Question 1

A change in the relative prices for two goods can be shown as a parallel shift in a consumer's budget line.

Accepted Answer

A) True 
 B)False

Question 2

If the total utility from consuming five units of a product is 245 and the marginal utility of a sixth unit is 5, then the total utility from consuming six units would be

Accepted Answer

A)  240. 
B)  250. 
C)  49. 
D)  1,225. 
A)  240. 
B)  250. 
C)  49. 
D)  1,225.

Question 3

The utility of a good or service

Accepted Answer

A)  is synonymous with usefulness. 
B)  is the satisfaction or pleasure one gets from consuming it. 
C)  is easy to quantify. 
D)  rarely varies from person to person. 
A)  is synonymous with usefulness. 
B)  is the satisfaction or pleasure one gets from consuming it. 
C)  is easy to quantify. 
D)  rarely varies from person to person.

Question 4

Any combination of goods lying outside of the budget line

Accepted Answer

A)  implies that the consumer is not spending all his income. 
B)  yields less utility than any point on the budget line. 
C)  yields less utility than any point inside the budget line. 
D)  is unattainable, given the consumer's income. 
A)  implies that the consumer is not spending all his income. 
B)  yields less utility than any point on the budget line. 
C)  yields less utility than any point inside the budget line. 
D)  is unattainable, given the consumer's income.

Question 5

Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K.   What level of total utility is realized from the equilibrium combination of J and K, if the consumer has a money income of $52 and the prices of J and K are $8 and $4, respectively?

Accepted Answer

A)  156 utils 
B)  124 utils 
C)  276 utils 
D)  36 utils 
A)  156 utils 
B)  124 utils 
C)  276 utils 
D)  36 utils

Question 6

If you purchase a gift worth $25 for your sister, but your sister would be willing to pay only $10 ifshe bought the item for herself, then the

Accepted Answer

A)  total utility of the gift is $35. 
B)  total utility of the gift is $15. 
C)  marginal utility of the gift is $15. 
D)  loss of value in the gift is $15. 
A)  total utility of the gift is $35. 
B)  total utility of the gift is $15. 
C)  marginal utility of the gift is $15. 
D)  loss of value in the gift is $15.

Question 7

A consumer has an income of $200, and the price of X is $5, while the price of Y is $10. If the consumer buys 8 units of X, then the maximum quantity of Y that she could also buy is

Accepted Answer

A)  16. 
B)  18. 
C)  20. 
D)  14. 
A)  16. 
B)  18. 
C)  20. 
D)  14.

Question 8

The ratio of the prices of two products that a consumer could buy with a given fixed income is equivalent to the

Accepted Answer

A)  marginal rate of substitution. 
B)  slope of the budget line. 
C)  income elasticity of demand for the two products. 
D)  price elasticity of demand for the two products. 
A)  marginal rate of substitution. 
B)  slope of the budget line. 
C)  income elasticity of demand for the two products. 
D)  price elasticity of demand for the two products.

Question 9

The income and substitution effects will both induce the consumer to buy more of a normal good when its price decreases.

Accepted Answer

A) True 
 B)False

Question 10

The law of diminishing marginal utility explains why

Accepted Answer

A)  supply curves slope upward. 
B)  demand curves slope downward. 
C)  addicts can never get enough. 
D)  people will only consume their favorite goods and not try new things. 
A)  supply curves slope upward. 
B)  demand curves slope downward. 
C)  addicts can never get enough. 
D)  people will only consume their favorite goods and not try new things.

Question 11

The law of diminishing marginal utility implies that in order to induce a buyer to buy more of a product, the seller must lower its price.

Accepted Answer

A) True 
 B)False

Question 12

The fact that an ounce of gold is priced higher than an ounce of chocolate suggests that

Accepted Answer

A)  the marginal utility of the last unit of gold consumed or purchased is greater than the marginal utility of the last unit of chocolate consumed. 
B)  the total utility of gold purchased is greater than the total utility of chocolate consumed. 
C)  gold is a normal good, while chocolate is an inferior good. 
D)  there are many substitutes for chocolate but few for gold. 
A)  the marginal utility of the last unit of gold consumed or purchased is greater than the marginal utility of the last unit of chocolate consumed. 
B)  the total utility of gold purchased is greater than the total utility of chocolate consumed. 
C)  gold is a normal good, while chocolate is an inferior good. 
D)  there are many substitutes for chocolate but few for gold.

Question 13

Refer to the diagram. Suppose the budget line shifts so that the consumer's equilibrium changes from point A to point B. This means that the

Accepted Answer

A)  price of Y has increased. 
B)  price of Y has decreased. 
C)  price of X has increased. 
D)  consumer's money income has increased. 
A)  price of Y has increased. 
B)  price of Y has decreased. 
C)  price of X has increased. 
D)  consumer's money income has increased.

Question 14

"Essential" water is cheaper than "nonessential" diamonds because

Accepted Answer

A)  new industrial uses for diamonds have been discovered. 
B)  the supply of water is great relative to demand and the supply of diamonds is small relative to demand. 
C)  although the total utility of diamonds is greater, their marginal utility is small. 
D)  the supply of diamonds is great relative to demand and the supply of water is small relative to demand. 
A)  new industrial uses for diamonds have been discovered. 
B)  the supply of water is great relative to demand and the supply of diamonds is small relative to demand. 
C)  although the total utility of diamonds is greater, their marginal utility is small. 
D)  the supply of diamonds is great relative to demand and the supply of water is small relative to demand.

Question 15

Which of the following statements is correct?

Accepted Answer

A)  Marginal utility is the cumulation or summation of total utility. 
B)  Total utility is the cumulation or summation of marginal utility. 
C)  Total utility is the product of multiplying price times marginal utility. 
D)  Total utility is the change in marginal utility as quantity consumed increases. 
A)  Marginal utility is the cumulation or summation of total utility. 
B)  Total utility is the cumulation or summation of marginal utility. 
C)  Total utility is the product of multiplying price times marginal utility. 
D)  Total utility is the change in marginal utility as quantity consumed increases.

Question 16

Suppose a consumer has an income of $16, the price of A is $2, and the price of B is $1. Which of the following combinations is on the consumer's budget line?

Accepted Answer

A)  4A and 9B 
B)  5A and 6B 
C)  6A and 6B 
D)  3A and 8B 
A)  4A and 9B 
B)  5A and 6B 
C)  6A and 6B 
D)  3A and 8B

Question 17

If you receive a gift whose market price is $20, but you consider it to be worth only $10, then

Accepted Answer

A)  there is a $10, or 50 percent, value gain. 
B)  there may or may not be a value loss. 
C)  there is a $10, or 50 percent, value loss. 
D)  you can be relatively certain the giver was a sibling or other close relative. 
A)  there is a $10, or 50 percent, value gain. 
B)  there may or may not be a value loss. 
C)  there is a $10, or 50 percent, value loss. 
D)  you can be relatively certain the giver was a sibling or other close relative.

Question 18

Refer to the diagram. If the budget line shifts from ab to ac, the

Accepted Answer

A)  price of K has increased. 
B)  consumer's money income has fallen. 
C)  price of K has decreased. 
D)  price of J has increased. 
A)  price of K has increased. 
B)  consumer's money income has fallen. 
C)  price of K has decreased. 
D)  price of J has increased.

Question 19

Answer the question based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4, and the price of product Y is $2. The income of the consumer is $20.
  If the consumer buys both product X and product Y, how much will the consumer buy of each in order to maximize utility?

Accepted Answer

A)  4X and 2Y 
B)  3X and 4Y 
C)  4X and 3Y 
D)  5X and 3Y 
A)  4X and 2Y 
B)  3X and 4Y 
C)  4X and 3Y 
D)  5X and 3Y

Question 20

A rational consumer will try to achieve the highest indifference curve that his or her income will allow.

Accepted Answer

A) True 
 B)False

Exam 7: Utility Maximization

A change in the relative prices for two goods can be shown as a parallel shift in a consumer's budget line.

If the total utility from consuming five units of a product is 245 and the marginal utility of a sixth unit is 5, then the total utility from consuming six units would be

The utility of a good or service

Any combination of goods lying outside of the budget line

If you purchase a gift worth $25 for your sister, but your sister would be willing to pay only $10 ifshe bought the item for herself, then the

A consumer has an income of $200, and the price of X is $5, while the price of Y is $10. If the consumer buys 8 units of X, then the maximum quantity of Y that she could also buy is

The ratio of the prices of two products that a consumer could buy with a given fixed income is equivalent to the

The income and substitution effects will both induce the consumer to buy more of a normal good when its price decreases.

The law of diminishing marginal utility explains why

The law of diminishing marginal utility implies that in order to induce a buyer to buy more of a product, the seller must lower its price.

The fact that an ounce of gold is priced higher than an ounce of chocolate suggests that

Refer to the diagram. Suppose the budget line shifts so that the consumer's equilibrium changes from point A to point B. This means that the

"Essential" water is cheaper than "nonessential" diamonds because

Which of the following statements is correct?

Suppose a consumer has an income of $16, the price of A is $2, and the price of B is $1. Which of the following combinations is on the consumer's budget line?

If you receive a gift whose market price is $20, but you consider it to be worth only $10, then

Refer to the diagram. If the budget line shifts from ab to ac, the

A rational consumer will try to achieve the highest indifference curve that his or her income will allow.

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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