The law of diminishing marginal utility says that
a.as more of a good is consumed, total utility diminishes causing marginal utility to
diminish as well
b.as more of a good is consumed, total utility increases causing marginal utility to
c.with reference to consumption, more is better than less until a point is reached after
which less is better than more
d.with reference to consumption, less is better than more until a point is reached after
which more is better than less
e.we always value the “one before the last one” more
122. Ask your grandparents about their first love and they would probably remember it well.
Ask about the second, and it would probably draw a blank. Think in terms of utility
analysis and their responses come as no surprise because what they remember or don’t
remember, even about love, reflects the
a.same idea that is associated with the water and diamond paradox
b.law of maximizing utility
c.law of diminishing marginal utility
d.idea that utility is very durable over time
e.fact that total utility must be declining
123. If you talk to people who are addicted to alcohol, they will tell you that the more they
consume, the more they long for and value the next drink. If you think about their sorry
predicament in terms of utility analysis, you can conclude about their consumption of
a.utility theory does not apply to alcohol
b.total utility keeps decreasing as more is consumed
c.marginal utility keeps increasing as more is consumed
d.the law of diminishing marginal utility is present here
e.total and marginal utility keep increasing as more is consumed, but total utility is
always greater than marginal utility
124. The water and diamond paradox is explained by the fact that the total utility of water is
higher than the total utility of diamonds, but the marginal utility of water is lower than
the marginal utility of diamonds. Which of the following goods, when compared, have
total and marginal utilities that best reflect the water and diamond paradox, although
certainly not as vividly?
a.cake and ice cream
b.wine and soft drinks
c.jewelry and tattoos
d.bread and caviar
e.horses and automobiles
125. If government was not allowed to make interpersonal comparisons of utility, what effect
would this have on how we tax people?
a.We could not tax at all.
b.We could not justify taxing the rich more than the poor.
c.We would tax the rich more than the poor.
d.Whatever tax government collects would have to be voluntarily given by the people
e.We could continue taxing the way we do, but it would be less efficient.
126. Total utility
a.can never be negative
b.is maximized when marginal utility is maximized
c.always continues to increase as more of the good is consumed
d.is maximized when marginal utility is zero
e.is minimized when marginal utility is zero
127. You’ve read about a soldier who, in the heat of battle, willingly sacrifices his or her life to
save the lives of fellow soldiers. How can you best explain such a sacrifice in terms of
a.The soldier makes an interpersonal comparison of utility and decides that the life of
the soldier saved is less valuable than his own.
b.The soldier makes an interpersonal comparison of utility and decides that the
probability of getting killed is less than the probability of not getting killed, but was
c.The soldier makes an interpersonal comparison of utility and decides that the
probability of getting killed is less than the probability of not getting killed, and was
right, but the probability of getting killed was still greater than zero.
d.In the heat of battle, the soldier may place an incredibly high value on saving a
comrade’s life, even higher than his own.
e.In the heat of battle, a soldier doesn’t think rationally.
128. Often, in criminal court, the judge will sentence a defendant to 10 days in jail or a $500
fine. Some choose jail time, others the fine. What best determines their choice?
a.They compare the loss of utility from doing time versus the loss of utility from
giving up the $500. If the loss of utility associated with the $500 is greater, they will
choose jail time.
b.If they can earn $500 or more in 10 days, they will choose the fine.
c.If they can earn no more than $499 in 10 days, they will choose the fine.
d.Jail time generally has a utility of zero. If the utility of the $500 is greater than zero,
they will choose the fine.
e.Jail time generally has a utility of zero. If the utility of the $500 is greater than zero,
they will choose jail time.
129. Does utility analysis explain children’s behavior? Children love to play “dare” games.
Does this sound familiar: “I dare you to ring Mr. Hollub’s doorbell and wait until he
answers before you run”? What makes a child take the dare?
a.If the utility of getting caught is positive, the dare is taken.
b.If the total utility gained from the dare is greater than the marginal utility of getting
caught, the dare is not taken.
c.If the total utility gained from the dare is greater than the marginal utility of getting
caught, the dare is taken.
d.The child adds up the sum of the positive utility in taking the dare and the negative
utility of getting caught. If the sum is positive, the dare is not taken.
e.The child compares the positive utility gained in taking the dare with the negative
utility of getting caught. If the sum of the positive utility and negative utility is
positive, the dare is taken.
130. The law of diminishing marginal utility explains why the demand curve is downward
sloping. The law states that as you consume more of a good, the
a.total satisfaction you obtain from consuming the good falls
b.added satisfaction you obtain from consuming an additional unit of the good
increases at a diminishing rate
c.marginal product increases at a diminishing rate
d.satisfaction you obtain from each additional unit of the good you consume falls
e.total satisfaction you obtain from each additional good you consume decreases at a
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