Question 1

The optimal consumption rule for all goods requires:

Accepted Answer

A)  the marginal utility of all goods consumed divided by the price to be equal to the budget constraint. 
B)  the marginal utility of all goods consumed to exceed the total utility of all goods. 
C)  the marginal utility of all goods consumed divided by the respective price to be equal. 
D)  the prices of all goods to be equal. 
A)  the marginal utility of all goods consumed divided by the price to be equal to the budget constraint. 
B)  the marginal utility of all goods consumed to exceed the total utility of all goods. 
C)  the marginal utility of all goods consumed divided by the respective price to be equal. 
D)  the prices of all goods to be equal. C

Question 2

Use the following to answer questions:
Figure: Indifference Curves and Consumption Bundles  
-(Figure: Indifference Curves and Consumption Bundles) Look at the figure Indifference Curves and Consumption Bundles. For this consumer pizza is a(n) _____ good and hot dogs are a(n) _____ good.

Accepted Answer

A)  normal; inferior 
B)  inferior; normal 
C)  normal; normal 
D)  inferior; inferior 
A)  normal; inferior 
B)  inferior; normal 
C)  normal; normal 
D)  inferior; inferior C

Question 3

Jennifer has $10 to spend on tomatoes and cheese. The price of a pound of tomatoes is $2 and the price of a pound of cheese is $4. She has found her utility-maximizing bundle at 2 pounds of tomatoes and 1.5 pounds of cheese. Suppose Jennifer's income falls to $8 and the price of tomatoes falls to $1. The price of cheese remains the same. Jennifer is considering a bundle of no tomatoes and 2 units of cheese. What is your advice?

Accepted Answer

Before the change to the budget constraint, Jennifer could afford 2 units of cheese and no tomatoes, but she did not choose this bundle. She can still afford her current bundle of 2 tomatoes and 4 pounds of cheese, so why would she choose something that she previously found inferior to the current bundle? Maybe she could even improve her utility with a bundle like 3 units of tomatoes and 1.25 pounds of cheese, but it is impossible to know.

Question 4

Use the following to answer questions:  
-(Table: Bundles of X and Y) Look at the table Bundles of X and Y. Bundle(s):

Accepted Answer

A)  A and B are on the same indifference curve. 
B)  A and C are on the same indifference curve. 
C)  D is on the highest indifference curve. 
D)  C is on the highest indifference curve, and bundles A and B are on the lowest indifference curve. 
A)  A and B are on the same indifference curve. 
B)  A and C are on the same indifference curve. 
C)  D is on the highest indifference curve. 
D)  C is on the highest indifference curve, and bundles A and B are on the lowest indifference curve.

Question 5

Use the following to answer questions:
Figure: Consumer Equilibrium I
The figure shows three of Owen's indifference curves for pizza and soda per week. Owen has $180 per month to spend on the two goods. The price of a pizza is $20, and the price of a soda is $1.50.  
-(Figure: Consumer Equilibrium I) Look at the figure Consumer Equilibrium I. If Owen consumes 1.5 pizzas and 100 sodas, which of the following describes the relationship between his marginal rate of substitution of pizza for soda and the price of pizza in terms of soda?

Accepted Answer

A)  The marginal rate of substitution equals the relative price. 
B)  The marginal rate of substitution is greater than the relative price. 
C)  The marginal rate of substitution is less than the relative price. 
D)  It is impossible to determine, given the information available. 
A)  The marginal rate of substitution equals the relative price. 
B)  The marginal rate of substitution is greater than the relative price. 
C)  The marginal rate of substitution is less than the relative price. 
D)  It is impossible to determine, given the information available.

Question 6

Assume that Siri is consuming the utility-maximizing quantities of pork and chicken. We can conclude that:

Accepted Answer

A)  the price of pork equals the price of chicken. 
B)  the marginal utility of pork equals the marginal utility of chicken. 
C)  the ratio of the marginal utility to price is the same for pork as it is for chicken. 
D)  Siri is consuming the same amount of pork and chicken. 
A)  the price of pork equals the price of chicken. 
B)  the marginal utility of pork equals the marginal utility of chicken. 
C)  the ratio of the marginal utility to price is the same for pork as it is for chicken. 
D)  Siri is consuming the same amount of pork and chicken.

Question 7

If a consumer derives more utility by spending an additional $1 on good X rather than on good Y:

Accepted Answer

A)  MUx / Px > MUy / Py. 
B)  MUx / Px = MUy / Py. 
C)  MUx / Px y / Py. 
D)  Px / MUx > Py / MUy. 
A)  MUx / Px > MUy / Py. 
B)  MUx / Px = MUy / Py. 
C)  MUx / Px y / Py. 
D)  Px / MUx > Py / MUy.

Question 8

Use the following to answer questions:
Figure: Consumer Equilibrium I
The figure shows three of Owen's indifference curves for pizza and soda per week. Owen has $180 per month to spend on the two goods. The price of a pizza is $20, and the price of a soda is $1.50.  
-(Figure: Consumer Equilibrium I) Look at the figure Consumer Equilibrium I. What is Owen's marginal rate of substitution of pizza for soda when he is consuming his optimal consumption bundle?

Accepted Answer

A)  0.75 
B)  1.5 
C)  13.3 
D)  20 
A)  0.75 
B)  1.5 
C)  13.3 
D)  20

Question 9

After learning about indifference curves, Sandy realizes that her marginal rate of substitution of grapes for cheese is 2. Since the price of cheese is $3 and the price of grapes is $1, Sandy:

Accepted Answer

A)  should buy more grapes and less cheese. 
B)  should buy more cheese and fewer grapes. 
C)  is maximizing her utility. 
D)  is on her highest possible indifference curve. 
A)  should buy more grapes and less cheese. 
B)  should buy more cheese and fewer grapes. 
C)  is maximizing her utility. 
D)  is on her highest possible indifference curve.

Question 10

The income effect will play a greater role in a consumer's spending if the good:

Accepted Answer

A)  accounts for a substantial share of the consumer's spending. 
B)  accounts for a small share of the consumer's spending. 
C)  is not subject to a budget constraint. 
D)  is not something the consumer needs. 
A)  accounts for a substantial share of the consumer's spending. 
B)  accounts for a small share of the consumer's spending. 
C)  is not subject to a budget constraint. 
D)  is not something the consumer needs.

Question 11

Utility is the:

Accepted Answer

A)  difference between a firm's total revenue and its total economic cost. 
B)  good not adequately provided by a free market and usually provided by the government. 
C)  satisfaction consumers derive from their consumption of goods and services. 
D)  lowest price that buyers are willing to pay for a given quantity of a good. 
A)  difference between a firm's total revenue and its total economic cost. 
B)  good not adequately provided by a free market and usually provided by the government. 
C)  satisfaction consumers derive from their consumption of goods and services. 
D)  lowest price that buyers are willing to pay for a given quantity of a good.

Question 12

For economists, the satisfaction an individual derives from the consumption of goods and services is best described as:

Accepted Answer

A)  happiness. 
B)  usefulness. 
C)  utility. 
D)  opportunity cost. 
A)  happiness. 
B)  usefulness. 
C)  utility. 
D)  opportunity cost.

Question 13

For most goods, indifference curves:

Accepted Answer

A)  may intersect. 
B)  slope upward. 
C)  are concave from the origin. 
D)  slope downward. 
A)  may intersect. 
B)  slope upward. 
C)  are concave from the origin. 
D)  slope downward.

Question 14

In economics, the ability of pumpkin pie to satisfy a want is referred to as its:

Accepted Answer

A)  utility. 
B)  usefulness. 
C)  worthiness. 
D)  necessity. 
A)  utility. 
B)  usefulness. 
C)  worthiness. 
D)  necessity.

Question 15

Assume that two combinations of two goods yield the same level of satisfaction. We can conclude that these combinations are always on:

Accepted Answer

A)  the same price line. 
B)  the same budget constraint. 
C)  the same indifference curve. 
D)  different indifference curves. 
A)  the same price line. 
B)  the same budget constraint. 
C)  the same indifference curve. 
D)  different indifference curves.

Question 16

Use the following to answer questions:  
-(Table: Consumer Equilibrium) Look at the table Consumer Equilibrium. Assume that the price of both goods is $1 per unit, that you consume three units of good X and three units of good Y, and that you are spending all of your income. To maximize utility, assuming that the goods are divisible, you would consume _____ of X and _____ of Y.

Accepted Answer

A)  less; less 
B)  more; more 
C)  less; more 
D)  more; less 
A)  less; less 
B)  more; more 
C)  less; more 
D)  more; less

Question 17

Increases in the price of the good measured on the horizontal axis will make the horizontal intercept _____ and make the budget line _____.

Accepted Answer

A)  larger; steeper 
B)  larger; flatter 
C)  smaller; steeper 
D)  smaller; flatter 
A)  larger; steeper 
B)  larger; flatter 
C)  smaller; steeper 
D)  smaller; flatter

Question 18

Suppose peanut butter is an inferior good for Ilya and the price of peanut butter rises. What will happen to Ilya's consumption of peanut butter?

Accepted Answer

A)  The substitution effect will cause an increase in the consumption of peanut butter. 
B)  The substitution effect will cause a decrease in the consumption of peanut butter and the income effect will cause an increase in the consumption of peanut butter. 
C)  The substitution effect will cause a decrease in the consumption of peanut butter. 
D)  The income effect will cause an increase in the consumption of peanut butter. 
A)  The substitution effect will cause an increase in the consumption of peanut butter. 
B)  The substitution effect will cause a decrease in the consumption of peanut butter and the income effect will cause an increase in the consumption of peanut butter. 
C)  The substitution effect will cause a decrease in the consumption of peanut butter. 
D)  The income effect will cause an increase in the consumption of peanut butter.

Question 19

Use the following to answer questions:
Figure: The Optimal Consumption Bundle  
-(Figure: The Optimal Consumption Bundle) Look at the figure The Optimal Consumption Bundle. Which of the following could lead to an optimal consumption bundle on indifference curve I3?

Accepted Answer

A)  a decrease in income 
B)  an increase in the price of restaurant meals 
C)  a decrease in the price of rooms 
D)  an increase in the price of rooms 
A)  a decrease in income 
B)  an increase in the price of restaurant meals 
C)  a decrease in the price of rooms 
D)  an increase in the price of rooms

Question 20

Which of the following goods is MOST likely to display increasing marginal utility over some range?

Accepted Answer

A)  chicken during the 1920s, when it was considered a luxury good 
B)  paint, because you need enough to paint at least one entire room 
C)  lobsters, which are so expensive that you must eat two to get your money's worth 
D)  peanut butter and jelly sandwiches 
A)  chicken during the 1920s, when it was considered a luxury good 
B)  paint, because you need enough to paint at least one entire room 
C)  lobsters, which are so expensive that you must eat two to get your money's worth 
D)  peanut butter and jelly sandwiches

The optimal consumption rule for all goods requires:

Use the following to answer questions: Figure: Indifference Curves and Consumption Bundles -(Figure: Indifference Curves and Consumption Bundles) Look at the figure Indifference Curves and Consumption Bundles. For this consumer pizza is a(n) _ good and hot dogs are a(n) _ good.

Use the following to answer questions: -(Table: Bundles of X and Y) Look at the table Bundles of X and Y. Bundle(s):

Assume that Siri is consuming the utility-maximizing quantities of pork and chicken. We can conclude that:

If a consumer derives more utility by spending an additional $1 on good X rather than on good Y:

After learning about indifference curves, Sandy realizes that her marginal rate of substitution of grapes for cheese is 2. Since the price of cheese is $3 and the price of grapes is $1, Sandy:

The income effect will play a greater role in a consumer's spending if the good:

Utility is the:

For economists, the satisfaction an individual derives from the consumption of goods and services is best described as:

For most goods, indifference curves:

In economics, the ability of pumpkin pie to satisfy a want is referred to as its:

Assume that two combinations of two goods yield the same level of satisfaction. We can conclude that these combinations are always on:

Increases in the price of the good measured on the horizontal axis will make the horizontal intercept _ and make the budget line _.

Suppose peanut butter is an inferior good for Ilya and the price of peanut butter rises. What will happen to Ilya's consumption of peanut butter?

Use the following to answer questions: Figure: The Optimal Consumption Bundle -(Figure: The Optimal Consumption Bundle) Look at the figure The Optimal Consumption Bundle. Which of the following could lead to an optimal consumption bundle on indifference curve I₃?

Which of the following goods is MOST likely to display increasing marginal utility over some range?

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Exam 10: The Rational Consumer

The optimal consumption rule for all goods requires:

Use the following to answer questions: Figure: Indifference Curves and Consumption Bundles -(Figure: Indifference Curves and Consumption Bundles) Look at the figure Indifference Curves and Consumption Bundles. For this consumer pizza is a(n) _____ good and hot dogs are a(n) _____ good.

Use the following to answer questions: -(Table: Bundles of X and Y) Look at the table Bundles of X and Y. Bundle(s):

Assume that Siri is consuming the utility-maximizing quantities of pork and chicken. We can conclude that:

If a consumer derives more utility by spending an additional $1 on good X rather than on good Y:

After learning about indifference curves, Sandy realizes that her marginal rate of substitution of grapes for cheese is 2. Since the price of cheese is $3 and the price of grapes is $1, Sandy:

The income effect will play a greater role in a consumer's spending if the good:

Utility is the:

For economists, the satisfaction an individual derives from the consumption of goods and services is best described as:

For most goods, indifference curves:

In economics, the ability of pumpkin pie to satisfy a want is referred to as its:

Assume that two combinations of two goods yield the same level of satisfaction. We can conclude that these combinations are always on:

Increases in the price of the good measured on the horizontal axis will make the horizontal intercept _____ and make the budget line _____.

Suppose peanut butter is an inferior good for Ilya and the price of peanut butter rises. What will happen to Ilya's consumption of peanut butter?

Use the following to answer questions: Figure: The Optimal Consumption Bundle -(Figure: The Optimal Consumption Bundle) Look at the figure The Optimal Consumption Bundle. Which of the following could lead to an optimal consumption bundle on indifference curve I3?

Which of the following goods is MOST likely to display increasing marginal utility over some range?

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Use the following to answer questions: Figure: Indifference Curves and Consumption Bundles -(Figure: Indifference Curves and Consumption Bundles) Look at the figure Indifference Curves and Consumption Bundles. For this consumer pizza is a(n) _ good and hot dogs are a(n) _ good.

Increases in the price of the good measured on the horizontal axis will make the horizontal intercept _ and make the budget line _.

Use the following to answer questions: Figure: The Optimal Consumption Bundle -(Figure: The Optimal Consumption Bundle) Look at the figure The Optimal Consumption Bundle. Which of the following could lead to an optimal consumption bundle on indifference curve I₃?