Question 1

Economists believe that consumer choice theory is useless because of its lack of predictive ability.

Accepted Answer

A) True 
 B)False

Question 2

-(Exhibit: Consumer Equilibrium 2)Given the exhibit, which of the following statements is (are)true?

Accepted Answer

A) Point I is the point of utility maximization. 
B) At the point of utility maximization, the rate at which the consumer is willing to exchange one good for another is less than the rate at which the goods can be exchanged in the market. 
C) MRSx,y > Px/Py  
D) All of the above statements are true. 
A) Point I is the point of utility maximization. 
B) At the point of utility maximization, the rate at which the consumer is willing to exchange one good for another is less than the rate at which the goods can be exchanged in the market. 
C) MRSx,y > Px/Py  
D) All of the above statements are true.

Question 3

The budget line indicates a constraint on a consumer's ability to purchase two goods.

Accepted Answer

A) True 
 B)False

Question 4

John Smedley, a careful maximizer of utility, consumes only two goods, peanut butter and broccoli.He had just achieved the utility maximizing solution in his consumption of the two goods when the price of broccoli rose.As he adjusts to this event, he will consume:

Accepted Answer

A) more peanut butter and less broccoli. 
B) less peanut butter and less broccoli. 
C) more peanut butter and more broccoli. 
D) less peanut butter and more broccoli. 
A) more peanut butter and less broccoli. 
B) less peanut butter and less broccoli. 
C) more peanut butter and more broccoli. 
D) less peanut butter and more broccoli.

Question 5

In dealing with utility, we assume that the ability of consumers to purchase goods and services is:

Accepted Answer

A) infinite. 
B) irrelevant. 
C) limited. 
D) infinitesimal. 
A) infinite. 
B) irrelevant. 
C) limited. 
D) infinitesimal.

Question 6

The utility of a good simply indicates its usefulness.

Accepted Answer

A) True 
 B)False

Question 7

You decide to decrease the quantity of ice cream purchased each month when the price increases in part because the higher price causes an implicit reduction in your income.This is an indication of the:

Accepted Answer

A) income effect. 
B) utility effect. 
C) consumption effect. 
D) substitution effect. 
A) income effect. 
B) utility effect. 
C) consumption effect. 
D) substitution effect.

Question 8

Total utility is at a maximum when marginal utility is zero.

Accepted Answer

A) True 
 B)False

Question 9

Consumer Equilbrium 1
 $$\begin{array} {  c c c c } 
\begin{array} { c } 
\text { Units } \
\text { of } \
\text { GoodX }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Utility } \
\text { of GoodX }
\end{array} & \begin{array} { c } 
\text { Units of } \
\text { Good Y }
\end{array} & \begin{array} { c } 
\text { Marginal Utility } \
\text { of Good Y }
\end{array} \
\hline 1 & 20 & 1 & 12 \
2 & 16 & 2 & 10 \
3 & 12 & 3 & 8 \
4 & 8 & 4 & 6 \
5 & 4 & 5 & 4 \
6 & 0 & 6 & 2
\end{array}$$
-(Exhibit: Consumer Equilibrium 1)Assume that the price of both goods is $1 per unit, and you consume 3 units of good X and 3 units of good Y.To maximize utility, assuming that the goods are divisible, you would consume:

Accepted Answer

A) less of both X and Y. 
B) more of both X and Y. 
C) less of X and more of Y. 
D) more of X and less of Y. 
A) less of both X and Y. 
B) more of both X and Y. 
C) less of X and more of Y. 
D) more of X and less of Y.

Question 10

Which of the following is true?

Accepted Answer

A) The law of diminishing marginal utility is seldom verified in economic analysis. 
B) The law of diminishing marginal utility is never verified in economic analysis. 
C) The law of diminishing marginal utility has been proven to be true in economic analysis. 
D) The law of diminishing marginal utility has never been proven true, but it is verified by economists as consistent with the analysis of real-world demand. 
A) The law of diminishing marginal utility is seldom verified in economic analysis. 
B) The law of diminishing marginal utility is never verified in economic analysis. 
C) The law of diminishing marginal utility has been proven to be true in economic analysis. 
D) The law of diminishing marginal utility has never been proven true, but it is verified by economists as consistent with the analysis of real-world demand.

Question 11

Following an income-compensated price change, you decide to decrease the quantity of ice cream purchased each month when the price increases and purchase more frozen yogurt instead.This is an indication of the:

Accepted Answer

A) substitution effect. 
B) utility effect. 
C) income effect. 
D) consumption effect. 
A) substitution effect. 
B) utility effect. 
C) income effect. 
D) consumption effect.

Question 12

A curve that represents combinations of two goods that yield equal levels of satisfaction is a(n):

Accepted Answer

A) indifference curve. 
B) budget curve. 
C) marginal utility curve. 
D) price-consumption curve. 
A) indifference curve. 
B) budget curve. 
C) marginal utility curve. 
D) price-consumption curve.

Question 13

Suppose a consumer really likes rutabagas and likes broccoli fairly well.Suppose the prices of both goods are $0.60 per pound and that the consumer is maximizing utility.We can conclude that:

Accepted Answer

A) the marginal utilities of both goods are the same. 
B) the marginal utility of rutabagas is greater than the marginal utility of broccoli. 
C) the marginal utility of broccoli is greater than the marginal utility of rutabagas. 
D) the marginal utility of both goods is zero. 
A) the marginal utilities of both goods are the same. 
B) the marginal utility of rutabagas is greater than the marginal utility of broccoli. 
C) the marginal utility of broccoli is greater than the marginal utility of rutabagas. 
D) the marginal utility of both goods is zero.

Question 14

When the price of a normal good increases, the substitution effect will:

Accepted Answer

A) result in the quantity demanded going down so much that the income effect is unable to increase demand. 
B) work with the income effect to exert pressure on the quantity demanded to fall. 
C) work with the income effect to exert pressure on the quantity demanded to increase. 
D) work in a direction opposite the income effect. 
A) result in the quantity demanded going down so much that the income effect is unable to increase demand. 
B) work with the income effect to exert pressure on the quantity demanded to fall. 
C) work with the income effect to exert pressure on the quantity demanded to increase. 
D) work in a direction opposite the income effect.

Question 15

The substitution effect always involves a change in consumption in the _______ direction of the ________ change.

Accepted Answer

A) same; budget 
B) same; price 
C) opposite; price 
D) opposite; budget 
A) same; budget 
B) same; price 
C) opposite; price 
D) opposite; budget

Question 16

According to the income effect, a decrease in the price of a product leads to an increase in the quantity demanded because buyers:

Accepted Answer

A) have an implicit reduction in income. 
B) have an implicit increase in income. 
C) purchase fewer substitute goods. 
D) purchase more substitute goods. 
A) have an implicit reduction in income. 
B) have an implicit increase in income. 
C) purchase fewer substitute goods. 
D) purchase more substitute goods.

Question 17

You decide to increase the quantity of pizza purchased each month when the price decreases in part because the lower price causes an implicit increase in your income.This is an indication of the:

Accepted Answer

A) output effect. 
B) income effect. 
C) substitution effect. 
D) distribution effect. 
A) output effect. 
B) income effect. 
C) substitution effect. 
D) distribution effect.

Question 18

Suppose a consumer really likes rutabagas and likes broccoli fairly well.Suppose the prices of both goods are $0.60 per pound and that the consumer is maximizing utility, consuming 5 pounds of rutabagas and 1/2 pound of broccoli per month.We can conclude that:

Accepted Answer

A) the marginal utilities of both goods are the same. 
B) the marginal utility of rutabagas is greater than the marginal utility of broccoli. 
C) the marginal utility of broccoli is greater than the marginal utility of rutabagas. 
D) the marginal utility of both goods is zero. 
A) the marginal utilities of both goods are the same. 
B) the marginal utility of rutabagas is greater than the marginal utility of broccoli. 
C) the marginal utility of broccoli is greater than the marginal utility of rutabagas. 
D) the marginal utility of both goods is zero.

Question 19

Utility maximization for all goods requires that:

Accepted Answer

A) the marginal utilities of all goods consumed divided by their prices are equal to the budget constraint. 
B) the marginal utilities of all goods exceed the total utility of all goods. 
C) the marginal utilities of all goods divided by their respective prices are equal. 
D) all of the above be true. 
A) the marginal utilities of all goods consumed divided by their prices are equal to the budget constraint. 
B) the marginal utilities of all goods exceed the total utility of all goods. 
C) the marginal utilities of all goods divided by their respective prices are equal. 
D) all of the above be true.

Question 20

If a consumer derives more utility by spending an additional $1 on good X rather than on good Y, then:

Accepted Answer

A) MUx/Px > MUy/Py. 
B) MUx/Px = MUy/Py. 
C) MUx/Px y/Py. 
D) Px/MUx > Py/MUy. 
A) MUx/Px > MUy/Py. 
B) MUx/Px = MUy/Py. 
C) MUx/Px y/Py. 
D) Px/MUx > Py/MUy.

Exam 7: Aggregate Demand and Aggregate Supply

Economists believe that consumer choice theory is useless because of its lack of predictive ability.

-(Exhibit: Consumer Equilibrium 2)Given the exhibit, which of the following statements is (are)true?

The budget line indicates a constraint on a consumer's ability to purchase two goods.

John Smedley, a careful maximizer of utility, consumes only two goods, peanut butter and broccoli.He had just achieved the utility maximizing solution in his consumption of the two goods when the price of broccoli rose.As he adjusts to this event, he will consume:

In dealing with utility, we assume that the ability of consumers to purchase goods and services is:

The utility of a good simply indicates its usefulness.

You decide to decrease the quantity of ice cream purchased each month when the price increases in part because the higher price causes an implicit reduction in your income.This is an indication of the:

Total utility is at a maximum when marginal utility is zero.

Which of the following is true?

Following an income-compensated price change, you decide to decrease the quantity of ice cream purchased each month when the price increases and purchase more frozen yogurt instead.This is an indication of the:

A curve that represents combinations of two goods that yield equal levels of satisfaction is a(n):

Suppose a consumer really likes rutabagas and likes broccoli fairly well.Suppose the prices of both goods are $0.60 per pound and that the consumer is maximizing utility.We can conclude that:

When the price of a normal good increases, the substitution effect will:

The substitution effect always involves a change in consumption in the _______ direction of the ________ change.

According to the income effect, a decrease in the price of a product leads to an increase in the quantity demanded because buyers:

You decide to increase the quantity of pizza purchased each month when the price decreases in part because the lower price causes an implicit increase in your income.This is an indication of the:

Suppose a consumer really likes rutabagas and likes broccoli fairly well.Suppose the prices of both goods are $0.60 per pound and that the consumer is maximizing utility, consuming 5 pounds of rutabagas and 1/2 pound of broccoli per month.We can conclude that:

Utility maximization for all goods requires that:

If a consumer derives more utility by spending an additional $1 on good X rather than on good Y, then:

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Economic Growth

The Nature and Creation of Money

Monopoly

The World of Imperfect Competition

Wages and Employment in Perfect Competition

Interest Rates and the Markets for Capital and Natural Resources

Imperfectly Competitive Markets for Factors of Production

Public Finance and Public Choice

Inflation and Unemployment

International Trade

The Economics of the Environment

Inequality, Poverty, and Discrimination

Macroeconomics: the Big Picture

Measuring Total Income and Output

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Macro Inflation and Unemployment

Macro a Brief History of Macroeconomic Thought and Policy

Economic Development

Socialist Economies in Transition

Filters

The substitution effect always involves a change in consumption in the _ direction of the __ change.