Question 1

The price of diamonds is substantially greater than the price of water because

Accepted Answer

A) the total utility of water is greater than the total utility of diamonds. 
B) the total utility of diamonds is greater than the total utility of water. 
C) the marginal utility of the last diamond purchased is significantly greater than the marginal utility of the last gallon of water purchased by a typical person. 
D) the marginal utility of the last diamond purchased is significantly less than the marginal utility of the last gallon of water purchased by a typical person. 
A) the total utility of water is greater than the total utility of diamonds. 
B) the total utility of diamonds is greater than the total utility of water. 
C) the marginal utility of the last diamond purchased is significantly greater than the marginal utility of the last gallon of water purchased by a typical person. 
D) the marginal utility of the last diamond purchased is significantly less than the marginal utility of the last gallon of water purchased by a typical person.

Question 2

A consumer is making purchases of products Alpha and Beta such that the marginal utility of product Alpha is 30 and the marginal utility of product Beta is 40. The price of product Alpha is $5, and the price of product Beta is $10. The utility-maximizing rule suggests that, to stay within a given budget constraint, this consumer should

Accepted Answer

A) increase consumption of product Beta and decrease consumption of product Alpha. 
B) increase consumption of product Beta and increase consumption of product Alpha. 
C) increase consumption of product Alpha and decrease consumption of product Beta. 
D) make no change in the consumption of Alpha or Beta. 
A) increase consumption of product Beta and decrease consumption of product Alpha. 
B) increase consumption of product Beta and increase consumption of product Alpha. 
C) increase consumption of product Alpha and decrease consumption of product Beta. 
D) make no change in the consumption of Alpha or Beta.

Question 3

From the viewpoint of potential criminals, the probability of being fined or imprisoned

Accepted Answer

A) raises the marginal utility of criminal behavior. 
B) lowers the marginal utility of criminal behavior. 
C) raises the marginal cost or "price" of criminal behavior. 
D) lowers the marginal cost or "price" of criminal behavior. 
A) raises the marginal utility of criminal behavior. 
B) lowers the marginal utility of criminal behavior. 
C) raises the marginal cost or "price" of criminal behavior. 
D) lowers the marginal cost or "price" of criminal behavior.

Question 4

Indifference analysis assumes that utility is numerically measurable.

Accepted Answer

A) True 
 B)False

Question 5

A change in the slope of a budget line is solely the result of a change in

Accepted Answer

A) consumer preferences. 
B) the price of one good relative to the other. 
C) money income. 
D) the slope of the indifference curve that is tangent to the budget line. 
A) consumer preferences. 
B) the price of one good relative to the other. 
C) money income. 
D) the slope of the indifference curve that is tangent to the budget line.

Question 6

The income of a consumer is $40, the price of A is $8, and the price of B is $4. If the quantity of A is measured vertically, then the slope of the budget line is

Accepted Answer

A) −0.5. 
B) −1.0. 
C) −2.0. 
D) −2.5. 
A) −0.5. 
B) −1.0. 
C) −2.0. 
D) −2.5.

Question 7

An indifference curve shows

Accepted Answer

A) the maximum combinations of two products that a consumer can afford to buy, given prices and the consumer's income. 
B) the quantities of two products a consumer is willing to buy at different income levels. 
C) all combinations of two products from which the consumer derives a specific level of total utility. 
D) combinations of two products that yield the same marginal utilities. 
A) the maximum combinations of two products that a consumer can afford to buy, given prices and the consumer's income. 
B) the quantities of two products a consumer is willing to buy at different income levels. 
C) all combinations of two products from which the consumer derives a specific level of total utility. 
D) combinations of two products that yield the same marginal utilities.

Question 8

Refer to the diagram. If the budget line shifts from ab to ac, the

Accepted Answer

A) consumer's level of total utility will increase. 
B) consumer will purchase more of both J and K. 
C) consumer will purchase less of both J and K. 
D) consumer will purchase more of J and less of K. 
A) consumer's level of total utility will increase. 
B) consumer will purchase more of both J and K. 
C) consumer will purchase less of both J and K. 
D) consumer will purchase more of J and less of K.

Question 9

A consumer currently spends a given budget on two goods, X and Y, in such quantities that the marginal utility of X is 10 and the marginal utility of Y is 8. The unit price of X is $5 and the unit price of Y is $2. The utility-maximizing rule suggests that this consumer should

Accepted Answer

A) increase consumption of product X and decrease consumption of product Y. 
B) increase consumption of product X and increase consumption of product Y. 
C) increase consumption of product Y and decrease consumption of product X. 
D) stick with the current consumption mix because it yields maximum utility. 
A) increase consumption of product X and decrease consumption of product Y. 
B) increase consumption of product X and increase consumption of product Y. 
C) increase consumption of product Y and decrease consumption of product X. 
D) stick with the current consumption mix because it yields maximum utility.

Question 10

What happens to the budget line when the price of a product falls? Use indifference curve analysis to explain how this change affects consumption of the product.

Accepted Answer

Changing the price of one product shifts

Question 11

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $25   What level of total utility does the rational consumer realize in equilibrium?

Accepted Answer

A) 162 utils 
B) 86 utils 
C) 58 utils 
D) 51 utils 
A) 162 utils 
B) 86 utils 
C) 58 utils 
D) 51 utils

Question 12

Someone who pays $800 to fly from one city to another instead of paying only $100 for a bus trip between the two cities is making an irrational choice and is thus not maximizing his utility.

Accepted Answer

A) True 
 B)False

Question 13

The lines on a topographical map are analogous to a(n)

Accepted Answer

A) series of demand curves. 
B) series of supply curves. 
C) indifference map. 
D) series of budget constraints. 
A) series of demand curves. 
B) series of supply curves. 
C) indifference map. 
D) series of budget constraints.

Question 14

A downward-sloping demand curve can be derived for a normal product by increasing its price in the consumer-behavior model and noting

Accepted Answer

A) the increase in the utility-maximizing quantity of that product demanded. 
B) the decrease in the utility-maximizing quantity of that product demanded. 
C) a substitution effect that encourages more consumption of that product. 
D) an income effect that encourages more consumption of that product. 
A) the increase in the utility-maximizing quantity of that product demanded. 
B) the decrease in the utility-maximizing quantity of that product demanded. 
C) a substitution effect that encourages more consumption of that product. 
D) an income effect that encourages more consumption of that product.

Question 15

A consumer who has a limited budget will maximize utility or satisfaction when the

Accepted Answer

A) ratios of the marginal utility of each product purchased divided by its price are equal. 
B) total utility derived from each product purchased is the same. 
C) marginal utility of each product purchased is the same. 
D) price of each product purchased is the same. 
A) ratios of the marginal utility of each product purchased divided by its price are equal. 
B) total utility derived from each product purchased is the same. 
C) marginal utility of each product purchased is the same. 
D) price of each product purchased is the same.

Question 16

A consumer is in equilibrium and is spending income in such a way that the marginal utility of product X is 40 units and that of Y is 16 units. If the unit price of X is $5, then the price of Y must be

Accepted Answer

A) $1 per unit. 
B) $2 per unit. 
C) $3 per unit. 
D) $4 per unit. 
A) $1 per unit. 
B) $2 per unit. 
C) $3 per unit. 
D) $4 per unit.

Question 17

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $6 and $2, respectively, and that the consumer's income is $22   How many units of the two products will the rational consumer purchase?

Accepted Answer

A) 3 of L and 3 of M 
B) 4 of L and 2 of M 
C) 2 of L and 4 of M 
D) 2 of L and 5 of M 
A) 3 of L and 3 of M 
B) 4 of L and 2 of M 
C) 2 of L and 4 of M 
D) 2 of L and 5 of M

Question 18

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 $3, and the price of product Y is $2. The income of the consumer is $15.   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) 4X and 2Y 
B) 3X and 3Y 
C) 2X and 4Y 
D) 1X and 5Y 
A) 4X and 2Y 
B) 3X and 3Y 
C) 2X and 4Y 
D) 1X and 5Y

Question 19

The slope of a budget line reflects the

Accepted Answer

A) elasticity of demand for the two products. 
B) price ratio of the two products. 
C) amount of the consumer's income. 
D) utility ratio of the two products. 
A) elasticity of demand for the two products. 
B) price ratio of the two products. 
C) amount of the consumer's income. 
D) utility ratio of the two products.

Question 20

If total utility increases as consumption of a good increases, then marginal utility must be increasing also.

Accepted Answer

A) True 
 B)False

Exam 7: Utility Maximization

The price of diamonds is substantially greater than the price of water because

From the viewpoint of potential criminals, the probability of being fined or imprisoned

Indifference analysis assumes that utility is numerically measurable.

A change in the slope of a budget line is solely the result of a change in

The income of a consumer is $40, the price of A is $8, and the price of B is $4. If the quantity of A is measured vertically, then the slope of the budget line is

An indifference curve shows

Refer to the diagram. If the budget line shifts from ab to ac, the

A consumer currently spends a given budget on two goods, X and Y, in such quantities that the marginal utility of X is 10 and the marginal utility of Y is 8. The unit price of X is $5 and the unit price of Y is $2. The utility-maximizing rule suggests that this consumer should

What happens to the budget line when the price of a product falls? Use indifference curve analysis to explain how this change affects consumption of the product.

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $25 What level of total utility does the rational consumer realize in equilibrium?

Someone who pays $800 to fly from one city to another instead of paying only $100 for a bus trip between the two cities is making an irrational choice and is thus not maximizing his utility.

The lines on a topographical map are analogous to a(n)

A downward-sloping demand curve can be derived for a normal product by increasing its price in the consumer-behavior model and noting

A consumer who has a limited budget will maximize utility or satisfaction when the

A consumer is in equilibrium and is spending income in such a way that the marginal utility of product X is 40 units and that of Y is 16 units. If the unit price of X is $5, then the price of Y must be

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $6 and $2, respectively, and that the consumer's income is $22 How many units of the two products will the rational consumer purchase?

The slope of a budget line reflects the

If total utility increases as consumption of a good increases, then marginal utility must be increasing also.

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

Elasticity

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, RD, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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