MCQs:

1. A consumer seeks to maximize his utility. Up to what point should he continue to consume each good?
A) Until the marginal utility per dollar from each good is the same.
B) Until the marginal utility from each good is the same.
C) Until the marginal utility from each good reaches a maximum.
D) Until the marginal utility from each good is zero.

Answer: A

2. For the purposes of measuring the income effect of a change in the price of a good, what is not held constant?
A) Consumer preferences
B) Relative prices
C) The consumer’s money income
D) The consumer’s real income

Answer: D

3. A consumer who aims to maximize his utility will arrange his consumption so that
A) The total utility obtained from each commodity is the same.
B) The total utility per $ spent on each commodity is the same.
C) The same utility is obtained from the last unit of each commodity.
D) The same utility is obtained from the last unit of expenditure on each commodity.

Answer: D

4. When the price of a good falls the effect on the quantity demanded is the result of an income effect and a substitution effect. Which statement about these effects is correct?
A) For inferior goods, the income effect and the substitution effect work in the same direction.
B) For inferior, but not Giffen, goods, the income effect outweighs the substitution effect.
C) For normal goods, the income effect and substitution effect work in the same direction.
D) For normal goods, the income effect outweighs the substitution effect.

Answer: C