Question 1

If the price of a good falls, the consumer will increase the quantity demanded.

Accepted Answer

A) True 
 B)False

Question 2

Evaluate the following statement: "The substitution and income effects will lead to a fall in the consumption of a normal good when the price of the good falls." Discuss why you agree or disagree.

Accepted Answer

I agree with the statement that the subs

Question 3

John Smedley, a careful maximizer of utility, consumes only two goods, peanut butter and broccoli. He had just achieved the utility maximizing solution in his consumption of the two goods when the price of broccoli rose. As he adjusts to this event, he will consume:

Accepted Answer

A)  more peanut butter and less broccoli. 
B)  less peanut butter and less broccoli. 
C)  more peanut butter and more broccoli. 
D)  less peanut butter and more broccoli. 
A)  more peanut butter and less broccoli. 
B)  less peanut butter and less broccoli. 
C)  more peanut butter and more broccoli. 
D)  less peanut butter and more broccoli.

Question 4

-(Exhibit: Consumer Equilibrium 3) The highest level of utility shown in the exhibit is associated with:

Accepted Answer

A)  indifference curve X. 
B)  indifference curve Y. 
C)  indifference curve Z. 
D)  either indifference curve Y or Z. 
A)  indifference curve X. 
B)  indifference curve Y. 
C)  indifference curve Z. 
D)  either indifference curve Y or Z.

Question 5

Sally Garcia devotes all of her income to the consumption of two goods, apples and Reese's Peanut Butter Cups. She has just discovered that at her current level of consumption the marginal utility of an apple is 6 and the marginal utility of a Reese's Peanut Butter Cup is 8. Suppose the price of an apple is $0.10, while the price of a Reese's Peanut Butter Cup is $0.25. To maximize her total utility, assuming that the goods are divisible, she would:

Accepted Answer

A)  consume more Reese's Butter Cups and fewer apples. 
B)  consume less of both goods. 
C)  consume more apples and fewer Reese's Butter Cups. 
D)  there is not enough information to justify a change in her current level of consumption. 
A)  consume more Reese's Butter Cups and fewer apples. 
B)  consume less of both goods. 
C)  consume more apples and fewer Reese's Butter Cups. 
D)  there is not enough information to justify a change in her current level of consumption.

Question 6

-(Exhibit: Consumer Equilibrium 1) Assume that the price of both goods X and Y is $1 per unit, and you have $10 of income to spend on both goods. To maximize utility, you would consume ________ units of X and _______ units of Y.

Accepted Answer

A)  3; 4 
B)  4; 3 
C)  4; 6 
D)  5; 5 
A)  3; 4 
B)  4; 3 
C)  4; 6 
D)  5; 5

Question 7

According to the income effect, a decrease in the price of a product leads to an increase in the quantity demanded because buyers:

Accepted Answer

A)  have an implicit reduction in income. 
B)  have an implicit increase in income. 
C)  purchase fewer substitute goods. 
D)  purchase more substitute goods. 
A)  have an implicit reduction in income. 
B)  have an implicit increase in income. 
C)  purchase fewer substitute goods. 
D)  purchase more substitute goods.

Question 8

-(Exhibit: Consumer Equilibrium 2) Given the budget constraint, a level of total utility not attainable is at point:

Accepted Answer

A)  G. 
B)  K. 
C)  I. 
D)  J. 
A)  G. 
B)  K. 
C)  I. 
D)  J.

Question 9

As you consume more of good A relative to another good B, the _______ of good A eventually decreases.

Accepted Answer

A)  total utility 
B)  usefulness 
C)  marginal utility 
D)  demand 
A)  total utility 
B)  usefulness 
C)  marginal utility 
D)  demand

Question 10

The quantity demanded of handheld calculators, a normal good, will _______ with a price _______ .

Accepted Answer

A)  increase; increase 
B)  decrease; decrease 
C)  decrease; increase 
D)  increase; change 
A)  increase; increase 
B)  decrease; decrease 
C)  decrease; increase 
D)  increase; change

Question 11

If the price of apples falls and the price of oranges remains constant:

Accepted Answer

A)  apples are now relatively cheaper. 
B)  the fall in the price of apples made consumers richer. 
C)  the fall in the price of apples, ceteris paribus, makes the marginal utility of apples divided by their price exceed the marginal utility of oranges divided by their price. 
D)  all of the above statements are true. 
A)  apples are now relatively cheaper. 
B)  the fall in the price of apples made consumers richer. 
C)  the fall in the price of apples, ceteris paribus, makes the marginal utility of apples divided by their price exceed the marginal utility of oranges divided by their price. 
D)  all of the above statements are true.

Question 12

If a good is characterized as a Giffen good it must be an inferior good.

Accepted Answer

A) True 
 B)False

Question 13

Higher indifference curves:

Accepted Answer

A)  have lesser levels of utility than lower curves. 
B)  have greater levels of utility than lower curves. 
C)  have the same levels of utility as lower curves. 
D)  may have either lesser or greater levels of utility than lower curves. 
A)  have lesser levels of utility than lower curves. 
B)  have greater levels of utility than lower curves. 
C)  have the same levels of utility as lower curves. 
D)  may have either lesser or greater levels of utility than lower curves.

Question 14

A Giffen good is one in which the _______ curve is _______ sloped.

Accepted Answer

A)  supply; negatively 
B)  demand; negatively 
C)  supply; positively 
D)  demand; positively 
A)  supply; negatively 
B)  demand; negatively 
C)  supply; positively 
D)  demand; positively

Question 15

-(Exhibit: Consumer Equilibrium 2) Given the exhibit, which of the following is (are) true?

Accepted Answer

A)  To increase utility beyond that received at point I requires a change in the preferences of the consumer. 
B)  Point J could be attained with an increase in the consumer's budget. 
C)  An increase in the prices of good X and good Y would allow the consumer to attain point J. 
D)  Both A and B are true. 
A)  To increase utility beyond that received at point I requires a change in the preferences of the consumer. 
B)  Point J could be attained with an increase in the consumer's budget. 
C)  An increase in the prices of good X and good Y would allow the consumer to attain point J. 
D)  Both A and B are true.

Question 16

A line representing all the possible combinations of two commodities that a consumer can purchase at a particular time, given the market prices of the commodities and the consumer's income, is a(n):

Accepted Answer

A)  budget line. 
B)  consumption line. 
C)  income consumption curve. 
D)  indifference curve. 
A)  budget line. 
B)  consumption line. 
C)  income consumption curve. 
D)  indifference curve.

Question 17

In dealing with utility, we assume that the ability of consumers to purchase goods and services is:

Accepted Answer

A)  infinite. 
B)  irrelevant. 
C)  limited. 
D)  infinitesimal. 
A)  infinite. 
B)  irrelevant. 
C)  limited. 
D)  infinitesimal.

Question 18

John Smedley, a careful maximizer of utility, consumes only two goods, peanut butter and broccoli. He had just achieved the utility-maximizing solution in his consumption of the two goods when the price of broccoli rose. As he adjusts to this event:

Accepted Answer

A)  the marginal utility of peanut butter and of broccoli will rise. 
B)  the marginal utility of peanut butter and of broccoli will fall. 
C)  the marginal utility of peanut butter will fall, and the marginal utility of broccoli will rise. 
D)  the marginal utility of peanut butter will rise, and the marginal utility of broccoli will fall. 
A)  the marginal utility of peanut butter and of broccoli will rise. 
B)  the marginal utility of peanut butter and of broccoli will fall. 
C)  the marginal utility of peanut butter will fall, and the marginal utility of broccoli will rise. 
D)  the marginal utility of peanut butter will rise, and the marginal utility of broccoli will fall.

Question 19

The theory of consumer choice, generally, examines the insights involved in constrained choices.

Accepted Answer

A) True 
 B)False

Question 20

-(Exhibit: Utility.) Marginal utility is zero for the _______ unit.

Accepted Answer

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

Exam 7: Cost and Industry Structure

If the price of a good falls, the consumer will increase the quantity demanded.

Evaluate the following statement: "The substitution and income effects will lead to a fall in the consumption of a normal good when the price of the good falls." Discuss why you agree or disagree.

John Smedley, a careful maximizer of utility, consumes only two goods, peanut butter and broccoli. He had just achieved the utility maximizing solution in his consumption of the two goods when the price of broccoli rose. As he adjusts to this event, he will consume:

-(Exhibit: Consumer Equilibrium 3) The highest level of utility shown in the exhibit is associated with:

-(Exhibit: Consumer Equilibrium 1) Assume that the price of both goods X and Y is $1 per unit, and you have $10 of income to spend on both goods. To maximize utility, you would consume ________ units of X and _______ units of Y.

According to the income effect, a decrease in the price of a product leads to an increase in the quantity demanded because buyers:

-(Exhibit: Consumer Equilibrium 2) Given the budget constraint, a level of total utility not attainable is at point:

As you consume more of good A relative to another good B, the _______ of good A eventually decreases.

The quantity demanded of handheld calculators, a normal good, will _______ with a price _______ .

If the price of apples falls and the price of oranges remains constant:

If a good is characterized as a Giffen good it must be an inferior good.

Higher indifference curves:

A Giffen good is one in which the _______ curve is _______ sloped.

-(Exhibit: Consumer Equilibrium 2) Given the exhibit, which of the following is (are) true?

A line representing all the possible combinations of two commodities that a consumer can purchase at a particular time, given the market prices of the commodities and the consumer's income, is a(n):

In dealing with utility, we assume that the ability of consumers to purchase goods and services is:

John Smedley, a careful maximizer of utility, consumes only two goods, peanut butter and broccoli. He had just achieved the utility-maximizing solution in his consumption of the two goods when the price of broccoli rose. As he adjusts to this event:

The theory of consumer choice, generally, examines the insights involved in constrained choices.

-(Exhibit: Utility.) Marginal utility is zero for the _______ unit.

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

Filters

-(Exhibit: Consumer Equilibrium 1) Assume that the price of both goods X and Y is $1 per unit, and you have $10 of income to spend on both goods. To maximize utility, you would consume __ units of X and _ units of Y.

The quantity demanded of handheld calculators, a normal good, will _ with a price _ .

A Giffen good is one in which the _ curve is _ sloped.