two tacos.

7) If marginal utility is positive, then as consumption increases: 7)

A) the demand curve will have a positive slope.
B) total utility will increase.
C) total utility will not change.
D) the consumer will not experience diminishing marginal utility.

8) Refer to the figure below. The marginal utility of the 6th pizza is: 8)

A) 5 B) 95 C) 100 D) 17.5

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9) Refer to the figure below. The total utility of consuming two dinners out per week is: 9)

A) 160. B) 75. C) 175. D) less than 100.

10) For Michael, the first cup of coffee he drinks every morning is heavenly. The second 10)
one is pretty good, but not as good as the first, and if he drinks a third cup he feels
jittery and sick. For Michael, the marginal utility from drinking a cup of coffee is
clearly:
A) positive. B) negative. C) decreasing. D) increasing.

11) Refer to the figure below. The marginal utility of the 3rd dinner is 11)

A) 75. B) 135. C) 60. D) 160.

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12) Refer to the figure below. As Jeff watches more movies, his marginal utility: 12)

A) does not change B) gets larger

C) gets close to one D) gets smaller

13) Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the 13)
price of a jar of peanut butter is $3. Dusty can buy a maximum of ________ loaves
of bread or a maximum of ________ jars of peanut butter.
A) 15; 15 B) 10; 5 C) 10; 20 D) 20; 10

14) Suppose that Cathy spends all of her income on 20 units of good X and 25 units of 14)
good Y. Cathy's marginal utility from the 20th unit of good X is 9 utils, and her
marginal utility from the 25th unit of good Y is 19 utils. If the price of good X is
$0.50 per unit and the price of good Y is $1.00 per unit, then to comply with the
rational spending rule, Cathy should:
A) purchase less than 20 units of good X and more than 25 units of good Y.
B) purchase more than 20 units of good X and more than 25 units of good Y.
C) purchase more than 20 units of good X and less than 25 units of Y.
D) continue to purchase 20 units of good X and 25 units of good Y.

15) Athis current level of consumption, Cameron get 3 times more marginal utility from 15)
an additional game of pinball than from an additional game of ping pong. If the price
of a ping pong game is $0.50, then he is maximizing utility if the price of a pinball
game is:
A) $3.00 B) $1.00 C) $1.50 D) $2.00

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16) Jamie's
marginal utility from muffins and from doughnuts (in utils) is shown below. 16)
Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of
each muffin is $2 and the price of each doughnut is $1.

If Jamie consumes 3 muffins a day, then what is her marginal utility per dollar spent on
the third muffin?
A) 30 B) 40 C) 20 D) 10

17) Taylor'smarginal utility from watching movies and from eating out (in utils) is 17)
shown below. Taylor spends exactly $100 every month on these two forms of
entertainment, and the price of each movie is $10 and the price of each dinner is $20.

If Taylor watches 2 movies a month, Taylor will eat out ________ times per month,
and have marginal utility per dollar of ________ from movies and a marginal utility
per dollar of ________ from eating out.
A) 4; 4; 6 B) 2; 5; 7 C) 4; 5; 5 D) 3; 5; 6

18) You are trying to decide how to spend your last lunch dollar. You should use that 18)
dollar to buy more of the item:
A) from which you already have gained the greatest total utility.
B) that gives you the highest average utility per dollar.
C) that costs the least.
D) that gives you the highest marginal utility per dollar.

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19) Suppose you want to maximize your total utility. If your marginal utility per dollar 19)
spent is higher for one good than for all others, then you should:
A) reallocate your spending away from that good.
B) reallocate your spending towards that good.
C) spend less on all goods.
D) spend more on all goods.

20) When the price of a good rises, marginal utility per dollar spent on that good 20)
________, leading consumers to purchase ________ of that good.
A) falls; less B) rises; more C) rises; less D) falls; more

21) Refer to the figure below. The law of diminishing marginal utility: 21)

A) does not apply to either Good A or Good B.

B) applies to Good A but not Good B.
C) applies to Good B but not Good A.
D) applies to both Good A and Good B.

22) Referto the figure below. If Laura and Chris are the only two consumers in this market 22)
then at a price of $2.50 per pound, the market demand for hamburger is:

A) 1.5 pounds per week B) 4 pounds per week

C) 4.5 pounds per week D) 3 pounds per week

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23) Referto the figure below. If Laura and Chris are the only two consumers in this 23)
market, then when the price of hamburger decreases from $2.50 to $2.00 per pound,
the quantity demanded in the market will ________ by ________ pound(s) per week.

A) increase; 1.5 B) decrease; 1 C) increase; 1 D) decrease; 1.5

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Appartment Rental Market in Three Apartmentville
The following graph shows the supply and demand curves for the market for apartments on the island of
ThreeApartmentVille. The supply curve is represented as a vertical line at 3 apartments. (To keep the probelm simple, we
will assume that it is impossible to build new apartments, so the supply remains fixed at 3 apartments.) On the demand
curve, each point is labeled with the name of the corresponding renter.

Supply
850
Anne
800
750
Bill
700
650
600
550
Chris
Rent ($ per month)

500
Sue
450
400
350
300
250
Pete
200
150
100
50

1 2 3 4 5 6
Apartments

24) What is the equilibrium rental price and quantity in this market? 24)

A) $450; 4 apartments rented B) $500; 3 apartments rente
C) $200; 5 apartments rented D) $500; 4 apartments rented

25) In equilibrium, what is the consumer surplus for all apartments rented? 25)

A) $600 B) $800 C) $0 D) $500

26) In equilibrium, what is the total surplus for all apartments rented? 26)

A) $600
B) $200
C) $2,000
D) $2,600
E) The cost of renting the apartments is not known.; therefore there is not enough information.

27) The income effect 27)

A) is when an increase in income shifts the demand curve.
B) is caused by a change in the price of the product, which changes the purchasing power of a
fixed income.
C) is caused by a change in income.
D) makes people buy more when the price falls for inferior goods.
E) makes people buy less when the price falls for normal goods.

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 28) The substitution effect is when 28)
A) the demand curve for a product shifts to the right because a substituteʹs price increases.
B) the price of a product falls, making its relative price compared to substitutes higher, thereby
decreasing consumption.
C) we substitute away from products that have become less expensive to products that have
become more expensive.
D) the demand curve for a product shifts to the left because a substituteʹs price decreases.
E) the price of a product falls, making its relative price compared to substitutes lower, thereby
increasing consumption.

Use the table for the question(s) below.

# of Bags of Total Marginal # of Soft Total Marginal

Popcorn Utility Utility Drinks Utility Utility
0 0 0 0 0 0
1 30 --- 1 40 ---
2 50 --- 2 70 ---
3 65 --- 3 95 ---
4 75 --- 4 105 ---

29) Use the information in the table above to calculate the marginal utility for each unit of popcorn. 29)
What is the marginal utility of consuming the third unit of popcorn?
A) 15 B) 65 C) 50 D) 22 E) 5

30) Use the information in the table above to calculate the marginal utility for each unit of soft drink. 30)
What is the marginal utility of consuming the second soft drink?
A) 30 B) 35 C) 20 D) 53 E) 70

31) Use the information in the table above to calculate the marginal utility for each unit of popcorn. If 31)
popcorn costs $5, what is the marginal utility per dollar of the second bag of popcorn?
A) 6 B) 2 C) 3 D) 4 E) 10

32) Which of the following is false? The equimarginal principle 32)

A) focuses on obtaining the largest possible marginal utility without considering prices.
B) allows the consumer to obtain the largest possible utility.
C) focuses on marginal utility per dollar spent.
D) equalizes the marginal utility per dollar spent on the last unit of each product purchased.
E) spends all the available budget.