Economic Decision 004

Which of the following best describes the cardinal utility theory?

• Consumers only rank preferences
• Utility cannot be measured
• Utility can be assigned measurable units (utils)
• Indifference curves are used
• Satisfaction depends only on prices

The Law of Diminishing Marginal Utility implies that:

• Total utility always decreases
• Utility increases
• The additional utility from consuming more of a good decreases
• MU is always constant
• TU becomes negative

The consumer reaches equilibrium when:

• TU is maximized
• MU per dollar is equal for all goods
• Budget touches highest IC
• Income not spent
• Prices are equal

Which of the following assumptions is NOT part of the cardinal utility theory?

• Utility is measurable
• MU of money is constant
• Diminishing MU
• Preferences are ordinal
• Consumers are rational

If the MU of A is 40 and price $4, and MU of B is 60 and price $6, what should the consumer do?

• Buy more of A
• Buy more of B
• Both optimal
• Consumer is in equilibrium
• MU per dollar equal for both

When MUx/Px > MUy/Py, the consumer should:

• Buy more of Y
• Buy less of X
• Buy more X and less Y (Correct)
• Increase both goods
• Stop consuming

What happens to total utility when marginal utility becomes zero?

• TU decreases
• TU increases
• TU is maximized (Correct)
• TU becomes zero
• TU fluctuates

If a good provides positive marginal utility, then:

• TU decreases
• Consumer equilibrium
• TU increases (Correct)
• MU constant
• Utility immeasurable

Which factor affects marginal utility?

• Prices of other goods
• Time of purchase
• Previous units consumed (Correct)
• Consumer’s income
• Total expenditure

The marginal utility of money being constant means:

• Money loses value
• Utility from money stays same (Correct)
• Value is subjective
• Prices don’t affect utility
• Utility immeasurable