the marginal utility of diamonds is greater than the marginal utility of water. D) diamonds have more substitutes than water.
1. Jane is faced with two choices: A Porsche costs $60,000 giving her an additional 1200 units of utility and a mountain bike costs $800 giving her an additional 20 units of utility. Rational choice theory would predict that she would choose A) the Porsche. B) the mountain bike. C) It is impossible to choose because the goods have different prices. D) It is impossible to predict since there is not enough information provided. 2. A meal at Burger King costs $4.00 giving you an additional 5 units of utility; a meal at Middlebury Inn costs $20.00 giving you an additional 30 units of utility. According to the theory of rational choice: A) you should eat at Burger King. B) you should eat at the Middlebury Inn. C) you would be indifferent between eating at Burger King or eating at the Middlebury Inn. D) you would eat at Burger King since it is cheaper. 3. To make a choice among combinations of goods with a cost in money, based upon the principle of rational choice, one need not know: A) the total utility of the combination of goods. B) the marginal utility of each good. C) the price of each good. D) any of the above. 4. Economists assume that consumers will choose to purchase and consume the good that: A) costs the least. B) is of the highest quality. C) gives them the greatest additional satisfaction. D) gives them the highest marginal utility per dollar. 5. Which of the following four choices would a rational individual most likely choose? A) go to a movie that costs $5 and gives her 50 units of utility. B) go out to eat, which costs $20 and gives her 300 units of utility. C) go to an opera that costs $30 and gives her 480 units of utility. D) go to an amusement park that costs $25 and gives her 100 units of utility. 6. Goods X and Y both give the same marginal utility but good X costs $3 and good Y $2. You should A) consume more of good X and less of good Y. B) keep consuming the current amounts of both good X and good Y. C) consume more of good Y and less of good X. D) realize that you don’t have enough information to answer the question. 7. Total utility is maximized when: A) marginal utility per dollar spent is the same for all goods. B) total utility for each good is identical to its price. C) total utility per dollar spent is the same for all goods. D) the marginal utility is the same for each item purchased. 8. Diminishing marginal utility explains the law of: A) supply. B) demand. C) comparative advantage. D) production 9. Dennis is deciding where to spend his spring break. If he goes to Vail, Colorado, the trip will give him 10,000 units of utility (satisfaction) and will cost him $500. If, instead, he travels to Padre Island, Texas, the trip will give him 6000 units of utility and will cost him $400. Dennis should go to: A) Vail because his total pleasure would be greater. B) Padre Island because it is cheaper. C) Vail because his pleasure per dollar spent will be greater. D) Padre Island because his pleasure per dollar spent will be greater. 10. Water costs less than diamonds because: A) the total utility of diamonds is greater than the total utility of water. B) the opportunity cost of diamonds is greater than the opportunity cost of water. C) the marginal utility of diamonds is greater than the marginal utility of water. D) diamonds have more substitutes than water.