# Microeconomics Instructor Miller Practice Problems Consumer Theory

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1 Microeconomics Instructor Miller Practice Problems Consumer Theory 1. Marginal utility is the A) total satisfaction received from consuming a given number of units of a product. B) average satisfaction received from consuming a product. C) extra satisfaction received from consuming one more unit of a product. D) satisfaction achieved when a consumer has had enough of a product. 2. As a consumer consumes more and more of a product in a particular time period, eventually marginal utility A) rises. B) is constant. C) declines. D) fluctuates. 3. If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of A) the law of demand. B) the law of supply. C) the law of increasing marginal opportunity cost. D) the law of diminishing marginal utility. 4. Marginal utility can be A) negative. B) zero. C) positive. D) positive, negative or zero. 5. If total utility increases at a decreasing rate as a consumer consumes more coffee, then marginal utility must A) remains constant. B) increase also. C) decrease. D) be negative.

2 6. Consumers have to make tradeoffs in deciding what to consume because A) not all goods give them the same amount of satisfaction. B) the prices of goods vary. C) they are limited by a budget constraint. D) there are not enough of all goods produced. Quantity of Quantity of Total Utility Pita Wraps Bubble Tea Total Utility Keegan has \$30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is \$6 and the price of a glass of Bubble Tea is \$3. Table 10-1 shows his total utility from different quantities of the two items. 7. Refer to the above table. What is Keegan's optimal consumption bundle? A) 3 pita wraps and 3 bubble teas B) 3 pita wraps and 4 bubble teas C) 4 pita wraps and 2 bubble teas D) 5 pita wraps and 0 bubble teas 8. Refer to the above table. If Keegan can drink all the bubble tea he wants for free, how many glasses will he consume? A) 4 glasses B) 5 glasses C) 6 glasses D) 7 glasses 9. If Valerie purchases ankle socks at \$5 and gets 25 units of marginal utility from the last unit, and bandanas at \$3 and gets 12 units of marginal utility from the last bandana purchased, she A) is maximizing total utility and does not want to change their consumption of ankle socks or bandanas. B) wants to consume more ankle socks and fewer bandanas. C) wants to consume more of bandanas and fewer ankle socks. D) wants to consume less of both ankle sock and bandanas.

5 19. The quantity demanded of tickets to the Super Bowl is always greater than the than the quantity supplied. Which of the following in the best explanation why the National Football League does not raise the price of tickets to the level where the quantity demanded equals the quantity supplied? A) Raising the price would reduce the demand for tickets; there would then be a surplus and the game would not sell out. B) The cost of raising the price and printing new tickets would exceed the revenue the NFL would receive from higher ticket prices. C) The demand for Super Bowl tickets is elastic; raising the price would reduce total revenue. D) The NFL is concerned that raising ticket prices would be considered unfair. 20. During its run on Broadway, the play The Producers regularly sold out all available tickets at the St. James Theater. The theater could have raised ticket prices from \$75 to \$125 and still sold all available tickets but chose not to do so. The best explanation for this decision is A) theater owners are unaware of the elasticity of demand for Broadway shows. B) theater owners do not want to raise their tickets on weekends, when demand is high, and then have to lower prices during the week, when demand is lower. C) firms sometimes give up profits in the short run to keep their customers happy and increase their profits in the long run. D) theater owners are not motivated to maximize their profits. 21. In their surveys of consumers, Daniel Kaheman, Jack Knetsch and Richard Thaler found that A) most people considered it unfair for firms to raise their prices because of an increase in their costs, but fair to raise their prices after an increase in demand. B) most people considered any increase in price to be unfair as it led to an increase in profits. C) most people believed that low income people were hurt most by increases in prices. D) most people considered an increase in price by firms following an increase in their costs to be fair but believed it was unfair for firms to raise their prices because of an increase in demand. 22. The observation that people tend to value something more highly when they own it than when they don't is called the A) wealth effect. B) endowment effect. C) path dependent effect. D) endorsement effect. 23. If you exhibit the endowment effect as a decision maker, then you are A) deciding on the basis of sunk costs. B) buying something you can't really afford because you expect to save in the future. C) ignoring non-monetary opportunity costs. D) consuming based on celebrity endorsements.

7 28. Health Clubs typically experience an increase in one-year memberships in January, but many new customers cancel their memberships before the end of the year. Which of the following is the best explanation for this behavior? A) Some health club members suffer minor injuries that prevent them from working out. B) Some people are overly optimistic about their future behavior. C) Some people fail to treat their membership fees as sunk costs. D) Some members receive utility from activities they believe are popular. 29. Assume that you had a ticket for a basketball playoff game that you bought for \$50, the maximum price you were willing to pay. If someone offers to buy the ticket for \$100 but you decide not to sell it, how can your decision be explained? A) You expect to receive greater utility from attending the playoff game than you received from buying the ticket. B) by the endowment effect C) by the law of diminishing marginal utility D) The income effect from the increase in the price of the ticket from \$50 to \$100 was greater than the substitution effect. 1. C 2. C 3. D 4. D 5. C 6. C 7. B 8. C 9. B 10. C 11. B 12. A 13. B 14. A 15. D 16. B 17. D 18. B 19. D 20. C 21. D 22. B 23. C 24. B 25. C 26. A 27. D 28. B 29. B

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Perfectly Competitive Markets A firm s decision about how much to produce or what price to charge depends on how competitive the market structure is. If the Cincinnati Bengals raise their ticket prices