Multiple Choice Answers

Question 1
The status quo bias implies

A. people’s actions are often influenced by what they perceive as the default choice.
B. people are restricted in their choices.
C. people are biased towards making a mistake.
D. people do not like making changes.
Question 2
Some kids wait until the school year begins to buy their back-to-school clothes so that they are sure to fit in. Such follow-the-leader behavior is an example of what the text calls:

A. conspicuous consumption.
B. focal point equilibrium.
C. bounded rationality.
D. rules of thumb.
Question 3
Diamonds cost more than water because:

A. the total utility of diamonds is greater than the total utility of water.
B. the marginal utility of diamonds is greater than the marginal utility of water.
C. the opportunity cost of diamonds is greater than the opportunity cost of water.
D. diamonds have more substitutes than water.
Question 4
According to the law of diminishing marginal utility:

A. total utility is always falling.
B. total utility is always rising.
C. after some point, total utility falls.
D. after some point, the rate of change in total utility declines.
Question 5
As long as total utility is increasing, we know that marginal utility is:

A. positive.
B. decreasing.
C. increasing.
D. negative.
Question 6
A Jackson Pollack painting can cost $1.2 million while a poster reproduction of that same painting costs only about $15. The reason is that:

A. the total utility of Jackson Pollack paintings is greater than the total utility of Jackson Pollack posters.
B. the marginal utility of Jackson Pollack paintings is greater than the marginal utility of Jackson Pollack posters.
C. the opportunity cost of Jackson Pollack paintings is greater than the opportunity cost of Jackson Pollack posters.
D. Jackson Pollack paintings have more substitutes than Jackson Pollack posters.
Question 7
The price of a McDonald’s dinner is $5; the price of a Burger King dinner is $5. The marginal utility you would get from the next McDonald’s dinner is 15; the marginal utility you would get from the next Burger King dinner is 20. You should:

A. consume more McDonald’s dinners.
B. consume more Burger King dinners.
C. not consume either Burger King or McDonald’s dinners.
D. realize you cannot make a rational decision.
Question 8
A Big Mac meal costs $3.00 and gives you an additional 5 units of utility; a meal at the Four Season’s Hotel costs $27.00 and gives you an additional 45 units of utility. Based only on the information you have, using the theory of rational choice you would most likely:

A. choose to eat the Big Mac meal.
B. choose to eat at the Four Season’s Hotel.
C. would be indifferent between eating the Big Mac and eating at the Four Season’s Hotel.
D. will decide that eating at the Four Season’s Hotel is preferable because though the marginal utilities of both meals are the same, the total utility is greater in the case of the meal at the Four Season’s Hotel.
Question 9
Steve is currently maximizing utility by consuming three fried eggs and four strips of bacon. From this you can conclude that the:

A. marginal utility of the third fried egg equals the marginal utility of the fourth strip of bacon.
B. total utility of the three eggs equals the total utility of the four strips of bacon.
C. opportunity cost of not consuming the third fried egg equals the opportunity cost of not consuming the fourth strip of bacon.
D. price of eggs and bacon are the same.
Question 10
The slower marginal utility declines as more of a good is consumed:

A. the greater the elasticity of demand.
B. the smaller the elasticity of demand.
C. the smaller the opportunity cost of the good.
D. the larger the opportunity cost of the good
11. What is the total utility of five cans of soda?

A. 6.
B. 50.
C. 8.
D. 44.
12 Refer to the above graph. Between points B and D, marginal utility is:

A. increasing, so total utility is at its maximum.
B. increasing, so total utility is falling.
C. positive, so total utility is falling.
D. positive, so total utility is increasing.
13. At this level of consumption of Goods A and B, the consumer:

A. should only consume A.
B. could increase total satisfaction for a given expenditure by increasing the consumption of B and decreasing that of A.
C. is maximizing satisfaction for the given expenditure.
D. could increase total satisfaction for a given expenditure by increasing the consumption of A and decreasing that of B.