Question 1

Increases in product prices shift the consumer's

Accepted Answer

A) budget line to the right. 
B) budget line to the left. 
C) indifference curves to the left. 
D) indifference curves to the right. 
A) budget line to the right. 
B) budget line to the left. 
C) indifference curves to the left. 
D) indifference curves to the right.

Question 2

A consumer has two basic choices in making a trip: rent a car for $30.00 a day and spend two days of travel to the destination, or spend $400 for an airplane ticket and fly to the destination in two hours.The marginal utilities of the car rental and the airline ticket are the same.The consumer values time at $5 an hour.The rational consumer will most likely

Accepted Answer

A) rent a car. 
B) buy an airline ticket. 
C) find the full cost of the two modes to be equal. 
D) not make the trip. 
A) rent a car. 
B) buy an airline ticket. 
C) find the full cost of the two modes to be equal. 
D) not make the trip.

Question 3

The law of diminishing marginal utility suggests that the total utility that a consumer derives from a product will increase slower and slower as more of the product is consumed.

Accepted Answer

A) True 
 B)False

Question 4

The substitution effect suggests that when consumers judge product quality by price, they will substitute high-priced products for low-priced products.Topic: Income and Substitution Effects Topic: Utility
Maximization and the Demand Curve

Accepted Answer

A) True 
 B)False

Question 5

Suppose a consumer has an income of $16, the price of A is $2, and the price of B is $1.Which of the following combinations is on the consumer's budget line?

Accepted Answer

A) 4A and 9B 
B) 5A and 6B 
C) 6A and 6B 
D) 3A and 8B 
A) 4A and 9B 
B) 5A and 6B 
C) 6A and 6B 
D) 3A and 8B

Question 6

Graphically, the consumer maximizes total utility where the budget line is tangent to an indifference curve.

Accepted Answer

A) True 
 B)False

Question 7

Most economists contend that

Accepted Answer

A) noncash gifts are more efficient than cash gifts. 
B) noncash gifts are less efficient than cash gifts. 
C) noncash and cash gifts are equally efficient. 
D) government can assess consumer preferences better than can consumers themselves. 
A) noncash gifts are more efficient than cash gifts. 
B) noncash gifts are less efficient than cash gifts. 
C) noncash and cash gifts are equally efficient. 
D) government can assess consumer preferences better than can consumers themselves.

Question 8

An indifference curve shows

Accepted Answer

A) the maximum combinations of two products that a consumer can afford to buy, given prices and the consumer's income. 
B) the quantities of two products a consumer is willing to buy at different income levels. 
C) all combinations of two products from which the consumer derives a specific level of total utility. 
D) combinations of two products that yield the same marginal utilities. 
A) the maximum combinations of two products that a consumer can afford to buy, given prices and the consumer's income. 
B) the quantities of two products a consumer is willing to buy at different income levels. 
C) all combinations of two products from which the consumer derives a specific level of total utility. 
D) combinations of two products that yield the same marginal utilities.

Question 9

(Consider This) The lines on a topographical map are analogous to a(n)

Accepted Answer

A) series of demand curves. 
B) series of supply curves. 
C) indifference map. 
D) series of budget constraints. 
A) series of demand curves. 
B) series of supply curves. 
C) indifference map. 
D) series of budget constraints.

Question 10

In a topographic map, each line represents a particular elevation above sea level, and in an indifference map, each line represents a particular level of

Accepted Answer

A) total utility. 
B) marginal utility. 
C) income. 
D) demand.Difficulty: 02 Medium 
A) total utility. 
B) marginal utility. 
C) income. 
D) demand.Difficulty: 02 Medium

Question 11

In moving northeasterly from the origin, we encounter indifference curves that reflect higher and higher levels of total utility.

Accepted Answer

A) True 
 B)False

Question 12

The ratio of the prices of two products that a consumer could buy with a given fixed income is equivalent to the

Accepted Answer

A) marginal rate of substitution. 
B) slope of the budget line. 
C) income elasticity of demand for the two products. 
D) price elasticity of demand for the two products. 
A) marginal rate of substitution. 
B) slope of the budget line. 
C) income elasticity of demand for the two products. 
D) price elasticity of demand for the two products.

Question 13

Sharon purchases two products with a given fixed budget, orange juice and soda.Her marginal utility from orange juice is 60, and her marginal utility from soda is 30.The price of a bottle of orange juice is $2.00, and the price of soda is $1.00.These data suggest that

Accepted Answer

A) Sharon is maximizing her utility from the given fixed budget. 
B) Sharon should buy more orange juice and less soda. 
C) Sharon should buy more soda and less orange juice. 
D) Sharon should buy less orange juice and soda. 
A) Sharon is maximizing her utility from the given fixed budget. 
B) Sharon should buy more orange juice and less soda. 
C) Sharon should buy more soda and less orange juice. 
D) Sharon should buy less orange juice and soda.

Question 14

The utility of a good or service

Accepted Answer

A) is synonymous with usefulness. 
B) is the satisfaction or pleasure one gets from consuming it. 
C) is easy to quantify. 
D) rarely varies from person to person. 
A) is synonymous with usefulness. 
B) is the satisfaction or pleasure one gets from consuming it. 
C) is easy to quantify. 
D) rarely varies from person to person.

Question 15

If total utility is increasing, then marginal utility

Accepted Answer

A) must be declining. 
B) must be increasing. 
C) must be increasing at an increasing rate. 
D) may either be increasing or decreasing, but it must be greater than zero. 
A) must be declining. 
B) must be increasing. 
C) must be increasing at an increasing rate. 
D) may either be increasing or decreasing, but it must be greater than zero.

Question 16

If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products B and C in consumer equilibrium

Accepted Answer

A) cannot be determined from the information given. 
B) are $105 and $140, respectively. 
C) are $105 and $175, respectively. 
D) are $100 and $200, respectively. 
A) cannot be determined from the information given. 
B) are $105 and $140, respectively. 
C) are $105 and $175, respectively. 
D) are $100 and $200, respectively.

Question 17

An indifference map implies that

Accepted Answer

A) money income is constant, but the prices of the two products vary directly with the quantities purchased. 
B) the two products under consideration are perfectly substitutable for one another. 
C) a consumer is better off to be at some point high on a given curve as opposed to a point low on the same curve. 
D) curves farther from the origin yield higher levels of total utility. 
A) money income is constant, but the prices of the two products vary directly with the quantities purchased. 
B) the two products under consideration are perfectly substitutable for one another. 
C) a consumer is better off to be at some point high on a given curve as opposed to a point low on the same curve. 
D) curves farther from the origin yield higher levels of total utility.

Question 18

A consumer has an income of $200, and the price of X is $5, while the price of Y is $10.If the consumer buys 8 units of X, then the maximum quantity of Y that she could also buy is

Accepted Answer

A) 16. 
B) 18. 
C) 20. 
D) 14. 
A) 16. 
B) 18. 
C) 20. 
D) 14.

Question 19

The diamond-water paradox occurs because

Accepted Answer

A) the price of a product is related to its total utility, not its marginal utility. 
B) the price of a product is related to its marginal utility, not its total utility. 
C) water is, in fact, very scarce in certain regions of the world. 
D) diamonds are more useful than water. 
A) the price of a product is related to its total utility, not its marginal utility. 
B) the price of a product is related to its marginal utility, not its total utility. 
C) water is, in fact, very scarce in certain regions of the world. 
D) diamonds are more useful than water.

Question 20

If the price of a good increases, the substitution effect will

Accepted Answer

A) always tend to make the quantity decrease, while the income effect could go either way. 
B) always tend to make the quantity increase, while the income effect could go either way. 
C) go either way, but the income effect will always make the quantity increase. 
D) go either way, but the income effect will always make the quantity decrease. 
A) always tend to make the quantity decrease, while the income effect could go either way. 
B) always tend to make the quantity increase, while the income effect could go either way. 
C) go either way, but the income effect will always make the quantity increase. 
D) go either way, but the income effect will always make the quantity decrease.

Exam 7: Utility Maximization

Increases in product prices shift the consumer's

The law of diminishing marginal utility suggests that the total utility that a consumer derives from a product will increase slower and slower as more of the product is consumed.

The substitution effect suggests that when consumers judge product quality by price, they will substitute high-priced products for low-priced products.Topic: Income and Substitution Effects Topic: Utility Maximization and the Demand Curve

Suppose a consumer has an income of $16, the price of A is $2, and the price of B is $1.Which of the following combinations is on the consumer's budget line?

Graphically, the consumer maximizes total utility where the budget line is tangent to an indifference curve.

Most economists contend that

An indifference curve shows

(Consider This) The lines on a topographical map are analogous to a(n)

In a topographic map, each line represents a particular elevation above sea level, and in an indifference map, each line represents a particular level of

In moving northeasterly from the origin, we encounter indifference curves that reflect higher and higher levels of total utility.

The ratio of the prices of two products that a consumer could buy with a given fixed income is equivalent to the

Sharon purchases two products with a given fixed budget, orange juice and soda.Her marginal utility from orange juice is 60, and her marginal utility from soda is 30.The price of a bottle of orange juice is $2.00, and the price of soda is $1.00.These data suggest that

The utility of a good or service

If total utility is increasing, then marginal utility

If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products B and C in consumer equilibrium

An indifference map implies that

A consumer has an income of $200, and the price of X is $5, while the price of Y is $10.If the consumer buys 8 units of X, then the maximum quantity of Y that she could also buy is

The diamond-water paradox occurs because

If the price of a good increases, the substitution effect will

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Behavioral Economics

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Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

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The Demand for Resources

Wage Determination

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Income Inequality, Poverty, and Discrimination

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An Introduction to Macroeconomics

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Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

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The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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