Question 1

An increase in the price of a product normally enables a consumer to reach a higher indifference curve.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is not correct?

Accepted Answer

A) A reduction in money income will shift the budget line to the right. 
B) A reduction in money income accompanied by an increase in product prices will necessarily shift the budget line to the left. 
C) An increase in product prices will shift the budget line to the left. 
D) An increase in money income will shift the budget line to the right. 
A) A reduction in money income will shift the budget line to the right. 
B) A reduction in money income accompanied by an increase in product prices will necessarily shift the budget line to the left. 
C) An increase in product prices will shift the budget line to the left. 
D) An increase in money income will shift the budget line to the right.

Question 3

The table shows the utility schedule for a consumer of candy bars.   Based on the data in the table, you can conclude that the

Accepted Answer

A) marginal utility of the fourth unit is 96. 
B) marginal utility of the third unit is 18. 
C) total utility of 2 units is 16. 
D) total utility of 6 units is 35. 
A) marginal utility of the fourth unit is 96. 
B) marginal utility of the third unit is 18. 
C) total utility of 2 units is 16. 
D) total utility of 6 units is 35.

Question 4

At each point on an indifference curve,

Accepted Answer

A) money income is the same. 
B) the prices of the two products are the same. 
C) total utility is the same. 
D) marginal utility is the same. 
A) money income is the same. 
B) the prices of the two products are the same. 
C) total utility is the same. 
D) marginal utility is the same.

Question 5

Explain the meaning of the marginal rate of substitution.

Accepted Answer

The slope of an indifference curve at ea

Question 6

Betty is maximizing her satisfaction from spending her budget on two items, movie rentals and music downloads. If her marginal utility from the last movie rental is twice that from the last music download, what is the price of a movie rental if the price of a music download is $0.80?

Accepted Answer

A) $0.40 
B) $0.80 
C) $1.20 
D) $1.60 
A) $0.40 
B) $0.80 
C) $1.20 
D) $1.60

Question 7

The consumer will select that point on the budget line which puts him or her on the highest attainable indifference curve.

Accepted Answer

A) True 
 B)False

Question 8

Ben is exhausting his money income consuming products A and B in such quantities that MU a/ Pₐ = 5 and MU b/ Pᵦ = 8. Ben should purchase

Accepted Answer

A) more of A and less of B. 
B) more of B and less of A. 
C) more of both A and B. 
D) less of both A and B. 
A) more of A and less of B. 
B) more of B and less of A. 
C) more of both A and B. 
D) less of both A and B.

Question 9

Refer to the data. The value for W is

Accepted Answer

A) 15. 
B) 20. 
C) 25. 
D) 30. 
A) 15. 
B) 20. 
C) 25. 
D) 30.

Question 10

If the price of A is $12 and the price of B is $3, the budget line tells us that a consumer in effect can trade

Accepted Answer

A) 12 units of A for 3 of B. 
B) 1 unit of A for 4 of B. 
C) 1 unit of A for 3 of B. 
D) 1 unit of B for 4 of A. 
A) 12 units of A for 3 of B. 
B) 1 unit of A for 4 of B. 
C) 1 unit of A for 3 of B. 
D) 1 unit of B for 4 of A.

Question 11

Ben is exhausting his money income consuming products A and B in such quantities that MU a/ Pₐ = 7 and MU b/ Pᵦ = 9. Ben should purchase

Accepted Answer

A) more of A and less of B. 
B) more of B and less of A. 
C) more of both A and B. 
D) less of both A and B. 
A) more of A and less of B. 
B) more of B and less of A. 
C) more of both A and B. 
D) less of both A and B.

Question 12

If the marginal utility from consuming the fifth unit of a product is 6 and the total utility from all five units is 162, then the total utility from consuming four units must be

Accepted Answer

A) 168. 
B) 27. 
C) 156. 
D) 972. 
A) 168. 
B) 27. 
C) 156. 
D) 972.

Question 13

Answer the question based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4, and the price of product Y is $2. The income of the consumer is $30.   If the consumer buys both product X and product Y, how much will the consumer buy of each in order to maximize utility?

Accepted Answer

A) 3X and 3Y 
B) 4X and 4Y 
C) 5X and 4Y 
D) 5X and 5Y 
A) 3X and 3Y 
B) 4X and 4Y 
C) 5X and 4Y 
D) 5X and 5Y

Question 14

If you receive a gift whose market price is $20, but you consider it to be worth only $10, then

Accepted Answer

A) there is a $10, or 50 percent, value gain. 
B) there may or may not be a value loss. 
C) there is a $10, or 50 percent, value loss. 
D) you can be relatively certain the giver was a sibling or other close relative. 
A) there is a $10, or 50 percent, value gain. 
B) there may or may not be a value loss. 
C) there is a $10, or 50 percent, value loss. 
D) you can be relatively certain the giver was a sibling or other close relative.

Question 15

The table shows an indifference schedule for several combinations of X and Y.   How much of X is the consumer willing to give up to obtain the fourth unit of Y?

Accepted Answer

A) 6 
B) 2 
C) 2.5 
D) 4 
A) 6 
B) 2 
C) 2.5 
D) 4

Question 16

Assume that a consumer purchases a combination of products Y and Z and that the MU y/ Pᵧ = 30/2 and MU z/ Pz = 45/3. To maximize utility, without spending more money, the consumer should

Accepted Answer

A) purchase less of Y and more of Z. 
B) purchase more of Y and less of Z. 
C) purchase more of both Y and Z. 
D) make no change in the quantities Y and Z. 
A) purchase less of Y and more of Z. 
B) purchase more of Y and less of Z. 
C) purchase more of both Y and Z. 
D) make no change in the quantities Y and Z.

Question 17

To the average consumer, the marginal utility of a second copy of today's newspaper is

Accepted Answer

A) constant. 
B) increasing. 
C) close to zero. 
D) close to one. 
A) constant. 
B) increasing. 
C) close to zero. 
D) close to one.

Question 18

With a fixed money income, an increase in the price of one good and a decrease in the price of the other will cause the new budget line to intersect the original budget line.

Accepted Answer

A) True 
 B)False

Question 19

If the total utility from consuming six units of a product is 43 and the marginal utility of a seventh unit is 6, then the total utility from consuming seven units would be

Accepted Answer

A) 37. 
B) 49. 
C) 7. 
D) 42. 
A) 37. 
B) 49. 
C) 7. 
D) 42.

Question 20

Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility)that a consumer would get from successive quantities of products J and K.   If the consumer has money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing

Accepted Answer

A) 3 units of J and 7 units of K. 
B) 5 units of J and 5 units of K. 
C) 4 units of J and 5 units of K. 
D) 6 units of J and 3 units of K. 
A) 3 units of J and 7 units of K. 
B) 5 units of J and 5 units of K. 
C) 4 units of J and 5 units of K. 
D) 6 units of J and 3 units of K.

Exam 7: Utility Maximization

An increase in the price of a product normally enables a consumer to reach a higher indifference curve.

Which of the following statements is not correct?

The table shows the utility schedule for a consumer of candy bars. Based on the data in the table, you can conclude that the

At each point on an indifference curve,

Explain the meaning of the marginal rate of substitution.

Betty is maximizing her satisfaction from spending her budget on two items, movie rentals and music downloads. If her marginal utility from the last movie rental is twice that from the last music download, what is the price of a movie rental if the price of a music download is $0.80?

The consumer will select that point on the budget line which puts him or her on the highest attainable indifference curve.

Ben is exhausting his money income consuming products A and B in such quantities that MU a/ Pₐ = 5 and MU b/ Pᵦ = 8. Ben should purchase

Refer to the data. The value for W is

If the price of A is $12 and the price of B is $3, the budget line tells us that a consumer in effect can trade

Ben is exhausting his money income consuming products A and B in such quantities that MU a/ Pₐ = 7 and MU b/ Pᵦ = 9. Ben should purchase

If the marginal utility from consuming the fifth unit of a product is 6 and the total utility from all five units is 162, then the total utility from consuming four units must be

If you receive a gift whose market price is $20, but you consider it to be worth only $10, then

The table shows an indifference schedule for several combinations of X and Y. How much of X is the consumer willing to give up to obtain the fourth unit of Y?

Assume that a consumer purchases a combination of products Y and Z and that the MU y/ Pᵧ = 30/2 and MU z/ Pz = 45/3. To maximize utility, without spending more money, the consumer should

To the average consumer, the marginal utility of a second copy of today's newspaper is

With a fixed money income, an increase in the price of one good and a decrease in the price of the other will cause the new budget line to intersect the original budget line.

If the total utility from consuming six units of a product is 43 and the marginal utility of a seventh unit is 6, then the total utility from consuming seven units would be

Limits, Alternatives, and Choices

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Market Failures Caused by Externalities Asymmetric Information

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Elasticity

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Assume that a consumer purchases a combination of products Y and Z and that the MU y/ Pᵧ = 30/2 and MU z/ P_z = 45/3. To maximize utility, without spending more money, the consumer should