Question 1

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

Accepted Answer

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

Question 2

-(Exhibit: Consumer Equilibrium 1) Assume that the price of good X is $2 per unit and the price of good Y is $1 per unit, and you consume 3 units of good X and 3 units of good Y. To maximize utility, assuming that the goods are divisible, you would consume:

Accepted Answer

A)  less of both X and Y. 
B)  more of both X and Y. 
C)  less of X and more of Y. 
D)  more of X and less of Y. 
A)  less of both X and Y. 
B)  more of both X and Y. 
C)  less of X and more of Y. 
D)  more of X and less of Y.

Question 3

Consumers generally try to obtain:

Accepted Answer

A)  a point of intersection between indifference curves. 
B)  any budget line/indifference curve intersection. 
C)  the highest indifference curve. 
D)  the lowest indifference curve. 
A)  a point of intersection between indifference curves. 
B)  any budget line/indifference curve intersection. 
C)  the highest indifference curve. 
D)  the lowest indifference curve.

Question 4

-(Exhibit: Consumer Equilibrium 1) Assume that the price of both goods is $1 per unit, and you consume 3 units of good X and 3 units of good Y. To maximize utility, assuming that the goods are divisible, you would consume:

Accepted Answer

A)  less of both X and Y. 
B)  more of both X and Y. 
C)  less of X and more of Y. 
D)  more of X and less of Y. 
A)  less of both X and Y. 
B)  more of both X and Y. 
C)  less of X and more of Y. 
D)  more of X and less of Y.

Question 5

Economists believe that consumer choice theory is useless because of its lack of predictive ability.

Accepted Answer

A) True 
 B)False

Question 6

In using the concept of marginal utility as an argument for a downward-sloping demand curve, economists:

Accepted Answer

A)  are ignoring the law of diminishing marginal utility. 
B)  invoke the law of diminishing marginal utility. 
C)  are denying the law of diminishing marginal utility. 
D)  are doing none of the above. 
A)  are ignoring the law of diminishing marginal utility. 
B)  invoke the law of diminishing marginal utility. 
C)  are denying the law of diminishing marginal utility. 
D)  are doing none of the above.

Question 7

The marginal rate of substitution assumes that:

Accepted Answer

A)  prices remain unchanged. 
B)  money income remains unchanged. 
C)  satisfaction remains unchanged. 
D)  the quantities of both goods remain unchanged. 
A)  prices remain unchanged. 
B)  money income remains unchanged. 
C)  satisfaction remains unchanged. 
D)  the quantities of both goods remain unchanged.

Question 8

The consumption of normal goods will increase because of the income effect when their prices increase.

Accepted Answer

A) True 
 B)False

Question 9

Choices that maximize total utility generally produce demand curves that are:

Accepted Answer

A)  horizontal. 
B)  upward sloping. 
C)  downward sloping. 
D)  linear. 
A)  horizontal. 
B)  upward sloping. 
C)  downward sloping. 
D)  linear.

Question 10

Utility maximization for all goods requires that:

Accepted Answer

A)  the marginal utilities of all goods consumed divided by their prices are equal to the budget constraint. 
B)  the marginal utilities of all goods exceed the total utility of all goods. 
C)  the marginal utilities of all goods divided by their respective prices are equal. 
D)  all of the above be true. 
A)  the marginal utilities of all goods consumed divided by their prices are equal to the budget constraint. 
B)  the marginal utilities of all goods exceed the total utility of all goods. 
C)  the marginal utilities of all goods divided by their respective prices are equal. 
D)  all of the above be true.

Question 11

An imaginary adjustment of a consumer's income at the same instant a price changes, so the consumer has just enough to buy the same goods and services at the new price is:

Accepted Answer

A)  the substitution effect. 
B)  the income effect. 
C)  an income-compensated price change. 
D)  a price-compensated utility change. 
A)  the substitution effect. 
B)  the income effect. 
C)  an income-compensated price change. 
D)  a price-compensated utility change.

Question 12

If, because of a price change, both the income and substitution effects are strong for a normal good, this segment of the demand curve must be:

Accepted Answer

A)  unit-elastic. 
B)  vertical. 
C)  relatively price elastic. 
D)  horizontal. 
A)  unit-elastic. 
B)  vertical. 
C)  relatively price elastic. 
D)  horizontal.

Question 13

Explain in some detail how the theory of utility maximization is used to derive demand curves. Be sure to explain in your answer how the law of diminishing marginal utility is used in relation to the utility-maximizing condition.

Accepted Answer

The theory of utility maximization is us

Question 14

The larger the substitution effect the _______ the absolute value of the price elasticity of demand.

Accepted Answer

A)  smaller 
B)  greater 
C)  greater the change in 
D)  less the change in 
A)  smaller 
B)  greater 
C)  greater the change in 
D)  less the change in

Question 15

The law of diminishing marginal utility exists for the first three units of a good if they have marginal utilities, respectively, of:

Accepted Answer

A)  8, 9, 10. 
B)  9, 8, 10. 
C)  9, 10, 8. 
D)  10, 9, 8. 
A)  8, 9, 10. 
B)  9, 8, 10. 
C)  9, 10, 8. 
D)  10, 9, 8.

Question 16

An indifference curve shows combinations of two goods that yield:

Accepted Answer

A)  equal prices. 
B)  equal money income. 
C)  equal satisfaction. 
D)  increasing prices. 
A)  equal prices. 
B)  equal money income. 
C)  equal satisfaction. 
D)  increasing prices.

Question 17

Jill Smith, a careful maximizer of utility, consumes only two goods, peanut butter and ice cream. She had just achieved the utility-maximizing solution in her consumption of the two goods when the price of peanut butter rose. As she adjusts to this event:

Accepted Answer

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

Question 18

If total utility increases from 10 to 15 for the second unit of a good consumed, the marginal utility of the second unit is 15.

Accepted Answer

A) True 
 B)False

Question 19

The Case in Point on Changing Lanes and Raising Utility, indicated that the government's decision to allow single-occupancy-vehicle to use former HOV lanes for a fee resulted in:

Accepted Answer

A)  only wealthy drivers using these lanes. 
B)  only poor drivers using these lanes. 
C)  drivers of all income levels using these lanes. 
D)  no statistical evidence on who uses these lanes most frequently. 
A)  only wealthy drivers using these lanes. 
B)  only poor drivers using these lanes. 
C)  drivers of all income levels using these lanes. 
D)  no statistical evidence on who uses these lanes most frequently.

Question 20

Marginal utility is best computed as the:

Accepted Answer

A)  change in total utility from an additional unit consumed. 
B)  total utility divided by the total quantity consumed. 
C)  change in total utility divided by the total quantity consumed. 
D)  total utility divided by the change in quantity consumed. 
A)  change in total utility from an additional unit consumed. 
B)  total utility divided by the total quantity consumed. 
C)  change in total utility divided by the total quantity consumed. 
D)  total utility divided by the change in quantity consumed.

Exam 7: Cost and Industry Structure

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

-(Exhibit: Consumer Equilibrium 1) Assume that the price of good X is $2 per unit and the price of good Y is $1 per unit, and you consume 3 units of good X and 3 units of good Y. To maximize utility, assuming that the goods are divisible, you would consume:

Consumers generally try to obtain:

-(Exhibit: Consumer Equilibrium 1) Assume that the price of both goods is $1 per unit, and you consume 3 units of good X and 3 units of good Y. To maximize utility, assuming that the goods are divisible, you would consume:

Economists believe that consumer choice theory is useless because of its lack of predictive ability.

In using the concept of marginal utility as an argument for a downward-sloping demand curve, economists:

The marginal rate of substitution assumes that:

The consumption of normal goods will increase because of the income effect when their prices increase.

Choices that maximize total utility generally produce demand curves that are:

Utility maximization for all goods requires that:

An imaginary adjustment of a consumer's income at the same instant a price changes, so the consumer has just enough to buy the same goods and services at the new price is:

If, because of a price change, both the income and substitution effects are strong for a normal good, this segment of the demand curve must be:

Explain in some detail how the theory of utility maximization is used to derive demand curves. Be sure to explain in your answer how the law of diminishing marginal utility is used in relation to the utility-maximizing condition.

The larger the substitution effect the _______ the absolute value of the price elasticity of demand.

The law of diminishing marginal utility exists for the first three units of a good if they have marginal utilities, respectively, of:

An indifference curve shows combinations of two goods that yield:

Jill Smith, a careful maximizer of utility, consumes only two goods, peanut butter and ice cream. She had just achieved the utility-maximizing solution in her consumption of the two goods when the price of peanut butter rose. As she adjusts to this event:

If total utility increases from 10 to 15 for the second unit of a good consumed, the marginal utility of the second unit is 15.

The Case in Point on Changing Lanes and Raising Utility, indicated that the government's decision to allow single-occupancy-vehicle to use former HOV lanes for a fee resulted in:

Marginal utility is best computed as the:

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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