Question 1

If a product has a diminishing, but positive, marginal utility, then

Accepted Answer

A) total utility decreases at an increasing rate. 
B) total utility will become negative. 
C) total utility increases at a diminishing rate. 
D) total utility decreases at a diminishing rate. 
A) total utility decreases at an increasing rate. 
B) total utility will become negative. 
C) total utility increases at a diminishing rate. 
D) total utility decreases at a diminishing rate.

Question 2

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. 
A) total utility. 
B) marginal utility. 
C) income. 
D) demand.

Question 3

The increase in demand for iPad tablet computers can be explained by

Accepted Answer

A) an increase in the technology used to produce iPads, making the supply of iPads increase. 
B) an increase in the price of laptop computers, making their MU/P decrease. 
C) the enhanced versatility and storage capacity of iPads, making their MU/P increase. 
D) an increase in the income of buyers, making the demand for iPads increase. 
A) an increase in the technology used to produce iPads, making the supply of iPads increase. 
B) an increase in the price of laptop computers, making their MU/P decrease. 
C) the enhanced versatility and storage capacity of iPads, making their MU/P increase. 
D) an increase in the income of buyers, making the demand for iPads increase.

Question 4

Diminishing marginal utility explains why

Accepted Answer

A) the income effect exceeds the substitution effect. 
B) the substitution effect exceeds the income effect. 
C) supply curves are upsloping. 
D) demand curves are downsloping. 
A) the income effect exceeds the substitution effect. 
B) the substitution effect exceeds the income effect. 
C) supply curves are upsloping. 
D) demand curves are downsloping.

Question 5

In the graph, a decrease in the price of good Y will result in

Accepted Answer

A) a decrease in demand for good Y. 
B) an increase in demand for good Y. 
C) an increase in demand for good X. 
D) a decrease in demand for good X. 
A) a decrease in demand for good Y. 
B) an increase in demand for good Y. 
C) an increase in demand for good X. 
D) a decrease in demand for good X.

Question 6

The table shows the utility schedule for a consumer of candy bars.   The consumption of which bar yields the greatest marginal utility?

Accepted Answer

A) third 
B) fourth 
C) sixth 
D) second 
A) third 
B) fourth 
C) sixth 
D) second

Question 7

At point X on the graph, which depicts a consumer's indifference curve for goods A and B and the relevant budget constraint line, we know that

Accepted Answer

A) MU A/P A = MU b/P B. 
B) P A = P B. 
C) MU A = MU B. 
D) MU A/P A> MU b/P B. 
A) MU A/P A = MU b/P B. 
B) P A = P B. 
C) MU A = MU B. 
D) MU A/P A> MU b/P B.

Question 8

The reason the substitution effect works to encourage a consumer to buy less of a product when its price increases is that

Accepted Answer

A) the real income of the consumer has been increased. 
B) the real income of the consumer has been decreased. 
C) the product is now relatively more expensive than it was before. 
D) other products are now relatively more expensive than they were before. 
A) the real income of the consumer has been increased. 
B) the real income of the consumer has been decreased. 
C) the product is now relatively more expensive than it was before. 
D) other products are now relatively more expensive than they were before.

Question 9

The movement of the budget line from BB to bb in the figure suggests that income has

Accepted Answer

A) increased and the price of X has decreased. 
B) fallen and the price of Y has increased. 
C) fallen and the price of Y has decreased. 
D) decreased, but there have been no price changes. 
A) increased and the price of X has decreased. 
B) fallen and the price of Y has increased. 
C) fallen and the price of Y has decreased. 
D) decreased, but there have been no price changes.

Question 10

Which of the following statements is correct?

Accepted Answer

A) When marginal utility is decreasing, an increase in the quantity consumed will decrease total utility. 
B) When marginal utility is positive, an increase in the quantity consumed will decrease total utility. 
C) When marginal utility is positive, an increase in the quantity consumed will increase total utility. 
D) When marginal utility is zero, an increase in the quantity consumed will make total utility zero. 
A) When marginal utility is decreasing, an increase in the quantity consumed will decrease total utility. 
B) When marginal utility is positive, an increase in the quantity consumed will decrease total utility. 
C) When marginal utility is positive, an increase in the quantity consumed will increase total utility. 
D) When marginal utility is zero, an increase in the quantity consumed will make total utility zero.

Question 11

Answer the question based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4, and the price of product Y is $2. The income of the consumer is $20.   When the consumer purchases the utility-maximizing combination of product X and product Y, total utility will be

Accepted Answer

A) 72. 
B) 84. 
C) 136. 
D) 156. 
A) 72. 
B) 84. 
C) 136. 
D) 156.

Question 12

Assume that A and B are both priced at $1 per unit and that Mary has $10 to spend on A and B. She buys 6 units of A and 4 units of B. The marginal utility of the final unit of A bought is 12, and that of B is 8. This indicates that

Accepted Answer

A) Mary's consumption is in equilibrium. 
B) given another dollar, Mary should buy an additional unit of B. 
C) to maximize utility, Mary should buy more of B and less of A. 
D) to maximize utility, Mary should buy more of A and less of B. 
A) Mary's consumption is in equilibrium. 
B) given another dollar, Mary should buy an additional unit of B. 
C) to maximize utility, Mary should buy more of B and less of A. 
D) to maximize utility, Mary should buy more of A and less of B.

Question 13

Refer to the diagram, where xy is the relevant budget line and I₁, I₂, and I₃ are indifference curves. At point K,

Accepted Answer

A) MU x = MU y. 
B) MRS = Pₓ / Pᵧ . 
C) MRS = Pᵧ / Pₓ . 
D) Pₓ exceeds Pᵧ . 
A) MU x = MU y. 
B) MRS = Pₓ / Pᵧ . 
C) MRS = Pᵧ / Pₓ . 
D) Pₓ exceeds Pᵧ .

Question 14

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 15

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $18   What level of total utility does the rational consumer realize in equilibrium?

Accepted Answer

A) 87 utils 
B) 104 utils 
C) 51 utils 
D) 58 utils 
A) 87 utils 
B) 104 utils 
C) 51 utils 
D) 58 utils

Question 16

Answer the question based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $3, and the price of product Y is $2. The income of the consumer is $18.   If the consumer buys product X or product Y one unit at a time, which of the following will the consumer's first two purchases be?

Accepted Answer

A) a first unit of X followed by a first unit of Y 
B) a first unit of X followed by a second unit of X 
C) a first unit of Y followed by a second unit of Y 
D) a first unit of Y followed by a first unit of X 
A) a first unit of X followed by a first unit of Y 
B) a first unit of X followed by a second unit of X 
C) a first unit of Y followed by a second unit of Y 
D) a first unit of Y followed by a first unit of X

Question 17

When diminishing marginal utility starts happening as a person consumes more and more of a given good,

Accepted Answer

A) total utility diminishes. 
B) total utility increases at a diminishing rate. 
C) marginal utility becomes negative. 
D) total utility becomes negative. 
A) total utility diminishes. 
B) total utility increases at a diminishing rate. 
C) marginal utility becomes negative. 
D) total utility becomes negative.

Question 18

Explain why, in most cases, you would rather receive a gift of $25 cash over receiving a $25 sweater chosen by your significant other.

Accepted Answer

The reason is that the noncash gifts may

Question 19

The price of chicken = $5, while the price of pork = $9. If, after spending her entire budget, the consumer has MU of chicken = 6, while the MU of pork = 12, then the consumer should have bought more chicken and less pork in order to increase her total utility.

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 7: Utility Maximization

If a product has a diminishing, but positive, marginal utility, then

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

The increase in demand for iPad tablet computers can be explained by

Diminishing marginal utility explains why

In the graph, a decrease in the price of good Y will result in

The table shows the utility schedule for a consumer of candy bars. The consumption of which bar yields the greatest marginal utility?

At point X on the graph, which depicts a consumer's indifference curve for goods A and B and the relevant budget constraint line, we know that

The reason the substitution effect works to encourage a consumer to buy less of a product when its price increases is that

The movement of the budget line from BB to bb in the figure suggests that income has

Which of the following statements is correct?

Assume that A and B are both priced at $1 per unit and that Mary has $10 to spend on A and B. She buys 6 units of A and 4 units of B. The marginal utility of the final unit of A bought is 12, and that of B is 8. This indicates that

Refer to the diagram, where xy is the relevant budget line and I₁, I₂, and I₃ are indifference curves. At point K,

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

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $18 What level of total utility does the rational consumer realize in equilibrium?

When diminishing marginal utility starts happening as a person consumes more and more of a given good,

Explain why, in most cases, you would rather receive a gift of $25 cash over receiving a $25 sweater chosen by your significant other.

The price of chicken = $5, while the price of pork = $9. If, after spending her entire budget, the consumer has MU of chicken = 6, while the MU of pork = 12, then the consumer should have bought more chicken and less pork in order to increase her total utility.

Noncash gifts

Limits, Alternatives, and Choices

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