Question 1

If income rises,then in the new consumer equilibrium

Accepted Answer

A) the marginal utility from normal goods increases. 
B) the marginal utility from normal goods decreases. 
C) the marginal utility from inferior goods increases. 
D) total utility from inferior goods increases. 
E) both B and C.

Question 2

Billy likes candy bars and popcorn.Candy bars sell for $0.50 each and popcorn sells for $1 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 candy bars?

Accepted Answer

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

Question 3

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 4

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.His marginal utility from water is 0.5 units per litre.
________ more valuable to Ben than ________.
Ben's expenditure on flowers and water illustrates the paradox of value because Ben's marginal utility from flowers is ________ than his marginal utility from water and his total utility from flowers is ________ than his total utility from water.

Accepted Answer

A) Water is;flowers;greater;less 
B) Water is;flowers;less;greater 
C) Flowers are;water;greater;less 
D) Flowers are;water;less;greater 
E) None of the above because Ben values flowers and water equally

Question 5

To determine consumer equilibrium we need to know only

Accepted Answer

A) prices and income. 
B) total utility and income. 
C) marginal utility and income. 
D) prices, income, and marginal utility. 
E) prices and marginal utility.

Question 6

Which of the following statements is true?

Accepted Answer

A) Marginal utility theory predicts that an increase in a consumer's income increases consumption of all goods. 
B) It is possible to derive the law of demand - that a higher price decreases the quantity demanded - using marginal utility theory. 
C) Marginal utility theory makes no prediction about a consumer's responses to hikes in the prices of the goods and services he or she consumes. 
D) Marginal utility theory predicts that all goods are normal goods and that all goods are substitutes for each other. 
E) None of the above.

Question 7

The relative price of beer to back bacon is 2:1.If Bob's current consumption is at a level where
MUb???/MUb?ck b?c?n is 1:2,then to maximize total utility Bob must

Accepted Answer

A) consume more beer and less back bacon. 
B) not change his current consumption of beer and back bacon. 
C) consume less beer and more back bacon. 
D) raise the price of beer. 
E) consume twice as much beer and half as much back bacon.

Question 8

Geneva is not at her consumer equilibrium for movies and music downloads.Why?

Accepted Answer

A) Her average utility from movies does not equal her average utility from music downloads. 
B) Her total utility from movies does not equal her total utility from music downloads. 
C) Her marginal utility from the last movie she attended does not equal her marginal utility from the last music download she downloaded. 
D) Her average utility from movies does not equal her total utility from music downloads. 
E) Her marginal utility per dollar from the last movie she attended does not equal her marginal utility per dollar from the last music download she downloaded.

Question 9

The change in total utility that results from a one-unit increase in the quantity of a good consumed is

Accepted Answer

A) additional utility. 
B) marginal utility. 
C) average utility. 
D) marginal utility per dollar. 
E) fractional utility.

Question 10

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.

Question 11

Use the table below to answer the following questions.
Table 8.1.1
 
-Refer to Table 8.1.1.The value of C is

Accepted Answer

A) 0. 
B) 13. 
C) 17. 
D) 50. 
E) 3.

Question 12

Ben consumes only movies and video games and he is in consumer equilibrium.For Ben,movies and video games are substitutes.
The price of a movie falls which ________ the marginal utility per dollar from movies.
To return to consumer equilibrium,Ben ________ the number of movies he sees and ________ the number of video games he plays.
His marginal utility per dollar for movies ________ and his marginal utility per dollar for video games ________ as he returns to consumer equilibrium.

Accepted Answer

A) increases;decreases;increases;decreases;increases 
B) decreases;increases;decreases;decreases;increases 
C) increases;increases;decreases;decreases;increases 
D) decreases;decreases;increases;increases;decreases 
E) increases;increases;decreases;increases;increases

Question 13

Billy likes candy bars and popcorn.Candy bars sell for $0.50 each and popcorn sells for $1 per bag.Currently he is in consumer equilibrium.Then the price of a candy bar rises to $1.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 bars 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 14

Behavioural economics and neuroeconomics seek to achieve

Accepted Answer

A) the reason why we do not always make rational economic decisions. 
B) a method of using will-power and self-interest to gain utility maximization. 
C) a theory in which consumers are always utility-maximizers. 
D) a new method for the human brain to work out rational choice. 
E) the rational concepts that support the law of demand and the law of supply.

Question 15

Lucky buys hats for $20 but Lucky will not sell one of her hats for less than $35.Lucky is

Accepted Answer

A) displaying the endowment effect. 
B) making decisions using her prefrontal cortex. 
C) exhibiting bounded self-interest. 
D) showing unbounded will-power. 
E) a behavioural economist.

Question 16

The paradox of value

Accepted Answer

A) is that values are the same for different people. 
B) is that economists can calculate marginal utility, even though utility is unmeasurable. 
C) is resolved by an appeal to the law of diminishing total utility. 
D) remains unresolved by economists. 
E) is resolved by an appeal to the difference between marginal utility and total utility.

Question 17

Which of the following barriers to rational choices are studied by behavioural economics?

Accepted Answer

A) bounded rationality 
B) bounded will-power 
C) bounded self-interest 
D) the endowment effect 
E) all of the above.

Question 18

The paradox of value as it applies to diamonds and water can be explained by

Accepted Answer

A) distinguishing between utility and price. 
B) water having a high level of marginal utility relative to diamonds. 
C) water having a low price relative to diamonds. 
D) the fact that utility can't be measured. 
E) distinguishing between total utility and marginal utility.

Question 19

Bikes and roller blades are substitutes.Marginal utility theory predicts that when the price of a bike rises,the quantity of bikes demanded

Accepted Answer

A) decreases and the demand curve for roller blades shifts rightward. 
B) decreases and the demand curve for roller blades shifts leftward. 
C) decreases and a movement occurs down along the demand curve for roller blades. 
D) increases and the demand curve for roller blades shifts rightward. 
E) increases and the demand curve for roller blades shifts leftward.

Question 20

A consumer maximizes his utility by purchasing 2 units of good X at $5 per unit and 3 units of good Y at $7 per unit.What is the ratio of the marginal utility from X to the marginal utility from Y?

Accepted Answer

A) 5/7 
B) 7/5 
C) 2/3 
D) 3/2 
E) 10/21

Exam 8: Utility and Demand