Sample Quizzes For Preparation: Utility

A2 Level Economics – Topic 7.1: Utility

1. What is meant by total utility?

A. Utility from the last unit consumed
B. Utility measured in money terms
C. Total satisfaction from all units consumed
D. Maximum price a consumer will pay

2. Which best defines marginal utility?

A. Total utility from multiple goods
B. Change in utility from a price change
C. Additional satisfaction from one more unit
D. Utility measured using money

3. The formula for marginal utility is:

A. MU = TU × Q
B. MU = Q / TU
C. MU = ΔTU / ΔQ
D. MU = TU / Q

4. What happens to marginal utility as consumption increases, according to the law of diminishing marginal utility?

A. It remains constant
B. It increases
C. It fluctuates randomly
D. It decreases

5. If total utility remains the same when consuming an extra unit, marginal utility is:

A. Positive
B. Zero
C. Negative
D. Unmeasurable

6. When marginal utility becomes negative, the total utility:

A. Increases
B. Decreases
C. Stays the same
D. Doubles

7. According to the equi-marginal principle, consumers allocate income so that:

A. MU = TU for all goods
B. MU × P is equal for all goods
C. MU / P is equal for all goods
D. TU is maximized per good

8. If the marginal utility of product A is 20 and its price is $2, what is MU/P?

A. 10
B. 40
C. 18
D. 22

9. The law of diminishing marginal utility explains why the individual demand curve is:

A. Vertical
B. Horizontal
C. Upward-sloping
D. Downward-sloping

10. As price falls, marginal utility per unit of money:

A. Increases
B. Decreases
C. Remains unchanged
D. Equals total utility

11. If MUa/Pa > MUb/Pb, a rational consumer should:

A. Buy more of good B
B. Stop buying both goods
C. Buy more of good A
D. Buy equal units of both

12. Which of the following illustrates diminishing marginal utility?

A. First slice of pizza = 20 utils, second = 25 utils
B. First book read = 15 utils, second = 10 utils
C. First movie = 10 utils, second = 10 utils
D. No utility gained after second consumption

13. What assumption underlies marginal utility theory?

A. All goods are inferior
B. Money is unlimited
C. Consumers behave rationally
D. Government controls prices

14. Total utility is maximized when:

A. MU is negative
B. MU is constant
C. MU is at its maximum
D. MU = 0

15. If the MU of good A is 24 and price is 6, and MU of good B is 40 and price is 10, what should the consumer do?

A. Buy more of A
B. Buy more of B
C. Buy less of both
D. Buy more of A and B

16. Marginal utility becomes negative when:

A. The good is scarce
B. Total utility begins to decline
C. Price increases
D. MU equals total utility

17. In marginal utility theory, utils are:

A. Prices
B. Units of income
C. Satisfaction levels
D. Measurement of cost

18. If total utility = 60 for 3 units, and 90 for 4 units, what is the MU of the 4th unit?

A. 150
B. 30
C. 15
D. 60

19. Rational consumers aim to:

A. Minimize marginal utility
B. Maximize marginal utility
C. Maximize total utility
D. Equalize total utility per good

20. A fall in the marginal utility of a good leads to:

A. A fall in demand
B. A rise in price
C. A shift in supply
D. A fall in equilibrium quantity

21. Which concept contradicts the assumption of rational utility-maximizing behavior?

A. Income effect
B. Time preference
C. Impulse buying
D. Equi-marginal principle

22. Ordinal utility theory suggests that:

A. Utility can be measured in numbers
B. Consumers rank preferences but don’t assign values
C. All utility is the same
D. Only one good gives utility

23. What does it mean when MU = Price?

A. Consumption is irrational
B. Consumer is over-consuming
C. Utility is maximized
D. TU is falling

24. One major limitation of marginal utility theory is:

A. Inability to handle multiple consumers
B. Assumes perfect competition
C. Assumes utility is measurable
D. Focuses only on supply

25. In the equi-marginal principle, reallocation continues until:

A. MU of all goods is zero
B. MU = TU
C. MU/P is equal across goods
D. Prices fall

26. Which of the following is true about total utility?

A. Always decreases
B. Can increase at a decreasing rate
C. Equals marginal utility
D. Remains constant

27. The marginal utility per dollar helps determine:

A. Brand preference
B. Time allocation
C. Utility maximization decisions
D. Supply of goods

28. The assumption of diminishing marginal utility leads to:

A. Constant expenditure
B. Downward-sloping demand
C. Decreasing costs
D. Rising total utility forever

29. In the context of consumer choice, a utility-maximizing rule assumes:

A. All goods have equal prices
B. Consumers make emotional decisions
C. Limited income and rational behavior
D. Perfect utility across markets

30. Which of the following is not a critique of marginal utility theory?

A. Utility is not cardinal
B. Marginal cost is ignored
C. Rationality assumption is unrealistic
D. Consumers do not consume multiple goods

Marking Key and Detailed Explanations

1. C ✅ – TU is the total satisfaction from all units consumed.
2. C ✅ – MU is the extra satisfaction from consuming one more unit.
3. C ✅ – MU is the change in TU divided by change in quantity.
4. D ✅ – MU declines with each additional unit.
5. B ✅ – If TU doesn’t increase, MU is zero.
6. B ✅ – Negative MU leads to a fall in TU.
7. C ✅ – Consumers equalize MU per currency unit across goods.
8. A ✅ – MU/P = 20 / 2 = 10
9. D ✅ – Due to diminishing MU, price must fall to encourage demand → downward slope.
10. A ✅ – Lower prices increase MU per dollar.
11. C ✅ – Buy more of A until MU/P equalizes.
12. B ✅ – Decline from 15 to 10 utils shows diminishing MU.
13. C ✅ – Theory assumes rational decision-making.
14. D ✅ – TU is maximized when MU = 0.
15. A ✅ – MU/P: A = 4, B = 4 → indifferent; but buying more of A is usually preferred.
16. B ✅ – When MU is negative, TU starts falling.
17. C ✅ – Utils measure satisfaction.
18. B ✅ – ΔTU = 90 − 60 = 30 → MU = 30
19. C ✅ – Rational consumers aim to maximize TU.
20. A ✅ – Less MU → less willingness to pay → lower demand.
21. C ✅ – Impulse buying contradicts rational behavior.
22. B ✅ – Ordinal utility ranks preferences but does not assign numerical values.
23. C ✅ – At MU = Price, utility is maximized.
24. C ✅ – It wrongly assumes measurable utility.
25. C ✅ – Reallocation stops when MU/P is equal for all goods.
26. B ✅ – TU can rise even if MU is falling.
27. C ✅ – Determines optimal consumption.
28. B ✅ – Leads to a downward-sloping demand curve.
29. C ✅ – Limited income + rationality form basis of utility theory.
30. D ✅ – Consumers regularly consume multiple goods → this is not a valid critique.