Question 1

A consumer maximises her total utility from a bundle of goods when her marginal utility from each good is equal.

Accepted Answer

A) True 
 B)False

Question 2

Marge buys 5 CDs and 7 DVDs.The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils.Can we say that this is the optimal combination of CDs and DVDs for Marge?

Accepted Answer

A) No.We need to know her preferences for CDs and DVDs. 
B) Yes. 
C) No.We need to know the prices of the CDs and DVDs. 
D) No.If this was the optimal combination,the marginal utility per dollar of the 5th CD and the 7th DVD would be equal. 
A) No.We need to know her preferences for CDs and DVDs. 
B) Yes. 
C) No.We need to know the prices of the CDs and DVDs. 
D) No.If this was the optimal combination,the marginal utility per dollar of the 5th CD and the 7th DVD would be equal.

Question 3

The income effect of a price increase causes a decrease in the quantity demanded of a normal good.

Accepted Answer

A) True 
 B)False

Question 4

A good is path dependent when

Accepted Answer

A) consumers get utility from consuming goods that others are consuming,such as restaurants. 
B) the first technology that was adopted has an advantage over a better technology that came later. 
C) people who move location follow the path of people who moved before them. 
D) it can only be used in one way. 
A) consumers get utility from consuming goods that others are consuming,such as restaurants. 
B) the first technology that was adopted has an advantage over a better technology that came later. 
C) people who move location follow the path of people who moved before them. 
D) it can only be used in one way.

Question 5

Arnie Ziffel has $20 per week to spend on any combination of pineapples and green tea.The price of a pineapple is $4 and the price of a bottle of green tea is $2.The table below shows Arnie's utility values.Use the table to answer the questions that follow the table.
   
a.Complete the table by filling in the blank spaces.
b.Suppose Arnold purchases 4 pineapples and 2 bottles of green tea.Is he consuming the optimal consumption bundle? If so,explain why.If not,what combination should he buy and why?

Accepted Answer

a.
 @#IMG-DLM& b.If Arnold purchases 4 pineapples

Question 6

The income effect of a price increase for a Giffen good outweighs the substitution effect.

Accepted Answer

A) True 
 B)False

Question 7

A curve that shows combinations of consumption bundles that give a consumer the same utility is called

Accepted Answer

A) a utility curve. 
B) an indifference curve. 
C) a preference curve. 
D) a demand curve. 
A) a utility curve. 
B) an indifference curve. 
C) a preference curve. 
D) a demand curve.

Question 8

Which of the following does not explain why consumers buy products that many other consumers are already buying?

Accepted Answer

A) technology 
B) the satisfaction people derive by being viewed as 'fashionable' 
C) cost-effective way to gather information about a product 
D) differences in tastes and preferences 
A) technology 
B) the satisfaction people derive by being viewed as 'fashionable' 
C) cost-effective way to gather information about a product 
D) differences in tastes and preferences

Question 9

Marv Pilson has $50 worth of groceries in a shopping cart at his local Shop 'n Save.Assume that the marginal utility per dollar of the liter bottles of soft drink in Marv's cart equals 50.The marginal utility per dollar of the boxes of cereal in Marv's cart equals 20.Marv has only $50 to spend,but has not yet paid for his groceries.How can Marv increase his total utility without spending more than $50?

Accepted Answer

A) Marv should substitute his favourite soft drink or the cereal in his cart for generic brands that have lower prices. 
B) Marv should buy more boxes of cereal and fewer bottles of soft drink. 
C) Marv should buy fewer boxes of cereal and more bottles of soft drink. 
D) Marv should buy fewer boxes of cereal and fewer bottles of soft drink.He can then spend more on other items. 
A) Marv should substitute his favourite soft drink or the cereal in his cart for generic brands that have lower prices. 
B) Marv should buy more boxes of cereal and fewer bottles of soft drink. 
C) Marv should buy fewer boxes of cereal and more bottles of soft drink. 
D) Marv should buy fewer boxes of cereal and fewer bottles of soft drink.He can then spend more on other items.

Question 10

All but one of the following have been suggested by some economists as possible consequences of path dependency and switching costs.Which of the following is not a possible consequence of path dependency and switching costs?

Accepted Answer

A) Consumers may get locked into using products with inferior technology. 
B) market failure 
C) diseconomies of scale 
D) Government intervention may be necessary in affected markets in order to improve economic efficiency. 
A) Consumers may get locked into using products with inferior technology. 
B) market failure 
C) diseconomies of scale 
D) Government intervention may be necessary in affected markets in order to improve economic efficiency.

Question 11

Behavioural economics is the study of situations in which people make rational choices.

Accepted Answer

A) True 
 B)False

Question 12

When the price of audio books,a normal good,falls,causing your purchasing power to rise,you buy more of them due to

Accepted Answer

A) the substitution effect. 
B) the income effect. 
C) the deadweight loss effect. 
D) the elasticity effect. 
A) the substitution effect. 
B) the income effect. 
C) the deadweight loss effect. 
D) the elasticity effect.

Question 13

Total utility is maximised in the consumption of two goods by

Accepted Answer

A) equating the marginal utility for each good consumed. 
B) equating the marginal utility per dollar for each good consumed. 
C) equating the total utility of each good divided by its price. 
D) maximising expenditure on each good. 
A) equating the marginal utility for each good consumed. 
B) equating the marginal utility per dollar for each good consumed. 
C) equating the total utility of each good divided by its price. 
D) maximising expenditure on each good.

Question 14

Suppose Joe is maximising total utility within his budget constraint.If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20,then,using the rule of equal marginal utility per dollar spent,the extra satisfaction received from the last shirt must be

Accepted Answer

A) 2000 units of utility. 
B) 500 units of utility. 
C) 100 units of utility. 
D) 80 units of utility. 
A) 2000 units of utility. 
B) 500 units of utility. 
C) 100 units of utility. 
D) 80 units of utility.

Question 15

A consumer's budget constraint is

Accepted Answer

A) the limited income that a consumer has to spend on goods and services. 
B) the rate at which the consumer must give up one good to purchase an additional unit of the other goods in the market. 
C) the price ratio a consumer faces in the marketplace. 
D) the extent to which one's preferences are limited by one's income. 
A) the limited income that a consumer has to spend on goods and services. 
B) the rate at which the consumer must give up one good to purchase an additional unit of the other goods in the market. 
C) the price ratio a consumer faces in the marketplace. 
D) the extent to which one's preferences are limited by one's income.

Question 16

Table 6-2
   Table 6-2 above shows Keira's utility from soup and sandwiches.The price of soup is $2 per cup and the price of a sandwich is $3.Keira has $18 to spend on these two goods.
-Refer to Table 6-2.Holding prices constant,when Keira's income changed from $18 to $23,what happens to her total utility and to the marginal utilities of the last cup of soup and the last sandwich purchased?

Accepted Answer

A) Her total utility increases,but the marginal utilities of the last cup of soup and the last sandwich consumed decrease. 
B) Her total utility,the marginal utility of the last cup of soup consumed and the marginal utility of the last sandwich consumed all increase. 
C) Her total utility decreases,but the marginal utilities of the last cup of soup and the last sandwich consumed increase. 
D) Her total utility and the marginal utility of the last cup of soup consumed increase,but marginal utility of the last sandwich consumed decreases. 
A) Her total utility increases,but the marginal utilities of the last cup of soup and the last sandwich consumed decrease. 
B) Her total utility,the marginal utility of the last cup of soup consumed and the marginal utility of the last sandwich consumed all increase. 
C) Her total utility decreases,but the marginal utilities of the last cup of soup and the last sandwich consumed increase. 
D) Her total utility and the marginal utility of the last cup of soup consumed increase,but marginal utility of the last sandwich consumed decreases.

Question 17

Gowri has $6 per day to purchase lunch.She spends all of her lunch money on pizza and iced tea.The price of pizza is $2.00 per slice and iced tea costs $1 per bottle.
a.Draw Gowri's budget constraint and label it BC0.Put pizza on the horizontal axis and iced tea on the vertical axis.Be sure to identify the intercept values.
b.If the price of iced tea rises to $1.20 per bottle,show what will happen to her budget constraint in your diagram.Be sure to indicate any new intercept values.

Accepted Answer

a. @#IMG-DLM& b.BC₁ in the figu

Question 18

If the price of muffins,a normal good that you enjoy,rises,

Accepted Answer

A) the income and substitution effects offset each other,but the price effect leads you to buy fewer muffins. 
B) both the income and substitution effects lead you to buy fewer muffins. 
C) the substitution effect which causes you to decrease your muffin consumption outweighs the income effect which causes you to increase your muffin consumption,resulting in fewer muffins purchased. 
D) the income effect which causes you to decrease your muffin consumption outweighs the substitution effect which causes you to increase your muffin consumption,resulting in fewer muffins purchased. 
A) the income and substitution effects offset each other,but the price effect leads you to buy fewer muffins. 
B) both the income and substitution effects lead you to buy fewer muffins. 
C) the substitution effect which causes you to decrease your muffin consumption outweighs the income effect which causes you to increase your muffin consumption,resulting in fewer muffins purchased. 
D) the income effect which causes you to decrease your muffin consumption outweighs the substitution effect which causes you to increase your muffin consumption,resulting in fewer muffins purchased.

Question 19

The income effect of a decrease in the price of macaroni and cheese (assume this is an inferior good)results in

Accepted Answer

A) a decrease in the demand for macaroni and cheese. 
B) an increase in the quantity demanded of macaroni and cheese. 
C) a decrease in the quantity demanded of macaroni and cheese. 
D) an increase in the demand for macaroni and cheese. 
A) a decrease in the demand for macaroni and cheese. 
B) an increase in the quantity demanded of macaroni and cheese. 
C) a decrease in the quantity demanded of macaroni and cheese. 
D) an increase in the demand for macaroni and cheese.

Question 20

Table 6-6
   Table 6-6 lists Jay's marginal utilities for burgers and Pepsi.Jay has $7 to spend on these two goods.The price of a burger is $2 and the price of a can of Pepsi is $1.
-Refer to Table 6-6.If Jay can eat all the burgers he wants for free,how many burgers will he consume?

Accepted Answer

A) 7 burgers 
B) 6 burgers 
C) 5 burgers 
D) 3 burgers 
A) 7 burgers 
B) 6 burgers 
C) 5 burgers 
D) 3 burgers

A consumer maximises her total utility from a bundle of goods when her marginal utility from each good is equal.

Marge buys 5 CDs and 7 DVDs.The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils.Can we say that this is the optimal combination of CDs and DVDs for Marge?

The income effect of a price increase causes a decrease in the quantity demanded of a normal good.

A good is path dependent when

The income effect of a price increase for a Giffen good outweighs the substitution effect.

A curve that shows combinations of consumption bundles that give a consumer the same utility is called

Which of the following does not explain why consumers buy products that many other consumers are already buying?

All but one of the following have been suggested by some economists as possible consequences of path dependency and switching costs.Which of the following is not a possible consequence of path dependency and switching costs?

Behavioural economics is the study of situations in which people make rational choices.

When the price of audio books,a normal good,falls,causing your purchasing power to rise,you buy more of them due to

Total utility is maximised in the consumption of two goods by

A consumer's budget constraint is

If the price of muffins,a normal good that you enjoy,rises,

The income effect of a decrease in the price of macaroni and cheese (assume this is an inferior good)results in

Table 6-6 Table 6-6 lists Jay's marginal utilities for burgers and Pepsi.Jay has $7 to spend on these two goods.The price of a burger is $2 and the price of a can of Pepsi is $1. -Refer to Table 6-6.If Jay can eat all the burgers he wants for free,how many burgers will he consume?

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: the Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Technology, Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

The Markets for Labour and Other Factors of Production

International Trade

Government Intervention in the Market

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

Exam 6: Consumer Choice and Behavioural Economics

A consumer maximises her total utility from a bundle of goods when her marginal utility from each good is equal.

Marge buys 5 CDs and 7 DVDs.The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils.Can we say that this is the optimal combination of CDs and DVDs for Marge?

The income effect of a price increase causes a decrease in the quantity demanded of a normal good.

A good is path dependent when

The income effect of a price increase for a Giffen good outweighs the substitution effect.

A curve that shows combinations of consumption bundles that give a consumer the same utility is called

Which of the following does not explain why consumers buy products that many other consumers are already buying?

All but one of the following have been suggested by some economists as possible consequences of path dependency and switching costs.Which of the following is not a possible consequence of path dependency and switching costs?

Behavioural economics is the study of situations in which people make rational choices.

When the price of audio books,a normal good,falls,causing your purchasing power to rise,you buy more of them due to

Total utility is maximised in the consumption of two goods by

A consumer's budget constraint is

If the price of muffins,a normal good that you enjoy,rises,

The income effect of a decrease in the price of macaroni and cheese (assume this is an inferior good)results in

Table 6-6 Table 6-6 lists Jay's marginal utilities for burgers and Pepsi.Jay has $7 to spend on these two goods.The price of a burger is $2 and the price of a can of Pepsi is $1. -Refer to Table 6-6.If Jay can eat all the burgers he wants for free,how many burgers will he consume?

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: the Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Technology, Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

The Markets for Labour and Other Factors of Production

International Trade

Government Intervention in the Market

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters