Deck 6: Consumer Behaviour

Question 1

FIGURE 6-1
Refer to Figure 6-1.Marginal utility is zero when total utility is

A)equal to zero.
B)is decreasing.
C)is increasing.
D)equal to marginal utility.
E)at its maximum.

Answer 1

at its maximum.

Question 2

The "law" of diminishing marginal utility implies that the

A)first unit of a good consumed will contribute most to the consumer's satisfaction.
B)last unit of a good consumed will contribute most to the consumer's satisfaction.
C)total utility is negative.
D)total utility is constant as more units are consumed.
E)marginal utility of a good diminishes over time.

Answer 2

first unit of a good consumed will contribute most to the consumer's satisfaction.

Question 3

Marginal utility theory is about

A)the consumer behaviour that underlies the theory of demand.
B)proving that demand curves are always downward sloping.
C)the total satisfaction resulting from the consumption of some good by the consumer.
D)how producers allocate their scarce resources.
E)calculating consumer surplus.

Answer 3

the consumer behaviour that underlies the theory of demand.

Question 4

The table below shows the quantities of toffee bars and bags of cashews that a consumer could consume over a 1-week period.
Toffee (bars) Cashews (bags)
TABLE 6-1
Refer to Table 6-1.The maximum utility that a consumer can obtain from toffee bars and bags of cashews per week is

A)22.
B)54.
C)56.
D)64.
E)74.

Question 5

FIGURE 6-1
Refer to Figure 6-1.Total utility is at its maximum when marginal utility is

A)equal to zero.
B)negative.
C)positive.
D)equal to total utility.
E)at the maximum.

Question 6

FIGURE 6-1
Refer to Figure 6-1.The marginal utility of the second unit of the good consumed is

A)10.
B)20.
C)30.
D)40.
E)50.

Question 7

FIGURE 6-1
Refer to Figure 6-1.If this figure represents the utility obtained from consuming units of a good,how many units would this consumer consume if the good were free?

A)1
B)2
C)3
D)4
E)at least 5

Question 8

FIGURE 6-1
Refer to Figure 6-1.The consumer's total utility is

A)increasing at an increasing rate.
B)increasing at a decreasing rate.
C)decreasing at an increasing rate.
D)decreasing at a decreasing rate.
E)constant.

Question 9

A basic hypothesis of marginal utility theory is that the utility a consumer derives from successive units of a good diminishes as total consumption of the good increases.This hypothesis is known as

A)the paradox of value.
B)the utility theory of demand.
C)utility maximization.
D)the law of diminishing marginal utility.
E)the law of diminishing total utility.

Question 10

Economists use the term "marginal utility" to describe the

A)change in total satisfaction caused by consumption of an additional unit of a good.
B)average utility of each unit of a good consumed.
C)inverse of the measure of total utility.
D)total satisfaction received from consumption of a good.
E)price paid for every unit consumed.

Question 11

If consumption of an extra unit of some good generates a marginal utility of zero,then consumption of that additional unit would mean that total utility would

A)also be zero.
B)not change.
C)be increasing.
D)be decreasing.
E)be negative.

Question 12

The idea that the utility a consumer derives from successive units of a good diminishes as total consumption of the good increases is known as

A)the paradox of value.
B)the utility theory of demand.
C)utility maximization.
D)diminishing marginal utility.
E)diminishing total utility.

Question 13

FIGURE 6-1
Refer to Figure 6-1.This figure illustrates the law of

A)maximizing utility.
B)increasing total utility.
C)diminishing total utility.
D)diminishing marginal utility.
E)increasing marginal utility.

Question 14

In economics,the term "utility" is defined as the

A)system of basing the price of a good on its usefulness to society.
B)usefulness of a good.
C)total consumer satisfaction received from consumption of a good.
D)usefulness of a theory to explain price determination.
E)a service such as sewer and water or electricity.

Question 15

If total utility from the consumption of some product is increasing as more units are consumed,then marginal utility must be

A)decreasing at an increasing rate.
B)negative.
C)increasing.
D)increasing at an increasing rate.
E)positive.

Question 16

FIGURE 6-1
Refer to Figure 6-1.The total utility from consuming two units of the good is

A)20.
B)40.
C)60.
D)80.
E)140.

Question 17

Economists usually assume that consumers

A)are motivated to maximize their profit.
B)are poor judges of what is best for them.
C)spend all of their current income.
D)usually save as much as possible of their income.
E)are motivated to maximize their utility.

Question 18

If total utility from the consumption of some product is decreasing as more units are consumed,then marginal utility must be

A)positive.
B)negative.
C)decreasing.
D)decreasing at an increasing rate.
E)increasing at a decreasing rate.

Question 19

If consumption of an extra unit of a product delivers a positive marginal utility,then consumption of that additional unit would mean

A)that total utility is also zero.
B)that total utility would not change.
C)that total utility would be increasing.
D)that total utility would be decreasing.
E)that the consumer would no longer receive any satisfaction from any consumption of this good.

Question 20

The table below shows the quantities of toffee bars and bags of cashews that a consumer could consume over a 1-week period.
Toffee (bars) Cashews (bags)
TABLE 6-1
Refer to Table 6-1.If this consumer purchases 3 toffee bars and 4 bags of cashews per week,his/her total utility will be

A)7.
B)23.
C)31.
D)54.
E)57.

Question 21

The table below shows the quantities of toffee bars and bags of cashews that a consumer could consume over a 1-week period.
Toffee (bars) Cashews (bags)
TABLE 6-1
Refer to Table 6-1.If the price of toffee bars is $1 each,bags of cashews are $2 each,and this consumer has $7 per week to spend on these two snacks,how many of each will he/she purchase to maximize utility?

A)0 toffee bars and 3 bags of cashews
B)1 toffee bars and 3 bags of cashews
C)2 toffee bars and 2 bags of cashews
D)3 toffee bars and 2 bags of cashews
E)7 toffee bars and 0 bags of cashews

Question 22

FIGURE 6-2
Refer to Figure 6-2.Suppose that the price of X is $2,the price of Y is $1,the consumer's income is $10,and the consumer is buying 3 units of good X and 4 units of good Y.What is the total utility the consumer obtains from this combination of X and Y?

A)18
B)30
C)40
D)60
E)72

Question 23

The condition required for a consumer to be maximizing utility,for any pair of products,X and Y,is

A)P_X(MU_X)= P_Y(MU_Y).
B)MU_X = MU_Y.
C)MU_X/P_X = MU_Y/P_Y.
D)MU_X/P_Y = MU_Y/P_X.
E)P_X = P_Y.

Question 24

FIGURE 6-2
Refer to Figure 6-2.Suppose that the price of Y is $1 and the consumer's income is $10.Initially,the price of X is $2 and the consumer is buying 4 units of good Y.If the price of X then falls to $1,which of the following pairs of quantities of X correctly completes the demand schedule below? Price of X: $1 $2
Quantity Demanded of X: ________ ________

A)2; 4
B)4; 4
C)4; 3
D)6; 3
E)6; 4

Question 25

A consumer maximizes his or her utility when expenditures are allocated such that

A)the total utility from each good is equal.
B)the total number of dollars spent on each good is equal.
C)the utility received from the last unit of each good is equal.
D)the utility received per dollar spent on the last unit of each good is equal.
E)the marginal utility is zero for each good consumed utility.

Question 26

FIGURE 6-2
Refer to Figure 6-2.Suppose that the price of X is $2,the price of Y is $1,and the consumer's income is $10.The consumer is currently buying 3 units of good X and 4 units of good Y.In order to maximize his/her utility,the consumer should

A)not change his/her behaviour.
B)buy the same amount of X but less Y.
C)buy more of X but the same amount Y.
D)buy more of X and less Y.
E)buy less of X and more Y.

Question 27

Consider a consumer who divides his income between spending on good X and good Y.The opportunity cost of good X in terms of good Y is reflected by the

A)absolute price of good X.
B)absolute price of good Y.
C)ratio of the price of X to the price of Y.
D)ratio of the price of Y to the price of X.
E)price of good X relative to the prices of all other goods.

Question 28

The table below shows the quantities of toffee bars and bags of cashews that a consumer could consume over a 1-week period.
Toffee (bars) Cashews (bags)
TABLE 6-1
Refer to Table 6-1.If the prices of both toffee bars and bags of cashews are $2 and this consumer has $14 per week to spend on these two snacks,what is the maximum total utility achievable?

A)10
B)15
C)33
D)45
E)57

Question 29

Christine is allocating her household expenditure between cleaning services and gardening services in order to maximize the household's total utility.For the quantities of cleaning and gardening services she has chosen,an increase in the price of cleaning service will,ceteris paribus,

A)increase the marginal utility of a unit of cleaning service.
B)reduce the marginal utility per dollar spent on cleaning service.
C)reduce the marginal utility of a unit of cleaning service.
D)increase the marginal utility per dollar spent on cleaning service.
E)have no effect on the marginal utility per dollar spent on cleaning service.

Question 30

The Smith family is allocating its monthly household expenditure between only two goods,food and clothing.Suppose that the price of food is $12 per unit,and the price of clothing is $16 per unit and that the marginal utility that the family is receiving from its consumption of clothing is currently 200.What is the family's marginal utility from its consumption of food if it is maximizing its utility?

A)200
B)150
C)75
D)16
E)12

Question 31

The table below shows the quantities of toffee bars and bags of cashews that a consumer could consume over a 1-week period.
Toffee (bars) Cashews (bags)
TABLE 6-1
Refer to Table 6-1.If the prices of toffee bars and bags of cashews are both $1 and this consumer has $7 per week to spend on these two snacks,how many of each will he/she purchase to maximize utility?

A)2 toffee bars and 5 bags of cashews
B)3 toffee bars and 4 bags of cashews
C)4 toffee bars and 3 bags of cashews
D)5 toffee bars and 2 bags of cashews
E)6 toffee bars and 1 bag of cashews

Question 32

FIGURE 6-2
Refer to Figure 6-2.Suppose the price of Y is $1,the consumer's income is $10,and the consumer is currently buying 3 units of good X and 4 units of good Y.If this consumer is maximizing her utility,then the price of X must be

A)$1.
B)$2.
C)$3.
D)$4.
E)Impossible to tell with the given information.

Question 33

The Smith family is allocating its monthly household expenditure between only two goods,food and clothing.Suppose that the price of food is $5 per unit,and the price of clothing is $10 per unit and that the marginal utility that the family is receiving from its consumption of food is currently 25.What is the family's marginal utility from its consumption of clothing if it is maximizing its utility?

A)5
B)10
C)12.5
D)25
E)50

Question 34

The table below shows the quantities of toffee bars and bags of cashews that a consumer could consume over a 1-week period.
Toffee (bars) Cashews (bags)
TABLE 6-1
Refer to Table 6-1.If the prices of toffee bars and bags of cashews are both $1 and this consumer has $11 per week to spend on snacks,how many of each will he/she purchase?

A)3 toffee bars and 8 bags of cashews
B)4 toffee bars and 7 bags of cashews
C)5 toffee bars and 5 bags of cashews
D)5 toffee bars and 6 bags of cashews
E)6 toffee bars and 5 bags of cashews

Question 35

If all consumers in an economy have maximized their utility,and they face a given set of market prices,then each consumer will have identical

A)total utilities for each good.
B)marginal utilities for each good.
C)marginal utilities per unit of each good.
D)ratios of marginal utility to price for each good.
E)consumption of each good.

Question 36

If a consumer is faced with a choice of products A,B,C,...,and has a given money income,the consumer's utility will be maximized when

A)MU_A/P_A = MU_B/P_B = MU_C/P_C = ...
B)P_A = P_B = P_C = ...
C)MU_A = MU_B = MU_C = ...
D)TU_A = TU_B = TU_C = ...
E)MU_{A =} P_A; MU_{B =} P_B; MU_C = P_{C; ...}

Question 37

FIGURE 6-2
Refer to Figure 6-2.Suppose the price of X is $2,the price of Y is $1,and the consumer's income is $10.The consumer is currently buying 4 units of good X and 2 units of good Y.In order to maximize his utility,he should

A)make no changes - he is already maximizing his total utility.
B)buy the same amount of X but less Y.
C)buy more of X but the same amount Y.
D)buy more of X and less Y.
E)buy more Y and less X.

Question 38

John is allocating his household expenditure between groceries and housing in order to maximize total utility.For the quantities of groceries and housing he has chosen,an increase in the price of housing will,ceteris paribus,

A)increase the marginal utility of a unit of housing.
B)increase the marginal utility per dollar spent on housing.
C)reduce the marginal utility of a unit of housing.
D)reduce the marginal utility per dollar spent on housing.
E)have no effect on the marginal utility per dollar spent on housing.

Question 39

FIGURE 6-2
Refer to Figure 6-2.If the price of X is $2 and the price of Y is $1 and the consumer is buying 4 units of X and 2 units of Y,the consumer's total utility is

A)8.
B)10.
C)52.
D)56.
E)69.

Question 40

FIGURE 6-2
Refer to Figure 6-2.Suppose the price of Y is $1 and the consumer's income is $10.Initially,the price of X is $2 and the consumer is buying 3 units of good X and 4 units of good Y.If the price of X then falls to $1,what quantities of X and Y will he/she now purchase in order to maximize total utility?

A)2 X and 8 Y.
B)3 X and 7 Y.
C)4 X and 6 Y.
D)5 X and 5 Y.
E)6 X and 4 Y.

Question 41

If John consumes only two goods,A and B,and he is maximizing his utility subject to his budget constraint,

A)MU_A/MU_B is at a maximum.
B)MU_A/MU_B equals the ratio of the total utility of A to the total utility of B.
C)MU_A/MU_B equals 1.
D)MU_A/MU_B equals zero.
E)MU_A/MU_B equals the ratio of the price of A to the price of B.

Question 42

Diagrams A,B,and C show 3 individual consumers' demand curves for cement.Consumers A,B,and C constitute the entire monthly cement market in this region. FIGURE 6-3
Refer to Figure 6-3.On the regional market demand curve for cement (not shown),at which price level(s)is there a "kink" in the demand curve?

A)$10
B)$20 and $30
C)$30 and $70
D)$40 and $70
E)$80

Question 43

Consider the income and substitution effects of price changes.The income effect refers to the change in quantity demanded that occurs as a result of a change in

A)money income,with relative prices held constant.
B)real income,with relative prices held constant.
C)relative prices,with real income held constant.
D)marginal utility,with real income held constant.
E)preferences,with real income held constant.

Question 44

Suppose the price of potatoes falls and we observe a decrease in an individual's purchases of potatoes.Which of the following can we infer?

A)The income effect is negative and outweighs the substitution effect.
B)The income effect is negative and reinforces the substitution effect.
C)The income effect just offsets the substitution effect.
D)The income effect is positive and exceeds the substitution effect.
E)The substitution effect outweighs the income effect.

Question 45

Consider the income and substitution effects of price changes.If the price of a normal good changes,the income effect of the price change will

A)always be larger than the substitution effect.
B)always be to increase quantity demanded.
C)reinforce the substitution effect.
D)produce a positively sloped demand curve.
E)oppose the substitution effect.

Question 46

Bjorn is a student with a monthly budget of $500,which he allocates between transportation services and "all other goods." Suppose the price of transportation is $5 per unit,and the price of "all other goods" is $20 per unit.The marginal utility he currently receives from his consumption of transportation services is 60.What is his marginal utility from the consumption of "all other goods" if he is maximizing his utility?

A)5
B)20
C)25
D)200
E)240

Question 47

The substitution effect of a price change

A)will result in the consumer buying less of a good at a lower price.
B)will result in the consumer buying less of a good at a higher price.
C)outweighs the income effect for Giffen goods.
D)is equal to the income effect for normal goods.
E)is equal to the income effect for inferior goods.

Question 48

Consider the income and substitution effects of price changes.The substitution effect is the change in quantity demanded that occurs

A)as a result of a change in absolute prices,with real income held constant.
B)as a result of a change in relative prices with money income held constant.
C)as a result of a change in relative prices,with real income held constant.
D)when one good is substituted for another.
E)with a change in the relative prices of two or more goods.

Question 49

Suppose there are only two goods,A and B,and that consumer income is constant.If the price of good A falls and the consumption of good B rises,we can conclude that

A)A is a normal good.
B)B is a normal good.
C)A is an inferior good.
D)B is an inferior good.
E)both A and B are normal goods.

Question 50

Consider the income and substitution effects of price changes.For a product with an income elasticity greater than one,a price increase will cause the consumer's real income to

A)rise and the quantity purchased to fall.
B)fall and the quantity purchased to fall.
C)rise and the quantity purchased to rise.
D)fall and the quantity purchased to rise.
E)remain constant.

Question 51

The market demand curve is derived from

A)the vertical summation of individual demand curves.
B)the average quantity demanded of all individuals in the economy.
C)a weighted average of the quantity demanded of all individuals in the economy at each price.
D)the horizontal summation of individual demand curves.
E)market data provided by Statistics Canada.

Question 52

Diagrams A,B,and C show 3 individual consumers' demand curves for cement.Consumers A,B,and C constitute the entire monthly cement market in this region. FIGURE 6-3
Refer to Figure 6-3.What is the market demand (in cubic metres per month)for cement at a price of $80 per cubic metre?

A)0
B)1000
C)2000
D)3000
E)4000

Question 53

A demand curve for a normal good is downward sloping due to

A)the income effect.
B)the substitution effect.
C)the combination of income and substitution effects.
D)neither the substitution effect nor the income effect.
E)the Giffen effect.

Question 54

Marginal utility analysis predicts a downward-sloping demand curve for good X because

A)as P_X falls,the ratio MU_X/P_X becomes smaller,causing the consumer to purchase more of good X.
B)as P_X rises,the consumer increases purchases of X such that MU_X/P_X is equal to MU/P for all other products.
C)utility-maximizing consumers equate marginal utility received for each product consumed.
D)all demand curves are downward sloping,regardless of the behaviour of consumers.
E)as P_X falls,the consumer increases purchases of X until MU_X/P_X is equal to MU/P for all other products.

Question 55

Bjorn is a student with a monthly budget of $500,which he allocates between transportation services and "all other goods." Suppose the price of transportation is $5 per unit,and the price of "all other goods" is $20 per unit.The marginal utility he currently receives from his consumption of transportation services is 60.How many units of "all other goods" is he consuming if he is maximizing his utility?

A)25
B)60
C)200
D)240
E)There is not enough information to determine.

Question 56

Suppose a consumer can purchase only two goods,soap and apples.If the price of soap falls and the consumption of apples increases,we can conclude that the increased consumption of apples is due to

A)neither the income effect nor the substitution effect.
B)both the income effect and the substitution effect.
C)the income effect only.
D)the substitution effect only.
E)the deflation effect.

Question 57

Laurie spends all of her money buying bread and cheese.The marginal utility she receives from the last loaf of bread is 60 and from the last block of cheese is 30.The price of bread is $3 and the price of cheese is $2.Laurie

A)is buying bread and cheese in utility-maximizing amounts.
B)should buy more bread and less cheese in order to maximize her utility.
C)should buy more cheese and less bread in order to maximize her utility.
D)is spending too much money on bread and cheese.
E)should buy more bread and more cheese in order to maximize her utility.

Question 58

Diagrams A,B,and C show 3 individual consumers' demand curves for cement.Consumers A,B,and C constitute the entire monthly cement market in this region. FIGURE 6-3
Refer to Figure 6-3.What is the market demand (in cubic metres per month)for cement at a price of $20 per cubic metre?

A)0
B)4000
C)5000
D)10 000
E)14 000

Question 59

If the income effect of a price change is negative and larger in absolute terms than the substitution effect,then the demand curve will be

A)upward sloping.
B)downward sloping.
C)vertical.
D)horizontal.
E)of indeterminate slope.

Question 60

Diagrams A,B,and C show 3 individual consumers' demand curves for cement.Consumers A,B,and C constitute the entire monthly cement market in this region. FIGURE 6-3
Refer to Figure 6-3.What is the market demand (in cubic metres per month)for cement at a price of $60 per cubic metre?

A)0
B)1000
C)2000
D)3000
E)4000

Question 61

Consider the pizza market,with a downward-sloping demand curve and an upward-sloping supply curve.Suppose 100 pizzas are purchased at the free-market equilibrium price.The consumer surplus on the 100th pizza is

A)positive.
B)negative.
C)non-negative.
D)unknown.
E)zero.

Question 62

Consider the substitution and income effects of a 15% increase in the price of a good.Of the goods listed below,which is most likely to have the largest income effect?

A)salt
B)paperclips
C)socks
D)tennis balls
E)electricity

Question 63

Given a typical downward-sloping demand curve in a market that has reached its equilibrium,the consumer surplus

A)is measured by the area above the market price and under the demand curve.
B)is measured by the area below the market price and under the demand curve.
C)is measured by the area immediately above the demand curve.
D)is calculated as the product of market price and quantity consumed.
E)cannot be measured given the information.

Question 64

In which of the following situations will an individual's purchasing power be unaffected?

A)money income doubles and the prices of all goods and services are cut in half
B)money income remains constant and the prices of all goods and services double
C)money income is cut in half and the prices of all goods and services double
D)money income is cut in half and the prices of all goods and services remains constant
E)money income doubles and the prices of all goods and services double

Question 65

FIGURE 6-5
Refer to Figure 6-5.For both goods,the price increases from P₀ to P₁.The substitution effect is illustrated by the change in quantity demanded from A to B; the income effect is illustrated by the change in quantity demanded from B to C.Good Y is certainly a(n)________ good.

A)inferior
B)normal
C)luxury
D)necessity
E)Giffen

Question 66

Consider the substitution and income effects of a 15% increase in the price of a good.Of the goods listed below,which is most likely to have the smallest income effect?

A)groceries
B)restaurant meals
C)gasoline
D)paperclips
E)dishwashers

Question 67

FIGURE 6-5
Refer to Figure 6-5.For both goods,the price increases from P₀ to P₁.The substitution effect is illustrated by the change in quantity demanded from A to B; the income effect is illustrated by the change in quantity demanded from B to C.Good X is certainly a(n)________ good.

A)normal
B)inferior
C)luxury
D)necessity
E)Giffen

Question 68

Suppose a consumer can purchase only two goods,beef and chicken.If the price of beef falls (with all other variables held constant),and the consumption of chicken increases,we can conclude that the increased consumption of chicken is due to

A)neither the income effect nor the substitution effect.
B)both the income effect and the substitution effect.
C)the income effect only.
D)the substitution effect only.
E)a change in the consumer's preference toward chicken.

Question 69

The substitution effect is

A)the change in quantity demanded that occurs as a result of a change in absolute prices,with real income held constant.
B)the change in quantity demanded that occurs as a result of a change in relative prices with money income held constant.
C)the change in quantity demanded that occurs as a result of a change in relative prices with real income held constant.
D)the change in quantity demanded that occurs when one good is substituted for another.
E)the change in the relative prices of two or more goods.

Question 70

In which of the following situations will an individual's purchasing power be unaffected?

A)money income is cut in half and the prices of all goods and services fall by 50%
B)money income falls and the price of one good falls
C)money income doubles and the prices of all goods and services are cut in half
D)money income doubles and the prices of all goods and services remain constant
E)money income is cut in half and prices of all goods and services remain constant

Question 71

The demand curve for a good with an income elasticity of less than one

A)must be downward sloping.
B)must be upward sloping.
C)will be upward sloping only if the substitution effect outweighs the income effect.
D)will be upward sloping only if the income effect outweighs the substitution effect.
E)indicates a normal good.

Question 72

FIGURE 6-4
Refer to Figure 6-4.For both goods,the price falls from P₀ to P₁.The substitution effect is illustrated by the change in quantity demanded from A to B; the income effect is illustrated by the change in quantity demanded from B to C.Good X is certainly a(n)________ good.

A)normal
B)inferior
C)luxury
D)necessity
E)Giffen

Question 73

Assume you are consuming two goods,X and Y.Suppose the absolute prices for X and Y remain unchanged,but your money income falls by 50%.What happens to your consumption of good X?

A)it increases
B)it stays the same
C)it increases or decreases,depending on whether it is normal or inferior
D)it decreases
E)it decreases by 50%

Question 74

Consumer surplus is

A)the sum of the marginal values to the consumer.
B)the total value that a consumer receives from the purchase of a particular good.
C)a measure of the gains that a consumer forgoes by buying this product rather than another.
D)the difference between what the consumer is willing to pay for all the units consumed and what he or she actually paid.
E)the consumption of a commodity above and beyond the amount required by the consumer.

Question 75

Assume you are consuming two goods,X and Y.Suppose that the money prices for X and Y remain unchanged,but your income increases by 20%.What happens to your consumption of good X?

A)it increases
B)it stays the same
C)it increases or decreases,depending on whether it is normal or inferior
D)it decreases
E)it increases by 20%

Question 76

In which of the following situations will an individual's purchasing power be unaffected?

A)all absolute prices fall by 15% and money income falls by 15%
B)all relative prices fall by 15% and money income falls by 15%
C)all relative prices rise by 15% and money income falls by 15%
D)all absolute prices remain constant and money income falls by 15%
E)all relative prices remain constant and money income rises by 15%

Question 77

The substitution effect of a price change leads consumers to ________ their demand for goods whose prices have risen.The income effect leads consumers to buy less of all ________ goods whose prices have risen.

A)reduce; normal
B)increase; inferior
C)increase; normal
D)reduce; Giffen
E)reduce; complement

Question 78

Assume you are consuming two goods,X and Y.X and Y are both normal goods but they are not close complements.The price of good X increases but the price of Y remains unchanged.However,you are given enough additional income to ensure that your utility remains unchanged.What happens to your consumption of good X?

A)it increases
B)it stays the same
C)it increases or decreases
D)it decreases
E)it increases over the long run

Question 79

FIGURE 6-4
Refer to Figure 6-4.For both goods,the price falls from P₀ to P₁.The substitution effect is illustrated by the change in quantity demanded from A to B; the income effect is illustrated by the change in quantity demanded from B to C.Good Y is certainly a(n)________ good.

A)normal
B)inferior
C)luxury
D)necessity
E)Giffen

Question 80

Consumer surplus is

A)the same as Karl Marx's notion of surplus value.
B)the same as total utility.
C)the sum of the extra value placed on each unit of a commodity above the market price paid for each.
D)the total value that consumers place on their purchases.
E)the marginal value that consumers place on their purchases.