Question 1

The marginal rate of substitution is illustrated by the

Accepted Answer

A)  slope of the indifference curve. 
B)  slope of the budget line. 
C)  ratio of the marginal utility of the good on the vertical axis to the marginal utility of the good on the horizontal axis. 
D)  distance between the indifference curves. 
E)  distance between the budget line and the indifference curve. 
A)  slope of the indifference curve. 
B)  slope of the budget line. 
C)  ratio of the marginal utility of the good on the vertical axis to the marginal utility of the good on the horizontal axis. 
D)  distance between the indifference curves. 
E)  distance between the budget line and the indifference curve.

Question 2

Exhibit 21-3
  
-Refer to Exhibit 21-3.Linda spends $5 a week on apples and oranges.If the price of both goods is $1 per unit,how many apples and oranges,respectively,does she purchase per week if she wants to maximize her utility?

Accepted Answer

A)  0 and 5 
B)  1 and 4 
C)  2 and 3 
D)  3 and 2 
E)  none of the above 
A)  0 and 5 
B)  1 and 4 
C)  2 and 3 
D)  3 and 2 
E)  none of the above

Question 3

Suppose that the total utility from consuming one unit of good Z is 220 utils,the total utility from consuming two units of good Z is 320 utils,and the total utility from consuming three units of good Z is 400 utils. The marginal utility received from consuming the third unit of good Z is

Accepted Answer

A)  313.33 utils. 
B)  80 utils. 
C)  100 utils. 
D)  50 utils. 
A)  313.33 utils. 
B)  80 utils. 
C)  100 utils. 
D)  50 utils.

Question 4

The law of diminishing marginal utility says that

Accepted Answer

A)  the marginal utility gained by consuming equal successive units of a good will decline as the amount consumed increases. 
B)  the more of a particular good one consumes, the greater is the utility received from the consumption of that good. 
C)  the marginal utility gained by consuming equal successive units of a good will increase as the amount consumed increases. 
D)  the more of a particular product one sells, the less utility one receives from selling. 
E)  none of the above 
A)  the marginal utility gained by consuming equal successive units of a good will decline as the amount consumed increases. 
B)  the more of a particular good one consumes, the greater is the utility received from the consumption of that good. 
C)  the marginal utility gained by consuming equal successive units of a good will increase as the amount consumed increases. 
D)  the more of a particular product one sells, the less utility one receives from selling. 
E)  none of the above

Question 5

When an economist talks about utility,she is talking about

Accepted Answer

A)  a company that provides electricity, water, gas, etc. 
B)  the satisfaction, in terms of price, that a producer receives from selling his product. 
C)  the satisfaction that results from the consumption of a good. 
D)  the amount of one good that a person is willing to give up in order to get a unit of another good. 
E)  the satisfaction that results from the consumption of a good minus the price that must be paid to get the good. 
A)  a company that provides electricity, water, gas, etc. 
B)  the satisfaction, in terms of price, that a producer receives from selling his product. 
C)  the satisfaction that results from the consumption of a good. 
D)  the amount of one good that a person is willing to give up in order to get a unit of another good. 
E)  the satisfaction that results from the consumption of a good minus the price that must be paid to get the good.

Question 6

The diamond-water paradox is illustrated by which of the following statements?

Accepted Answer

A)  Water, a necessity, has a relatively low price whereas diamonds, usually a luxury, have a relatively high price. 
B)  Although water appears to have a relatively low price when compared to diamonds, in reality, it has a relatively higher price. 
C)  Although water appears to have a relatively low price when compared to diamonds, in reality, the prices are equal. 
D)  Although water appears to have a relatively low price when compared to diamonds, at the margin, water has the relatively higher price. 
E)  Although water appears to have a relatively low price when compared to diamonds, at the margin, the prices are equal. 
A)  Water, a necessity, has a relatively low price whereas diamonds, usually a luxury, have a relatively high price. 
B)  Although water appears to have a relatively low price when compared to diamonds, in reality, it has a relatively higher price. 
C)  Although water appears to have a relatively low price when compared to diamonds, in reality, the prices are equal. 
D)  Although water appears to have a relatively low price when compared to diamonds, at the margin, water has the relatively higher price. 
E)  Although water appears to have a relatively low price when compared to diamonds, at the margin, the prices are equal.

Question 7

Exhibit 21-2
  
-Refer to Exhibit 21-2.Total utility for all five oranges is

Accepted Answer

A)  70 utils. 
B)  12 utils. 
C)  68 utils. 
D)  80 utils. 
E)  40 utils. 
A)  70 utils. 
B)  12 utils. 
C)  68 utils. 
D)  80 utils. 
E)  40 utils.

Question 8

Diamonds are more expensive than water because

Accepted Answer

A)  markets do not always reflect value. 
B)  they have fewer uses. 
C)  they are relatively scarce and they yield higher marginal utility. 
D)  they yield higher total utility. 
E)  all of the above 
A)  markets do not always reflect value. 
B)  they have fewer uses. 
C)  they are relatively scarce and they yield higher marginal utility. 
D)  they yield higher total utility. 
E)  all of the above

Question 9

The law of diminishing marginal utility

Accepted Answer

A)  allows us to make interpersonal utility comparisons. 
B)  tells us that an additional dollar is worth less to a millionaire than to a poor person. 
C)  tells us the worth of an additional dollar of income. 
D)  tells us that an additional dollar of income is worth less than the preceding dollar of income. 
E)  a, b, and d 
A)  allows us to make interpersonal utility comparisons. 
B)  tells us that an additional dollar is worth less to a millionaire than to a poor person. 
C)  tells us the worth of an additional dollar of income. 
D)  tells us that an additional dollar of income is worth less than the preceding dollar of income. 
E)  a, b, and d

Question 10

We would expect the total utility of diamonds to be __________ than the total utility of water and the marginal utility of diamonds to be __________ than the marginal utility of water.

Accepted Answer

A)  higher; higher 
B)  lower; lower 
C)  higher; lower 
D)  lower; higher 
A)  higher; higher 
B)  lower; lower 
C)  higher; lower 
D)  lower; higher

Question 11

Research presented in the text shows that people are more concerned with their absolute income position in a group than their relative income position in the group.

Accepted Answer

A) True 
 B)False

Question 12

Don receives 100 utils from consuming two oranges.The utility he derives from consuming the second orange equals 30 utils.Which of the following conclusions is derived from the law of diminishing marginal utility?

Accepted Answer

A)  The marginal utility Don receives from consuming the third orange will be less than 30 utils. 
B)  The marginal utility Don receives from consuming the third orange will be less than 100, but greater than 30 utils. 
C)  If the price of oranges decreases, Don will buy fewer oranges, ceteris paribus. 
D)  The total utility Don receives from consuming the first orange is less than the marginal utility from consuming the first orange. 
A)  The marginal utility Don receives from consuming the third orange will be less than 30 utils. 
B)  The marginal utility Don receives from consuming the third orange will be less than 100, but greater than 30 utils. 
C)  If the price of oranges decreases, Don will buy fewer oranges, ceteris paribus. 
D)  The total utility Don receives from consuming the first orange is less than the marginal utility from consuming the first orange.

Question 13

Economists assume that the goal of consumers is to maximize marginal utility.

Accepted Answer

A) True 
 B)False

Question 14

Consider two options: (A)you receive a guaranteed payment of $100; (B)a coin is tossed and if heads comes up,you win nothing; if tails comes up,you win $200.The expected payoff for option A is:

Accepted Answer

A)  $200 
B)  $100 
C)  $300 
D)  $75 
E)  There is not enough information to answer the question. 
A)  $200 
B)  $100 
C)  $300 
D)  $75 
E)  There is not enough information to answer the question.

Question 15

The MU/P ratio for good X is greater than the MU/P ratio for good Y as a result of a fall in the price of good X.To achieve consumer equilibrium,the consumer reallocates dollars from the purchase of good Y to the purchase of good X.In the process,she

Accepted Answer

A)  puts downward pressure on prices. 
B)  maximizes total utility. 
C)  acts according to the law of demand. 
D)  b and c 
E)  none of the above 
A)  puts downward pressure on prices. 
B)  maximizes total utility. 
C)  acts according to the law of demand. 
D)  b and c 
E)  none of the above

Question 16

Describe the diamond-water paradox and its solution.

Accepted Answer

The diamond-water paradox states that so

Question 17

Suppose that the total utility from consuming one unit of good X is 54 utils,the total utility of two units of good X is 74 utils,and the total utility of three units of good X is 84 utils. The marginal utility of the third unit is

Accepted Answer

A)  10 utils. 
B)  70.67 utils. 
C)  12.25 utils. 
D)  20 utils. 
A)  10 utils. 
B)  70.67 utils. 
C)  12.25 utils. 
D)  20 utils.

Question 18

Exhibit 21-7
  
-Refer to Exhibit 21-7.The relative price of X in terms of Y is the greatest on graph

Accepted Answer

A)  (1). 
B)  (2). 
C)  (3). 
D)  This cannot be determined based on the information provided 
A)  (1). 
B)  (2). 
C)  (3). 
D)  This cannot be determined based on the information provided

Question 19

We take one dollar from a millionaire and give it to a pauper.Assuming a diminishing marginal utility of money,

Accepted Answer

A)  total utility in the economy must rise. 
B)  total utility in the economy must fall. 
C)  total utility in the economy must remain the same. 
D)  we cannot say whether or not total utility changes. 
A)  total utility in the economy must rise. 
B)  total utility in the economy must fall. 
C)  total utility in the economy must remain the same. 
D)  we cannot say whether or not total utility changes.

Question 20

Exhibit 21-5
  
-Refer to Exhibit 21-5. What value goes in blank (C)?

Accepted Answer

A)  28 
B)  16 
C)  44 
D)  50 
E)  There is not enough information to answer this question. 
A)  28 
B)  16 
C)  44 
D)  50 
E)  There is not enough information to answer this question.

Exam 21: Consumer Choice: Maximizing Utility and Behavioral Economics

The marginal rate of substitution is illustrated by the

Exhibit 21-3 -Refer to Exhibit 21-3.Linda spends $5 a week on apples and oranges.If the price of both goods is $1 per unit,how many apples and oranges,respectively,does she purchase per week if she wants to maximize her utility?

Suppose that the total utility from consuming one unit of good Z is 220 utils,the total utility from consuming two units of good Z is 320 utils,and the total utility from consuming three units of good Z is 400 utils. The marginal utility received from consuming the third unit of good Z is

The law of diminishing marginal utility says that

When an economist talks about utility,she is talking about

The diamond-water paradox is illustrated by which of the following statements?

Exhibit 21-2 -Refer to Exhibit 21-2.Total utility for all five oranges is

Diamonds are more expensive than water because

The law of diminishing marginal utility

We would expect the total utility of diamonds to be __________ than the total utility of water and the marginal utility of diamonds to be __________ than the marginal utility of water.

Research presented in the text shows that people are more concerned with their absolute income position in a group than their relative income position in the group.

Don receives 100 utils from consuming two oranges.The utility he derives from consuming the second orange equals 30 utils.Which of the following conclusions is derived from the law of diminishing marginal utility?

Economists assume that the goal of consumers is to maximize marginal utility.

Consider two options: (A)you receive a guaranteed payment of $100; (B)a coin is tossed and if heads comes up,you win nothing; if tails comes up,you win $200.The expected payoff for option A is:

The MU/P ratio for good X is greater than the MU/P ratio for good Y as a result of a fall in the price of good X.To achieve consumer equilibrium,the consumer reallocates dollars from the purchase of good Y to the purchase of good X.In the process,she

Describe the diamond-water paradox and its solution.

Suppose that the total utility from consuming one unit of good X is 54 utils,the total utility of two units of good X is 74 utils,and the total utility of three units of good X is 84 utils. The marginal utility of the third unit is

Exhibit 21-7 -Refer to Exhibit 21-7.The relative price of X in terms of Y is the greatest on graph

We take one dollar from a millionaire and give it to a pauper.Assuming a diminishing marginal utility of money,

Exhibit 21-5 -Refer to Exhibit 21-5. What value goes in blank (C)?

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We would expect the total utility of diamonds to be than the total utility of water and the marginal utility of diamonds to be than the marginal utility of water.