Question 1

A consumer is in equilibrium if he or she derives the same

Accepted Answer

A) total utility from each good consumed. 
B) total utility per dollar spent on each good consumed. 
C) marginal utility from each good consumed. 
D) marginal utility per dollar spent on each good consumed. 
A) total utility from each good consumed. 
B) total utility per dollar spent on each good consumed. 
C) marginal utility from each good consumed. 
D) marginal utility per dollar spent on each good consumed.

Question 2

Implicit in the solution to the diamond-water paradox is the idea that prices reflect __________ utility instead of __________ utility.

Accepted Answer

A) marginal; total 
B) total; marginal 
C) average; total 
D) total; average 
E) none of the above 
A) marginal; total 
B) total; marginal 
C) average; total 
D) total; average 
E) none of the above

Question 3

The marginal utility curve for units 1 through 5 of good Z lies above the horizontal axis. What does this imply must be true about the total utility curve for units 1 through 5 of good Z?

Accepted Answer

A) That portion of good Z's total utility curve must be upward sloping. 
B) That portion of good Z's total utility curve must be downward sloping. 
C) That portion of good Z's total utility curve must be horizontal. 
D) That portion of good Z's total utility curve must also lie above the horizontal axis. 
A) That portion of good Z's total utility curve must be upward sloping. 
B) That portion of good Z's total utility curve must be downward sloping. 
C) That portion of good Z's total utility curve must be horizontal. 
D) That portion of good Z's total utility curve must also lie above the horizontal axis.

Question 4

Marginal utility is computed by dividing total utility by the quantity consumed of a good.

Accepted Answer

A) True 
 B)False

Question 5

Joe is currently in consumer equilibrium by consuming cheese and crackers, such that the last cracker consumed yielded 8 utils and the last piece of cheese consumed yielded 12 utils. Assume the price of crackers is two cents per cracker and the price of cheese is three cents per piece. If the price of crackers increases to four cents, Joe should __________ his consumption of crackers and his marginal utility from crackers will __________ and also __________ his consumption of cheese and his marginal utility from cheese will __________.

Accepted Answer

A) increase; increase; increase; increase 
B) increase; increase; decrease; decrease 
C) increase; decrease; increase; decrease 
D) decrease; increase; decrease; increase 
E) decrease; increase; increase; decrease 
A) increase; increase; increase; increase 
B) increase; increase; decrease; decrease 
C) increase; decrease; increase; decrease 
D) decrease; increase; decrease; increase 
E) decrease; increase; increase; decrease

Question 6

Exhibit 20-3
​
  
-Refer to Exhibit 20-3. Linda spends $5 a week on apples and oranges. If the price of both goods is $1 per unit, what is Linda's total utility from consuming the optimal bundle of goods?

Accepted Answer

A) 85 
B) 86 
C) 88 
D) 209 
E) 279 
A) 85 
B) 86 
C) 88 
D) 209 
E) 279

Question 7

If a person's income and the prices of both goods all rise by the same percentage, then her budget constraint

Accepted Answer

A) moves inward toward the origin, and its slope remains the same. 
B) moves outward away from the origin, and its slope changes. 
C) moves outward away from the origin, and its slope remains the same. 
D) does not change in any way. 
A) moves inward toward the origin, and its slope remains the same. 
B) moves outward away from the origin, and its slope changes. 
C) moves outward away from the origin, and its slope remains the same. 
D) does not change in any way.

Question 8

Suppose Valerie is consuming lipstick (L) and eye shadow (E) and nothing else. MUL = 40 and MUE = 36. The price of eye shadow is $9, and the price of lipstick is $15. What should Valerie do?

Accepted Answer

A) Consume more eye shadow and less lipstick. 
B) Consume more lipstick and less eye shadow. 
C) Consume less of both. 
D) Consume more of both. 
E) Not change her consumption of either good. 
A) Consume more eye shadow and less lipstick. 
B) Consume more lipstick and less eye shadow. 
C) Consume less of both. 
D) Consume more of both. 
E) Not change her consumption of either good.

Question 9

Exhibit 20-6
​
  
-Refer to Exhibit 20-6. I1, I2 and I3 are indifference curves and line ab is the relevant budget constraint. The equilibrium position for the consumer is at

Accepted Answer

A) any point on the budget constraint. 
B) point M. 
C) point J. 
D) point T. 
E) point R. 
A) any point on the budget constraint. 
B) point M. 
C) point J. 
D) point T. 
E) point R.

Question 10

Exhibit 20-7
​
  
-Refer to Exhibit 20-7. Which of the following graphs represents a budget constraint of a consumer whose income is $120?

Accepted Answer

A) (1) 
B) (2) 
C) (3) 
D) (1) and (2) 
E) This cannot be determined from the information provided. 
A) (1) 
B) (2) 
C) (3) 
D) (1) and (2) 
E) This cannot be determined from the information provided.

Question 11

The point where the slope of the budget constraint equals the slope of the indifference curve is termed consumer equilibrium.

Accepted Answer

A) True 
 B)False

Question 12

Indifference curves are generally downward sloping, they are convex to the origin, and they do not cross.

Accepted Answer

A) True 
 B)False

Question 13

The theory of consumer choice assumes that consumers attempt to maximize

Accepted Answer

A) the difference between total utility and marginal utility. 
B) average utility. 
C) total utility. 
D) marginal utility. 
A) the difference between total utility and marginal utility. 
B) average utility. 
C) total utility. 
D) marginal utility.

Question 14

Exhibit 20-4
  
-Refer to Exhibit 20-4. What value goes in blank (A)?

Accepted Answer

A) 55 
B) 110 
C) 80 
D) 95 
E) There is not enough information to answer this question. 
A) 55 
B) 110 
C) 80 
D) 95 
E) There is not enough information to answer this question.

Question 15

Total utility is defined as the

Accepted Answer

A) change in marginal utility a person derives from the consumption of a good. 
B) change in total utility a person derives from the consumption of a good divided by the price of that good. 
C) change in total utility a person derives from the consumption of a good divided by the change in the consumption of that good. 
D) sum of the amounts of satisfaction a person receives from consuming a good. 
E) change in total utility a person derives from the consumption of a good. 
A) change in marginal utility a person derives from the consumption of a good. 
B) change in total utility a person derives from the consumption of a good divided by the price of that good. 
C) change in total utility a person derives from the consumption of a good divided by the change in the consumption of that good. 
D) sum of the amounts of satisfaction a person receives from consuming a good. 
E) change in total utility a person derives from the consumption of a good.

Question 16

A person is in consumer equilibrium, and then the price rises for one of the goods she purchases. If she wants to restore herself to consumer equilibrium, she will (most likely)

Accepted Answer

A) buy less of the good whose price has risen and more of the relatively lower priced goods. 
B) try to increase the marginal utility she receives from the good whose price has risen. 
C) try to decrease the marginal utility she receives from the goods whose prices did not rise. 
D) buy more of both the good whose price has risen and of the goods whose prices have not risen. 
E) There is not enough information to answer the question. 
A) buy less of the good whose price has risen and more of the relatively lower priced goods. 
B) try to increase the marginal utility she receives from the good whose price has risen. 
C) try to decrease the marginal utility she receives from the goods whose prices did not rise. 
D) buy more of both the good whose price has risen and of the goods whose prices have not risen. 
E) There is not enough information to answer the question.

Question 17

This is the solution to the diamond-water paradox: Those things that have high value in use sometimes have low prices because they are consumed at low __________ utility; those things that have low value in use sometimes have high prices because they are consumed at high __________utility.

Accepted Answer

A) marginal; total 
B) total; total 
C) total; marginal 
D) marginal; marginal 
E) none of the above 
A) marginal; total 
B) total; total 
C) total; marginal 
D) marginal; marginal 
E) none of the above

Question 18

Smith, who has $10,000, receives an extra dollar, as does Jones, who has $100,000. Smith receives more utility from the extra dollar than does Jones. This is an example of

Accepted Answer

A) an interpersonal utility comparison. 
B) the law of diminishing marginal utility. 
C) the diamond-water paradox. 
D) a and b 
A) an interpersonal utility comparison. 
B) the law of diminishing marginal utility. 
C) the diamond-water paradox. 
D) a and b

Question 19

Exhibit 20-1
  
-Refer to Exhibit 20-1. The marginal utility of the third plum is

Accepted Answer

A) 17 utils. 
B) 10 utils. 
C) 8 utils. 
D) 3 utils. 
E) cannot be determined 
A) 17 utils. 
B) 10 utils. 
C) 8 utils. 
D) 3 utils. 
E) cannot be determined

Question 20

The law of diminishing marginal utility

Accepted Answer

A) allows us to make interpersonal utility comparisons. 
B) tells us that an additional dollar is worth less to a millionaire than to a poor person. 
C) tells us the worth of an additional dollar of income. 
D) tells us that an additional dollar of income is worth less than the preceding dollar of income. 
E) a, b, and d 
A) allows us to make interpersonal utility comparisons. 
B) tells us that an additional dollar is worth less to a millionaire than to a poor person. 
C) tells us the worth of an additional dollar of income. 
D) tells us that an additional dollar of income is worth less than the preceding dollar of income. 
E) a, b, and d

Exam 20: Consumer Choice and Behavioral Economics

A consumer is in equilibrium if he or she derives the same

Implicit in the solution to the diamond-water paradox is the idea that prices reflect __________ utility instead of __________ utility.

The marginal utility curve for units 1 through 5 of good Z lies above the horizontal axis. What does this imply must be true about the total utility curve for units 1 through 5 of good Z?

Marginal utility is computed by dividing total utility by the quantity consumed of a good.

Exhibit 20-3 ​ -Refer to Exhibit 20-3. Linda spends $5 a week on apples and oranges. If the price of both goods is $1 per unit, what is Linda's total utility from consuming the optimal bundle of goods?

If a person's income and the prices of both goods all rise by the same percentage, then her budget constraint

Suppose Valerie is consuming lipstick (L) and eye shadow (E) and nothing else. MUL = 40 and MUE = 36. The price of eye shadow is $9, and the price of lipstick is $15. What should Valerie do?

Exhibit 20-6 ​ -Refer to Exhibit 20-6. I1, I2 and I3 are indifference curves and line ab is the relevant budget constraint. The equilibrium position for the consumer is at

Exhibit 20-7 ​ -Refer to Exhibit 20-7. Which of the following graphs represents a budget constraint of a consumer whose income is $120?

The point where the slope of the budget constraint equals the slope of the indifference curve is termed consumer equilibrium.

Indifference curves are generally downward sloping, they are convex to the origin, and they do not cross.

The theory of consumer choice assumes that consumers attempt to maximize

Exhibit 20-4 -Refer to Exhibit 20-4. What value goes in blank (A)?

Total utility is defined as the

A person is in consumer equilibrium, and then the price rises for one of the goods she purchases. If she wants to restore herself to consumer equilibrium, she will (most likely)

This is the solution to the diamond-water paradox: Those things that have high value in use sometimes have low prices because they are consumed at low __________ utility; those things that have low value in use sometimes have high prices because they are consumed at high __________utility.

Smith, who has $10,000, receives an extra dollar, as does Jones, who has $100,000. Smith receives more utility from the extra dollar than does Jones. This is an example of

Exhibit 20-1 -Refer to Exhibit 20-1. The marginal utility of the third plum is

The law of diminishing marginal utility

What Economics Is About

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Filters

Implicit in the solution to the diamond-water paradox is the idea that prices reflect utility instead of utility.

Exhibit 20-3 -Refer to Exhibit 20-3. Linda spends $5 a week on apples and oranges. If the price of both goods is $1 per unit, what is Linda's total utility from consuming the optimal bundle of goods?

Suppose Valerie is consuming lipstick (L) and eye shadow (E) and nothing else. MU_L = 40 and MU_E = 36. The price of eye shadow is $9, and the price of lipstick is $15. What should Valerie do?

Exhibit 20-6 -Refer to Exhibit 20-6. I₁, I₂ and I₃ are indifference curves and line ab is the relevant budget constraint. The equilibrium position for the consumer is at

Exhibit 20-7 -Refer to Exhibit 20-7. Which of the following graphs represents a budget constraint of a consumer whose income is $120?

This is the solution to the diamond-water paradox: Those things that have high value in use sometimes have low prices because they are consumed at low utility; those things that have low value in use sometimes have high prices because they are consumed at high utility.