Question 1

An indifference curve shows

Accepted Answer

A)  the combinations of goods that a consumer does not like very much. 
B)  the combinations of goods that generate the same ratio of marginal utilities. 
C)  the set of consumption alternatives that yield the same amount of total utility. 
D)  the set of consumption alternatives that yield the same amount of marginal utility. 
A)  the combinations of goods that a consumer does not like very much. 
B)  the combinations of goods that generate the same ratio of marginal utilities. 
C)  the set of consumption alternatives that yield the same amount of total utility. 
D)  the set of consumption alternatives that yield the same amount of marginal utility.

Question 2

Consumers do not buy as many units of each good as they want because

Accepted Answer

A)  of the law of diminishing marginal utility. 
B)  they have limited incomes. 
C)  they do not know what they want in all situations. 
D)  eventually marginal utility equals zero. 
A)  of the law of diminishing marginal utility. 
B)  they have limited incomes. 
C)  they do not know what they want in all situations. 
D)  eventually marginal utility equals zero.

Question 3

-Use the above figure. Last week Joe consumed combination "A" of goods "X" and "Y." This week he purchased combination "B." The reason for this change is that the

Accepted Answer

A)  price of good X has increased. 
B)  price of good X has decreased. 
C)  price of good Y has decreased. 
D)  price of good Y has increased. 
A)  price of good X has increased. 
B)  price of good X has decreased. 
C)  price of good Y has decreased. 
D)  price of good Y has increased.

Question 4

John has just eaten another potato chip and his total utility decreased. This means that John's marginal utility for this additional potato chip is

Accepted Answer

A)  positive. 
B)  negative. 
C)  zero. 
D)  not determinable without more information. 
A)  positive. 
B)  negative. 
C)  zero. 
D)  not determinable without more information.

Question 5

The price of a hamburger is $1 and the price of a movie is $6 and the consumer has $14. A consumer has purchased 2 hamburgers and 2 movies, receiving 20 units of utility for the second hamburger and 100 units of utility for the second movie. The set of goods

Accepted Answer

A)  is an optimum since the entire income is spent and the marginal utility per dollar spent is the same for the last unit of each good. 
B)  is an optimum since the entire income is spent and total utility is maximized. 
C)  is not an optimum because the marginal utility per dollar spent is greater for hamburgers than for movies and the consumer is not spending all of his income. 
D)  is not an optimum because the marginal utility for each good is not equal. 
A)  is an optimum since the entire income is spent and the marginal utility per dollar spent is the same for the last unit of each good. 
B)  is an optimum since the entire income is spent and total utility is maximized. 
C)  is not an optimum because the marginal utility per dollar spent is greater for hamburgers than for movies and the consumer is not spending all of his income. 
D)  is not an optimum because the marginal utility for each good is not equal.

Question 6

At the point at which total utility is at a maximum,

Accepted Answer

A)  marginal utility is at a minimum. 
B)  marginal utility is negative. 
C)  marginal utility is zero. 
D)  marginal utility is equal to total utility. 
A)  marginal utility is at a minimum. 
B)  marginal utility is negative. 
C)  marginal utility is zero. 
D)  marginal utility is equal to total utility.

Question 7

-Refer to the above table. At what quantity does diminishing marginal utility set in?

Accepted Answer

A)  1st. 
B)  After 4. 
C)  After 5. 
D)  After 6. 
A)  1st. 
B)  After 4. 
C)  After 5. 
D)  After 6.

Question 8

Using indifference curve analysis, an optimum is characterized by

Accepted Answer

A)  the marginal rate of substitution of one good divided by its price equal to the marginal rate of substitution of the other good divided by its price. 
B)  the marginal rate of substitution being equal to one. 
C)  the marginal rate of substitution being equal to zero. 
D)  the marginal rate of substitution being equal to the ratio of the prices of the two goods. 
A)  the marginal rate of substitution of one good divided by its price equal to the marginal rate of substitution of the other good divided by its price. 
B)  the marginal rate of substitution being equal to one. 
C)  the marginal rate of substitution being equal to zero. 
D)  the marginal rate of substitution being equal to the ratio of the prices of the two goods.

Question 9

What do we know about total utility when marginal utility is zero?

Accepted Answer

Marginal utility is the extra utility fr

Question 10

If the quantity of hamburgers is measured along the horizontal axis and the quantity of movies is measured along the vertical axis, and the price of a hamburger is $2.00 while the price of a movie is $12, then the slope of the budget line is

Accepted Answer

A)  -1/3. 
B)  -3.5 
C)  -1/6. 
D)  -6. 
A)  -1/3. 
B)  -3.5 
C)  -1/6. 
D)  -6.

Question 11

-Refer to the above table. Assume the consumer spends his entire income. The price of a hamburger is $1, the price of a movie is $6, and the consumer has $15. What is the consumer's optimum?

Accepted Answer

A)  2 hamburgers and 2 movies 
B)  3 hamburgers and 2 movies 
C)  4 hamburgers and 4 movies 
D)  0 hamburgers and 2.5 movies 
A)  2 hamburgers and 2 movies 
B)  3 hamburgers and 2 movies 
C)  4 hamburgers and 4 movies 
D)  0 hamburgers and 2.5 movies

Question 12

Assume that the marginal utility from good x is 10 units and that the price of good x is $5 per unit. The marginal utility from good y is 15 units and its unit price is $7. In this situation, a utility-maximizing consumer should

Accepted Answer

A)  consume more of good x. 
B)  consume only good y. 
C)  consume more of good y. 
D)  consume neither x nor y. 
A)  consume more of good x. 
B)  consume only good y. 
C)  consume more of good y. 
D)  consume neither x nor y.

Question 13

If your money income stays the same but the price of one good that you are buying goes up, your effective purchasing power

Accepted Answer

A)  rises. 
B)  does not change. 
C)  cannot be determined. 
D)  falls. 
A)  rises. 
B)  does not change. 
C)  cannot be determined. 
D)  falls.

Question 14

Utility analysis assumes that the consumer's tastes and preferences are

Accepted Answer

A)  dependent on income and education. 
B)  predetermined and stable. 
C)  dependent on national origin. 
D)  dependent on geographic location. 
A)  dependent on income and education. 
B)  predetermined and stable. 
C)  dependent on national origin. 
D)  dependent on geographic location.

Question 15

Discuss the substitution and real-income effects of a price decrease.

Accepted Answer

The substitution effect of a price decre

Question 16

The reason that diamonds cost more than water is

Accepted Answer

A)  the marginal utility of each diamond a consumer purchases is quite high due to the small amount of diamonds that most consumers purchase. 
B)  most consumers consume little water. 
C)  diamonds are more beautiful than water. 
D)  water is a necessity. 
A)  the marginal utility of each diamond a consumer purchases is quite high due to the small amount of diamonds that most consumers purchase. 
B)  most consumers consume little water. 
C)  diamonds are more beautiful than water. 
D)  water is a necessity.

Question 17

The quantity of good M is measured along the vertical axis, and the quantity of good N is measured along the horizontal axis. If the prices of both goods M and N declines by 50% each, then the budget line

Accepted Answer

A)  shifts inward to the left by 50%. 
B)  shifts outward to the right by 50%. 
C)  shifts outward to the right by 100%. 
D)  rotates clockwise by 180 degrees. 
A)  shifts inward to the left by 50%. 
B)  shifts outward to the right by 50%. 
C)  shifts outward to the right by 100%. 
D)  rotates clockwise by 180 degrees.

Question 18

If you and a group of friends have been consuming large quantities of liquid beverages on a hot summer afternoon and you decide to refrain from any additional consumption, it can be concluded that

Accepted Answer

A)  total utility has reached a minimum and the marginal utility of an additional drink would be large. 
B)  total utility has reached a maximum and the marginal utility of an additional drink would be small. 
C)  total utility has reached a maximum and the marginal utility of an additional drink would be zero. 
D)  total utility has reached a minimum and the marginal utility of an additional drink would be negative. 
A)  total utility has reached a minimum and the marginal utility of an additional drink would be large. 
B)  total utility has reached a maximum and the marginal utility of an additional drink would be small. 
C)  total utility has reached a maximum and the marginal utility of an additional drink would be zero. 
D)  total utility has reached a minimum and the marginal utility of an additional drink would be negative.

Question 19

If a consumer chooses a combination of goods that are inside of her budget line, than

Accepted Answer

A)  the consumer is maximizing her satisfaction. 
B)  the consumer is spending more than her current income. 
C)  the consumer has a constant marginal rate of substitution for the two goods. 
D)  the consumer is not maximizing her satisfaction. 
A)  the consumer is maximizing her satisfaction. 
B)  the consumer is spending more than her current income. 
C)  the consumer has a constant marginal rate of substitution for the two goods. 
D)  the consumer is not maximizing her satisfaction.

Question 20

If marginal utility is positive but decreasing, total utility is

Accepted Answer

A)  decreasing. 
B)  negative. 
C)  increasing. 
D)  constant. 
A)  decreasing. 
B)  negative. 
C)  increasing. 
D)  constant.

Exam 20: Consumer Choice

An indifference curve shows

Consumers do not buy as many units of each good as they want because

-Use the above figure. Last week Joe consumed combination "A" of goods "X" and "Y." This week he purchased combination "B." The reason for this change is that the

John has just eaten another potato chip and his total utility decreased. This means that John's marginal utility for this additional potato chip is

The price of a hamburger is $1 and the price of a movie is $6 and the consumer has $14. A consumer has purchased 2 hamburgers and 2 movies, receiving 20 units of utility for the second hamburger and 100 units of utility for the second movie. The set of goods

At the point at which total utility is at a maximum,

-Refer to the above table. At what quantity does diminishing marginal utility set in?

Using indifference curve analysis, an optimum is characterized by

What do we know about total utility when marginal utility is zero?

If the quantity of hamburgers is measured along the horizontal axis and the quantity of movies is measured along the vertical axis, and the price of a hamburger is $2.00 while the price of a movie is $12, then the slope of the budget line is

-Refer to the above table. Assume the consumer spends his entire income. The price of a hamburger is $1, the price of a movie is $6, and the consumer has $15. What is the consumer's optimum?

Assume that the marginal utility from good x is 10 units and that the price of good x is $5 per unit. The marginal utility from good y is 15 units and its unit price is $7. In this situation, a utility-maximizing consumer should

If your money income stays the same but the price of one good that you are buying goes up, your effective purchasing power

Utility analysis assumes that the consumer's tastes and preferences are

Discuss the substitution and real-income effects of a price decrease.

The reason that diamonds cost more than water is

The quantity of good M is measured along the vertical axis, and the quantity of good N is measured along the horizontal axis. If the prices of both goods M and N declines by 50% each, then the budget line

If you and a group of friends have been consuming large quantities of liquid beverages on a hot summer afternoon and you decide to refrain from any additional consumption, it can be concluded that

If a consumer chooses a combination of goods that are inside of her budget line, than

If marginal utility is positive but decreasing, total utility is

The Nature of Economics

Scarcity and the World of Trade-Offs

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Public Spending and Public Choice

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