Colander Chapter 19
Exam Questions and
Answers
User [Date] [Course title]
, Rational Choice Theory - Correct Answer: -People do what they do because it's in their self-interest
-Two things determine what people do: *utility*--the pleasure or satisfaction people get from doing or
consuming something, and the *price* of doing or consuming that something
-Changes in price provide incentives for people to change what they're doing
-Shows how pleasure and price are related
Marginal utility is 0 - Correct Answer: When the total utility stops increasing,
Total Utility - Correct Answer: The total satisfaction one gets from consuming a product
Marginal Utility - Correct Answer: The satisfaction one gets from consuming one additional unit of a
product above and beyond what one has consumed up to that point. It is the utility of changing
consumption level.
If the total utility curve is a straight line--that is, does not exhibit diminishing marginal utility--what will
the marginal utility curve look like? - Correct Answer: -The marginal utility curve will be flat with a slope
of 0 since marginal utility would not change with additional units
Diminishing Marginal Utility - Correct Answer: -As you consume more of a good, after some point, the
marginal utility received from each additional unit of a good decreases with each additional unit
consumed, other things equal
-Note that it doesn't say that you don't enjoy consuming more of a good; it simply states that as you
consume of the good, you enjoy the additional units less than you did the previous units
-When consuming a good becomes torture (meaning its utility is negative) you simply don't consume
any more of it
(-If you are willing to consume an additional unit of a good, that's a good indication that marginal utility
is still positive.)
True or False? Consuming more of a good generally increases its marginal utility. Why? - Correct Answer:
False. The principle of diminishing marginal utility is that as one increases consumption of a good, the
good's marginal utility decreases
Exam Questions and
Answers
User [Date] [Course title]
, Rational Choice Theory - Correct Answer: -People do what they do because it's in their self-interest
-Two things determine what people do: *utility*--the pleasure or satisfaction people get from doing or
consuming something, and the *price* of doing or consuming that something
-Changes in price provide incentives for people to change what they're doing
-Shows how pleasure and price are related
Marginal utility is 0 - Correct Answer: When the total utility stops increasing,
Total Utility - Correct Answer: The total satisfaction one gets from consuming a product
Marginal Utility - Correct Answer: The satisfaction one gets from consuming one additional unit of a
product above and beyond what one has consumed up to that point. It is the utility of changing
consumption level.
If the total utility curve is a straight line--that is, does not exhibit diminishing marginal utility--what will
the marginal utility curve look like? - Correct Answer: -The marginal utility curve will be flat with a slope
of 0 since marginal utility would not change with additional units
Diminishing Marginal Utility - Correct Answer: -As you consume more of a good, after some point, the
marginal utility received from each additional unit of a good decreases with each additional unit
consumed, other things equal
-Note that it doesn't say that you don't enjoy consuming more of a good; it simply states that as you
consume of the good, you enjoy the additional units less than you did the previous units
-When consuming a good becomes torture (meaning its utility is negative) you simply don't consume
any more of it
(-If you are willing to consume an additional unit of a good, that's a good indication that marginal utility
is still positive.)
True or False? Consuming more of a good generally increases its marginal utility. Why? - Correct Answer:
False. The principle of diminishing marginal utility is that as one increases consumption of a good, the
good's marginal utility decreases
