Question 1

Consumer choice theory generally concludes that is based on the hypothesis that each consumer wants to

Accepted Answer

A) maximize her total utility. 
B) maximize her marginal utility. 
C) minimize the rate at which her marginal utility diminishes. 
D) minimize the percentage of her consumption diverted to inferior goods. 
A) maximize her total utility. 
B) maximize her marginal utility. 
C) minimize the rate at which her marginal utility diminishes. 
D) minimize the percentage of her consumption diverted to inferior goods.

Question 2

If indifference curves and budget lines are used to analyze consumer choice, an inferior good will

Accepted Answer

A) escape detection when income rises. 
B) be easily identified because the quantity purchased will fall as income rises. 
C) be easily identified because the quantity purchased will rise as income rises. 
D) be easily identified because it will change the slope of the budget line. 
E) escape detection because this model does not show that relationship. 
A) escape detection when income rises. 
B) be easily identified because the quantity purchased will fall as income rises. 
C) be easily identified because the quantity purchased will rise as income rises. 
D) be easily identified because it will change the slope of the budget line. 
E) escape detection because this model does not show that relationship.

Question 3

An optimal purchase is one that maximizes total utility.

Accepted Answer

A) True 
 B)False

Question 4

The optimal purchase rule is stated as

Accepted Answer

A) TU = MU. 
B) MU = P. 
C) TU = P. 
D) MU = 0. 
A) TU = MU. 
B) MU = P. 
C) TU = P. 
D) MU = 0.

Question 5

Resolving Adam Smith's diamond-water puzzle involves

Accepted Answer

A) realizing that price is not directly related to total utility. 
B) knowing that at optimal purchase, price will tend to equal marginal utility. 
C) knowing that, as increasing quantities of a good are consumed, marginal utility diminishes and, conversely, consuming a small quantity of a good produces high marginal utility. 
D) All of the responses are correct. 
A) realizing that price is not directly related to total utility. 
B) knowing that at optimal purchase, price will tend to equal marginal utility. 
C) knowing that, as increasing quantities of a good are consumed, marginal utility diminishes and, conversely, consuming a small quantity of a good produces high marginal utility. 
D) All of the responses are correct.

Question 6

An increase in income shifts indifference curves outward.

Accepted Answer

A) True 
 B)False

Question 7

A budget line is a straight line designed to show

Accepted Answer

A) how income is related to hours worked. 
B) all combinations of two goods that can be purchased with a given income. 
C) the way a homemaker should divide money among several commodities. 
D) that if more money is spent on one good, the breadwinner must work all the harder to maintain a satisfactory level of living. 
E) preferences for goods and services. 
A) how income is related to hours worked. 
B) all combinations of two goods that can be purchased with a given income. 
C) the way a homemaker should divide money among several commodities. 
D) that if more money is spent on one good, the breadwinner must work all the harder to maintain a satisfactory level of living. 
E) preferences for goods and services.

Question 8

The law of diminishing marginal utility is consistent with the consumer behavior that produces a negatively sloped demand curve.

Accepted Answer

A) True 
 B)False

Question 9

Figure 5-6  
-A shift in the budget line in Figure 5-6 from AB to AC indicates

Accepted Answer

A) the price of wine coolers has risen. 
B) income has increased. 
C) the price of beer has fallen. 
D) the price of wine coolers has fallen. 
E) All of the responses are correct. 
A) the price of wine coolers has risen. 
B) income has increased. 
C) the price of beer has fallen. 
D) the price of wine coolers has fallen. 
E) All of the responses are correct.

Question 10

Marginal utility is measured by the maximum amount of money a consumer is willing to pay for one more unit of a commodity.

Accepted Answer

A) True 
 B)False

Question 11

Figure 5-17  
-Which of the following statements about Figure 5-17 must be correct?

Accepted Answer

A) The consumer pays a higher dollar price per unit for good Y at A than at D. 
B) The consumer pays the same dollar price per unit for good Y at A and at B. 
C) The consumer pays a higher dollar price per unit for good X at D than at A. 
D) The consumer pays a higher dollar price per unit for good X at A than at C. 
A) The consumer pays a higher dollar price per unit for good Y at A than at D. 
B) The consumer pays the same dollar price per unit for good Y at A and at B. 
C) The consumer pays a higher dollar price per unit for good X at D than at A. 
D) The consumer pays a higher dollar price per unit for good X at A than at C.

Question 12

Figure 5-15  
-Hal initially consumes the combination marked as A in Figure 5-15.After his income increases, Hal consumes combination B.We can conclude that Hal views

Accepted Answer

A) X as an inferior good and Y as a noninferior good. 
B) X as a noninferior good and Y as an inferior good. 
C) both X and Y as noninferior goods. 
D) both X and Y as inferior goods. 
A) X as an inferior good and Y as a noninferior good. 
B) X as a noninferior good and Y as an inferior good. 
C) both X and Y as noninferior goods. 
D) both X and Y as inferior goods.

Question 13

The host at a party offers Justin a sixth beer.Justin says, "No thanks, man.The marginal utility of that fifth beer was, like, 20 cents, but the marginal utility of the sixth would be minus 10 cents." If Justin consumes the sixth beer, his total utility will

Accepted Answer

A) rise by 10 cents. 
B) reach a plateau and remain constant. 
C) fall by 10 cents. 
D) fall below his marginal utility. 
A) rise by 10 cents. 
B) reach a plateau and remain constant. 
C) fall by 10 cents. 
D) fall below his marginal utility.

Question 14

The market demand curve is the vertical summation of all individual demand curves.

Accepted Answer

A) True 
 B)False

Question 15

The law of demand states that as the price

Accepted Answer

A) increases, total quantity demanded will increase. 
B) decreases, total quantity demanded will decrease. 
C) increases, total quantity demanded will decrease. 
D) increases, total quantity demanded will stay the same. 
A) increases, total quantity demanded will increase. 
B) decreases, total quantity demanded will decrease. 
C) increases, total quantity demanded will decrease. 
D) increases, total quantity demanded will stay the same.

Question 16

-If a graph of Robinson's marginal utility were constructed from Table 5-1B, it would

Accepted Answer

A) illustrate the "law" of diminishing marginal utility. 
B) be a negatively sloped curve. 
C) illustrate a typical consumer's satisfaction derived from consumption of consecutive units of a good. 
D) All of the responses are correct. 
A) illustrate the "law" of diminishing marginal utility. 
B) be a negatively sloped curve. 
C) illustrate a typical consumer's satisfaction derived from consumption of consecutive units of a good. 
D) All of the responses are correct.

Question 17

If the law of demand holds, then

Accepted Answer

A) the demand curve has a negative slope. 
B) the demand curve has a positive slope. 
C) the demand curve shifts whenever the price changes. 
D) the diminishing marginal utility is not valid. 
A) the demand curve has a negative slope. 
B) the demand curve has a positive slope. 
C) the demand curve shifts whenever the price changes. 
D) the diminishing marginal utility is not valid.

Question 18

Figure 5-6  
-In Figure 5-6, a shift in the budget line from AC to AB indicates

Accepted Answer

A) the price of wine coolers has risen. 
B) income has increased. 
C) the price of beer has fallen. 
D) the price of wine coolers has fallen. 
E) All of the responses are correct. 
A) the price of wine coolers has risen. 
B) income has increased. 
C) the price of beer has fallen. 
D) the price of wine coolers has fallen. 
E) All of the responses are correct.

Question 19

Jason considers a crystal bowl, a silver dish, and a pewter figurine, each priced $45 at the local gift shop.He chooses the silver dish because according to economic theory,

Accepted Answer

A) his marginal utility per dollar is greatest. 
B) his total utility is minimized. 
C) his marginal utility is equal to his total utility. 
D) silver costs more per ounce than pewter. 
A) his marginal utility per dollar is greatest. 
B) his total utility is minimized. 
C) his marginal utility is equal to his total utility. 
D) silver costs more per ounce than pewter.

Question 20

Figure 5-6  
-Which of the following observations is not true of a budget line?

Accepted Answer

A) It indicates what choices are available to the consumer. 
B) It is a curve of constant expenditure. 
C) Its slope reports the market terms on which the consumer can trade one good for another. 
D) It helps examine the consumer's preferences. 
A) It indicates what choices are available to the consumer. 
B) It is a curve of constant expenditure. 
C) Its slope reports the market terms on which the consumer can trade one good for another. 
D) It helps examine the consumer's preferences.

Exam 5: Consumer Choice: Individual and Market Demand

Consumer choice theory generally concludes that is based on the hypothesis that each consumer wants to

If indifference curves and budget lines are used to analyze consumer choice, an inferior good will

An optimal purchase is one that maximizes total utility.

The optimal purchase rule is stated as

Resolving Adam Smith's diamond-water puzzle involves

An increase in income shifts indifference curves outward.

A budget line is a straight line designed to show

The law of diminishing marginal utility is consistent with the consumer behavior that produces a negatively sloped demand curve.

Figure 5-6 -A shift in the budget line in Figure 5-6 from AB to AC indicates

Marginal utility is measured by the maximum amount of money a consumer is willing to pay for one more unit of a commodity.

Figure 5-17 -Which of the following statements about Figure 5-17 must be correct?

Figure 5-15 -Hal initially consumes the combination marked as A in Figure 5-15.After his income increases, Hal consumes combination B.We can conclude that Hal views

The host at a party offers Justin a sixth beer.Justin says, "No thanks, man.The marginal utility of that fifth beer was, like, 20 cents, but the marginal utility of the sixth would be minus 10 cents." If Justin consumes the sixth beer, his total utility will

The market demand curve is the vertical summation of all individual demand curves.

The law of demand states that as the price

-If a graph of Robinson's marginal utility were constructed from Table 5-1B, it would

If the law of demand holds, then

Figure 5-6 -In Figure 5-6, a shift in the budget line from AC to AB indicates

Jason considers a crystal bowl, a silver dish, and a pewter figurine, each priced $45 at the local gift shop.He chooses the silver dish because according to economic theory,

Figure 5-6 -Which of the following observations is not true of a budget line?

What Is Economics

The Economony: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

Contemporary Issues in the Useconomy

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