Question 1

The utility-maximizing consumption bundle for a consumer is the bundle that maximizes marginal utility across all goods.

Accepted Answer

A) True 
 B)False  False

Question 2

Use the following to answer questions:
Figure: Comic Books and Coffee 2   
  
-(Figure: Comic Books and Coffee 2) Refer to the figure. If a consumer has $2 to spend on comic books (priced at $1 per comic book) and coffee (price at $1 per cup) should the she buy two cups of coffee?

Accepted Answer

A)  Yes, buying two cups of coffee maximizes her total utility. 
B)  Yes, because the marginal utility of the second comic book is less than the marginal utility of the second cup of coffee. 
C)  No, she should put back one cup of coffee (losing 16 utils) and replace it with a comic book (gaining 18 utils). 
D)  No, she should buy two comic books to maximize utility. 
A)  Yes, buying two cups of coffee maximizes her total utility. 
B)  Yes, because the marginal utility of the second comic book is less than the marginal utility of the second cup of coffee. 
C)  No, she should put back one cup of coffee (losing 16 utils) and replace it with a comic book (gaining 18 utils). 
D)  No, she should buy two comic books to maximize utility. C

Question 3

If the price of good X is $10 and price of good Y is $15, the slope of the budget constraint is -1.5.

Accepted Answer

A) True 
 B)False  False

Question 4

Everyone should shop at ______ because they offer the lowest price.

Accepted Answer

A)  Costco 
B)  Sam's Club 
C)  BJ's 
D)  None of the above answers is correct. 
A)  Costco 
B)  Sam's Club 
C)  BJ's 
D)  None of the above answers is correct.

Question 5

Figure: Leisure 2   Refer to the figure. According to this diagram, which statement is FALSE?

Accepted Answer

A)  At 13 hours of leisure and an income of $45.19, the worker earns a wage of $4.17 an hour. 
B)  The labor supply curve is downward sloping. 
C)  The substitution effect dominates the income effect. 
D)  This worker chooses to work more hours if paid higher wages. 
A)  At 13 hours of leisure and an income of $45.19, the worker earns a wage of $4.17 an hour. 
B)  The labor supply curve is downward sloping. 
C)  The substitution effect dominates the income effect. 
D)  This worker chooses to work more hours if paid higher wages.

Question 6

The opportunity cost of income is typically termed:

Accepted Answer

A)  time at home. 
B)  time away from work. 
C)  leisure time. 
D)  avocation time. 
A)  time at home. 
B)  time away from work. 
C)  leisure time. 
D)  avocation time.

Question 7

After purchasing and then losing a ticket to a concert, a rational consumer would:

Accepted Answer

A)  not repurchase the ticket since the lost ticket is a sunk cost. 
B)  always repurchase the ticket as long as the price hasn't changed. 
C)  repurchase the ticket as long as the price hasn't changed and the income effect is high. 
D)  repurchase the ticket as long as the price hasn't changed and the income effect is low. 
A)  not repurchase the ticket since the lost ticket is a sunk cost. 
B)  always repurchase the ticket as long as the price hasn't changed. 
C)  repurchase the ticket as long as the price hasn't changed and the income effect is high. 
D)  repurchase the ticket as long as the price hasn't changed and the income effect is low.

Question 8

Use the following to answer questions:
Figure: Leisure 3  
-(Figure: Leisure 3) Refer to the figure. In this diagram, the presence of the welfare program causes this person to:

Accepted Answer

A)  reduce hours of work from 12 to 0. 
B)  increase hours of work from 0 to 12. 
C)  reduce hours of work from 12 to 9. 
D)  reduce hours of work from 8 to 3. 
A)  reduce hours of work from 12 to 0. 
B)  increase hours of work from 0 to 12. 
C)  reduce hours of work from 12 to 9. 
D)  reduce hours of work from 8 to 3.

Question 9

Use the following to answer questions:
Figure: Music and Movie Downloads 5  
-(Figure: Music and Movie Downloads 5) Refer to the figure. What caused the consumer's optimal consumption bundle in this figure to switch from bundle A to bundle B?

Accepted Answer

A)  a decrease in consumer income 
B)  a decrease in the price of music downloads 
C)  an increase in the price of music downloads 
D)  an increase in the price of movie downloads 
A)  a decrease in consumer income 
B)  a decrease in the price of music downloads 
C)  an increase in the price of music downloads 
D)  an increase in the price of movie downloads

Question 10

Use the following to answer questions:
Figure: Budget Constraint 4  
-(Figure: Budget Constraint 4) Refer to the figure. This figure represents the budget constraint of a consumer who purchases flip-flops and sneakers. The slope of the budget constraint is equal to:

Accepted Answer

A)  the price of sneakers divided by the price of flip-flops. 
B)  the price of flip-flops divided by the price of sneakers. 
C)  the consumer's income. 
D)  the quantity of flip-flops divided by the quantity of sneakers. 
A)  the price of sneakers divided by the price of flip-flops. 
B)  the price of flip-flops divided by the price of sneakers. 
C)  the consumer's income. 
D)  the quantity of flip-flops divided by the quantity of sneakers.

Question 11

Consider an indifference curve based around video games and pizza. If the price of pizza falls, what would have to be true for the consumer to buy less pizza compared with when the price of pizza was higher?

Accepted Answer

A)  Pizza and video games would be perfect substitutes. 
B)  The income effect would be greater than the substitution effect. 
C)  Consumption would lie on the same indifference curve. 
D)  The consumer would be buying as a suboptimal consumption bundle. 
A)  Pizza and video games would be perfect substitutes. 
B)  The income effect would be greater than the substitution effect. 
C)  Consumption would lie on the same indifference curve. 
D)  The consumer would be buying as a suboptimal consumption bundle.

Question 12

If the wage rate increases and the income effect exactly offsets the substitution effect, the labor supply curve is vertical.

Accepted Answer

A) True 
 B)False

Question 13

The consumption bundle that maximizes utility for a consumer is the bundle that:

Accepted Answer

A)  equates the slope of the budget constraint with the slope of the indifference curve. 
B)  maximizes marginal utility across all goods. 
C)  minimizes the costs of production. 
D)  maximizes the marginal rate of substitution. 
A)  equates the slope of the budget constraint with the slope of the indifference curve. 
B)  maximizes marginal utility across all goods. 
C)  minimizes the costs of production. 
D)  maximizes the marginal rate of substitution.

Question 14

Figure: Preferences and Indifference Curves   Refer to the figure. According to the indifference curves for Kiwis and Nuts, which statement is TRUE?

Accepted Answer

A)  Indifference curve U1 provides higher utility than indifference curve U2. 
B)  Bundle A is preferred to Bundle B. 
C)  Bundle C is preferred to Bundle D. 
D)  Bundle C is preferred to Bundle B. 
A)  Indifference curve U1 provides higher utility than indifference curve U2. 
B)  Bundle A is preferred to Bundle B. 
C)  Bundle C is preferred to Bundle D. 
D)  Bundle C is preferred to Bundle B.

Question 15

Use the following to answer questions:
Figure: Water vs. Soda  
-(Figure: Water vs. Soda) Refer to the figure. The figure represents the marginal utility Janet receives when she consumes bottled water and soda. The prices of bottled water and sodas are both $1 each. Janet has $5 to spend. What mix of bottled water and soda will maximize Janet's utility?

Accepted Answer

A)  five bottles of water 
B)  four bottles of water and one soda 
C)  three bottles of water and two sodas 
D)  2.5 bottles of water and 2.5 sodas. 
A)  five bottles of water 
B)  four bottles of water and one soda 
C)  three bottles of water and two sodas 
D)  2.5 bottles of water and 2.5 sodas.

Question 16

Use the following to answer questions:
Figure: Water and Electricity  
-(Figure: Water and Electricity) Refer to the figure. Using the solid budget constraint in this diagram, if electricity costs $6 per MJ, how much does a gallon of water cost?

Accepted Answer

A)  $4 
B)  $6 
C)  $8 
D)  $12 
A)  $4 
B)  $6 
C)  $8 
D)  $12

Question 17

Marginal utility is the additional utility from consuming an additional unit of a good.

Accepted Answer

A) True 
 B)False

Question 18

Use the following to answer questions:
Figure: Optimal Choice 2  
-(Figure: Optimal Choice 2) Refer to the figure. This figure represents indifference curves for a consumer who purchases flip-flops and sneakers. If the dotted line represents this consumer's budget constraint, then the utility maximizing bundle for this consumer is:

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  E. 
A)  A. 
B)  B. 
C)  C. 
D)  E.

Question 19

When the income effect from a wage increase is less than the substitution effect, the labor supply curve:

Accepted Answer

A)  slopes upward. 
B)  is vertical. 
C)  is horizontal. 
D)  slopes downward. 
A)  slopes upward. 
B)  is vertical. 
C)  is horizontal. 
D)  slopes downward.

Question 20

Use the following to answer questions:
Figure: Music and Movie Downloads 5  
-(Figure: Music and Movie Downloads 5) Refer to the figure. The consumer in this diagram is initially optimizing consumption at point A than moves to point B. The substitution effect of the price change causes the consumer to:

Accepted Answer

A)  reduce the number of music downloads by 3. 
B)  reduce the number of music downloads by 4. 
C)  increase the number of music downloads by 1. 
D)  increase the number of music downloads by 3. 
A)  reduce the number of music downloads by 3. 
B)  reduce the number of music downloads by 4. 
C)  increase the number of music downloads by 1. 
D)  increase the number of music downloads by 3.

Exam 25: Consumer Choice

The utility-maximizing consumption bundle for a consumer is the bundle that maximizes marginal utility across all goods.

Use the following to answer questions: Figure: Comic Books and Coffee 2 -(Figure: Comic Books and Coffee 2) Refer to the figure. If a consumer has $2 to spend on comic books (priced at $1 per comic book) and coffee (price at $1 per cup) should the she buy two cups of coffee?

If the price of good X is $10 and price of good Y is $15, the slope of the budget constraint is -1.5.

Everyone should shop at ______ because they offer the lowest price.

Figure: Leisure 2 Refer to the figure. According to this diagram, which statement is FALSE?

The opportunity cost of income is typically termed:

After purchasing and then losing a ticket to a concert, a rational consumer would:

Use the following to answer questions: Figure: Leisure 3 -(Figure: Leisure 3) Refer to the figure. In this diagram, the presence of the welfare program causes this person to:

Use the following to answer questions: Figure: Music and Movie Downloads 5 -(Figure: Music and Movie Downloads 5) Refer to the figure. What caused the consumer's optimal consumption bundle in this figure to switch from bundle A to bundle B?

Use the following to answer questions: Figure: Budget Constraint 4 -(Figure: Budget Constraint 4) Refer to the figure. This figure represents the budget constraint of a consumer who purchases flip-flops and sneakers. The slope of the budget constraint is equal to:

Consider an indifference curve based around video games and pizza. If the price of pizza falls, what would have to be true for the consumer to buy less pizza compared with when the price of pizza was higher?

If the wage rate increases and the income effect exactly offsets the substitution effect, the labor supply curve is vertical.

The consumption bundle that maximizes utility for a consumer is the bundle that:

Figure: Preferences and Indifference Curves Refer to the figure. According to the indifference curves for Kiwis and Nuts, which statement is TRUE?

Use the following to answer questions: Figure: Water and Electricity -(Figure: Water and Electricity) Refer to the figure. Using the solid budget constraint in this diagram, if electricity costs $6 per MJ, how much does a gallon of water cost?

Marginal utility is the additional utility from consuming an additional unit of a good.

When the income effect from a wage increase is less than the substitution effect, the labor supply curve:

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

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