Question 1

Consider the substitution and income effects of a 15% increase in the price of a good.Of the goods listed below,which is most likely to have the largest income effect?

Accepted Answer

A) salt 
B) paperclips 
C) socks 
D) tennis balls 
E) electricity 
A) salt 
B) paperclips 
C) socks 
D) tennis balls 
E) electricity

Question 2

Suppose a utility-maximizing person consumes only two goods,hamburgers and milkshakes.Suppose the price of milkshakes rises and all other variables remain constant.As a result,this person will certainly

Accepted Answer

A) purchase more milkshakes and fewer hamburgers. 
B) reduce his/her consumption of both milkshakes and hamburgers. 
C) consume more hamburgers and the same amount of milkshakes. 
D) not increase his consumption of both milkshakes and hamburgers. 
E) increase his/her consumption of milkshakes. 
A) purchase more milkshakes and fewer hamburgers. 
B) reduce his/her consumption of both milkshakes and hamburgers. 
C) consume more hamburgers and the same amount of milkshakes. 
D) not increase his consumption of both milkshakes and hamburgers. 
E) increase his/her consumption of milkshakes.

Question 3

Economists use the term ʺmarginal utilityʺ to describe the

Accepted Answer

A) change in total satisfaction caused by consumption of an additional unit of a good. 
B) average utility of each unit of a good consumed. 
C) inverse of the measure of total utility. 
D) total satisfaction received from consumption of a good. 
E) price paid for every unit consumed. 
A) change in total satisfaction caused by consumption of an additional unit of a good. 
B) average utility of each unit of a good consumed. 
C) inverse of the measure of total utility. 
D) total satisfaction received from consumption of a good. 
E) price paid for every unit consumed.

Question 4

As a consumer moves along an indifference curve

Accepted Answer

A) the combination of goods will vary but the level of utility remains constant. 
B) the combination of goods he prefers will remain constant,but the level of satisfaction will vary. 
C) the combination of goods and the consumerʹs income level will remain constant. 
D) his level of utility will vary as the combinations of goods varies. 
E) the combination of goods will vary,but the level of money income remains constant. 
A) the combination of goods will vary but the level of utility remains constant. 
B) the combination of goods he prefers will remain constant,but the level of satisfaction will vary. 
C) the combination of goods and the consumerʹs income level will remain constant. 
D) his level of utility will vary as the combinations of goods varies. 
E) the combination of goods will vary,but the level of money income remains constant.

Question 5

Suppose a consumer can purchase only two goods,beef and chicken.If the price of beef falls (with all other variables held constant),and the consumption of chicken increases,we can conclude that the increased consumption of chicken is due to

Accepted Answer

A) neither the income effect nor the substitution effect. 
B) both the income effect and the substitution effect. 
C) the income effect only. 
D) the substitution effect only. 
E) a change in the consumerʹs preference toward chicken. 
A) neither the income effect nor the substitution effect. 
B) both the income effect and the substitution effect. 
C) the income effect only. 
D) the substitution effect only. 
E) a change in the consumerʹs preference toward chicken.

Question 6

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 this consumer purchases 3 toffee bars and 4 bags of cashews per week,his/her total utility will be

Accepted Answer

A) 7. 
B) 23. 
C) 31. 
D) 54. 
E) 57. 
A) 7. 
B) 23. 
C) 31. 
D) 54. 
E) 57.

Question 7

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 price of toffee bars is $1 each,bags of cashews are $2 each,and this consumer has $7 per week to spend on these two snacks,how many of each will he/she purchase to maximize utility?

Accepted Answer

A) 0 toffee bars and 3 bags of cashews 
B) 1 toffee bars and 3 bags of cashews 
C) 2 toffee bars and 2 bags of cashews 
D) 3 toffee bars and 2 bags of cashews 
E) 7 toffee bars and 0 bags of cashews 
A) 0 toffee bars and 3 bags of cashews 
B) 1 toffee bars and 3 bags of cashews 
C) 2 toffee bars and 2 bags of cashews 
D) 3 toffee bars and 2 bags of cashews 
E) 7 toffee bars and 0 bags of cashews

Question 8

The Smith family is allocating its monthly household expenditure between only two goods,food and clothing.Suppose that the price of food is $12 per unit,and the price of clothing is $16 per unit and that the marginal utility that the family is receiving from its consumption of clothing is currently 200.What is the familyʹs marginal utility from its consumption of food if it is maximizing its utility?

Accepted Answer

A) 200 
B) 150 
C) 75 
D) 16 
E) 12 
A) 200 
B) 150 
C) 75 
D) 16 
E) 12

Question 9

The substitution effect of a price change leads consumers to their demand for goods whose prices have risen.The income effect leads consumers to buy less of all goods whose prices have risen.

Accepted Answer

A) reduce; normal 
B) increase; inferior 
C) increase; normal 
D) reduce; Giffen 
E) reduce; complement 
A) reduce; normal 
B) increase; inferior 
C) increase; normal 
D) reduce; Giffen 
E) reduce; complement

Question 10

Consumer surplus is

Accepted Answer

A) the sum of the marginal values to the consumer. 
B) the total value that a consumer receives from the purchase of a particular good. 
C) a measure of the gains that a consumer forgoes by buying this product rather than another. 
D) the difference between what the consumer is willing to pay for all the units consumed and what he or she actually paid. 
E) the consumption of a commodity above and beyond the amount required by the consumer. 
A) the sum of the marginal values to the consumer. 
B) the total value that a consumer receives from the purchase of a particular good. 
C) a measure of the gains that a consumer forgoes by buying this product rather than another. 
D) the difference between what the consumer is willing to pay for all the units consumed and what he or she actually paid. 
E) the consumption of a commodity above and beyond the amount required by the consumer.

Question 11

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

Accepted Answer

A) money income doubles and the prices of all goods and services are cut in half 
B) money income remains constant and the prices of all goods and services double 
C) money income is cut in half and the prices of all goods and services double 
D) money income is cut in half and the prices of all goods and services remains constant 
E) money income doubles and the prices of all goods and services double 
A) money income doubles and the prices of all goods and services are cut in half 
B) money income remains constant and the prices of all goods and services double 
C) money income is cut in half and the prices of all goods and services double 
D) money income is cut in half and the prices of all goods and services remains constant 
E) money income doubles and the prices of all goods and services double

Question 12

At a garage sale,Ken purchases a used bicycle for $8 when he was willing to pay $25.If the bicycle costs $75 new,Kenʹs consumer surplus is

Accepted Answer

A) $0. 
B) $17. 
C) $33. 
D) $50. 
E) $67. 
A) $0. 
B) $17. 
C) $33. 
D) $50. 
E) $67.

Question 13

Christine is allocating her household expenditure between cleaning services and gardening services in order to maximize the householdʹs total utility.For the quantities of cleaning and gardening services she has chosen,an increase in the price of cleaning service will,ceteris paribus,

Accepted Answer

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

Question 14

Assume the quantity of good X is measured on the horizontal axis and the quantity of good Y on the vertical axis.Initial prices are PX = $5 and PY = $10.The consumerʹs income is $100.If PY increases to $20,then

Accepted Answer

A) the entire budget line shifts parallel toward the origin. 
B) the budget line will rotate toward the origin,slope remaining constant. 
C) the budget line will rotate toward the origin with the slope changing from 1/2 to 1/4 (in absolute values). 
D) the entire budget line shifts parallel away from the origin. 
E) the budget line will rotate away from the origin with the slope changing from 1/4 to 1/2 (in absolute values). 
A) the entire budget line shifts parallel toward the origin. 
B) the budget line will rotate toward the origin,slope remaining constant. 
C) the budget line will rotate toward the origin with the slope changing from 1/2 to 1/4 (in absolute values). 
D) the entire budget line shifts parallel away from the origin. 
E) the budget line will rotate away from the origin with the slope changing from 1/4 to 1/2 (in absolute values).

Question 15

Bjorn is a student with a monthly budget of $500,which he allocates between transportation services and ʺall other goods.ʺ Suppose the price of transportation is $5 per unit,and the price of ʺall other goodsʺ is $20 per unit.The marginal utility he currently receives from his consumption of transportation services is 60.What is his marginal utility from the consumption of ʺall other goodsʺ if he is maximizing his utility?

Accepted Answer

A) 5 
B) 20 
C) 25 
D) 200 
E) 240 
A) 5 
B) 20 
C) 25 
D) 200 
E) 240

Question 16

Consumer surplus is

Accepted Answer

A) the same as Karl Marxʹs notion of surplus value. 
B) the same as total utility. 
C) the sum of the extra value placed on each unit of a commodity above the market price paid for each. 
D) the total value that consumers place on their purchases. 
E) the marginal value that consumers place on their purchases. 
A) the same as Karl Marxʹs notion of surplus value. 
B) the same as total utility. 
C) the sum of the extra value placed on each unit of a commodity above the market price paid for each. 
D) the total value that consumers place on their purchases. 
E) the marginal value that consumers place on their purchases.

Question 17

If total utility from the consumption of some product is increasing as more units are consumed,then marginal utility must be

Accepted Answer

A) decreasing at an increasing rate. 
B) negative. 
C) increasing. 
D) increasing at an increasing rate. 
E) positive. 
A) decreasing at an increasing rate. 
B) negative. 
C) increasing. 
D) increasing at an increasing rate. 
E) positive.

Question 18

A consumer maximizes his or her utility when expenditures are allocated such that

Accepted Answer

A) the total utility from each good is equal. 
B) the total number of dollars spent on each good is equal. 
C) the utility received from the last unit of each good is equal. 
D) the utility received per dollar spent on the last unit of each good is equal. 
E) the marginal utility is zero for each good consumed utility. 
A) the total utility from each good is equal. 
B) the total number of dollars spent on each good is equal. 
C) the utility received from the last unit of each good is equal. 
D) the utility received per dollar spent on the last unit of each good is equal. 
E) the marginal utility is zero for each good consumed utility.

Question 19

Marginal utility analysis predicts a downward-sloping demand curve for good X because

Accepted Answer

A) as PX falls,the ratio MUX/PX becomes smaller,causing the consumer to purchase more of good X. 
B) as PX rises,the consumer increases purchases of X such that MUX/PX is equal to MU/P for all other products. 
C) utility-maximizing consumers equate marginal utility received for each product consumed. 
D) all demand curves are downward sloping,regardless of the behaviour of consumers. 
E) as PX falls,the consumer increases purchases of X until MUX/PX is equal to MU/P for all other products. 
A) as PX falls,the ratio MUX/PX becomes smaller,causing the consumer to purchase more of good X. 
B) as PX rises,the consumer increases purchases of X such that MUX/PX is equal to MU/P for all other products. 
C) utility-maximizing consumers equate marginal utility received for each product consumed. 
D) all demand curves are downward sloping,regardless of the behaviour of consumers. 
E) as PX falls,the consumer increases purchases of X until MUX/PX is equal to MU/P for all other products.

Question 20

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 db could be caused by

Accepted Answer

A) a decrease in money income. 
B) an increase in the price of housing. 
C) a decrease in the price of housing. 
D) an increase in the price of food. 
E) a decrease in the price of food. 
A) a decrease in money income. 
B) an increase in the price of housing. 
C) a decrease in the price of housing. 
D) an increase in the price of food. 
E) a decrease in the price of food.

Exam 6: Consumer Behaviour

Consider the substitution and income effects of a 15% increase in the price of a good.Of the goods listed below,which is most likely to have the largest income effect?

Suppose a utility-maximizing person consumes only two goods,hamburgers and milkshakes.Suppose the price of milkshakes rises and all other variables remain constant.As a result,this person will certainly

Economists use the term ʺmarginal utilityʺ to describe the

As a consumer moves along an indifference curve

Suppose a consumer can purchase only two goods,beef and chicken.If the price of beef falls (with all other variables held constant),and the consumption of chicken increases,we can conclude that the increased consumption of chicken is due to

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 this consumer purchases 3 toffee bars and 4 bags of cashews per week,his/her total utility will be

The substitution effect of a price change leads consumers to their demand for goods whose prices have risen.The income effect leads consumers to buy less of all goods whose prices have risen.

Consumer surplus is

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

At a garage sale,Ken purchases a used bicycle for $8 when he was willing to pay $25.If the bicycle costs $75 new,Kenʹs consumer surplus is

Christine is allocating her household expenditure between cleaning services and gardening services in order to maximize the householdʹs total utility.For the quantities of cleaning and gardening services she has chosen,an increase in the price of cleaning service will,ceteris paribus,

Assume the quantity of good X is measured on the horizontal axis and the quantity of good Y on the vertical axis.Initial prices are PX = $5 and PY = $10.The consumerʹs income is $100.If PY increases to $20,then

Consumer surplus is

If total utility from the consumption of some product is increasing as more units are consumed,then marginal utility must be

A consumer maximizes his or her utility when expenditures are allocated such that

Marginal utility analysis predicts a downward-sloping demand curve for good X because

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 db could be caused by

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