Question 1

A decrease in income shifts the budget line outward from the origin.

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 5A-2  
-Refer to Exhibit 5A-2. If the individual starts at point A and moves to point B as a result of an increase in the price of Y, then the income effect

Accepted Answer

A) decreases the consumption of both X and Y. 
B) has no effect on the consumption of either X or Y. 
C) increases the consumption of both X and Y. 
D) decreases the consumption of X but increases the consumption of Y. 
E) increases the consumption of X but decreases the consumption of Y. 
A) decreases the consumption of both X and Y. 
B) has no effect on the consumption of either X or Y. 
C) increases the consumption of both X and Y. 
D) decreases the consumption of X but increases the consumption of Y. 
E) increases the consumption of X but decreases the consumption of Y.

Question 3

Exhibit 5A-3  
-Refer to Exhibit 5A-3. Calculate the income of the consumer with this budget line if the price of good Y is $3 and the price of good X is $5.

Accepted Answer

$153
To buy 26 units of Y and

Question 4

Exhibit 5A-2  
-Refer to Exhibit 5A-2. If the individual starts at point A and moves to point B as a result of an increase in the price of Y, then the amount of reduction in the consumption of Y is

Accepted Answer

A) 45 due to the substitution effect and 25 due to the income effect. 
B) 25 due to the substitution effect and 20 due to the income effect. 
C) 25 due to both the substitution effect and income effect. 
D) 20 due to the substitution effect and 25 due to the income effect. 
E) 25 due to the substitution effect and 45 due to the income effect. 
A) 45 due to the substitution effect and 25 due to the income effect. 
B) 25 due to the substitution effect and 20 due to the income effect. 
C) 25 due to both the substitution effect and income effect. 
D) 20 due to the substitution effect and 25 due to the income effect. 
E) 25 due to the substitution effect and 45 due to the income effect.

Question 5

Why does water, which is essential to our health, cost so much less than diamonds, which are far less useful?

Accepted Answer

This water-diamond paradox is based on t

Question 6

Exhibit 5A-3  
-Refer to Exhibit 5A-3. Calculate the maximum quantity of good Y and the maximum quantity of good X that the consumer can purchase if the price of good Y is $3 and the price of good X is $5.

Accepted Answer

51; 30.6
Consumer in

Question 7

Diamonds are expensive because they have high marginal benefits.

Accepted Answer

A) True 
 B)False

Question 8

As tastes and preferences differ from person to another, so too is marginal utility.

Accepted Answer

A) True 
 B)False

Question 9

If an individual's preferences can be illustrated using the concept of utility, why can't individuals' utilities be compared?

Accepted Answer

Utility is a theoretical measure used to

Question 10

For a consumer to maximize utility,

Accepted Answer

A) marginal utility should equal marginal benefit. 
B) price should equal marginal benefit. 
C) marginal benefit should equal total utility. 
D) price should equal marginal utility. 
E) price should equal marginal cost. 
A) marginal utility should equal marginal benefit. 
B) price should equal marginal benefit. 
C) marginal benefit should equal total utility. 
D) price should equal marginal utility. 
E) price should equal marginal cost.

Question 11

Suppose a consumer allocates a budget to apples and oranges. Now, the prices of apples and oranges are increased by the same percentage. What change will happen to the budget line? What change will happen to the consumer's indifference curves? What will happen to the consumption of the two goods?

Accepted Answer

This causes the budget line to make a pa

Question 12

A typical budget line is

Accepted Answer

A) a positively sloped straight line that intersects the origin. 
B) bowed inward toward the origin. 
C) a positively sloped straight line. 
D) bowed outward away from the origin. 
E) a negatively sloped straight line. 
A) a positively sloped straight line that intersects the origin. 
B) bowed inward toward the origin. 
C) a positively sloped straight line. 
D) bowed outward away from the origin. 
E) a negatively sloped straight line.

Question 13

Which of the following is false about the assumptions that economists make about utility?

Accepted Answer

A) Utility can be used to rank alternative combinations of consumption. 
B) Consumers can be worse off with too much of a good. 
C) Utility levels cannot be used to compare consumer preferences of different people. 
D) Marginal utility increases at a decreasing rate. 
E) The units used to measure utility do not matter. 
A) Utility can be used to rank alternative combinations of consumption. 
B) Consumers can be worse off with too much of a good. 
C) Utility levels cannot be used to compare consumer preferences of different people. 
D) Marginal utility increases at a decreasing rate. 
E) The units used to measure utility do not matter.

Question 14

Individual demand tells us the

Accepted Answer

A) minimum amount an individual is willing to pay for an extra unit of a good. 
B) maximum quantity of a good an individual is willing to buy at any given price. 
C) total benefit a consumer gets from a good, but only when the price is equal to zero. 
D) marginal benefit is unrelated to willingness to pay. 
E) maximum marginal utility an individual receives from consuming one more unit of a good. 
A) minimum amount an individual is willing to pay for an extra unit of a good. 
B) maximum quantity of a good an individual is willing to buy at any given price. 
C) total benefit a consumer gets from a good, but only when the price is equal to zero. 
D) marginal benefit is unrelated to willingness to pay. 
E) maximum marginal utility an individual receives from consuming one more unit of a good.

Question 15

Use the information of utility in the box below to find the quantity of each good the consumer will purchase in each of the three cases to maximize utility.

Accepted Answer

Case A: 3 pounds of apples and

Question 16

Exhibit 5-10  
-Refer to Exhibit 5-10. Assume that Stephanie and Roger are the only consumers in the market. Calculate consumer surplus for Stephanie, Roger, and the market as a whole if market price is $1.

Accepted Answer

Stephanie consumes 3 units, with consume

Question 17

Exhibit 5-2  
-Refer to Exhibit 5-2. Total utility

Accepted Answer

A) and marginal utility are decreasing. 
B) cannot be calculated. 
C) is decreasing, but marginal utility is increasing. 
D) is increasing, but marginal utility is decreasing. 
E) and marginal utility are increasing. 
A) and marginal utility are decreasing. 
B) cannot be calculated. 
C) is decreasing, but marginal utility is increasing. 
D) is increasing, but marginal utility is decreasing. 
E) and marginal utility are increasing.

Question 18

Exhibit 5-2  
-Refer to Exhibit 5-2. Which of the following statements is true?

Accepted Answer

A) The equation to obtain the marginal utility of the third unit is 89 - 35. 
B) The marginal utility for the first unit cannot be calculated. 
C) The marginal utility of the fourth unit is 28 units of utility. 
D) The marginal utility of the sixth unit is 20 units of utility. 
E) Total utility is increasing faster with each additional unit. 
A) The equation to obtain the marginal utility of the third unit is 89 - 35. 
B) The marginal utility for the first unit cannot be calculated. 
C) The marginal utility of the fourth unit is 28 units of utility. 
D) The marginal utility of the sixth unit is 20 units of utility. 
E) Total utility is increasing faster with each additional unit.

Question 19

As an individual consumer's income increases, that consumer's

Accepted Answer

A) budget line shifts to the left. 
B) indifference curve shifts to the right. 
C) budget line shifts to the right. 
D) indifference curve shifts to the left. 
E) budget line remains unchanged. 
A) budget line shifts to the left. 
B) indifference curve shifts to the right. 
C) budget line shifts to the right. 
D) indifference curve shifts to the left. 
E) budget line remains unchanged.

Question 20

In looking at the consumption of two or more goods,

Accepted Answer

A) changes in the amount of one good consumed might affect the amount of utility gained from one or more other goods. 
B) the utility from one good is always independent of how much of any other good is consumed. 
C) utility from some goods must be added, whereas utility from others must be subtracted. 
D) utility from all of the goods must be multiplied to get total utility. 
E) a change in the quantity of one good consumed always affects the amount of utility derived from all other goods. 
A) changes in the amount of one good consumed might affect the amount of utility gained from one or more other goods. 
B) the utility from one good is always independent of how much of any other good is consumed. 
C) utility from some goods must be added, whereas utility from others must be subtracted. 
D) utility from all of the goods must be multiplied to get total utility. 
E) a change in the quantity of one good consumed always affects the amount of utility derived from all other goods.

Exam 5: The Demand Curve and the Behavior of Consumers

A decrease in income shifts the budget line outward from the origin.

Exhibit 5A-2 -Refer to Exhibit 5A-2. If the individual starts at point A and moves to point B as a result of an increase in the price of Y, then the income effect

Exhibit 5A-3 -Refer to Exhibit 5A-3. Calculate the income of the consumer with this budget line if the price of good Y is $3 and the price of good X is $5.

Exhibit 5A-2 -Refer to Exhibit 5A-2. If the individual starts at point A and moves to point B as a result of an increase in the price of Y, then the amount of reduction in the consumption of Y is

Why does water, which is essential to our health, cost so much less than diamonds, which are far less useful?

Exhibit 5A-3 -Refer to Exhibit 5A-3. Calculate the maximum quantity of good Y and the maximum quantity of good X that the consumer can purchase if the price of good Y is $3 and the price of good X is $5.

Diamonds are expensive because they have high marginal benefits.

As tastes and preferences differ from person to another, so too is marginal utility.

If an individual's preferences can be illustrated using the concept of utility, why can't individuals' utilities be compared?

For a consumer to maximize utility,

Suppose a consumer allocates a budget to apples and oranges. Now, the prices of apples and oranges are increased by the same percentage. What change will happen to the budget line? What change will happen to the consumer's indifference curves? What will happen to the consumption of the two goods?

A typical budget line is

Which of the following is false about the assumptions that economists make about utility?

Individual demand tells us the

Use the information of utility in the box below to find the quantity of each good the consumer will purchase in each of the three cases to maximize utility.

Exhibit 5-10 -Refer to Exhibit 5-10. Assume that Stephanie and Roger are the only consumers in the market. Calculate consumer surplus for Stephanie, Roger, and the market as a whole if market price is $1.

Exhibit 5-2 -Refer to Exhibit 5-2. Total utility

Exhibit 5-2 -Refer to Exhibit 5-2. Which of the following statements is true?

As an individual consumer's income increases, that consumer's

In looking at the consumption of two or more goods,

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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