Question 1

Ben spends $50 a year on 2 bunches of flowers and $50 a year on 10,000 litres of tap water.Ben is maximizing utility and his marginal utility from water is 0.5 units per litre.Ben's expenditure on flowers and water illustrates the paradox of value because Ben's marginal utility from flowers is ________ his marginal utility from water,and his total utility from flowers is ________ than his total utility from water.

Accepted Answer

A)  greater than;greater
B)  less than;less
C)  greater than;less
D)  less than;greater
E)  the same as;less C

Question 2

Diminishing marginal utility means that

Accepted Answer

A)  Ralph will enjoy his second hamburger less than the first one.
B)  the utility from one hamburger is greater than the utility from two hamburgers.
C)  the price of two hamburgers is less than twice the price of one.
D)  the utility from eating two hamburgers will be more than twice the utility from eating the first one.
E)  hamburgers seem smaller as you eat more of them. A

Question 3

The fact that your fourth slice of pizza does not generate as much satisfaction as your third slice is an example of

Accepted Answer

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

Question 4

Danny has $12 to spend on two goods: pies and pop.The price of a pie is $4,and the price of a can of pop is $2.To maximize his utility,Danny buys

Accepted Answer

A)  2 pies and 2 cans of pop.
B)  3 pies and no pop.
C)  the combination that gives him the same marginal utility per dollar on pies as on pop.
D)  6 cans of pop and no pie.
E)  the combination that gives him the same total utility from pies as from pop.

Question 5

Behavioural economics

Accepted Answer

A)  studies the activity of the human brain when a person makes an economic decision.
B)  studies psychology by using the economist's toolbox.
C)  studies the ways in which limits on the human brain's ability to compute and implement rational decisions influences economic behaviour.
D)  was used extensively in the development of marginal utility theory.
E)  all of the above

Question 6

Total utility is always

Accepted Answer

A)  greater than marginal utility.
B)  less than marginal utility.
C)  decreasing when marginal utility is decreasing.
D)  decreasing when marginal utility is increasing.
E)  increasing when marginal utility is positive.

Question 7

Marginal utility theory predicts that a rise in the price of a banana results in

Accepted Answer

A)  the demand curve for bananas shifting rightward.
B)  the demand curve for bananas shifting leftward.
C)  a movement upward along the demand curve for bananas.
D)  a movement downward along the demand curve for bananas.
E)  the demand curve for bananas shifting rightward and the supply curve for bananas shifting rightward.

Question 8

A behavioural economist will explain Tom's donation to charity by saying that Tom is displaying

Accepted Answer

A)  the endowment effect.
B)  bounded rationality.
C)  bounded self-interest.
D)  bounded willpower.
E)  the neuro effect.

Question 9

Chuck and Barry have identical total utility schedules but Chuck has a much higher income.If each is maximizing his total utility,then

Accepted Answer

A)  they will have equal total utilities.
B)  Chuck will have lower total utility than Barry.
C)  Chuck will have lower marginal utility than Barry for each normal good consumed.
D)  Chuck will have higher marginal utility than Barry for each normal good consumed.
E)  they will have equal marginal utilities for each normal good consumed.

Question 10

Martha and Sarah have the same preferences,face the same prices,and have the same income.Sarah's utility is measured in units while Martha's is measured in units squared.Select the best response.

Accepted Answer

A)  Martha and Sarah will choose to consume the same set of goods.
B)  Martha's and Sarah's marginal utility per dollar will be equal.
C)  Martha's and Sarah's marginal utilities will be equal.
D)  Martha and Sarah will have equal total utility.
E)  Martha and Sarah will not choose to consume the same set of goods.

Question 11

Billy likes candy and popcorn.Candy sells for $0.50 a bag and popcorn sells for $1 per bag.Currently he is in consumer equilibrium.Then the price of candy rises to $1 a bag.Which statement is true in the new consumer equilibrium?

Accepted Answer

A)  The marginal utility from popcorn will increase.
B)  Marginal utility per dollar on candy will be equal to 2.
C)  Total utility will increase.
D)  The marginal utility from candy will decrease.
E)  The marginal utility from candy will be equal to the marginal utility from popcorn.

Question 12

Consider Devon's total utility from snorkeling and windsurfing in Table 8.3.1.Suppose Devon's total income is $35.If the price of windsurfing rises to $20 per hour,what is Devon's price elasticity of demand for windsurfing?

Accepted Answer

A)  1.0
B)  0.67
C)  1.5
D)  10
E)  1.33

Question 13

The three limitations on human rationality that behavioural economics emphasizes are

Accepted Answer

A)  bounded rationality,bounded utility,and bounded self-interest.
B)  bounded rationality,bounded willpower,and bounded self-interest.
C)  bounded utility,bounded willpower,and bounded self-interest.
D)  bounded rationality,bounded willpower,and bounded utility.
E)  bounded rationality,bounded surplus,and bounded utility.

Question 14

Samir consumes apples and bananas and is in consumer equilibrium.The marginal utility from his last apple is 10 and the marginal utility from his last banana is 5.If the price of an apple is $0.50,then what is the price of a banana?

Accepted Answer

A)  $0.05
B)  $0.10
C)  $0.25
D)  $0.50
E)  $1.00

Question 15

Billy likes chocolate bars and popcorn.Chocolate bars sell for $1.50 each and popcorn sells for $3 a bag.Currently he is in consumer equilibrium with marginal utility per dollar on popcorn equal to 100.What is the marginal utility per dollar on chocolate bars?

Accepted Answer

A)  50
B)  100
C)  200
D)  25
E)  0.5

Question 16

Use the table below to answer the following question.
Table 8.2.4
 
-Refer to Table 8.2.4.Suppose the price of X is $1 and the price of Y is $1.How much of each should you purchase to maximize utility from a total expenditure of $11?

Accepted Answer

A)  3 units of X and 8 units of Y
B)  4 units of X and 7 units of Y
C)  5 units of X and 6 units of Y
D)  6 units of X and 5 units of Y
E)  7 units of X and 4 units of Y

Question 17

When total utility is increasing,marginal utility

Accepted Answer

A)  is negative.
B)  must be between zero and one.
C)  is either increasing or decreasing.
D)  is either positive or negative.
E)  is also increasing.

Question 18

Neuroeconomics studies all of the following concepts except

Accepted Answer

A)  the prefrontal cortex.
B)  the hippocampus.
C)  the production possibilities frontier.
D)  dopamine.
E)  anxiety and fear.

Question 19

Marginal utility theory predicts that when a consumer's income decreases,the consumer

Accepted Answer

A)  buys fewer normal goods.
B)  buys more normal goods.
C)  buys fewer inferior goods.
D)  buys less of all goods.
E)  buys more of all goods.

Question 20

When Kathryn is at her consumer equilibrium,she is

Accepted Answer

A)  consuming the combination of goods that is at the midpoint of her budget line.
B)  consuming a combination of goods that is located inside her budget line.
C)  consuming a combination of goods that is located outside her budget line.
D)  consuming a combination of goods such that the marginal utility from good X divided by the marginal utility from good Y equals the price of good X divided by the price of good Y.
E)  on the midpoint of her demand curve.

Exam 8: Utility and Demand