Question 1

Billy Jean loves to read and she has decided that she will buy all of her books at the bookstore at the outlet mall.One day she is in Chapters and sees a book from the Globe and Mail Best Sellers list that she wants to read and she decides to buy it.
Buying the book means that she will not be able to take her Mom out for coffee this week.
Billy Jean's decision is an example of

Accepted Answer

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

Question 2

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 3

If a consumer spends all his income and his marginal utility per dollar is equal for all goods,then

Accepted Answer

A) marginal utility is maximized. 
B) total utility is maximized. 
C) he cannot be better off even with more income. 
D) the proportion of income spent on each good must be equal. 
E) the number of units bought of each good must be equal.

Question 4

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 5

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 6

According to the principle of diminishing marginal utility,as consumption of a good increases,total utility

Accepted Answer

A) decreases and then eventually increases. 
B) decreases at an increasing rate. 
C) decreases at a decreasing rate. 
D) increases at an increasing rate. 
E) increases at a decreasing rate.

Question 7

For a consumer to maximize utility from a given income,

Accepted Answer

A) the marginal utility from each good must be maximized. 
B) the total utility from each good must be maximized. 
C) the marginal utilities of all goods and services consumed must be equal. 
D) the marginal utility per dollar from all goods and services consumed must be equal. 
E) the amount of each good consumed per dollar must be equal.

Question 8

Use the table below to answer the following questions.
Table 8.2.3
 
-Refer to Table 8.2.3.To attain consumer equilibrium,the first $4 of income is used to purchase

Accepted Answer

A) 2 units of good X. 
B) 3 units of good X. 
C) 4 units of good Y. 
D) an amount of X and Y that cannot be determined from the table. 
E) 2 units of good Y and 1 unit of X.

Question 9

Harold can consume apples and oranges.He likes them equally well and currently is in consumer equilibrium.Then the price of oranges rises,while his income remains the same.What will happen to his consumption?

Accepted Answer

A) consumption of oranges increases;consumption of apples decreases 
B) consumption of oranges increases;consumption of apples increases 
C) consumption of oranges decreases;consumption of apples decreases 
D) consumption of oranges decreases;consumption of apples increases 
E) consumption of oranges decreases;consumption of apples could either increase or decrease

Question 10

Use the table below to answer the following questions.
Table 8.2.1
 
-Refer to Table 8.2.1.Consider Sam's utility from sailing and skiing.The price of sailing is $10 per hour and the price of skiing is $20 per hour;Sam's income to spend on these activities is $80.In consumer equilibrium,Sam will sail for

Accepted Answer

A) 3 hours and ski for 2 hours. 
B) 2 hours and ski for 4 hours. 
C) 4 hours. 
D) 4 hours and ski for 2 hours. 
E) 8 hours.

Question 11

You are consuming hot dogs and Cokes and believe you are maximizing utility for your entire budget of $12.The price of a hot dog is $2 and the price of a Coke is $2.Suppose the price of hot dogs rises to $4 and the price of a Coke remains at $2.You adjust your consumption of hot dogs and Cokes and believe you are once again receiving maximum total utility from the meal.Which one of the following can you conclude?

Accepted Answer

A) The total utility from hot dogs is maximized. 
B) The marginal utilities from hot dogs and Cokes must be equal. 
C) The marginal utility from hot dogs must rise compared to the marginal utility from Cokes. 
D) You are purchasing 2 hot dogs and 2 Cokes. 
E) You are purchasing 1 hot dog and 4 Cokes.

Question 12

A budget line is drawn with

Accepted Answer

A) quantity of one good on the vertical axis and the quantity of the second good on the horizontal axis. 
B) price of one good on the vertical axis and the price of the second good on the horizontal axis. 
C) quantity of one good on the vertical axis and its price on the horizontal axis. 
D) quantity of one good on the horizontal axis and its price on the vertical axis. 
E) quantity of one good on the horizontal axis and its total utility on the vertical axis.

Question 13

If a consumer's income increases and if all goods are normal goods,

Accepted Answer

A) the quantity bought of each good decreases. 
B) the quantity bought of some normal goods increases and of other normal goods decreases, but we can't make an accurate prediction. 
C) some goods become inferior because it isn't possible to buy all goods. 
D) the quantity bought of each good increases. 
E) the supply of all goods increases and the marginal utility from all goods decreases.

Question 14

If income falls,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 normal goods increases. 
E) both B and C.

Question 15

Ron starts out in consumer equilibrium,consuming two goods,X and Y.The price of Y rises.Immediately after the rise in price

Accepted Answer

A) MUX/PX > MUY/PY, and then Ron increases his consumption of Y. B) MUX/PX > MUY/PY, and then Ron decreases his consumption of Y. C) MUX/PX < MUY/PY, and then Ron increases his consumption of Y. D) MUX/PX < MUY/PY, and then Ron decreases his consumption of Y. E) none of the above.

Question 16

Use the table below to answer the following questions.
Table 8.2.2
 
-Refer to Table 8.2.2.What is the total utility if 3 bags of popcorn and 2 bottles of pop are consumed?

Accepted Answer

A) 150 
B) 310 
C) 490 
D) 660 
E) 100.

Question 17

Sarah can consume either pizzas or hamburgers.The price of a hamburger is $1 and the price of a pizza is $5.Let MUh be the marginal utility of hamburgers and MUp be the marginal utility of pizzas.In consumer equilibrium,what must the ratio MUh/MUp equal?

Accepted Answer

A) 1/5 
B) 5/1 
C) 1/1 
D) 1/6 
E) 4

Question 18

Total utility equals

Accepted Answer

A) the sum of the marginal utilities of each unit consumed. 
B) the area below the demand curve but above the market price. 
C) the slope of the marginal utility curve. 
D) the marginal utility of the last unit divided by price. 
E) the marginal utility of the last unit consumed multiplied by the total number of units consumed.

Question 19

Use the table below to answer the following questions.
Table 8.2.1
Windsurfing equipment rents for $10 per hour, snorkeling equipment for $5 per hour.
 
-Consider Devon's total utility from snorkeling and windsurfing in Table 8.2.1.Suppose Devon's total income is $35.If the price of windsurfing rises to $20 per hour,what is Devon's elasticity of demand for windsurfing?

Accepted Answer

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

Question 20

Use the table below to answer the following question.
Table 8.1.2
 
-Table 8.1.2 gives total utilities for Jim and Sally.Which one of the following statements is true?

Accepted Answer

A) Jim has increasing marginal utility. 
B) For Sally, the marginal utility of the third unit consumed is 6. 
C) If Jim consumes 2 units, his total utility is 34 units. 
D) Jim and Sally receive the same marginal utility from the third unit consumed. 
E) If Sally consumes 2 units, her total utility is 10 units.

Exam 8: Utility and Demand