Microeconomics Principles and Policy 13th Edition by William J. Baumol - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below True / False 1. Because the consumer's budget is limited, purchase decisions among available goods must of necessity be interdependent. a. True b. …
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Microeconomics Principles and Policy 13th Edition by William J. Baumol – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
| True / False |
1. Because the consumer’s budget is limited, purchase decisions among available goods must of necessity be interdependent.
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2. The number of Compact Discs purchased by a consumer depends on the price of the discs as well as the prices of all other goods purchased.
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3. Utility is the pleasure, satisfaction, or enjoyment derived from consumption.
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4. Marginal utility is measured by the maximum amount of money a consumer is willing to pay for one more unit of a commodity.
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5. Total utility always decreases when additional amounts of a commodity are consumed.
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6. Total utility can be objectively measured in numbers that indicate usefulness or benefit to the consumer.
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7. Marginal utility can fall even as total utility from the consumption of a good is rising.
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8. Total utility increases if one more unit of a product is purchased and marginal utility is positive.
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9. The law of diminishing marginal utility holds that at some point consumption of additional units of a commodity adds less to total utility.
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10. The law of diminishing marginal utility states that total utility will increase at a decreasing rate as additional units of a commodity are acquired.
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11. As a rule, the more of a commodity a consumer acquires, the smaller will be her total utility from that good.
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12. Total utility decreases when diminishing marginal utility is present.
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13. As a rule, as a consumer acquires more and more of a good, the marginal utility declines.
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14. An optimal purchase is one that maximizes total utility.
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15. Consumers should purchase quantities of a good to the point where MU > P.
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16. Consumers should purchase a good up to the point where MU = P.
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17. Given a typical demand curve and a decline in price, the consumer who wishes to maximize total utility must increase the quantity purchased of a good to arrive at an optimal MU = P point.
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18. If the marginal net utility of beer is a positive number, the consumer should buy more beer in order to maximize utility.
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19. If the marginal net utility of beer is negative, the consumer should buy more beer in order to increase the total utility.
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20. The law of diminishing marginal utility is consistent with the consumer behavior that produces a negatively sloped demand curve.
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21. The law of diminishing marginal utility guarantees that demand curves will have positive slopes.
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22. The real cost of a decision is the opportunity cost measured in the commodities forgone.
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23. All decisions involve opportunity cost.
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24. Consumer surplus is the difference between the worth of a commodity to the consumer and the price the consumer pays for the commodity.
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25. Consumer surplus is what one consumer is willing to pay for a commodity over what another consumer is willing to pay for the same commodity.
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26. Voluntary exchange requires that there must be mutual gain.
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27. A consumer cannot gain consumer’s surplus if she purchases more than one unit of a good.
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28. The resolution of Adam Smith’s diamond-water puzzle is based on the distinction between marginal and total utility.
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29. Since price tends to equal marginal utility, the price of water is low and the price of diamonds is high.
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30. Since price tends to equal total utility, the price of water is low and the price of diamonds is high.
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31. Scarcity raises both price and marginal utility but generally reduces total utility.
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32. Quantity demanded is not only affected by price but by variables such as income and the prices of other goods.
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33. An inferior good is one that consumers buy in smaller quantities when incomes rise.
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34. If income rises, most consumers will increase the quantity demanded of an inferior good.
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35. All inferior goods have upward-sloping demand curves.
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36. The market demand curve represents the total quantity demanded at each price.
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37. The market demand curve is the horizontal summation of all individual demand curves.
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38. The law of demand ensures that a demand curve has a positive slope.
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39. The law of demand holds that as prices of goods decrease, people are willing to buy more.
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40. Even if all individual demand curves are downwardly sloped, the market demand curve may slope upward.
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41. If a good has “snob appeal,” consumers may purchases less when the price falls.
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42. Rolls Royce may actually sell fewer cars at lower prices due to the “snob effect.”
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43. Points along a budget line represent the maximum combinations of two commodities that a consumer can afford.
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44. The slope of the budget line is determined only by the prices of the commodities purchased.
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45. An increase in income produces a parallel, outward shift in the budget line.
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46. A change in the price of one good results in a rotation of the budget line, so that it is steeper or flatter.
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47. A decrease in the price of one good results in a parallel shift in the budget line.
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48. The budget line represents a consumer’s preferences for a commodity.
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49. Indifference curves show all combinations of commodities that are equally desirable to the consumer.
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50. A change in the price of a good will shift the indifference curves.
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51. Any point on the lowest indifference curve is preferable to a point on a higher indifference curve.
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52. If point A on an indifference curve lies higher (measured vertically) than point B on the same curve, Point A automatically represents higher total utility than point B.
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53. The budget line and the indifference curve are geometric devices used to provide a closer look at consumer choice.
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54. All points on an indifference curve represent combinations of two goods that are equally desirable to the consumer.
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55. An increase in income shifts indifference curves outward.
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56. The marginal rate of substitution represents the maximum amount of one commodity a consumer is willing to give up in exchange for one more unit of another commodity.
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57. The slope of an indifference curve represents the maximum amount of one commodity that a consumer is willing to give up in exchange for one more unit of another commodity.
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58. The slope of the budget line is the amount of one commodity that a consumer must give up in order to obtain an additional unit of the other commodity.
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59. The demand curve can be derived from indifference curves by varying the price of the commodity in question.
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60. A change in consumer preferences will shift the budget line.
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61. A consumer will go to a point on the highest attainable indifference curve.
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62. A consumer will consume the combination of goods at the point of tangency between the budget line and the indifference curve.
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63. A consumer will consume the combination of goods at the crossing point of a budget line and indifference curve.
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64. An increase in a consumer’s income will always increase the demand for a good.
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65. A change in the price of one good, such as staples, may affect the quantity demanded of another good, such as rubber bands.
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66. By changing the amount of income a consumer has to spend, a change in the price of one good may affect the quantity demanded of another good.
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67. Economic theory has traditionally focused on optimality in decision-making.
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68. Economic behavior is always rational.
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| Multiple Choice |
69. Scarcity
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70. Which of the following factors is always present in consumer decision making?
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71. Total utility can be thought of as the
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72. Lana spent $5 to see a movie. We know
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73. Modern economists measure how much utility Fred gets from a hot dog by
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74. When the price of a commodity rises, we can expect
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75. When the price of a commodity falls, we can expect
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76. If a commodity is inexpensive and its total utility great,
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77. High price and low total utility indicate
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78. Economists consider instances of increasing marginal utility to be
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| Figure 5-1 |
79. Americans choose cola over other flavors 70 percent of the time. Analysts say this is because cola’s flavor is more robust and durable. Orange soda, for example, suffers from flavor fatigue faster than cola. Also, because cola contains caffeine, people may be addicted to the stimulant. Which panel in Figure 5-1 best illustrates these facts?
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80. A bottle of wine costs $8 and a quiche costs $5. At Robert’s present levels of consumption, he spends all his income and receives marginal utility of $10 from the last bottle of wine and marginal utility of $4 from the last quiche. To maximize his total utility, Robert should
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Table 5-1
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81. Table 5-1 gives information on George’s total utility from consuming milkshakes and sandwiches. If George’s income this week is $15, milkshakes are $3 each, and sandwiches $2, he will maximize his utility if he buys
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82. The theory of consumer choice is based on the hypothesis that each consumer wants to
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83. The marginal utility of a unit of good X
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84. The marginal utility of a unit of good Y to Jane is
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85. A consumer possesses five pounds of bananas and values their total utility at $2.14. If one additional pound is acquired and marginal utility is 11 cents, total utility will
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86. Marginal utility is
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87. Total utility
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88. Total utility will be at its maximum when
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89. For most goods and most people, marginal utility probably
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90. Elaine values the utility of her first cup of coffee at $1; a second cup, $.75; and a third cup, $.50. If Elaine drinks three cups of coffee for breakfast, her total utility is equal to
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91. Elaine values the utility of her first cup of coffee at $1; a second cup, $.75; and a third cup, $.50. If Elaine drinks three cups of coffee for breakfast, her marginal utility is equal to
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92. Jason considers a crystal bowl, a silver dish, and a pewter figurine, each priced $45 at the local gift shop. He chooses the silver dish because, according to economic theory
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93. The law of diminishing marginal utility explains why
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Table 5-2
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94. According to Table 5-2, Robinson’s total utility from having two coconuts is ____.
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95. If total utility declines as an additional unit of a commodity is purchased,
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Table 5-1B
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96. If a graph of Robinson’s marginal utility were constructed from Table 5-1B, it would
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97. If the marginal utility to Juan of sleeping an extra hour (from 8 a.m. to 9 a.m.) is negative,
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98. The host at a party offers Justin a sixth beer. Justin says, “No thanks, man. The marginal utility of that fifth beer was, like, 20 cents, but the marginal utility of the sixth would be minus 10 cents.” From his comments, we deduce that Justin
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99. The host at a party offers Justin a sixth beer. Justin says, “No thanks, man. The marginal utility of that fifth beer was, like, 20 cents, but the marginal utility of the sixth would be minus 10 cents.” If Justin consumes the sixth beer, his total utility will
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100. The consumer maximizes his total utility (measured in money terms) when, at his chosen quantity of every good he buys, marginal utility
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101. Tom is buying a quantity of wheat at which the marginal utility (in dollars) exceeds price. He should
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102. Net utility is
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103. The optimal purchase rule is stated as
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104. As a general rule, consumers have
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105. Marginal utility has a negative slope. This is because of the
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106. An individual’s demand curve for a good is ____ her marginal utility curve for the good.
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107. Which of the following statements is correct?
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108. Which of the following scenarios could be an example of increasing marginal utility?
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109. Consumer’s surplus is a measure of how much
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110. Consumer’s surplus
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111. Consumer’s surplus can be written as
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Table 5-4
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112. Table 5-4 shows the demand schedule for concert tickets for a particular consumer. What will be this consumer’s surplus if the price of tickets is $50?
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113. Gwen’s decision to buy a new television instead of a bicycle for the same price
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| Figure 5-2 |
114. In Figure 5-2, consumer surplus is measured by the area
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115. Adam Smith’s diamond-water puzzle
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116. Resolving Adam Smith’s diamond-water puzzle involves
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117. Suppose that Joan, the only consumer of pork, has a downward-sloping demand curve for pork and faces an upward-sloping supply curve. If her demand curve shifts out because she develops a craving for pork, then at the new equilibrium (everything else equal),
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118. An inferior good is one
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119. For a ____, if incomes rise and prices do not change, quantity demanded will increase.
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120. A normal good is a good whose quantity demanded
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121. An inferior good is a good whose quantity demanded
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122. When the price of one product falls,
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123. The Wall Street Journal reports that “hard times aid poultry companies as people eat cheaper fowl.” In the language of economists, this means
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124. Market demand curves are found by
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| Figure 5-3 |
125. Assume the market consists of three consumers with the demand curves in Figure 5-3. At a price of 1, the total market demand is
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126. In Figure 5-3, a decline in price from 3 to 1 will increase market quantity demanded by
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127. Market demand curves may slope downward even if some individual demand curves do not because
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128. The market demand curve
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129. In Poland’s free market, Felix Siemienas is making a fortune in cold cuts. Prices are much higher than formerly. Siemienas says, “Yes, my prices are high. If nobody buys, I bring my prices down. That is the market rule.” This “rule” best describes
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130. A well-known women’s college whose tuition lagged below similar schools found recruiting difficult and enrollment falling. A substantial tuition increase was implemented, and dormitories were soon full again. This can be explained by
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131. The law of demand states that as the price
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132. According to the “law” of demand, we would expect
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133. An increase in a family’s income will cause its budget line to
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134. A budget line is a straight line designed to show
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| Figure 5-4 |
135. In Figure 5-4, the rightward shift in budget lines from the one containing point A to the one containing point B
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136. The budget line facing a household includes information on
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137. What would happen to the budget line if income as well as prices of both goods increase by the same percentage?
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| Figure 5-5 |
138. Figure 5-5 shows a consumer budget line for french fries and hamburgers. The price of an order fries is $2. The price of a burger is
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139. Figure 5-5 shows a consumer budget line for French fries and hamburgers. The household allocates a budget for these two goods.. If the price of an order of french fries is $2, how much income is allocated to fries and burgers combined?
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140. In Figure 5-5, if the household is spending enough of its budget to purchase 4 orders of fries and the price of an order of fries is $2, the remainder of the budget available for hamburgers is
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| Figure 5-6 |
141. A shift in the budget line in Figure 5-6 from AB to AC indicates
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142. In Figure 5-6, a shift in the budget line from AC to AB indicates
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143. Which of the following observations is not true of a budget line?
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144. An indifference curve is a line showing
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| Figure 5-8 |
145. In Figure 5-8, the consumer is indifferent between the combinations of beer and wine coolers indicated by points
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146. Which of the following is characteristic of indifference curves?
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| Figure 5-9 |
147. In Figure 5-9, the consumer’s marginal rate of substitution at his optimum choice of X and Y is
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148. The optimal combination of goods for a consumer to purchase is shown by
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149. If indifference curves and budget lines are used to analyze consumer choice, an inferior good will
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| Figure 5-10 |
150. In the indifference curve pictured in Figure 5-10, which of the following is clearly true?
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| Figure 5-11 |
151. In Figure 5-11, a consumer is initially at point A. There is a price change and she moves to B. It follows that
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| Figure 5-12 |
152. In Figure 5-12, the move in the consumer equilibrium from A to B shows that
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153. For a consumer to maximize utility, he will choose the
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| Figure 5-13 |
154. In Figure 5-13, the line AB is
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155. In Figure 5-13, the consumer can afford any combination of X and Y represented by a point
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156. In Figure 5-13, the consumer is better off
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157. In Figure 5-13, the slope of the budget line (dropping all minus signs) equals
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158. According to Figure 5-13, if the price of good X falls, a consumer making her optimal decision will move from a point on
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159. If the slope of an indifference curve between two goods decreases as we move from left to right (dropping all minus signs), we infer that the consumer
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160. When the price of a good changes but the price of the only other good bought by a consumer stays constant, his
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| Figure 5-14 |
161. Martha initially buys the combination of pens and pencils shown as A in Figure 5-14. After the prices of both goods change, she buys combination B. It must be true that
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162. The slope of a consumer’s indifference curve between two commodities represents
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| Figure 5-15 |
163. Hal initially consumes the combination marked as A in Figure 5-15. After his income increases, Hal consumes combination B. We can conclude that Hal views
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| Figure 5-16 |
164. Figure 5-16 shows Adam’s purchases of bananas and apples when apples cost $5 each and bananas $4 each. The information implies that Adam’s income
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165. In Figure 5-16, Adam is
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166. In Figure 5-16, a decrease in the price of apples will
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167. Vicki consumes meatloaf and pizza. To keep her utility constant, you must give her more of one good if you take some of the other away. This information implies that
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| Figure 5-17 |
168. In Figure 5-17, which of the marked points would an economist use to help him construct a single demand curve for X?
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169. Which of the following statements about Figure 5-17 must be correct?
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170. In Figure 5-17, the consumer would prefer
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| Figure 5-18 |
171. In Figure 5-18, point D for the consumer
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| Figure 5-19 |
172. In Figure 5-19, the consumer experiences at point C
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173. The slope of an indifference curve is called the
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| Figure 5-7 |
174. In Figure 5-7, budget line B compared to A clearly shows that the
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175. The slope of an indifference curve at all points reflects
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176. If the prices of both goods increase by 10 percent, the budget line
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177. The slope of the budget line
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178. Possible causes of an upward-sloping demand curve are:
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179. If marginal utility is a positive number:
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180. When using the terms “total utility” or “marginal utility” we assume:
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| Essay |
181. Why is gold very expensive, even though it is not essential to life, while water, which is essential to life, is inexpensive?
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182. In Figure 5-1 from the text, if the price of pizzas is $8:
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183. Define the following terms. Give a complete and precise definition in one sentence.
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184. How do you calculate consumer’s surplus? What happens to consumer’s surplus when the price of a commodity rises?
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185. Plot the demand for caviar given the following information on quantity consumed and total utility; then explain why caviar sells for such a high price.
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186. Use the law of diminishing marginal utility to explain why Domino’s and Pizza Hut allow the purchase of a second pizza for only $4 when one pays full price (around $10) for the first pizza. Why not simply charge $7 a pizza instead?
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187. You have five hours left to study for two exams tomorrow. The relationship between hours of study and test scores is as follows:
Use the rule for determining optimal purchases to allocate your time, where each point is one “util” of utility.
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188. If I use 1,000 gallons of water a month at a price of $.01 a gallon, is my consumer surplus likely to be large or small? Explain.
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189. Draw individual demands for caviar for Al, Barbara, Chuck, and Denise where Al’s demand is relatively inelastic, Barbara’s is elastic, Chuck’s is upward sloping, and Denise refuses to eat caviar at any price. Then draw the corresponding market demand.
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190. Bob values the utility of a single scoop of Baskin-Robbins ice cream at $1.50. A double scoop gives total utility of $2.25, while a triple scoop yields $2.60. Baskin-Robbins charges $1.35 for a single, $1.95 for a double, and $2.35 for a triple. How many scoops will Bob buy?
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191. Alice has $10 to spend on wine and cheese. If wine is $2.50 a glass and cheese $2, draw the corresponding budget line. Then draw three indifference curves, one showing the amount of wine and cheese Alice would choose, one showing less preferred combinations of wine and cheese, and the last showing preferred but unaffordable combinations.
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192. Draw the point of consumer equilibrium from an indifference map and budget line. Explain why this is the point of optimization. Be sure your diagram is fully and correctly labeled.
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193. Suppose the price of butter falls because milk price supports are removed. Will people’s tastes shift away from margarine and toward butter?
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194. What is marginal analysis?
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195. If marginal net utility is positive, the consumer must be buying too small a quantity to maximize total net utility. Why?
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196. Why is it that the consumer can maximize total net utility only if the purchase quantity brings marginal utility as close as possible to equality with price?
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197. What is the relationship between marginal utility and an individual demand curve?
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198. Use consumer indifference curves and budget lines to show the optimal consumption curves for a normal good and for an inferior good. (Use two graphs.) Be sure your graphs are completely and correctly labeled.
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199. Use consumer indifference curves and budget lines to illustrate the effects of an increase in income for a normal good and an inferior good (use two graphs). Be sure your diagrams are fully and correctly labeled.
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Table 5-3
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200. Using Table 5-3, graph the marginal utility curve.
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| Figure 5-24 |
201. Given the demand curve in Figure 5-24, explain how consumer’s surplus is calculated.
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202. If you go to a bar tonight and have three beers before going home to study economics, will you likely receive some consumer surplus? Explain why or why not.
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203. What are the properties of indifference curves?
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204. Are there ever exceptions to the law of demand?
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205. What is a budget line? What does its slope indicate?
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206. What is the marginal rate of substitution, and what role does it play in determining the consumer’s optimum choice?
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Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
