Question 1

If marginal utility has become negative, we can infer that

Accepted Answer

A)  total utility is falling with additional consumption. 
B)  total utility is increasing by smaller and smaller amounts. 
C)  the product is an inferior good. 
D)  total utility is also negative. 
A)  total utility is falling with additional consumption. 
B)  total utility is increasing by smaller and smaller amounts. 
C)  the product is an inferior good. 
D)  total utility is also negative. A

Question 2

Consumer surplus will be zero at any quantity if

Accepted Answer

A)  demand is perfectly inelastic. 
B)  demand is unitarily elastic. 
C)  supply is perfectly elastic. 
D)  supply is perfectly inelastic. 
E)  demand is perfectly elastic. 
A)  demand is perfectly inelastic. 
B)  demand is unitarily elastic. 
C)  supply is perfectly elastic. 
D)  supply is perfectly inelastic. 
E)  demand is perfectly elastic. E

Question 3

Assume Diana buys sweatshirts and T- shirts. Diana's marginal rate of substitution is

Accepted Answer

A)  the rate at which she is willing to substitute sweatshirts for T- shirts. 
B)  the ratio of the MU of sweatshirts to the price of sweatshirts. 
C)  the point where she is maximising utility given her budget constraint. 
D)  the ratio of the price of T- shirts to the price of sweatshirts. 
A)  the rate at which she is willing to substitute sweatshirts for T- shirts. 
B)  the ratio of the MU of sweatshirts to the price of sweatshirts. 
C)  the point where she is maximising utility given her budget constraint. 
D)  the ratio of the price of T- shirts to the price of sweatshirts. A

Question 4

What is the diamond- water paradox, and how can it be explained?

Accepted Answer

The paradox is that water, which is esse

Question 5

Explain the concepts of total utility, marginal utility and diminishing marginal utility.

Accepted Answer

Total utility is the satisfaction custom

Question 6

Firms often diversify in order to reduce risk.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following defines consumer surplus?

Accepted Answer

A)  Individuals consume where: MUa/MUb = Pa/Pb 
B)  The extra satisfaction gained from consuming one extra unit of a good within a given time period 
C)  The excess of what a person would have been prepared to pay for a good over what that person actually pays 
D)  The attempt to maximise total consumer surplus 
E)  The excess of a person's total utility from the consumption of a good over the total amount that person spends on it 
A)  Individuals consume where: MUa/MUb = Pa/Pb 
B)  The extra satisfaction gained from consuming one extra unit of a good within a given time period 
C)  The excess of what a person would have been prepared to pay for a good over what that person actually pays 
D)  The attempt to maximise total consumer surplus 
E)  The excess of a person's total utility from the consumption of a good over the total amount that person spends on it

Question 8

Insurance companies can lower their risks by

Accepted Answer

A)  using the law of large numbers to make the number of claims more predictable. 
B)  granting large numbers of independent risk policies. 
C)  diversifying across insurance products. 
D)  all of the above 
A)  using the law of large numbers to make the number of claims more predictable. 
B)  granting large numbers of independent risk policies. 
C)  diversifying across insurance products. 
D)  all of the above

Question 9

What is the efficiency frontier?

Accepted Answer

It is a line showing the maximum attaina

Question 10

Explain why indifference curves and budget lines are important in analysing consumer behaviour.

Accepted Answer

Indifference curves represent how the cu

Question 11

Suppose you are eating hamburgers. The first hamburger gives you 16 units of satisfaction, the second hamburger 8 additional units, and the third brings the total utility to 30. What was the marginal utility of the third hamburger?

Accepted Answer

A)  8 
B)  22 
C)  10 
D)  6 
A)  8 
B)  22 
C)  10 
D)  6

Question 12

The marginal utility gain from the consumption of an additional unit of a good is closely linked to the price paid for the good.

Accepted Answer

A) True 
 B)False

Question 13

Diminishing marginal utility implies that total utility increases at a decreasing rate.

Accepted Answer

A) True 
 B)False

Question 14

Why can we relate the product characteristics analysis to cross- price elasticity of demand?

Accepted Answer

The cross- price elasticity of demand te

Question 15

An indifference curve is

Accepted Answer

A)  the set of all goods that the consumer can afford given her income and the prices of the goods. 
B)  all combinations of goods (or characteristics) of X and Y that yield the same marginal utility. 
C)  all combinations of goods (or characteristics) of X and Y that yield the same total utility. 
D)  the set of all points of consumer equilibrium as the consumer's income changes. 
A)  the set of all goods that the consumer can afford given her income and the prices of the goods. 
B)  all combinations of goods (or characteristics) of X and Y that yield the same marginal utility. 
C)  all combinations of goods (or characteristics) of X and Y that yield the same total utility. 
D)  the set of all points of consumer equilibrium as the consumer's income changes.

Question 16

What are the three attitudes towards risk?

Accepted Answer

A)  Accepting, rejecting, avoider 
B)  Avoiding, indifferent, loving 
C)  For, neutral, against 
D)  Averse, neutral, loving 
A)  Accepting, rejecting, avoider 
B)  Avoiding, indifferent, loving 
C)  For, neutral, against 
D)  Averse, neutral, loving

Question 17

If we have an inferior good and its price decreased, other things being equal, the quantity demanded of that good could fall if the substitution effect dominates the income effect.

Accepted Answer

A) True 
 B)False

Question 18

Explain what is meant by risk- loving, risk- neutral and risk- averse behaviour.

Accepted Answer

A risky situation, such as a lottery, is

Question 19

A person who is risk- neutral will take a gamble if the odds are favourable.

Accepted Answer

A) True 
 B)False

Question 20

The substitution effect will always move in the same direction as the income effect.

Accepted Answer

A) True 
 B)False

Exam 6: Demand and the Consumer

If marginal utility has become negative, we can infer that

Consumer surplus will be zero at any quantity if

Assume Diana buys sweatshirts and T- shirts. Diana's marginal rate of substitution is

What is the diamond- water paradox, and how can it be explained?

Explain the concepts of total utility, marginal utility and diminishing marginal utility.

Firms often diversify in order to reduce risk.

Which of the following defines consumer surplus?

Insurance companies can lower their risks by

What is the efficiency frontier?

Explain why indifference curves and budget lines are important in analysing consumer behaviour.

Suppose you are eating hamburgers. The first hamburger gives you 16 units of satisfaction, the second hamburger 8 additional units, and the third brings the total utility to 30. What was the marginal utility of the third hamburger?

The marginal utility gain from the consumption of an additional unit of a good is closely linked to the price paid for the good.

Diminishing marginal utility implies that total utility increases at a decreasing rate.

Why can we relate the product characteristics analysis to cross- price elasticity of demand?

An indifference curve is

What are the three attitudes towards risk?

If we have an inferior good and its price decreased, other things being equal, the quantity demanded of that good could fall if the substitution effect dominates the income effect.

Explain what is meant by risk- loving, risk- neutral and risk- averse behaviour.

A person who is risk- neutral will take a gamble if the odds are favourable.

The substitution effect will always move in the same direction as the income effect.

The Business Environment and Business Economics

Economics and the World of Business

Business Organisations

The Working of Competitive Markets

Business in a Market Environment

Demand and the Firm

Products, Marketing and Advertising

Costs of Production

Revenue and Profit

Profit Maximisation Under Perfect Competition and Monopoly

Profit Maximisation Under Imperfect Competition

An Introduction to Business Strategy

Alternative Theories of the Firm

Growth Strategy

The Small-Firm Sector

Pricing Strategy

Labour Markets, Wages and Industrial Relations

Investment and the Employment of Capital

Reasons for Government Intervention in the Market

Government and the Firm

Government and the Market

Globalisation and Multinational Business

International Trade

Trading Blocs

The Macroeconomic Environment of Business

The Balance of Payments and Exchange Rates

Banking, Money and Interest Rates

Business Activity, Employment and Inflation

Demand-Side Policy

Supply-Side Policy

International Economic Policy

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