Question 1

The law of demand holds that as prices of goods decrease, people are willing to buy more.

Accepted Answer

A) True 
 B)False  True

Question 2

All inferior goods have upward-sloping demand curves.

Accepted Answer

A) True 
 B)False  False

Question 3

Adam Smith's diamond-water puzzle

Accepted Answer

A) can be resolved by distinguishing between marginal and total utility. 
B) occurs because diamonds have no utility. 
C) occurs because scarcity increases total utility. 
D) will likely never be resolved with existing economic tools. 
A) can be resolved by distinguishing between marginal and total utility. 
B) occurs because diamonds have no utility. 
C) occurs because scarcity increases total utility. 
D) will likely never be resolved with existing economic tools. A

Question 4

Figure 5-13 
  
-​ According to Figure 5-13, if the price of good X falls, the optimal combination will move

Accepted Answer

A) from U  1  to a point on a higher indifference curve, such as U  3  . 
B) from U  2  to a point on a higher indifference curve, such as U  3  . 
C) from U  1  to a point on a higher indifference curve, such as U  2  . 
D) from U  2  to a point on a higher indifference curve, such as U  1  . 
A) from U  1  to a point on a higher indifference curve, such as U  3  . 
B) from U  2  to a point on a higher indifference curve, such as U  3  . 
C) from U  1  to a point on a higher indifference curve, such as U  2  . 
D) from U  2  to a point on a higher indifference curve, such as U  1  .

Question 5

An increase in a family's income will cause its budget line to

Accepted Answer

A) become steeper. 
B) become flatter (less steep). 
C) move closer to the origin. 
D) move away from the origin. 
E) become more convex toward the origin. 
A) become steeper. 
B) become flatter (less steep). 
C) move closer to the origin. 
D) move away from the origin. 
E) become more convex toward the origin.

Question 6

The Wall Street Journal reports that "hard times aid poultry companies as people eat cheaper fowl." In the language of economists, this means

Accepted Answer

A) chicken is an inferior good. 
B) chicken has a negative substitution effect. 
C) chicken has a positive substitution effect. 
D) people's tastes change during recessions. 
E) chicken has a positive income effect. 
A) chicken is an inferior good. 
B) chicken has a negative substitution effect. 
C) chicken has a positive substitution effect. 
D) people's tastes change during recessions. 
E) chicken has a positive income effect.

Question 7

A consumer will consume the combination of goods at the point of tangency between the budget line and the indifference curve.

Accepted Answer

A) True 
 B)False

Question 8

Total utility can be thought of as the

Accepted Answer

A) total satisfaction derived from a bundle of goods. 
B) minimum amount of money a consumer is willing to spend on a bundle of goods. 
C) additional satisfaction a consumer receives from the marginal unit of a good. 
D) willingness to pay for the marginal unit of a good. 
A) total satisfaction derived from a bundle of goods. 
B) minimum amount of money a consumer is willing to spend on a bundle of goods. 
C) additional satisfaction a consumer receives from the marginal unit of a good. 
D) willingness to pay for the marginal unit of a good.

Question 9

Robert decides not to attend a showing of the newest Star Wars movie when the price of a ticket is $10. From this, we can conclude that seeing the movie is

Accepted Answer

A) worth less than 1,000 utils to Robert. 
B) worth $8 to Robert. 
C) was worth less than $10 worth of other goods for Robert. 
D) something that Robert would never do. 
A) worth less than 1,000 utils to Robert. 
B) worth $8 to Robert. 
C) was worth less than $10 worth of other goods for Robert. 
D) something that Robert would never do.

Question 10

Because of diminishing marginal utility, you

Accepted Answer

A) should never buy more than one unit of a good, since additional units decrease your total utility. 
B) have to consider the effect of additional units on your total utility when you make purchases. 
C) wind up paying for units that you receive no benefit from. 
D) always want to increase your consumption of a good until the marginal utility you get is zero. 
A) should never buy more than one unit of a good, since additional units decrease your total utility. 
B) have to consider the effect of additional units on your total utility when you make purchases. 
C) wind up paying for units that you receive no benefit from. 
D) always want to increase your consumption of a good until the marginal utility you get is zero.

Question 11

Total utility always decreases when additional amounts of a commodity are consumed.

Accepted Answer

A) True 
 B)False

Question 12

An optimal consumption bundle will always be on the highest attainable indifference curve for the consumer.

Accepted Answer

A) True 
 B)False

Question 13

Figure 5-14
 
Martha initially buys the combination of pens and pencils shown as A in Figure 5-14. After the prices of both goods change, she buys combination B. It must be true that

Accepted Answer

A) Martha prefers A to B. 
B) Martha prefers B to A. 
C) Martha is indifferent between A and B. 
D) Martha's preferences between A and B cannot be determined from the information given. 
A) Martha prefers A to B. 
B) Martha prefers B to A. 
C) Martha is indifferent between A and B. 
D) Martha's preferences between A and B cannot be determined from the information given.

Question 14

Utility is the pleasure, satisfaction, or enjoyment derived from consumption.

Accepted Answer

A) True 
 B)False

Question 15

Lana spent $5 to see a movie. We know

Accepted Answer

A) the movie was worth 500 utils. 
B) Lana's total utility from movies was $5. 
C) the movie was worth at least $5 worth of other goods. 
D) the movie increased marginal utility. 
A) the movie was worth 500 utils. 
B) Lana's total utility from movies was $5. 
C) the movie was worth at least $5 worth of other goods. 
D) the movie increased marginal utility.

Question 16

What would happen to the budget line if income increases by the same percentage as the price of the two goods decreases (that is income up by, say, 10 percent and the prices down by 10 percent)?

Accepted Answer

A) A rightward parallel shift in the budget line 
B) A leftward parallel shift in the budget line 
C) An upward pivot of the budget line 
D) The budget line is unaffected 
A) A rightward parallel shift in the budget line 
B) A leftward parallel shift in the budget line 
C) An upward pivot of the budget line 
D) The budget line is unaffected

Question 17

Gwen's decision to buy a new television instead of a bicycle for the same price

Accepted Answer

A) means that opportunity cost is zero since both cost the same amount. 
B) would not have involved trade-off and opportunity cost if Gwen had decided to put the money in a bank CD instead. 
C) would not imply a trade-off because of scarcity if Gwen were a multimillionaire. 
D) means that the opportunity cost to Gwen is the bicycle that she has given up. 
A) means that opportunity cost is zero since both cost the same amount. 
B) would not have involved trade-off and opportunity cost if Gwen had decided to put the money in a bank CD instead. 
C) would not imply a trade-off because of scarcity if Gwen were a multimillionaire. 
D) means that the opportunity cost to Gwen is the bicycle that she has given up.

Question 18

A normal good is a good whose quantity demanded

Accepted Answer

A) rises when its price falls. 
B) falls when the price of a related good falls. 
C) falls when the consumer's total utility rises. 
D) rises when the consumer's real income increases. 
A) rises when its price falls. 
B) falls when the price of a related good falls. 
C) falls when the consumer's total utility rises. 
D) rises when the consumer's real income increases.

Question 19

Scarcity

Accepted Answer

A) necessitates choice among consumer goods. 
B) of income renders purchase decisions interdependent. 
C) affects all consumer decisions. 
D) may involve forgoing the pleasure of one good in order to enjoy another. 
E) All of the above answers are correct. 
A) necessitates choice among consumer goods. 
B) of income renders purchase decisions interdependent. 
C) affects all consumer decisions. 
D) may involve forgoing the pleasure of one good in order to enjoy another. 
E) All of the above answers are correct.

Question 20

For a consumer to maximize utility, he will choose

Accepted Answer

A) the point where the slope of the budget line equals the slope of the indifference curve. 
B) any point where the budget line and indifference curve intersect. 
C) the point where he gets the most of the good he prefers most. 
D) the point where the marginal rate of substitution is greatest. 
E) the point where marginal utility is zero for both goods. 
A) the point where the slope of the budget line equals the slope of the indifference curve. 
B) any point where the budget line and indifference curve intersect. 
C) the point where he gets the most of the good he prefers most. 
D) the point where the marginal rate of substitution is greatest. 
E) the point where marginal utility is zero for both goods.

Exam 5: Consumer Choice: Individual and Market Demand

The law of demand holds that as prices of goods decrease, people are willing to buy more.

All inferior goods have upward-sloping demand curves.

Adam Smith's diamond-water puzzle

Figure 5-13 -​ According to Figure 5-13, if the price of good X falls, the optimal combination will move

An increase in a family's income will cause its budget line to

The Wall Street Journal reports that "hard times aid poultry companies as people eat cheaper fowl." In the language of economists, this means

A consumer will consume the combination of goods at the point of tangency between the budget line and the indifference curve.

Total utility can be thought of as the

Robert decides not to attend a showing of the newest Star Wars movie when the price of a ticket is $10. From this, we can conclude that seeing the movie is

Because of diminishing marginal utility, you

Total utility always decreases when additional amounts of a commodity are consumed.

An optimal consumption bundle will always be on the highest attainable indifference curve for the consumer.

Figure 5-14 Martha initially buys the combination of pens and pencils shown as A in Figure 5-14. After the prices of both goods change, she buys combination B. It must be true that

Utility is the pleasure, satisfaction, or enjoyment derived from consumption.

Lana spent $5 to see a movie. We know

What would happen to the budget line if income increases by the same percentage as the price of the two goods decreases (that is income up by, say, 10 percent and the prices down by 10 percent)?

Gwen's decision to buy a new television instead of a bicycle for the same price

A normal good is a good whose quantity demanded

Scarcity

For a consumer to maximize utility, he will choose

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

Externalities, Externaliteis, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

Filters

Figure 5-13 - According to Figure 5-13, if the price of good X falls, the optimal combination will move