Question 1

The substitution effect

Accepted Answer

A)  is generally so weak that its effect cannot be predicted. 
B)  for an increase in the relative price of a good is sometimes positive but sometimes negative. 
C)  measures the change in the quantity demanded of a good from a change in its relative price. 
D)  measures the change in the quantity of a good demanded brought about by a change in real income associated with a change in the price of the good. 
A)  is generally so weak that its effect cannot be predicted. 
B)  for an increase in the relative price of a good is sometimes positive but sometimes negative. 
C)  measures the change in the quantity demanded of a good from a change in its relative price. 
D)  measures the change in the quantity of a good demanded brought about by a change in real income associated with a change in the price of the good.

Question 2

Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately?

Accepted Answer

A)  Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero. 
B)  MU/P is consistently greater at all-you-can-eat restaurants. 
C)  People who eat at all-you-can-eat restaurants do not experience diminishing marginal utility. 
D)  Food at all-you-can-eat restaurants tends to have fewer calories, so consumers feel the need to consume a greater volume of food. 
A)  Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero. 
B)  MU/P is consistently greater at all-you-can-eat restaurants. 
C)  People who eat at all-you-can-eat restaurants do not experience diminishing marginal utility. 
D)  Food at all-you-can-eat restaurants tends to have fewer calories, so consumers feel the need to consume a greater volume of food.

Question 3

If a rational consumer is in equilibrium, which of the following conditions will hold true?

Accepted Answer

A)  MUa = MUb = MUc = . . . = MUn. 
B)  The marginal utility of each good purchased will be zero. 
C)  The marginal utility of the last dollar spent on each good purchased will be the same. 
D)  The total utility obtained from each good purchased will be the same. 
A)  MUa = MUb = MUc = . . . = MUn. 
B)  The marginal utility of each good purchased will be zero. 
C)  The marginal utility of the last dollar spent on each good purchased will be the same. 
D)  The total utility obtained from each good purchased will be the same.

Question 4

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the

Accepted Answer

A)  total utility is the same for each good. 
B)  marginal utility of each good is maximized. 
C)  marginal utility per dollar spent is the same for all goods. 
D)  marginal utility per dollar spent is maximized for each good. 
A)  total utility is the same for each good. 
B)  marginal utility of each good is maximized. 
C)  marginal utility per dollar spent is the same for all goods. 
D)  marginal utility per dollar spent is maximized for each good.

Question 5

A parallel shift in a budget line is caused by changes in a consumer's level of satisfaction.

Accepted Answer

A) True 
 B)False

Question 6

Total utility is best defined as the

Accepted Answer

A)  change in marginal utility multiplied by the price of a product. 
B)  maximum amount of satisfaction from consuming a product. 
C)  total satisfaction received from consuming a given amount of a product. 
D)  additional satisfaction received from consuming one more unit of a product. 
A)  change in marginal utility multiplied by the price of a product. 
B)  maximum amount of satisfaction from consuming a product. 
C)  total satisfaction received from consuming a given amount of a product. 
D)  additional satisfaction received from consuming one more unit of a product.

Question 7

Refer to the diagram, where xy is the relevant budget line and I1, I2, and I3 are indifference curves. The equilibrium position for the consumer is at

Accepted Answer

A)  any point on xy. 
B)  point M. 
C)  point K. 
D)  point J. 
A)  any point on xy. 
B)  point M. 
C)  point K. 
D)  point J.

Question 8

If a product has a diminishing, but positive, marginal utility, then

Accepted Answer

A)  total utility decreases at an increasing rate. 
B)  total utility will become negative. 
C)  total utility increases at a diminishing rate. 
D)  total utility decreases at a diminishing rate. 
A)  total utility decreases at an increasing rate. 
B)  total utility will become negative. 
C)  total utility increases at a diminishing rate. 
D)  total utility decreases at a diminishing rate.

Question 9

Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is spending all her money income should buy

Accepted Answer

A)  less of X only if its price rises. 
B)  more of Y only if its price rises. 
C)  more of Y and/or less of X. 
D)  more of X and/or less of Y. 
A)  less of X only if its price rises. 
B)  more of Y only if its price rises. 
C)  more of Y and/or less of X. 
D)  more of X and/or less of Y.

Question 10

Indifference curve analysis

Accepted Answer

A)  presumes, as does utility analysis, that satisfaction is numerically measurable. 
B)  presumes, unlike utility analysis, that satisfaction is numerically measurable. 
C)  presumes only that the consumer can say one combination of two goods yields more or less utility than some other combination. 
D)  is in conflict with the idea of a downsloping demand curve. 
A)  presumes, as does utility analysis, that satisfaction is numerically measurable. 
B)  presumes, unlike utility analysis, that satisfaction is numerically measurable. 
C)  presumes only that the consumer can say one combination of two goods yields more or less utility than some other combination. 
D)  is in conflict with the idea of a downsloping demand curve.

Question 11

Indifference curves are linear, and budget lines are convex to the origin.

Accepted Answer

A) True 
 B)False

Question 12

The table shows an indifference schedule for several combinations of X and Y.   In moving from combination a to b, then to c, d, and e, the marginal rate of substitution of X for Y

Accepted Answer

A)  increases. 
B)  decreases. 
C)  stays the same. 
D)  decreases and then increases. 
A)  increases. 
B)  decreases. 
C)  stays the same. 
D)  decreases and then increases.

Question 13

Utility refers to the

Accepted Answer

A)  satisfaction that a consumer derives from a good or service. 
B)  rate of decline in a product demand curve. 
C)  relative scarcity of a product. 
D)  usefulness of a product. 
A)  satisfaction that a consumer derives from a good or service. 
B)  rate of decline in a product demand curve. 
C)  relative scarcity of a product. 
D)  usefulness of a product.

Question 14

If a consumer is initially in equilibrium, an increase in money income will

Accepted Answer

A)  move the consumer to a new equilibrium on a lower indifference curve. 
B)  move the consumer to a new equilibrium on a higher indifference curve. 
C)  make the slope of the consumer's indifference curves steeper. 
D)  have no effect on the equilibrium position. 
A)  move the consumer to a new equilibrium on a lower indifference curve. 
B)  move the consumer to a new equilibrium on a higher indifference curve. 
C)  make the slope of the consumer's indifference curves steeper. 
D)  have no effect on the equilibrium position.

Question 15

If marginal utility is diminishing, total utility must also be declining.

Accepted Answer

A) True 
 B)False

Question 16

The reason the substitution effect works to encourage a consumer to buy less of a product when its price increases is that

Accepted Answer

A)  the real income of the consumer has been increased. 
B)  the real income of the consumer has been decreased. 
C)  the product is now relatively more expensive than it was before. 
D)  other products are now relatively more expensive than they were before. 
A)  the real income of the consumer has been increased. 
B)  the real income of the consumer has been decreased. 
C)  the product is now relatively more expensive than it was before. 
D)  other products are now relatively more expensive than they were before.

Question 17

Health insurance often pays 80 percent of health care costs. This situation will encourage the rational consumer to

Accepted Answer

A)  consume less health care because the cost is too expensive. 
B)  obtain health insurance that pays less than 80 percent of medical care costs. 
C)  use more medical services than they would if they had to paid the full price. 
D)  eliminate their health care coverage because it does not cover 100 percent of the cost. 
A)  consume less health care because the cost is too expensive. 
B)  obtain health insurance that pays less than 80 percent of medical care costs. 
C)  use more medical services than they would if they had to paid the full price. 
D)  eliminate their health care coverage because it does not cover 100 percent of the cost.

Question 18

The limited money income of consumers results in a so-called budget constraint.

Accepted Answer

A) True 
 B)False

Question 19

Assume the price of product Y (the quantity of which is plotted on the vertical axis) is initially $15 and the price of X (the quantity of which is plotted on the horizontal axis) is initially $3. Assume money income is initially $60. If the prices of Y and X now increase to $30 and $6, respectively, and money income increases to $120, then the budget line will

Accepted Answer

A)  shift rightward and become steeper. 
B)  shift rightward and become flatter. 
C)  shift rightward, but its slope will not change. 
D)  be unchanged. 
A)  shift rightward and become steeper. 
B)  shift rightward and become flatter. 
C)  shift rightward, but its slope will not change. 
D)  be unchanged.

Question 20

An indifference curve shows

Accepted Answer

A)  the maximum combinations of two products that a consumer can afford to buy, given prices and the consumer's income. 
B)  the quantities of two products a consumer is willing to buy at different income levels. 
C)  all combinations of two products from which the consumer derives a specific level of total utility. 
D)  combinations of two products that yield the same marginal utilities. 
A)  the maximum combinations of two products that a consumer can afford to buy, given prices and the consumer's income. 
B)  the quantities of two products a consumer is willing to buy at different income levels. 
C)  all combinations of two products from which the consumer derives a specific level of total utility. 
D)  combinations of two products that yield the same marginal utilities.

Exam 7: Utility Maximization

The substitution effect

Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately?

If a rational consumer is in equilibrium, which of the following conditions will hold true?

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the

A parallel shift in a budget line is caused by changes in a consumer's level of satisfaction.

Total utility is best defined as the

Refer to the diagram, where xy is the relevant budget line and I1, I2, and I3 are indifference curves. The equilibrium position for the consumer is at

If a product has a diminishing, but positive, marginal utility, then

Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is spending all her money income should buy

Indifference curve analysis

Indifference curves are linear, and budget lines are convex to the origin.

The table shows an indifference schedule for several combinations of X and Y. In moving from combination a to b, then to c, d, and e, the marginal rate of substitution of X for Y

Utility refers to the

If a consumer is initially in equilibrium, an increase in money income will

If marginal utility is diminishing, total utility must also be declining.

The reason the substitution effect works to encourage a consumer to buy less of a product when its price increases is that

Health insurance often pays 80 percent of health care costs. This situation will encourage the rational consumer to

The limited money income of consumers results in a so-called budget constraint.

An indifference curve shows

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

Filters

Refer to the diagram, where xy is the relevant budget line and I₁, I₂, and I₃are indifference curves. The equilibrium position for the consumer is at

Suppose that MUx/P_xexceeds MUy/P_y. To maximize utility, the consumer who is spending all her money income should buy