Question 1

The income effect of a price increase for a normal good causes an increase in the consumption of the good.

Accepted Answer

A) True 
 B)False

Question 2

Refer to the diagram. The equilibrium points shown in the diagram, along with the price change that produced the shift of the budget line from ab to ac,

Accepted Answer

A)  are consistent with a downsloping demand curve for product K. 
B)  imply that the consumer's money income has declined, but his or her real income has increased. 
C)  imply consumer irrationality since the dearer product is being substituted for the cheaper product. 
D)  suggest that K is an inferior good. 
A)  are consistent with a downsloping demand curve for product K. 
B)  imply that the consumer's money income has declined, but his or her real income has increased. 
C)  imply consumer irrationality since the dearer product is being substituted for the cheaper product. 
D)  suggest that K is an inferior good.

Question 3

When the price of a product falls for a normal good, the

Accepted Answer

A)  income and substitution effects will encourage consumers to purchase more of the product. 
B)  income and substitution effects will encourage consumers to purchase less of the product. 
C)  substitution effect will encourage consumers to purchase less of the product, and the income effect will encourage them to purchase more. 
D)  substitution effect will encourage consumers to purchase more of the product, and the income effect will encourage them to purchase less. 
A)  income and substitution effects will encourage consumers to purchase more of the product. 
B)  income and substitution effects will encourage consumers to purchase less of the product. 
C)  substitution effect will encourage consumers to purchase less of the product, and the income effect will encourage them to purchase more. 
D)  substitution effect will encourage consumers to purchase more of the product, and the income effect will encourage them to purchase less.

Question 4

Which of the following is not an assumption of the theory of consumer behavior described in this chapter?

Accepted Answer

A)  The consumer has to make purchasing decisions within a given budget constraint. 
B)  The consumer experiences diminishing marginal utility from consuming goods. 
C)  The consumer's tastes and preferences continually change within the period studied. 
D)  The consumer aims to get maximum total utility out of a given budget. 
A)  The consumer has to make purchasing decisions within a given budget constraint. 
B)  The consumer experiences diminishing marginal utility from consuming goods. 
C)  The consumer's tastes and preferences continually change within the period studied. 
D)  The consumer aims to get maximum total utility out of a given budget.

Question 5

Which of the following best explains why most people don't consume units of goods to the point that their marginal utility falls to zero?

Accepted Answer

A)  If marginal utility is falling, then total utility is falling. 
B)  Consumers face budget constraints that limit how much they can purchase. 
C)  Governments tend to limit how much of a good a person is allowed to consume. 
D)  The price of a good tends to rise as an individual attempts to purchase more. 
A)  If marginal utility is falling, then total utility is falling. 
B)  Consumers face budget constraints that limit how much they can purchase. 
C)  Governments tend to limit how much of a good a person is allowed to consume. 
D)  The price of a good tends to rise as an individual attempts to purchase more.

Question 6

A consumer currently spends a given budget on two goods, X and Y, in such quantities that the marginal utility of X is 10 and the marginal utility of Y is 8. The unit priceof X is $5 and the unit price of Y is $2. The utility-maximizing rule suggests that this consumer should

Accepted Answer

A)  increase consumption of product X and decrease consumption of product Y. 
B)  increase consumption of product X and increase consumption of product Y. 
C)  increase consumption of product Y and decrease consumption of product X. 
D)  stick with the current consumption mix because it yields maximum utility. 
A)  increase consumption of product X and decrease consumption of product Y. 
B)  increase consumption of product X and increase consumption of product Y. 
C)  increase consumption of product Y and decrease consumption of product X. 
D)  stick with the current consumption mix because it yields maximum utility.

Question 7

Susie buys two goods: rounds of golf and massages. Suppose that the price of a round of golf is $20 and the price of a massage is $30. In a typical week, Susie will play two rounds of golf, getting 20 utils of satisfaction from the second round. She normally buys three massages each week, with the third giving her 30 utils of satisfaction. If she were to buy a fourth massage in a week, it would give her 20 utils of satisfaction. If the price of massages is reduced to $15, which of the following outcomes might we expect to occur?

Accepted Answer

A)  Susie would leave her consumption choices unchanged because of diminishing marginal utility in the consumption of massages. 
B)  Susie would buy more massages and fewer rounds of golf, as predicted by the income effect. 
C)  Susie would buy more massages and more rounds of golf, as predicted by the substitution effect. 
D)  Susie would buy more massages and fewer rounds of golf, as predicted by the substitution effect. 
A)  Susie would leave her consumption choices unchanged because of diminishing marginal utility in the consumption of massages. 
B)  Susie would buy more massages and fewer rounds of golf, as predicted by the income effect. 
C)  Susie would buy more massages and more rounds of golf, as predicted by the substitution effect. 
D)  Susie would buy more massages and fewer rounds of golf, as predicted by the substitution effect.

Question 8

Which of the following defines marginal utility?

Accepted Answer

A)  the change in total utility divided by the price of a product 
B)  the maximum amount of satisfaction from consuming a product 
C)  the total satisfaction derived from a certain amount of the product 
D)  the additional satisfaction from consuming one more unit of a product 
A)  the change in total utility divided by the price of a product 
B)  the maximum amount of satisfaction from consuming a product 
C)  the total satisfaction derived from a certain amount of the product 
D)  the additional satisfaction from consuming one more unit of a product

Question 9

Which of the following statements is correct?

Accepted Answer

A)  When marginal utility is decreasing, an increase in the quantity consumed will decrease total utility. 
B)  When marginal utility is positive, an increase in the quantity consumed will decrease total utility. 
C)  When marginal utility is positive, an increase in the quantity consumed will increase total utility. 
D)  When marginal utility is zero, an increase in the quantity consumed will make total utility zero. 
A)  When marginal utility is decreasing, an increase in the quantity consumed will decrease total utility. 
B)  When marginal utility is positive, an increase in the quantity consumed will decrease total utility. 
C)  When marginal utility is positive, an increase in the quantity consumed will increase total utility. 
D)  When marginal utility is zero, an increase in the quantity consumed will make total utility zero.

Question 10

Graphically, the consumer maximizes total utility where the budget line is tangent to an indifference curve.

Accepted Answer

A) True 
 B)False

Question 11

(Last Word) Theft and burglary

Accepted Answer

A)  can be viewed as attempts to maximize utility, given certain marginal costs and marginal benefits. 
B)  are examples of irrational behavior. 
C)  are applications of the law of increasing opportunity cost. 
D)  are less economically rational than crimes of passion and violence. 
A)  can be viewed as attempts to maximize utility, given certain marginal costs and marginal benefits. 
B)  are examples of irrational behavior. 
C)  are applications of the law of increasing opportunity cost. 
D)  are less economically rational than crimes of passion and violence.

Question 12

Children who dislike Brussels sprouts exemplify the notion that the marginal utility of Brussels sprouts is

Accepted Answer

A)  zero. 
B)  negative. 
C)  positive, but decreasing. 
D)  less than the total utility. 
A)  zero. 
B)  negative. 
C)  positive, but decreasing. 
D)  less than the total utility.

Question 13

Assume initially that the price of X (the quantity of which is measured on the horizontal axis) is $9 and the price of Y (the quantity of which is measured on the vertical axis) is $4. If the price of X now declines to $6, the budget line will

Accepted Answer

A)  be unaffected. 
B)  shift outward on the vertical axis. 
C)  shift inward on the horizontal axis. 
D)  shift outward on the horizontal axis. 
A)  be unaffected. 
B)  shift outward on the vertical axis. 
C)  shift inward on the horizontal axis. 
D)  shift outward on the horizontal axis.

Question 14

Which of the following is correct?

Accepted Answer

A)  There is no firm mathematical relationship between marginal utility and total utility. 
B)  Total utility is equal to the change in marginal utility from consuming an additional unit of a product. 
C)  If marginal utility is diminishing and is a positive amount, total utility will increase. 
D)  If marginal utility is diminishing, total utility must also be diminishing. 
A)  There is no firm mathematical relationship between marginal utility and total utility. 
B)  Total utility is equal to the change in marginal utility from consuming an additional unit of a product. 
C)  If marginal utility is diminishing and is a positive amount, total utility will increase. 
D)  If marginal utility is diminishing, total utility must also be diminishing.

Question 15

According to economists, gift registries, returning gifts for cash refunds, and "recycling gifts"

Accepted Answer

A)  are inefficient because the time spent in these activities is never worth the benefit recipients receive from doing them. 
B)  are equally efficient because the recipient gets exactly what he wants. 
C)  are more efficient than if givers simply gave cash gifts. 
D)  increase the efficiency of gift-giving because they allow the recipient to consume goods that provide greater utility and transfer away those goods that are less satisfying. 
A)  are inefficient because the time spent in these activities is never worth the benefit recipients receive from doing them. 
B)  are equally efficient because the recipient gets exactly what he wants. 
C)  are more efficient than if givers simply gave cash gifts. 
D)  increase the efficiency of gift-giving because they allow the recipient to consume goods that provide greater utility and transfer away those goods that are less satisfying.

Question 16

Assume that product Alpha and product Beta are both priced at $1 per unit and that Ellie has $20 to spend on Alpha and Beta. She buys 8 units of Alpha and 12 units of Beta. The marginal utility of Alpha is 40 and the marginal utility of Beta is 20. This indicates that

Accepted Answer

A)  Ellie should make no change in consumption. 
B)  given another dollar, Ellie should buy an additional unit of Beta. 
C)  in order to maximize utility, Ellie should buy more of Beta and less of Alpha. 
D)  in order to maximize utility, Ellie should buy more of Alpha and less of Beta. 
A)  Ellie should make no change in consumption. 
B)  given another dollar, Ellie should buy an additional unit of Beta. 
C)  in order to maximize utility, Ellie should buy more of Beta and less of Alpha. 
D)  in order to maximize utility, Ellie should buy more of Alpha and less of Beta.

Question 17

(Last Word) All of the following would reduce property crime by increasing its "price," except

Accepted Answer

A)  imposing greater penalties for those who are caught and convicted. 
B)  using more sophisticated security systems. 
C)  enhancing the legitimate earnings of potential criminals. 
D)  cutting out the middlemen ("fences") by selling stolen goods via Internet auction sites. 
A)  imposing greater penalties for those who are caught and convicted. 
B)  using more sophisticated security systems. 
C)  enhancing the legitimate earnings of potential criminals. 
D)  cutting out the middlemen ("fences") by selling stolen goods via Internet auction sites.

Question 18

Refer to the diagram, where xy is the relevant budget line and I1, I2, and I3 are indifference curves. At point K,

Accepted Answer

A)  MUx = MUy. 
B)  MRS = Px/Py. 
C)  MRS = Py/Px. 
D)  Px exceeds Py. 
A)  MUx = MUy. 
B)  MRS = Px/Py. 
C)  MRS = Py/Px. 
D)  Px exceeds Py.

Question 19

Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line is

Accepted Answer

A)  5. 
B)  1/5. 
C)  4. 
D)  20. 
A)  5. 
B)  1/5. 
C)  4. 
D)  20.

Question 20

The utility from a specific product is

Accepted Answer

A)  determined by a consumer's income. 
B)  determined by the price of the product. 
C)  a measure of one's preference or taste for it. 
D)  constant as one consumes more units of it. 
A)  determined by a consumer's income. 
B)  determined by the price of the product. 
C)  a measure of one's preference or taste for it. 
D)  constant as one consumes more units of it.

Exam 7: Utility Maximization

The income effect of a price increase for a normal good causes an increase in the consumption of the good.

Refer to the diagram. The equilibrium points shown in the diagram, along with the price change that produced the shift of the budget line from ab to ac,

When the price of a product falls for a normal good, the

Which of the following is not an assumption of the theory of consumer behavior described in this chapter?

Which of the following best explains why most people don't consume units of goods to the point that their marginal utility falls to zero?

A consumer currently spends a given budget on two goods, X and Y, in such quantities that the marginal utility of X is 10 and the marginal utility of Y is 8. The unit priceof X is $5 and the unit price of Y is $2. The utility-maximizing rule suggests that this consumer should

Which of the following defines marginal utility?

Which of the following statements is correct?

Graphically, the consumer maximizes total utility where the budget line is tangent to an indifference curve.

(Last Word) Theft and burglary

Children who dislike Brussels sprouts exemplify the notion that the marginal utility of Brussels sprouts is

Assume initially that the price of X (the quantity of which is measured on the horizontal axis) is $9 and the price of Y (the quantity of which is measured on the vertical axis) is $4. If the price of X now declines to $6, the budget line will

Which of the following is correct?

According to economists, gift registries, returning gifts for cash refunds, and "recycling gifts"

Assume that product Alpha and product Beta are both priced at $1 per unit and that Ellie has $20 to spend on Alpha and Beta. She buys 8 units of Alpha and 12 units of Beta. The marginal utility of Alpha is 40 and the marginal utility of Beta is 20. This indicates that

(Last Word) All of the following would reduce property crime by increasing its "price," except

Refer to the diagram, where xy is the relevant budget line and I1, I2, and I3 are indifference curves. At point K,

Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line is

The utility from a specific product is

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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Refer to the diagram, where xy is the relevant budget line and I₁, I₂, and I₃are indifference curves. At point K,