Question 1

If consumers are convinced by ads that Brand X has a lot more value than they originally thought, then the MU/P of X will decrease.

Accepted Answer

A) True 
 B)False

Question 2

Indifference analysis assumes that utility is numerically measurable.

Accepted Answer

A) True 
 B)False

Question 3

Total utility is best defined as the

Accepted Answer

A) change in marginal utility multiplied by the price of a product. 
B) maximum amount of satisfaction from consuming a product. 
C) total satisfaction received from consuming a given amount of a product. 
D) additional satisfaction received from consuming one more unit of a product. 
A) change in marginal utility multiplied by the price of a product. 
B) maximum amount of satisfaction from consuming a product. 
C) total satisfaction received from consuming a given amount of a product. 
D) additional satisfaction received from consuming one more unit of a product.

Question 4

Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3.Also assume that money income is $60.The absolute value of the slope of the resulting budget line is

Accepted Answer

A) 5. 
B) 1/5. 
C) 4. 
D)  20 
A) 5. 
B) 1/5. 
C) 4. 
D)  20

Question 5

To maximize utility, a consumer should allocate money income so that the

Accepted Answer

A) elasticity of demand on all products purchased is the same. 
B) marginal utility obtained from the last dollar spent on each product is the same. 
C) total utility derived from each product consumed is the same. 
D) marginal utility of the last unit of each product consumed is the same. 
A) elasticity of demand on all products purchased is the same. 
B) marginal utility obtained from the last dollar spent on each product is the same. 
C) total utility derived from each product consumed is the same. 
D) marginal utility of the last unit of each product consumed is the same.

Question 6

Someone who pays $800 to fly from one city to another instead of paying only $100 for a bus trip between the two cities is making an irrational choice and is thus not maximizing his utility.

Accepted Answer

A) True 
 B)False

Question 7

If money income increases and the prices of products A and B both increase, then the budget line

Accepted Answer

A) must shift to the right. 
B) must shift to the left. 
C) may shift either to the right or the left, or not at all. 
D) will no longer be tangent to an indifference curve. 
A) must shift to the right. 
B) must shift to the left. 
C) may shift either to the right or the left, or not at all. 
D) will no longer be tangent to an indifference curve.

Question 8

The law of diminishing marginal utility states that

Accepted Answer

A) total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. 
B) beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer. 
C) price must be lowered to induce firms to supply more of a product. 
D) it will take larger and larger amounts of resources beyond some point to produce successive units of a product. 
A) total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. 
B) beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer. 
C) price must be lowered to induce firms to supply more of a product. 
D) it will take larger and larger amounts of resources beyond some point to produce successive units of a product.

Question 9

A consumer maximizes total utility when she or he purchases the combination of the two products at which her or his budget line is tangent to an indifference curve.

Accepted Answer

A) True 
 B)False

Question 10

At each point on an indifference curve,

Accepted Answer

A) money income is the same. 
B) the prices of the two products are the same. 
C) total utility is the same. 
D) marginal utility is the same. 
A) money income is the same. 
B) the prices of the two products are the same. 
C) total utility is the same. 
D) marginal utility is the same.

Question 11

Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is

Accepted Answer

A) zero. 
B) positive, but declines rapidly. 
C) negative. 
D) positive, but less than the ticket price. 
A) zero. 
B) positive, but declines rapidly. 
C) negative. 
D) positive, but less than the ticket price.

Question 12

It is possible for a consumer's indifference curves to intersect.

Accepted Answer

A) True 
 B)False

Question 13

A product has utility if it

Accepted Answer

A) takes more and more resources to produce successive units of it. 
B) violates the law of demand. 
C) satisfies consumer wants. 
D) is useful. 
A) takes more and more resources to produce successive units of it. 
B) violates the law of demand. 
C) satisfies consumer wants. 
D) is useful.

Question 14

Any combination of goods lying outside of the budget line

Accepted Answer

A) implies that the consumer is not spending all his income. 
B) yields less utility than any point on the budget line. 
C) yields less utility than any point inside the budget line. 
D) is unattainable, given the consumer's income. 
A) implies that the consumer is not spending all his income. 
B) yields less utility than any point on the budget line. 
C) yields less utility than any point inside the budget line. 
D) is unattainable, given the consumer's income.

Question 15

The marginal rate of substitution measures the

Accepted Answer

A) magnitude of the substitution effect. 
B) total utility received by a consumer when equilibrium is achieved. 
C) extra utility that a consumer derives from successive units of a product. 
D) consumer's willingness to substitute one product for another so that total utility will remain constant. 
A) magnitude of the substitution effect. 
B) total utility received by a consumer when equilibrium is achieved. 
C) extra utility that a consumer derives from successive units of a product. 
D) consumer's willingness to substitute one product for another so that total utility will remain constant.

Question 16

A change in the relative prices for two goods can be shown as a parallel shift in a consumer's budget line.

Accepted Answer

A) True 
 B)False

Question 17

If consumption of a good is subsidized by the government, then the MU/P of that good among consumers will

Accepted Answer

A) decrease. 
B) become negative. 
C) increase. 
D) not be affected. 
A) decrease. 
B) become negative. 
C) increase. 
D) not be affected.

Question 18

Indifference curves and budget lines can be used to derive an individual's demand curve for a product.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is correct?

Accepted Answer

A) There is no firm mathematical relationship between marginal utility and total utility. 
B) Total utility is equal to the change in marginal utility from consuming an additional unit of a product. 
C) If marginal utility is diminishing and is a positive amount, total utility will increase. 
D) If marginal utility is diminishing, total utility must also be diminishing. 
A) There is no firm mathematical relationship between marginal utility and total utility. 
B) Total utility is equal to the change in marginal utility from consuming an additional unit of a product. 
C) If marginal utility is diminishing and is a positive amount, total utility will increase. 
D) If marginal utility is diminishing, total utility must also be diminishing.

Question 20

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility.His total utility from three Pepsis is 38 units of utility.The marginal utility of the third Pepsi is

Accepted Answer

A) 26 units of utility. 
B) 6 units of utility. 
C) 8 units of utility. 
D) 38 units of utility. 
A) 26 units of utility. 
B) 6 units of utility. 
C) 8 units of utility. 
D) 38 units of utility.

Exam 7: Utility Maximization

If consumers are convinced by ads that Brand X has a lot more value than they originally thought, then the MU/P of X will decrease.

Indifference analysis assumes that utility is numerically measurable.

Total utility is best defined as the

Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3.Also assume that money income is $60.The absolute value of the slope of the resulting budget line is

To maximize utility, a consumer should allocate money income so that the

Someone who pays $800 to fly from one city to another instead of paying only $100 for a bus trip between the two cities is making an irrational choice and is thus not maximizing his utility.

If money income increases and the prices of products A and B both increase, then the budget line

The law of diminishing marginal utility states that

A consumer maximizes total utility when she or he purchases the combination of the two products at which her or his budget line is tangent to an indifference curve.

At each point on an indifference curve,

Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is

It is possible for a consumer's indifference curves to intersect.

A product has utility if it

Any combination of goods lying outside of the budget line

The marginal rate of substitution measures the

A change in the relative prices for two goods can be shown as a parallel shift in a consumer's budget line.

If consumption of a good is subsidized by the government, then the MU/P of that good among consumers will

Indifference curves and budget lines can be used to derive an individual's demand curve for a product.

Which of the following is correct?

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility.His total utility from three Pepsis is 38 units of utility.The marginal utility of the third Pepsi is

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