Question 1

If a consumer spends all his income and his marginal utility per dollar is equal for all goods, then

Accepted Answer

A) marginal utility is maximized. 
B) total utility is maximized. 
C) he cannot be better off even with more income. 
D) the proportion of income spent on each good must be equal. 
E) the number of units bought of each good must be equal. 
A) marginal utility is maximized. 
B) total utility is maximized. 
C) he cannot be better off even with more income. 
D) the proportion of income spent on each good must be equal. 
E) the number of units bought of each good must be equal.

Question 2

Utility is similar to temperature because

Accepted Answer

A) both are positive. 
B) both are negative. 
C) both have units of measurement that are arbitrary. 
D) both are observable. 
E) both are measured in the same scale. 
A) both are positive. 
B) both are negative. 
C) both have units of measurement that are arbitrary. 
D) both are observable. 
E) both are measured in the same scale.

Question 3

Sam buys gasoline and coffee each week. To draw his budget line for gasoline and coffee, Sam needs to know

Accepted Answer

A) if his income is expected to rise in the future. 
B) if the price of gasoline is expected to rise in the future. 
C) if the price of coffee is expected to fall in the future. 
D) the goods that he considers to be substitutes for gasoline and for coffee. 
E) how much income he has to spend and the prices of one litre of gasoline and one cup of coffee. 
A) if his income is expected to rise in the future. 
B) if the price of gasoline is expected to rise in the future. 
C) if the price of coffee is expected to fall in the future. 
D) the goods that he considers to be substitutes for gasoline and for coffee. 
E) how much income he has to spend and the prices of one litre of gasoline and one cup of coffee.

Question 4

Use the table below to answer the following question.
Table 8.2.5
  
-Refer to Table 8.2.5. Cindy enjoys golf and tennis. The table shows the marginal utility she gets from each activity. Cindy has $70 a month to spend, and she can spend as much time as she likes on her leisure pursuits. The price of an hour of golf is $10, and the price of an hour of tennis is $5.
Cindy decides to golf for 5 hours a month and play tennis for 4 hours a month.
If Cindy spends a dollar more on golf and a dollar less on tennis, her total utility ________.
If Cindy spends a dollar less on golf and a dollar more on tennis, her total utility ________.

Accepted Answer

A) decreases; decreases 
B) increases; decreases 
C) decreases; increases 
D) increases; increases 
E) does not change; does not change 
A) decreases; decreases 
B) increases; decreases 
C) decreases; increases 
D) increases; increases 
E) does not change; does not change

Question 5

The paradox of value as it applies to diamonds and water can be explained by

Accepted Answer

A) distinguishing between utility and price. 
B) water having a high level of marginal utility relative to diamonds. 
C) water having a low price relative to diamonds. 
D) the fact that utility can't be measured. 
E) distinguishing between total utility and marginal utility. 
A) distinguishing between utility and price. 
B) water having a high level of marginal utility relative to diamonds. 
C) water having a low price relative to diamonds. 
D) the fact that utility can't be measured. 
E) distinguishing between total utility and marginal utility.

Question 6

Neuroeconomics studies all of the following concepts except

Accepted Answer

A) the prefrontal cortex. 
B) the hippocampus. 
C) the production possibilities frontier. 
D) dopamine. 
E) anxiety and fear. 
A) the prefrontal cortex. 
B) the hippocampus. 
C) the production possibilities frontier. 
D) dopamine. 
E) anxiety and fear.

Question 7

Jim has made his best affordable choice of muffins and coffee. He spends all of his income on 10 muffins at $1 each and 20 cups of coffee at $2 each. Now the price of a muffin rises to $1.50 and the price of coffee falls to $1.75 a cup. Jim can still afford to buy 10 muffins and 20 cups of coffee. Jim will buy ________ muffins and ________ coffee.

Accepted Answer

A) more; fewer 
B) fewer more 
C) more; more 
D) fewer; fewer 
E) the same quantity of; the same quantity of 
A) more; fewer 
B) fewer more 
C) more; more 
D) fewer; fewer 
E) the same quantity of; the same quantity of

Question 8

Use the table below to answer the following questions.
Windsurfing equipment rents for $10 per hour and snorkeling equipment rents for $5 per hour.
Table 8.2.1
  
-Consider Devon's utility from snorkeling and windsurfing in Table 8.2.1. Devon has $55 to spend. What are Devon's choices for time spent on the two activities?

Accepted Answer

A) 1 hour of windsurfing and 9 hours of snorkeling 
B) 2 hours of windsurfing and 7 hours of snorkeling 
C) 3 hours of windsurfing and 5 hours of snorkeling 
D) 4 hours of windsurfing and 3 hours of snorkeling 
E) 5 hours of windsurfing and 1 hour of snorkeling 
A) 1 hour of windsurfing and 9 hours of snorkeling 
B) 2 hours of windsurfing and 7 hours of snorkeling 
C) 3 hours of windsurfing and 5 hours of snorkeling 
D) 4 hours of windsurfing and 3 hours of snorkeling 
E) 5 hours of windsurfing and 1 hour of snorkeling

Question 9

A behavioural economist will explain Tom's donation to charity by saying that Tom is displaying

Accepted Answer

A) the endowment effect. 
B) bounded rationality. 
C) bounded self-interest. 
D) bounded willpower. 
E) the neuro effect. 
A) the endowment effect. 
B) bounded rationality. 
C) bounded self-interest. 
D) bounded willpower. 
E) the neuro effect.

Question 10

Advise Sarah how to maximize her utility if MUA = 8, MUB = 20, PA = 4 and PB = 5.

Accepted Answer

A) Consume equal amounts of both goods. 
B) Consume more of good A and less of good B. 
C) Consume more of good B and less of good A. 
D) Lower the price of good B. 
E) Raise the price of good A. 
A) Consume equal amounts of both goods. 
B) Consume more of good A and less of good B. 
C) Consume more of good B and less of good A. 
D) Lower the price of good B. 
E) Raise the price of good A.

Question 11

Utility is

Accepted Answer

A) the value of a good. 
B) the additional satisfaction received from consuming another unit of a good. 
C) the benefit or satisfaction from consuming goods and services. 
D) the practical usefulness of a good. 
E) equal to the price of a good. 
A) the value of a good. 
B) the additional satisfaction received from consuming another unit of a good. 
C) the benefit or satisfaction from consuming goods and services. 
D) the practical usefulness of a good. 
E) equal to the price of a good.

Question 12

According to the marginal utility theory, consumers

Accepted Answer

A) maximize utility and minimize marginal utility. 
B) maximize utility and equalize marginal utility per dollar across all goods. 
C) save part of their income for future consumption. 
D) maximize utility by spending the most on the least expensive good. 
E) maximize utility by spending the least on the least expensive good. 
A) maximize utility and minimize marginal utility. 
B) maximize utility and equalize marginal utility per dollar across all goods. 
C) save part of their income for future consumption. 
D) maximize utility by spending the most on the least expensive good. 
E) maximize utility by spending the least on the least expensive good.

Question 13

John likes to eat apples, oranges, and pears. If John increases his consumption of oranges, ceteris paribus, marginal utility theory tell us that John's marginal utility of

Accepted Answer

A) oranges decreases. 
B) apples decreases. 
C) pears decreases. 
D) oranges remains constant. 
E) oranges, apples, and pears all decrease. 
A) oranges decreases. 
B) apples decreases. 
C) pears decreases. 
D) oranges remains constant. 
E) oranges, apples, and pears all decrease.

Question 14

Behavioural economics and neuroeconomics seek to achieve

Accepted Answer

A) the reason why we do not always make rational economic decisions. 
B) a method of using willpower and self-interest to gain utility maximization. 
C) a theory in which consumers are always utility-maximizers. 
D) a new method for the human brain to work out rational choice. 
E) the rational concepts that support the law of demand and the law of supply. 
A) the reason why we do not always make rational economic decisions. 
B) a method of using willpower and self-interest to gain utility maximization. 
C) a theory in which consumers are always utility-maximizers. 
D) a new method for the human brain to work out rational choice. 
E) the rational concepts that support the law of demand and the law of supply.

Question 15

Use the table below to answer the following question.
Table 8.1.2
  
-Table 8.1.2 gives total utilities for Jim and Sally. Which one of the following statements is true?

Accepted Answer

A) Jim has increasing marginal utility. 
B) For Sally, the marginal utility of the third unit consumed is 6. 
C) If Jim consumes 2 units, his total utility is 34 units. 
D) Jim and Sally receive the same marginal utility from the third unit consumed. 
E) If Sally consumes 2 units, her total utility is 10 units. 
A) Jim has increasing marginal utility. 
B) For Sally, the marginal utility of the third unit consumed is 6. 
C) If Jim consumes 2 units, his total utility is 34 units. 
D) Jim and Sally receive the same marginal utility from the third unit consumed. 
E) If Sally consumes 2 units, her total utility is 10 units.

Question 16

If the marginal utilities from two goods are not equal, then the consumer

Accepted Answer

A) cannot be in equilibrium. 
B) should increase consumption of the good with the lower marginal utility. 
C) should decrease consumption of the good with the lower marginal utility. 
D) may possibly be in equilibrium. 
E) will definitely be in equilibrium. 
A) cannot be in equilibrium. 
B) should increase consumption of the good with the lower marginal utility. 
C) should decrease consumption of the good with the lower marginal utility. 
D) may possibly be in equilibrium. 
E) will definitely be in equilibrium.

Question 17

Behavioural economics

Accepted Answer

A) studies the activity of the human brain when a person makes an economic decision. 
B) studies psychology by using the economist's toolbox. 
C) studies the ways in which limits on the human brain's ability to compute and implement rational decisions influences economic behaviour. 
D) was used extensively in the development of marginal utility theory. 
E) all of the above 
A) studies the activity of the human brain when a person makes an economic decision. 
B) studies psychology by using the economist's toolbox. 
C) studies the ways in which limits on the human brain's ability to compute and implement rational decisions influences economic behaviour. 
D) was used extensively in the development of marginal utility theory. 
E) all of the above

Question 18

Diminishing marginal utility means that

Accepted Answer

A) Ralph will enjoy his second hamburger less than the first one. 
B) the utility from one hamburger is greater than the utility from two hamburgers. 
C) the price of two hamburgers is less than twice the price of one. 
D) the utility from eating two hamburgers will be more than twice the utility from eating the first one. 
E) hamburgers seem smaller as you eat more of them. 
A) Ralph will enjoy his second hamburger less than the first one. 
B) the utility from one hamburger is greater than the utility from two hamburgers. 
C) the price of two hamburgers is less than twice the price of one. 
D) the utility from eating two hamburgers will be more than twice the utility from eating the first one. 
E) hamburgers seem smaller as you eat more of them.

Question 19

The marginal utility per dollar from pizza is greater than the marginal utility per dollar from pop. To maximize utility, a consumer buys

Accepted Answer

A) less pizza and more pop. 
B) equal quantities of pizza and pop. 
C) more pizza and less pop. 
D) more pizza and more pop. 
E) less pizza and less pop. 
A) less pizza and more pop. 
B) equal quantities of pizza and pop. 
C) more pizza and less pop. 
D) more pizza and more pop. 
E) less pizza and less pop.

Question 20

You are consuming hot dogs and Cokes and believe you are maximizing utility for your entire budget of $12. The price of a hot dog is $2 and the price of a Coke is $2. Suppose the price of hot dogs rises to $4 and the price of a Coke remains at $2. You adjust your consumption of hot dogs and Cokes and believe you are once again receiving maximum total utility from the meal. Which one of the following can you conclude?

Accepted Answer

A) The total utility from hot dogs is maximized. 
B) The marginal utilities from hot dogs and Cokes must be equal. 
C) The marginal utility from hot dogs must rise compared to the marginal utility from Cokes. 
D) You are purchasing 2 hot dogs and 2 Cokes. 
E) You are purchasing 1 hot dog and 4 Cokes. 
A) The total utility from hot dogs is maximized. 
B) The marginal utilities from hot dogs and Cokes must be equal. 
C) The marginal utility from hot dogs must rise compared to the marginal utility from Cokes. 
D) You are purchasing 2 hot dogs and 2 Cokes. 
E) You are purchasing 1 hot dog and 4 Cokes.

Exam 8: Utility and Demand

If a consumer spends all his income and his marginal utility per dollar is equal for all goods, then

Utility is similar to temperature because

Sam buys gasoline and coffee each week. To draw his budget line for gasoline and coffee, Sam needs to know

The paradox of value as it applies to diamonds and water can be explained by

Neuroeconomics studies all of the following concepts except

A behavioural economist will explain Tom's donation to charity by saying that Tom is displaying

Advise Sarah how to maximize her utility if MUA = 8, MUB = 20, PA = 4 and PB = 5.

Utility is

According to the marginal utility theory, consumers

John likes to eat apples, oranges, and pears. If John increases his consumption of oranges, ceteris paribus, marginal utility theory tell us that John's marginal utility of

Behavioural economics and neuroeconomics seek to achieve

Use the table below to answer the following question. Table 8.1.2 -Table 8.1.2 gives total utilities for Jim and Sally. Which one of the following statements is true?

If the marginal utilities from two goods are not equal, then the consumer

Behavioural economics

Diminishing marginal utility means that

The marginal utility per dollar from pizza is greater than the marginal utility per dollar from pop. To maximize utility, a consumer buys

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