Question 1

Which of the following is held constant along an indifference curve?

Accepted Answer

A) The prices of the goods in question 
B) The marginal rate of substitution between the two goods in question 
C) The marginal utility derived from consuming any bundle of goods on the indifference curve 
D) The total utility derived from consuming any bundle of goods on the indifference curve 
A) The prices of the goods in question 
B) The marginal rate of substitution between the two goods in question 
C) The marginal utility derived from consuming any bundle of goods on the indifference curve 
D) The total utility derived from consuming any bundle of goods on the indifference curve

Question 2

Table 6.4  
-Refer to Table 6.4.For steak and cheese and grilled chicken sandwiches, the table contains the values of the marginal utility (MU)and marginal utility per dollar (MU/P)for Mabel Jarvis.Mabel has $14 to spend on steak and cheese and grilled chicken sandwiches.Which of the following statements is false?

Accepted Answer

A) The price of steak and cheese sandwiches is $4.The price of grilled chicken sandwiches is $2. 
B) If Mabel maximises her utility, she will buy three grilled chicken sandwiches. 
C) If Mabel maximises her utility, she will buy two steak and cheese sandwiches. 
D) We do not have enough information to determine how many sandwiches Mabel will buy to maximise her utility. 
A) The price of steak and cheese sandwiches is $4.The price of grilled chicken sandwiches is $2. 
B) If Mabel maximises her utility, she will buy three grilled chicken sandwiches. 
C) If Mabel maximises her utility, she will buy two steak and cheese sandwiches. 
D) We do not have enough information to determine how many sandwiches Mabel will buy to maximise her utility.

Question 3

Economists do not think it is possible to compare the relative utility that two people get from consuming an additional unit of a particular good.

Accepted Answer

A) True 
 B)False

Question 4

If a consumer receives 22 units of marginal utility from consuming the first can of lemonade, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is

Accepted Answer

A) 57 utility units. 
B) 35 utility units. 
C) 15 utility units. 
D) unknown as more information is needed to determine the answer. 
A) 57 utility units. 
B) 35 utility units. 
C) 15 utility units. 
D) unknown as more information is needed to determine the answer.

Question 5

Which of the following is not a common mistake made by consumers?

Accepted Answer

A) The failure to take into account the implicit costs of an activity 
B) The failure to ignore sunk costs 
C) Being overly optimistic about their future behaviour 
D) Being overly pessimistic about their future behaviour 
A) The failure to take into account the implicit costs of an activity 
B) The failure to ignore sunk costs 
C) Being overly optimistic about their future behaviour 
D) Being overly pessimistic about their future behaviour

Question 6

When diminishing marginal utility sets in, total utility must be negative.

Accepted Answer

A) True 
 B)False

Question 7

The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears.To maximise his utility, Harold should

Accepted Answer

A) acquire more income so that he can afford to buy more oranges and pears. 
B) reduce his consumption of both oranges and pears so that he can buy a greater variety of goods. 
C) buy fewer pears and more oranges. 
D) buy fewer oranges and more pears. 
A) acquire more income so that he can afford to buy more oranges and pears. 
B) reduce his consumption of both oranges and pears so that he can buy a greater variety of goods. 
C) buy fewer pears and more oranges. 
D) buy fewer oranges and more pears.

Question 8

If marginal utility of apples is diminishing and is a positive amount, consuming one more apple will cause

Accepted Answer

A) total utility to decrease. 
B) a consumer to get no satisfaction from consuming apples. 
C) a consumer's total utility to increase. 
D) a consumer to go beyond her optimal consumption of apples. 
A) total utility to decrease. 
B) a consumer to get no satisfaction from consuming apples. 
C) a consumer's total utility to increase. 
D) a consumer to go beyond her optimal consumption of apples.

Question 9

Figure 6.1  
-Refer to Figure 6.1.When the price of meat pies increases from $5.00 to $5.75, quantity demanded decreases from Q1 to Q0.This change in quantity demanded is due to

Accepted Answer

A) the price and output effects. 
B) the income and substitution effects. 
C) the fact that marginal willingness to pay falls. 
D) the law of diminishing marginal utility. 
A) the price and output effects. 
B) the income and substitution effects. 
C) the fact that marginal willingness to pay falls. 
D) the law of diminishing marginal utility.

Question 10

The substitution effect of a price increase causes a decrease in the quantity demanded of an inferior good.

Accepted Answer

A) True 
 B)False

Question 11

The substitution effect of a change in the price of cauliflower is the portion of the change in the quantity of cauliflower demanded that can be attributed to the change in the price of a substitute vegetable such as asparagus.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is used to explain why a consumer's willingness to buy Microsoft Office increases as the number of other people who use Microsoft Office increases?

Accepted Answer

A) Network externalities 
B) Market failure 
C) Diminishing marginal utility 
D) The income effect of a price change 
A) Network externalities 
B) Market failure 
C) Diminishing marginal utility 
D) The income effect of a price change

Question 13

Consider a downward-sloping demand curve.When the price of an inferior good increases, the income and substitution effects

Accepted Answer

A) work in the same direction to increase quantity demanded. 
B) work in the same direction to decrease quantity demanded. 
C) work in opposite directions and quantity demanded increases. 
D) work in opposite directions and quantity demanded decreases. 
A) work in the same direction to increase quantity demanded. 
B) work in the same direction to decrease quantity demanded. 
C) work in opposite directions and quantity demanded increases. 
D) work in opposite directions and quantity demanded decreases.

Question 14

Eliza consumes 12 cappuccinos and 8 apple turnovers per week.The price of cappuccino is $4 each and apple turnovers are $1 each.
a.What is the amount of income allocated to cappuccino and apple turnover consumption?
b.What is the price ratio (the price of cappuccino relative to the price of apple turnovers)?
c.Explain the meaning of the price ratio you computed.
d.If Eliza maximises utility, what is the ratio of the marginal utility of cappuccino to the marginal utility of apple turnovers?
e.If the price of apple turnovers falls, will Eliza consume more apple turnovers, fewer apple turnovers or the same amount of apple turnovers? Explain your answer using the rule of equal marginal utility per dollar.
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

a.Income = $56
b.Price of cappuccino / p

Question 15

The absolute value of the slope of the budget constraint is equal to

Accepted Answer

A) the marginal rate of substitution between the two goods in question. 
B) the price of the good on the vertical axis divided by the price of the good on the horizontal axis. 
C) the price of the good on the horizontal axis divided by the price of the good on the vertical axis. 
D) quantity of the good on the vertical axis divided by the quantity of the good on the horizontal axis. 
A) the marginal rate of substitution between the two goods in question. 
B) the price of the good on the vertical axis divided by the price of the good on the horizontal axis. 
C) the price of the good on the horizontal axis divided by the price of the good on the vertical axis. 
D) quantity of the good on the vertical axis divided by the quantity of the good on the horizontal axis.

Question 16

What is marginal utility and what is the law of diminishing marginal utility?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

Marginal utility is the change in total

Question 17

Health clubs typically experience an increase in one-year memberships in January, but many new customers cancel their memberships before the end of the year.Which of the following is the best explanation for this behaviour?

Accepted Answer

A) Some health club members suffer minor injuries that prevent them from working out. 
B) Some people are overly optimistic about their future behaviour. 
C) Some people fail to treat their membership fees as sunk costs. 
D) Some members receive utility from activities they believe are popular. 
A) Some health club members suffer minor injuries that prevent them from working out. 
B) Some people are overly optimistic about their future behaviour. 
C) Some people fail to treat their membership fees as sunk costs. 
D) Some members receive utility from activities they believe are popular.

Question 18

If by purchasing more apples and fewer oranges you increase your total utility, then apples must be cheaper than oranges.

Accepted Answer

A) True 
 B)False

Question 19

What does the law of diminishing marginal utility state?

Accepted Answer

A) Eventually total utility falls as more of a good is consumed, other things constant. 
B) The extra satisfaction from consuming a good, decreases as more of a good is consumed, other things constant. 
C) The extra satisfaction from consuming a good, increases slowly as more of a good is consumed, other things constant. 
D) When the extra satisfaction from consuming a good becomes negative, total utility starts falling, other things constant. 
A) Eventually total utility falls as more of a good is consumed, other things constant. 
B) The extra satisfaction from consuming a good, decreases as more of a good is consumed, other things constant. 
C) The extra satisfaction from consuming a good, increases slowly as more of a good is consumed, other things constant. 
D) When the extra satisfaction from consuming a good becomes negative, total utility starts falling, other things constant.

Question 20

If a consumer receives 20 units of utility from consuming two chocolate bars, and 25 units of utility from consuming three chocolate bars, the marginal utility of the third chocolate bar is

Accepted Answer

A) 25 utility units. 
B) 20 utility units. 
C) 5 utility units. 
D) unknown as more information is needed to determine the answer. 
A) 25 utility units. 
B) 20 utility units. 
C) 5 utility units. 
D) unknown as more information is needed to determine the answer.

Which of the following is held constant along an indifference curve?

Economists do not think it is possible to compare the relative utility that two people get from consuming an additional unit of a particular good.

If a consumer receives 22 units of marginal utility from consuming the first can of lemonade, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is

Which of the following is not a common mistake made by consumers?

When diminishing marginal utility sets in, total utility must be negative.

The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears.To maximise his utility, Harold should

If marginal utility of apples is diminishing and is a positive amount, consuming one more apple will cause

Figure 6.1 -Refer to Figure 6.1.When the price of meat pies increases from $5.00 to $5.75, quantity demanded decreases from Q₁ to Q₀.This change in quantity demanded is due to

The substitution effect of a price increase causes a decrease in the quantity demanded of an inferior good.

The substitution effect of a change in the price of cauliflower is the portion of the change in the quantity of cauliflower demanded that can be attributed to the change in the price of a substitute vegetable such as asparagus.

Which of the following is used to explain why a consumer's willingness to buy Microsoft Office increases as the number of other people who use Microsoft Office increases?

Consider a downward-sloping demand curve.When the price of an inferior good increases, the income and substitution effects

The absolute value of the slope of the budget constraint is equal to

What is marginal utility and what is the law of diminishing marginal utility? __________________________________________________________________________________________________________________________________________________________________________________________

Health clubs typically experience an increase in one-year memberships in January, but many new customers cancel their memberships before the end of the year.Which of the following is the best explanation for this behaviour?

If by purchasing more apples and fewer oranges you increase your total utility, then apples must be cheaper than oranges.

What does the law of diminishing marginal utility state?

If a consumer receives 20 units of utility from consuming two chocolate bars, and 25 units of utility from consuming three chocolate bars, the marginal utility of the third chocolate bar is

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Technology Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition: The Competitive Model in a More Realistic

Oligopoly: Markets With Few Competitors

The Markets for Labour and Other Factors of Production

Comparative Advantage and the Gains From International Trade

Government Intervention in the Market

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

Exam 6: Consumer Choice and Behavioural Economics

Which of the following is held constant along an indifference curve?

Economists do not think it is possible to compare the relative utility that two people get from consuming an additional unit of a particular good.

If a consumer receives 22 units of marginal utility from consuming the first can of lemonade, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is

Which of the following is not a common mistake made by consumers?

When diminishing marginal utility sets in, total utility must be negative.

The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears.To maximise his utility, Harold should

If marginal utility of apples is diminishing and is a positive amount, consuming one more apple will cause

Figure 6.1 -Refer to Figure 6.1.When the price of meat pies increases from $5.00 to $5.75, quantity demanded decreases from Q1 to Q0.This change in quantity demanded is due to

The substitution effect of a price increase causes a decrease in the quantity demanded of an inferior good.

The substitution effect of a change in the price of cauliflower is the portion of the change in the quantity of cauliflower demanded that can be attributed to the change in the price of a substitute vegetable such as asparagus.

Which of the following is used to explain why a consumer's willingness to buy Microsoft Office increases as the number of other people who use Microsoft Office increases?

Consider a downward-sloping demand curve.When the price of an inferior good increases, the income and substitution effects

The absolute value of the slope of the budget constraint is equal to

What is marginal utility and what is the law of diminishing marginal utility? __________________________________________________________________________________________________________________________________________________________________________________________

Health clubs typically experience an increase in one-year memberships in January, but many new customers cancel their memberships before the end of the year.Which of the following is the best explanation for this behaviour?

If by purchasing more apples and fewer oranges you increase your total utility, then apples must be cheaper than oranges.

What does the law of diminishing marginal utility state?

If a consumer receives 20 units of utility from consuming two chocolate bars, and 25 units of utility from consuming three chocolate bars, the marginal utility of the third chocolate bar is

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Technology Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition: The Competitive Model in a More Realistic

Oligopoly: Markets With Few Competitors

The Markets for Labour and Other Factors of Production

Comparative Advantage and the Gains From International Trade

Government Intervention in the Market

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

Figure 6.1 -Refer to Figure 6.1.When the price of meat pies increases from $5.00 to $5.75, quantity demanded decreases from Q₁ to Q₀.This change in quantity demanded is due to