Question 1

Use the following to answer question(s):  
-(Exhibit: Utility) The law of diminishing marginal utility is first observed at the _______ unit.

Accepted Answer

A)  second 
B)  third 
C)  fifth 
D)  sixth 
A)  second 
B)  third 
C)  fifth 
D)  sixth

Question 2

If, because of a price change, both the income and substitution effects are strong for a normal good, this segment of the demand curve must be:

Accepted Answer

A)  unit-elastic. 
B)  vertical. 
C)  relatively price elastic. 
D)  horizontal. 
A)  unit-elastic. 
B)  vertical. 
C)  relatively price elastic. 
D)  horizontal.

Question 3

The substitution effect always involves a change in consumption in the _______ direction of the ________ change.

Accepted Answer

A)  same; budget 
B)  same; price 
C)  opposite; price 
D)  opposite; budget 
A)  same; budget 
B)  same; price 
C)  opposite; price 
D)  opposite; budget

Question 4

Use the following for questions 61-69.
    
-(Exhibit: Consumer Equilibrium 1) Assume that the price of both goods is $1 per unit, and you consume 4 units of good X and 2 units of good Y.To maximize utility, assuming that the goods are divisible, you would consume:

Accepted Answer

A)  less of X and more of Y. 
B)  more of both X and Y. 
C)  less of both X and Y. 
D)  more of X and less of Y. 
A)  less of X and more of Y. 
B)  more of both X and Y. 
C)  less of both X and Y. 
D)  more of X and less of Y.

Question 5

Higher indifference curves:

Accepted Answer

A)  have lesser levels of utility than lower curves. 
B)  have greater levels of utility than lower curves. 
C)  have the same levels of utility as lower curves. 
D)  may have either lesser or greater levels of utility than lower curves. 
A)  have lesser levels of utility than lower curves. 
B)  have greater levels of utility than lower curves. 
C)  have the same levels of utility as lower curves. 
D)  may have either lesser or greater levels of utility than lower curves.

Question 6

When the price of a normal good falls, the substitution effect contributes to a(n) _______ in the quantity demanded and the income effect _______ the substitution effect.

Accepted Answer

A)  decrease; reinforces 
B)  increase; reinforces 
C)  increase; opposes 
D)  decrease; opposes 
A)  decrease; reinforces 
B)  increase; reinforces 
C)  increase; opposes 
D)  decrease; opposes

Question 7

The fact that a Giffen good might exist:

Accepted Answer

A)  negates the law of demand. 
B)  does not negate the law of demand. 
C)  means that the law of demand is fine in theory but not valid in the real world. 
D)  negates the law of increasing cost. 
A)  negates the law of demand. 
B)  does not negate the law of demand. 
C)  means that the law of demand is fine in theory but not valid in the real world. 
D)  negates the law of increasing cost.

Question 8

In dealing with utility, we assume that the ability of consumers to purchase goods and services is:

Accepted Answer

A)  infinite. 
B)  irrelevant. 
C)  limited. 
D)  infinitesimal. 
A)  infinite. 
B)  irrelevant. 
C)  limited. 
D)  infinitesimal.

Question 9

A theoretical good for which the demand curve is upward sloping is a(n):

Accepted Answer

A)  Giffen good. 
B)  substitute good. 
C)  normal good. 
D)  complement good. 
A)  Giffen good. 
B)  substitute good. 
C)  normal good. 
D)  complement good.

Question 10

The amount by which total utility rises when an additional unit of a good is consumed is called:

Accepted Answer

A)  average utility. 
B)  the law of diminishing returns. 
C)  incremental utility. 
D)  marginal utility. 
A)  average utility. 
B)  the law of diminishing returns. 
C)  incremental utility. 
D)  marginal utility.

Question 11

John Smedley, a careful maximizer of utility, consumes only two goods, peanut butter and ice cream.He had just achieved the utility-maximizing solution in his consumption of the two goods when the price of ice cream fell.As he adjusts to this event, he will consume:

Accepted Answer

A)  more peanut butter and more ice cream. 
B)  less peanut butter and less ice cream. 
C)  more peanut butter and less ice cream. 
D)  less peanut butter and more ice cream. 
A)  more peanut butter and more ice cream. 
B)  less peanut butter and less ice cream. 
C)  more peanut butter and less ice cream. 
D)  less peanut butter and more ice cream.

Question 12

A consumer's spending is restricted because of:

Accepted Answer

A)  marginal utility. 
B)  total utility. 
C)  a budget constraint. 
D)  utility maximization. 
A)  marginal utility. 
B)  total utility. 
C)  a budget constraint. 
D)  utility maximization.

Question 13

According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers:

Accepted Answer

A)  have more real income. 
B)  purchase fewer substitute goods. 
C)  purchase more of the now relatively less expensive good. 
D)  purchase more complementary goods. 
A)  have more real income. 
B)  purchase fewer substitute goods. 
C)  purchase more of the now relatively less expensive good. 
D)  purchase more complementary goods.

Question 14

Utility is maximized in the consumption of two goods by equating the:

Accepted Answer

A)  marginal utility of one good to the price of the other. 
B)  ratios of marginal utility to price for both goods. 
C)  ratios of total utility to price of both goods. 
D)  marginal utilities of both goods. 
A)  marginal utility of one good to the price of the other. 
B)  ratios of marginal utility to price for both goods. 
C)  ratios of total utility to price of both goods. 
D)  marginal utilities of both goods.

Question 15

Which of the following statements is true regarding utility?

Accepted Answer

A)  Utility can be measured. 
B)  Utility cannot be measured. 
C)  Utility, at the margin, eventually increases as more of a good is consumed. 
D)  A and C are true. 
A)  Utility can be measured. 
B)  Utility cannot be measured. 
C)  Utility, at the margin, eventually increases as more of a good is consumed. 
D)  A and C are true.

Question 16

The substitution effect of a price change is described by which of the following statements?

Accepted Answer

A)  When the price of a good falls, consumers have more real income with the same nominal income and will now buy more of the good. 
B)  When the price of a good falls, consumers will now substitute this lower priced good for relatively higher priced goods. 
C)  The substitution effect is the relative change in the amount of a good consumed when the price of another good changes. 
D)  The substitution effect shows how a change in income will affect the quantity of a good purchased. 
A)  When the price of a good falls, consumers have more real income with the same nominal income and will now buy more of the good. 
B)  When the price of a good falls, consumers will now substitute this lower priced good for relatively higher priced goods. 
C)  The substitution effect is the relative change in the amount of a good consumed when the price of another good changes. 
D)  The substitution effect shows how a change in income will affect the quantity of a good purchased.

Question 17

Use the following to answer question(s): Consumer Equilibrium 2
  
-(Exhibit: Consumer Equilibrium 2) Assume the consumer is currently operating at point I.The consumer could gain more utility by choosing point _______ , all other things held unchanged.

Accepted Answer

A)  J 
B)  G 
C)  K 
D)  None of the above is true. 
A)  J 
B)  G 
C)  K 
D)  None of the above is true.

Question 18

Negatively sloped demand curves can be explained by the law of diminishing marginal utility.

Accepted Answer

A) True 
 B)False

Question 19

If a consumer purchases a combination of commodities x and y such that MUₓ/Pₓ = 50 and MUᵧ/Pᵧ = 40, to maximize utility, the consumers should buy.

Accepted Answer

A)  more of x and less of y. 
B)  more of both x and y. 
C)  less of x and more of y. 
D)  less of both x and y. 
A)  more of x and less of y. 
B)  more of both x and y. 
C)  less of x and more of y. 
D)  less of both x and y.

Question 20

As a consumer moves upward along an indifference curve, giving up some of X (on the horizontal axis) to get more of Y (on the vertical axis), his or her marginal rate of substitution of X for Y:

Accepted Answer

A)  becomes infinite. 
B)  goes from negative to positive. 
C)  increases. 
D)  decreases. 
A)  becomes infinite. 
B)  goes from negative to positive. 
C)  increases. 
D)  decreases.

Use the following to answer question(s): -(Exhibit: Utility) The law of diminishing marginal utility is first observed at the _______ unit.

If, because of a price change, both the income and substitution effects are strong for a normal good, this segment of the demand curve must be:

The substitution effect always involves a change in consumption in the _ direction of the __ change.

Use the following for questions 61-69. -(Exhibit: Consumer Equilibrium 1) Assume that the price of both goods is $1 per unit, and you consume 4 units of good X and 2 units of good Y.To maximize utility, assuming that the goods are divisible, you would consume:

Higher indifference curves:

When the price of a normal good falls, the substitution effect contributes to a(n) _ in the quantity demanded and the income effect _ the substitution effect.

The fact that a Giffen good might exist:

In dealing with utility, we assume that the ability of consumers to purchase goods and services is:

A theoretical good for which the demand curve is upward sloping is a(n):

The amount by which total utility rises when an additional unit of a good is consumed is called:

John Smedley, a careful maximizer of utility, consumes only two goods, peanut butter and ice cream.He had just achieved the utility-maximizing solution in his consumption of the two goods when the price of ice cream fell.As he adjusts to this event, he will consume:

A consumer's spending is restricted because of:

According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers:

Utility is maximized in the consumption of two goods by equating the:

Which of the following statements is true regarding utility?

The substitution effect of a price change is described by which of the following statements?

Use the following to answer question(s): Consumer Equilibrium 2 -(Exhibit: Consumer Equilibrium 2) Assume the consumer is currently operating at point I.The consumer could gain more utility by choosing point _______ , all other things held unchanged.

Negatively sloped demand curves can be explained by the law of diminishing marginal utility.

If a consumer purchases a combination of commodities x and y such that MUₓ/Pₓ = 50 and MUᵧ/Pᵧ = 40, to maximize utility, the consumers should buy.

As a consumer moves upward along an indifference curve, giving up some of X (on the horizontal axis) to get more of Y (on the vertical axis), his or her marginal rate of substitution of X for Y:

Economics: The Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Supply and Demand

Elasticity: a Measure of Response

Markets, Maximizers, and Efficiency

Production and Cost

Competitive Markets for Goods and Services

Monopoly

The World of Imperfect Competition

Wages and Employment in Perfect Competition

Interest Rates and the Markets for Capital and Natural Resources

Imperfectly Competitive Markets for Factors of Production

Public Finance and Public Choice

Antitrust Policy and Business Regulation

International Trade

The Economics of the Environment

Inequality, Poverty, and Discrimination

Filters

Exam 7: The Analysis of Consumer Choice

Use the following to answer question(s): -(Exhibit: Utility) The law of diminishing marginal utility is first observed at the _______ unit.

If, because of a price change, both the income and substitution effects are strong for a normal good, this segment of the demand curve must be:

The substitution effect always involves a change in consumption in the _______ direction of the ________ change.

Use the following for questions 61-69. -(Exhibit: Consumer Equilibrium 1) Assume that the price of both goods is $1 per unit, and you consume 4 units of good X and 2 units of good Y.To maximize utility, assuming that the goods are divisible, you would consume:

Higher indifference curves:

When the price of a normal good falls, the substitution effect contributes to a(n) _______ in the quantity demanded and the income effect _______ the substitution effect.

The fact that a Giffen good might exist:

In dealing with utility, we assume that the ability of consumers to purchase goods and services is:

A theoretical good for which the demand curve is upward sloping is a(n):

The amount by which total utility rises when an additional unit of a good is consumed is called:

John Smedley, a careful maximizer of utility, consumes only two goods, peanut butter and ice cream.He had just achieved the utility-maximizing solution in his consumption of the two goods when the price of ice cream fell.As he adjusts to this event, he will consume:

A consumer's spending is restricted because of:

According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers:

Utility is maximized in the consumption of two goods by equating the:

Which of the following statements is true regarding utility?

The substitution effect of a price change is described by which of the following statements?

Use the following to answer question(s): Consumer Equilibrium 2 -(Exhibit: Consumer Equilibrium 2) Assume the consumer is currently operating at point I.The consumer could gain more utility by choosing point _______ , all other things held unchanged.

Negatively sloped demand curves can be explained by the law of diminishing marginal utility.

If a consumer purchases a combination of commodities x and y such that MUₓ/Pₓ = 50 and MUᵧ/Pᵧ = 40, to maximize utility, the consumers should buy.

As a consumer moves upward along an indifference curve, giving up some of X (on the horizontal axis) to get more of Y (on the vertical axis), his or her marginal rate of substitution of X for Y:

Economics: The Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Supply and Demand

Elasticity: a Measure of Response

Markets, Maximizers, and Efficiency

Production and Cost

Competitive Markets for Goods and Services

Monopoly

The World of Imperfect Competition

Wages and Employment in Perfect Competition

Interest Rates and the Markets for Capital and Natural Resources

Imperfectly Competitive Markets for Factors of Production

Public Finance and Public Choice

Antitrust Policy and Business Regulation

International Trade

The Economics of the Environment

Inequality, Poverty, and Discrimination

Filters

The substitution effect always involves a change in consumption in the _ direction of the __ change.

When the price of a normal good falls, the substitution effect contributes to a(n) _ in the quantity demanded and the income effect _ the substitution effect.