Question 1

Consumption bundles that Mei CANNOT afford because the bundles cost more than her income are _____ the budget line.

Accepted Answer

A)  within 
B)  beyond 
C)  on 
D)  at the corner of 
A)  within 
B)  beyond 
C)  on 
D)  at the corner of

Question 2

According to the substitution effect, which of the following best describes why a decrease in the price of LED light bulbs leads to an increase in the quantity of LED light bulbs demanded?

Accepted Answer

A)  Buyers have more real income. 
B)  Buyers always purchase fewer substitute goods for LED light bulbs. 
C)  Buyers tend to purchase more of the now less expensive LED light bulbs. 
D)  Buyers tend to purchase more complementary goods to LED light bulbs. 
A)  Buyers have more real income. 
B)  Buyers always purchase fewer substitute goods for LED light bulbs. 
C)  Buyers tend to purchase more of the now less expensive LED light bulbs. 
D)  Buyers tend to purchase more complementary goods to LED light bulbs.

Question 3

Use the following to answer question:
Figure: Indifference Curves and Consumption Bundles  
-(Figure: Indifference Curves and Consumption Bundles) Let MUP = marginal utility of pizza, MUH = marginal utility of hot dogs, PP = price of a slice of pizza, and PH = price of a hot dog. In the figure, the absolute value of the slope of an indifference curve is equal to:

Accepted Answer

A)  MUP / MUH. 
B)  MUH / MUP. 
C)  PH / PP. 
D)  PP / PH. 
A)  MUP / MUH. 
B)  MUH / MUP. 
C)  PH / PP. 
D)  PP / PH.

Question 4

Use the following to answer questions:
Figure: Harold's Indifference Curves
The figure shows three of Harold's indifference curves for bread and cheese.  
-(Figure: Harold's Indifference Curves) Look at the figure Harold's Indifference Curves. If the price of bread is $2 per loaf, the price of cheese is $4 per pound, and Harold has $28 to spend on bread and cheese, Harold's optimal consumption bundle is _____ loaves of bread and _____ pounds of cheese.

Accepted Answer

A)  6; 4 
B)  4; 3 
C)  3; 2 
D)  2; 8 
A)  6; 4 
B)  4; 3 
C)  3; 2 
D)  2; 8

Question 5

Marge has spent her entire budget on milk and cookies. The last glass of milk provided Marge with 10 additional utils and the last cookie provided her with 25 additional utils. The price of a cookie is twice the price of a glass of milk. Assuming that diminishing marginal utility applies to both goods, Marge should consume _____ milk and _____ cookies.

Accepted Answer

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

Question 6

Use the following to answer questions:
Figure: The Indifference Curve Map II  
-(Figure: The Indifference Curve Map II) Look at the figure The Indifference Curve Map II. Sara enjoys attending Chicago Cubs baseball games and eating baby back rib dinners. The figure shows two of her indifference curves for Cubs tickets and baby back rib dinners. Which of the following combinations gives Sara the highest level of utility?

Accepted Answer

A)  40 baby back rib dinners and 2 Cubs tickets 
B)  20 baby back rib dinners and 4 Cubs tickets 
C)  12 baby back rib dinners and 10 Cubs tickets 
D)  All combinations give the same level of utility. 
A)  40 baby back rib dinners and 2 Cubs tickets 
B)  20 baby back rib dinners and 4 Cubs tickets 
C)  12 baby back rib dinners and 10 Cubs tickets 
D)  All combinations give the same level of utility.

Question 7

If the price of pecan rolls is $2, the price of a gyro is $6, and the marginal utility of the last pecan roll consumed is 12, then the marginal utility of the last gyro consumed for a consumer purchasing the optimal consumption bundle of pecan rolls and gyros is 36.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is FALSE?

Accepted Answer

A)  The income effect of normal goods counters the substitution effect, so the demand curve slopes upward. 
B)  The income effect and the substitution effect reinforce each other when the price of a normal good changes. 
C)  The income effect represents the decrease in quantity demanded caused by the implicit change in income due to a fall in the price of an inferior good but not of a normal good. 
D)  The substitution effect reflects the change in quantity demanded solely because of a change in the relative price of a good. 
A)  The income effect of normal goods counters the substitution effect, so the demand curve slopes upward. 
B)  The income effect and the substitution effect reinforce each other when the price of a normal good changes. 
C)  The income effect represents the decrease in quantity demanded caused by the implicit change in income due to a fall in the price of an inferior good but not of a normal good. 
D)  The substitution effect reflects the change in quantity demanded solely because of a change in the relative price of a good.

Question 9

Market demand is found by:

Accepted Answer

A)  adding the individual quantities demanded at each price. 
B)  adding the individual prices at each quantity demanded. 
C)  multiplying the individual quantities demanded at each price. 
D)  multiplying the individual prices at each quantity demanded. 
A)  adding the individual quantities demanded at each price. 
B)  adding the individual prices at each quantity demanded. 
C)  multiplying the individual quantities demanded at each price. 
D)  multiplying the individual prices at each quantity demanded.

Question 10

Pooh spends all of his income on honey and maple syrup. Because he views honey and maple syrup as perfect substitutes, he is willing to substitute honey for maple syrup at the constant rate of 1 teaspoon of honey to 2 teaspoons of maple syrup. If the price of honey in terms of maple syrup is 2.2, Pooh's optimal consumption bundle will consist entirely of maple syrup.

Accepted Answer

A) True 
 B)False

Question 11

Use the following to answer questions:
Figure: Consumer Equilibrium II  
-(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. Ashyra would maximize her utility at point _____ with the consumption of _____ olive oil and _____ dish soap.

Accepted Answer

A)  J; S; P 
B)  I; S; P 
C)  J; N; F 
D)  I; N; M 
A)  J; S; P 
B)  I; S; P 
C)  J; N; F 
D)  I; N; M

Question 12

If a consumer moves downward along an indifference curve, his or her total utility:

Accepted Answer

A)  remains constant. 
B)  first decreases, then increases. 
C)  decreases. 
D)  first increases, then decreases. 
A)  remains constant. 
B)  first decreases, then increases. 
C)  decreases. 
D)  first increases, then decreases.

Question 13

Choices that maximize total utility generally produce demand curves that are:

Accepted Answer

A)  horizontal. 
B)  upward-sloping. 
C)  downward-sloping. 
D)  straight lines. 
A)  horizontal. 
B)  upward-sloping. 
C)  downward-sloping. 
D)  straight lines.

Question 14

George has a weekly income (I) of $50, which he uses to purchase doughnuts (D) and coffee (C). If the price of a doughnut is $1 and the price of coffee is $2.50, his budget constraint can be expressed as:

Accepted Answer

A)  D = 50 + 2.50C. 
B)  D = 50 - 25C. 
C)  D = 50 - 0.25C. 
D)  D = 50 - 2.50C. 
A)  D = 50 + 2.50C. 
B)  D = 50 - 25C. 
C)  D = 50 - 0.25C. 
D)  D = 50 - 2.50C.

Question 15

When a consumer maximizes utility, the marginal utility per dollar spent must be the same for all goods and services in the consumption bundle. This is referred to as:

Accepted Answer

A)  the law of demand. 
B)  the optimal consumption rule. 
C)  the budget constraint. 
D)  consumption possibilities. 
A)  the law of demand. 
B)  the optimal consumption rule. 
C)  the budget constraint. 
D)  consumption possibilities.

Question 16

An individual gets 5 units of utility from one slice of pizza and 9 units of utility from two slices of pizza. The principle of diminishing marginal utility implies that the total utility from three slices of pizza will be _____ units of utility.

Accepted Answer

A)  exactly 12 
B)  less than 13 
C)  less than 9 
D)  more than 14 
A)  exactly 12 
B)  less than 13 
C)  less than 9 
D)  more than 14

Question 17

Because of diminishing marginal utility, indifference curves are convex to the origin.

Accepted Answer

A) True 
 B)False

Question 18

Use the following to answer questions:
Figure: Consumer Equilibrium IV  
-(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV. Assume that you are consuming the combination of goods at point K. Given the budget constraint FL, utility:

Accepted Answer

A)  can be increased by consuming more nights in a hotel room and fewer train tickets. 
B)  can be increased by consuming fewer nights in a hotel room and more train tickets. 
C)  can be increased by consuming more of both goods. 
D)  cannot be increased. 
A)  can be increased by consuming more nights in a hotel room and fewer train tickets. 
B)  can be increased by consuming fewer nights in a hotel room and more train tickets. 
C)  can be increased by consuming more of both goods. 
D)  cannot be increased.

Question 19

Diego spends all of his income on milkshakes and french fries. At his current consumption levels the marginal utility of one milkshake and the marginal utility of one order of french fries are equal. According to the optimal consumption rule:

Accepted Answer

A)  Diego is maximizing his utility. 
B)  Diego is maximizing his utility only if one milkshake and one order of french fries have the same price. 
C)  Diego should buy more milkshakes and fewer fries if a milkshake costs more than an order of fries. 
D)  Diego will maximize his utility by specializing in consumption and buying either milkshakes or fries but not both. 
A)  Diego is maximizing his utility. 
B)  Diego is maximizing his utility only if one milkshake and one order of french fries have the same price. 
C)  Diego should buy more milkshakes and fewer fries if a milkshake costs more than an order of fries. 
D)  Diego will maximize his utility by specializing in consumption and buying either milkshakes or fries but not both.

Question 20

Ms. Stardoe gets utility from coffee and cream, but only if they are consumed in the precise ratio of 8 ounces of coffee to 2 ounces of cream. This implies that coffee and cream are ordinary goods for Ms. Stardoe.

Accepted Answer

A) True 
 B)False

Consumption bundles that Mei CANNOT afford because the bundles cost more than her income are _____ the budget line.

According to the substitution effect, which of the following best describes why a decrease in the price of LED light bulbs leads to an increase in the quantity of LED light bulbs demanded?

If the price of pecan rolls is $2, the price of a gyro is $6, and the marginal utility of the last pecan roll consumed is 12, then the marginal utility of the last gyro consumed for a consumer purchasing the optimal consumption bundle of pecan rolls and gyros is 36.

Which of the following statements is FALSE?

Market demand is found by:

Use the following to answer questions: Figure: Consumer Equilibrium II -(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. Ashyra would maximize her utility at point ___ with the consumption of _ olive oil and ___ dish soap.

If a consumer moves downward along an indifference curve, his or her total utility:

Choices that maximize total utility generally produce demand curves that are:

George has a weekly income (I) of $50, which he uses to purchase doughnuts (D) and coffee (C). If the price of a doughnut is $1 and the price of coffee is $2.50, his budget constraint can be expressed as:

When a consumer maximizes utility, the marginal utility per dollar spent must be the same for all goods and services in the consumption bundle. This is referred to as:

An individual gets 5 units of utility from one slice of pizza and 9 units of utility from two slices of pizza. The principle of diminishing marginal utility implies that the total utility from three slices of pizza will be _____ units of utility.

Because of diminishing marginal utility, indifference curves are convex to the origin.

Use the following to answer questions: Figure: Consumer Equilibrium IV -(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV. Assume that you are consuming the combination of goods at point K. Given the budget constraint FL, utility:

Diego spends all of his income on milkshakes and french fries. At his current consumption levels the marginal utility of one milkshake and the marginal utility of one order of french fries are equal. According to the optimal consumption rule:

Ms. Stardoe gets utility from coffee and cream, but only if they are consumed in the precise ratio of 8 ounces of coffee to 2 ounces of cream. This implies that coffee and cream are ordinary goods for Ms. Stardoe.

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

Consumption bundles that Mei CANNOT afford because the bundles cost more than her income are _____ the budget line.

According to the substitution effect, which of the following best describes why a decrease in the price of LED light bulbs leads to an increase in the quantity of LED light bulbs demanded?

If the price of pecan rolls is $2, the price of a gyro is $6, and the marginal utility of the last pecan roll consumed is 12, then the marginal utility of the last gyro consumed for a consumer purchasing the optimal consumption bundle of pecan rolls and gyros is 36.

Which of the following statements is FALSE?

Market demand is found by:

Use the following to answer questions: Figure: Consumer Equilibrium II -(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. Ashyra would maximize her utility at point _____ with the consumption of _____ olive oil and _____ dish soap.

If a consumer moves downward along an indifference curve, his or her total utility:

Choices that maximize total utility generally produce demand curves that are:

George has a weekly income (I) of $50, which he uses to purchase doughnuts (D) and coffee (C). If the price of a doughnut is $1 and the price of coffee is $2.50, his budget constraint can be expressed as:

When a consumer maximizes utility, the marginal utility per dollar spent must be the same for all goods and services in the consumption bundle. This is referred to as:

An individual gets 5 units of utility from one slice of pizza and 9 units of utility from two slices of pizza. The principle of diminishing marginal utility implies that the total utility from three slices of pizza will be _____ units of utility.

Because of diminishing marginal utility, indifference curves are convex to the origin.

Use the following to answer questions: Figure: Consumer Equilibrium IV -(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV. Assume that you are consuming the combination of goods at point K. Given the budget constraint FL, utility:

Diego spends all of his income on milkshakes and french fries. At his current consumption levels the marginal utility of one milkshake and the marginal utility of one order of french fries are equal. According to the optimal consumption rule:

Ms. Stardoe gets utility from coffee and cream, but only if they are consumed in the precise ratio of 8 ounces of coffee to 2 ounces of cream. This implies that coffee and cream are ordinary goods for Ms. Stardoe.

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: Consumer Equilibrium II -(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. Ashyra would maximize her utility at point ___ with the consumption of _ olive oil and ___ dish soap.