Question 1

An increase in the price of product X causes a decrease in the quantity demanded for product X.One basic explanation for this is

Accepted Answer

A) the law of increasing opportunity cost. 
B) the price-elasticity effect. 
C) the law of supply. 
D) the law of diminishing marginal utility. 
A) the law of increasing opportunity cost. 
B) the price-elasticity effect. 
C) the law of supply. 
D) the law of diminishing marginal utility.

Question 2

Understanding the water and diamond paradox is valuable because it explains why

Accepted Answer

A) diamonds have many substitutes. 
B) water is more important than diamonds. 
C) the prices of products are not necessarily measures of the products' usefulness. 
D) consumer spending on diamonds has increased, while spending on water has decreased. 
A) diamonds have many substitutes. 
B) water is more important than diamonds. 
C) the prices of products are not necessarily measures of the products' usefulness. 
D) consumer spending on diamonds has increased, while spending on water has decreased.

Question 3

To derive the demand curve of a product in indifference curve analysis, the

Accepted Answer

A) budget line is assumed to stay in a fixed position. 
B) money income of the consumer is assumed to be variable. 
C) prices of both products are assumed to be variable. 
D) tastes and preferences of the consumer are assumed to be fixed. 
A) budget line is assumed to stay in a fixed position. 
B) money income of the consumer is assumed to be variable. 
C) prices of both products are assumed to be variable. 
D) tastes and preferences of the consumer are assumed to be fixed.

Question 4

Suppose that a consumer who spends her budget on X and Y is initially at equilibrium.If the price of X increases, then the MU/P of X will

Accepted Answer

A) decrease and the consumer will respond by buying more Y and less X. 
B) decrease and the consumer will respond by buying more X and less Y. 
C) increase and the consumer will respond by buying more Y and less X. 
D) increase and the consumer will respond by buying more X and less Y. 
A) decrease and the consumer will respond by buying more Y and less X. 
B) decrease and the consumer will respond by buying more X and less Y. 
C) increase and the consumer will respond by buying more Y and less X. 
D) increase and the consumer will respond by buying more X and less Y.

Question 5

As a consumer moves from one point to another along an indifference curve, which of the following is assumed to stay constant?

Accepted Answer

A) income or budget 
B) prices of the two goods 
C) total satisfaction from the two goods 
D) marginal utility of the two goods 
A) income or budget 
B) prices of the two goods 
C) total satisfaction from the two goods 
D) marginal utility of the two goods

Question 6

The income and substitution effects will both induce the consumer to buy more of a normal good when its price decreases.

Accepted Answer

A) True 
 B)False

Question 7

Noncash gifts

Accepted Answer

A) increase the utility of recipients by introducing them to products they have not consumed before. 
B) reduce recipient utility relative to a cash gift because noncash gifts often fail to match recipient preferences. 
C) entail as much utility as do cash gifts. 
D) increase the utility of recipients because many people are uncertain of their own preferences. 
A) increase the utility of recipients by introducing them to products they have not consumed before. 
B) reduce recipient utility relative to a cash gift because noncash gifts often fail to match recipient preferences. 
C) entail as much utility as do cash gifts. 
D) increase the utility of recipients because many people are uncertain of their own preferences.

Question 8

The income effect of a price increase for a normal good causes an increase in the consumption of the good.

Accepted Answer

A) True 
 B)False

Question 9

Where total utility is at a maximum, marginal utility is

Accepted Answer

A) negative. 
B) positive and increasing. 
C) zero. 
D) positive but decreasing. 
A) negative. 
B) positive and increasing. 
C) zero. 
D) positive but decreasing.

Question 10

A rational consumer will cease purchasing a product at that quantity where marginal utility begins to diminish.

Accepted Answer

A) True 
 B)False

Question 11

If a rational consumer is in equilibrium, which of the following conditions will hold true?

Accepted Answer

A) MUa = MUb = MUc = ...= MUn. 
B) The marginal utility of each good purchased will be zero. 
C) The marginal utility of the last dollar spent on each good purchased will be the same. 
D) The total utility obtained from each good purchased will be the same. 
A) MUa = MUb = MUc = ...= MUn. 
B) The marginal utility of each good purchased will be zero. 
C) The marginal utility of the last dollar spent on each good purchased will be the same. 
D) The total utility obtained from each good purchased will be the same.

Question 12

The fact that an ounce of gold is priced higher than an ounce of chocolate suggests that

Accepted Answer

A) the marginal utility of the last unit of gold consumed or purchased is greater than the marginal utility of the last unit of chocolate consumed. 
B) the total utility of gold purchased is greater than the total utility of chocolate consumed. 
C) gold is a normal good, while chocolate is an inferior good. 
D) there are many substitutes for chocolate but few for gold. 
A) the marginal utility of the last unit of gold consumed or purchased is greater than the marginal utility of the last unit of chocolate consumed. 
B) the total utility of gold purchased is greater than the total utility of chocolate consumed. 
C) gold is a normal good, while chocolate is an inferior good. 
D) there are many substitutes for chocolate but few for gold.

Question 13

What do the income effect, the substitution effect, and diminishing marginal utility have in common?

Accepted Answer

A) All are required to explain the utility-maximizing position of a consumer. 
B) They are all empirically measurable. 
C) They all help explain the upsloping supply curve. 
D) They all help explain the downsloping demand curve. 
A) All are required to explain the utility-maximizing position of a consumer. 
B) They are all empirically measurable. 
C) They all help explain the upsloping supply curve. 
D) They all help explain the downsloping demand curve.

Question 14

The price of diamonds is substantially greater than the price of water because

Accepted Answer

A) the total utility of water is greater than the total utility of diamonds. 
B) the total utility of diamonds is greater than the total utility of water. 
C) the marginal utility of the last diamond purchased is significantly greater than the marginal utility of the last gallon of water purchased by a typical person. 
D) the marginal utility of the last diamond purchased is significantly less than the marginal utility of the last gallon of water purchased by a typical person. 
A) the total utility of water is greater than the total utility of diamonds. 
B) the total utility of diamonds is greater than the total utility of water. 
C) the marginal utility of the last diamond purchased is significantly greater than the marginal utility of the last gallon of water purchased by a typical person. 
D) the marginal utility of the last diamond purchased is significantly less than the marginal utility of the last gallon of water purchased by a typical person.

Question 15

The law of diminishing marginal utility implies that in order to induce a buyer to buy more of a product, the seller must lower its price.

Accepted Answer

A) True 
 B)False

Question 16

A change in the slope of a budget line is solely the result of a change in

Accepted Answer

A) consumer preferences. 
B) the price of one good relative to the other. 
C) money income. 
D) the slope of the indifference curve that is tangent to the budget line. 
A) consumer preferences. 
B) the price of one good relative to the other. 
C) money income. 
D) the slope of the indifference curve that is tangent to the budget line.

Question 17

Which of the following is correct?

Accepted Answer

A) Budget lines are linear and upsloping; indifference curves are downsloping and concave to the origin. 
B) Budget lines are linear and downsloping; indifference curves are downsloping and concave to the origin. 
C) Budget lines are linear and downsloping; indifference curves are downsloping and convex to the origin. 
D) Budget lines are downsloping and convex to the origin; indifference curves are linear and downsloping. 
A) Budget lines are linear and upsloping; indifference curves are downsloping and concave to the origin. 
B) Budget lines are linear and downsloping; indifference curves are downsloping and concave to the origin. 
C) Budget lines are linear and downsloping; indifference curves are downsloping and convex to the origin. 
D) Budget lines are downsloping and convex to the origin; indifference curves are linear and downsloping.

Question 18

The income of a consumer is $40, the price of A is $8, and the price of B is $4.If the quantity of A is measured vertically, then the slope of the budget line is

Accepted Answer

A) −0.5. 
B) −1.0. 
C) −2.0. 
D) −2.5. 
A) −0.5. 
B) −1.0. 
C) −2.0. 
D) −2.5.

Question 19

An indifference curve

Accepted Answer

A) may be either upsloping or downsloping, depending on whether the two products are complements or substitutes. 
B) is downsloping and convex to the origin. 
C) is upsloping and has a constant slope. 
D) is downsloping and concave to the origin. 
A) may be either upsloping or downsloping, depending on whether the two products are complements or substitutes. 
B) is downsloping and convex to the origin. 
C) is upsloping and has a constant slope. 
D) is downsloping and concave to the origin.

Question 20

A consumer is maximizing her utility with a particular money income when

Accepted Answer

A) the total utility derived from each product consumed is the same. 
B) MUa/Pa = MUb/Pb = MUc/Pc = ...= MUn/Pn. 
C) MUa = MUb = MUc = ...= MUn. 
D) Pa = Pb = Pc = ...= Pn. 
A) the total utility derived from each product consumed is the same. 
B) MUa/Pa = MUb/Pb = MUc/Pc = ...= MUn/Pn. 
C) MUa = MUb = MUc = ...= MUn. 
D) Pa = Pb = Pc = ...= Pn.

Exam 7: Utility Maximization

An increase in the price of product X causes a decrease in the quantity demanded for product X.One basic explanation for this is

Understanding the water and diamond paradox is valuable because it explains why

To derive the demand curve of a product in indifference curve analysis, the

Suppose that a consumer who spends her budget on X and Y is initially at equilibrium.If the price of X increases, then the MU/P of X will

As a consumer moves from one point to another along an indifference curve, which of the following is assumed to stay constant?

The income and substitution effects will both induce the consumer to buy more of a normal good when its price decreases.

Noncash gifts

The income effect of a price increase for a normal good causes an increase in the consumption of the good.

Where total utility is at a maximum, marginal utility is

A rational consumer will cease purchasing a product at that quantity where marginal utility begins to diminish.

If a rational consumer is in equilibrium, which of the following conditions will hold true?

The fact that an ounce of gold is priced higher than an ounce of chocolate suggests that

What do the income effect, the substitution effect, and diminishing marginal utility have in common?

The price of diamonds is substantially greater than the price of water because

The law of diminishing marginal utility implies that in order to induce a buyer to buy more of a product, the seller must lower its price.

A change in the slope of a budget line is solely the result of a change in

Which of the following is correct?

The income of a consumer is $40, the price of A is $8, and the price of B is $4.If the quantity of A is measured vertically, then the slope of the budget line is

An indifference curve

A consumer is maximizing her utility with a particular money income when

Limits, Alternatives, and Choices

The Market System and the Circular Flow

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Market Failures: Public Goods and Externalities

Governments Role and Government Failure

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