PRINCIPLE OF MICROECONOMICS INSTRUCTOR: MSc.

NGUYEN VIET HOA

CHAPTER 4: THEORY ON CONSUMER’S BEHAVIOR

1. Total utility is
A. relatively easy to measure.
B. used to compare different peopleʹs likes and dislikes.
C. the additional satisfaction gained by consuming one more unit of something.
D. the total amount of satisfaction yielded by the consumption of a good or service.
2. Total utility of a product is calculated by
A. summing the marginal utility from the first unit of a product that is consumed and the
last unit of a product that is consumed.
B. multiplying the marginal utility of a unit of the product consumed times the average
quantity consumed.
C. summing the marginal utilities for each successive unit of the product that is consumed.
D. multiplying price times quantity and dividing by the marginal utility.
3. Which of the following defines marginal utility?
A. the change in total utility divided by the price of a product
B. the maximum amount of satisfaction from consuming a product
C. the total satisfaction received from consuming as much of the product that is available
for consumption
D. the additional satisfaction received from consuming one more unit of a product
4. Marginal utility is the
A. sensitivity of consumer purchases of a good to changes in the price of that good.
B. change in total utility realized by consuming one more unit of a good.
C. change in total utility realized by consuming another unit of a good divided by the
change in the price of that good.
D. total utility associated with the consumption of a certain number of units of a good
divided by the number of units consumed.
5. Marginal utility
A. is equal to total utility if the demand curve is linear.
B. increases as more of a product is consumed.
C. diminishes as more of a product is consumed.
D. is equal to total utility divided by the number of units consumed.
6. The law of diminishing marginal utility refers to
A. the idea that total utility is negative.
B. the idea that marginal utility is negative.
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C. a consumerʹs decrease in total satisfaction as she consumes more units of a good.

D. a consumerʹs decrease in additional satisfaction as she consumes more and more units
of a good.
7. Which best expresses the law of diminishing marginal utility?
A. The more consumption of a product, the smaller is the total and marginal utility from
the consumption.
B. The more consumption of a product, the smaller is the total and marginal utility from
the consumption.
C. The more consumption of a product, the smaller is the marginal utility from consuming
an additional unit.
D. The less consumption of a product, the greater is the total and marginal utility of the
consumption.
8. Which situation is consistent with the law of diminishing marginal utility?
A. The more pizza Henry eats, the more he enjoys another slice.
B. The more pizza Henry eats, the less he enjoys another slice.
C. Henry's marginal utility from eating pizza becomes positive after eating three slices.
D. Henry's marginal utility from eating pizza reaches a maximum when total utility is zero.
9. As Shaniq drinks additional cups of tea at breakfast, Shaniq's
A. marginal utility from tea decreases.
B. total utility from tea increases.
C. total utility from tea decreases.
D. Both A and B are correct.
10. When marginal utility is decreasing but still positive, total utility is
A. decreasing at a decreasing rate.
B. decreasing at an increasing rate.
C. increasing at a decreasing rate.
D. increasing at an increasing rate.
11. If total utility is increasing, marginal utility
A. may be decreasing, but still positive.
B. must also be increasing.
C. may be either positive or negative.
D. will be increasing at an increasing rate.
12. When total utility reaches its maximum point, marginal utility is
A. negative.
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B. positive and increasing.

C. zero.
D. positive but decreasing.
13. Children who refuse to eat Brussels sprouts at dinner are making the statement that
the marginal utility of Brussels sprouts is
A. zero.
B. negative.
C. positive, but decreasing.
D. less than the total utility.
14. When a consumer shifts purchases from good X to good Y, the marginal utility of
A. X falls and the marginal utility of Y rises.
B. X rises and the marginal utility of Y falls.
C. both X and Y rises.
D. both X and Y falls.
15. For Matthew, the marginal utility of the 9th soda in a day is positive and the marginal
utility of the 10th soda in a day is zero. This
A. implies that Matthewʹs demand curve for sodas per day will become upward sloping at
10 sodas per day.
B. is impossible because each additional unit of consumption of any good must provide
positive marginal utility.
C. implies that at a zero price Matthewʹs demand curve will intersect the quantity axis at
10.
D. implies that Matthew maximizes utility by consuming 9 sodas per day.
16. Which of the following statements is correct?
A. If marginal utility is diminishing, total utility must also be diminishing.
B. There is no relationship between how rapidly marginal utility declines and the price
elasticity of demand.
C. If an individual's marginal utility from a product diminishes rapidly, her demand for this
product is inelastic with respect to price.
D. If an individual's marginal utility from a product diminishes rapidly, her demand for this
product is elastic with respect to price.
17. Which is an explanation for why the demand curve is downward sloping?
A. the law of increasing opportunity cost
B. the law of diminishing marginal returns
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C. the law of diminishing marginal products

D. the law of diminishing marginal utility
18. The maximum price a consumer is willing to pay for an extra unit of a good or service
when total utility is maximized is known as
A. total utility.
B. marginal utility.
C. marginal cost.
D. marginal revenue.
19. An increase in the price of product A will
A. not affect the marginal utility per dollar spent on A.
B. increase the marginal utility per dollar spent on A.
C. decrease the marginal utility per dollar spent on A.
D. cause utility-maximizing consumers to buy more of A.
20. An indifference curve shows combinations of two goods that
A. would provide the consumer with the same level of satisfaction.
B. could be available to the consumer in a given time period.
C. could provide the consumer with similar levels of satisfaction.
D. a consumer could buy with their given income.
21. An indifference curve shows
A. affordable combinations of goods.
B. the relative price of one good relative to another.
C. consumption possibilities that a consumer faces at different prices and income.
D. different combinations of two goods among which the consumer is indifferent.
22. Which of the following statements is NOT TRUE about indifference curves?
A. They are convex to the origin.
B. They are downward sloping.
C. They could intersect.
D. They exhibit higher levels of utility as you move further to the origin.
23. Which of the following statements is FALSE?
A. A consumer has only one indifference curve.
B. The marginal rate of substitution is equal to the magnitude of the slope of the
indifference curve.
C. Diminishing marginal rate of substitution means that the marginal rate of substitution
decreases as more of the good is consumed.
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D. An indifference curve is a curve that shows the combination of goods among which a
consumer is indifferent.
24. As a consumer moves away from the origin onto higher indifference curves, what
happens?
A. The consumer reaches less preferred combinations of goods.
B. The consumer reaches more affordable combinations of goods.
C. The consumer reaches more preferred combinations of goods.
D. None of the above because it is impossible to move from one indifference curve to
another.
25. We have asked Mac to rank his preferences between three baskets A, B, and C. If Mac
prefers B to C but does not care if he gets A or B, then
A. A is on a higher indifference curve than B.
B. C is on a higher indifference curve than A.
C. Both A and B are on a higher indifference curve than C.
D. B is on a higher indifference curve than C but it is not possible to determine whether C
is on a higher, lower, or the same indifference curve as A.
26. An individual’s indifference curve convex to the origin. If this person does not care if
he gets the consumption bundle (2,6) or (6,2) then he will
A. Prefer bundle (4,4) to bundle (6,2)
B. Prefer bundle (6,2) to bundle (4,4)
C. Prefer bundle (2,6) to bundle (4,4)
D. Indifferent between bundle (4,4) and bundle (6,2)
27. The magnitude of the slope of an indifference curve is the
A. rate of relative prices.
B. rate of increasing opportunity cost.
C. marginal utility of substitution.
D. marginal rate of substitution.
28. The marginal rate of substitution of one good for another is measured by moving
A. along a budget line.
B. among different budget lines.
C. along an indifference curve.
D. among different indifference curves.
29. The shape of a typical indifference curve is
A. Linear
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B. L-shaped
C. Bow inward
D. Bow outward
30. The indifference curve of two perfect substitutes is
A. Linear
B. L-shaped
C. Concave to the origin
D. Convex to the origin
31. The indifference curve of the two perfect complementary goods is
A. Linear
B. L-shaped
C. Concave to the origin
D. Convex to the origin
32. Which of the following utility function has constant marginal rate of subtitution?
A. U = min{2X;3Y}
B. U = X.Y
C. U = X0,4Y0,6
D. U = (4X + 3Y)2
33. When the slope of indifference curve equals to quantity consumed of good Y divided
by quantity consumed of good X then utility function is
A. U = aX + bY
B. U = min{aX;bY}
C. U = X.Y
D. U = 2X0,5Y0,75
34. Normally shaped indifference curves are bowed towards the origin of the graph. The
reason for this shape is
A. diminishing marginal rate of substitution.
B. the principle of diminishing marginal rate of relative price.
C. that the marginal rate of substitution is constant along an indifference curve.
D. that indifference curves farther away from the origin represent higher levels of utility.
35. When moving along an indifference curve, the
A. marginal rate of substitution is constant.
B. marginal rate of substitution is equal to 0.
C. marginal rate of substitution for a good increases as more of the good is consumed.
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D. consumer does not prefer one consumption point to another.

36. Along an indifference curve, if the marginal rate of substitution is 3, then the consumer
is willing to
A. pay $3 for one unit of the good measured along the y-axis.
B. give up 1 unit of the good measured along the y-axis for 3 units of the good measured
along the x-axis.
C. give up 3 units of the good measured along the y-axis for 1 unit of income, that is, $1
of income.
D. give up 3 units of the good measured along the y-axis for 1 unit of the good measured
along the x-axis.
37. If an indifference curve is relatively flat, it means that
A. Consumers prefer good X to good Y.
B. Consumers prefer good Y to good X.
C. Consumers are indifferent between good X and good Y.
D. Cannot determine whether consumers prefer good X or good Y.
38. If an indifference curve is relatively steep, it means that
A. Consumers prefer good X to good Y.
B. Consumers prefer good Y to good X.
C. Consumers are indifferent between good X and good Y.
D. Cannot determine whether consumers prefer good X or good Y.
39. When moving along an indifference curve, if a consumer requires a small amount of
the good measured along the y-axis to make up for one unit less of the good measured on
the x-axis, then
A. the marginal rate of substitution is low and the indifference curve is steep.
B. the marginal rate of substitution is high and the indifference curve is steep.
C. the marginal rate of substitution is low and the indifference curve is shallow (relatively
flat).
D. the marginal rate of substitution is high and the indifference curve is shallow (relatively
flat).
40. When moving along an indifference curve, if a consumer requires a large amount of
the good measured along the y-axis to make up for one unit less of the good measured on
the x-axis, then
A. the marginal rate of substitution is low and the indifference curve is steep.
B. the marginal rate of substitution is high and the indifference curve is steep.
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C. the marginal rate of substitution is low and the indifference curve is shallow (relatively
flat).
D. the marginal rate of substitution is high and the indifference curve is shallow (relatively
flat).
41. All of the following are properties of budget line except for
A. Budget lines always continuous.
B. Budget lines are downward sloping.
C. When income changes, budget line will shift paralell.
D. Slope of budget line represents the relative price of two goods.
42. Which of the following describes what happens to a consumer's budget line if that
consumer's budget increases? The budget line
A. becomes flatter.
B. becomes steeper.
C. shifts closer to the origin.
D. shifts further away to the origin.
43. When the price of a good changes, ceteris paribus, the budget line will
A. Rotate
B. Rotate and shift
C. Shift outward, parallel to the previous one
D. Shift inward, parallel to the previous one
44. Bobby buys cat food for his cat. If the price of cat food falls (catfood is on the
horizontal axis), then Bobby's budget line will
A. rotate inward and become flatter.
B. rotate outward and become flatter.
C. rotate inward and become steeper.
D. rotate outward and become steeper.
45. Michael can buy either pizzas or submarine sandwiches. If the prices of pizza and
submarine sandwiches double and Michaelʹs money income triples, we can deduce that
Michaelʹs budget constraint will
A. shift in but remain parallel to the old one.
B. shift out but remain parallel to the old one.
C. swivel in so that the slope of the budget constraint is doubled.
D. remain unchanged.

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46. Reb buys fishing lures and steaks. If his budget does not change and the price of a
fishing lure decreases, the maximum number of fishing lures he can purchase ________
and the maximum number of steaks he can purchase ________.
A. increases; decreases
B. increases; increases
C. increases; does not change
D. does not change; increases
47. The demand curve for macadamia nuts is downward sloping. This slope is because
consumers maximize their utility and an increase in the price of macadamia nuts leads to
A. an increase in the marginal utility per dollar from macadamia nuts.
B. a decrease in the marginal utility per dollar from macadamia nuts.
C. consumers' budget lines rotating outward with their slopes changing.
D. consumers' budget lines shifting outward with no change in their slope.
48. A budget line
A. shows the limits to what can be consumed.
B. has a slope equal to the relative price of two goods.
C. shifts only when the consumer's budget changes.
D. Both A and B are correct.
49. A consumption point inside the budget line
A. is unaffordable.
B. is possible to afford but has some unspent income.
C. shows that the consumer spends income on only one of the goods.
D. shows that the consumer has chosen to spend all of his or her income on both products.
50. A consumption point outside the budget line
A. is unaffordable.
B. is possible to afford but has some unspent income.
C. shows that the consumer spends income on only one of the goods.
D. shows that the consumer has chosen to spend all of his or her income on both products.
51. A consumption point where the budget line intersects horizontal axis
A. is unaffordable.
B. is possible to afford but has some unspent income.
C. shows that the consumer spends income on only one of the goods.
D. shows that the consumer has chosen to spend all of his or her income on both products.
52. Which of the following statements is correct?
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A. Along the budget line, consuming more of one good implies consuming more of the
other.
B. The slope of the budget line shows there is no trade-off between the two goods because
the consumer can buy each of them.
C. If the consumer's budget raises, budget line shifts inward and its slope does not change.
D. None of the above.
53. The theory of consumer behavior assumes that
A. marginal utility is constant.
B. consumers have unlimited money incomes.
C. consumers behave rationally, maximizing their satisfactions.
D. consumers do not know how much marginal utility they obtain from successive units of
various products.
54. A consumer with a fixed income will maximize utility when each good is purchased
in amounts such that the
A. total utility is the same for each good.
B. marginal utility of each good is maximized.
C. marginal utility per dollar spent is the same for all goods.
D. marginal utility per dollar spent is maximized for each good.
55. If a rational consumer is in equilibrium, then
A. total utility becomes zero.
B. a reallocation of income would increase the consumer's total utility.
C. the marginal utility per last dollar spent is the same for all goods consumed.
D. the marginal utility obtained from one product is equal to the marginal utility obtained
from any other product.
56. We can state the utility‐maximizing rule in words in the following way: A person
maximizes utility when she equalizes the ________ across products.
A. total utility
B. total utility per dollar spent
C. marginal utility
D. marginal utility per dollar spent
57. Suppose you have a limited money income and you are purchasing products A and B
whose prices happen to be the same. To maximize your utility, you should purchase A and
B in such amounts that
A. their marginal utilities are the same.
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B. their total utilities are the same.

C. their marginal and total utilities are proportionate.
D. the income and substitution effects associated with each are equal.
58. To maximize utility a consumer should allocate money income so that the
A. elasticity of demand on all products purchased is the same.
B. marginal utility obtained from the last dollar spent on each product is the same.
C. total utility derived from each product consumed is the same.
D. marginal utility of the last unit of each product consumed is the same.
59. A consumer with a given income will maximize their utility when
A. the marginal utility derived from each commodity is equal.
B. the marginal utility derived from each product consumed is zero.
C. the total utility derived from each commodity consumed is equal.
D. the marginal utilities derived from each good consumed are proportional to their prices.
60. A consumer is maximizing her utility with a particular money income when
A. the total utility derived from each product consumed is the same.
B. MUa/Pa = MUb/Pb = MUc/Pc = ... = MUn/Pn.
C. MUa = MUb = MUc = ... = MUn.
D. Pa = Pb = Pc = ... = Pn.
61. In an indifference curve/budget line diagram, at the consumer equilibrium the slope
of the budget line
A. is less than the slope of the indifference curve.
B. is greater than the slope of the indifference curve.
C. equals to the slope of the indifference curve.
D. may be greater than, equal to, or less than the slope of the indifference curve.
62. Which of the following is true if Alice is at her optimal combination of consumption?
i. Alice is on her budget line.
ii. Alice is on her highest attainable indifference curve.
iii. Alice is dividing her budget equally across all goods.
A. i only
B. i and ii
C. ii and iii
D. i, ii and iii
63. Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is
spending all her money income should buy
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A. less of X only if its price rises.

B. more of Y only if its price rises.
C. more of Y and less of X.
D. more of X and less of Y.
64. Ben is exhausting his money income consuming products A and B in such quantities
that MUA/PA = 5 and MUB/PB = 8. Ben should purchase
A. more of A and less of B.
B. more of B and less of A.
C. more of both A and B.
D. less of both A and B.
65. Suppose that Misty likes pizza and hotdogs. If her marginal utility per dollar from
pizza is 6 and from hotdogs it is 5, Misty
A. is maximizing her total utility.
B. must obtain more income in order to reach her consumer equilibrium.
C. could increase her total utility by buying more hotdogs and less pizza.
D. could increase her total utility by buying more pizza and fewer hotdogs.
66. If you know that the marginal utility per dollar spent on product Alpha is less than
the marginal utility per dollar spent on product Beta, consumers who spend all their
income on these two products can
A. maximize total utility but not marginal utility.
B. maximize marginal utility but not total utility.
C. increase total utility by buying more of Beta and less of Alpha.
D. increase total utility by buying more of Alpha and less of Beta.
67. A consumer is in equilibrium and is spending income in such a way that the marginal
utility of product X is 40 utile and Y is 16 utile respectively. The unit price of X is $5. The
price of Y is
A. $1 per unit.
B. $2 per unit.
C. $3 per unit.
D. $4 per unit.
68. The marginal utility of the last unit of A consumed is 12 utile and the marginal utility
of the last unit of B consumed is 8 utile. What set of prices for A and B respectively would
be consistent with consumer equilibrium?
A. $4 and $6
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B. $6 and $4
C. $8 and $12
D. $16 and $9
69. Given the utility function U = XY with PX = 2$, PY = 4$, I = 160$. Optimal consumption
combination is
A. X = 10, Y = 20
B. X = 20, Y = 10
C. X = 20, Y = 40
D. X = 40, Y = 20
70. Ellie is spending her entire income on goods X and Y. Her marginal utility from the
last unit of X is 100 utile and the marginal utility from the last unit of Y that she consumes
is 50 utile. Ellieʹs utility is only maximized if
A. the prices of X and Y are the same.
B. the price of good X is twice as much as that of good Y.
C. the price of good Y is twice as much as that of good X.
D. We cannot determine whether Ellie is maximizing her utility.
71. Ellen is spending her entire income on goods X and Y. Her marginal utility from the
last units of X and Y that she consumes is 25 utile. Ellenʹs utility is only maximized if
A. the prices of X and Y are the same.
B. the price of good X is twice that of good Y.
C. the price of good Y is twice that of good X.
D. We cannot determine whether Ellen is maximizing her utility.
72. Juan's marginal utility from strawberries is 200 and his marginal utility from cream
is 100. Juan spends all his budget. The price of strawberries is $5 per pound and the price
of cream is $5 per pint. To maximize his utility, Juan should
A. buy less cream and more strawberries.
B. buy less cream and fewer strawberries.
C. buy more cream and fewer strawberries.
D. buy more cream and more strawberries.
73. Suppose that Elizabeth is currently exhausting her money income by purchasing 10
units of A and 8 units of B at prices of $2 and $4 respectively. The marginal utility of the
last units of A and B are 16 and 24 respectively. These data suggest that Elizabeth
A. has preferences that are at odds with the principle of diminishing marginal utility.
B. considers A and B to be complementary goods.
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C. should buy less of A and more of B.

D. should buy less of B and more of A.
74. Assume you are spending your full budget and purchasing such amounts of X and Y
that the marginal utility from the last units consumed is 40 and 20 utiles respectively.
Assume the prices of X and Y are $8 and $4 respectively, you
A. should substitute X for Y until the marginal utility per hour is the same for both
products.
B. are consuming X and Y in the optimal amounts.
C. should consume less of Y and more of X.
D. should consume less of X and more of Y.
75. In the indifference curve/budget line diagram, consumers reach higher indifference
curves when
A. their budget decreases.
B. the price of either good falls.
C. the price of either good rises.
D. the price of only the good measured along the y-axis increases.
76. Using Gabriel's budget line and his indifference curves between horseback riding
lessons and baseball lessons, and then changing the prices of each activity holding his
income constant, which of the following can be derived?
A. Gabriel's net gain for each activity
B. Gabriel's supply curve for each activity
C. Gabriel's demand curve for each activity
D. Both B and C are correct.
Use the table below to answer the questions from 77 to 79.

Answer the next question(s) 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 $20.
77. Refer to the above table. If the consumer can only buy product X, how much will the
consumer buy and what will be the total utility?
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A. 4X and 20
B. 4X and 104
C. 5X and 16
D. 5X and 120
78. Refer to the above table. If the consumer buys both product X and product Y, how
much will the consumer buy of each to maximize utility?
A. 4X and 2Y
B. 3X and 4Y
C. 4X and 3Y
D. 5X and 3Y
79. Refer to the above table. When the consumer purchases the utility-maximizing
combination of product X and product Y, total utility will be
A. 72.
B. 84.
C. 136.
D. 156.
80. An individual decides to spend her income of 160$ on X and Y with PX = 2$/unit, PY
= 4$/unit. There is a promotion from the seller: buying 10 units of Y at its price, consumer
will get 5 units more free of charge. This is applied for every 10 units of Y bought by
consumers. In this case, budget line is
A. Linear and continuous
B. Linear and discontinuos
C. Non-linear and continuous
D. Non-linear and discontinuous
81. (Continue question 80) One of the budget line functions is
A. 160 = 2X + 4Y with Y ≥ 10
B. 200 = 2X + 4Y with 30 ≤ Y < 40
C. 220 = 2X + 4Y with 30 ≤ Y < 40
D. None of the above
82. (Continue question 80) The maximum amount of good Y that consumer can buy is
A. 40
B. 60
C. 80
D. None of the above
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