Deck 5: Consumer Choice: Individual and Market Demand

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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 7

An optimal purchase is one that maximizes total utility.

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

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

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

Question 18

Total utility decreases when diminishing marginal utility is present.

Question 19

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

Question 20

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 21

Voluntary exchange requires that there must be mutual gain.

Question 22

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

Question 23

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

Question 24

All decisions involve opportunity cost.

Question 25

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

Question 26

Consumer 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 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

All inferior goods have upward-sloping demand curves.

Question 38

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

Question 39

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

Question 40

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

Question 41

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 42

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

Question 43

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

Question 44

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

Question 45

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 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

An increase in income shifts indifference curves outward.

Question 48

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

Question 49

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

Question 50

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

Question 51

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

Question 52

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

Question 53

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

Question 54

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

Question 55

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

Question 56

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 57

A change in consumer preferences will shift the budget line.

Question 58

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

Question 59

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

Question 60

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 61

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

Question 62

By changing the amount of income a consumer has to spend,a change in the price of one good may affect the quantity demanded of another good.

Question 63

Table 5-1
$\begin{array}{ccc}\underline { \text { Number of milkshakes consumed } }&\underline{1}& \underline{2}& \underline{3} \\\underline { \text { Total utility from milkshakes (in }\$ ) }&{23} & {28} & {31} \\\underline { \text { Number of sandwiches consumed } }&\underline{1}& \underline{2}& \underline{3} \\\underline {\text { Total utility from sandwiches (in } \$ )}&\$40&\$ 43 & \$ 45\end{array}$

-The theory of consumer choice is based on the hypothesis that each consumer wants to

A)maximize her total utility.
B)maximize her marginal utility.
C)minimize the rate at which her marginal utility diminishes.
D)minimize the percentage of her consumption diverted to inferior goods.

Question 64

Figure 5-1

Americans choose cola over other flavors 70 percent of the time.Analysts say this is because cola's flavor is more robust and durable.Orange soda,for example,suffers from flavor fatigue faster than cola.Also,because cola contains caffeine,people may be addicted to the stimulant.Which panel in Figure 5-1 best illustrates these facts?

A)1
B)2
C)3
D)4

Question 65

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

Question 66

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

Question 67

If a commodity is inexpensive and its total utility great,

A)it is an inferior good.
B)it is plentiful.
C)its marginal utility is high.
D)the ratio of price to marginal utility is very high.

Question 68

Figure 5-1

A bottle of wine costs $8 and a quiche costs $5.At Robert's present levels of consumption,he spends all his income and receives marginal utility of $10 from the last bottle of wine and marginal utility of $4 from the last quiche.To maximize his total utility,Robert should

A)buy less wine and more quiche.
B)buy more wine and less quiche.
C)spend all of his money on wine.
D)change his spending pattern until he buys 8/5ths as much wine as quiche.

Question 69

Table 5-1
$\begin{array}{ccc}\underline { \text { Number of milkshakes consumed } }&\underline{1}& \underline{2}& \underline{3} \\\underline { \text { Total utility from milkshakes (in }\$ ) }&{23} & {28} & {31} \\\underline { \text { Number of sandwiches consumed } }&\underline{1}& \underline{2}& \underline{3} \\\underline {\text { Total utility from sandwiches (in } \$ )}&\$40&\$ 43 & \$ 45\end{array}$

-Table 5-1 gives information on George's total utility from consuming milkshakes and sandwiches.If George's income this week is $15,milkshakes are $3 each,and sandwiches $2,he will maximize his utility if he buys

A)three milkshakes and two sandwiches.
B)three milkshakes and three sandwiches.
C)no milkshakes and as many sandwiches as possible.
D)two milkshakes and three sandwiches.

Question 70

Lana spent $5 to see a movie.We know

A)the movie was worth 500 utils.
B)Lana's total utility from movies was $5.
C)the movie was worth at least $5 worth of other goods.
D)the movie increased marginal utility.

Question 71

Which of the following factors is always present in consumer decision making?

A)taxes
B)high prices
C)scarcity
D)changing consumer tastes
E)cost-of-living adjustments to income

Question 72

Modern economists measure how much utility Fred gets from a hot dog by

A)asking Fred how many utils he gets from its consumption.
B)examining the price of the hamburger Fred chose not to buy.
C)asking Fred how much of some other good he would give up to get the hot dog. The "other good" can be any good except money.
D)asking Fred how much of some other good he would give up to get the hot dog. The "other good" can be any good, including money.

Question 73

High price and low total utility indicate

A)low marginal utility.
B)large quantities are sold.
C)high marginal utility.
D)a high price/marginal utility ratio.

Question 74

When the price of a commodity rises,we can expect

A)marginal utility of the last unit purchased will rise.
B)marginal utility of the last unit purchased will fall.
C)marginal utility of the last unit purchased will be unaffected.
D)purchases to rise because of the increased marginal utility.

Question 75

Scarcity

A)necessitates choice among consumer goods.
B)of income renders purchase decisions interdependent.
C)affects all consumer decisions.
D)may involve forgoing the pleasure of one good in order to enjoy another.
E)All of the above answers are correct.

Question 76

A consumer will go to a point on the highest attainable indifference curve.

Question 77

Total utility can be thought of as the

A)total satisfaction derived from a bundle of goods.
B)minimum amount of money a consumer is willing to spend on a bundle of goods.
C)additional satisfaction a consumer receives from the marginal unit of a good.
D)willingness to pay for the marginal unit of a good.

Question 78

When the price of a commodity falls,we can expect

A)total utility will fall.
B)marginal utility of the last unit purchased will fall.
C)marginal utility of the last unit purchased will rise.
D)purchases will fall because of a change in marginal utility.

Question 79

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

Question 80

Economists consider instances of increasing marginal utility to be

A)normal.
B)impossible.
C)unusual, as in the case of addictions.
D)irrational.