Question 1

The idea that people will substitute cheaper commodities for more expensive commodities is called

Accepted Answer

A)  the marginal effect. 
B)  the real-income effect. 
C)  the substitution effect. 
D)  the utility effect. 
A)  the marginal effect. 
B)  the real-income effect. 
C)  the substitution effect. 
D)  the utility effect.

Question 2

The inverse relationship between quantity demanded and price of a good or service can be explained, in part, by

Accepted Answer

A)  a shift in the demand curve. 
B)  diminishing marginal utility only. 
C)  diminishing marginal utility and the rule of equal marginal utilities per dollar. 
D)  the real income effect. 
A)  a shift in the demand curve. 
B)  diminishing marginal utility only. 
C)  diminishing marginal utility and the rule of equal marginal utilities per dollar. 
D)  the real income effect.

Question 3

All possible combinations of goods that can be purchased at fixed prices with a specific income is

Accepted Answer

A)  a marginal utility curve. 
B)  a total utility curve. 
C)  an indifference curve. 
D)  a budget constraint. 
A)  a marginal utility curve. 
B)  a total utility curve. 
C)  an indifference curve. 
D)  a budget constraint.

Question 4

-Use the above figure. When the budget line rotates from "b" to "c"

Accepted Answer

A)  the price of product J increases and the quantity demanded of product J decreases. 
B)  the price of product J decreases and the quantity demanded of product J increases. 
C)  the price of product K increases and the quantity demanded of product K decreases. 
D)  the price of product K decreases and the quantity demanded of product K increases . 
A)  the price of product J increases and the quantity demanded of product J decreases. 
B)  the price of product J decreases and the quantity demanded of product J increases. 
C)  the price of product K increases and the quantity demanded of product K decreases. 
D)  the price of product K decreases and the quantity demanded of product K increases .

Question 5

-According to the above table, Mary's marginal utility from watching the 6th movie is

Accepted Answer

A)  190 units of utility. 
B)  40 units of utility. 
C)  10 units of utility. 
D)  20 units of utility. 
A)  190 units of utility. 
B)  40 units of utility. 
C)  10 units of utility. 
D)  20 units of utility.

Question 6

The idea that consumers continue to adjust their purchases until the marginal utility per last dollar spent on all items is equal is called the

Accepted Answer

A)  law of increasing costs. 
B)  law of diminishing marginal utility. 
C)  rule of 72. 
D)  consumer optimum. 
A)  law of increasing costs. 
B)  law of diminishing marginal utility. 
C)  rule of 72. 
D)  consumer optimum.

Question 7

An indifference curve cannot be positively sloped because

Accepted Answer

A)  the law of diminishing marginal utility would be violated. 
B)  the substitution effect would be violated. 
C)  a point to the right of another point will represent a lower quantity of both goods and a reduction in utility. 
D)  a point to the right of another point will represent a higher quantity of both goods and an increase in utility. 
A)  the law of diminishing marginal utility would be violated. 
B)  the substitution effect would be violated. 
C)  a point to the right of another point will represent a lower quantity of both goods and a reduction in utility. 
D)  a point to the right of another point will represent a higher quantity of both goods and an increase in utility.

Question 8

If a college student stays home and watches a rented DVD for $5 rather than going out to a $10 movie, this is an example of the

Accepted Answer

A)  utility effect. 
B)  value effect. 
C)  substitution effect. 
D)  income effect. 
A)  utility effect. 
B)  value effect. 
C)  substitution effect. 
D)  income effect.

Question 9

A consumer who has chosen the right mix of goods and services to maximize his or her utility is said to have achieved

Accepted Answer

A)  consumer equilibrium. 
B)  consumer benefit. 
C)  consumer surplus. 
D)  consumer optimum. 
A)  consumer equilibrium. 
B)  consumer benefit. 
C)  consumer surplus. 
D)  consumer optimum.

Question 10

Economists infer that a consumer receives more utility from one good than another by

Accepted Answer

A)  giving consumers surveys about the utility they receive from the goods. 
B)  observing the consumer's behavior. 
C)  the logic of the models used. 
D)  means of introspection and speculation. 
A)  giving consumers surveys about the utility they receive from the goods. 
B)  observing the consumer's behavior. 
C)  the logic of the models used. 
D)  means of introspection and speculation.

Question 11

Why does a price increase of a product result in a decrease in the quantity demanded of that product, according to utility analysis?

Accepted Answer

There are two effects associated with a

Question 12

Why can't an indifference curve be a straight line?

Accepted Answer

A straight-line indifference curve indic

Question 13

-Refer to the above table. The price of a hamburger is $2, the price of a movie is $10, and the consumer has $44. What is the change in quantity demanded of hamburgers if the price of a hamburger decreases to $1?

Accepted Answer

A)  Quantity demanded increases by 1 hamburger. 
B)  Quantity demanded increases by 2 hamburgers. 
C)  Quantity demanded increases by 3 hamburgers. 
D)  Quantity demanded increases by 4 hamburgers. 
A)  Quantity demanded increases by 1 hamburger. 
B)  Quantity demanded increases by 2 hamburgers. 
C)  Quantity demanded increases by 3 hamburgers. 
D)  Quantity demanded increases by 4 hamburgers.

Question 14

The negative relationship between the quantity demanded of a commodity and its price can be explained by the principle of

Accepted Answer

A)  increasing total utility. 
B)  contingent valuation. 
C)  indifference analysis. 
D)  diminishing marginal utility. 
A)  increasing total utility. 
B)  contingent valuation. 
C)  indifference analysis. 
D)  diminishing marginal utility.

Question 15

If marginal utility is zero, total utility is

Accepted Answer

A)  falling. 
B)  increasing. 
C)  at its maximum. 
D)  negative. 
A)  falling. 
B)  increasing. 
C)  at its maximum. 
D)  negative.

Question 16

The marginal utility of good A is 6 and the marginal utility of good B is 15. The price of good A is $2. The price of good B must be ________ if the consumer is optimizing her utility.

Accepted Answer

A)  $2 
B)  $5 
C)  $45 
D)  $15 
A)  $2 
B)  $5 
C)  $45 
D)  $15

Question 17

The real-income effect shows that

Accepted Answer

A)  a decrease in the price of a good increases the purchasing power of the consumer's income. 
B)  if the consumer's income rises, he or she buys more of inferior goods and less of normal goods. 
C)  if a good is inferior, a decrease in the purchasing power of income results in less of the good being consumed. 
D)  when the price of a good rises, consumers are able to buy more of other goods because of the increase in the purchasing power of income. 
A)  a decrease in the price of a good increases the purchasing power of the consumer's income. 
B)  if the consumer's income rises, he or she buys more of inferior goods and less of normal goods. 
C)  if a good is inferior, a decrease in the purchasing power of income results in less of the good being consumed. 
D)  when the price of a good rises, consumers are able to buy more of other goods because of the increase in the purchasing power of income.

Question 18

Which of the following statements is FALSE, with respect to what economist Adam Smith called the diamond-water paradox?

Accepted Answer

A)  The total utility of water greatly exceeds the total utility derived from diamonds. 
B)  Total utility does not determine what people are willing to pay for a unit of a particular commodity; marginal utility does. 
C)  The demand for water is much smaller than the demand for diamonds. 
D)  There are relatively few diamonds, so the marginal utility of the last diamond consumed is relatively high. 
A)  The total utility of water greatly exceeds the total utility derived from diamonds. 
B)  Total utility does not determine what people are willing to pay for a unit of a particular commodity; marginal utility does. 
C)  The demand for water is much smaller than the demand for diamonds. 
D)  There are relatively few diamonds, so the marginal utility of the last diamond consumed is relatively high.

Question 19

The equation for the calculation of marginal utility is

Accepted Answer

A)  total utility/number of units consumed. 
B)  change in total utility/number of units consumed. 
C)  change in total utility/change in number of units consumed. 
D)  total utility/change in number of units consumed. 
A)  total utility/number of units consumed. 
B)  change in total utility/number of units consumed. 
C)  change in total utility/change in number of units consumed. 
D)  total utility/change in number of units consumed.

Question 20

-Refer to the above table. What is the marginal utility for the 10th unit for Mary and for John?

Accepted Answer

A)  Mary: -10; John: 10 
B)  Mary: 10; John 10 
C)  Mary: 220; John 450 
D)  Mary: 0; John: 0 
A)  Mary: -10; John: 10 
B)  Mary: 10; John 10 
C)  Mary: 220; John 450 
D)  Mary: 0; John: 0

Exam 20: Consumer Choice

The idea that people will substitute cheaper commodities for more expensive commodities is called

The inverse relationship between quantity demanded and price of a good or service can be explained, in part, by

All possible combinations of goods that can be purchased at fixed prices with a specific income is

-Use the above figure. When the budget line rotates from "b" to "c"

-According to the above table, Mary's marginal utility from watching the 6th movie is

The idea that consumers continue to adjust their purchases until the marginal utility per last dollar spent on all items is equal is called the

An indifference curve cannot be positively sloped because

If a college student stays home and watches a rented DVD for $5 rather than going out to a $10 movie, this is an example of the

A consumer who has chosen the right mix of goods and services to maximize his or her utility is said to have achieved

Economists infer that a consumer receives more utility from one good than another by

Why does a price increase of a product result in a decrease in the quantity demanded of that product, according to utility analysis?

Why can't an indifference curve be a straight line?

-Refer to the above table. The price of a hamburger is $2, the price of a movie is $10, and the consumer has $44. What is the change in quantity demanded of hamburgers if the price of a hamburger decreases to $1?

The negative relationship between the quantity demanded of a commodity and its price can be explained by the principle of

If marginal utility is zero, total utility is

The marginal utility of good A is 6 and the marginal utility of good B is 15. The price of good A is $2. The price of good B must be ________ if the consumer is optimizing her utility.

The real-income effect shows that

Which of the following statements is FALSE, with respect to what economist Adam Smith called the diamond-water paradox?

The equation for the calculation of marginal utility is

-Refer to the above table. What is the marginal utility for the 10th unit for Mary and for John?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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