Question 1

The amount by which total utility increases when an additional unit of a good is consumed is called ________ utility.

Accepted Answer

A)  average 
B)  additional 
C)  maximum 
D)  marginal 
A)  average 
B)  additional 
C)  maximum 
D)  marginal

Question 2

Utility is maximized when:

Accepted Answer

A)  the marginal utility of every good consumed times its price is everywhere equal. 
B)  total outlays equal a varying budget and when the ratios of marginal utilities to prices are equal for all goods and services. 
C)  total outlays equal a given budget and the ratios of marginal utilities to prices are equal for all goods and services. 
D)  A and C occur. 
A)  the marginal utility of every good consumed times its price is everywhere equal. 
B)  total outlays equal a varying budget and when the ratios of marginal utilities to prices are equal for all goods and services. 
C)  total outlays equal a given budget and the ratios of marginal utilities to prices are equal for all goods and services. 
D)  A and C occur.

Question 3

Market demand is found by:

Accepted Answer

A)  adding individual quantities demanded at each price. 
B)  adding individual prices at each quantity demanded. 
C)  multiplying individual quantities demanded at each price. 
D)  multiplying individual prices at each quantity demanded. 
A)  adding individual quantities demanded at each price. 
B)  adding individual prices at each quantity demanded. 
C)  multiplying individual quantities demanded at each price. 
D)  multiplying individual prices at each quantity demanded.

Question 4

Define total and marginal utility. Explain the relationship between them. If marginal utility is positive, negative, or zero, and is "going in a particular direction," what is the magnitude of total utility and what direction is it going? Explain carefully.

Accepted Answer

Total utility refers to the total satisf

Question 5

Marginal utility is zero at the quantity at which total utility reaches its maximum.

Accepted Answer

A) True 
 B)False

Question 6

-(Exhibit: Utility) Marginal utility first becomes negative at the _______ unit.

Accepted Answer

A)  first 
B)  second 
C)  fifth 
D)  sixth 
A)  first 
B)  second 
C)  fifth 
D)  sixth

Question 7

The Case in Point on P.O.W. camps stated that in situations where trade among the prisoners was allowed, in equilibrium the marginal rate of substitution between coffee and tea:

Accepted Answer

A)  was equal to the same price ratio for both French and British prisoners. 
B)  for French prisoners was lower than for British prisoners. 
C)  for French prisoners was higher than for British prisoners. 
D)  for British prisoners was 1, while the French prisoners preferred not to engage in exchange. 
A)  was equal to the same price ratio for both French and British prisoners. 
B)  for French prisoners was lower than for British prisoners. 
C)  for French prisoners was higher than for British prisoners. 
D)  for British prisoners was 1, while the French prisoners preferred not to engage in exchange.

Question 8

Utility is maximized in the consumption of two goods by equating the:

Accepted Answer

A)  marginal utility of one good to the price of the other. 
B)  ratios of marginal utility to price for both goods. 
C)  ratios of total utility to price of both goods. 
D)  marginal utilities of both goods. 
A)  marginal utility of one good to the price of the other. 
B)  ratios of marginal utility to price for both goods. 
C)  ratios of total utility to price of both goods. 
D)  marginal utilities of both goods.

Question 9

The income effect refers to:

Accepted Answer

A)  changes in income because of changes in business investment. 
B)  changes in money or nominal income because of changes in wages. 
C)  a change in the quantity demanded of a good because of an implicit change in the buyer's income caused by a change in the price of a good or service. 
D)  a change in the quantity demanded of a good because of a change in the buyer's money income. 
A)  changes in income because of changes in business investment. 
B)  changes in money or nominal income because of changes in wages. 
C)  a change in the quantity demanded of a good because of an implicit change in the buyer's income caused by a change in the price of a good or service. 
D)  a change in the quantity demanded of a good because of a change in the buyer's money income.

Question 10

Higher indifference curves have greater levels of satisfaction.

Accepted Answer

A) True 
 B)False

Question 11

Total Utility and Marginal Utility from Consumption of Good A
  
-(Exhibit: Total Utility and Marginal Utility from Consumption of Good A) If the total utility curve of good A is plotted on a graph, the slope of TU between 3 units consumed and 4 units consumed is:

Accepted Answer

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

Question 12

Each point along an indifference curve represents a different amount of total utility for a consumer.

Accepted Answer

A) True 
 B)False

Question 13

For a consumer to be in equilibrium, the marginal utilities of all goods must be equal.

Accepted Answer

A) True 
 B)False

Question 14

Using the income and substitution effects, discuss and explain why consumers buy more at lower prices and why they buy less at higher prices. Do this for normal and inferior goods (be sure to define normal and inferior goods).

Accepted Answer

The income and substitution effects help

Question 15

-(Exhibit: Consumer Equilibrium 2) Given the indifference curves in the exhibit, the highest level of total utility theoretically attainable is associated with point _______ on indifference curve _______ .

Accepted Answer

A)  H; C 
B)  I; B 
C)  G; B 
D)  J; A 
A)  H; C 
B)  I; B 
C)  G; B 
D)  J; A

Question 16

Faced with two goods to buy, good 1 and good 2, a utility-maximizing individual will buy according to which of the following statements?

Accepted Answer

A)  price of good 1 = price of good 2 
B)  MU of good 1 = MU of good 2 
C)  price of good 1 divided by MU of good 2 = price of good 2 divided by MU of good 1 
D)  MU of good 1 divided by price of good 1 = MU of good 2 divided by price of good 2 
A)  price of good 1 = price of good 2 
B)  MU of good 1 = MU of good 2 
C)  price of good 1 divided by MU of good 2 = price of good 2 divided by MU of good 1 
D)  MU of good 1 divided by price of good 1 = MU of good 2 divided by price of good 2

Question 17

The marginal utility of a good must be increased by anything that increases total utility.

Accepted Answer

A) True 
 B)False

Question 18

A demand curve is generated from indifference curves by changing:

Accepted Answer

A)  the price of both goods simultaneously. 
B)  the price of one good. 
C)  income. 
D)  utility. 
A)  the price of both goods simultaneously. 
B)  the price of one good. 
C)  income. 
D)  utility.

Question 19

If you are willing to give up 5 units of good Y (on the vertical axis) for 5 units of good X (on the horizontal axis), and your level of satisfaction is unchanged, the marginal rate of substitution is:

Accepted Answer

A)  0.5. 
B)  1. 
C)  2. 
D)  5. 
A)  0.5. 
B)  1. 
C)  2. 
D)  5.

Question 20

In his book, The Wealth of Nations, Adam Smith discussed the "paradox" of value. He pointed out that nothing is more useful than water, but it is sold for a low price. Diamonds, on the other hand, have very little useful value but command a high price. Use the concepts of total and marginal utility to explain this paradox of value.

Accepted Answer

Adam Smith's "paradox" of value can be e

Exam 7: Cost and Industry Structure

The amount by which total utility increases when an additional unit of a good is consumed is called ________ utility.

Utility is maximized when:

Market demand is found by:

Define total and marginal utility. Explain the relationship between them. If marginal utility is positive, negative, or zero, and is "going in a particular direction," what is the magnitude of total utility and what direction is it going? Explain carefully.

Marginal utility is zero at the quantity at which total utility reaches its maximum.

-(Exhibit: Utility) Marginal utility first becomes negative at the _______ unit.

The Case in Point on P.O.W. camps stated that in situations where trade among the prisoners was allowed, in equilibrium the marginal rate of substitution between coffee and tea:

Utility is maximized in the consumption of two goods by equating the:

The income effect refers to:

Higher indifference curves have greater levels of satisfaction.

Total Utility and Marginal Utility from Consumption of Good A -(Exhibit: Total Utility and Marginal Utility from Consumption of Good A) If the total utility curve of good A is plotted on a graph, the slope of TU between 3 units consumed and 4 units consumed is:

Each point along an indifference curve represents a different amount of total utility for a consumer.

For a consumer to be in equilibrium, the marginal utilities of all goods must be equal.

Using the income and substitution effects, discuss and explain why consumers buy more at lower prices and why they buy less at higher prices. Do this for normal and inferior goods (be sure to define normal and inferior goods).

-(Exhibit: Consumer Equilibrium 2) Given the indifference curves in the exhibit, the highest level of total utility theoretically attainable is associated with point _______ on indifference curve _______ .

Faced with two goods to buy, good 1 and good 2, a utility-maximizing individual will buy according to which of the following statements?

The marginal utility of a good must be increased by anything that increases total utility.

A demand curve is generated from indifference curves by changing:

If you are willing to give up 5 units of good Y (on the vertical axis) for 5 units of good X (on the horizontal axis), and your level of satisfaction is unchanged, the marginal rate of substitution is:

Welcome to Economics

Demand and Supply

Labor and Financial Markets

Elasticity

Consumer Choices

Perfect Competition

Monopolistic Competition and Oligopoly

Monopoly and Antitrust Policy

Environmental Protection and Negative Externalities

Positive Externalities and Public Goods

Poverty and Economic Inequality

Issues in Labor Markets: Unions, Discrimination, Immigration

Information, Risk, and Insurance

Financial Markets

Public Economy

The Macroeconomic Perspective

Economic Growth

Unemployment

Inflation

The International Trade and Capital Flows

The Aggregate Demandaggregate Supply Model

The Keynesian Perspective

The Neoclassical Perspective

Money and Banking

Monetary Policy and Bank Regulation

Exchange Rates and International Capital Flows

Government Budgets and Fiscal Policy

The Impacts of Government Borrowing

Macroeconomic Policy Around the World

International Trade

Globalization and Protectionism

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-(Exhibit: Consumer Equilibrium 2) Given the indifference curves in the exhibit, the highest level of total utility theoretically attainable is associated with point _ on indifference curve _ .