Question 1

When indifference curve analysis is used, a consumer optimum occurs at the point at which

Accepted Answer

A)  the indifference curves intersect. 
B)  the indifference curve is tangent to the budget line. 
C)  total utility is maximum. 
D)  marginal utility/price ratio of all goods consumed is equal. 
A)  the indifference curves intersect. 
B)  the indifference curve is tangent to the budget line. 
C)  total utility is maximum. 
D)  marginal utility/price ratio of all goods consumed is equal.

Question 2

The substitution effect argues that a consumer

Accepted Answer

A)  will always use the additional purchasing power from a price decrease to purchase more of both goods. 
B)  will not purchase more of a good when its price falls. 
C)  will purchase more of a good that has become relatively cheaper, and less of a good that has become relatively more expensive. 
D)  will purchase less of both goods if his or her real income increases. 
A)  will always use the additional purchasing power from a price decrease to purchase more of both goods. 
B)  will not purchase more of a good when its price falls. 
C)  will purchase more of a good that has become relatively cheaper, and less of a good that has become relatively more expensive. 
D)  will purchase less of both goods if his or her real income increases.

Question 3

Let the quantity of hamburgers be measured along the vertical axis and the quantity of movies be measured along the horizontal axis. If the price of a hamburger is $1.50 and the price of a movie is $6, then the slope of the budget line is

Accepted Answer

A)  -6. 
B)  -4. 
C)  -3. 
D)  -0.25. 
A)  -6. 
B)  -4. 
C)  -3. 
D)  -0.25.

Question 4

Based on the material presented in the chapter, can we conclude that people will consume goods until the marginal utility of each good is zero?

Accepted Answer

A)  Yes, because at that point total utility is maximum. 
B)  Yes, because at that point marginal utility is minimum. 
C)  No, because consumption is determined by total utility. 
D)  No, because consumption is determined by the marginal utility/price ratio. 
A)  Yes, because at that point total utility is maximum. 
B)  Yes, because at that point marginal utility is minimum. 
C)  No, because consumption is determined by total utility. 
D)  No, because consumption is determined by the marginal utility/price ratio.

Question 5

-Refer to the above table. If the price of a magazine is $2 and the price of a paperback book is $5 and the consumer has $33, the rational consumer will purchase

Accepted Answer

A)  2 magazines and 2 books. 
B)  2 magazines and 3 books. 
C)  5 magazines and 6 books. 
D)  4 magazines and 5 books. 
A)  2 magazines and 2 books. 
B)  2 magazines and 3 books. 
C)  5 magazines and 6 books. 
D)  4 magazines and 5 books.

Question 6

-Refer to the above table. Amy's utility schedule shows

Accepted Answer

A)  diminishing marginal utility throughout the entire schedule. 
B)  initially increasing marginal utility and then decreasing marginal utility. 
C)  initially decreasing marginal utility and then increasing marginal utility. 
D)  increasing marginal utility throughout the entire schedule. 
A)  diminishing marginal utility throughout the entire schedule. 
B)  initially increasing marginal utility and then decreasing marginal utility. 
C)  initially decreasing marginal utility and then increasing marginal utility. 
D)  increasing marginal utility throughout the entire schedule.

Question 7

Which of the following is FALSE?

Accepted Answer

A)  A consumer is maximizing total utility when he or she gets the same amount of marginal utility from the last dollar spent on each good purchased. 
B)  As additional units of a good or service are consumed, marginal utility diminishes. 
C)  Utility is want-satisfying power. 
D)  Assuming that the law of diminishing marginal utility holds, the demand curve must be upward sloping. 
A)  A consumer is maximizing total utility when he or she gets the same amount of marginal utility from the last dollar spent on each good purchased. 
B)  As additional units of a good or service are consumed, marginal utility diminishes. 
C)  Utility is want-satisfying power. 
D)  Assuming that the law of diminishing marginal utility holds, the demand curve must be upward sloping.

Question 8

Despite the fact that water is necessary to sustain life, it is less expensive than soft drinks. Economic theory suggests that this is so because

Accepted Answer

A)  there is a conspiracy among soft drinks producers to hold prices artificially high. 
B)  although the total utility of water consumption is high, its marginal utility per dollar spent is low when compared to soft drinks. 
C)  consumers are irrational. 
D)  sellers of water hold the price of water artificially low because of its importance. 
A)  there is a conspiracy among soft drinks producers to hold prices artificially high. 
B)  although the total utility of water consumption is high, its marginal utility per dollar spent is low when compared to soft drinks. 
C)  consumers are irrational. 
D)  sellers of water hold the price of water artificially low because of its importance.

Question 9

-Suppose the price of pizza falls to $1 per slice. Assuming that Tom's preferences continue to be those shown in the above table, and assuming that MU/P = 3 is still the point at which his consumer optimum is reached, how many slices will Tom now buy?

Accepted Answer

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

Question 10

The price of a hamburger is $1, and the price of a movie is $6. The consumer has purchased 2 hamburgers and 2 movies, and her marginal utility from the second hamburger is 20 and from the second movie is 120. The consumer has an income of $21. This combination of goods

Accepted Answer

A)  maximizes utility and is an optimum because the marginal utility of the last dollar spent on each good is the same. 
B)  maximizes utility because the marginal utility of the last dollar spent on each good is the same, but it is not an equilibrium because marginal utility is not zero. 
C)  is not an optimum because the consumer has not spent all of her money. 
D)  is not an optimum because the marginal utility of the last dollar spent on each good is not the same. 
A)  maximizes utility and is an optimum because the marginal utility of the last dollar spent on each good is the same. 
B)  maximizes utility because the marginal utility of the last dollar spent on each good is the same, but it is not an equilibrium because marginal utility is not zero. 
C)  is not an optimum because the consumer has not spent all of her money. 
D)  is not an optimum because the marginal utility of the last dollar spent on each good is not the same.

Question 11

The slope of the budget line will change

Accepted Answer

A)  when the consumer's income increases. 
B)  when the consumer's taste changes. 
C)  when the total satisfaction changes. 
D)  when the price of one of the products changes. 
A)  when the consumer's income increases. 
B)  when the consumer's taste changes. 
C)  when the total satisfaction changes. 
D)  when the price of one of the products changes.

Question 12

A consumer's optimum is found when

Accepted Answer

A)  the marginal utility of the last dollar spent equals zero for each good. 
B)  the marginal utility of each good is increasing and the total income is spent. 
C)  the total utility of each good is the same and the total income is spent. 
D)  the marginal utility of the last dollar spent on each good is the same and all income is spent. 
A)  the marginal utility of the last dollar spent equals zero for each good. 
B)  the marginal utility of each good is increasing and the total income is spent. 
C)  the total utility of each good is the same and the total income is spent. 
D)  the marginal utility of the last dollar spent on each good is the same and all income is spent.

Question 13

To calculate marginal utility, divide the change in total utility by

Accepted Answer

A)  the number of units consumed. 
B)  the price of the product. 
C)  the change in the number of units consumed. 
D)  the consumer's subjective level of preference. 
A)  the number of units consumed. 
B)  the price of the product. 
C)  the change in the number of units consumed. 
D)  the consumer's subjective level of preference.

Question 14

Mathematically the marginal rate of substitution is

Accepted Answer

A)  always a negative number. 
B)  always a positive number. 
C)  is equal to 1. 
D)  sometimes a positive and sometimes a negative number. 
A)  always a negative number. 
B)  always a positive number. 
C)  is equal to 1. 
D)  sometimes a positive and sometimes a negative number.

Question 15

The marginal rate of substitution is the

Accepted Answer

A)  rate at which the consumer will give up one good for an additional unit of the other good, such that total satisfaction is constant. 
B)  rate at which the consumer can trade one good for the other in the marketplace. 
C)  change in the quantity of one good that changes the utility received by one unit. 
D)  same thing as the marginal utility of a good. 
A)  rate at which the consumer will give up one good for an additional unit of the other good, such that total satisfaction is constant. 
B)  rate at which the consumer can trade one good for the other in the marketplace. 
C)  change in the quantity of one good that changes the utility received by one unit. 
D)  same thing as the marginal utility of a good.

Question 16

If someone complains that she doesn't feel very well because she ate too much pizza, we would conclude that the marginal utility of the last piece of pizza eaten was

Accepted Answer

A)  positive. 
B)  zero. 
C)  very large. 
D)  negative. 
A)  positive. 
B)  zero. 
C)  very large. 
D)  negative.

Question 17

-According to the above table, what is Lauren's marginal utility of the 4th unit?

Accepted Answer

A)  90 
B)  220 
C)  310 
D)  115 
A)  90 
B)  220 
C)  310 
D)  115

Question 18

Use the law of diminishing marginal utility to explain the diamond-water paradox.

Accepted Answer

The diamond-water paradox refers to the

Question 19

Which economic principle accounts for the fact that all-you-can-eat buffet restaurants can be profitable?

Accepted Answer

A)  The law of demand 
B)  The principle of diminishing marginal utility 
C)  The principle of diminishing marginal product 
D)  The law of supply 
A)  The law of demand 
B)  The principle of diminishing marginal utility 
C)  The principle of diminishing marginal product 
D)  The law of supply

Question 20

-Refer to the above figure. All of the following are true concerning the diamond-water paradox EXCEPT

Accepted Answer

A)  the demand for water exceeds the demand for diamonds. 
B)  the price of diamonds exceeds the price of water. 
C)  since the price of diamonds is high, demand is great. 
D)  marginal utility of diamond consumption is relatively high. 
A)  the demand for water exceeds the demand for diamonds. 
B)  the price of diamonds exceeds the price of water. 
C)  since the price of diamonds is high, demand is great. 
D)  marginal utility of diamond consumption is relatively high.

Exam 20: Consumer Choice

When indifference curve analysis is used, a consumer optimum occurs at the point at which

The substitution effect argues that a consumer

Let the quantity of hamburgers be measured along the vertical axis and the quantity of movies be measured along the horizontal axis. If the price of a hamburger is $1.50 and the price of a movie is $6, then the slope of the budget line is

Based on the material presented in the chapter, can we conclude that people will consume goods until the marginal utility of each good is zero?

-Refer to the above table. If the price of a magazine is $2 and the price of a paperback book is $5 and the consumer has $33, the rational consumer will purchase

-Refer to the above table. Amy's utility schedule shows

Which of the following is FALSE?

Despite the fact that water is necessary to sustain life, it is less expensive than soft drinks. Economic theory suggests that this is so because

-Suppose the price of pizza falls to $1 per slice. Assuming that Tom's preferences continue to be those shown in the above table, and assuming that MU/P = 3 is still the point at which his consumer optimum is reached, how many slices will Tom now buy?

The price of a hamburger is $1, and the price of a movie is $6. The consumer has purchased 2 hamburgers and 2 movies, and her marginal utility from the second hamburger is 20 and from the second movie is 120. The consumer has an income of $21. This combination of goods

The slope of the budget line will change

A consumer's optimum is found when

To calculate marginal utility, divide the change in total utility by

Mathematically the marginal rate of substitution is

The marginal rate of substitution is the

If someone complains that she doesn't feel very well because she ate too much pizza, we would conclude that the marginal utility of the last piece of pizza eaten was

-According to the above table, what is Lauren's marginal utility of the 4th unit?

Use the law of diminishing marginal utility to explain the diamond-water paradox.

Which economic principle accounts for the fact that all-you-can-eat buffet restaurants can be profitable?

-Refer to the above figure. All of the following are true concerning the diamond-water paradox EXCEPT

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