Question 1

Suppose that in the year 2050, one gallon of water is more expensive than a one-carat diamond. What could explain this?

Accepted Answer

A) Water must be much less scarce in the world of 2050 than today. 
B) Diamonds must be much less scarce in the world of 2050 than today. 
C) The diamond-water paradox does not hold for any pair of goods in the future. 
D) The law of diminishing marginal utility no longer holds. 
A) Water must be much less scarce in the world of 2050 than today. 
B) Diamonds must be much less scarce in the world of 2050 than today. 
C) The diamond-water paradox does not hold for any pair of goods in the future. 
D) The law of diminishing marginal utility no longer holds.

Question 2

Describe the diamond-water paradox and its solution.

Accepted Answer

The diamond-water paradox states that so

Question 3

Exhibit 20-5   Refer to Exhibit 20-5.  What value goes in blank (B)?

Accepted Answer

A) 27 
B) 38 
C) 40 
D) 35 
E) There is not enough information to answer this question. 
A) 27 
B) 38 
C) 40 
D) 35 
E) There is not enough information to answer this question.

Question 4

Suppose that the total utility from consuming one unit of good Z is 80 utils, the total utility from consuming two units of good Z is 125 utils, and the total utility from consuming three units of good Z is 160 utils.  The marginal utility received from consuming the third unit of good Z is

Accepted Answer

A) 365 utils. 
B) 35 utils. 
C) 45 utils. 
D) 50 utils. 
A) 365 utils. 
B) 35 utils. 
C) 45 utils. 
D) 50 utils.

Question 5

According to the traditional theory of marginal utility as presented in the textbookbook, as more units of a good are acquired, the consumer's marginal utility

Accepted Answer

A) always continues to rise. 
B) diminishes. 
C) remains constant. 
D) may diminish at first, but it must eventually rise. 
E) may rise at first, but it must eventually become constant. 
A) always continues to rise. 
B) diminishes. 
C) remains constant. 
D) may diminish at first, but it must eventually rise. 
E) may rise at first, but it must eventually become constant.

Question 6

Research presented in the textbookbook shows that people are more likely to spend a larger percentage of money received from the government when it is called a "tax bonus" than they would if it were called a "tax rebate."

Accepted Answer

A) True 
 B)False

Question 7

To economists, utility means

Accepted Answer

A) marginal value. 
B) relative value. 
C) satisfaction. 
D) usefulness. 
A) marginal value. 
B) relative value. 
C) satisfaction. 
D) usefulness.

Question 8

Rich has $100,000 and Poore has $1,000. Which of these statements is most strongly supported by the theory of consumer choice?

Accepted Answer

A) An extra dollar given to Rich is worth less to him than his 100,000th dollar. 
B) An extra dollar is worth less to Rich than it is to Poore. 
C) An extra dollar is worth less to Poore than it is to Rich. 
D) Rich's 1,000th dollar is worth more to Rich than Poore's 1,000th dollar is worth to Poore. 
E) Rich's 100,000th dollar is worth to Rich exactly what Poore's 1,000th dollar is worth to Poore. 
A) An extra dollar given to Rich is worth less to him than his 100,000th dollar. 
B) An extra dollar is worth less to Rich than it is to Poore. 
C) An extra dollar is worth less to Poore than it is to Rich. 
D) Rich's 1,000th dollar is worth more to Rich than Poore's 1,000th dollar is worth to Poore. 
E) Rich's 100,000th dollar is worth to Rich exactly what Poore's 1,000th dollar is worth to Poore.

Question 9

If income rises, the budget constraint

Accepted Answer

A) moves inward toward the origin. 
B) moves outward away from the origin. 
C) does not move. 
D) moves farther down the vertical axis. 
A) moves inward toward the origin. 
B) moves outward away from the origin. 
C) does not move. 
D) moves farther down the vertical axis.

Question 10

If Dan's marginal utility from eating one apple is 100 utils and Jorge's marginal utility from eating one apple is 200 utils, it follows that Jorge likes apples more than Dan, assuming that Dan and Jorge measure the marginal utility of apples in exactly the same way.

Accepted Answer

A) True 
 B)False

Question 11

The MU\P ratio for good X is greater than the MU\P ratio for good Y. To achieve consumer equilibrium, the consumer reallocates dollars from the purchase of good Y to the purchase of good X. If the law of diminishing marginal utility holds, the marginal utility of good X __________ and the marginal utility of good Y __________.

Accepted Answer

A) falls, rises 
B) rises, falls 
C) rises, stays constant 
D) falls, stays constant 
E) stays constant, rises 
A) falls, rises 
B) rises, falls 
C) rises, stays constant 
D) falls, stays constant 
E) stays constant, rises

Question 12

Suppose you are consuming a particular good and you could somehow give back the last unit you consumed. What would happen to total and marginal utility (assuming that the marginal utility of the unit given back is positive)?

Accepted Answer

A) Both total and marginal utility would decrease. 
B) Both total and marginal utility would increase. 
C) Total utility would increase but marginal utility would decrease. 
D) Total utility would decrease but marginal utility would increase. 
E) There would be no change in marginal utility but total utility would decrease. 
A) Both total and marginal utility would decrease. 
B) Both total and marginal utility would increase. 
C) Total utility would increase but marginal utility would decrease. 
D) Total utility would decrease but marginal utility would increase. 
E) There would be no change in marginal utility but total utility would decrease.

Question 13

Exhibit 20-7 ​
 
Refer to Exhibit 20-7. The price of X is $40 and the price of Y is $80. Assuming that the consumer allocates all of his income to good X, how many units of X will he purchase? (Request: Do not ask the instructor to which graph the question is referring.)

Accepted Answer

A) 40 
B) 50 
C) 80 
D) 90 
E) 120 
A) 40 
B) 50 
C) 80 
D) 90 
E) 120

Question 14

Economists use the term utility to mean usefulness.

Accepted Answer

A) True 
 B)False

Question 15

Economists usually assume that money has __________ marginal utility.

Accepted Answer

A) increasing 
B) constant 
C) decreasing 
D) zero 
A) increasing 
B) constant 
C) decreasing 
D) zero

Question 16

The marginal utility curve for units 1 through 5 of good Z lies above the horizontal axis.  What does this imply must be true about the total utility curve for units 1 through 5 of good Z?

Accepted Answer

A) That portion of good Z's total utility curve must be upward sloping. 
B) That portion of good Z's total utility curve must be downward sloping. 
C) That portion of good Z's total utility curve must be horizontal. 
D) That portion of good Z's total utility curve must also lie above the horizontal axis. 
A) That portion of good Z's total utility curve must be upward sloping. 
B) That portion of good Z's total utility curve must be downward sloping. 
C) That portion of good Z's total utility curve must be horizontal. 
D) That portion of good Z's total utility curve must also lie above the horizontal axis.

Question 17

Exhibit 20-6 ​
 
Refer to Exhibit 20-6. I1, I2 and I3 are indifference curves and line ab is the relevant budget constraint. If the consumer is initially at point R, he should

Accepted Answer

A) strive for point N by obtaining a larger money income. 
B) purchase more of X and less of Y. 
C) remain at that point in order to maximize utility. 
D) purchase more of Y and less of X. 
A) strive for point N by obtaining a larger money income. 
B) purchase more of X and less of Y. 
C) remain at that point in order to maximize utility. 
D) purchase more of Y and less of X.

Question 18

We would expect the total utility of diamonds to be __________ than the total utility of water and the marginal utility of diamonds to be __________ than the marginal utility of water.

Accepted Answer

A) higher; higher 
B) lower; lower 
C) higher; lower 
D) lower; higher 
A) higher; higher 
B) lower; lower 
C) higher; lower 
D) lower; higher

Question 19

Suppose that there are two cities that are alike in every way except that one city has significantly better weather than the other city.  Call the city with good weather Good-Weather City (GWC)and the other Bad-Weather City (BWC).  Assume that the median price of a home in the two cities is originally the same.  If the marginal utility of living in GWC is 500 and the marginal utility of living in BWC is 300, to make themselves better off economic theory tells us that

Accepted Answer

A) at least some people will move from BWC to GWC, which will make housing prices rise in GWC and BWC. 
B) at least some people will move from GWC to BWC, which make housing prices rise in BWC and GWC. 
C) at least some people will move from BWC to GWC, which will make housing prices rise in GWC and fall in BWC. 
D) at least some people will move from GWC to BWC, which will make housing prices rise in BWC and fall in GWC. 
A) at least some people will move from BWC to GWC, which will make housing prices rise in GWC and BWC. 
B) at least some people will move from GWC to BWC, which make housing prices rise in BWC and GWC. 
C) at least some people will move from BWC to GWC, which will make housing prices rise in GWC and fall in BWC. 
D) at least some people will move from GWC to BWC, which will make housing prices rise in BWC and fall in GWC.

Question 20

Suppose you could quantify the amount of satisfaction you receive from consuming ice cream in money terms. You might say, "I expect to get $3 worth of satisfaction from this ice cream cone." According to traditional economic theory, if the price of this ice cream cone were $3.25, would you buy one?

Accepted Answer

A) Ye, since the marginal benefit from consuming the ice cream cone is greater than the marginal cost. 
B) Yes, since the marginal cost of consuming the ice cream cone is greater than the marginal benefit. 
C) No, since the marginal cost of consuming the ice cream cone is greater than the marginal benefit. 
D) No, since the marginal benefit from consuming the ice cream cone is greater than the marginal cost. 
A) Ye, since the marginal benefit from consuming the ice cream cone is greater than the marginal cost. 
B) Yes, since the marginal cost of consuming the ice cream cone is greater than the marginal benefit. 
C) No, since the marginal cost of consuming the ice cream cone is greater than the marginal benefit. 
D) No, since the marginal benefit from consuming the ice cream cone is greater than the marginal cost.

Exam 7: Consumer Choice: Maximizing Utility and Behavioral Economics

Suppose that in the year 2050, one gallon of water is more expensive than a one-carat diamond. What could explain this?

Describe the diamond-water paradox and its solution.

Exhibit 20-5 Refer to Exhibit 20-5. What value goes in blank (B)?

Suppose that the total utility from consuming one unit of good Z is 80 utils, the total utility from consuming two units of good Z is 125 utils, and the total utility from consuming three units of good Z is 160 utils. The marginal utility received from consuming the third unit of good Z is

According to the traditional theory of marginal utility as presented in the textbookbook, as more units of a good are acquired, the consumer's marginal utility

Research presented in the textbookbook shows that people are more likely to spend a larger percentage of money received from the government when it is called a "tax bonus" than they would if it were called a "tax rebate."

To economists, utility means

Rich has $100,000 and Poore has $1,000. Which of these statements is most strongly supported by the theory of consumer choice?

If income rises, the budget constraint

If Dan's marginal utility from eating one apple is 100 utils and Jorge's marginal utility from eating one apple is 200 utils, it follows that Jorge likes apples more than Dan, assuming that Dan and Jorge measure the marginal utility of apples in exactly the same way.

Suppose you are consuming a particular good and you could somehow give back the last unit you consumed. What would happen to total and marginal utility (assuming that the marginal utility of the unit given back is positive)?

Exhibit 20-7 ​ Refer to Exhibit 20-7. The price of X is $40 and the price of Y is $80. Assuming that the consumer allocates all of his income to good X, how many units of X will he purchase? (Request: Do not ask the instructor to which graph the question is referring.)

Economists use the term utility to mean usefulness.

Economists usually assume that money has __________ marginal utility.

The marginal utility curve for units 1 through 5 of good Z lies above the horizontal axis. What does this imply must be true about the total utility curve for units 1 through 5 of good Z?

Exhibit 20-6 ​ Refer to Exhibit 20-6. I1, I2 and I3 are indifference curves and line ab is the relevant budget constraint. If the consumer is initially at point R, he should

We would expect the total utility of diamonds to be __________ than the total utility of water and the marginal utility of diamonds to be __________ than the marginal utility of water.

Suppose you could quantify the amount of satisfaction you receive from consuming ice cream in money terms. You might say, "I expect to get $3 worth of satisfaction from this ice cream cone." According to traditional economic theory, if the price of this ice cream cone were $3.25, would you buy one?

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Elasticity

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages, Union, and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Filters

Exhibit 20-7 Refer to Exhibit 20-7. The price of X is $40 and the price of Y is $80. Assuming that the consumer allocates all of his income to good X, how many units of X will he purchase? (Request: Do not ask the instructor to which graph the question is referring.)

Exhibit 20-6 Refer to Exhibit 20-6. I₁, I₂ and I₃ are indifference curves and line ab is the relevant budget constraint. If the consumer is initially at point R, he should

We would expect the total utility of diamonds to be than the total utility of water and the marginal utility of diamonds to be than the marginal utility of water.