20 Utilities Quiz Questions and Answers

1. Question: What is utility in economics?
Options:
A) The total cost of production
B) The satisfaction or benefit derived from consuming a good or service
C) The price of a commodity
D) The quantity of goods produced
Answer: B
Explanation: Utility refers to the subjective satisfaction or happiness that consumers experience from consuming goods and services, forming the basis of consumer choice theory.

2. Question: According to the law of diminishing marginal utility, what happens as a consumer consumes more units of a good?
Options:
A) Marginal utility increases
B) Marginal utility remains constant
C) Marginal utility decreases
D) Total utility decreases immediately
Answer: C
Explanation: The law states that as additional units of a good are consumed, the marginal utility derived from each extra unit decreases, assuming other factors remain constant.

3. Question: If a consumer’s total utility from consuming 3 units of a good is 50 utils and from 4 units is 58 utils, what is the marginal utility of the 4th unit?
Options:
A) 8 utils
B) 50 utils
C) 58 utils
D) 108 utils
Answer: A
Explanation: Marginal utility is calculated as the change in total utility divided by the change in quantity; here, 58 – 50 = 8 utils for the 4th unit.

4. Question: Which of the following best describes marginal utility?
Options:
A) The overall satisfaction from all units consumed
B) The additional satisfaction from consuming one more unit
C) The total cost of goods consumed
D) The price paid for a good
Answer: B
Explanation: Marginal utility measures the extra utility gained from consuming an additional unit of a good, which helps in decision-making for consumption.

5. Question: In utility theory, what does the concept of equimarginal utility principle suggest?
Options:
A) Consumers should spend all their income on one good
B) Consumers should allocate income so that the marginal utility per dollar spent is equal across goods
C) Utility should be maximized by minimizing costs
D) Total utility must be equal for all goods
Answer: B
Explanation: The principle states that for utility maximization, the ratio of marginal utility to price should be equal for all goods a consumer buys.

6. Question: If a consumer has a budget constraint and prefers goods that provide higher utility per unit of money, what will they do?
Options:
A) Buy only the cheapest goods
B) Maximize total utility within the budget
C) Ignore utility and focus on quantity
D) Spend equally on all goods
Answer: B
Explanation: Consumers aim to achieve the highest possible total utility given their budget, by choosing combinations of goods that optimize satisfaction.

7. Question: What is an indifference curve?
Options:
A) A curve showing increasing utility over time
B) A curve representing combinations of goods that provide the same level of utility
C) A line indicating the price of goods
D) A graph of total costs
Answer: B
Explanation: An indifference curve plots bundles of goods that give the consumer the same utility, illustrating preferences without regard to budget.

8. Question: Why might a consumer stop consuming more of a good even if they can afford it?
Options:
A) Because marginal utility becomes negative
B) Because the good is always expensive
C) Because total utility is zero
D) Because they have unlimited wants
Answer: A
Explanation: Consumption continues until marginal utility equals or falls below zero, as further consumption would reduce overall satisfaction.

9. Question: In cardinal utility analysis, utility is measured in:
Options:
A) Qualitative terms
B) Quantitative units like utils
C) Price equivalents
D) Time spent
Answer: B
Explanation: Cardinal utility assigns numerical values to utility, allowing for measurements like utils, though it’s a theoretical concept.

10. Question: What factor can shift a consumer’s demand curve according to utility theory?
Options:
A) Changes in production costs
B) Changes in consumer preferences or tastes
C) Government subsidies
D) All of the above
Answer: D
Explanation: Utility theory suggests that demand can shift due to changes in preferences, income, prices of related goods, or external factors like subsidies.

11. Question: If the marginal utility of a good is 20 utils and its price is $5, what is the marginal utility per dollar?
Options:
A) 4 utils per dollar
B) 20 utils per dollar
C) 100 utils per dollar
D) 5 utils per dollar
Answer: A
Explanation: Marginal utility per dollar is calculated as marginal utility divided by price: 20 utils / $5 = 4 utils per dollar.

12. Question: Which assumption underlies the utility maximization model?
Options:
A) Consumers have perfect information
B) Consumers always prefer more goods
C) Utility is ordinal
D) All of the above
Answer: D
Explanation: The model assumes consumers have complete information, prefer more utility, and can rank preferences ordinally to maximize satisfaction.

13. Question: How does income affect utility according to basic economic theory?
Options:
A) Higher income always leads to higher utility
B) Income has no effect on utility
C) Utility depends on how income is spent
D) Lower income increases utility
Answer: C
Explanation: Utility is derived from the consumption enabled by income, so the way income is allocated to goods and services determines the level of utility.

14. Question: What is the difference between total utility and marginal utility?
Options:
A) Total utility is for one good; marginal is for all goods
B) Total utility is the sum of all marginal utilities
C) Marginal utility is always higher than total utility
D) They are the same concept
Answer: B
Explanation: Total utility is the overall satisfaction from all units consumed, while marginal utility is the addition to total utility from the last unit.

15. Question: In a budget line, how does utility play a role?
Options:
A) It determines the slope of the line
B) Consumers choose points on or below the line to maximize utility
C) Utility creates the budget constraint
D) It has no role
Answer: B
Explanation: Consumers select the combination of goods on their budget line that yields the highest utility, based on their preferences.

16. Question: Why is the concept of diminishing marginal utility important for pricing?
Options:
A) It helps firms set monopoly prices
B) It explains why consumers buy varying quantities
C) It justifies government intervention
D) It is irrelevant to pricing
Answer: B
Explanation: Diminishing marginal utility influences how much of a good consumers will purchase at different prices, affecting demand curves.

17. Question: If two goods are perfect substitutes, how does utility change?
Options:
A) Utility is always the same for both
B) Consumers are indifferent between them
C) Marginal utility increases for both
D) Total utility decreases
Answer: B
Explanation: For perfect substitutes, consumers derive the same utility from either good, making indifference curves straight lines.

18. Question: What happens to utility when a consumer reaches the satiation point?
Options:
A) Utility continues to increase
B) Marginal utility becomes zero or negative
C) Total utility decreases
D) Utility is maximized indefinitely
Answer: B
Explanation: At satiation, additional consumption provides no extra utility or even reduces it, signaling the end of demand for that good.

19. Question: How does the price of a good affect marginal utility in decision-making?
Options:
A) Higher prices increase marginal utility
B) Consumers compare marginal utility to price
C) Price has no effect on utility
D) Lower prices decrease utility
Answer: B
Explanation: Consumers evaluate whether the marginal utility gained justifies the price paid, guiding their purchasing decisions.

20. Question: In ordinal utility, what do consumers use to make choices?
Options:
A) Exact numerical values of utility
B) Rankings of preferences
C) Absolute utility levels
D) Cost comparisons only
Answer: B
Explanation: Ordinal utility involves ranking bundles of goods by preference, rather than assigning precise numbers, to determine optimal choices.