Question 1

Economists assume that people make decisions regarding consumption based on comparing

Accepted Answer

A)  additional units of satisfaction with additional costs. 
B)  average satisfaction with additional costs. 
C)  average satisfaction with average costs. 
D)  additional units of satisfaction with average costs. 
A)  additional units of satisfaction with additional costs. 
B)  average satisfaction with additional costs. 
C)  average satisfaction with average costs. 
D)  additional units of satisfaction with average costs.

Question 2

Given the utility-optimizing rule and the presence of diminishing marginal utility for a good,

Accepted Answer

A)  the demand curve for the good will be vertical. 
B)  there will not be a well-defined demand curve. 
C)  there will not be a substitution effect. 
D)  the demand curve for the good will be negatively sloped. 
A)  the demand curve for the good will be vertical. 
B)  there will not be a well-defined demand curve. 
C)  there will not be a substitution effect. 
D)  the demand curve for the good will be negatively sloped.

Question 3

John has just eaten another potato chip and his total utility increased. 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 4

A certain athlete loves donuts. He receives 100 units of utility for the first donut, an additional 80 for the second, an additional 60 for the third, another 40 for the fourth, and another 20 for the fifth. The marginal utility of the fourth donut is ________ and the total utility from consuming four donuts is ________.

Accepted Answer

A)  40; 40 
B)  40; 280 
C)  140; 280 
D)  280; 100 
A)  40; 40 
B)  40; 280 
C)  140; 280 
D)  280; 100

Question 5

Olga buys a bag of potato chips every day after her economics class. The first potato chip always tastes wonderful. The second does not taste quite as good as the first. The third does not taste quite as good as the second. Olga is experiencing

Accepted Answer

A)  irrational behavior. 
B)  the law of diminishing marginal utility. 
C)  the income effect. 
D)  the substitution effect. 
A)  irrational behavior. 
B)  the law of diminishing marginal utility. 
C)  the income effect. 
D)  the substitution effect.

Question 6

The tendency of people to substitute cheaper commodities for more expensive commodities is the

Accepted Answer

A)  law of diminishing marginal utility. 
B)  real-income effect. 
C)  substitution effect. 
D)  price income effect. 
A)  law of diminishing marginal utility. 
B)  real-income effect. 
C)  substitution effect. 
D)  price income effect.

Question 7

Marginal utility is

Accepted Answer

A)  the utility received by the last consumer of a good. 
B)  the total utility received from consuming a given quantity of a good divided by the number of units consumed. 
C)  the change in total utility from consuming an additional unit of a good. 
D)  the utility received from consuming the first unit of a good. 
A)  the utility received by the last consumer of a good. 
B)  the total utility received from consuming a given quantity of a good divided by the number of units consumed. 
C)  the change in total utility from consuming an additional unit of a good. 
D)  the utility received from consuming the first unit of a good.

Question 8

-In the above figure, the budget line will change from line DE to line DF when

Accepted Answer

A)  income rises. 
B)  the price of bagels increases. 
C)  the price of coffee increases. 
D)  the price of coffee decreases. 
A)  income rises. 
B)  the price of bagels increases. 
C)  the price of coffee increases. 
D)  the price of coffee decreases.

Question 9

-After consuming what quantity of pizza does the consumer in the table below experience diminishing marginal utility?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 10

Suppose that Jacob is going to a buffet restaurant that allows him to eat as many chicken wings as he wants at a fixed price. How would you predict the number of chicken wings that Jack will eat using utility theory?

Accepted Answer

Utility theory predicts that Jacob will

Question 11

If marginal utility is negative,

Accepted Answer

A)  total utility increases at a decreasing rate. 
B)  the consumer considers extra units of the commodity to be a "bad." 
C)  the consumer will want to consume the unit only if it is free. 
D)  the consumer likes the commodity, but not as much as he or she once did. 
A)  total utility increases at a decreasing rate. 
B)  the consumer considers extra units of the commodity to be a "bad." 
C)  the consumer will want to consume the unit only if it is free. 
D)  the consumer likes the commodity, but not as much as he or she once did.

Question 12

Given the price of a good or service, what determines how much a person is willing to pay for that good or service?

Accepted Answer

A)  marginal utility 
B)  total utility 
C)  the substitution effect 
D)  average utility 
A)  marginal utility 
B)  total utility 
C)  the substitution effect 
D)  average utility

Question 13

The marginal rate of substitution is

Accepted Answer

A)  equal to unit changes in the quantities of both goods so that utility rises. 
B)  the slope of the budget line at all points. 
C)  the change in the quantity of one good that just offsets a unit change in another good, keeping utility constant. 
D)  found by adding additional units. 
A)  equal to unit changes in the quantities of both goods so that utility rises. 
B)  the slope of the budget line at all points. 
C)  the change in the quantity of one good that just offsets a unit change in another good, keeping utility constant. 
D)  found by adding additional units.

Question 14

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

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 15

-Refer to the above figure. Which point represents the second highest level of utility?

Accepted Answer

A)  Point A 
B)  Point B 
C)  Point C 
D)  Point D 
A)  Point A 
B)  Point B 
C)  Point C 
D)  Point D

Question 16

-According to the above table, what is David's marginal utility of the 7th unit?

Accepted Answer

A)  420 
B)  400 
C)  120 
D)  60 
A)  420 
B)  400 
C)  120 
D)  60

Question 17

One piece of evidence that possibly supports the bounded-rationality assumption of behavioral economics is that experiments appear to have shown that

Accepted Answer

A)  people make different decisions in calm situations than in situations in which emotions come into play. 
B)  people make the same decisions in calm situations than in situations in which emotions come into play. 
C)  total utility is maximized when marginal utility is equal to zero. 
D)  total utility is declining when marginal utility is negative. 
A)  people make different decisions in calm situations than in situations in which emotions come into play. 
B)  people make the same decisions in calm situations than in situations in which emotions come into play. 
C)  total utility is maximized when marginal utility is equal to zero. 
D)  total utility is declining when marginal utility is negative.

Question 18

Why is water much cheaper than diamonds even though water is essential to human lives while diamonds are not?

Accepted Answer

This is called the diamond-water paradox

Exam 20: Consumer Choice

Economists assume that people make decisions regarding consumption based on comparing

Given the utility-optimizing rule and the presence of diminishing marginal utility for a good,

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

Olga buys a bag of potato chips every day after her economics class. The first potato chip always tastes wonderful. The second does not taste quite as good as the first. The third does not taste quite as good as the second. Olga is experiencing

The tendency of people to substitute cheaper commodities for more expensive commodities is the

Marginal utility is

-In the above figure, the budget line will change from line DE to line DF when

-After consuming what quantity of pizza does the consumer in the table below experience diminishing marginal utility?

Suppose that Jacob is going to a buffet restaurant that allows him to eat as many chicken wings as he wants at a fixed price. How would you predict the number of chicken wings that Jack will eat using utility theory?

If marginal utility is negative,

Given the price of a good or service, what determines how much a person is willing to pay for that good or service?

The marginal rate of substitution is

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

-Refer to the above figure. Which point represents the second highest level of utility?

-According to the above table, what is David's marginal utility of the 7th unit?

One piece of evidence that possibly supports the bounded-rationality assumption of behavioral economics is that experiments appear to have shown that

Why is water much cheaper than diamonds even though water is essential to human lives while diamonds are not?

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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