Question 1

The change in the total utility as a result of increasing consumption by one unit is known as

Accepted Answer

A)  marginal utility. 
B)  average utility. 
C)  proportional utility. 
D)  utils. 
A)  marginal utility. 
B)  average utility. 
C)  proportional utility. 
D)  utils.

Question 2

Which of the following is FALSE about indifference curves?

Accepted Answer

A)  They are downward sloping. 
B)  They are convex to the origin. 
C)  They intersect. 
D)  They can shift. 
A)  They are downward sloping. 
B)  They are convex to the origin. 
C)  They intersect. 
D)  They can shift.

Question 3

The quantity of good Y is measured along the vertical axis, and the quantity of good X is measured along the horizontal axis. If the prices of both good Y and good X rise, the budget line

Accepted Answer

A)  shifts outward to the right and the vertical and horizontal intercepts will both rise. 
B)  shifts inward to the left and both intercepts will decline. 
C)  rotates, rising along the vertical axis but falling along the horizontal axis. 
D)  none of the above. 
A)  shifts outward to the right and the vertical and horizontal intercepts will both rise. 
B)  shifts inward to the left and both intercepts will decline. 
C)  rotates, rising along the vertical axis but falling along the horizontal axis. 
D)  none of the above.

Question 4

-Refer to the above table. Brook's utility schedule shows

Accepted Answer

A)  diminishing marginal utility throughout her entire schedule. 
B)  initially increasing marginal utility and then decreasing marginal utility. 
C)  initially decreasing marginal utility and then increasing marginal utility. 
D)  increasing marginal utility throughout her entire schedule. 
A)  diminishing marginal utility throughout her entire schedule. 
B)  initially increasing marginal utility and then decreasing marginal utility. 
C)  initially decreasing marginal utility and then increasing marginal utility. 
D)  increasing marginal utility throughout her entire schedule.

Question 5

-Using the above table, diminishing marginal utility begins after the ________ glass of water is consumed.

Accepted Answer

A)  1st 
B)  2nd 
C)  6th 
D)  5th 
A)  1st 
B)  2nd 
C)  6th 
D)  5th

Question 6

The concept of marginality is important in economics because

Accepted Answer

A)  individuals make decisions at the margin. 
B)  marginal decisions indicate a lack of importance. 
C)  individuals make decisions based on tastes only. 
D)  large expenditures are the only factor influencing consumption. 
A)  individuals make decisions at the margin. 
B)  marginal decisions indicate a lack of importance. 
C)  individuals make decisions based on tastes only. 
D)  large expenditures are the only factor influencing consumption.

Question 7

-Adam has 3 apples and 3 oranges. Eve has 2 apples and 2 oranges. The marginal utilities for Adam and Eve are summarized in the above table. Adam asks Eve to exchange one of her apples for an orange.

Accepted Answer

A)  Eve will be willing to make the exchange, because her total satisfaction will remain unchanged. 
B)  Eve will be willing to make the exchange, because her total satisfaction will increase. 
C)  Eve will be unwilling to make the exchange, because she loses 5 utils of satisfaction. 
D)  Eve will be unwilling to make the exchange, because she loses 15 utils of satisfaction. 
A)  Eve will be willing to make the exchange, because her total satisfaction will remain unchanged. 
B)  Eve will be willing to make the exchange, because her total satisfaction will increase. 
C)  Eve will be unwilling to make the exchange, because she loses 5 utils of satisfaction. 
D)  Eve will be unwilling to make the exchange, because she loses 15 utils of satisfaction.

Question 8

-Refer to the above figures. Julie's total utility for consuming donuts reaches a maximum at 4 cookies. Which panel best represents marginal utility?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D

Question 9

A consumer has been buying 3 magazines and 1 book each month. The price of magazines then decreases, which directly causes the marginal utility per dollar spent on

Accepted Answer

A)  magazines to increase, thereby inducing the consumer to purchase fewer magazines and more books. 
B)  magazines to increase, thereby inducing the consumer to purchase more magazines and fewer books. 
C)  books to increase, thereby inducing the consumer to purchase fewer magazines and more books. 
D)  books to decrease, thereby inducing the consumer to purchase fewer magazines and more books. 
A)  magazines to increase, thereby inducing the consumer to purchase fewer magazines and more books. 
B)  magazines to increase, thereby inducing the consumer to purchase more magazines and fewer books. 
C)  books to increase, thereby inducing the consumer to purchase fewer magazines and more books. 
D)  books to decrease, thereby inducing the consumer to purchase fewer magazines and more books.

Question 10

An individual's demand curve slopes down because

Accepted Answer

A)  marginal utility falls as price falls. 
B)  the value of the marginal utility falls as the price falls. 
C)  of the rule that the marginal utility of the last unit must equal the price. 
D)  of the law of diminishing marginal utility and the rule of equal marginal utilities per dollar. 
A)  marginal utility falls as price falls. 
B)  the value of the marginal utility falls as the price falls. 
C)  of the rule that the marginal utility of the last unit must equal the price. 
D)  of the law of diminishing marginal utility and the rule of equal marginal utilities per dollar.

Question 11

A consumer has spent all of his funds on hamburgers and movies. The price of a hamburger is $1 and the price of a movie is $5. The marginal utility of the last hamburger is 5 and the marginal utility of the last movie is 40. This consumer has

Accepted Answer

A)  not maximized utility. To maximize utility, he should cut back on movies and buy more hamburgers. 
B)  not maximized utility. To maximize utility, he should cut back on hamburgers and buy more movies. 
C)  not maximized utility. To maximize utility, he should cut back consumption of each. 
D)  maximized utility. 
A)  not maximized utility. To maximize utility, he should cut back on movies and buy more hamburgers. 
B)  not maximized utility. To maximize utility, he should cut back on hamburgers and buy more movies. 
C)  not maximized utility. To maximize utility, he should cut back consumption of each. 
D)  maximized utility.

Question 12

The price of a good that Joe is currently consuming has increased.

Accepted Answer

A)  Joe has experienced a decrease in purchasing power. 
B)  Joe will experience a shift in the demand curve of the good whose price has increased. 
C)  Joe will stop consuming this good. 
D)  Joe will experience increasing marginal utility. 
A)  Joe has experienced a decrease in purchasing power. 
B)  Joe will experience a shift in the demand curve of the good whose price has increased. 
C)  Joe will stop consuming this good. 
D)  Joe will experience increasing marginal utility.

Question 13

Brad ate four bags of chips at the baseball game. The first bag tasted best, but he found that as he ate more chips the amount of extra satisfaction he was receiving was beginning to fall. This would demonstrate

Accepted Answer

A)  the law of total utility maximization. 
B)  the law of zero utility. 
C)  the law of diminishing marginal utility. 
D)  the law of diminishing costs. 
A)  the law of total utility maximization. 
B)  the law of zero utility. 
C)  the law of diminishing marginal utility. 
D)  the law of diminishing costs.

Question 14

When marginal utility is positive but decreasing, total utility is

Accepted Answer

A)  decreasing. 
B)  negative. 
C)  increasing. 
D)  zero. 
A)  decreasing. 
B)  negative. 
C)  increasing. 
D)  zero.

Question 15

The slope of the budget line will change

Accepted Answer

A)  when the consumer's income increases. 
B)  when the consumer's taste changes. 
C)  when the total satisfaction changes. 
D)  when the price of one of the products changes. 
A)  when the consumer's income increases. 
B)  when the consumer's taste changes. 
C)  when the total satisfaction changes. 
D)  when the price of one of the products changes.

Question 16

The price of a piece of pizza is $1, and the price of a movie is $6. The consumer has purchased 2 pieces of pizza and 2 movies, and her marginal utility from the second piece of pizza is 20 and from the second movie is 120. The consumer has an income of $21. This combination of goods

Accepted Answer

A)  maximizes utility and is an optimum because the marginal utility of the last dollar spent on each good is the same. 
B)  maximizes utility because the marginal utility of the last dollar spent on each good is the same, but it is not an equilibrium because marginal utility is not zero. 
C)  is not an optimum because the consumer has not spent all of her money. 
D)  is not an optimum because the marginal utility of the last dollar spent on each good is not the same. 
A)  maximizes utility and is an optimum because the marginal utility of the last dollar spent on each good is the same. 
B)  maximizes utility because the marginal utility of the last dollar spent on each good is the same, but it is not an equilibrium because marginal utility is not zero. 
C)  is not an optimum because the consumer has not spent all of her money. 
D)  is not an optimum because the marginal utility of the last dollar spent on each good is not the same.

Question 17

Use the law of diminishing marginal utility to explain the diamond-water paradox.

Accepted Answer

The diamond-water paradox refers to the

Question 18

-Refer to the above table. At what quantity does diminishing marginal utility set in?

Accepted Answer

A)  1st 
B)  After 4 
C)  After 5 
D)  After 6 
A)  1st 
B)  After 4 
C)  After 5 
D)  After 6

Question 19

The real-income effect is likely to be greater when

Accepted Answer

A)  the substitution effect is not very large. 
B)  the marginal utility of the last unit is high. 
C)  the marginal utility per dollar spent on the last unit is high. 
D)  the good is an expensive good. 
A)  the substitution effect is not very large. 
B)  the marginal utility of the last unit is high. 
C)  the marginal utility per dollar spent on the last unit is high. 
D)  the good is an expensive good.

Question 20

Utility analysis deals with

Accepted Answer

A)  the formation of tastes and preferences. 
B)  the differences of tastes and preferences across individuals. 
C)  the consumption decisions of people based on utility maximization. 
D)  how consumers determine the utility they receive from consumption. 
A)  the formation of tastes and preferences. 
B)  the differences of tastes and preferences across individuals. 
C)  the consumption decisions of people based on utility maximization. 
D)  how consumers determine the utility they receive from consumption.

Exam 20: Consumer Choice

The change in the total utility as a result of increasing consumption by one unit is known as

Which of the following is FALSE about indifference curves?

The quantity of good Y is measured along the vertical axis, and the quantity of good X is measured along the horizontal axis. If the prices of both good Y and good X rise, the budget line

-Refer to the above table. Brook's utility schedule shows

-Using the above table, diminishing marginal utility begins after the ________ glass of water is consumed.

The concept of marginality is important in economics because

-Adam has 3 apples and 3 oranges. Eve has 2 apples and 2 oranges. The marginal utilities for Adam and Eve are summarized in the above table. Adam asks Eve to exchange one of her apples for an orange.

-Refer to the above figures. Julie's total utility for consuming donuts reaches a maximum at 4 cookies. Which panel best represents marginal utility?

A consumer has been buying 3 magazines and 1 book each month. The price of magazines then decreases, which directly causes the marginal utility per dollar spent on

An individual's demand curve slopes down because

A consumer has spent all of his funds on hamburgers and movies. The price of a hamburger is $1 and the price of a movie is $5. The marginal utility of the last hamburger is 5 and the marginal utility of the last movie is 40. This consumer has

The price of a good that Joe is currently consuming has increased.

Brad ate four bags of chips at the baseball game. The first bag tasted best, but he found that as he ate more chips the amount of extra satisfaction he was receiving was beginning to fall. This would demonstrate

When marginal utility is positive but decreasing, total utility is

The slope of the budget line will change

The price of a piece of pizza is $1, and the price of a movie is $6. The consumer has purchased 2 pieces of pizza and 2 movies, and her marginal utility from the second piece of pizza is 20 and from the second movie is 120. The consumer has an income of $21. This combination of goods

Use the law of diminishing marginal utility to explain the diamond-water paradox.

-Refer to the above table. At what quantity does diminishing marginal utility set in?

The real-income effect is likely to be greater when

Utility analysis deals with

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

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