AP Microeconomics 1.5 & 1.6 Test

The additional satisfaction received from consuming an additional unit of a good is called the

• marginal utility

• marginal product

• average product

• average utility

• total utility

Which of the following is true if consuming one unit of a good yields 100 utils and consuming the second unit of the good increases satisfaction by 20 utils?

• The marginal utility of the first unit is 20.

• The marginal utility of the second unit is 80.

• The marginal utility of the second unit is 120.

• The total utility of consuming two units is 120.

• The total utility of consuming one unit is greater than the total utility of consuming two units.

Carlos has a van with 20 seats and charges $10 per person per ride to the airport from downtown. Carlos’ cost of the trip is $140 for any number of passengers. On one trip, Carlos has 19 seats filled when a person offers him $5 for the last seat. Should Carlos accept the offer?

• No, since the $5 fare offered is below his average cost of $7.

• No, since the average variable cost is greater than $5.

• No, since it is illegal to charge different prices for the same service.

• Yes, since the marginal benefit exceeds the marginal cost.

• Yes, since his total revenue exceeds his total cost by $5.

All of the following are included in computing the opportunity cost of attending college EXCEPT

• interest paid on student loans

• wages the student gave up to attend college

• money spent on college tuition

• money spent on clothing expenses

• money spent on books and supplies

If a good is available free of charge, an individual will consume it until

• marginal utility is zero

• average utility is zero

• total utility is zero

• marginal utility equals average utility

• marginal utility equals total utility

Marginal analysis suggests that an individual will consume one additional unit of a good if the

• sunk cost can be recovered

• total benefit is less than the total cost

• total benefit is greater than the total cost

• additional benefit is less than the additional cost

• additional benefit is greater than the additional cost

Suppose that a consumer purchases two goods X and Y and that the marginal utility of X is MUx, the total utility of X is TUx, the marginal utility of Y is MUy, and the total utility of Y is TUy. If the prices of X and Y are Px and Py, respectively, which of the following expressions defines consumer equilibrium?

• TUx = TUy

• MUx = MUy

• TUx/Px = TUy/Py

• MUx/Px = MUy/Py

• (MUx)(Px) + (MUy)(Py) = 1

To maximize utility, a consumer with a fixed budget will purchase quantities of goods so that the ratios of the marginal utility of each good to its

• total utility are the greatest

• total utility are the same

• price are the greatest

• price are equal to one

• price are equal

According to the law of diminishing marginal utility, which of the following is true?

• Total satisfaction decreases as more units of a good are consumed.

• The additional satisfaction received from consuming extra units of a good decreases as consumption of the good increases.

• The additional satisfaction received from consuming extra units of a good decreases as consumption of the good decreases.

• The additional satisfaction received from consuming extra units of a good increases as consumption of the good increases.

• When marginal utility is decreasing, total utility is decreasing.

Using cost-benefit analysis, a local government would decide to build a new bridge if

• The additional tax paid by an individual resident is greater than the additional benefit of building the bridge for all residents.

• The toll paid by an individual resident crossing the bridge is less than the resident’s benefit from crossing the bridge.

• The total costs of building the bridge are less than the total benefits from building the bridge.

• The total costs of building the bridge are greater than the total benefits from building the bridge.

• Total costs are at a minimum and total benefits are at a maximum.