Question 1

Consumers always prefer indifference curves that are ____ the origin.

Accepted Answer

A)  closer to 
B)  tangent to 
C)  farther from 
D)  concave relative to 
A)  closer to 
B)  tangent to 
C)  farther from 
D)  concave relative to

Question 2

According to the law of diminishing marginal utility, the marginal utility curve is ____.

Accepted Answer

A)  vertical 
B)  flat. 
C)  upward sloping. 
D)  downward sloping. 
A)  vertical 
B)  flat. 
C)  upward sloping. 
D)  downward sloping.

Question 3

If water is essential for life, while diamonds are not, then why is water cheaper than diamonds?

Accepted Answer

A)  Because most people would rather die with a big diamond ring than live without one. 
B)  Because the total utility generated by diamonds is larger than the total utility generated by water. 
C)  Because most people do not understand their total need for water. 
D)  Because water is abundant, the marginal utility of water is low, and price reflects marginal utility, not total utility. 
A)  Because most people would rather die with a big diamond ring than live without one. 
B)  Because the total utility generated by diamonds is larger than the total utility generated by water. 
C)  Because most people do not understand their total need for water. 
D)  Because water is abundant, the marginal utility of water is low, and price reflects marginal utility, not total utility.

Question 4

Marginal utility will generally decrease when:

Accepted Answer

A)  more of a particular good is consumed. 
B)  less of a particular good is consumed. 
C)  average utility is the least. 
D)  per capita utility is the least. 
E)  the TU curve's slope is positive rather than negative. 
A)  more of a particular good is consumed. 
B)  less of a particular good is consumed. 
C)  average utility is the least. 
D)  per capita utility is the least. 
E)  the TU curve's slope is positive rather than negative.

Question 5

Suppose a consumer is spending his or her entire budget. In order to obtain the most satisfaction from his or her purchases, all goods should:

Accepted Answer

A)  provide the same marginal utility per dollar. 
B)  be consumed in equal quantities. 
C)  have identical marginal utilities. 
D)  give the consumer matching amounts of total utility. 
A)  provide the same marginal utility per dollar. 
B)  be consumed in equal quantities. 
C)  have identical marginal utilities. 
D)  give the consumer matching amounts of total utility.

Question 6

The income effect refers to a change in:

Accepted Answer

A)  income because of changes in the CPI. 
B)  the quantity demanded of a good because of a change in the buyer's real income. 
C)  the quantity demanded of a good because of a change in the buyer's money income. 
D)  none of these. 
A)  income because of changes in the CPI. 
B)  the quantity demanded of a good because of a change in the buyer's real income. 
C)  the quantity demanded of a good because of a change in the buyer's money income. 
D)  none of these.

Question 7

The ratio of the price of good X on the horizontal axis to the price of good Y on the vertical axis is the ____ of the budget line.

Accepted Answer

A)  marginal rate 
B)  slope 
C)  marginal utility 
D)  equalization rate 
A)  marginal rate 
B)  slope 
C)  marginal utility 
D)  equalization rate

Question 8

If Jane's marginal benefit as a consumer in the jeans market is larger than the price of a pair of jeans:

Accepted Answer

A)  Jane will not purchase any more jeans. 
B)  Jane can benefit by purchasing more jeans. 
C)  the opportunity cost of a pair of jeans is lower than the price. 
D)  Jane will decrease her total utility by purchasing more jeans. 
A)  Jane will not purchase any more jeans. 
B)  Jane can benefit by purchasing more jeans. 
C)  the opportunity cost of a pair of jeans is lower than the price. 
D)  Jane will decrease her total utility by purchasing more jeans.

Question 9

A budget line represents all the combinations of two good a consumer can buy with a given amount of money and fixed prices for the goods.

Accepted Answer

A) True 
 B)False

Question 10

The slope of an indifference curve is equal to the ratio of the ____ of the good on the horizontal axis to the ____ of the good on the vertical axis.

Accepted Answer

A)  marginal product (MP); total value (TV) 
B)  marginal utility (MU); marginal utility (MU) 
C)  price (P); price (P) 
D)  total utility (TU); price (P) 
A)  marginal product (MP); total value (TV) 
B)  marginal utility (MU); marginal utility (MU) 
C)  price (P); price (P) 
D)  total utility (TU); price (P)

Question 11

A consumer buys only food and clothing. If the quantity of food bought increases while that of clothing remains the same, the marginal utility of food will:

Accepted Answer

A)  fall, but not as fast as the marginal utility of clothing falls. 
B)  rise, but not as fast as the marginal utility of clothing rises. 
C)  rise relative to the marginal utility of clothing. 
D)  fall relative to the marginal utility of clothing. 
A)  fall, but not as fast as the marginal utility of clothing falls. 
B)  rise, but not as fast as the marginal utility of clothing rises. 
C)  rise relative to the marginal utility of clothing. 
D)  fall relative to the marginal utility of clothing.

Question 12

The principle of diminishing marginal utility says that:

Accepted Answer

A)  as more of a good or service is consumed, demand decreases. 
B)  as more of a good or service is consumed, the price will rise. 
C)  the marginal utility of additional units consumed increases. 
D)  an increase in income causes demand to increase. 
E)  the marginal utility of additional units consumed decreases. 
A)  as more of a good or service is consumed, demand decreases. 
B)  as more of a good or service is consumed, the price will rise. 
C)  the marginal utility of additional units consumed increases. 
D)  an increase in income causes demand to increase. 
E)  the marginal utility of additional units consumed decreases.

Question 13

Exhibit 6-3 Marginal utility data for goods X and Y $$\begin{array} { | c | c | c | c | } 
\hline \text { Units of good X } & \begin{array} { c } 
\text { Marginal utility of } \
\text { good X }
\end{array} & \text { Units of good Y } & \begin{array} { c } 
\text { Marginal utility of } \
\operatorname { good~Y }
\end{array} \
\hline 1 & 20 & 1 & 14 \
2 & 16 & 2 & 12 \
3 & 12 & 3 & 10 \
4 & 8 & 4 & 8 \
5 & 4 & 5 & 6 \
\hline
\end{array}$$
-As shown in Exhibit 6-3, assume that the price of good X is $2 per unit and the price of good Y is $1 per unit and your budget is $11. If you consume 3 units of good X and 4 units of good Y and maximize utility, you should consume:

Accepted Answer

A)  neither X nor Y. 
B)  more of X. 
C)  more of Y. 
D)  more of both X and Y. 
E)  less of both X and Y. 
A)  neither X nor Y. 
B)  more of X. 
C)  more of Y. 
D)  more of both X and Y. 
E)  less of both X and Y.

Question 14

Only at the point of consumer equilibrium does the marginal rate of substitution (MRS) equal the:

Accepted Answer

A)  slope of the budget line. 
B)  slope of the indifference curve. 
C)  price ratio. 
D)  all of these. 
A)  slope of the budget line. 
B)  slope of the indifference curve. 
C)  price ratio. 
D)  all of these.

Question 15

Water is plentiful in most of the world, so its price and total utility are low.

Accepted Answer

A) True 
 B)False

Question 16

According to the income effect, when the price of automobiles rises, people buy fewer automobiles because:

Accepted Answer

A)  they substitute other forms of transportation for driving. 
B)  the nominal amount of their paychecks is smaller. 
C)  the purchasing power of their income is reduced. 
D)  their demand for automobiles is very elastic. 
A)  they substitute other forms of transportation for driving. 
B)  the nominal amount of their paychecks is smaller. 
C)  the purchasing power of their income is reduced. 
D)  their demand for automobiles is very elastic.

Question 17

Which of the following would cause a consumer to purchase less of a good when the price of the good rises?

Accepted Answer

A)  The income effect 
B)  The substitution effect 
C)  Both a and b 
D)  Neither a nor b 
A)  The income effect 
B)  The substitution effect 
C)  Both a and b 
D)  Neither a nor b

Question 18

Suppose that for Merv the marginal utility of $50-per-serving caviar is 100 and the marginal utility of $1-per-serving popcorn is 10. For his snack, Merv should buy:

Accepted Answer

A)  the caviar if he has the $50; otherwise, the popcorn. 
B)  the caviar if he has the $50; otherwise, nothing. 
C)  the popcorn, whether he has the $50 or not. 
D)  one serving each of the caviar and popcorn, if he has $51. 
E)  five servings of popcorn for each serving of caviar. 
A)  the caviar if he has the $50; otherwise, the popcorn. 
B)  the caviar if he has the $50; otherwise, nothing. 
C)  the popcorn, whether he has the $50 or not. 
D)  one serving each of the caviar and popcorn, if he has $51. 
E)  five servings of popcorn for each serving of caviar.

Question 19

The marginal rate of substitution measures the slope of the:

Accepted Answer

A)  total utility curve. 
B)  demand curve. 
C)  budget line. 
D)  indifference curve. 
A)  total utility curve. 
B)  demand curve. 
C)  budget line. 
D)  indifference curve.

Question 20

Exhibit 6A-6 Consumer equilibrium
​  
-As shown in Exhibit 6A-6, the marginal rate of substitution (MRS) at point X is ____ the marginal rate of substitution at point Y.

Accepted Answer

A)  less than 
B)  greater than 
C)  equal to 
D)  twice 
A)  less than 
B)  greater than 
C)  equal to 
D)  twice

Consumers always prefer indifference curves that are ____ the origin.

According to the law of diminishing marginal utility, the marginal utility curve is ____.

If water is essential for life, while diamonds are not, then why is water cheaper than diamonds?

Marginal utility will generally decrease when:

Suppose a consumer is spending his or her entire budget. In order to obtain the most satisfaction from his or her purchases, all goods should:

The income effect refers to a change in:

The ratio of the price of good X on the horizontal axis to the price of good Y on the vertical axis is the ____ of the budget line.

If Jane's marginal benefit as a consumer in the jeans market is larger than the price of a pair of jeans:

A budget line represents all the combinations of two good a consumer can buy with a given amount of money and fixed prices for the goods.

The slope of an indifference curve is equal to the ratio of the of the good on the horizontal axis to the of the good on the vertical axis.

A consumer buys only food and clothing. If the quantity of food bought increases while that of clothing remains the same, the marginal utility of food will:

The principle of diminishing marginal utility says that:

Only at the point of consumer equilibrium does the marginal rate of substitution (MRS) equal the:

Water is plentiful in most of the world, so its price and total utility are low.

According to the income effect, when the price of automobiles rises, people buy fewer automobiles because:

Which of the following would cause a consumer to purchase less of a good when the price of the good rises?

Suppose that for Merv the marginal utility of $50-per-serving caviar is 100 and the marginal utility of $1-per-serving popcorn is 10. For his snack, Merv should buy:

The marginal rate of substitution measures the slope of the:

Exhibit 6A-6 Consumer equilibrium -As shown in Exhibit 6A-6, the marginal rate of substitution (MRS) at point X is ____ the marginal rate of substitution at point Y.

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution, Poverty, and Discrimination

Antitrust and Regulation

Environmental Economics

International Trade and Finance

Economies in Transition

Growth and the

Filters

Exam 6: Consumer Choice Theory

Consumers always prefer indifference curves that are ____ the origin.

According to the law of diminishing marginal utility, the marginal utility curve is ____.

If water is essential for life, while diamonds are not, then why is water cheaper than diamonds?

Marginal utility will generally decrease when:

Suppose a consumer is spending his or her entire budget. In order to obtain the most satisfaction from his or her purchases, all goods should:

The income effect refers to a change in:

The ratio of the price of good X on the horizontal axis to the price of good Y on the vertical axis is the ____ of the budget line.

If Jane's marginal benefit as a consumer in the jeans market is larger than the price of a pair of jeans:

A budget line represents all the combinations of two good a consumer can buy with a given amount of money and fixed prices for the goods.

The slope of an indifference curve is equal to the ratio of the ____ of the good on the horizontal axis to the ____ of the good on the vertical axis.

A consumer buys only food and clothing. If the quantity of food bought increases while that of clothing remains the same, the marginal utility of food will:

The principle of diminishing marginal utility says that:

Only at the point of consumer equilibrium does the marginal rate of substitution (MRS) equal the:

Water is plentiful in most of the world, so its price and total utility are low.

According to the income effect, when the price of automobiles rises, people buy fewer automobiles because:

Which of the following would cause a consumer to purchase less of a good when the price of the good rises?

Suppose that for Merv the marginal utility of $50-per-serving caviar is 100 and the marginal utility of $1-per-serving popcorn is 10. For his snack, Merv should buy:

The marginal rate of substitution measures the slope of the:

Exhibit 6A-6 Consumer equilibrium ​ -As shown in Exhibit 6A-6, the marginal rate of substitution (MRS) at point X is ____ the marginal rate of substitution at point Y.

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution, Poverty, and Discrimination

Antitrust and Regulation

Environmental Economics

International Trade and Finance

Economies in Transition

Growth and the

Filters

The slope of an indifference curve is equal to the ratio of the of the good on the horizontal axis to the of the good on the vertical axis.

Exhibit 6A-6 Consumer equilibrium -As shown in Exhibit 6A-6, the marginal rate of substitution (MRS) at point X is ____ the marginal rate of substitution at point Y.