Question 1

The diamond-water paradox is illustrated by which of the following statements?

Accepted Answer

A) Water, a necessity, has a relatively low price whereas diamonds, usually a luxury, have a relatively high price. 
B) Although water appears to have a relatively low price when compared to diamonds, in reality, it has a relatively higher price. 
C) Although water appears to have a relatively low price when compared to diamonds, in reality, the prices are equal. 
D) Although water appears to have a relatively low price when compared to diamonds, at the margin, water has the relatively higher price. 
E) Although water appears to have a relatively low price when compared to diamonds, at the margin, the prices are equal. 
A) Water, a necessity, has a relatively low price whereas diamonds, usually a luxury, have a relatively high price. 
B) Although water appears to have a relatively low price when compared to diamonds, in reality, it has a relatively higher price. 
C) Although water appears to have a relatively low price when compared to diamonds, in reality, the prices are equal. 
D) Although water appears to have a relatively low price when compared to diamonds, at the margin, water has the relatively higher price. 
E) Although water appears to have a relatively low price when compared to diamonds, at the margin, the prices are equal.

Question 2

Suppose for a consumer the marginal utility (MU)of bread is 20 utils and the MU of milk is 10 utils; the price of bread is $3 and the price of milk is $1. Given this,

Accepted Answer

A) more utility per dollar is gained from consuming bread than milk. 
B) more utility per dollar is gained from consuming milk than bread. 
C) the same amount of utility per dollar is gained from consuming milk as bread. 
D) the consumer is in consumer equilibrium. 
A) more utility per dollar is gained from consuming bread than milk. 
B) more utility per dollar is gained from consuming milk than bread. 
C) the same amount of utility per dollar is gained from consuming milk as bread. 
D) the consumer is in consumer equilibrium.

Question 3

Suppose Valerie is consuming lipstick (L)and eye shadow (E)and nothing else. MUL = 40 and MUE = 36. The price of eye shadow is $9, and the price of lipstick is $15. What should Valerie do?

Accepted Answer

A) Consume more eye shadow and less lipstick. 
B) Consume more lipstick and less eye shadow. 
C) Consume less of both. 
D) Consume more of both. 
E) Not change her consumption of either good. 
A) Consume more eye shadow and less lipstick. 
B) Consume more lipstick and less eye shadow. 
C) Consume less of both. 
D) Consume more of both. 
E) Not change her consumption of either good.

Question 4

A consumer is in equilibrium if he or she derives the same

Accepted Answer

A) total utility from each good consumed. 
B) total utility per dollar spent on each good consumed. 
C) marginal utility from each good consumed. 
D) marginal utility per dollar spent on each good consumed. 
A) total utility from each good consumed. 
B) total utility per dollar spent on each good consumed. 
C) marginal utility from each good consumed. 
D) marginal utility per dollar spent on each good consumed.

Question 5

Assuming only two goods X and Y, if MUX\PX = MUY\PY, then the consumer

Accepted Answer

A) is not in equilibrium. 
B) cannot be made better off by redirecting his purchases. 
C) is deriving the same marginal utility on both goods. 
D) has no incentive to consume either good X or good Y. 
A) is not in equilibrium. 
B) cannot be made better off by redirecting his purchases. 
C) is deriving the same marginal utility on both goods. 
D) has no incentive to consume either good X or good Y.

Question 6

Indifference curves are convex to the origin if

Accepted Answer

A) a person's marginal rate of substitution declines as he or she consumes more of a good. 
B) a person's marginal rate of substitution increases as he or she consumes more of a good. 
C) the law of diminishing marginal utility does not hold. 
D) a person's marginal rate of substitution rises as he or she consumes more of a good. 
A) a person's marginal rate of substitution declines as he or she consumes more of a good. 
B) a person's marginal rate of substitution increases as he or she consumes more of a good. 
C) the law of diminishing marginal utility does not hold. 
D) a person's marginal rate of substitution rises as he or she consumes more of a good.

Question 7

Suppose people are in consumer equilibrium buying 10,000 units of good X at a given price. Then the price of good X falls to $0. It follows that people will buy more of good X and that the marginal utility of the last additional unit they buy will be __________ the __________ of the 10,000th unit.

Accepted Answer

A) lower than; marginal utility 
B) greater than; average utility 
C) the same as; marginal utility 
D) greater than; marginal utility 
A) lower than; marginal utility 
B) greater than; average utility 
C) the same as; marginal utility 
D) greater than; marginal utility

Question 8

Suppose the marginal utility (MU)of a paperback books is 60 utils and each book costs $10, while the MU of a hamburger is 50 utils and each costs $7.50. If you consume one movie and buy one hamburger per week, are you attaining consumer equilibrium?

Accepted Answer

A) Yes, so there is no need to change. 
B) No. You need to buy more books and fewer hamburgers to move toward consumer equilibrium. 
C) No. You need to buy more hamburgers and fewer books to move toward consumer equilibrium. 
D) There is not enough information to answer the question. 
A) Yes, so there is no need to change. 
B) No. You need to buy more books and fewer hamburgers to move toward consumer equilibrium. 
C) No. You need to buy more hamburgers and fewer books to move toward consumer equilibrium. 
D) There is not enough information to answer the question.

Question 9

For the consumer, a point on an indifference curve that lies farther from the origin is preferable compared to those points that are closer to the origin.

Accepted Answer

A) True 
 B)False

Question 10

If the MU\P ratio for two goods is the same, then

Accepted Answer

A) the slope of the budget constraint between the two goods is equal to the marginal rate of substitution (MRS)between the two goods. 
B) the indifference curve between the two goods is concave to the origin. 
C) the prices of the two goods are the same. 
D) it follows that consumers prefer fewer goods to more goods. 
A) the slope of the budget constraint between the two goods is equal to the marginal rate of substitution (MRS)between the two goods. 
B) the indifference curve between the two goods is concave to the origin. 
C) the prices of the two goods are the same. 
D) it follows that consumers prefer fewer goods to more goods.

Question 11

In order for an individual to achieve consumer equilibrium through the consumption of two goods, A and B, that individual must fulfill the condition

Accepted Answer

A) TUA = TUB. 
B) TUA\PA = TUB\PB. 
C) MUA = MUB. 
D) MUA\PA = MUB\PB. 
E) MUB\PA = MUA\PB. 
A) TUA = TUB. 
B) TUA\PA = TUB\PB. 
C) MUA = MUB. 
D) MUA\PA = MUB\PB. 
E) MUB\PA = MUA\PB.

Question 12

The marginal utility curve for units 6 through 8 of good Z lies below the horizontal axis.  What does this imply must be true about the total utility curve for units 6 through 8 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 below 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 below the horizontal axis.

Question 13

If total utility is a positive number, marginal utility must also be a positive number.

Accepted Answer

A) True 
 B)False

Question 14

The law of diminishing marginal utility can be stated as follows:

Accepted Answer

A) As the amount of a good consumed increases, the sum (total)of satisfaction received tends to decrease at a constant rate. 
B) As the amount of a good consumed increases, the additional satisfaction gained from consuming additional units tends to decrease. 
C) As the amount of a good consumed decreases, the additional satisfaction gained from consuming additional units tends to increase. 
D) As the amount of a good consumed increases, the sum (total)of satisfaction received tends to decrease at a diminishing rate. 
A) As the amount of a good consumed increases, the sum (total)of satisfaction received tends to decrease at a constant rate. 
B) As the amount of a good consumed increases, the additional satisfaction gained from consuming additional units tends to decrease. 
C) As the amount of a good consumed decreases, the additional satisfaction gained from consuming additional units tends to increase. 
D) As the amount of a good consumed increases, the sum (total)of satisfaction received tends to decrease at a diminishing rate.

Question 15

Smith, who has $10,000, receives an extra dollar, as does Jones, who has $100,000. Smith receives more utility from the extra dollar than does Jones. This is an example of

Accepted Answer

A) an interpersonal utility comparison. 
B) the law of diminishing marginal utility. 
C) the diamond-water paradox. 
D) the law of total utility 
A) an interpersonal utility comparison. 
B) the law of diminishing marginal utility. 
C) the diamond-water paradox. 
D) the law of total utility

Question 16

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

Accepted Answer

A) 28 
B) 16 
C) 44 
D) 50 
E) There is not enough information to answer this question. 
A) 28 
B) 16 
C) 44 
D) 50 
E) There is not enough information to answer this question.

Question 17

The marginal rate of substitution is illustrated by the

Accepted Answer

A) slope of the indifference curve. 
B) slope of the budget line. 
C) ratio of the marginal utility of the good on the vertical axis to the marginal utility of the good on the horizontal axis. 
D) distance between the indifference curves. 
E) distance between the budget line and the indifference curve. 
A) slope of the indifference curve. 
B) slope of the budget line. 
C) ratio of the marginal utility of the good on the vertical axis to the marginal utility of the good on the horizontal axis. 
D) distance between the indifference curves. 
E) distance between the budget line and the indifference curve.

Question 18

Consumers tend to equate total utilities per dollar spent.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is false ?

Accepted Answer

A) If total utility rises, so might marginal utility. 
B) If marginal utility rises, so must total utility. 
C) If marginal utility falls, so must total utility. 
D) If total utility falls, marginal utility is negative. 
A) If total utility rises, so might marginal utility. 
B) If marginal utility rises, so must total utility. 
C) If marginal utility falls, so must total utility. 
D) If total utility falls, marginal utility is negative.

Exam 7: Consumer Choice: Maximizing Utility and Behavioral Economics

The diamond-water paradox is illustrated by which of the following statements?

Suppose for a consumer the marginal utility (MU)of bread is 20 utils and the MU of milk is 10 utils; the price of bread is $3 and the price of milk is $1. Given this,

Suppose Valerie is consuming lipstick (L)and eye shadow (E)and nothing else. MUL = 40 and MUE = 36. The price of eye shadow is $9, and the price of lipstick is $15. What should Valerie do?

A consumer is in equilibrium if he or she derives the same

Assuming only two goods X and Y, if MUX\PX = MUY\PY, then the consumer

Indifference curves are convex to the origin if

Suppose people are in consumer equilibrium buying 10,000 units of good X at a given price. Then the price of good X falls to $0. It follows that people will buy more of good X and that the marginal utility of the last additional unit they buy will be __________ the __________ of the 10,000th unit.

Suppose the marginal utility (MU)of a paperback books is 60 utils and each book costs $10, while the MU of a hamburger is 50 utils and each costs $7.50. If you consume one movie and buy one hamburger per week, are you attaining consumer equilibrium?

For the consumer, a point on an indifference curve that lies farther from the origin is preferable compared to those points that are closer to the origin.

If the MU\P ratio for two goods is the same, then

In order for an individual to achieve consumer equilibrium through the consumption of two goods, A and B, that individual must fulfill the condition

The marginal utility curve for units 6 through 8 of good Z lies below the horizontal axis. What does this imply must be true about the total utility curve for units 6 through 8 of good Z?

If total utility is a positive number, marginal utility must also be a positive number.

The law of diminishing marginal utility can be stated as follows:

Smith, who has $10,000, receives an extra dollar, as does Jones, who has $100,000. Smith receives more utility from the extra dollar than does Jones. This is an example of

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

The marginal rate of substitution is illustrated by the

Consumers tend to equate total utilities per dollar spent.

Which of the following statements is false ?

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

Suppose Valerie is consuming lipstick (L)and eye shadow (E)and nothing else. MU_L = 40 and MU_E = 36. The price of eye shadow is $9, and the price of lipstick is $15. What should Valerie do?

Assuming only two goods X and Y, if MU_X\P_X = MU_Y\P_Y, then the consumer

Suppose people are in consumer equilibrium buying 10,000 units of good X at a given price. Then the price of good X falls to $0. It follows that people will buy more of good X and that the marginal utility of the last additional unit they buy will be the of the 10,000th unit.