Question 1

Suppose that a consumer who spends her budget on X and Y is initially at equilibrium. If the price of X increases, then the MU/P of X will

Accepted Answer

A) decrease and the consumer will respond by buying more Y and less X. 
B) decrease and the consumer will respond by buying more X and less Y. 
C) increase and the consumer will respond by buying more Y and less X. 
D) increase and the consumer will respond by buying more X and less Y. 
A) decrease and the consumer will respond by buying more Y and less X. 
B) decrease and the consumer will respond by buying more X and less Y. 
C) increase and the consumer will respond by buying more Y and less X. 
D) increase and the consumer will respond by buying more X and less Y.

Question 2

Refer to the budget line shown in the diagram. The absolute value of the slope of the budget line is

Accepted Answer

A) MU C/MU D. 
B) one-half. 
C) Pd/ Pc . 
D) Pc / Pd. 
A) MU C/MU D. 
B) one-half. 
C) Pd/ Pc . 
D) Pc / Pd.

Question 3

List the four assumptions about consumers that are used with the theory of consumer behavior.

Accepted Answer

The four assumptions about con

Question 4

The marginal rate of substitution

Accepted Answer

A) may increase or decrease on a given indifference curve, depending on whether the substitution or the income effect is dominant. 
B) increases as one moves southeast along an indifference curve. 
C) is constant at all points on the budget line. 
D) declines as one moves southeast along an indifference curve. 
A) may increase or decrease on a given indifference curve, depending on whether the substitution or the income effect is dominant. 
B) increases as one moves southeast along an indifference curve. 
C) is constant at all points on the budget line. 
D) declines as one moves southeast along an indifference curve.

Question 5

A consumer currently spends a given budget on two goods, X and Y, in such quantities that the marginal utility of X is 12 and the marginal utility of Y is 8. The unit price of X is $3 and the unit price of Y is $4. The utility-maximizing rule suggests that this consumer should

Accepted Answer

A) decrease consumption of product X and increase consumption of product Y. 
B) decrease consumption of product X and decrease consumption of product Y. 
C) decrease consumption of product Y and increase consumption of product X. 
D) stick with the current consumption mix because it yields maximum utility. 
A) decrease consumption of product X and increase consumption of product Y. 
B) decrease consumption of product X and decrease consumption of product Y. 
C) decrease consumption of product Y and increase consumption of product X. 
D) stick with the current consumption mix because it yields maximum utility.

Question 6

Which of the graphs shows a decrease in the price of X and an increase in the price of Y, but no change in the buyer's budget?

Accepted Answer

A) graph A 
B) graph B 
C) graph C 
D) graph D 
A) graph A 
B) graph B 
C) graph C 
D) graph D

Question 7

Assume that a consumer purchases a combination of products Y and Z and that the MU y/ Pᵧ = 25 and MU z/ Pz = 20. To maximize utility, without spending more money, the consumer should

Accepted Answer

A) purchase less of Y and more of Z. 
B) purchase more of Y and less of Z. 
C) purchase more of both Y and Z. 
D) make no change in the quantities Y and Z. 
A) purchase less of Y and more of Z. 
B) purchase more of Y and less of Z. 
C) purchase more of both Y and Z. 
D) make no change in the quantities Y and Z.

Question 8

In the diagram, suppose the consumer is currently exhausting his or her income at a point where the marginal rate of substitution of apples for oranges is greater than 5/₄. That is, MUA/MU0>5/₄. To maximize utility, the consumer should move from point

Accepted Answer

A) a to e. 
B) b to e. 
C) c to e. 
D) d to e. 
A) a to e. 
B) b to e. 
C) c to e. 
D) d to e.

Question 9

Where total utility is at a maximum, marginal utility is

Accepted Answer

A) negative. 
B) positive and increasing. 
C) zero. 
D) positive but decreasing. 
A) negative. 
B) positive and increasing. 
C) zero. 
D) positive but decreasing.

Question 10

Edith is buying products X and Y with her money income. Suppose her budget line shifts rightward (outward). This might be the result of

Accepted Answer

A) the prices of X and Y increasing while her money income remains constant. 
B) her money income decreasing while the prices of X and Y remain constant. 
C) her money income increasing more than increases in the prices of X and Y. 
D) none of these. 
A) the prices of X and Y increasing while her money income remains constant. 
B) her money income decreasing while the prices of X and Y remain constant. 
C) her money income increasing more than increases in the prices of X and Y. 
D) none of these.

Question 11

Given the indifference curve and budget line above, which of the following must be true at point A?

Accepted Answer

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

Question 12

In moving along a given budget line,

Accepted Answer

A) the prices of both products and money income are assumed to be constant. 
B) each point on the line will be equally satisfactory to consumers. 
C) money income varies, but the prices of the two goods are constant. 
D) the prices of both products are assumed to vary, but money income is constant. 
A) the prices of both products and money income are assumed to be constant. 
B) each point on the line will be equally satisfactory to consumers. 
C) money income varies, but the prices of the two goods are constant. 
D) the prices of both products are assumed to vary, but money income is constant.

Question 13

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 14

Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Prashanth

Accepted Answer

A) is relatively unappreciative of the arts. 
B) obtains more marginal utility from the play than from the hockey game. 
C) has a higher "marginal utility-to-price ratio" for the hockey game than for the play. 
D) has recently attended several other Broadway plays. 
A) is relatively unappreciative of the arts. 
B) obtains more marginal utility from the play than from the hockey game. 
C) has a higher "marginal utility-to-price ratio" for the hockey game than for the play. 
D) has recently attended several other Broadway plays.

Question 15

Assume a diagram in which a budget line is imposed on an indifference map. A consumer will maximize her utility

Accepted Answer

A) at any point where the budget line and an indifference curve intersect. 
B) at either point where the budget line intersects the horizontal and vertical axes. 
C) where the budget line is tangent to an indifference curve. 
D) where the ratio of the two product prices equals the reciprocal of the consumer's income. 
A) at any point where the budget line and an indifference curve intersect. 
B) at either point where the budget line intersects the horizontal and vertical axes. 
C) where the budget line is tangent to an indifference curve. 
D) where the ratio of the two product prices equals the reciprocal of the consumer's income.

Question 16

A rational consumer will cease purchasing a product at that quantity where marginal utility begins to diminish.

Accepted Answer

A) True 
 B)False

Question 17

AA is Al's indifference curve, and BB is Betty's. Al and Betty have the same budget line, LL. This information implies that

Accepted Answer

A) Al's demand for X is greater than Betty's. 
B) Al's demand for Y is greater than Betty's. 
C) Al and Betty have the same demand for both products. 
D) Al will buy some of X, but Betty will not. 
A) Al's demand for X is greater than Betty's. 
B) Al's demand for Y is greater than Betty's. 
C) Al and Betty have the same demand for both products. 
D) Al will buy some of X, but Betty will not.

Question 18

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

Exam 7: Utility Maximization

Suppose that a consumer who spends her budget on X and Y is initially at equilibrium. If the price of X increases, then the MU/P of X will

Refer to the budget line shown in the diagram. The absolute value of the slope of the budget line is

List the four assumptions about consumers that are used with the theory of consumer behavior.

The marginal rate of substitution

A consumer currently spends a given budget on two goods, X and Y, in such quantities that the marginal utility of X is 12 and the marginal utility of Y is 8. The unit price of X is $3 and the unit price of Y is $4. The utility-maximizing rule suggests that this consumer should

Which of the graphs shows a decrease in the price of X and an increase in the price of Y, but no change in the buyer's budget?

Assume that a consumer purchases a combination of products Y and Z and that the MU y/ Pᵧ = 25 and MU z/ Pz = 20. To maximize utility, without spending more money, the consumer should

In the diagram, suppose the consumer is currently exhausting his or her income at a point where the marginal rate of substitution of apples for oranges is greater than 5/₄. That is, MUA/MU0>5/₄. To maximize utility, the consumer should move from point

Where total utility is at a maximum, marginal utility is

Edith is buying products X and Y with her money income. Suppose her budget line shifts rightward (outward). This might be the result of

Given the indifference curve and budget line above, which of the following must be true at point A?

In moving along a given budget line,

Any combination of goods lying outside of the budget line

Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Prashanth

Assume a diagram in which a budget line is imposed on an indifference map. A consumer will maximize her utility

A rational consumer will cease purchasing a product at that quantity where marginal utility begins to diminish.

AA is Al's indifference curve, and BB is Betty's. Al and Betty have the same budget line, LL. This information implies that

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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Assume that a consumer purchases a combination of products Y and Z and that the MU y/ Pᵧ = 25 and MU z/ P_z = 20. To maximize utility, without spending more money, the consumer should

In the diagram, suppose the consumer is currently exhausting his or her income at a point where the marginal rate of substitution of apples for oranges is greater than ⁵/₄. That is, MUA/MU0>⁵/₄. To maximize utility, the consumer should move from point