Student name:__________

MULTIPLE CHOICE - Choose the one alternative that

best completes the statement or answers the question.
1) The first Pepsi yields Craig 14 units of utility and the
second yields him an additional 10 units of utility. His total
utility from threecans of Pepsi is 30 units of utility. The
marginal utility of the third Pepsi is

D) 24 units of
A) 20 units of utility. utility.
B) 9 units of utility.
C) 6 units of utility.

2)

Number of Units of Commodity Total Utility 7 350

3 36 8 440
4 80 Refer to the table. What is
5 150 the marginal utility of the
6 252 eighth unit?

C) 440
A) 55 D) 404
B) 90

3) The table shows the utility schedule for a consumer of

candy bars.

Number Consumed Total Utility Based on the data in the

0 0 table, you can conclude
1 5 that the
2 11
3 18
4 24
5 30
6 35
7 32

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 D) total utility of
A) marginal utility of the third unit is 54. 7 units is 32.
B) marginal utility of the second unit is 11.
C) total utility of 6 units is 123.

4) The table shows the utility schedule for a consumer of

candy bars.

Number Consumed Total Utility 5 30

0 0 6 35
1 5 7 32
2 11 Based on the data in the
3 18 table, you can conclude
4 24 that the

D) marginal utility
A) marginal utility of the fifth unit is 150. of the fourth unit is 6.
B) total utility of 3 units is 34.
C) total utility of 6 units is 123.

5) The table shows a consumer's utility schedule.

Number of Units Consumed Total Utility 4 23

0 0 5 25
1 4 Based on the data in the
2 10 table, you can conclude
3 18 that the

D) marginal utility
A) marginal utility of the third unit is 32. of the first unit is 4.
B) total utility of 5 units is 125.
C) total utility of 4 units is 5.

6) If the marginal utility from consuming the eighth unit

of a product is 12 and the total utility from all eight units is
208, then the total utility from consuming seven units must be

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 C) 196.
A) 220. D) 1,664.
B) 26.

7) If the total utility from consuming six units of a

product is 43 and the marginal utility of a seventh unit is 6,
then the total utility from consuming seven units would be

C) 7.
A) 37. D) 42.
B) 49.

8) Mrs. Arnold is spending all her money income by

buying bottles of soda and bags of pretzels in such amounts
that the marginal utility of the last bottle is 80 utils and the
marginal utility of the last bag is 70 utils. The prices of soda
and pretzels are $0.8 per bottle and $0.6 per bag, respectively.
It can be concluded that

D) Mrs. Arnold is
A) the two commodities are substitute goods. buying soda and pretzels in
B) Mrs. Arnold should spend less on pretzels and the utility-maximizing
more on soda. amounts.
C) Mrs. Arnold should spend less on soda and more
on pretzels.

9) Answer the question on the basis of the following two

schedules, which show the amounts of additional satisfaction
(marginal utility) that a consumer would get from successive
quantities of products J and K.

Units of J MUj Units of K MUk 4 24 4 2

1 56 1 32 0
2 48 2 28 5 20 5 1
2
3 32 3 24
6 16 6 1

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 0
7 12 7 8
If the consumer has money income of $28 and the prices of J
and K are $8 and $4 respectively, the consumer will
maximize her utility by purchasing

D) 0 units of J and
A) 1 units of J and 5 units of K. 6 units of K.
B) 3 units of J and 1 units of K.
C) 2 units of J and 3 units of K.

10) Answer the question on the basis of the following two quantities of products J and
schedules, which show the amounts of additional satisfaction K.
(marginal utility) that a consumer would get from successive

Units of J MUj Units of K MUk What level of total utility

1 56 1 32 is realized from the
2 48 2 28 equilibrium combination of
J and K, if the consumer
3 32 3 24
has a money income of
4 24 4 20
$64 and the prices of J and
5 20 5 12 K are $8 and $4,
6 16 6 10 respectively?
7 12 7 8

C) 306 utils
A) 294 utils D) 342 utils
B) 268 utils

11) Ben is exhausting his money income consuming MU b/ Pb = 9. Ben

products A and B in such quantities that MU a/ Pa = 7 and should purchase

D) less of both A
A) more of A and less of B. and B.
B) more of B and less of A.
C) more of both A and B.

12) The marginal utility of the last unit of apples consumed is 10, and the

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marginal utility of the last unit of bananas consumed is 15. be consistent with
What set of prices for apples and bananas, respectively, would consumer equilibrium?

C) $15 and $10

A) $3 and $2 D) $25 and $30
B) $2 and $3

13) Suppose that Ms. Thomson is currently exhausting her

money income by purchasing 10 units of A and 8 units of B at
prices of $3 and $4, respectively. The marginal utility of the
last units of A and B are 15 and 24, respectively. These data
suggest that Ms. Thomson

D) should buy
A) has preferences that are at odds with the principle more B and less A.
of diminishing marginal utility.
B) considers A and B to be complementary goods.
C) should buy more A and less B.

14) If MU a/ Pa = 100/$35 = MU b/ Pb = 300/? = MU

c/ Pc = 400/?, the prices of products B and C in consumer
equilibrium

D) are $100 and

A) cannot be determined from the information given. $200, respectively.

B) are $105 and $140, respectively.

C) are $105 and $175, respectively.

15) Answer the question on the basis of the following total

utility data for products L and M. Assume that the prices of L
and M are $3 and $4, respectively, and that the consumer's
income is $18

Units of L Total Units of M Total 2 1 2 28

Utility Utility 5
1 9 1 16 3 1 3 36

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 8 How many units of the two
4 20 4 40 products will the rational
5 21 5 42 consumer purchase?

D) 2 of L and 3 of
A) 3 of L and none of M M
B) 4 of L and 2 of M
C) 3 of L and 5 of M

16) Answer the question on the basis of the following total

utility data for products L and M. Assume that the prices of L
and M are $6 and $2, respectively, and that the consumer's
income is $22

Units of L Total Units of M Total

Utility Utility 5 2 5 42
1 9 1 16 1
2 15 2 28 What level of total utility
3 18 3 36 does the rational consumer
4 20 4 40 realize in equilibrium?

C) 57 utils
A) 186 utils D) 63 utils
B) 49 utils

17) Frank is purchasing products C and D in utility-

maximizing amounts. If the price of C is $10 and the price of
D is $5, then

and D cannot be
A) the marginal utility of D is twice that of C. determined.
B) the marginal utility of D is the same as that of C.
C) the marginal utility of C is twice that of D.
D) the relationship between the marginal utility of C

18) A consumer
currently spends a given

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budget on two goods, X and Y, in such quantities that the utility-maximizing rule
marginal utility of X is 10 and the marginal utility of Y is 8. suggests that this consumer
The unit price of X is $5 and the unit price of Y is $2. The should

consumption of product X.
A) increase consumption of product X and decrease D) stick with the
consumption of product Y. current consumption mix
B) increase consumption of product X and increase because it yields maximum
consumption of product Y. utility.
C) increase consumption of product Y and decrease

19) Assume that a consumer purchases a combination of money, the consumer

product A and product B such that the MU a/P a = 10 and should
MU b/P b = 12. To maximize utility without spending more

D) make no
A) purchase more of product A and less of product change in purchases of
B. products A and B.
B) purchase less of product A and more of product B.
C) purchase more of both product A and product B.

20) A child is given $4 of pocket money to be spent on from each product are as
either hard candies or chocolates. Chocolates cost 40 cents shown in the following
and hard candies 50 cents each. The marginal utilities derived table.

Number of MU of MU of Hard 7 5 5
Items Chocolates Candies 0
1 60 150 8 0 2
2 50 140 0
3 40 120 If the child buys either
4 30 100 chocolates or hard candies
one piece at a time, what
5 20 80
will be his first two
6 10 70
purchases?

D) a chocolate,
A) a hard candy, followed by another hard candy followed by another
B) a hard candy, followed by a chocolate chocolate
C) a chocolate, followed by a hard candy

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21) A child is given $4.10 of pocket money to be spent on from each product are as
either hard candies or chocolates. Chocolates cost 10 cents shown in the following
and hard candies 50 cents each. The marginal utilities derived table.

Number of MU of MU of Hard Which combination would

Items Chocolates Candies give the child the
1 60 150 maximum utility out of
2 50 140 spending $4.10?
3 40 120
4 30 100
5 20 80
6 10 70
7 5 50
8 0 20

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 D) 4 chocolates
A) 8 chocolates and 6 hard candies and 5 hard candies
B) 5 chocolates and 4 hard candies
C) 6 chocolates and 7 hard candies

22) Answer the question based on the table below showing

the marginal utility schedules for product X and product Y for
a hypothetical consumer. The price of product X is $4, and
the price of product Y is $2. The income of the consumer is
$20.

Product X Product Y 5 16 5 8
Quantity MUX Quantity MUY If the consumer buys
1 32 1 24 product X or product Y
2 28 2 20 one unit at a time, which of
3 24 3 16 the following will the
consumer's first two
4 20 4 12
purchases be?

D) a first unit of Y
A) a first unit of X followed by a first unit of Y followed by a second unit
B) a first unit of X followed by a second unit of X of Y
C) a first unit of Y followed by a first unit of X

23) Answer the question based on the table below showing the price of product Y is
the marginal utility schedules for product X and product Y for $2.50. The income of the
a hypothetical consumer. The price of product X is $3, and consumer is $14.

Product X Product Y 5 16 5 8
Quantity MUX Quantity MUY If the consumer buys both
1 32 1 24 product X and product Y,
2 28 2 20 how much will the
3 24 3 16 consumer buy of each in
order to maximize utility?
4 20 4 12

C) 4X and 0Y
A) 2X and 3Y D) 1X and 4Y
B) 3X and 2Y

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24) Answer the question based on the table below showing the price of product Y is
the marginal utility schedules for product X and product Y for $3. The income of the
a hypothetical consumer. The price of product X is $4, and consumer is $32.

Product X Product Y When the consumer

Quantity MUX Quantity MUY purchases the utility-
1 32 1 24 maximizing combination
of product X and product
2 28 2 20
Y, total utility will be
3 24 3 16
4 20 4 12
5 16 5 8

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 C) 164.
A) 28. D) 192.
B) 112.

25) Answer the question based on the table below showing

the marginal utility schedules for product X and product Y for
a hypothetical consumer. The price of product X is $2.50, and
the price of product Y is $2. The income of the consumer is
$16.

Product X Product Y 5 16 5 8
Quantity MUX Quantity MUY If the consumer buys both
1 32 1 24 product X and product Y,
2 28 2 20 how much will the
3 24 3 16 consumer buy of each in
order to maximize utility?
4 20 4 12

C) 3X and 4Y
A) 5X and 2Y D) 4X and 3Y
B) 4X and 4Y

26) A consumer is making purchases of products Alpha budget constraint, this

and Beta such that the marginal utility of product Alpha is 30 consumer should
and the marginal utility of product Beta is 40. The price of
product Alpha is $5, and the price of product Beta is $10. The
utility-maximizing rule suggests that, to stay within a given

decrease consumption of
A) increase consumption of product Beta and product Beta.
decrease consumption of product Alpha. D) make no
B) increase consumption of product Beta and change in the consumption
increase consumption of product Alpha. of Alpha or Beta.
C) increase consumption of product Alpha and

27) A consumer is in
equilibrium and is
spending income in such a

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way that the marginal utility of product X is 40 units and that
of Y is 16 units. If the unit price of X is $5, then the price of
Y must be

C) $3 per unit.
A) $1 per unit. D) $4 per unit.
B) $2 per unit.

28) Assume that a consumer purchases a combination of

products Y and Z and that the MU y/ Py = 25 and MU z/
Pz = 20. To maximize utility, without spending more money,
the consumer should

D) make no
A) purchase less of Y and more of Z. change in the quantities Y
B) purchase more of Y and less of Z. and Z.
C) purchase more of both Y and Z.

29) Assume that a consumer purchases a combination of money, the consumer

products Y and Z and that the MU y/ Py = 48/8 and MU z/ should
Pz = 30/5. To maximize utility, without spending more

D) make no
A) purchase less of Z and more of Y. change in the quantities Y
B) purchase more of Z and less of Y. and Z.
C) purchase more of both Y and Z.

30) The table shows the marginal-utility schedules for

goods A and B for a hypothetical consumer. The price of
good A is $2, and the price of good B is $4. The income of
the consumer is $22.

Good A Good B
Quantity MUA Quantity MUB 5 6 5 8
1 10 1 16 6 5 6 6
2 9 2 14 7 4 7 4
3 8 3 12
4 7 4 10

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If the consumer spends the given budget and gets maximum
utility out of it, then she is receiving how much satisfaction
from each dollar spent on the final unit of good B consumed?

D) 8 utils per
A) 5 utils per dollar dollar
B) 3 utils per dollar
C) 18 utils per dollar

31) If you purchase a gift worth $25 for your sister, but
your sister would be willing to pay only $10 if she bought the
item for herself, then the

D) loss of value in
A) total utility of the gift is $35. the gift is $15.
B) total utility of the gift is $15.
C) marginal utility of the gift is $15.

32) The table shows the total utility data for products X respectively, and that
and Y. Assume that the prices of X and Y are $3 and $4, consumer income is $18.

Units of X Total Units of Y Total How many units of the two

Utility Utility products will the consumer
1 9 1 16 buy to get maximum
2 15 2 28 utility?
3 19 3 36
4 21 4 40
5 22 5 42

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 D) 3 of X and 4 of
A) 1 of X and 4 of Y Y
B) 2 of X and 2 of Y
C) 2 of X and 3 of Y

33) Suppose a consumer has an income of $16, the price combinations is on the
of A is $2, and the price of B is $1. Which of the following consumer's budget line?

C) 6A and 6B
A) 4A and 9B D) 3A and 8B
B) 5A and 6B

34) If a consumer has an income of $200, the price of X is of Y the consumer is able
$5, and the price of Y is $10, what is the maximum quantity to purchase?

C) 40
A) 5 D) 20
B) 10

35) A consumer has an income of $24, and the price of X

is $2, while the price of Y is $3. If the consumer buys 6 units
of X, then the maximum quantity of Y that she could also buy
is

C) 12
A) 4 D) 6
B) 8

36) The income of a consumer is $40, the price of A is $2, vertically, then the slope of
and the price of B is $6. If the quantity of A is measured the budget line is

C) -0.33.
A) -3.0. D) -2.5.
B) -0.5.

37) The table shows an indifference schedule for several combinations of X and Y.

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 Combination Quantity of X Quantity of Y e 9 5
a 20 1 How much of X is the
b 16 2 consumer willing to give
c 12 3 up to obtain the third unit
d 10 4 of Y?

C) 8
A) 3 D) 6
B) 4

38) The table shows an indifference schedule for several

combinations of X and Y.

Combination Quantity of X Quantity of Y e 9 5

a 20 1 Approximately how much
b 16 2 of Y is the consumer
c 12 3 willing to give up to obtain
d 10 4 the twelfth unit of X?

C) 4
A) 2 D) 1/4
B) 1/2

39) The table shows an indifference schedule for several

combinations of X and Y.

Combination Quantity of X Quantity of Y

a 20 1 e 9 5
b 16 2 In moving from
c 12 3 combination b to c, the
d 10 4 consumer

D) gives up 4
A) gets 1 unit of X for 1 unit of Y. units of X for 1 unit of Y.
B) gets 2 units of X for 2 units of Y.
C) gives up 3 units of X for 1 unit of Y.

Version 1 15
Version 1 16
Answer Key

Test name: Chap 07_22e_Micro_Algo

1) C
Marginal utility measures the change in total raises total utility to
utility from consuming an additional unit. If, 30, then the
for example, Craig received 14 units of utility marginal utility of
from the first Pepsi and 10 units from the the third Pepsi is 6
second Pepsi, his total utility for two cans of (= 30 − 24).
Pepsi would be 24 units. If the third Pepsi
2) B
Marginal utility measures the change in total utility of the fourth
utility from consuming an additional unit. If, unit is 90 (= 440 −
for example, consuming the eighth unit raises 350).
total utility from 350 to 440, then the marginal
3) D
Total utility is given in the table and the sum be found by taking
of the marginal utilities. For example, the total the difference
utility from consuming 7 units is 32. Marginal between totals.
utility represents the change in total utility
from consuming an additional unit, so would
4) D
Marginal utility measures the change in total utility of the fourth
utility from consuming an additional unit. If, unit is 6 (= 24 −
for example, consuming the fourth unit raises 18).
total utility from 18 to 24, then the marginal

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5) D
Marginal utility measures the change in total utility of the first
utility from consuming an additional unit. If, unit is 4 (= 4 − 0).
for example, consuming the first unit raises
total utility from 0 to 4, then the marginal
6) C
Total utility from consuming multiple units of 12, then the total
a product is the sum of the marginal utilities of utility of the first
consuming each unit. If, for example, total seven units must be
utility from consuming eight units is 208, and 196 (= 208 − 12).
the utility from consuming the eighth unit is
7) B
Total utility from consuming multiple units of then the total utility
a product is the sum of the marginal utilities of of seven units must
consuming each unit. If, for example, total be 49(= 43 +
utility from consuming six units is 43, and the seven).
utility from consuming a(n) seventh unit is 6,
8) C
Total utility is maximized when the marginal MU/P for soda is
utility per dollar spent (MU/P) is equal across 100 (= 80/0.8) and
all goods consumed. If there is good for which the MU/P for
MU/P is greater than for other goods, the pretzels is 116.67 (=
consumer should buy more of that good and/or 70/0.6). Since
less of others. If, for example, the last bottle of MU/P for pretzels is
soda provides 80 utils (units of utility) at a greater than for
price of $0.80, and the last bag of pretzels soda, and if all
gives 70 utils at a price of $0.60, then the income is spent,

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then Mrs. Arnold should spend less on soda
and more on pretzels.
9) C
Total utility is maximized when the marginal greater, assuming
utility per dollar spent (MU/P) is equal across income remains to
all goods consumed and income is exhausted. be spent. Do this
To find the utility maximization combination until income is
in this problem, the first step is to calculate exhausted and
MU/P for both goods. Second, moving one Muj/Pj = MUk/Pk
unit at a time, compare MU/P between the two (or are as close as
goods, choosing the one for which MU/P is possible).
10) C
Total utility is maximized when the marginal = MUk/Pk (or are as
utility per dollar spent (MU/P) is equal across close as possible).
all goods consumed and income is exhausted. Once the utility-
To find the utility maximization combination maximizing
in this problem, the first step is to calculate combination is
MU/P for both goods. Second, moving one found, sum the
unit at a time, compare MU/P between the two marginal utilities for
goods, choosing the one for which MU/P is each good and add
greater, assuming income remains to be spent. those sums together
Do this until income is exhausted and Muj/Pj to find total utility.
11) B
Total utility is maximized when the marginal than for other
utility per dollar spent (MU/P) is equal across goods, the consumer
all goods consumed and income is exhausted. should buy more of
If there is good for which MU/P is greater that good and less

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of others. If, for example, MU a/P a = 7, and more satisfaction by
MU b/P b = 9, then the consumer would get purchasing more of
B and less of A.
12) B
Total utility is maximized when the marginal banana prices,
utility per dollar spent (MU/P) is equal across respectively, that
all goods consumed and income is exhausted. generate that ratio
Therefore, the ratio of the marginal utilities would satisfy the
(MU a/MU b) would also equal the ratio of utility maximization
the prices. If, for example MU a = 10, and condition. P a = $2
MU b = 15, then the ratio P a/P b must and P b = $3 is one
equal MU a/MU b (= 10/15). Reduced, that possible
ratio is 2/3, so any combination of apple and combination.
13) D
Total utility is maximized when the marginal 24/4). Since MU/P
utility per dollar spent (MU/P) is equal across for A is less than
all goods consumed. If there is good for which MU/P for B, and if
MU/P is greater than for other goods, the all income is spent,
consumer should buy more of that good and/or then Ms. Thomson
less of others. If, for example, the last unit of should spend less on
A provides a marginal utility of 15 and a price A and more on B.
of $3, and the last unit of B has a marginal
utility of 24 and a price of $4, then the MU/P
for A is 5 (= 15/3) and the MU/P for B is 6 (=
14) B
Total utility is maximized when the marginal all goods consumed.
utility per dollar spent (MU/P) is equal across If the MU/P for

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good A is given, as are the marginal utilities 300/P b; P b =
for goods B and C, the prices of B and C will 300/2.857) and P c

be such that MU a/P a = MU b/P b = MU = 140 (2.857 =

c/P c. If, for example, MU a/P a = 100/$35 400/P c; P c =
(= 2.857), then P b will be 105 (2.857 = 400/2.857).
15) D
Total utility is maximized when the marginal the price of M is $4,
utility per dollar spent (MU/P) is equal across the utility-
all goods consumed and income is exhausted. maximizing
To find the utility maximization combination combination is 2
in this problem, the first step is to calculate the units of L and 3
marginal utilities and then MU/P for both units of M, for a
goods. Second, moving one unit at a time, total utility of 51,
compare MU/P between the two goods, more than any other
choosing the one for which MU/P is greater, attainable
assuming income remains to be spent. Do this combination of L
until income is exhausted and MUL/PL = and M.
MUM/PM (or are as close as possible).
If income is $18, the price of L is $3, and
16) C
Total utility is maximized when the marginal choosing the one for
utility per dollar spent (MU/P) is equal across which MU/P is
all goods consumed and income is exhausted. greater, assuming
To find the utility maximization combination income remains to
in this problem, the first step is to calculate the be spent. Do this
marginal utilities and then MU/P for both until income is
goods. Second, moving one unit at a time, exhausted and
compare MU/P between the two goods, MUL/PL = MUM/PM

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(or are as close as possible). Once the utility- for a total utility of
maximizing combination is found, sum the 57 (= 15 + 42),
marginal utilities for each good and add those more than any other
sums together to find total utility. attainable
If income is $22, the price of L is $6, and combination of L
the price of M is $2, the utility-maximizing and M.
combination is 2 units of L and 5 units of M,
17) C
Total utility is maximized when the marginal provided allows one
utility per dollar spent (MU/P) is equal across to determine the
all goods consumed and income is exhausted. relationship
If, for example, the price of C is $10 and the between the
price of D is $5, then the price of C is twice marginal utilities,
that of D. In order for MU C/P C to equal but not the specific
MU D/P D, the marginal utility of C (MU C) values for each.
would also have to be twice the marginal
utility of D (MU D). The information
18) C
Total utility is maximized when the marginal is 4 (= 8/2). Since
utility per dollar spent (MU/P) is equal across MU/P for Y is
all goods consumed. If there is a good for greater than for X,
which MU/P is greater than for other goods, and if all income is
the consumer should buy more of that good spent, then the
and/or less of others. If, for example, the last consumer should
unit of X provides a marginal utility of 10 and spend more on Y
a price of $5, and the last unit of Y has a and less on X.
marginal utility of 8 and a price of $2, then the
MU/P for X is 2 (= 10/5) and the MU/P for Y

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19) B
Total utility is maximized when the marginal 10, and the last unit
utility per dollar spent (MU/P) is equal across of B has a marginal
all goods consumed. If there is a good for utility per dollar of
which MU/P is greater than for other goods, 12, then the
the consumer should buy more of that good consumer should
and less of others. If, for example, the last unit spend less on A and
of A provides a marginal utility per dollar of more on B.
20) A
When deciding which good to consume, a income, he is now
rational consumer will choose the one for comparing the first
which MU/P is the greatest. Assuming they unit of chocolate to
still have sufficient income to spend, the second unit of
consumers will continue to buy the goods for hard candy . Since
which MU/P is the greatest. However, because MU/P for chocolate
of diminishing marginal utility, consumers is still 150 ; MU/P
won’t necessarily choose the same good every for hard candy is
time, and may in fact switch frequently until now 280 (=
their income is exhausted. 140/0.50). Since
If, for example, a child gets marginal utility MU/P for the
of 60 for the first unit of chocolate, and the second unit of hard
price is 40 cents, MU/P for the first piece is candy is greater
150 (= 60/0.40). With a marginal utility of 150 than for the first
for the first unit of hard candy, and a price of unit of chocolate,
50 cents, MU/P for the first piece of hard the child will
candy is 300 (= 150/0.50). Since MU/P is purchase the hard
greater for hard candy, that will be the first candy.
thing purchased. Since the child still has

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21) C
Total utility is maximized when the marginal chocolates is 10
utility per dollar spent (MU/P) is equal across cents, and the price
all goods consumed and income is exhausted. of hard candies is
To find the utility maximization combination 50 cents, the utility-
in this problem, the first step is to calculate maximizing
MU/P for both goods. Second, moving one combination is 6
unit at a time, compare MU/P between the two chocolates and 6
goods, choosing the one for which MU/P is hard candies. MU/P
greater, assuming income remains to be spent. for both goods is
Do this until income is exhausted and MUL/PL 100 (= 10/0.10 =
= MUM/PM (or are as close as possible). Once 50/0.50) at the
the utility-maximizing combination is found, utility-maximizing
sum the marginal utilities for each good and combination.
add those sums together to find total utility.
If, for example, income is $4.10, the price of
22) D
When deciding which good to consume, a price is $4, MU/P
rational consumer will choose the one for for the first unit is 8
which MU/P is the greatest. Assuming they (= 32/4). With a
still have sufficient income to spend, marginal utility of
consumers will continue to buy the goods for 24 for the first unit
which MU/P is the greatest. However, because of Y, and a price of
of diminishing marginal utility, consumers $2, MU/P for the
won’t necessarily choose the same good every first unit is 12 (=
time, and may in fact switch frequently until 24/2). Since MU/P
their income is exhausted. is greater for Y, that
If, for example, a consumer gets marginal will be the first
utility of 32 for the first unit of X, and the thing purchased.

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Since the consumer still has income, she is first unit of X, the
now comparing the first unit of X to the consumer will
second unit of Y. MU/P for X is still 8; MU/P purchase a second
for Y is now 10 (= 20/2). Since MU/P for the unit of Y.
second unit of Y is still greater than for the
23) B
Total utility is maximized when the marginal If, for example,
utility per dollar spent (MU/P) is equal across income is $14, the
all goods consumed and income is exhausted. price of X is $3, and
To find the utility maximization combination the price of Y is
in this problem, the first step is to calculate $2.50, the utility-
MU/P for both goods. Second, moving one maximizing
unit at a time, compare MU/P between the two combination is 3X
goods, choosing the one for which MU/P is and 2Y. MU/P for
greater, assuming income remains to be spent. both goods is 8 (=
Do this until income is exhausted and MUL/PL 24/3 = 20/2.50) at
= MUM/PM (or are as close as possible). Once the utility-
the utility-maximizing combination is found, maximizing
sum the marginal utilities for each good and combination, and
add those sums together to find total utility. income is spent.
24) D
Total utility is maximized when the marginal goods, choosing the
utility per dollar spent (MU/P) is equal across one for which MU/P
all goods consumed and income is exhausted. is greater, assuming
To find the utility maximization combination income remains to
in this problem, the first step is to calculate be spent. Do this
MU/P for both goods. Second, moving one until income is
unit at a time, compare MU/P between the two exhausted and

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MUL/PL = MUM/PM (or are as close as is spent. Total
possible). Once the utility-maximizing utility is 192 (= 120
combination is found, sum the marginal + 72), found by
utilities for each good and add those sums summing the total
together to find total utility. utility from
If, for example, income is $32, the price of consuming 5X (120
X is $4, and the price of Y is $3, the utility- = 32 + 28 + 24 + 20
maximizing combination is 5X and 4Y. MU/P + 16) and 4Y (72 =
for both goods is 4 (= 16/4 = 12/3) at the 24 + 20 + 16 + 12).
utility-maximizing combination, and income
25) D
Total utility is maximized when the marginal If, for example,
utility per dollar spent (MU/P) is equal across income is $16, the
all goods consumed and income is exhausted. price of X is $2.50,
To find the utility maximization combination and the price of Y is
in this problem, the first step is to calculate $2, the utility-
MU/P for both goods. Second, moving one maximizing
unit at a time, compare MU/P between the two combination is 4X
goods, choosing the one for which MU/P is and 3Y. MU/P for
greater, assuming income remains to be spent. both goods is 8 (=
Do this until income is exhausted and MUL/PL 20/2.50 = 16/2) at
= MUM/PM (or are as close as possible). Once the utility-
the utility-maximizing combination is found, maximizing
sum the marginal utilities for each good and combination, and
add those sums together to find total utility. income is spent.
26) C
Total utility is maximized when the marginal all goods consumed.
utility per dollar spent (MU/P) is equal across If there is a good for

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which MU/P is greater than for other goods, the consumer is to
the consumer should buy more of that good stay within the
and/or less of others. If, for example, the last budget constraint,
unit of Alpha provides a marginal utility of 30 then the consumer
and has a price of $5, and the last unit of Beta should spend more
has a marginal utility of 40 and a price of $10, on Alpha and less
then the MU/P for Alpha is 6 (= 30/5) and the on Beta.
MU/P for Beta is 4 (= 40/10). Since MU/P for
Alpha is greater than MU/P for Beta, and if
27) B
Total utility is maximized when the marginal utility), the MU/P
utility per dollar spent (MU/P) is equal across for Y must also
all goods consumed and income is exhausted. equal 8. Since MU
If, for example, MU of X is 40 and the price of Y is 16, then P
of X is $5, then MU/P for X is 8 (= 40/5). If must be $2 (8 =
the consumer is in equilibrium (maximizing 16/P; P = 16/8 = 2).
28) B
Total utility is maximized when the marginal per dollar of 20, and
utility per dollar spent (MU/P) is equal across total spending is to
all goods consumed. If there is a good for remain unchanged,
which MU/P is greater than for other goods, then the consumer
the consumer should buy more of that good should purchase
and/or less of others. If, for example, the last more Yand less Z.
unit of Y provides a marginal utility per dollar
of 25, the last unit of Z has a marginal utility
29) D
Total utility is maximized when the marginal utility per dollar

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spent (MU/P) is equal across all goods to remain
consumed. If there is a good for which MU/P unchanged, then the
is greater than for other goods, the consumer consumer should
should buy more of that good and/or less of make no changes in
others. If, for example, the last unit of Y their purchases of Y
provides a marginal utility per dollar of 6 (= and Z.
48/8), the last unit of Z has a marginal utility
per dollar of 6 (= 30/5), and total spending is
30) B
Total utility is maximized when the marginal = MUB/PB (or are as
utility per dollar spent (MU/P) is equal across close as possible).
all goods consumed and income is exhausted. Once the utility-
To find the utility maximization combination maximizing
in this problem, the first step is to calculate combination is
MU/P for both goods. Second, moving one found, MU/P for the
unit at a time, compare MU/P between the two final unit of each
goods, choosing the one for which MU/P is good has been
greater, assuming income remains to be spent. identified.
Do this until income is exhausted and MUA/PA
31) D
Gifts involve a loss of utility if the recipient she would
values the gift less than what the giver paid. If, presumably use it to
for example, you purchase a gift worth $25 for purchase something
your sister, but she would only be willing to she valued at $25 or
pay $10, the loss of value is $15(= 25 − 10). If higher.
you just gave the $25 directly to your sister,
32) C

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Total utility is maximized when the marginal sums together to
utility per dollar spent (MU/P) is equal across find total utility.
all goods consumed and income is exhausted. If, for example,
To find the utility maximization combination income is $18, the
in this problem, the first step is to calculate price of X is $3, and
marginal utility and MU/P for both goods. the price of Y is $4,
Second, moving one unit at a time, compare the utility-
MU/P between the two goods, choosing the maximizing
one for which MU/P is greater, assuming combination is 2X
income remains to be spent. Do this until and 3Y. MU/P for
income is exhausted and MUX/PX = MUY/PY both goods is 2 (=
(or are as close as possible). Once the utility- 6/3 = 8/4) at the
maximizing combination is found, sum the utility-maximizing
marginal utilities for each good and add those combination.
33) B
A budget line shows the various combinations units of B. [16 = (2
of two goods that are attainable with a given
set of prices and amount of income. A
combination that is on the budget line exactly
exhausts the consumer’s budget. The
consumer’s budget can be expressed with the
equation (using Y for income)
Y = PAA + PBB, where PA and A are the
price and quantity of good A, respectively,
and PB and B are the price and quantity of
good B, respectively.
If, for example, income is $16, PA is $2, and
PB = $1, then one combination on this
consumer’s budget line is 5 units of A and 6

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× 5) + (1 × 6)]. The other combinations listed
lay either inside the budget line (meaning
more of one or both goods could be obtained)
or outside the budget line (meaning that
combination is not feasible, given current
income and prices).

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34) D
A budget line shows the various combinations consumer would
of two goods that are attainable with a given purchase no Y.
set of prices and amount of income. A Therefore, B = PXX,
combination that is on the budget line exactly since no spending
exhausts the consumer’s budget. The on Y occurs.
consumer’s budget can be expressed with the If, for example,
equation (using B for budget) B = PXX + PYY, income is $200 and
where PX and X are the price and quantity of PX is $5, then the
good X, respectively, and PY and Y are the maximum amount
price and quantity of good Y, respectively. of X the consumer
For instance, what if the question asked for can purchase is 20
the maximum quantity of X the consumer can (200 = 5X; X =
purchase. To spend the maximum on X, the 200/5 = 20).
35) A
A budget line shows the various combinations on the other good.
of two goods that are attainable with a given If, for example,
set of prices and amount of income. A income is $24, PX
combination that is on the budget line exactly is $2, PY is 3, and
exhausts the consumer’s budget. The the consumer buys 6
consumer’s budget can be expressed with the units of X then the
equation (using B for budget) B = PXX + PYY, maximum amount
where PX and X are the price and quantity of of Y the consumer
good X, respectively, and PY and Y are the can purchase is 4
price and quantity of good Y, respectively. [200 = (2 × 6) + 3Y;
This question asks for the maximum 24 − 12 = 3Y; 12 =
quantity of one good the consumer can 3Y; Y = 12/3 = 4].
purchase, given a certain amount of spending

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36) A
A budget line shows the various combinations then the slope of the
of two goods that are attainable with a given budget line is
set of prices and amount of income. The slope −PB/PA. If, for
of a budget line is the ratio of the price of the example, PA = $2
good measured along the horizontal axis to the and PB = $6 , then
price of the good measured along the vertical the slope of the
axis. If the quantity of A is measured budget line is -3.0
vertically and the quantity of B horizontally, (= 6 / 2 ).
37) B
An indifference curve shows the various moving from 12 to
combinations of two goods that will provide 10 units of X, then
equal amounts of utility. Changes from one the indifference
combination to the next demonstrate how schedule tells us
much of one product the consumer would be that this consumer is
willing to give up to obtain more of the other, willing to give up 2
without it changing the level of utility. If, for (= 12 − 10) units of
example, moving from 3 to 4 units of Y X.
(thereby obtaining the fourth unit) entails
38) B
An indifference curve shows the various entails moving from
combinations of two goods that will provide 2 to 1 unit of Y,
equal amounts of utility. Changes from one then the
combination to the next demonstrate how indifference
much of one product the consumer would be schedule tells us
willing to give up to obtain more of the other, that this consumer is
without it changing the level of utility. If, for willing to give up 1
example, moving from 16 to 20 units of X (= 2 − 1) unit of Y

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to get 4 units of X. However, since the much Y the
question asks specifically about the twentieth consumer is willing
unit (not 17, 18, or 19), we have to divide that to sacrifice (4X =
1 unit by 4, giving us 1/4 as a measure of how 1Y; X = ¼Y).
39) D
An indifference curve shows the various and 2Y to a
combinations of two goods that will provide combination of 12X
equal amounts of utility. Changes from one and 3Y. In order to
combination to the next demonstrate how obtain that
much of one product the consumer would be additional unit of Y
willing to give up to obtain more of the other, (from 2 to 3), the
without it changing the level of utility. For consumer is willing
example, moving from combination b to c to give up 4 units of
requires moving from a combination of 16X X (= 16 − 12).

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