Question 1

Consumers usually buy fewer units of a good than the quantity that would maximize total utility from consuming the good because

Accepted Answer

A)  they are not rational. 
B)  of the law of demand. 
C)  they have limited incomes. 
D)  marginal utility becomes zero after just a few units of the good. 
A)  they are not rational. 
B)  of the law of demand. 
C)  they have limited incomes. 
D)  marginal utility becomes zero after just a few units of the good.

Question 2

If you regularly spend $100 a month on gasoline and the price of gasoline doubles, your purchasing power has

Accepted Answer

A)  increased. 
B)  remained constant. 
C)  became stable. 
D)  decreased. 
A)  increased. 
B)  remained constant. 
C)  became stable. 
D)  decreased.

Question 3

John is going to spend all of his income. For the last unit of Good X consumed John gets 20 utils and for the last unit of Good Y consumed he gets 10 utils. The price of Good X is $4. The price of Good Y is $1. 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 4

A student athlete loves cookies. He receives 200 utils for the first cookie, an additional 160 for the second, an additional 120 for the third, another 80 for the fourth, and another 40 for the fifth. The marginal utility of the fourth cookie is ________ and the total utility of consuming four cookies is ________.

Accepted Answer

A)  40; 80 
B)  80; 600 
C)  80; 560 
D)  40; 40 
A)  40; 80 
B)  80; 600 
C)  80; 560 
D)  40; 40

Question 5

If the price of a slice of pizza falls, Tom can

Accepted Answer

A)  buy more pizza with his paycheck. 
B)  buy more soft drinks with his paycheck. 
C)  no longer afford pizza on his paycheck. 
D)  Either A or B is possible. 
A)  buy more pizza with his paycheck. 
B)  buy more soft drinks with his paycheck. 
C)  no longer afford pizza on his paycheck. 
D)  Either A or B is possible.

Question 6

Which of the following shows the feasible combinations of two goods that a consumer could afford given her money income?

Accepted Answer

A)  the budget constraint 
B)  the indifference map 
C)  the income consumption curve 
D)  the price consumption curve 
A)  the budget constraint 
B)  the indifference map 
C)  the income consumption curve 
D)  the price consumption curve

Question 7

-Refer to the above figure. All of the following are true concerning the diamond-water paradox EXCEPT

Accepted Answer

A)  the demand for water exceeds the demand for diamonds. 
B)  the price of diamonds exceeds the price of water. 
C)  since the price of diamonds is high, demand is great. 
D)  marginal utility of diamond consumption is relatively high. 
A)  the demand for water exceeds the demand for diamonds. 
B)  the price of diamonds exceeds the price of water. 
C)  since the price of diamonds is high, demand is great. 
D)  marginal utility of diamond consumption is relatively high.

Question 8

Discuss the substitution and real-income effects of a price decrease.

Accepted Answer

The substitution effect of a price decre

Question 9

What is the marginal rate of substitution between two goods and how is it related to the indifference curve?

Accepted Answer

The marginal rate of substitution betwee

Question 10

A consumer optimum is characterized by

Accepted Answer

A)  the marginal rate of substitution of one good divided by its price equal to the marginal rate of substitution of the other good divided by its price. 
B)  the marginal rate of substitution equal to unity. 
C)  the marginal rate of substitution equal to the ratio of the prices of the two goods. 
D)  the marginal rate of substitution divided by the price ratio of the two goods equal to the income of the consumer. 
A)  the marginal rate of substitution of one good divided by its price equal to the marginal rate of substitution of the other good divided by its price. 
B)  the marginal rate of substitution equal to unity. 
C)  the marginal rate of substitution equal to the ratio of the prices of the two goods. 
D)  the marginal rate of substitution divided by the price ratio of the two goods equal to the income of the consumer.

Question 11

The total utility of consuming 6 units of a good is 255. The marginal utility of the 6th unit is 45 and the marginal utility of the 5th unit is 65. The total utility of consuming 5 units of the good is

Accepted Answer

A)  300. 
B)  150. 
C)  215. 
D)  195. 
A)  300. 
B)  150. 
C)  215. 
D)  195.

Question 12

-Refer to the above table. If the price of Good A is $2, the price of Good B is $1, and the consumer has $9, the rational consumer will purchase

Accepted Answer

A)  6 units of Good A and 0 units of Good B. 
B)  6 units of Good A and 3 units of Good B. 
C)  2 units of Good A and 5 units of Good B. 
D)  5 units of Good A and 6 units of Good B. 
A)  6 units of Good A and 0 units of Good B. 
B)  6 units of Good A and 3 units of Good B. 
C)  2 units of Good A and 5 units of Good B. 
D)  5 units of Good A and 6 units of Good B.

Question 13

What is the principle of diminishing marginal utility?

Accepted Answer

The principle of diminishing marginal ut

Question 14

The rate of change in total utility equals

Accepted Answer

A)  marginal utility. 
B)  the change in marginal utility associated with eating all the quantities a person can handle. 
C)  the change in marginal utility divided by the change in quantity. 
D)  the rate of change in marginal utility divided by the price. 
A)  marginal utility. 
B)  the change in marginal utility associated with eating all the quantities a person can handle. 
C)  the change in marginal utility divided by the change in quantity. 
D)  the rate of change in marginal utility divided by the price.

Question 15

The want-satisfying power of a good or service is known as

Accepted Answer

A)  purchasing power. 
B)  utility. 
C)  consumer optimum. 
D)  principle of substitution. 
A)  purchasing power. 
B)  utility. 
C)  consumer optimum. 
D)  principle of substitution.

Question 16

-Refer to the above table. Assume the consumer spends his entire income. The price of a hotdog is $1, the price of a movie is $6, and the consumer has $15. What is the consumer's optimum?

Accepted Answer

A)  2 hotdogs and 2 movies 
B)  3 hotdogs and 2 movies 
C)  4 hotdogs and 4 movies 
D)  0 hotdogs and 2.5 movies 
A)  2 hotdogs and 2 movies 
B)  3 hotdogs and 2 movies 
C)  4 hotdogs and 4 movies 
D)  0 hotdogs and 2.5 movies

Question 17

Marginal utility can be thought of as

Accepted Answer

A)  the incremental change in a person's total satisfaction level from the consumption of a good. 
B)  the total change in satisfaction from buying a good. 
C)  the additional cost of that next good purchased. 
D)  the opportunity cost of buying the next good. 
A)  the incremental change in a person's total satisfaction level from the consumption of a good. 
B)  the total change in satisfaction from buying a good. 
C)  the additional cost of that next good purchased. 
D)  the opportunity cost of buying the next good.

Question 18

Despite the fact that water is necessary to sustain life, it is less expensive than milk. Economic theory suggests that this is so because

Accepted Answer

A)  there is a conspiracy among milk producers to hold prices artificially high. 
B)  although the total utility of water consumption is high, its marginal utility per dollar spent is low when compared to milk. 
C)  consumers are irrational. 
D)  sellers of water hold the price of water artificially low because of its importance. 
A)  there is a conspiracy among milk producers to hold prices artificially high. 
B)  although the total utility of water consumption is high, its marginal utility per dollar spent is low when compared to milk. 
C)  consumers are irrational. 
D)  sellers of water hold the price of water artificially low because of its importance.

Question 19

Assume that the marginal utility from good A is 10 units and that the price of good A is $5 per unit. The marginal utility from good B is 15 units and its unit price is $7. In this situation, a utility-maximizing consumer should

Accepted Answer

A)  consume more of good A. 
B)  consume only good B. 
C)  consume more of good B. 
D)  consume neither good A nor good B. 
A)  consume more of good A. 
B)  consume only good B. 
C)  consume more of good B. 
D)  consume neither good A nor good B.

Exam 20: Consumer Choice

Consumers usually buy fewer units of a good than the quantity that would maximize total utility from consuming the good because

If you regularly spend $100 a month on gasoline and the price of gasoline doubles, your purchasing power has

John is going to spend all of his income. For the last unit of Good X consumed John gets 20 utils and for the last unit of Good Y consumed he gets 10 utils. The price of Good X is $4. The price of Good Y is $1. If John wants to maximize his utility he should

If the price of a slice of pizza falls, Tom can

Which of the following shows the feasible combinations of two goods that a consumer could afford given her money income?

-Refer to the above figure. All of the following are true concerning the diamond-water paradox EXCEPT

Discuss the substitution and real-income effects of a price decrease.

What is the marginal rate of substitution between two goods and how is it related to the indifference curve?

A consumer optimum is characterized by

The total utility of consuming 6 units of a good is 255. The marginal utility of the 6th unit is 45 and the marginal utility of the 5th unit is 65. The total utility of consuming 5 units of the good is

-Refer to the above table. If the price of Good A is $2, the price of Good B is $1, and the consumer has $9, the rational consumer will purchase

What is the principle of diminishing marginal utility?

The rate of change in total utility equals

The want-satisfying power of a good or service is known as

-Refer to the above table. Assume the consumer spends his entire income. The price of a hotdog is $1, the price of a movie is $6, and the consumer has $15. What is the consumer's optimum?

Marginal utility can be thought of as

Despite the fact that water is necessary to sustain life, it is less expensive than milk. Economic theory suggests that this is so because

Assume that the marginal utility from good A is 10 units and that the price of good A is $5 per unit. The marginal utility from good B is 15 units and its unit price is $7. In this situation, a utility-maximizing consumer should

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