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.

Question 2

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.

Question 3

-In the above figure, point C is

Accepted Answer

A)  preferred to points G, A, and B. 
B)  preferred to points A and B. 
C)  less preferred than point G. 
D)  less preferred than point H.

Question 4

-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 A to combination B is

Accepted Answer

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

Question 5

Suppose a family purchases 10,000 gallons of water a year at 20 cents a gallon and one diamond ring at a price of $1000. Can we conclude that the diamond ring provides more utility to the family than water? Explain.

Accepted Answer

The answer of Suppose a family purchases 10,000 gallons of...

Question 6

When an individual's purchasing power changes due to a change in the price of a good or service, this is referred to as

Accepted Answer

A)  marginal effect. 
B)  real-income effect. 
C)  substitution effect. 
D)  utility effect.

Question 7

As an individual consumes more of a particular commodity, the total level of utility derived from that consumption will

Accepted Answer

A)  increase at an increasing rate. 
B)  increase at a decreasing rate. 
C)  increase at a constant rate. 
D)  remain constant.

Question 8

A consumer will achieve the highest level of utility possible when she consumes

Accepted Answer

A)  at the point at which the highest indifference curve is tangent to the budget constraint. 
B)  at the point at which the indifference curve crosses the budget constraint. 
C)  at a point to the left of the budget constraint. 
D)  just below the point where the indifference curve crosses the budget constraint.

Question 9

Suppose a consumer is at an optimum, consuming 6 hamburgers a week at a price of $1.50 each and 10 donuts a week at 50 cents a donut. If the price of a hamburger increases to $2.00, what will the consumer do to arrive at a new equilibrium? Why?

Accepted Answer

The answer of Suppose a consumer is at an optimum,...

Question 10

When consumers shift away from relatively higher price goods and services in favor of those that are less expensive, this is known as the

Accepted Answer

A)  principle of utility. 
B)  principle of substitution. 
C)  principle of supply. 
D)  principle of increasing opportunity costs.

Question 11

-Using the above table, what is the total utility of consuming 3 bottles of soda?

Accepted Answer

A)  115 
B)  120 
C)  240 
D)  135

Question 12

-In the above table, marginal utility begins to diminish after consumption of the

Accepted Answer

A)  second slice of pizza. 
B)  third slice of pizza. 
C)  fourth slice of pizza. 
D)  fifth slice of pizza.

Question 13

A budget constraint shows

Accepted Answer

A)  all of the combinations of sets of goods that yield the same level of satisfaction. 
B)  all of the possible combinations of goods that can be purchased with a specific budget. 
C)  all of the goods the consumer gets positive marginal utility from when the goods are consumed. 
D)  all of the goods that a consumer substitutes for other goods when prices fall.

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.

Question 15

Your annual review is given to you at your place of employment, and you get a raise of 3 percent for the next year. On the subway home though, you read an article stating the price of homes in the area you are looking to buy will increase by 6 percent during the coming year. You determine from the article that if you buy in your favorite neighborhood

Accepted Answer

A)  your purchasing power declines. 
B)  consumer optimum is reached. 
C)  your real income actually increases. 
D)  quantity demanded will increase.

Question 16

Using the utility-optimizing model, which of the following would induce a consumer to increase consumption of good x, a normal good?

Accepted Answer

A)  An increase in the marginal utility of x 
B)  A decrease in the total utility of y 
C)  An increase in the marginal utility of good y 
D)  A decrease in income

Question 17

Bob's Marginal Utility for consuming beer and pizza with $8.00 in income
 
-In the above table, Bob experiences diminishing marginal utility after consuming how many pieces of pizza?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4

Question 18

A representative unit by which utility is measured is

Accepted Answer

A)  a util. 
B)  utility. 
C)  marginal utility. 
D)  ordinal utility.

Question 19

A consumer has spent all of his income on hamburgers and movies. The price of a hamburger is $1 and the price of a movie is $6. The marginal utility of the last hamburger is 5 and the marginal utility of the last movie is 24. The consumer has

Accepted Answer

A)  maximized utility. 
B)  not maximized utility. He should cut back on movies and buy more hamburgers. 
C)  not maximized utility. He should cut back on hamburgers and buy more movies. 
D)  not maximized utility. He should cut back consumption of each good.

Question 20

The average demand curve slopes downward due to all of the following EXCEPT

Accepted Answer

A)  the law of increasing relative costs. 
B)  the laws of diminishing marginal utility. 
C)  the real-income effect. 
D)  the principle of substitution.

Exam 20: Consumer Choice