Deck 5: Consumer Choice: Individual and Market Demand

Question 1

Total utility decreases when diminishing marginal utility is present.

Answer 1

False

Question 2

The law of diminishing marginal utility states that total utility will decrease at an increasing rate as additional units of a commodity are consumed.

Answer 2

False

Question 3

Total utility increases if one more unit of a product is purchased and marginal utility is positive.

Answer 3

True

Question 4

When a consumer has chosen an optimal bundle of goods, this bundle maximizes marginal utility.

Question 5

The law of diminishing marginal utility states that total utility will increase at a decreasing rate as additional units of a commodity are acquired.

Question 6

An optimal purchase is one that maximizes total utility.

Question 7

Marginal utility is measured by the maximum amount of money a consumer is willing to pay for one more unit of a commodity.

Question 8

Consumers should purchase quantities of a good to the point where MU > P.
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Question 9

Because of diminishing marginal utility, total utility always decreases when additional amounts of a commodity are consumed.

Question 10

Total utility increases if one more unit of a product is purchased and marginal utility is negative.

Question 11

Total utility can be objectively measured in numbers that indicate usefulness or benefit to the consumer.

Question 12

Total utility always decreases when additional amounts of a commodity are consumed.

Question 13

As a rule, as a consumer acquires more and more of a good, the marginal utility declines.

Question 14

In general, as a consumer acquires more and more of a good, the marginal utility remains constant.

Question 15

Marginal utility can fall even as total utility from the consumption of a good is rising.

Question 16

The number of compact discs purchased by a consumer depends on the price of the discs as well as the prices of all other goods purchased.

Question 17

As a rule, the more of a commodity a consumer acquires, the smaller will be her total utility from that good.

Question 18

Utility is the pleasure, satisfaction, or enjoyment derived from consumption.

Question 19

The law of diminishing marginal utility holds that at some point consumption of additional units of a commodity adds less to total utility.

Question 20

Because the consumer's budget is limited, purchase decisions among available goods must of necessity be interdependent.

Question 21

Consumer's surplus is the difference between the worth of a commodity to the consumer and the price the consumer pays for the commodity.

Question 22

Since price tends to equal marginal utility, the price of water is low and the price of diamonds is high.

Question 23

If the marginal net utility of beer is negative, the consumer should buy more beer in order to increase the total utility.

Question 24

The real cost of a decision is the opportunity cost measured in the commodities forgone.

Question 25

Voluntary exchange requires that there must be mutual gain.

Question 26

If the marginal net utility of beer is a positive number, the consumer should buy more beer in order to maximize utility.

Question 27

Given a typical demand curve and a decline in price, the consumer who wishes to maximize total utility must increase the quantity purchased of a good to arrive at an optimal MU = P point.

Question 28

The resolution of Adam Smith's diamond-water puzzle is based on the distinction between marginal and total utility.

Question 29

Consumer's surplus is what one consumer is willing to pay for a commodity over what another consumer is willing to pay for the same commodity.

Question 30

The law of diminishing marginal utility is consistent with the consumer behavior that produces a negatively sloped demand curve.

Question 31

Scarcity raises both price and marginal utility but generally reduces total utility.

Question 32

Consumers should purchase a good up to the point where MU = P.

Question 33

All decisions involve opportunity cost.

Question 34

Since price tends to equal total utility, the price of water is low and the price of diamonds is high.

Question 35

The law of diminishing marginal utility guarantees that demand curves will have positive slopes.

Question 36

A consumer cannot gain consumer's surplus if she purchases more than one unit of a good.

Question 37

An inferior good is one that consumers buy in smaller quantities when incomes rise.

Question 38

Quantity demanded is affected not just by price but by other variables, such as income and the prices of other goods.

Question 39

Consumer's surplus exists only for the last unit of a good that a buyer has purchased.

Question 40

The diamond-water puzzle, described by Adam Smith, suggests that the consumer's surplus of water is high and the consumer's surplus for diamonds is low.

Question 41

The law of demand ensures that a demand curve has a positive slope.

Question 42

At the end points on a budget line, the consumer is not spending all of his budget, since one of the goods is not being purchased.

Question 43

A decrease in the price of one good results in a parallel shift in the budget line.

Question 44

Even if all individual demand curves are downwardly sloped, the market demand curve may slope upward.

Question 45

The law of demand holds that as prices of goods decrease, people are willing to buy more.

Question 46

A change in the price of one good results in a rotation of the budget line, so that it is steeper or flatter.

Question 47

The market demand curve is the horizontal summation of all individual demand curves.

Question 48

If a good has "snob appeal," consumers may purchase less when the price falls.

Question 49

A change in the price of one good results in a rotation of the budget line around the point at which the consumer is currently consuming, so that it is steeper or flatter.

Question 50

If income rises, most consumers will increase the quantity demanded of an inferior good.

Question 51

Points along a budget line represent the maximum combinations of two commodities that a consumer can afford.

Question 52

All inferior goods have upward-sloping demand curves.

Question 53

The slope of the budget line is determined only by the prices of the commodities purchased.

Question 54

The market demand curve is the vertical summation of all individual demand curves.

Question 55

Rolls-Royce may actually sell fewer cars at lower prices due to the "snob effect."

Question 56

The budget line represents a consumer's preferences for a commodity.

Question 57

All of the points on a budget line result in combination of goods that expend all of her income.

Question 58

An inferior good is one that consumers buy in smaller quantities when the price of that good rises.

Question 59

An increase in income produces a parallel, outward shift in the budget line.

Question 60

The market demand curve represents the total quantity demanded at each price.

Question 61

If point A on an indifference curve lies higher (measured vertically) than point B on the same curve, Point A automatically represents higher total utility than point B.

Question 62

A consumer who chooses the optimal bundle will go to a point on the highest attainable indifference curve.

Question 63

The budget line and the indifference curve are geometric devices used to provide a closer look at consumer choice.

Question 64

An increase in a consumer's income will always increase the demand for a good.

Question 65

A consumer will consume the combination of goods at the crossing point of a budget line and indifference curve.

Question 66

An increase in income shifts indifference curves outward.

Question 67

Indifference curves show all combinations of commodities that are equally desirable to the consumer.

Question 68

The slope of the budget line is the amount of one commodity that a consumer must give up in order to obtain an additional unit of the other commodity.

Question 69

The slope of an indifference curve represents the maximum amount of one commodity that a consumer is willing to give up in exchange for one more unit of another commodity.

Question 70

All points on an indifference curve represent combinations of two goods that are equally desirable to the consumer.

Question 71

A change in the price of one good, such as staples, may affect the quantity demanded of another good, such as rubber bands.

Question 72

Any point on the lowest indifference curve is preferable to a point on a higher indifference curve.

Question 73

A change in the price of a good will shift the indifference curves.

Question 74

The marginal rate of substitution represents the maximum amount of one commodity a consumer is willing to give up in exchange for one more unit of another commodity.

Question 75

An optimal consumption bundle will always be on the highest attainable indifference curve for the consumer.

Question 76

A consumer will consume the combination of goods at the point of tangency between the budget line and the indifference curve.

Question 77

The demand curve can be derived from indifference curves by varying the price of the commodity in question.

Question 78

When the price of one good decreases, such as hot dogs, it may also increase the demand for other, related goods, like mustard.

Question 79

When drawn correctly and preferences are consistent, indifference curves do not intersect.

Question 80

A change in consumer preferences will shift the budget line.