Question 1

State the utility-maximizing rule for two products in words and using algebra.

Accepted Answer

To maximize satisfaction, consumers shou

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

In introducing the opportunity cost of time into the theory of consumer behavior, we find that, all else equal,

Accepted Answer

A) one should consume less of time-intensive goods. 
B) one should consume more of time-intensive goods. 
C) the consumer's equilibrium position is not altered. 
D) the marginal utility derived from each product must be multiplied by consumption time in determining equilibrium. 
A) one should consume less of time-intensive goods. 
B) one should consume more of time-intensive goods. 
C) the consumer's equilibrium position is not altered. 
D) the marginal utility derived from each product must be multiplied by consumption time in determining equilibrium.

Question 4

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 5

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 6

The table shows an indifference schedule for several combinations of X and Y.   In moving from combination a to b, then to c, d, and e, the marginal rate of substitution of X for Y

Accepted Answer

A) increases. 
B) decreases. 
C) stays the same. 
D) decreases and then increases. 
A) increases. 
B) decreases. 
C) stays the same. 
D) decreases and then increases.

Question 7

As a consumer moves down a given indifference curve, his or her total utility will diminish.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not an assumption of the theory of consumer behavior described in this chapter?

Accepted Answer

A) The consumer has to make purchasing decisions within a given budget constraint. 
B) The consumer experiences diminishing marginal utility from consuming goods. 
C) The consumer's tastes and preferences continually change within the period studied. 
D) The consumer aims to get maximum total utility out of a given budget. 
A) The consumer has to make purchasing decisions within a given budget constraint. 
B) The consumer experiences diminishing marginal utility from consuming goods. 
C) The consumer's tastes and preferences continually change within the period studied. 
D) The consumer aims to get maximum total utility out of a given budget.

Question 9

Refer to the graph. The shift of the budget line from AB to CD is consistent with

Accepted Answer

A) a decrease in the consumer's money income. 
B) a decrease in the prices of both Goods 1 and 2. 
C) an increase in the prices of both Goods 1 and 2. 
D) a decrease in the price of Good 1, and an increase in the price of Good 2. 
A) a decrease in the consumer's money income. 
B) a decrease in the prices of both Goods 1 and 2. 
C) an increase in the prices of both Goods 1 and 2. 
D) a decrease in the price of Good 1, and an increase in the price of Good 2.

Question 10

Assume that a consumer purchases a combination of product A and product B such that the MUₐ /Pₐ = 3 and MUᵦ /Pᵦ = 5. To maximize utility without spending more money, the consumer should

Accepted Answer

A) purchase more of product A and less of product B. 
B) purchase less of product A and more of product B. 
C) purchase more of both product A and product B. 
D) make no change in purchases of products A and B. 
A) purchase more of product A and less of product B. 
B) purchase less of product A and more of product B. 
C) purchase more of both product A and product B. 
D) make no change in purchases of products A and B.

Question 11

Which of the following has been a significant factor in the ability of iPads to compete effectively against laptop and desktop computers?

Accepted Answer

A) iPads are often superior to laptop and desktop computers in their ability to create content. 
B) A scarcity of production capacity has curtailed the manufacture of laptop and desktop computers. 
C) Many consumers perceive that iPads are superior to laptops and desktop computers for the consumption of digital media. 
D) The prices of laptops and desktop computers have increased dramatically. 
A) iPads are often superior to laptop and desktop computers in their ability to create content. 
B) A scarcity of production capacity has curtailed the manufacture of laptop and desktop computers. 
C) Many consumers perceive that iPads are superior to laptops and desktop computers for the consumption of digital media. 
D) The prices of laptops and desktop computers have increased dramatically.

Question 12

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 13

A consumer allocates all income between two products, A and B. If, on an indifference map, the equilibrium position shifts onto a higher indifference curve, then

Accepted Answer

A) the consumer must be purchasing more of both products. 
B) the relative prices of A and B must have changed. 
C) the prices of A and B must have increased. 
D) total utility must have increased. 
A) the consumer must be purchasing more of both products. 
B) the relative prices of A and B must have changed. 
C) the prices of A and B must have increased. 
D) total utility must have increased.

Question 14

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the

Accepted Answer

A) total utility is the same for each good. 
B) marginal utility of each good is maximized. 
C) marginal utility per dollar spent is the same for all goods. 
D) marginal utility per dollar spent is maximized for each good. 
A) total utility is the same for each good. 
B) marginal utility of each good is maximized. 
C) marginal utility per dollar spent is the same for all goods. 
D) marginal utility per dollar spent is maximized for each good.

Question 15

If the price of a good increases, it will tend to make the MU to P ratio for the good rise and the good becomes more attractive to the buyer.

Accepted Answer

A) True 
 B)False

Question 16

When total utility is at a maximum, marginal utility is zero.

Accepted Answer

A) True 
 B)False

Question 17

The graph shows part of a consumer's indifference map for units of coffee and tea, where I₁ and I₂ represent indifference curves. Which of the following statements is correct?

Accepted Answer

A) The consumer prefers E to F. 
B) The consumer prefers C to A. 
C) The consumer likes B and D equally well. 
D) The consumer likes D better than E. 
A) The consumer prefers E to F. 
B) The consumer prefers C to A. 
C) The consumer likes B and D equally well. 
D) The consumer likes D better than E.

Question 18

If total utility is increasing, marginal utility

Accepted Answer

A) is positive but may be either increasing or decreasing. 
B) must also be increasing. 
C) may be either positive or negative. 
D) will be increasing at an increasing rate. 
A) is positive but may be either increasing or decreasing. 
B) must also be increasing. 
C) may be either positive or negative. 
D) will be increasing at an increasing rate.

Question 19

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 20

When total utility reaches a maximum, then marginal utility is

Accepted Answer

A) increasing. 
B) decreasing. 
C) at a minimum. 
D) equal to zero. 
A) increasing. 
B) decreasing. 
C) at a minimum. 
D) equal to zero.

Exam 7: Utility Maximization

State the utility-maximizing rule for two products in words and using algebra.

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

In introducing the opportunity cost of time into the theory of consumer behavior, we find that, all else equal,

Increases in product prices shift the consumer's

An indifference curve

The table shows an indifference schedule for several combinations of X and Y. In moving from combination a to b, then to c, d, and e, the marginal rate of substitution of X for Y

As a consumer moves down a given indifference curve, his or her total utility will diminish.

Which of the following is not an assumption of the theory of consumer behavior described in this chapter?

Refer to the graph. The shift of the budget line from AB to CD is consistent with

Assume that a consumer purchases a combination of product A and product B such that the MUₐ /Pₐ = 3 and MUᵦ /Pᵦ = 5. To maximize utility without spending more money, the consumer should

Which of the following has been a significant factor in the ability of iPads to compete effectively against laptop and desktop computers?

The utility of a good or service

A consumer allocates all income between two products, A and B. If, on an indifference map, the equilibrium position shifts onto a higher indifference curve, then

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the

If the price of a good increases, it will tend to make the MU to P ratio for the good rise and the good becomes more attractive to the buyer.

When total utility is at a maximum, marginal utility is zero.

The graph shows part of a consumer's indifference map for units of coffee and tea, where I₁ and I₂ represent indifference curves. Which of the following statements is correct?

If total utility is increasing, marginal utility

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.

When total utility reaches a maximum, then marginal utility is

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