Question 1

Which of the following statements is (are) true?

Accepted Answer

A)  Consumers are constrained by a budget. 
B)  If a consumer decides to spend more on one good, he or she must decide to spend less on another good to satisfy the budget constraint. 
C)  The marginal decision rule states that an activity should be expanded if its marginal benefit exceeds its marginal cost. 
D)  All of the above statements are true. 
A)  Consumers are constrained by a budget. 
B)  If a consumer decides to spend more on one good, he or she must decide to spend less on another good to satisfy the budget constraint. 
C)  The marginal decision rule states that an activity should be expanded if its marginal benefit exceeds its marginal cost. 
D)  All of the above statements are true.

Question 2

If the combination of two goods is a point of tangency between the budget line and an indifference curve, then:

Accepted Answer

A)  consumer equilibrium has not been achieved. 
B)  all available income has been spent. 
C)  utility can be increased by consuming less of both goods. 
D)  utility can be decreased by consuming more of both goods. 
A)  consumer equilibrium has not been achieved. 
B)  all available income has been spent. 
C)  utility can be increased by consuming less of both goods. 
D)  utility can be decreased by consuming more of both goods.

Question 3

Utility maximization _______ the law of demand.

Accepted Answer

A)  has no relation to 
B)  underlies 
C)  is OK in theory, but does not support in fact, 
D)  is generally inconsistent with 
A)  has no relation to 
B)  underlies 
C)  is OK in theory, but does not support in fact, 
D)  is generally inconsistent with

Question 4

Marginal utility is at a maximum when it is zero.

Accepted Answer

A) True 
 B)False

Question 5

Total utility falls as marginal utility declines.

Accepted Answer

A) True 
 B)False

Question 6

When there is a difference between the MUx/Px and the MUy/Py, we expect that a consumer will:

Accepted Answer

A)  continue to purchase the quantities generating this outcome. 
B)  buy more of good x. 
C)  buy more of good y. 
D)  change the quantities of good x and y in their current purchase basket. 
A)  continue to purchase the quantities generating this outcome. 
B)  buy more of good x. 
C)  buy more of good y. 
D)  change the quantities of good x and y in their current purchase basket.

Question 7

The substitution effect indicates that the implicit change in income contributes to the inverse relationship between price and quantity demanded.

Accepted Answer

A) True 
 B)False

Question 8

When the income effect moves in the same direction as the _______ effect, a greater income effect contributes to a _______ price elasticity of demand.

Accepted Answer

A)  substitution; greater 
B)  substitution; smaller 
C)  demand; greater 
D)  budget; smaller 
A)  substitution; greater 
B)  substitution; smaller 
C)  demand; greater 
D)  budget; smaller

Question 9

A consumer's spending is restricted because of:

Accepted Answer

A)  marginal utility. 
B)  total utility. 
C)  a budget constraint. 
D)  utility maximization. 
A)  marginal utility. 
B)  total utility. 
C)  a budget constraint. 
D)  utility maximization.

Question 10

The substitution effect always involves a change in consumption in the _______ direction of the ________ change.

Accepted Answer

A)  same; budget 
B)  same; price 
C)  opposite; price 
D)  opposite; budget 
A)  same; budget 
B)  same; price 
C)  opposite; price 
D)  opposite; budget

Question 11

The amount by which total utility rises when an additional unit of a good is consumed is called:

Accepted Answer

A)  average utility. 
B)  the law of diminishing returns. 
C)  incremental utility. 
D)  marginal utility. 
A)  average utility. 
B)  the law of diminishing returns. 
C)  incremental utility. 
D)  marginal utility.

Question 12

If a consumer purchases a combination of commodities a and b such that MUa/Pa = 50 and MUb/Pb = 30, to maximize utility, the consumer should buy:

Accepted Answer

A)  less of both a and b. 
B)  more of both a and b. 
C)  more of a and less of b. 
D)  less of a and more of b. 
A)  less of both a and b. 
B)  more of both a and b. 
C)  more of a and less of b. 
D)  less of a and more of b.

Question 13

-(Exhibit: Consumer Equilibrium 2) Which of the following statements is true?

Accepted Answer

A)  Point F indicates the price of good Y. 
B)  Point L indicates the price of good X. 
C)  Points G and I represent the same level of total utility. 
D)  None of the above statements is true. 
A)  Point F indicates the price of good Y. 
B)  Point L indicates the price of good X. 
C)  Points G and I represent the same level of total utility. 
D)  None of the above statements is true.

Question 14

The substitution and income effects work in opposite directions for:

Accepted Answer

A)  complement goods. 
B)  substitute goods. 
C)  normal goods. 
D)  inferior goods. 
A)  complement goods. 
B)  substitute goods. 
C)  normal goods. 
D)  inferior goods.

Question 15

The marginal utility of a good will eventually fall as more of it is consumed.

Accepted Answer

A) True 
 B)False

Question 16

A decreasing marginal rate of substitution indicates that an indifference curve is:

Accepted Answer

A)  a straight line. 
B)  a vertical line. 
C)  a horizontal line. 
D)  bowed in, toward the origin. 
A)  a straight line. 
B)  a vertical line. 
C)  a horizontal line. 
D)  bowed in, toward the origin.

Question 17

A budget line is based on a given level of income and variable prices.

Accepted Answer

A) True 
 B)False

Question 18

Economists identify the satisfaction a person derives from the consumption of goods and services as:

Accepted Answer

A)  happiness. 
B)  usefulness. 
C)  utility. 
D)  pleasure. 
A)  happiness. 
B)  usefulness. 
C)  utility. 
D)  pleasure.

Question 19

If a consumer purchases a combination of commodities a and b such that MUa/Pa = 50 and MUb/Pb = 40, to maximize utility, the consumer should buy:

Accepted Answer

A)  less of both a and b. 
B)  more of both a and b. 
C)  more of a and less of b. 
D)  less of a and more of b. 
A)  less of both a and b. 
B)  more of both a and b. 
C)  more of a and less of b. 
D)  less of a and more of b.

Question 20

The slope of a budget line for a consumer buying two goods is equal to the _______ of the price of the good on the ________ axis divided by the price of the good on the _______ axis.

Accepted Answer

A)  positive; vertical; horizontal 
B)  negative; horizontal; vertical 
C)  positive; horizontal; vertical 
D)  negative; vertical; horizontal 
A)  positive; vertical; horizontal 
B)  negative; horizontal; vertical 
C)  positive; horizontal; vertical 
D)  negative; vertical; horizontal

Exam 7: Cost and Industry Structure

Which of the following statements is (are) true?

If the combination of two goods is a point of tangency between the budget line and an indifference curve, then:

Utility maximization _______ the law of demand.

Marginal utility is at a maximum when it is zero.

Total utility falls as marginal utility declines.

When there is a difference between the MUx/Px and the MUy/Py, we expect that a consumer will:

The substitution effect indicates that the implicit change in income contributes to the inverse relationship between price and quantity demanded.

When the income effect moves in the same direction as the _______ effect, a greater income effect contributes to a _______ price elasticity of demand.

A consumer's spending is restricted because of:

The substitution effect always involves a change in consumption in the _______ direction of the ________ change.

The amount by which total utility rises when an additional unit of a good is consumed is called:

If a consumer purchases a combination of commodities a and b such that MUa/Pa = 50 and MUb/Pb = 30, to maximize utility, the consumer should buy:

-(Exhibit: Consumer Equilibrium 2) Which of the following statements is true?

The substitution and income effects work in opposite directions for:

The marginal utility of a good will eventually fall as more of it is consumed.

A decreasing marginal rate of substitution indicates that an indifference curve is:

A budget line is based on a given level of income and variable prices.

Economists identify the satisfaction a person derives from the consumption of goods and services as:

If a consumer purchases a combination of commodities a and b such that MUa/Pa = 50 and MUb/Pb = 40, to maximize utility, the consumer should buy:

The slope of a budget line for a consumer buying two goods is equal to the _______ of the price of the good on the ________ axis divided by the price of the good on the _______ axis.

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

When there is a difference between the MU_x/P_x and the MU_y/P_y, we expect that a consumer will:

When the income effect moves in the same direction as the _ effect, a greater income effect contributes to a _ price elasticity of demand.

The substitution effect always involves a change in consumption in the _ direction of the __ change.

If a consumer purchases a combination of commodities a and b such that MU_a/P_a = 50 and MU_b/P_b = 30, to maximize utility, the consumer should buy:

If a consumer purchases a combination of commodities a and b such that MU_a/P_a = 50 and MU_b/P_b = 40, to maximize utility, the consumer should buy:

The slope of a budget line for a consumer buying two goods is equal to the _ of the price of the good on the axis divided by the price of the good on the _ axis.