Question 1

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?

Accepted Answer

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

Question 2

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

Accepted Answer

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

Question 3

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

Accepted Answer

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

Question 4

An indifference curve plotted for two different goods on the axes

Accepted Answer

A) shows the different combinations of two goods that the same income can purchase. 
B) shows all combinations of the two goods that give the same level of utility. 
C) changes its slope as the relative prices of the two goods change. 
D) shifts when real income changes. 
E) shows the combinations of the two goods that will just use up a consumer's income.

Question 5

Economists usually assume that consumers

Accepted Answer

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

Question 6

Suppose Arun consumes only 2 goods - books and CDs - and has a set of downward sloping indifference curves.As Arun moves from one point to another on a particular indifference curve,

Accepted Answer

A) Arun is consuming the same combination of goods,but with varying levels of income. 
B) the combination of books and CDs will vary,but the level of utility remains constant. 
C) the combination of books and CDs that Arun prefers will remain constant,but the level of satisfaction will vary. 
D) Arun's level of satisfaction will vary as the combinations of books and CDs varies. 
E) the combination of books and CDs and Arun's income level will remain constant.

Question 7

The table below shows the total value (in dollars)that Andrew gets from playing 9- hole rounds of golf. $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Rounds of } \
\text { Golf per } \
\text { Month }
\end{array} & \begin{array} { c } 
\text { Total } \
\text { Value } \
( \$ )
\end{array} \
\hline 0 & 0 \
\hline 1 & 40 \
\hline 2 & 70 \
\hline 3 & 92 \
\hline 4 & 108 \
\hline 5 & 120 \
\hline 6 & 130 \
\hline 7 & 130 \
\hline
\end{array}$$ TABLE 6- 3
-Refer to Table 6- 3.Andrew values the 4th round of golf at a marginal value of

Accepted Answer

A) $92. 
B) $310. 
C) $16. 
D) $430. 
E) $108.

Question 8

Any consumption point that is on the budget line

Accepted Answer

A) implies the household is paying above- market prices for the goods in question. 
B) implies the household is paying below- market prices for the goods in question. 
C) implies that the household is not spending all of its income on the goods in question. 
D) indicates consumption spending beyond current income. 
E) implies that the household is spending all of its income on the goods in question.

Question 9

Suppose a consumer can purchase only two goods,pasta and cheese.Let the quantity of pasta be measured on the vertical axis and the quantity of cheese be measured on the horizontal axis.If the price of pasta falls,with no change in the price of cheese or in the consumer's money income,then the budget line for the consumer will rotate

Accepted Answer

A) outward parallel to the existing budget line. 
B) toward the origin and become steeper. 
C) away from the origin and become steeper. 
D) away from the origin and become flatter. 
E) toward the origin and become flatter.

Question 10

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

Accepted Answer

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

Question 11

FIGURE 6- 9 
-Refer to Figure 6- 9.In part (i),the line joining points A,B,and C is known as ,which shows how .

Accepted Answer

A) an income- consumption line; consumption changes with changing relative prices and constant income 
B) a price- consumption line; consumption changes as relative prices change,with money income constant 
C) a price- consumption line; consumption changes as money income and relative prices change 
D) an income- consumption line; consumption changes as income changes,with relative prices held constant 
E) an indifference map; the value of various combinations of two goods changes

Question 12

The table below shows the total value (in dollars)that Andrew gets from playing 9- hole rounds of golf. $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Rounds of } \
\text { Golf per } \
\text { Month }
\end{array} & \begin{array} { c } 
\text { Total } \
\text { Value } \
( \$ )
\end{array} \
\hline 0 & 0 \
\hline 1 & 40 \
\hline 2 & 70 \
\hline 3 & 92 \
\hline 4 & 108 \
\hline 5 & 120 \
\hline 6 & 130 \
\hline 7 & 130 \
\hline
\end{array}$$ TABLE 6- 3
-If money income is reduced by half,and the prices of all goods consumed by the household are reduced by half,the household's budget line will

Accepted Answer

A) shift inward. 
B) not change. 
C) become steeper. 
D) shift outward. 
E) become flatter.

Question 13

The table below shows the quantities of toffee bars and bags of cashews that a consumer could consume over a 1- week period. $\begin{array}{|c|c|c|c|c|}
&\text { Toffee (bars)}&&\text { Cashews (bags) }\
\hline \text { Units } & \begin{array}{c}
\text { Marginal } \
\text { Utility }
\end{array} & \begin{array}{c}
\text { Total } \
\text { Utility }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Utility }
\end{array} & \begin{array}{c}
\text { Total } \
\text { Utility }
\end{array} \
\hline 1 & 10 & 10 & 12 & 12 \
\hline 2 & 8 & 18 & 10 & 22 \
\hline 3 & 5 & 23 & 7 & 29 \
\hline 4 & 3 & 26 & 5 & 34 \
\hline 5 & 1 & 27 & 2 & 36 \
\hline 6 & 0 & 27 & 1 & 37 \
\hline 7 & 0 & 27 & 0 & 27 \
\hline
\end{array}$ 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?

Accepted Answer

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

Question 14

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

Accepted Answer

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

Question 15

Since there is a limited supply of diamonds in the world,the consumption of diamonds

Accepted Answer

A) is no less important than consumption of water. 
B) takes priority over some other good. 
C) takes place at relatively low marginal value. 
D) should be regulated by the government. 
E) takes place at relatively high marginal value.

Question 16

The figures below show Chris's consumption of specialty coffee per week.
  FIGURE 6- 10
-Marginal utility analysis predicts a downward- sloping demand curve for good X because

Accepted Answer

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

Question 17

An equal proportional increase in money income and all money prices will

Accepted Answer

A) shift the budget line to the right parallel to the original budget line. 
B) rotate the budget line inward from the horizontal axis. 
C) rotate the budget line inward from the vertical axis. 
D) shift the budget line to the left parallel to the original budget line. 
E) leave the position of the budget line unchanged.

Question 18

The substitution effect of a price change

Accepted Answer

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

Question 19

The marginal rate of substitution

Accepted Answer

A) is the amount of one good the consumer is willing to give up in exchange for another so as to keep total satisfaction unchanged. 
B) is constant as one moves along a particular indifference curve. 
C) is the amount of one good the consumer is willing to give up in exchange for another so as to keep total expenditure unchanged. 
D) is equal to the price ratio on the budget line. 
E) always has a positive algebraic value.

Question 20

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

Accepted Answer

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

Exam 6: Consumer Behaviour