Question 1

In the graph, the change in the individual's preferences indicated by a shift from indifference curve A to indifference curve B will result in

Accepted Answer

A) a decrease in demand for good Y. 
B) no change in the demand for good Y. 
C) a decrease in demand for good X. 
D) an increase in demand for good X. 
A) a decrease in demand for good Y. 
B) no change in the demand for good Y. 
C) a decrease in demand for good X. 
D) an increase in demand for good X.

Question 2

If total utility has reached a maximum level, and assuming that diminishing marginal utility already applies, then what will happen as the consumer consumes additional units of the product?

Accepted Answer

A) Marginal utility of the additional units will be greater than zero. 
B) Total utility will turn negative. 
C) Marginal utility of the additional units will turn negative. 
D) Total utility will increase at a diminishing rate. 
A) Marginal utility of the additional units will be greater than zero. 
B) Total utility will turn negative. 
C) Marginal utility of the additional units will turn negative. 
D) Total utility will increase at a diminishing rate.

Question 3

Assume initially that the price of X (the quantity of which is measured on the horizontal axis)is $9 and the price of Y (the quantity of which is measured on the vertical axis)is $4. If the price of X now declines to $6, the budget line will

Accepted Answer

A) be unaffected. 
B) shift outward on the vertical axis. 
C) shift inward on the horizontal axis. 
D) shift outward on the horizontal axis. 
A) be unaffected. 
B) shift outward on the vertical axis. 
C) shift inward on the horizontal axis. 
D) shift outward on the horizontal axis.

Question 4

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 5

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 6

Marginal utility is the accumulation of the total utility from successive units of a good or service consumed.

Accepted Answer

A) True 
 B)False

Question 7

The income of a consumer is $40, the price of A is $2, and the price of B is $6. If the quantity of A is measured vertically, then the slope of the budget line is

Accepted Answer

A) -3.0. 
B) -0.5. 
C) -0.33. 
D) -2.5. 
A) -3.0. 
B) -0.5. 
C) -0.33. 
D) -2.5.

Question 8

Utility refers to the

Accepted Answer

A) satisfaction that a consumer derives from a good or service. 
B) rate of decline in a product demand curve. 
C) relative scarcity of a product. 
D) usefulness of a product. 
A) satisfaction that a consumer derives from a good or service. 
B) rate of decline in a product demand curve. 
C) relative scarcity of a product. 
D) usefulness of a product.

Question 9

A child is given $4 of pocket money to be spent on either hard candies or chocolates. Chocolates cost 40 cents and hard candies 80 cents each. The marginal utilities derived from each product are as shown in the following table.   If the child buys either chocolates or hard candies one piece at a time, what will be his first two purchases?

Accepted Answer

A) a hard candy, followed by another hard candy 
B) a hard candy, followed by a chocolate 
C) a chocolate, followed by a hard candy 
D) a chocolate, followed by another chocolate 
A) a hard candy, followed by another hard candy 
B) a hard candy, followed by a chocolate 
C) a chocolate, followed by a hard candy 
D) a chocolate, followed by another chocolate

Question 10

In the diagram,

Accepted Answer

A) the consumer is indifferent between points A and B, but neither point maximizes his utility. 
B) the consumer is indifferent between points A and B, and either point will maximize his utility. 
C) any combination of X and Y entailing more of Y and less of X than shown at B would be preferred. 
D) any combination of X and Y entailing more of X and less of Y than shown at A would be preferred. 
A) the consumer is indifferent between points A and B, but neither point maximizes his utility. 
B) the consumer is indifferent between points A and B, and either point will maximize his utility. 
C) any combination of X and Y entailing more of Y and less of X than shown at B would be preferred. 
D) any combination of X and Y entailing more of X and less of Y than shown at A would be preferred.

Question 11

Refer to the budget line shown in the diagram. If the consumer's money income is $20, the

Accepted Answer

A) prices of C and D cannot be determined. 
B) price of C is $2 and the price of D is $4. 
C) consumer can obtain a combination of 5 units of both C and D. 
D) price of C is $4 and the price of D is $2. 
A) prices of C and D cannot be determined. 
B) price of C is $2 and the price of D is $4. 
C) consumer can obtain a combination of 5 units of both C and D. 
D) price of C is $4 and the price of D is $2.

Question 12

The income effect explains an exception to the law of demand.

Accepted Answer

A) True 
 B)False

Question 13

When the federal government started requiring restaurants to print calorie counts next to menu items,

Accepted Answer

A) restaurants changed their prices, systematically lowering prices for healthier items and raising prices for high-calorie entrees. 
B) there was no meaningful change in consumption behavior, indicating that marginal utility is driven solely by tastes for the food items and not by health information. 
C) consumption of higher calorie items decreased, suggesting consumers' marginal utility for these items dropped. 
D) consumption of higher-calorie items increased, contrary to the law's objective. 
A) restaurants changed their prices, systematically lowering prices for healthier items and raising prices for high-calorie entrees. 
B) there was no meaningful change in consumption behavior, indicating that marginal utility is driven solely by tastes for the food items and not by health information. 
C) consumption of higher calorie items decreased, suggesting consumers' marginal utility for these items dropped. 
D) consumption of higher-calorie items increased, contrary to the law's objective.

Question 14

A consumer is making purchases of products Alpha and Beta such that the marginal utility of product Alpha is 63 and the marginal utility of product Beta is 40. The price of product Alpha is $9, and the price of product Beta is $5. The utility-maximizing rule suggests that, to stay within a given budget constraint, this consumer should

Accepted Answer

A) increase consumption of product Alpha and decrease consumption of product Beta. 
B) increase consumption of product Beta and increase consumption of product Alpha. 
C) increase consumption of product Beta and decrease consumption of product Alpha. 
D) make no change in the consumption of Alpha or Beta. 
A) increase consumption of product Alpha and decrease consumption of product Beta. 
B) increase consumption of product Beta and increase consumption of product Alpha. 
C) increase consumption of product Beta and decrease consumption of product Alpha. 
D) make no change in the consumption of Alpha or Beta.

Question 15

In deciding what to buy, the consumer will choose the good with the

Accepted Answer

A) highest marginal utility. 
B) lowest price. 
C) highest marginal utility-to-price ratio. 
D) lowest marginal utility-to-price ratio. 
A) highest marginal utility. 
B) lowest price. 
C) highest marginal utility-to-price ratio. 
D) lowest marginal utility-to-price ratio.

Question 16

The ability of a good or service to satisfy wants is called

Accepted Answer

A) utility maximization. 
B) opportunity cost. 
C) revenue potential. 
D) utility. 
A) utility maximization. 
B) opportunity cost. 
C) revenue potential. 
D) utility.

Question 17

The utility from a specific product is

Accepted Answer

A) determined by a consumer's income. 
B) determined by the price of the product. 
C) a measure of one's preference or taste for it. 
D) constant as one consumes more units of it. 
A) determined by a consumer's income. 
B) determined by the price of the product. 
C) a measure of one's preference or taste for it. 
D) constant as one consumes more units of it.

Question 18

Suppose an individual's budget line rotated as shown above. Which of the four pairs of graphs, each showing the demand for Good X and a separate demand for Good Y, is the most consistent with the given change in the top graph?

Accepted Answer

A) pair B 
B) pair A 
C) pair C 
D) pair D 
A) pair B 
B) pair A 
C) pair C 
D) pair D

Question 19

Indifference curves are linear, and budget lines are convex to the origin.

Accepted Answer

A) True 
 B)False

Question 20

If the quantity of X is measured on the horizontal axis and the quantity of Y on the vertical, then the slope of the budget line is equal to the price of X divided by the price of Y.

Accepted Answer

A) True 
 B)False

Exam 7: Utility Maximization

In the graph, the change in the individual's preferences indicated by a shift from indifference curve A to indifference curve B will result in

If total utility has reached a maximum level, and assuming that diminishing marginal utility already applies, then what will happen as the consumer consumes additional units of the product?

Assume initially that the price of X (the quantity of which is measured on the horizontal axis)is $9 and the price of Y (the quantity of which is measured on the vertical axis)is $4. If the price of X now declines to $6, the budget line will

Which of the following is correct?

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.

Marginal utility is the accumulation of the total utility from successive units of a good or service consumed.

The income of a consumer is $40, the price of A is $2, and the price of B is $6. If the quantity of A is measured vertically, then the slope of the budget line is

Utility refers to the

In the diagram,

Refer to the budget line shown in the diagram. If the consumer's money income is $20, the

The income effect explains an exception to the law of demand.

When the federal government started requiring restaurants to print calorie counts next to menu items,

In deciding what to buy, the consumer will choose the good with the

The ability of a good or service to satisfy wants is called

The utility from a specific product is

Suppose an individual's budget line rotated as shown above. Which of the four pairs of graphs, each showing the demand for Good X and a separate demand for Good Y, is the most consistent with the given change in the top graph?

Indifference curves are linear, and budget lines are convex to the origin.

If the quantity of X is measured on the horizontal axis and the quantity of Y on the vertical, then the slope of the budget line is equal to the price of X divided by the price of Y.

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

Elasticity

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, RD, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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