Question 1

The demand curve for a good with an income elasticity of less than one

Accepted Answer

A) must be downward sloping. 
B) must be upward sloping. 
C) will be upward sloping only if the substitution effect outweighs the income effect. 
D) will be upward sloping only if the income effect outweighs the substitution effect. 
E) indicates a normal good. 
A) must be downward sloping. 
B) must be upward sloping. 
C) will be upward sloping only if the substitution effect outweighs the income effect. 
D) will be upward sloping only if the income effect outweighs the substitution effect. 
E) indicates a normal good.

Question 2

For your typical consumption levels of water and diamonds, the good with the higher marginal utility is________; the good with the higher total utility is ________; and the good with the greatest consumer surplus is________.

Accepted Answer

A) water; diamonds; water 
B) water; water; water 
C) water; water; diamonds 
D) diamonds; water; water 
E) diamonds; water; diamonds 
A) water; diamonds; water 
B) water; water; water 
C) water; water; diamonds 
D) diamonds; water; water 
E) diamonds; water; diamonds

Question 3

The table below shows the quantities of toffee bars and bags of cashews that a consumer could consume over a 1-week period.   TABLE 6-1
-Refer to Table 6-1.If the prices of toffee bars and bags of cashews are both $1 and this consumer has $11 per week to spend on snacks,how many of each will he/she purchase?

Accepted Answer

A) 3 toffee bars and 8 bags of cashews 
B) 4 toffee bars and 7 bags of cashews 
C) 5 toffee bars and 5 bags of cashews 
D) 5 toffee bars and 6 bags of cashews 
E) 6 toffee bars and 5 bags of cashews 
A) 3 toffee bars and 8 bags of cashews 
B) 4 toffee bars and 7 bags of cashews 
C) 5 toffee bars and 5 bags of cashews 
D) 5 toffee bars and 6 bags of cashews 
E) 6 toffee bars and 5 bags of cashews

Question 4

The paradox in ʺthe paradox of valueʺ refers to the

Accepted Answer

A) confusion between supply curves and demand curves. 
B) fact that goods with high total values command high prices. 
C) fact that goods with low total values command low prices. 
D) situation where a good that is necessary to sustain life is ʺmore valuableʺ than a decorative,luxury item. 
E) situation where a good with a low total value can command a high price,while a good with a high total value can command a low price. 
A) confusion between supply curves and demand curves. 
B) fact that goods with high total values command high prices. 
C) fact that goods with low total values command low prices. 
D) situation where a good that is necessary to sustain life is ʺmore valuableʺ than a decorative,luxury item. 
E) situation where a good with a low total value can command a high price,while a good with a high total value can command a low price.

Question 5

John is allocating his household expenditure between groceries and housing in order to maximize total utility.For the quantities of groceries and housing he has chosen,an increase in the price of housing will,ceteris paribus,

Accepted Answer

A) increase the marginal utility of a unit of housing. 
B) increase the marginal utility per dollar spent on housing. 
C) reduce the marginal utility of a unit of housing. 
D) reduce the marginal utility per dollar spent on housing. 
E) have no effect on the marginal utility per dollar spent on housing. 
A) increase the marginal utility of a unit of housing. 
B) increase the marginal utility per dollar spent on housing. 
C) reduce the marginal utility of a unit of housing. 
D) reduce the marginal utility per dollar spent on housing. 
E) have no effect on the marginal utility per dollar spent on housing.

Question 6

The idea that the utility a consumer derives from successive units of a good diminishes as total consumption of the good increases is known as

Accepted Answer

A) the paradox of value. 
B) the utility theory of demand. 
C) utility maximization. 
D) diminishing marginal utility. 
E) diminishing total utility. 
A) the paradox of value. 
B) the utility theory of demand. 
C) utility maximization. 
D) diminishing marginal utility. 
E) diminishing total utility.

Question 7

Laurie spends all of her money buying bread and cheese.The marginal utility she receives from the last loaf of bread is 60 and from the last block of cheese is 30.The price of bread is $3 and the price of cheese is $2.Laurie

Accepted Answer

A) is buying bread and cheese in utility-maximizing amounts. 
B) should buy more bread and less cheese in order to maximize her utility. 
C) should buy more cheese and less bread in order to maximize her utility. 
D) is spending too much money on bread and cheese. 
E) should buy more bread and more cheese in order to maximize her utility. 
A) is buying bread and cheese in utility-maximizing amounts. 
B) should buy more bread and less cheese in order to maximize her utility. 
C) should buy more cheese and less bread in order to maximize her utility. 
D) is spending too much money on bread and cheese. 
E) should buy more bread and more cheese in order to maximize her utility.

Question 8

Assume you are consuming two goods,X and Y.X and Y are both normal goods but they are not close complements.The price of good X increases but the price of Y remains unchanged.However,you are given enough additional income to ensure that your utility remains unchanged.What happens to your consumption of good X?

Accepted Answer

A) it increases 
B) it stays the same 
C) it increases or decreases 
D) it decreases 
E) it increases over the long run 
A) it increases 
B) it stays the same 
C) it increases or decreases 
D) it decreases 
E) it increases over the long run

Question 9

The marginal rate of substitution

Accepted Answer

A) always has a positive algebraic value. 
B) is constant as one moves along a particular indifference curve. 
C) is the amount of one good the consumer is willing to give up in exchange for another so as to keep total satisfaction unchanged. 
D) is the amount of one good the consumer is willing to give up in exchange for another so as to keep total expenditure unchanged. 
E) is equal to the price ratio on the budget line. 
A) always has a positive algebraic value. 
B) is constant as one moves along a particular indifference curve. 
C) is the amount of one good the consumer is willing to give up in exchange for another so as to keep total satisfaction unchanged. 
D) is the amount of one good the consumer is willing to give up in exchange for another so as to keep total expenditure unchanged. 
E) is equal to the price ratio on the budget line.

Question 10

The diagram below shows a set of budget lines facing a household.
   FIGURE 6-8
-Refer to Figure 6-8.The movement of the budget line from ab to ef could be caused by

Accepted Answer

A) a decrease in real income. 
B) an increase in money income. 
C) an equal percentage increase in the price of both food and housing. 
D) a decrease in the price of either food or housing. 
E) an increase in the price of either food or housing. 
A) a decrease in real income. 
B) an increase in money income. 
C) an equal percentage increase in the price of both food and housing. 
D) a decrease in the price of either food or housing. 
E) an increase in the price of either food or housing.

Question 11

A parallel shift in the consumerʹs budget line must indicate a change in

Accepted Answer

A) at least one money price. 
B) money income. 
C) real income. 
D) tastes. 
E) both prices. 
A) at least one money price. 
B) money income. 
C) real income. 
D) tastes. 
E) both prices.

Question 12

Assume an individual with a downward-sloping demand curve is paying a single price for each unit of some commodity.He will experience consumer surplus on

Accepted Answer

A) all units that were not bought at that particular price. 
B) all of the units bought. 
C) all units bought with the possible exception of the last unit. 
D) the first unit only. 
E) none of the units. 
A) all units that were not bought at that particular price. 
B) all of the units bought. 
C) all units bought with the possible exception of the last unit. 
D) the first unit only. 
E) none of the units.

Question 13

The marginal rate of substitution measures the tradeoff between the

Accepted Answer

A) prices of two goods along a budget line. 
B) different values that two consumers place on a good. 
C) amount of one good the consumer is willing to give up in exchange for another good along an indifference curve. 
D) different indifference curves. 
E) amount of one good the consumer is willing to purchase and its own price. 
A) prices of two goods along a budget line. 
B) different values that two consumers place on a good. 
C) amount of one good the consumer is willing to give up in exchange for another good along an indifference curve. 
D) different indifference curves. 
E) amount of one good the consumer is willing to purchase and its own price.

Question 14

Consider the income and substitution effects of price changes.For a product with an income elasticity greater than one,a price increase will cause the consumerʹs real income to

Accepted Answer

A) rise and the quantity purchased to fall. 
B) fall and the quantity purchased to fall. 
C) rise and the quantity purchased to rise. 
D) fall and the quantity purchased to rise. 
E) remain constant. 
A) rise and the quantity purchased to fall. 
B) fall and the quantity purchased to fall. 
C) rise and the quantity purchased to rise. 
D) fall and the quantity purchased to rise. 
E) remain constant.

Question 15

A demand curve for a normal good is downward sloping due to

Accepted Answer

A) the income effect. 
B) the substitution effect. 
C) the combination of income and substitution effects. 
D) neither the substitution effect nor the income effect. 
E) the Giffen effect. 
A) the income effect. 
B) the substitution effect. 
C) the combination of income and substitution effects. 
D) neither the substitution effect nor the income effect. 
E) the Giffen effect.

Question 16

In which of the following situations will an individualʹs purchasing power be unaffected?

Accepted Answer

A) all absolute prices fall by 15% and money income falls by 15% 
B) all relative prices fall by 15% and money income falls by 15% 
C) all relative prices rise by 15% and money income falls by 15% 
D) all absolute prices remain constant and money income falls by 15% 
E) all relative prices remain constant and money income rises by 15% 
A) all absolute prices fall by 15% and money income falls by 15% 
B) all relative prices fall by 15% and money income falls by 15% 
C) all relative prices rise by 15% and money income falls by 15% 
D) all absolute prices remain constant and money income falls by 15% 
E) all relative prices remain constant and money income rises by 15%

Question 17

A basic hypothesis of marginal utility theory is that the utility a consumer derives from successive units of a good diminishes as total consumption of the good increases.This hypothesis is known as

Accepted Answer

A) the paradox of value. 
B) the utility theory of demand. 
C) utility maximization. 
D) the law of diminishing marginal utility. 
E) the law of diminishing total utility. 
A) the paradox of value. 
B) the utility theory of demand. 
C) utility maximization. 
D) the law of diminishing marginal utility. 
E) the law of diminishing total utility.

Question 18

Suppose the price of potatoes falls and we observe a decrease in an individualʹs purchases of potatoes.Which of the following can we infer?

Accepted Answer

A) The income effect is negative and outweighs the substitution effect. 
B) The income effect is negative and reinforces the substitution effect. 
C) The income effect just offsets the substitution effect. 
D) The income effect is positive and exceeds the substitution effect. 
E) The substitution effect outweighs the income effect. 
A) The income effect is negative and outweighs the substitution effect. 
B) The income effect is negative and reinforces the substitution effect. 
C) The income effect just offsets the substitution effect. 
D) The income effect is positive and exceeds the substitution effect. 
E) The substitution effect outweighs the income effect.

Question 19

If money income is reduced by half,and the prices of all goods consumed by the household are reduced by half,the householdʹs budget line will

Accepted Answer

A) not change. 
B) shift inward. 
C) shift outward. 
D) become steeper. 
E) become flatter. 
A) not change. 
B) shift inward. 
C) shift outward. 
D) become steeper. 
E) become flatter.

Question 20

The market demand curve is derived from

Accepted Answer

A) the vertical summation of individual demand curves. 
B) the average quantity demanded of all individuals in the economy. 
C) a weighted average of the quantity demanded of all individuals in the economy at each price. 
D) the horizontal summation of individual demand curves. 
E) market data provided by Statistics Canada. 
A) the vertical summation of individual demand curves. 
B) the average quantity demanded of all individuals in the economy. 
C) a weighted average of the quantity demanded of all individuals in the economy at each price. 
D) the horizontal summation of individual demand curves. 
E) market data provided by Statistics Canada.

Exam 6: Consumer Behaviour

The demand curve for a good with an income elasticity of less than one

For your typical consumption levels of water and diamonds, the good with the higher marginal utility is________; the good with the higher total utility is ________; and the good with the greatest consumer surplus is________.

The paradox in ʺthe paradox of valueʺ refers to the

John is allocating his household expenditure between groceries and housing in order to maximize total utility.For the quantities of groceries and housing he has chosen,an increase in the price of housing will,ceteris paribus,

The idea that the utility a consumer derives from successive units of a good diminishes as total consumption of the good increases is known as

Laurie spends all of her money buying bread and cheese.The marginal utility she receives from the last loaf of bread is 60 and from the last block of cheese is 30.The price of bread is $3 and the price of cheese is $2.Laurie

The marginal rate of substitution

The diagram below shows a set of budget lines facing a household. FIGURE 6-8 -Refer to Figure 6-8.The movement of the budget line from ab to ef could be caused by

A parallel shift in the consumerʹs budget line must indicate a change in

Assume an individual with a downward-sloping demand curve is paying a single price for each unit of some commodity.He will experience consumer surplus on

The marginal rate of substitution measures the tradeoff between the

Consider the income and substitution effects of price changes.For a product with an income elasticity greater than one,a price increase will cause the consumerʹs real income to

A demand curve for a normal good is downward sloping due to

In which of the following situations will an individualʹs purchasing power be unaffected?

A basic hypothesis of marginal utility theory is that the utility a consumer derives from successive units of a good diminishes as total consumption of the good increases.This hypothesis is known as

Suppose the price of potatoes falls and we observe a decrease in an individualʹs purchases of potatoes.Which of the following can we infer?

If money income is reduced by half,and the prices of all goods consumed by the household are reduced by half,the householdʹs budget line will

The market demand curve is derived from

Economic Issues and Concepts

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Filters

For your typical consumption levels of water and diamonds, the good with the higher marginal utility is; the good with the higher total utility is ; and the good with the greatest consumer surplus is.