Question 1

The law of diminishing marginal utility is the reason for upward sloping supply curves.

Accepted Answer

A) True 
 B)False

Question 2

At consumer equilibrium income is allocated to purchases so that the ratio of marginal utility to price is equal for different goods.

Accepted Answer

A) True 
 B)False

Question 3

A consumer's utility is maximized when:

Accepted Answer

A)  the dollar amount spent on each good is the same. 
B)  the marginal utility of each good purchased is the same. 
C)  the price of each good is the same. 
D)  None of the above are generally true. 
A)  the dollar amount spent on each good is the same. 
B)  the marginal utility of each good purchased is the same. 
C)  the price of each good is the same. 
D)  None of the above are generally true.

Question 4

Which of the following individuals was known for as an early contributor to behavioral economics?

Accepted Answer

A)  Jeremy Bentham 
B)  Herbert Simon 
C)  Milton Friedman 
D)  Ben Bernanke 
A)  Jeremy Bentham 
B)  Herbert Simon 
C)  Milton Friedman 
D)  Ben Bernanke

Question 5

Which of the following is an example of the gambler's fallacy?

Accepted Answer

A)  If you flip a coin six times and it comes up heads each time, when you flip for the seventh time the odds are better that it will come up tails. 
B)  People think that housing prices will continue to rise because they have continually risen over the past 10 years. 
C)  If I send my resume to enough employers, the law of averages says that someone will eventually hire me. 
D)  all of the above 
A)  If you flip a coin six times and it comes up heads each time, when you flip for the seventh time the odds are better that it will come up tails. 
B)  People think that housing prices will continue to rise because they have continually risen over the past 10 years. 
C)  If I send my resume to enough employers, the law of averages says that someone will eventually hire me. 
D)  all of the above

Question 6

Which economist is generally credited with developing utility theory?

Accepted Answer

A)  Adam Smith 
B)  Alfred Marshall 
C)  Jeremy Bentham 
D)  David Ricardo 
A)  Adam Smith 
B)  Alfred Marshall 
C)  Jeremy Bentham 
D)  David Ricardo

Question 7

The law of diminishing marginal utility suggests that a demand curve:

Accepted Answer

A)  shows a direct relationship between price and quantity demanded. 
B)  has a slope equal to zero. 
C)  has a positive slope. 
D)  has a negative slope. 
A)  shows a direct relationship between price and quantity demanded. 
B)  has a slope equal to zero. 
C)  has a positive slope. 
D)  has a negative slope.

Question 8

The price-consumption curve:

Accepted Answer

A)  connects the various combinations of two goods as a consumer's income changes. 
B)  connects the various combinations of two goods as the relative price of one good changes. 
C)  shows the quantity of a good consumed as a function on income. 
D)  All of the above are correct statements. 
A)  connects the various combinations of two goods as a consumer's income changes. 
B)  connects the various combinations of two goods as the relative price of one good changes. 
C)  shows the quantity of a good consumed as a function on income. 
D)  All of the above are correct statements.

Question 9

An individual consumes only hamburgers and milkshakes.The last hamburger consumed yields 25 utils of satisfaction,while the last milkshake consumed yields 10 utils of satisfaction.If the price of a hamburger is $2.50 and the price of a milkshake is $1.50,we can conclude that:

Accepted Answer

A)  the consumer should consume more hamburgers and fewer milkshakes. 
B)  the consumer should consume more milkshakes and fewer hamburgers. 
C)  the consumer has achieved consumer equilibrium. 
D)  the consumer should buy only milkshakes. 
A)  the consumer should consume more hamburgers and fewer milkshakes. 
B)  the consumer should consume more milkshakes and fewer hamburgers. 
C)  the consumer has achieved consumer equilibrium. 
D)  the consumer should buy only milkshakes.

Question 10

A university cafeteria changes from offering all-you-can-eat meals for one low price to selling each food item separately.After this change,one would expect that the marginal utility of the last food item consumed in the cafeteria by the typical student would:

Accepted Answer

A)  decrease since less food is now likely to be consumed by students who eat a meal in the cafeteria. 
B)  increase since less food is now likely to be consumed by students who eat a meal in the cafeteria. 
C)  not change since the same quantity of food is now likely to be consumed at each meal. 
D)  decrease since more food is now likely to be consumed by students who eat a meal in the cafeteria. 
A)  decrease since less food is now likely to be consumed by students who eat a meal in the cafeteria. 
B)  increase since less food is now likely to be consumed by students who eat a meal in the cafeteria. 
C)  not change since the same quantity of food is now likely to be consumed at each meal. 
D)  decrease since more food is now likely to be consumed by students who eat a meal in the cafeteria.

Question 11

Economic analysis that focuses on bounded rationality and psychological insights is known as:

Accepted Answer

A)  behavioral economics. 
B)  Keynesian economics. 
C)  Austrian economics. 
D)  supply-side economics. 
A)  behavioral economics. 
B)  Keynesian economics. 
C)  Austrian economics. 
D)  supply-side economics.

Question 12

A decrease in the price of product X will:

Accepted Answer

A)  increase the marginal utility per dollar spent on X. 
B)  decrease the marginal utility per dollar spent on X. 
C)  result in an increase in the total utility from consumption of X. 
D)  do both (a) and (c). 
A)  increase the marginal utility per dollar spent on X. 
B)  decrease the marginal utility per dollar spent on X. 
C)  result in an increase in the total utility from consumption of X. 
D)  do both (a) and (c).

Question 13

Stella's marginal utility of the last unit of X consumed is 18 and her marginal utility of the last unit of Y consumed is 12.What prices for X and Y,respectively,are consistent with Stella being in consumer equilibrium?

Accepted Answer

A)  $4 and $6 
B)  $12 and $18. 
C)  $15 and $15. 
D)  $12 and $8. 
A)  $4 and $6 
B)  $12 and $18. 
C)  $15 and $15. 
D)  $12 and $8.

Question 14

A consumer's budget line will rotate outward along the horizontal axis if:

Accepted Answer

A)  the price of the good on the horizontal axis decreases. 
B)  the price of the good on the vertical axis increases. 
C)  the price of the good on the horizontal axis increases. 
D)  the consumer's income decreases. 
A)  the price of the good on the horizontal axis decreases. 
B)  the price of the good on the vertical axis increases. 
C)  the price of the good on the horizontal axis increases. 
D)  the consumer's income decreases.

Question 15

If both prices increase by 10 percent and money income remains constant,the budget line for both goods in question will:

Accepted Answer

A)  become steeper 
B)  become flatter 
C)  will have the same slope 
D)  will become vertical. 
A)  become steeper 
B)  become flatter 
C)  will have the same slope 
D)  will become vertical.

Question 16

Brandon receives a marginal utility of 5,4,3,2,1,and 0 from eating successive donuts.Successive cups of coffee provide him with 9,8,6,4,3,and 2 utils of marginal utility.Donuts cost 50 cents each,coffee costs $1 per cup,and Brandon has $3 to spend.Which of the following options will yield Brandon the greatest utility?

Accepted Answer

A)  six donuts 
B)  four donuts and one cup of coffee 
C)  two donuts and two cups of coffee 
A)  six donuts 
B)  four donuts and one cup of coffee 
C)  two donuts and two cups of coffee

Question 17

One of the ugly stepsisters argues that she,rather than Cinderella,should go to the ball because she will derive more utility from it than Cinderella.An economist would:

Accepted Answer

A)  agree, since the ugly stepsister's reasoning is sound. 
B)  want to know how much utility each will receive from attending the ball in order to determine which woman should attend. 
C)  point out that making interpersonal utility comparisons is not possible. 
D)  ask how many balls each woman has attended in order to calculate the marginal utility that each would derive from attending, and then decide who should go to the ball. 
A)  agree, since the ugly stepsister's reasoning is sound. 
B)  want to know how much utility each will receive from attending the ball in order to determine which woman should attend. 
C)  point out that making interpersonal utility comparisons is not possible. 
D)  ask how many balls each woman has attended in order to calculate the marginal utility that each would derive from attending, and then decide who should go to the ball.

Question 18

Exhibit 10-2   Refer to Exhibit 10-2.Which indifference curve depicts a perfect substitute?

Accepted Answer

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

Question 19

If a consumer is maximizing utility,he will purchase quantities of output to the point where the price of the last unit purchased is equal across all goods.

Accepted Answer

A) True 
 B)False

Question 20

The law of diminishing marginal utility means that:

Accepted Answer

A)  marginal utility is maximized when consumers get the same amount of total utility from every good they consume. 
B)  total utility is maximized when consumers get the same amount of marginal utility from the last unit of every good they consume. 
C)  beyond some point, added units of a product provide lower and lower amounts of marginal utility. 
D)  a consumer would get less utility from the last unit of a good consumed when that good costs $3 than when it costs $1. 
A)  marginal utility is maximized when consumers get the same amount of total utility from every good they consume. 
B)  total utility is maximized when consumers get the same amount of marginal utility from the last unit of every good they consume. 
C)  beyond some point, added units of a product provide lower and lower amounts of marginal utility. 
D)  a consumer would get less utility from the last unit of a good consumed when that good costs $3 than when it costs $1.

Exam 10: Consumer Choice Theory

The law of diminishing marginal utility is the reason for upward sloping supply curves.

At consumer equilibrium income is allocated to purchases so that the ratio of marginal utility to price is equal for different goods.

A consumer's utility is maximized when:

Which of the following individuals was known for as an early contributor to behavioral economics?

Which of the following is an example of the gambler's fallacy?

Which economist is generally credited with developing utility theory?

The law of diminishing marginal utility suggests that a demand curve:

The price-consumption curve:

An individual consumes only hamburgers and milkshakes.The last hamburger consumed yields 25 utils of satisfaction,while the last milkshake consumed yields 10 utils of satisfaction.If the price of a hamburger is $2.50 and the price of a milkshake is $1.50,we can conclude that:

A university cafeteria changes from offering all-you-can-eat meals for one low price to selling each food item separately.After this change,one would expect that the marginal utility of the last food item consumed in the cafeteria by the typical student would:

Economic analysis that focuses on bounded rationality and psychological insights is known as:

A decrease in the price of product X will:

Stella's marginal utility of the last unit of X consumed is 18 and her marginal utility of the last unit of Y consumed is 12.What prices for X and Y,respectively,are consistent with Stella being in consumer equilibrium?

A consumer's budget line will rotate outward along the horizontal axis if:

If both prices increase by 10 percent and money income remains constant,the budget line for both goods in question will:

One of the ugly stepsisters argues that she,rather than Cinderella,should go to the ball because she will derive more utility from it than Cinderella.An economist would:

Exhibit 10-2 Refer to Exhibit 10-2.Which indifference curve depicts a perfect substitute?

If a consumer is maximizing utility,he will purchase quantities of output to the point where the price of the last unit purchased is equal across all goods.

The law of diminishing marginal utility means that:

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

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