Question 1

Consumer surplus

Accepted Answer

A)  is the total value that a consumer receives from the purchase of a particular good. 
B)  is the sum of the marginal values to the consumer. 
C)  is a measure of the gains that a consumer forgoes by buying this product rather than another. 
D)  is the difference between what the consumer is willing to pay for all the units consumed and what he or she actually paid. 
E)  is the consumption of a commodity above and beyond the amount required by the consumer.

Question 2

At a garage sale, Ken purchases a used bicycle for $8 when he was willing to pay $25. If the bicycle costs $75 new, Ken's consumer surplus is _.

Accepted Answer

A)  $0 
B)  $17 
C)  $33 
D)  $50 
E)  $67

Question 3

In indifference curve analysis, a point to the left of the consumer's budget line

Accepted Answer

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

Question 4

A consumer maximizes his or her utility when expenditures are allocated such that

Accepted Answer

A)  the utility received per dollar spent on the last unit of each good is equal. 
B)  the total number of dollars spent on each good is equal. 
C)  the utility received from the last unit of each good is equal. 
D)  the marginal utility is zero for each good consumed utility. 
E)  the total utility from each good is equal.

Question 5

Assume an individual with a downward-sloping demand curve is paying a single price for eachunit of some commodity. He will get consumer surplus on

Accepted Answer

A)  none of the units. 
B)  the first unit only. 
C)  all units bought with the possible exception of the last unit. 
D)  all of the units bought. 
E)  all units that were not bought at that particular price.

Question 6

The substitution effect of a price change

Accepted Answer

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

Question 7

Economists use the term "marginal utility" to describe the

Accepted Answer

A)  average utility of each unit of a good consumed. 
B)  change in total satisfaction caused by consumption of an additional unit of a good. 
C)  price paid for every unit consumed. 
D)  inverse of the measure of total utility. 
E)  total satisfaction received from consumption of a good.

Question 8

The diagram below shows a set of budget lines facing a household.  FIGURE 6-7
-Refer to Figure 6-6.

Accepted Answer

A)  under the demand curve to the left of Q0, but above P0. 
B)  under the demand curve to the left of Q0. 
C)  under the entire demand curve. 
D)  above the market price. 
E)  below P0 and to the left of Q0.

Question 9

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

Question 10

Marginal utility analysis predicts a downward-sloping demand curve for good X because

Accepted Answer

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

Question 11

If consumption of a product delivers a positive marginal utility, then consumption of an additionalunit would mean

Accepted Answer

A)  that total utility would not change. 
B)  that total utility would be decreasing. 
C)  that the consumer would no longer receive any satisfaction from any consumption of this good. 
D)  that total utility is also zero. 
E)  that total utility would be increasing.

Question 12

If a consumer is faced with a choice of products A, B, C, ..., and has a given money income, theconsumer's utility will be maximized when

Accepted Answer

A)  TUA = TUB = TUC = ... 
B)  MUA = PA; MUB = PB; MUC = PC; ... 
C)  MUA = MUB = MUC = ... 
D)  MUA/PA = MUB/PB = MUC/PC = ... 
E)  PA = PB = PC = ...

Question 13

The diagram below shows a set of budget lines facing a household.  FIGURE 6-7
-Refer to Figure 6-7. The movement of the budget line from ab to ef could be caused by

Accepted Answer

A)  a decrease in money income. 
B)  an equal percentage increase in the price of both food and housing. 
C)  an equal percentage decrease in the price of both food and housing. 
D)  a decrease in the price of either food or housing. 
E)  an increase in the price of either food or housing.

Question 14

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

Accepted Answer

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

Question 15

Choose the one alternative that best completes the statement or answers the question.  FIGURE 6-8
-Refer to Figure 6-8. In part (ii), the line joining points X, Y, and Z is known asshows how _.

Accepted Answer

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

Question 16

A demand curve for a normal good is downward sloping due to

Accepted Answer

A)  the substitution effect. 
B)  the combination of income and substitution effects. 
C)  the income effect. 
D)  neither the substitution effect nor the income effect. 
E)  the Giffen effect.

Question 17

Assume a person reveals the following demand conditions. At a price of $10, quantity demanded is zero; and at a price of $1, quantity demanded is 10 units.

Accepted Answer

A)  The consumer surplus will be the area under the entire demand curve. 
B)  Demand decreases as the price decreases. 
C)  The lower the price the smaller the consumer surplus. 
D)  The consumer surplus will be zero at a price of $10. 
E)  The consumer surplus is zero at a price of $1.

Question 18

Consumer surplus is

Accepted Answer

A)  the same as total utility. 
B)  the marginal value that consumers place on their purchases. 
C)  the same as Karl Marx's notion of surplus value. 
D)  the total value that consumers place on their purchases. 
E)  the sum of the extra value placed on each unit of a commodity above the market price paid for each.

Question 19

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

Accepted Answer

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

Question 20

The "law" of diminishing marginal utility implies that the

Accepted Answer

A)  marginal utility of a good diminishes over time. 
B)  first unit of a good consumed will contribute most to the consumer's satisfaction. 
C)  total utility is constant as more units are consumed. 
D)  last unit of a good consumed will contribute most to the consumer's satisfaction. 
E)  total utility is negative.

Exam 6: Consumer Behaviour