Question 1

How does an increase in the price of an individual good or service affect a consumer optimum, and how does this help explain the law of demand?

Accepted Answer

Each person makes choices such that the

Question 2

If marginal utility is negative

Accepted Answer

A)  total utility increases at a decreasing rate. 
B)  the consumer will not consider extra units of the good even if its price is zero. 
C)  the consumer will want to consume the unit only if it is free. 
D)  the consumer likes the commodity, but not as much as he or she once did. 
A)  total utility increases at a decreasing rate. 
B)  the consumer will not consider extra units of the good even if its price is zero. 
C)  the consumer will want to consume the unit only if it is free. 
D)  the consumer likes the commodity, but not as much as he or she once did.

Question 3

-In the above table, what is the marginal utility of the second hotdog consumed?

Accepted Answer

A)  10 
B)  90 
C)  30 
D)  40 
A)  10 
B)  90 
C)  30 
D)  40

Question 4

An indifference curve cannot be positively sloped because

Accepted Answer

A)  the law of diminishing marginal utility would be violated. 
B)  the substitution effect would be violated. 
C)  a point to the right of another point will represent a lower quantity of both goods and a reduction in utility. 
D)  a point to the right of another point will represent a higher quantity of both goods and an increase in utility. 
A)  the law of diminishing marginal utility would be violated. 
B)  the substitution effect would be violated. 
C)  a point to the right of another point will represent a lower quantity of both goods and a reduction in utility. 
D)  a point to the right of another point will represent a higher quantity of both goods and an increase in utility.

Question 5

If the budget line rotates, then we know that

Accepted Answer

A)  income has changed. 
B)  their has been a change in the consumer's tastes. 
C)  the price of one of the goods had changed. 
D)  the consumer was not maximizing their utility. 
A)  income has changed. 
B)  their has been a change in the consumer's tastes. 
C)  the price of one of the goods had changed. 
D)  the consumer was not maximizing their utility.

Question 6

If marginal utility is zero

Accepted Answer

A)  a rational consumer will consume more units next time. 
B)  a rational consumer will consume fewer units next time. 
C)  a rational consumer will not consume additional units. 
D)  a rational consumer will consume more units if the price is zero. 
A)  a rational consumer will consume more units next time. 
B)  a rational consumer will consume fewer units next time. 
C)  a rational consumer will not consume additional units. 
D)  a rational consumer will consume more units if the price is zero.

Question 7

-Using the above table, if the price of Pepsi is $3, how many cans of Pepsi would have to be consumed in order to have a marginal utility to price ratio of 3?

Accepted Answer

A)  one can 
B)  two cans 
C)  three cans 
D)  four cans 
A)  one can 
B)  two cans 
C)  three cans 
D)  four cans

Question 8

The budget constraint shows the

Accepted Answer

A)  combinations of goods that generate the same amount of total satisfaction. 
B)  possible combinations of goods that can be purchased with a specified income. 
C)  changes in consumption of goods that a consumer makes when his income increases. 
D)  amount of a good the consumer will buy at various prices. 
A)  combinations of goods that generate the same amount of total satisfaction. 
B)  possible combinations of goods that can be purchased with a specified income. 
C)  changes in consumption of goods that a consumer makes when his income increases. 
D)  amount of a good the consumer will buy at various prices.

Question 9

Which of the following is NOT true of utility?

Accepted Answer

A)  It represents the want-satisfying power of a good. 
B)  It is measured using a representative unit called a util. 
C)  The utility that a good provides depends on a consumer's preferences. 
D)  Utility can be measured objectively. 
A)  It represents the want-satisfying power of a good. 
B)  It is measured using a representative unit called a util. 
C)  The utility that a good provides depends on a consumer's preferences. 
D)  Utility can be measured objectively.

Question 10

The slope of the budget constraint line is the

Accepted Answer

A)  income of consumers divided by the price of each good. 
B)  ratio of this year's income to last year's income. 
C)  rate of exchange between the two goods. 
D)  ratio of different levels of income. 
A)  income of consumers divided by the price of each good. 
B)  ratio of this year's income to last year's income. 
C)  rate of exchange between the two goods. 
D)  ratio of different levels of income.

Question 11

John is currently spending all of his income. For the last unit of Good X consumed John gets 20 utils and for the last unit of Good B consumed he gets 10 utils. The price of Good X is $10. The price of Good Y is $5. If John wants to maximize his utility he should

Accepted Answer

A)  continue to purchase the same amount of Good X and Good Y. 
B)  increase the consumption of Good X and decrease the consumption of Good Y. 
C)  decrease the consumption of Good X and increase the consumption of Good Y. 
D)  decrease the consumption of Good X and decrease the consumption of Good Y. 
A)  continue to purchase the same amount of Good X and Good Y. 
B)  increase the consumption of Good X and decrease the consumption of Good Y. 
C)  decrease the consumption of Good X and increase the consumption of Good Y. 
D)  decrease the consumption of Good X and decrease the consumption of Good Y.

Question 12

Refer to the above table. The table gives the various combinations of Good A and Good B along Jane's indifference curve. The marginal rate of substitution when Jane goes from combination B to combination C is

Accepted Answer

A)  4:1. 
B)  3:1. 
C)  2:1. 
D)  0. 
A)  4:1. 
B)  3:1. 
C)  2:1. 
D)  0.

Question 13

-Suppose the price of pizza is $2 and the consumer optimum is reached when MU/P = 3. Tom's preferences for pizza are shown in the above table. How many slices will Tom 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 14

Marginal utility is defined as

Accepted Answer

A)  the increase in utility divided by the total number of units consumed. 
B)  the total utility divided by the total number of units consumed. 
C)  the change in total utility divided by the change in number of units consumed. 
D)  the number of units consumed divided by the total utility. 
A)  the increase in utility divided by the total number of units consumed. 
B)  the total utility divided by the total number of units consumed. 
C)  the change in total utility divided by the change in number of units consumed. 
D)  the number of units consumed divided by the total utility.

Question 15

-According to the above table, what is Michael's marginal utility of the 8th unit?

Accepted Answer

A)  372 
B)  43 
C)  42 
D)  44 
A)  372 
B)  43 
C)  42 
D)  44

Question 16

Newspaper vending machines are often built so that customers can pay to lift a door and take a paper off a pile of daily newspapers. Newspaper distributors are NOT concerned about customers taking the whole stack of papers because

Accepted Answer

A)  the total utility of a daily newspaper is zero. 
B)  the marginal utility of any one daily newspaper is zero. 
C)  the marginal utility of a second daily newspaper is zero. 
D)  the price of a daily newspaper is relatively low. 
A)  the total utility of a daily newspaper is zero. 
B)  the marginal utility of any one daily newspaper is zero. 
C)  the marginal utility of a second daily newspaper is zero. 
D)  the price of a daily newspaper is relatively low.

Question 17

Suppose that the quantity of hamburgers is measured along the vertical axis and that the quantity of popcorn is measured along the horizontal axis. The vertical intercept is 10 hamburgers, and the slope of the budget line is -2. If the price of popcorn falls from $1 to $0.50, then we know that

Accepted Answer

A)  the vertical intercept shifts to 20 hamburgers. 
B)  the vertical intercept shifts to 5 hamburgers. 
C)  the horizontal intercept shifts to 10 bags of popcorn. 
D)  the horizontal intercept shifts to 20 bags of popcorn. 
A)  the vertical intercept shifts to 20 hamburgers. 
B)  the vertical intercept shifts to 5 hamburgers. 
C)  the horizontal intercept shifts to 10 bags of popcorn. 
D)  the horizontal intercept shifts to 20 bags of popcorn.

Question 18

Indifference curves

Accepted Answer

A)  are vertical. 
B)  are horizontal. 
C)  slope upward. 
D)  slope downward. 
A)  are vertical. 
B)  are horizontal. 
C)  slope upward. 
D)  slope downward.

Question 19

As more of a product is consumed, total utility increases until

Accepted Answer

A)  marginal utility increases at an increasing rate. 
B)  average utility increases at an increasing rate. 
C)  marginal utility is negative. 
D)  average utility decreases. 
A)  marginal utility increases at an increasing rate. 
B)  average utility increases at an increasing rate. 
C)  marginal utility is negative. 
D)  average utility decreases.

Question 20

Jill likes lobsters but she does NOT eat lobsters in every meal. How can utility theory explain this?

Accepted Answer

Even though Jill likes lobsters, she is

Exam 20: Consumer Choice

How does an increase in the price of an individual good or service affect a consumer optimum, and how does this help explain the law of demand?

If marginal utility is negative

-In the above table, what is the marginal utility of the second hotdog consumed?

An indifference curve cannot be positively sloped because

If the budget line rotates, then we know that

If marginal utility is zero

-Using the above table, if the price of Pepsi is $3, how many cans of Pepsi would have to be consumed in order to have a marginal utility to price ratio of 3?

The budget constraint shows the

Which of the following is NOT true of utility?

The slope of the budget constraint line is the

John is currently spending all of his income. For the last unit of Good X consumed John gets 20 utils and for the last unit of Good B consumed he gets 10 utils. The price of Good X is $10. The price of Good Y is $5. If John wants to maximize his utility he should

Refer to the above table. The table gives the various combinations of Good A and Good B along Jane's indifference curve. The marginal rate of substitution when Jane goes from combination B to combination C is

-Suppose the price of pizza is $2 and the consumer optimum is reached when MU/P = 3. Tom's preferences for pizza are shown in the above table. How many slices will Tom buy?

Marginal utility is defined as

-According to the above table, what is Michael's marginal utility of the 8th unit?

Newspaper vending machines are often built so that customers can pay to lift a door and take a paper off a pile of daily newspapers. Newspaper distributors are NOT concerned about customers taking the whole stack of papers because

Suppose that the quantity of hamburgers is measured along the vertical axis and that the quantity of popcorn is measured along the horizontal axis. The vertical intercept is 10 hamburgers, and the slope of the budget line is -2. If the price of popcorn falls from $1 to $0.50, then we know that

Indifference curves

As more of a product is consumed, total utility increases until

Jill likes lobsters but she does NOT eat lobsters in every meal. How can utility theory explain this?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters