Principles Of Economics 5th Edition By Frank - Test Bank

Principles Of Economics 5th Edition By Frank – Test Bank

Instant Download – Complete Test Bank With Answers

Sample Questions Are Posted Below

Student: ___________________________________________________________________________

In most markets scarce goods or services are rationed among competing users, and ______ perform that task.
- non-monetary prices

monetary prices

government organizations

private organizations

Home football games at your college are free for students and most of the students like to go to the game. What is the non-monetary cost for you to go to the game?
- Gas that you will need for your car.

Money you paid for body painting and artificial hair.
The outrageous price you had to pay for hot dog and soda.

The 5 hours you waited in the line to get ticket.

The time one spends researching the performance and fuel economy of new cars on the Internet is an example of a(n)
- monetary cost.

non-monetary cost.

information cost.

implied cost.

In some countries, medical care is provided free to citizens and paid for by the government. In those countries, medical care is
- not a scarce resource.
- available at zero opportunity cost.

rationed by non-monetary costs.

available at no cost to everyone who wants it.

JoJo is shopping for a new computer. A mail-order computer can be delivered to JoJo’s home for $1,200. JoJo could pick up the same computer at the warehouse for $1,000. How should JoJo decide?
- JoJo should definitely drive to the warehouse because the monetary cost is $200 lower.

JoJo should drive to the warehouse if the value of his travel time plus wear and tear on his car is less than $200.

JoJo should definitely have the computer delivered, because the $200 saving is less than 20% of the purchase price.

JoJo should definitely drive to the warehouse because the $200 saving is more than 10% of the purchase price.

The tendency for consumers to purchase more of a good or service as its price falls is called
- the law of supply.

the law of increasing cost.

the Low-Hanging Fruit principle.
the law of demand.

The law of demand indicates that as the cost of an activity
- falls, less of the activity will occur.
- rises, more of the activity will occur.

rises, the level of the activity may or may not increase depending on the individual.

falls, more of the activity will occur.

According to the law of demand, when the price of shoes ______ you will consume ________ shoes.
- rises, more
- falls, more

rises, the same amount

falls, the same amount

As the price of computers falls, the quantity demanded of computers increases. This is an application of
- the law of supply

production possibility expansion

the law of demand
needs versus wants

After subsistence levels of food, shelter, and clothing are provided,
- all other goods and services are “needs”.
- many goods and services are “needs”.

all other goods and services are “wants”.

all other goods and services are “luxuries”.

Taking a limousine to a five star restaurant in New York is a
- necessity to Donald Trump but a luxury to Joe Average.

necessity to both Joe Average and Donald Trump.

want to both Joe Average and Donald Trump.

want to Donald Trump and a luxury to Joe Average.

As living standards improve,
- things that were once luxuries become needs.

things that were once wants become needs.
needs are eliminated, leaving only wants.

needs remain the same, but wants increase.

Shelter for homeless people is an example of
- a want

a need

something they can live without

something hard to find

Higher education is a ________ and assigned textbooks are ________.
- need; needs

want; wants

need; wants
want; needs

Rice requires extensive irrigation, therefore water for rice farmers in California is
- not as important as for farmers in Pennsylvania, where they grow little rice
- a necessity

a need

a want

Ten years ago you had never even heard of wireless internet. Now you complete assignments for class on a laptop that accesses the Internet using wireless technology. This is evidence that
- things that were once wants can become needs.

needs remain the same, but wants change.

needs and wants both increase with increases in technology.
needs decrease with technology, but wants increase.

According to economists, the satisfaction people get from their consumption activities is called
- demand
- utility

needs

wants

Utility maximization means that people try to allocate their ______ to maximize their ___________.
- utility, spending

resources, satisfaction

time, work

limited resource, desires

Pat just spent a thousand dollars on a painful dental procedure. In this case
- Pat’s resources yielded negative utility.

demand for dental procedures is upward sloping.
we can assume that having the dental services performed increased Pat’s utility.

utility is irrelevant to this decision to spend money.

During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4^th one you became ill and lost the contest.

Your total utility _______ with each pie you ate up to the 3^rd pie.

increased
decreased

stayed the same

first increased than decreased

During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4^th one you became ill and lost the contest.

Beyond the 3^rd pie your total utility

increases, but by less than for the first three pies
decreases

stays the same

is zero

During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4^th one you became ill and lost the contest.

You got ______ utility from eating the 1^st pie than eating the 3^rd pie.

less
more

the same amount of
marginal

During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4^th one you became ill and lost the contest.

You got ______ utility from eating the 4^th pie than eating the 2^nd pie.

less
more

the same amount of

marginal

Sven likes to water ski, but can only water ski during the one week that he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven’s vacation, Sven went blueberry picking all day.

Sven’s total utility _______ with each hour that he skied.

increased

decreased
remained constant

first increased than decreased

Sven likes to water ski, but can only water ski during the one week that he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven’s vacation, Sven went blueberry picking all day.

On the fifth day of Sven’s vacation, he had decided that another hour of skiing would yield

more utility than the day before
the same level of utility as the day before

less utility than blueberry picking

no utility at all

Sven likes to water ski, but can only water ski during the one week that he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven’s vacation, Sven went blueberry picking all day.

Sven gets ______ utility from his first hour of skiing than from his tenth hour of skiing.

less

the same

the same amount, but better quality

Sven likes to water ski, but can only water ski during the one week that he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven’s vacation, Sven went blueberry picking all day.

Sven’s vacation convinced him that

even for activities he really enjoys, diminishing marginal utility eventually sets in.

blueberry picking yields higher total utility than does water skiing.

even for activities he really enjoys, total utility declines each time he engages in it.

economic theory applies only to things you buy, not recreation.

______ is the additional utility gained from consuming an additional unit of a good.
- Total utility

Marginal Utility
Utility

Utils

Pat’s total utility after eating 100 Reese’s Peanut Butter Cups was less than his total utility after eating his ninety-ninth. Therefore, Pat’s marginal utility for the 100^th peanut butter cup was
- positive, but less than one.
- positive, but less than Pat’s marginal utility for the 99^th peanut butter cup.

The term marginal utility denotes the amount by which ______ changes when consumption changes by

_____ unit(s).

total utility, 1

demand, 5
demand, 1

total utility, 5

Laura’s total utility from consuming 8, 9, and 10 bonbons is 35, 42, and 45, respectively. Her marginal utility from the 9^th bonbon is
- 42
- 77

Suppose Chris’ marginal utility from the first taco Chris eats is 15 and Chris’ marginal utility from the second taco is 12. One can infer that Chris
- has total utility of 2 tacos equal to 27.
- should eat only one taco.

has average utility for 2 tacos of 27.

should eat 2 tacos.

If marginal utility is positive as consumption increases,
- the consumer will not experience diminishing marginal utility.

total utility will remain high and constant as consumption increases.

total utility will increase as consumption increases.

the demand curve will have a positive slope.

34.

Refer to the figure above. The total utility of consuming 4 pizzas each week is

35.

Refer to the figure above. The marginal utility of the sixth pizza is

36.

Refer to the figure above. The total utility of consuming two pizzas in a single week is

37.

Refer to the figure above. The marginal utility of the 7^th pizza is

-5

38.

Refer to the figure above. Total utility increases with each additional pizza consumed up to the _____ and then declines, but marginal utility _______ with each additional pizza consumed each week.

7^th pizza, increases
6^th pizza, increases
5^th pizza, stays the same
6^th pizza, decreases

Moe’s parents frequently tell him how it was back in their childhoods. They had a smaller house, fewer toys, only one car and one black-and-white TV, but they were happy. In fact, Moe’s parents claim that they were happier than Moe and his friends are today even though Moe and his friends all have much more stuff. Moe concludes that

his parents are irrational, because for rational people total utility increases with consumption.

Moe’s parents are subject to diminishing marginal utility, but Moe and his friends are not.

economic models cannot be applied to two different generations.
the social forces that influence demand have changed since Moe’s parents were young.

Donald has vast riches and consumes thousands of dollars worth of consumer goods each week, yet he is never satisfied. Why not?
- Wants are unlimited, but resources are finite.

Donald fails to choose rationally.

The law of diminishing marginal utility shows that consuming too many material goods leads to lower total utility.
Utility is unrelated to the level of consumption.

It is impossible for total utility to be _________ when marginal utility is ___________
- increasing; increasing.

decreasing; positive.
positive; negative.

increasing; decreasing.

The first time Michel tasted coffee, he thought it was bitter and bad-tasting. The second time Michel had coffee, he thought that it was barely tolerable. Eventually, Michel started to enjoy coffee, and within a few months he was drinking several cups a day. In fact, if he did not drink several cups a day, he was miserable. This suggests that, for Michel,

demand for coffee has increased.

coffee is a need, not a want.

diminishing marginal utility does not apply to coffee consumption.
economic models cannot be applied to habit-forming substances.

43.

Refer to the figure above. The total utility of consuming two dinners out in a week is

less than 100.

44.

Refer to the figure above. The marginal utility of the 3^rd dinner is

45.

Refer to the figure above. The marginal utility of the 4^th music CD is

46.

Refer to the figure above. The marginal utility of consuming the 2^nd apple is

47.

Refer to the figure above. According to this data, marginal utility for apple consumption is

first increasing, but decreasing after the fourth apple.

decreasing after the first apple.
constantly increasing.

48.

Refer to the figure above. The marginal utility of consuming the 5^th apple is

-5
0

49.

Refer to the figure above. The total utility ______ as additional apples are consumed, but the marginal utility always _______ with each additional apple consumed.

first decreases then increases, decreases
first increases then decreases, decreases

first decreases then increases, increases

first increases then decreases, increases

If Terry gets maximum utility from owning 10 pairs of shoes, then Terry’s total utility from owning 7 pairs of shoes is ______ Terry’s total utility from owning 8 pairs.
- greater than
- equal to

less than

less than or equal to

The tendency for marginal utility to decline as consumption increases beyond some point is called

the law of demand

the law of diminishing marginal utility

the rational spending rule

utility maximization

If the marginal utility of the 3^rd cup of coffee is 23 and the marginal utility of the 4^th cup is 15, then

it is optimal for the consumer to have 3 cups of coffee.
the price of a cup of coffee must be relatively low.
it is optimal for the consumer to have 4 cups of coffee.

there is evidence of the law of diminishing marginal utility.

According to the law of diminishing marginal utility,
- if you consume less of something, your total utility from that consumption increases.

if you consume less of something, your marginal utility from that consumption increases.

you should never consume any more of something after marginal utility has begun to diminish.

if total utility is increasing as you consumer more, then marginal utility must be increasing as well.

Cory gets 18, 23, and 25 units worth of total utility from consuming 10, 11, and 12 raw oysters, respectively, and the price per oyster is 25 cents. Thus, one can infer that Cory
- is not utility maximizing.

is experiencing diminishing marginal utility.
should NOT consume any more oysters.

has consumed too many oysters.

55.

Refer to the figure above. As Jeff watches more movies, his marginal utility

gets larger

gets smaller

does not change
gets close to one

56.

Refer to the figure above. As Jeff increases the number of movies he watches in a day, from ______ to

______ his marginal utility decreases, from 15 to 5

1, 5

2, 5

2, 4

1, 4

57.

Refer to the figure above. For Jeff, consumption of movies satisfies

the law of demand

the law of diminishing marginal utility

the law of utility maximization
the law of utility minimization

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3.

Dusty can buy a maximum of _____ loaves of bread or a maximum of _____ jars of peanut butter.

20; 10
15; 15

10; 20

10; 5

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3.

If Dusty’s income rises to $45, Dusty can now buy a maximum of _____ loaves of bread or a maximum of _____ jars of peanut butter.

5; 25

10; 40

15; 30
30; 15

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3.

If Dusty’s income rises to $45, the rational spending rule would predict that Dusty will buy

more bread and less peanut butter.
more bread and more peanut butter.

less bread and more peanut butter.

more bread and the same amount of peanut butter.

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3.

If Dusty’s income falls to $20, the rational spending rule would predict that Dusty will buy

more bread and less peanut butter.

less bread and more peanut butter.

less bread and less peanut butter.

more bread and the same amount of peanut butter.

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3.

Suppose that at the original income of $30 the price of a loaf of bread decreased to $1.00 and the price of a jar of peanut butter increased to $5. Dusty can buy a maximum of _____ loaves of bread or a maximum of _____ jars of peanut butter.

20, 5

5, 20

30, 6

6, 30

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3.

Suppose that at the original income of $30 the price of a loaf of bread increased to $3.00 and the price of a jar of peanut butter decreased to $2. Dusty can buy a maximum of _____ loaves of bread or a maximum of _____ jars of peanut butter.

10, 15

15, 10

20, 15

15, 20

Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound.

Casey can buy a maximum of _____ pounds of fish or a maximum of _____ pounds of shrimp.

30, 50

50, 30

15, 30
30, 15

Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound.

If Casey’s income rises to $210 Casey could buy a maximum of _____ pounds of fish or a maximum of

_____ pounds of shrimp.

30, 24

24, 30

70, 42

42, 70

Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound.

If Casey’s income rises to $210, the rational spending rule would predict Casey would buy

more fish and less shrimp.

more fish and more shrimp.

less fish and more shrimp.
more fish and the same amount of shrimp.

Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound.

If Casey’s income falls to $120, the rational spending rule would predict Casey would buy

more fish and less shrimp.
more fish and more shrimp.

less fish and more shrimp.

less fish and less shrimp.

Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound.

The price of fish decreased to $1.50 a pound and the price of shrimp remains $5 a pound. At Casey’s original income of $150 per week Casey can buy a maximum of _____ pounds fish or a maximum of

_____ pounds shrimp.

10, 30

30, 50

30, 100

100, 30

The ______ combination of goods is the combination of goods that yields the highest total utility given the consumer’s income.
- affordable
- economical

utility satiating

optimal

Evan gets twice as much marginal utility from an additional bottle of water than from an additional bottle of soda. If the price of soda is $1.00 per bottle, then Evan is maximizing utility if the price of a bottle of water is

$1.00

$1.50
$2.00

$.50

Jess gets half as much marginal utility from an additional bagel than from an additional muffin. If the price of muffin is $2.00/each, then Jess is maximizing utility if the price of a bagel is
- $1.00

$1.50

$2.00

$4.00

At his current consumption level Cameron get 3 times more marginal utility from an additional game of pinball than from an additional game of ping pong. If the price of a ping pong game is $0.50, than he is maximizing utility if the price of a pinball game is

$1.00

$1.50

$2.00

$3.00

Angel’s marginal utility for playing pool is 10 after playing 5 games. Angel’s marginal utility for bowling is 6 after 3 games. If both pool and bowling cost $1 a game, to maximize his utility Angel should
- bowl more and play pool less

just go home
bowl only

bowl less and play pool more

Jamie’s marginal utility for consuming muffins and doughnuts in utils are as follows. Jamie spends $4 for breakfast every morning, the price per muffin is $1.00 and the price per doughnut is $0.50.

If Jamie consumes 3 muffins, what is Jamie’s marginal utility per dollar from muffins?

Jamie’s marginal utility for consuming muffins and doughnuts in utils are as follows. Jamie spends $4 for breakfast every morning, the price per muffin is $1.00 and the price per doughnut is $0.50.

If Jamie consumes 3 muffins, Jamie will consume ____ doughnuts, and have ____ marginal utility per dollar from doughnuts.

2; 20

4; 15
2; 30

4; 10

Jamie’s marginal utility for consuming muffins and doughnuts in utils are as follows. Jamie spends $4 for breakfast every morning, the price per muffin is $1.00 and the price per doughnut is $0.50.

What is Jamie’s optimal combination of muffins and doughnuts?

1 muffin, 6 doughnuts

2 muffins, 4 doughnuts

3 muffins, 2 doughnuts

4 muffins, zero doughnuts

Taylor’s marginal utility from watching movies and marginal utility from eating out each month in utils are represented in the following table. Taylor spends exactly $100 every month on these two forms of entertainment, and the price per movie is $10 and price per dinner is $20.

If Taylor watches 2 movies a month, Taylor will eat out _____ times per month, and have marginal utility per dollar of _____ from movies and _______ from eating out.

3; 5; 6
2; 5; 7

4; 5; 5

4; 4; 6

Taylor’s marginal utility from watching movies and marginal utility from eating out each month in utils are represented in the following table. Taylor spends exactly $100 every month on these two forms of entertainment, and the price per movie is $10 and price per dinner is $20.

If Taylor eats out 3 times a month, Taylor will watch _____ movies, and have marginal utility per dollar of _____ from eating out and _______ from going to the movies.

4; 6; 2
3; 2; 6

4; 6; 1/2

3; 4; 4

Taylor’s marginal utility from watching movies and marginal utility from eating out each month in utils are represented in the following table. Taylor spends exactly $100 every month on these two forms of entertainment, and the price per movie is $10 and price per dinner is $20.

Taylor’s optimal combination of movies and eating out is

3 movies and 3 dinners.

4 movies and 3 dinners.

3 movies and 4 dinners.

2 movies and 4 dinners.

Purchasing goods such that the ratio of marginal utility to price is equal across all goods results in the
- greatest total utility.

lowest expenditure on goods.

greatest marginal utility for the lower.
expenditures for all goods being the same.

For the two good case, the rational spending rule requires that
- total expenditures on the two goods be equal.
- total utility from the two good be equal.

average utility from the two goods be equal.

the ratio of marginal utility to price be equal for the two goods.

For two goods, A and B, the rational spending rule is expressed as
- MU_A = MU_B.
- MU_A * MU_B = P_A * P_B.
- (MU_A/P_B) = (MU_B/P_A).
- (MU_A/P_A) = (MU_B/P_B).

Pat applies the rational spending rule and purchases 5 units of potato chips and 3 units of lemonade Suppose the price of lemonade increases. One can predict that Pat will
- cease purchasing lemonade.
- reduce purchases of lemonade and increase purchases of potato chips.

continue to make the same purchases.

reduce purchases of potato chips.

Suppose you want to make rational dining choices at an all-you-can-eat buffet. How do you apply the rational spending rule?
you can’t because the fixed price is a sunk cost that should not be taken into consideration.

Byou can’t because once you have paid the sunk cost the price of each serving is zero, and since you can’t

. divide by zero you cannot apply the rational choice formula.

C.you should continue to eat every item until your marginal utility from consuming each item equals the fixed price of the buffet.

D you should continue to eat until your marginal utility from consuming each item exactly equals zero

. plus your non-monetary costs of staying at the buffet.

Curly loves pizza, and often has supper at an all-you-can eat pizza buffet. Curly eats more pizza there than at the Buy-By-the-Slice pizza stand in the student union because
- Curly is irrational and has no will-power.

Curly does not experience diminishing marginal utility for pizza.

Curly is setting his Marginal Utility for pizza per dollar equal at each place.

Curly is setting his Marginal Utility for pizza equal at each place.

According to the rational spending rule, for a rational consumer the relationship between the price of an item and the utility gained by consuming that item is
- the lower the price, the greater the total utility.
- the lower the price, the greater the marginal utility.

the lower the price, the lower the marginal utility.

the higher the price, the lower the marginal utility.

You are trying to decide how to spend your last lunch dollar. You should use that dollar to buy more of
- the item that costs the least.

the item that you have already consumed the most of.

the item that will give you the greatest marginal utility per dollar spent.
the item from which you have gained the greatest total utility already.

Suppose you want to equalize your marginal utility per dollar across all the goods that you consume. If your marginal utility per dollar is higher for one of those items than for any others, you should
- consume less of it to reduce your marginal utility.

consume more of it to reduce your marginal utility.

consume more of the other goods to equalize your marginal utilities per dollar.

consume more of all goods in equal proportions.

For two goods, coffee and scones, MU(coffee)/P(coffee) = 4 and MU(scones)/P(scones) = 3. The consumer should
- purchase less coffee and more scones.

purchase more coffee and fewer scones.
purchase less coffee and fewer scones.

purchase more coffee and more scones.

For two goods, A and B, MUA/PA = 25 and MUB/PB = 25. The consumer should
- leave their choices as they are.

purchase less of A and more of B.

purchase more of A and B.

purchase less of A and B.

Assume the consumer is correctly applying the rational spending rule for goods jeans and t-shirts. If the price of jeans falls, purchases of jeans and t-shirts rise because
- the marginal utility of jeans increases.

the marginal utility of t-shirts increases.
the marginal utility of jeans decreases.

combinations of jeans and t-shirts that could not be considered before now become available.

The rational spending rule is derived from the consumer’s efforts to
- maximize utility.
- minimize expenditures.

obtain the lowest possible price.

maximize the number of units purchased.

When the price of a good rises, the ratio of the marginal utility of that good divided by its price _______

and as a result, consumers purchase _______ of that good.

rises; more

falls; more

rises; less
falls; less

When the price of a good falls, the ratio of the marginal utility of that good divided by its price _______

and as a result, consumers purchase _______ of that good.

rises; more

falls; more

rises; less

falls; less

95.

Refer to the figure above. The law of diminishing marginal utility

applies to Good A but not Good B.

does not apply to either Good A or Good B.
applies to Good B but not Good A.

applies to both Good A and Good B.

96.

Refer to the figure above. If the price of Good A is $1 and the price of Good B is $3, then the rational spending rule predicts _____ units of Good A and ______ units of Good B will be purchased.

4; 3
3; 4
4; 4

3; 3

97.

Refer to the figure above. If the price of Good A is $5 and the price of Good B is $4, then the rational spending rule predicts _____ units of Good A and ______ units of Good B will be purchased.

3; 3
1; 3

4; 2

3; 2

98.

Refer to the figure above. If the price of Good A is $2 and the price of Good B is $6, then the rational spending rule predicts _____ units of Good A and ______ units of Good B will be purchased.

1; 1
2; 1

4; 3

3; 2

99.

Refer to the figure above. The law of diminishing marginal utility

applies to Food but not Rooms.

does not apply to either Food or Rooms.

applies to Rooms but not Food.

applies to both Food and Rooms.

100.

Refer to the figure above. If the price of Food is $5 and the price of Rooms is $80, then the rational spending rule predicts _____ units of Food and ______ Rooms will be purchased.

4; 3
3; 4

4; 4

4; 1

101.

Refer to the figure above. If the price of Food is $10 and the price of Rooms is $40, then the rational spending rule predicts _____ units of Food and ______ Rooms will be purchased.

1; 4
3; 2

4; 4
2; 3

102.If the marginal utility per dollar is not the same for each good, the consumer could _____ her utility by spending ______ on goods for which the marginal utility per dollar is lower.

decrease, less
increase, more

maximize, more

increase, less

103.Suppose you are a government analyst and you think beans are particularly nourishing. You decide to subsidize beans in order to encourage people to eat more of them. (By subsidizing an item, consumers pay a lower price.) After you successfully lower bean prices, you notice that consumption of beans has fallen. What went wrong?

The substitution effect caused people to substitute ramen noodles and rice for beans.

The income effect caused people’s real income to fall so they could no longer afford as much food.

The income effect caused people’s real income to rise so they purchased less of what they considered to be inferior goods.
Demand for beans is price inelastic.

104.If the marginal utility per dollar is not the same for each good, the consumer could _____ her utility by spending ______ on goods for which the marginal utility per dollar is higher.

decrease, more
increase, more

maximize, less

increase, less

105.The dollar price of a good relative to the average dollar price of all other goods is the

market price

equilibrium price

nominal price

real price

106.The absolute price of a good in dollar terms is the

market price

equilibrium price
nominal price

marginal price

107.According to the textbook, the homes of the wealthy in Seattle average in excess of 10,000 square feet while the homes of the wealthy in New York City average less than 5,000 square feet. The difference is primarily due to

greater “tastes” for space in Seattle.

a ban on construction of new homes in excess of 5,000 square feet in NYC.

a significantly higher price for land and construction in NYC.
greater “tastes” for crowding in NYC.

108.Suppose you are a government analyst, and you want to help homeless families. To do so, you have decided to subsidize rental housing for poor families. (A subsidy is a payment by the government that pays part of the price of a specific product. For example, the government pays part of the rent payment.) If families had been choosing rationally before the subsidy, what is most likely to happen as a result of the subsidy?

The substitution effect will cause people to consume less rental housing as the price of housing falls.

The income effect will cause people to consume less rental housing, but only if rental housing is a normal or luxury good.
People will consume more housing and more of another good, for example, groceries.

Any rational person will respond by consuming more housing, and no more of the other goods he or she consumes.

109.The fact that the average price of a gallon of gasoline in England is much higher than the price in the U.S. would lead to which of the following predictions?

Average miles per gallon for new cars will be lower in England.
English drivers will tend to drive a greater average number of miles.
American drivers will tend to make fewer trips with more stops.

Large cars with poorer gas mileage will be less popular with consumers in England.

110.Why do lines tend to be longer at the bank teller in a poorer neighborhood?

Low-income consumers are not willing to pay for shorter line.

Low-income consumers would pay for shorter lines if the bank owners ask them to.

Poor people have a high opportunity cost for their time.

Poor people don’t have anything better to do.

111.Fran runs a doughnut shop in a tiny 3-person town. Fran’s rational consumers have the following demand schedules:

Market demand for doughnuts when the price is 50 cents is

31 doughnuts.

20 doughnuts.

9 doughnuts.
13 doughnuts.

112.Fran runs a doughnut shop in a tiny 3-person town. Fran’s rational consumers have the following demand schedules:

From the data you can assume that Betty

thinks that doughnuts are an inferior good.
would get more marginal utility from her first doughnut than anything else that she buys for 50 cents.

would get less marginal utility from her first doughnut than anything else that she buys for 50 cents.

is not a rational consumer.

113.This table shows demand for shoes in a 3 consumer market:

What is the market demand for shoes when the price is $50 per pair?

7 Pairs of shoes.

11 Pairs of shoes.
15 Pairs of shoes.

It will depend on the supply at $50.

114.This table shows demand for shoes in a 3 consumer market:

At $100 per pair, the market demand

intersects the y-axis.
intersects the x-axis.

is exactly the same as Leigh’s demand.

is less than the quantity supplied.

115.This table shows demand for shoes in a 3 consumer market:

The data suggest that

Leigh has higher income than Pat or Chris.

Leigh does not experience diminishing marginal utility for shoes.

Leigh prefers shoes to other items Leigh buys.

Pat’s demand for shoes is less than Leigh’s.

116.

Refer to the figure above. On the basis of the above graphs, it appears that __________ has the strongest demand for hamburger.

Chris
Laura

Laura and Chris both

neither Laura nor Chris

117.

Refer to the figure above. At a price of $2.00, Laura’s quantity demanded is ______ and Chris’ quantity demanded is _____.

11, 14
9, 16
9, 14

11, 13

118.

Refer to the figure above. The market demand curve indicates that at a price of $2.50, _______ lbs. will be demanded.

119.

Refer to the figure above. The market demand curve indicates that 27 lbs of hamburger will be demanded at a price of

$1.00
$1.50

$2.00

$2.50

120.

Refer to the figure above. When the price decreases from $3.00 to $2.50, quantity demanded in the market will ______ by _____ lbs.

decrease, 3
increase, 3
decrease, 4

increase, 4

121.

Refer to the figure above. On the basis of the above graphs, it appears that __________ has the strongest demand for soda.

Rick
Mallory

Mallory and Rick both
neither Mallory nor Rick

122.

Refer to the figure above. At a price of $0.25, Mallory’s quantity demanded is ______ and Rick’s quantity demanded is _____.

50, 40
90, 80

70, 80

70, 60

123.

Refer to the figure above. The market demand curve indicates that at a price of $0.75, _______ cans of soda will be demanded.

124.

Refer to the figure above. The market demand curve indicates that 90 cans of soda will be demanded at a price of

$1.50
$1.25

$0.75

$0.50

125.

Refer to the figure above. When the price increases from $0.75 to $1.00, quantity demanded in the market will ______ by _____ cans.

decrease, 20
increase, 20

decrease, 40

increase, 40

126.

Refer to the figure above. At the price of $1.25,

market demand is 40 cans of soda.

market demand is 30 cans of soda.
market demand is 10 cans of soda.

Mallory and Rick exit the market.

127.

When all buyers have identical demand curves, we can get the market demand curve by

adding their quantity demanded vertically

multiplying each quantity by the number of consumers

adding all the prices first than adding all the quantity demanded

adding each consumers utility

128.

At the price of 25 cents/each, 500 consumers demand 4 oranges each. At the price of 20 cents/each, 750 consumers demand 5 oranges each. Therefore, the market demand curve for orange will have a quantity of _______ oranges demanded at the price of 25 cents/each and a quantity of ______ oranges demanded at the price of 20 cents/each.

4, 5

500, 750

1250, 1500

2000, 3750

129.This graph shows one consumer’s demand for ice cream at the student union:

During a regular semester, there are 500 students. Each student’s demand for ice cream is as depicted above. When the price of one scoop of ice cream is $2.00, those 500 students purchase a total of

2,000 scoops of ice cream
2,500 scoops of ice cream

3,000 scoops of ice cream

5,000 scoops of ice cream

130.This graph shows one consumer’s demand for ice cream at the student union:

During the summer, there are only 300 ice cream consuming students on campus, each with demand as shown above. At $2.00 per scoop, those 300 students purchase ____ scoops of ice cream per week.

1,200
1,500

1,800

3,000

131.This graph shows one consumer’s demand for ice cream at the student union:

During the semester, the student union charges $3.00 per scoop. If every student who buys ice cream has the demand curve shown, when there are 1,000 students _____ scoops are sold per week.

400
1,000

2,000

4,000

132.This graph shows one consumer’s demand for ice cream at the student union:

During the semester, the student union sells a total of 7,200 scoops of ice cream at a price of $2.00 per scoop. If every student who buys ice cream has the demand curve shown, there must be _________

students purchasing ice cream.

800
1,200

1,500

2,000

133.This graph shows one consumer’s demand for ice cream at the student union:

An increase in the number of students enrolled on this campus will

cause the demand curve shown above to shift to the right.
cause the demand curve shown above to shift to the left.

cause an increase in market demand by increasing the number of individual demand curves.

not affect market demand, but increase quantity demanded by individuals.

134.This graph shows one consumer’s demand for ice cream at the student union:

Fran is one of the students whose demand is shown. When price is $4.00, Fran buys ____ scoops, but when price is $2.00, Fran buys _______ scoops.

1; 3
2; 5
2; 4

2; 6

135.This graph shows one consumer’s demand for ice cream at the student union:

Joe is one of the students whose demand is shown. Joe buys more ice cream when the price is $2.00 than when the price is $3.00 because

Joe cannot afford $3.00 for a scoop of ice cream.
Joe has more consumer surplus when price is $3.00.

C the marginal utility Joe gets from his fifth scoop of ice cream is less than the marginal utility Joe gets

. from other things that cost $3.00.

D Joe does not experience diminishing marginal utility for ice cream consumption when it is only $2.00

. per scoop but does when it is $3.00.

136.This graph shows one consumer’s demand for ice cream at the student union:

According to the demand curve shown above, each individual student has ______ consumer surplus when price is ___________.

less; lower
more; higher

more; lower

the same; higher

137.This graph shows one consumer’s demand for ice cream at the student union:

When price is $2 per scoop, each student’s consumer surplus is determined by

the difference between maximum willingness to pay of $4.50 and $2, or $2.50.

the area of the triangle of dimension ($4.50 – $2.00) high and 6 long = $7.50.

the difference between each student’s maximum price of $4.50 and $2 times the number of scoops, or $2.50 times 6 = $15.
The area of the triangle of dimension $4.50 high and 8 long = $18.

138.Consumer surplus measures

marginal utility.
total utility.

the cumulative difference between real and nominal prices.

the cumulative difference between price and maximum willingness to pay.

139.Moe’s reservation price for his economics textbook is $100. The week before the semester began, Moe found a copy of the required text online for $75. Moe’s consumer surplus is

$125
$100

140.

Refer to the figure above. What is the maximum price that the buyer of the first unit is willing to pay?

141.

Refer to the figure above. At a price of $15, what is the consumer surplus for the buyer of the first unit?

142.

Refer to the figure above. At a price of $15, what is the consumer surplus each day?

143.

At a price of $25, what is the consumer surplus each day?

144.

Refer to the figure above. What is the equilibrium quantity of bananas in this market?

3 pounds/day

4 pounds/day
5 pounds/day

145.

Refer to the figure above. What is the equilibrium price of bananas in this market?

$1/pound
$4/pound

$5/pound

146.

Refer to the figure above. At the equilibrium price consumer surplus is

$7.50/day

$10/day

$15/day
$40/day

147.

Refer to the figure above. In the equilibrium shown, price is ________, quantity is ___________ and consumer surplus is __________.

$6; 40; $100
$6; 40; $120

$4; 40; $80

$4; 40; $120

148.

Refer to the figure above. Suppose the dairy lobby convinces the government to impose price controls in this market. If the government requires all cheese to be sold for a price of at least $8, consumer surplus would _________ and the market would ________________

increase; reach a new equilibrium at $8.00.
decrease; reach a new equilibrium at $8.00.

increase; have excess demand for cheese.

decrease; have excess supply of cheese.

149.

$80
$120

150.

Refer to the figure above. Suppose a consumer protection group convinces the government to impose price controls in this market. If the government requires that cheese be sold for a price less than the equilibrium, relative to the original equilibrium the effect on consumer surplus would be to

necessarily increase it, because consumers would be able to purchase the same quantity of cheese at a lower price.
necessarily increase it, because consumers would purchase more cheese at a lower price.

increase it due to the reduction in price, but decrease it due to the reduction in quantity.

decrease it due to the reduction in price, but increase it due to the increase in quantity.

In most markets scarce goods or services are rationed among competing users, and ______ perform that task.
- non-monetary prices

monetary prices

government organizations
private organizations

AACSB: Analytic

Blooms: Remember

Difficulty: 1 Easy

Frank – Chapter 05 #1

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

Home football games at your college are free for students and most of the students like to go to the game. What is the non-monetary cost for you to go to the game?

Gas that you will need for your car.

Money you paid for body painting and artificial hair.

The outrageous price you had to pay for hot dog and soda.

The 5 hours you waited in the line to get ticket.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #2

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

The time one spends researching the performance and fuel economy of new cars on the Internet is an example of a(n)

monetary cost.

non-monetary cost.

information cost.
implied cost.

AACSB: Analytic

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #3

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

In some countries, medical care is provided free to citizens and paid for by the government. In those countries, medical care is

not a scarce resource.

available at zero opportunity cost.

rationed by non-monetary costs.

available at no cost to everyone who wants it.

AACSB: Analytic

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #4

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

JoJo is shopping for a new computer. A mail-order computer can be delivered to JoJo’s home for $1,200. JoJo could pick up the same computer at the warehouse for $1,000. How should JoJo decide?

JoJo should definitely drive to the warehouse because the monetary cost is $200 lower.

JoJo should drive to the warehouse if the value of his travel time plus wear and tear on his car is less than $200.

JoJo should definitely have the computer delivered, because the $200 saving is less than 20% of the purchase price.

JoJo should definitely drive to the warehouse because the $200 saving is more than 10% of the purchase price.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #5

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

The tendency for consumers to purchase more of a good or service as its price falls is called
- the law of supply.

the law of increasing cost.
the Low-Hanging Fruit principle.

the law of demand.

AACSB: Reflective Thinking

Blooms: Remember

Difficulty: 1 Easy

Frank – Chapter 05 #6

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

The law of demand indicates that as the cost of an activity
- falls, less of the activity will occur.

rises, more of the activity will occur.

rises, the level of the activity may or may not increase depending on the individual.
falls, more of the activity will occur.

AACSB: Reflective Thinking

Blooms: Remember

Difficulty: 1 Easy

Frank – Chapter 05 #7

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

According to the law of demand, when the price of shoes ______ you will consume ________

shoes.

rises, more

falls, more

rises, the same amount
falls, the same amount

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #8

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

As the price of computers falls, the quantity demanded of computers increases. This is an application of

the law of supply

production possibility expansion

the law of demand

needs versus wants

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #9

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

After subsistence levels of food, shelter, and clothing are provided,
- all other goods and services are “needs”.
- many goods and services are “needs”.

all other goods and services are “wants”.

all other goods and services are “luxuries”.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #10

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

Taking a limousine to a five star restaurant in New York is a
- necessity to Donald Trump but a luxury to Joe Average.

necessity to both Joe Average and Donald Trump.
want to both Joe Average and Donald Trump.

want to Donald Trump and a luxury to Joe Average.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #11

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

As living standards improve,
- things that were once luxuries become needs.

things that were once wants become needs.

needs are eliminated, leaving only wants.
needs remain the same, but wants increase.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #12

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

Shelter for homeless people is an example of
- a want

a need

something they can live without
something hard to find

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #13

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

Higher education is a ________ and assigned textbooks are ________.
- need; needs

want; wants

need; wants
want; needs

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #14

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

Rice requires extensive irrigation, therefore water for rice farmers in California is
- not as important as for farmers in Pennsylvania, where they grow little rice
- a necessity

a need

a want

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #15

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

Ten years ago you had never even heard of wireless internet. Now you complete assignments for class on a laptop that accesses the Internet using wireless technology. This is evidence that

things that were once wants can become needs.
needs remain the same, but wants change.

needs and wants both increase with increases in technology.
needs decrease with technology, but wants increase.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #16

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

According to economists, the satisfaction people get from their consumption activities is called
- demand

utility

needs
wants

AACSB: Reflective Thinking

Blooms: Remember

Difficulty: 1 Easy

Frank – Chapter 05 #17

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

Utility maximization means that people try to allocate their ______ to maximize their

___________.

utility, spending

resources, satisfaction

time, work
limited resource, desires

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #18

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

Pat just spent a thousand dollars on a painful dental procedure. In this case
- Pat’s resources yielded negative utility.

demand for dental procedures is upward sloping.

we can assume that having the dental services performed increased Pat’s utility.

utility is irrelevant to this decision to spend money.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #19

Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).

Topic: The Law of Demand

During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4^th one you became ill and lost the contest.

Your total utility _______ with each pie you ate up to the 3^rd pie.

increased

decreased
stayed the same
first increased than decreased

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #20

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4^th one you became ill and lost the contest.

Beyond the 3^rd pie your total utility

increases, but by less than for the first three pies
decreases

stays the same
is zero

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #21

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4^th one you became ill and lost the contest.

You got ______ utility from eating the 1^st pie than eating the 3^rd pie.

less
more

the same amount of
marginal

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #22

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4^th one you became ill and lost the contest.

You got ______ utility from eating the 4^th pie than eating the 2^nd pie.

less

more
the same amount of
marginal

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #23

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

Sven likes to water ski, but can only water ski during the one week that he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven’s vacation, Sven went blueberry picking all day.

Sven’s total utility _______ with each hour that he skied.

increased

decreased
remained constant

first increased than decreased

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #24

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

Sven likes to water ski, but can only water ski during the one week that he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven’s vacation, Sven went blueberry picking all day.

On the fifth day of Sven’s vacation, he had decided that another hour of skiing would yield

more utility than the day before

the same level of utility as the day before

less utility than blueberry picking

no utility at all

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #25

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

Sven likes to water ski, but can only water ski during the one week that he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven’s vacation, Sven went blueberry picking all day.

Sven gets ______ utility from his first hour of skiing than from his tenth hour of skiing.

less
more

the same
the same amount, but better quality

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #26

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

Sven likes to water ski, but can only water ski during the one week that he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven’s vacation, Sven went blueberry picking all day.

Sven’s vacation convinced him that

even for activities he really enjoys, diminishing marginal utility eventually sets in.

blueberry picking yields higher total utility than does water skiing.
even for activities he really enjoys, total utility declines each time he engages in it.

economic theory applies only to things you buy, not recreation.

AACSB: Reflective Thinking

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #27

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

______ is the additional utility gained from consuming an additional unit of a good.
- Total utility

Marginal Utility

Utility
Utils

AACSB: Reflective Thinking

Blooms: Remember

Difficulty: 1 Easy

Frank – Chapter 05 #28

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

Pat’s total utility after eating 100 Reese’s Peanut Butter Cups was less than his total utility after eating his ninety-ninth. Therefore, Pat’s marginal utility for the 100^th peanut butter cup was
- positive, but less than one.
- positive, but less than Pat’s marginal utility for the 99^th peanut butter cup.

AACSB: Reflective Thinking

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #29

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

The term marginal utility denotes the amount by which ______ changes when consumption changes by _____ unit(s).

total utility, 1

demand, 5
demand, 1

total utility, 5

AACSB: Reflective Thinking

Blooms: Remember

Difficulty: 1 Easy

Frank – Chapter 05 #30

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

Laura’s total utility from consuming 8, 9, and 10 bonbons is 35, 42, and 45, respectively. Her marginal utility from the 9^th bonbon is
- 42
- 77

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #31

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

Suppose Chris’ marginal utility from the first taco Chris eats is 15 and Chris’ marginal utility from the second taco is 12. One can infer that Chris

has total utility of 2 tacos equal to 27.

should eat only one taco.
has average utility for 2 tacos of 27.
should eat 2 tacos.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #32

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

If marginal utility is positive as consumption increases,
- the consumer will not experience diminishing marginal utility.
- total utility will remain high and constant as consumption increases.

total utility will increase as consumption increases.

the demand curve will have a positive slope.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #33

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

34.

Refer to the figure above. The total utility of consuming 4 pizzas each week is

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #34

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

35.

Refer to the figure above. The marginal utility of the sixth pizza is

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #35

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

36.

Refer to the figure above. The total utility of consuming two pizzas in a single week is

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #36

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

37.

Refer to the figure above. The marginal utility of the 7^th pizza is

-5

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #37

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

38.

Refer to the figure above. Total utility increases with each additional pizza consumed up to the _____

and then declines, but marginal utility _______ with each additional pizza consumed each week.

7^th pizza, increases
6^th pizza, increases
5^th pizza, stays the same
6^th pizza, decreases

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #38

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

Moe’s parents frequently tell him how it was back in their childhoods. They had a smaller house, fewer toys, only one car and one black-and-white TV, but they were happy. In fact, Moe’s parents claim that they were happier than Moe and his friends are today even though Moe and his friends all have much more stuff. Moe concludes that

his parents are irrational, because for rational people total utility increases with consumption.
Moe’s parents are subject to diminishing marginal utility, but Moe and his friends are not.

economic models cannot be applied to two different generations.

the social forces that influence demand have changed since Moe’s parents were young.

AACSB: Analytic

Blooms: Analyze

Difficulty: 3 Hard

Frank – Chapter 05 #39

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

Donald has vast riches and consumes thousands of dollars worth of consumer goods each week, yet he is never satisfied. Why not?

Wants are unlimited, but resources are finite.

Donald fails to choose rationally.

The law of diminishing marginal utility shows that consuming too many material goods leads to lower total utility.
Utility is unrelated to the level of consumption.

AACSB: Reflective Thinking

Blooms: Analyze

Difficulty: 3 Hard

Frank – Chapter 05 #40

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

It is impossible for total utility to be _________ when marginal utility is ___________
- increasing; increasing.
- decreasing; positive.

positive; negative.
increasing; decreasing.

AACSB: Analytic

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #41

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

The first time Michel tasted coffee, he thought it was bitter and bad-tasting. The second time Michel had coffee, he thought that it was barely tolerable. Eventually, Michel started to enjoy coffee, and within a few months he was drinking several cups a day. In fact, if he did not drink several cups a day, he was miserable. This suggests that, for Michel,

demand for coffee has increased.

coffee is a need, not a want.
diminishing marginal utility does not apply to coffee consumption.

economic models cannot be applied to habit-forming substances.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #42

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

43.

Refer to the figure above. The total utility of consuming two dinners out in a week is

less than 100.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #43

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

44.

Refer to the figure above. The marginal utility of the 3^rd dinner is

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #44

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

45.

Refer to the figure above. The marginal utility of the 4^th music CD is

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #45

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

46.

Refer to the figure above. The marginal utility of consuming the 2^nd apple is

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #46

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

47.

Refer to the figure above. According to this data, marginal utility for apple consumption is

first increasing, but decreasing after the fourth apple.

decreasing after the first apple.

constantly increasing.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #47

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

48.

Refer to the figure above. The marginal utility of consuming the 5^th apple is

-5

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #48

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

49.

Refer to the figure above. The total utility ______ as additional apples are consumed, but the marginal utility always _______ with each additional apple consumed.

first decreases then increases, decreases
first increases then decreases, decreases

first decreases then increases, increases
first increases then decreases, increases

AACSB: Analytic

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #49

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

If Terry gets maximum utility from owning 10 pairs of shoes, then Terry’s total utility from owning 7 pairs of shoes is ______ Terry’s total utility from owning 8 pairs.

greater than

equal to

less than

less than or equal to

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #50

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

The tendency for marginal utility to decline as consumption increases beyond some point is called
- the law of demand

the law of diminishing marginal utility

the rational spending rule
utility maximization

AACSB: Reflective Thinking

Blooms: Remember

Difficulty: 1 Easy

Frank – Chapter 05 #51

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

If the marginal utility of the 3^rd cup of coffee is 23 and the marginal utility of the 4^th cup is 15, then

it is optimal for the consumer to have 3 cups of coffee.

the price of a cup of coffee must be relatively low.

it is optimal for the consumer to have 4 cups of coffee.

there is evidence of the law of diminishing marginal utility.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #52

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

According to the law of diminishing marginal utility,
- if you consume less of something, your total utility from that consumption increases.
- if you consume less of something, your marginal utility from that consumption increases.

you should never consume any more of something after marginal utility has begun to diminish.
if total utility is increasing as you consumer more, then marginal utility must be increasing as well.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #53

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

Cory gets 18, 23, and 25 units worth of total utility from consuming 10, 11, and 12 raw oysters, respectively, and the price per oyster is 25 cents. Thus, one can infer that Cory

is not utility maximizing.
is experiencing diminishing marginal utility.

should NOT consume any more oysters.
has consumed too many oysters.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #54

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

55.

Refer to the figure above. As Jeff watches more movies, his marginal utility

gets larger

gets smaller

does not change
gets close to one

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #55

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

56.

Refer to the figure above. As Jeff increases the number of movies he watches in a day, from ______ to

______ his marginal utility decreases, from 15 to 5

1, 5
2, 5

2, 4

1, 4

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #56

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

57.

Refer to the figure above. For Jeff, consumption of movies satisfies

the law of demand

the law of diminishing marginal utility

the law of utility maximization
the law of utility minimization

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #57

Learning Objective: 05-02 Discuss how individual wants are translated into demand.

Topic: Translating Wants into Demand

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3.

Dusty can buy a maximum of _____ loaves of bread or a maximum of _____ jars of peanut butter.

20; 10

15; 15
10; 20

10; 5

AACSB: Analytic

Blooms: Apply Difficulty: 3 Hard Frank – Chapter 05 #58

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3.

If Dusty’s income rises to $45, Dusty can now buy a maximum of _____ loaves of bread or a maximum of _____ jars of peanut butter.

5; 25

10; 40

15; 30

30; 15

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard Frank – Chapter 05 #59 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3.

If Dusty’s income rises to $45, the rational spending rule would predict that Dusty will buy

more bread and less peanut butter.
more bread and more peanut butter.

less bread and more peanut butter.
more bread and the same amount of peanut butter.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #60 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3.

If Dusty’s income falls to $20, the rational spending rule would predict that Dusty will buy

more bread and less peanut butter.

less bread and more peanut butter.
less bread and less peanut butter.

more bread and the same amount of peanut butter.

AACSB: Analytic

Blooms: Apply Difficulty: 3 Hard Frank – Chapter 05 #61

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3.

20, 5
5, 20

30, 6

6, 30

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard Frank – Chapter 05 #62 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3.

10, 15

15, 10
20, 15
15, 20

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #63 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound.

Casey can buy a maximum of _____ pounds of fish or a maximum of _____ pounds of shrimp.

30, 50
50, 30

15, 30
30, 15

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #64 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound.

If Casey’s income rises to $210 Casey could buy a maximum of _____ pounds of fish or a maximum of _____ pounds of shrimp.

30, 24
24, 30

70, 42

42, 70

AACSB: Analytic

Blooms: Apply Difficulty: 3 Hard Frank – Chapter 05 #65

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound.

If Casey’s income rises to $210, the rational spending rule would predict Casey would buy

more fish and less shrimp.

more fish and more shrimp.

less fish and more shrimp.
more fish and the same amount of shrimp.

AACSB: Analytic

Blooms: Apply Difficulty: 3 Hard Frank – Chapter 05 #66

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound.

If Casey’s income falls to $120, the rational spending rule would predict Casey would buy

more fish and less shrimp.

more fish and more shrimp.

less fish and more shrimp.
less fish and less shrimp.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #67

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound.

The price of fish decreased to $1.50 a pound and the price of shrimp remains $5 a pound. At Casey’s original income of $150 per week Casey can buy a maximum of _____ pounds fish or a maximum of

_____ pounds shrimp.

10, 30

30, 50

30, 100

100, 30

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #68 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

The ______ combination of goods is the combination of goods that yields the highest total utility given the consumer’s income.

affordable

economical

utility satiating

optimal

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #69 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Evan gets twice as much marginal utility from an additional bottle of water than from an additional bottle of soda. If the price of soda is $1.00 per bottle, then Evan is maximizing utility if the price of a bottle of water is

$1.00

$1.50

$2.00

$.50

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard Frank – Chapter 05 #70 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Jess gets half as much marginal utility from an additional bagel than from an additional muffin. If the price of muffin is $2.00/each, then Jess is maximizing utility if the price of a bagel is

$1.00

$1.50
$2.00

$4.00

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #71

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

At his current consumption level Cameron get 3 times more marginal utility from an additional game of pinball than from an additional game of ping pong. If the price of a ping pong game is $0.50, than he is maximizing utility if the price of a pinball game is

$1.00

$1.50

$2.00
$3.00

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #72 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Angel’s marginal utility for playing pool is 10 after playing 5 games. Angel’s marginal utility for bowling is 6 after 3 games. If both pool and bowling cost $1 a game, to maximize his utility Angel should

bowl more and play pool less

just go home

bowl only
bowl less and play pool more

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #73

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Jamie’s marginal utility for consuming muffins and doughnuts in utils are as follows. Jamie spends $4 for breakfast every morning, the price per muffin is $1.00 and the price per doughnut is $0.50.

If Jamie consumes 3 muffins, what is Jamie’s marginal utility per dollar from muffins?

AACSB: Analytic

Blooms: Apply Difficulty: 3 Hard Frank – Chapter 05 #74

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Jamie’s marginal utility for consuming muffins and doughnuts in utils are as follows. Jamie spends $4 for breakfast every morning, the price per muffin is $1.00 and the price per doughnut is $0.50.

If Jamie consumes 3 muffins, Jamie will consume ____ doughnuts, and have ____ marginal utility per dollar from doughnuts.

2; 20

4; 15

2; 30

4; 10

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #75

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Jamie’s marginal utility for consuming muffins and doughnuts in utils are as follows. Jamie spends $4 for breakfast every morning, the price per muffin is $1.00 and the price per doughnut is $0.50.

What is Jamie’s optimal combination of muffins and doughnuts?

1 muffin, 6 doughnuts

2 muffins, 4 doughnuts

3 muffins, 2 doughnuts
4 muffins, zero doughnuts

AACSB: Analytic

Blooms: Apply Difficulty: 3 Hard Frank – Chapter 05 #76

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Taylor’s marginal utility from watching movies and marginal utility from eating out each month in utils are represented in the following table. Taylor spends exactly $100 every month on these two forms of entertainment, and the price per movie is $10 and price per dinner is $20.

If Taylor watches 2 movies a month, Taylor will eat out _____ times per month, and have marginal utility per dollar of _____ from movies and _______ from eating out.

3; 5; 6
2; 5; 7

4; 5; 5

4; 4; 6

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #77 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Taylor’s marginal utility from watching movies and marginal utility from eating out each month in utils are represented in the following table. Taylor spends exactly $100 every month on these two forms of entertainment, and the price per movie is $10 and price per dinner is $20.

If Taylor eats out 3 times a month, Taylor will watch _____ movies, and have marginal utility per dollar of _____ from eating out and _______ from going to the movies.

4; 6; 2
3; 2; 6

4; 6; 1/2

3; 4; 4

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #78

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Taylor’s marginal utility from watching movies and marginal utility from eating out each month in utils are represented in the following table. Taylor spends exactly $100 every month on these two forms of entertainment, and the price per movie is $10 and price per dinner is $20.

Taylor’s optimal combination of movies and eating out is

3 movies and 3 dinners.

4 movies and 3 dinners.

3 movies and 4 dinners.
2 movies and 4 dinners.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard Frank – Chapter 05 #79 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Purchasing goods such that the ratio of marginal utility to price is equal across all goods results in the

greatest total utility.

lowest expenditure on goods.
greatest marginal utility for the lower.

expenditures for all goods being the same.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #80 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

For the two good case, the rational spending rule requires that
- total expenditures on the two goods be equal.
- total utility from the two good be equal.

average utility from the two goods be equal.

the ratio of marginal utility to price be equal for the two goods.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium Frank – Chapter 05 #81 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

For two goods, A and B, the rational spending rule is expressed as
- MU_A = MU_B.
- MU_A * MU_B = P_A * P_B.
- (MU_A/P_B) = (MU_B/P_A).
- (MU_A/P_A) = (MU_B/P_B).

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #82

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Pat applies the rational spending rule and purchases 5 units of potato chips and 3 units of lemonade Suppose the price of lemonade increases. One can predict that Pat will

cease purchasing lemonade.

reduce purchases of lemonade and increase purchases of potato chips.

continue to make the same purchases.
reduce purchases of potato chips.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #83 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Suppose you want to make rational dining choices at an all-you-can-eat buffet. How do you apply the rational spending rule?

you can’t because the fixed price is a sunk cost that should not be taken into consideration.

B you can’t because once you have paid the sunk cost the price of each serving is zero, and since you

. can’t divide by zero you cannot apply the rational choice formula.

you should continue to eat every item until your marginal utility from consuming each item equals the fixed price of the buffet.

D you should continue to eat until your marginal utility from consuming each item exactly equals zero

. plus your non-monetary costs of staying at the buffet.

AACSB: Analytic

Blooms: Analyze

Difficulty: 3 Hard

Frank – Chapter 05 #84

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Curly loves pizza, and often has supper at an all-you-can eat pizza buffet. Curly eats more pizza there than at the Buy-By-the-Slice pizza stand in the student union because

Curly is irrational and has no will-power.

Curly does not experience diminishing marginal utility for pizza.
Curly is setting his Marginal Utility for pizza per dollar equal at each place.

Curly is setting his Marginal Utility for pizza equal at each place.

AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Frank – Chapter 05 #85

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

According to the rational spending rule, for a rational consumer the relationship between the price of an item and the utility gained by consuming that item is
- the lower the price, the greater the total utility.

the lower the price, the greater the marginal utility.

the lower the price, the lower the marginal utility.

the higher the price, the lower the marginal utility.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #86 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

You are trying to decide how to spend your last lunch dollar. You should use that dollar to buy more of

the item that costs the least.

the item that you have already consumed the most of.

the item that will give you the greatest marginal utility per dollar spent.

the item from which you have gained the greatest total utility already.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #87 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Suppose you want to equalize your marginal utility per dollar across all the goods that you consume. If your marginal utility per dollar is higher for one of those items than for any others, you should

consume less of it to reduce your marginal utility.

consume more of it to reduce your marginal utility.

consume more of the other goods to equalize your marginal utilities per dollar.
consume more of all goods in equal proportions.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #88 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

For two goods, coffee and scones, MU(coffee)/P(coffee) = 4 and MU(scones)/P(scones) = 3. The consumer should

purchase less coffee and more scones.

purchase more coffee and fewer scones.

purchase less coffee and fewer scones.
purchase more coffee and more scones.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #89 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

For two goods, A and B, MUA/PA = 25 and MUB/PB = 25. The consumer should
- leave their choices as they are.

purchase less of A and more of B.
purchase more of A and B.

purchase less of A and B.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #90

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Assume the consumer is correctly applying the rational spending rule for goods jeans and t-shirts. If the price of jeans falls, purchases of jeans and t-shirts rise because
- the marginal utility of jeans increases.

the marginal utility of t-shirts increases.

the marginal utility of jeans decreases.

combinations of jeans and t-shirts that could not be considered before now become available.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #91 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

The rational spending rule is derived from the consumer’s efforts to
- maximize utility.

minimize expenditures.
obtain the lowest possible price.

maximize the number of units purchased.

AACSB: Reflective Thinking

Blooms: Remember

Difficulty: 1 Easy Frank – Chapter 05 #92 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

When the price of a good rises, the ratio of the marginal utility of that good divided by its price

_______ and as a result, consumers purchase _______ of that good.

rises; more
falls; more

rises; less

falls; less

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard Frank – Chapter 05 #93 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

When the price of a good falls, the ratio of the marginal utility of that good divided by its price

_______ and as a result, consumers purchase _______ of that good.

rises; more

falls; more
rises; less

falls; less

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #94 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

95.

Refer to the figure above. The law of diminishing marginal utility

applies to Good A but not Good B.

does not apply to either Good A or Good B.

applies to Good B but not Good A.

applies to both Good A and Good B.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #95 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

96.

Refer to the figure above. If the price of Good A is $1 and the price of Good B is $3, then the rational spending rule predicts _____ units of Good A and ______ units of Good B will be purchased.

4; 3

3; 4
4; 4

3; 3

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard Frank – Chapter 05 #96 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

97.

Refer to the figure above. If the price of Good A is $5 and the price of Good B is $4, then the rational spending rule predicts _____ units of Good A and ______ units of Good B will be purchased.

3; 3
1; 3

4; 2
3; 2

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #97

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

98.

Refer to the figure above. If the price of Good A is $2 and the price of Good B is $6, then the rational spending rule predicts _____ units of Good A and ______ units of Good B will be purchased.

1; 1
2; 1

4; 3

3; 2

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #98 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

99.

Refer to the figure above. The law of diminishing marginal utility

applies to Food but not Rooms.

does not apply to either Food or Rooms.
applies to Rooms but not Food.

applies to both Food and Rooms.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #99

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

100.

Refer to the figure above. If the price of Food is $5 and the price of Rooms is $80, then the rational spending rule predicts _____ units of Food and ______ Rooms will be purchased.

4; 3
3; 4

4; 4

4; 1

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #100 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

101.

Refer to the figure above. If the price of Food is $10 and the price of Rooms is $40, then the rational spending rule predicts _____ units of Food and ______ Rooms will be purchased.

1; 4
3; 2

4; 4
2; 3

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #101 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

If the marginal utility per dollar is not the same for each good, the consumer could _____ her utility by spending ______ on goods for which the marginal utility per dollar is lower.

decrease, less

increase, more

maximize, more
increase, less

AACSB: Analytic

Blooms: Analyze

Difficulty: 3 Hard

Frank – Chapter 05 #102

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Suppose you are a government analyst and you think beans are particularly nourishing. You decide to subsidize beans in order to encourage people to eat more of them. (By subsidizing an item, consumers pay a lower price.) After you successfully lower bean prices, you notice that consumption of beans has fallen. What went wrong?

The substitution effect caused people to substitute ramen noodles and rice for beans.
The income effect caused people’s real income to fall so they could no longer afford as much food.

The income effect caused people’s real income to rise so they purchased less of what they considered to be inferior goods.
Demand for beans is price inelastic.

AACSB: Analytic

Blooms: Evaluate

Difficulty: 3 Hard Frank – Chapter 05 #103 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

If the marginal utility per dollar is not the same for each good, the consumer could _____ her utility by spending ______ on goods for which the marginal utility per dollar is higher.

decrease, more

increase, more

maximize, less
increase, less

AACSB: Analytic

Blooms: Apply Difficulty: 3 Hard Frank – Chapter 05 #104

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

The dollar price of a good relative to the average dollar price of all other goods is the
- market price
- equilibrium price

nominal price

real price

AACSB: Reflective Thinking

Blooms: Remember

Difficulty: 1 Easy Frank – Chapter 05 #105 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

The absolute price of a good in dollar terms is the
- market price

equilibrium price
nominal price

marginal price

AACSB: Reflective Thinking

Blooms: Remember

Difficulty: 1 Easy

Frank – Chapter 05 #106

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

According to the textbook, the homes of the wealthy in Seattle average in excess of 10,000 square feet while the homes of the wealthy in New York City average less than 5,000 square feet. The difference is primarily due to

greater “tastes” for space in Seattle.
a ban on construction of new homes in excess of 5,000 square feet in NYC.

a significantly higher price for land and construction in NYC.

greater “tastes” for crowding in NYC.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium Frank – Chapter 05 #107 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Suppose you are a government analyst, and you want to help homeless families. To do so, you have decided to subsidize rental housing for poor families. (A subsidy is a payment by the government that pays part of the price of a specific product. For example, the government pays part of the rent payment.) If families had been choosing rationally before the subsidy, what is most likely to happen as a result of the subsidy?

The substitution effect will cause people to consume less rental housing as the price of housing falls.

The income effect will cause people to consume less rental housing, but only if rental housing is a normal or luxury good.
People will consume more housing and more of another good, for example, groceries.

Any rational person will respond by consuming more housing, and no more of the other goods he or she consumes.

AACSB: Analytic

Blooms: Analyze

Difficulty: 3 Hard

Frank – Chapter 05 #108 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

The fact that the average price of a gallon of gasoline in England is much higher than the price in the U.S. would lead to which of the following predictions?
- Average miles per gallon for new cars will be lower in England.

English drivers will tend to drive a greater average number of miles.

American drivers will tend to make fewer trips with more stops.

Large cars with poorer gas mileage will be less popular with consumers in England.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #109 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Why do lines tend to be longer at the bank teller in a poorer neighborhood?
- Low-income consumers are not willing to pay for shorter line.

Low-income consumers would pay for shorter lines if the bank owners ask them to.
Poor people have a high opportunity cost for their time.

Poor people don’t have anything better to do.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard Frank – Chapter 05 #110 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Fran runs a doughnut shop in a tiny 3-person town. Fran’s rational consumers have the following demand schedules:

Market demand for doughnuts when the price is 50 cents is

31 doughnuts.

20 doughnuts.
9 doughnuts.

13 doughnuts.

AACSB: Analytic

Blooms: Apply Difficulty: 3 Hard Frank – Chapter 05 #111

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

Fran runs a doughnut shop in a tiny 3-person town. Fran’s rational consumers have the following demand schedules:

From the data you can assume that Betty

thinks that doughnuts are an inferior good.

would get more marginal utility from her first doughnut than anything else that she buys for 50 cents.

would get less marginal utility from her first doughnut than anything else that she buys for 50 cents.
is not a rational consumer.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #112

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

This table shows demand for shoes in a 3 consumer market:

What is the market demand for shoes when the price is $50 per pair?

7 Pairs of shoes.

11 Pairs of shoes.

15 Pairs of shoes.
It will depend on the supply at $50.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard Frank – Chapter 05 #113 Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

This table shows demand for shoes in a 3 consumer market:

At $100 per pair, the market demand

intersects the y-axis.

intersects the x-axis.

is exactly the same as Leigh’s demand.

is less than the quantity supplied.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #114

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

This table shows demand for shoes in a 3 consumer market:

The data suggest that

Leigh has higher income than Pat or Chris.

Leigh does not experience diminishing marginal utility for shoes.
Leigh prefers shoes to other items Leigh buys.

Pat’s demand for shoes is less than Leigh’s.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #115

Learning Objective: 05-03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is related to substitution and income effects.

Topic: The Rational Spending Rule

116.

Refer to the figure above. On the basis of the above graphs, it appears that __________ has the strongest demand for hamburger.

Chris

Laura
Laura and Chris both

neither Laura nor Chris

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #116

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

117.

Refer to the figure above. At a price of $2.00, Laura’s quantity demanded is ______ and Chris’ quantity demanded is _____.

11, 14
9, 16

9, 14

11, 13

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #117

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

118.

Refer to the figure above. The market demand curve indicates that at a price of $2.50, _______ lbs. will be demanded.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #118

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

119.

Refer to the figure above. The market demand curve indicates that 27 lbs of hamburger will be demanded at a price of

$1.00
$1.50

$2.00
$2.50

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #119

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

120.

Refer to the figure above. When the price decreases from $3.00 to $2.50, quantity demanded in the market will ______ by _____ lbs.

decrease, 3
increase, 3
decrease, 4

increase, 4

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #120

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

121.

Refer to the figure above. On the basis of the above graphs, it appears that __________ has the strongest demand for soda.

Rick
Mallory

Mallory and Rick both
neither Mallory nor Rick

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #121

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

122.

Refer to the figure above. At a price of $0.25, Mallory’s quantity demanded is ______ and Rick’s quantity demanded is _____.

50, 40
90, 80

70, 80

70, 60

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #122

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

123.

Refer to the figure above. The market demand curve indicates that at a price of $0.75, _______ cans of soda will be demanded.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #123

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

124.

Refer to the figure above. The market demand curve indicates that 90 cans of soda will be demanded at a price of

$1.50
$1.25

$0.75

$0.50

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #124

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

125.

Refer to the figure above. When the price increases from $0.75 to $1.00, quantity demanded in the market will ______ by _____ cans.

decrease, 20
increase, 20

decrease, 40

increase, 40

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #125

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

126.

Refer to the figure above. At the price of $1.25,

market demand is 40 cans of soda.

market demand is 30 cans of soda.

market demand is 10 cans of soda.

Mallory and Rick exit the market.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #126

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

127.

When all buyers have identical demand curves, we can get the market demand curve by

adding their quantity demanded vertically
multiplying each quantity by the number of consumers

adding all the prices first than adding all the quantity demanded
adding each consumers utility

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #127

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

128.

4, 5
500, 750
1250, 1500

2000, 3750

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #128

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

This graph shows one consumer’s demand for ice cream at the student union:

2,000 scoops of ice cream
2,500 scoops of ice cream

3,000 scoops of ice cream

5,000 scoops of ice cream

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #129

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

This graph shows one consumer’s demand for ice cream at the student union:

During the summer, there are only 300 ice cream consuming students on campus, each with demand as shown above. At $2.00 per scoop, those 300 students purchase ____ scoops of ice cream per week.

1,200
1,500

1,800

3,000

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #130

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

This graph shows one consumer’s demand for ice cream at the student union:

During the semester, the student union charges $3.00 per scoop. If every student who buys ice cream has the demand curve shown, when there are 1,000 students _____ scoops are sold per week.

400
1,000

2,000

4,000

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #131

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

This graph shows one consumer’s demand for ice cream at the student union:

students purchasing ice cream.

800
1,200

1,500
2,000

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #132

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

This graph shows one consumer’s demand for ice cream at the student union:

An increase in the number of students enrolled on this campus will

cause the demand curve shown above to shift to the right.
cause the demand curve shown above to shift to the left.

cause an increase in market demand by increasing the number of individual demand curves.

not affect market demand, but increase quantity demanded by individuals.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #133

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

This graph shows one consumer’s demand for ice cream at the student union:

Fran is one of the students whose demand is shown. When price is $4.00, Fran buys ____ scoops, but when price is $2.00, Fran buys _______ scoops.

1; 3
2; 5

2; 4

2; 6

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #134

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

This graph shows one consumer’s demand for ice cream at the student union:

Joe is one of the students whose demand is shown. Joe buys more ice cream when the price is $2.00 than when the price is $3.00 because

Joe cannot afford $3.00 for a scoop of ice cream.
Joe has more consumer surplus when price is $3.00.

C the marginal utility Joe gets from his fifth scoop of ice cream is less than the marginal utility Joe

. gets from other things that cost $3.00.

D Joe does not experience diminishing marginal utility for ice cream consumption when it is only

. $2.00 per scoop but does when it is $3.00.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #135

Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.

Topic: Individual and Market Demand Curves

This graph shows one consumer’s demand for ice cream at the student union:

According to the demand curve shown above, each individual student has ______ consumer surplus when price is ___________.

less; lower
more; higher

more; lower

the same; higher

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #136

Learning Objective: 05-05 Define and calculate consumer surplus.

Topic: Demand and Consumer Surplus

This graph shows one consumer’s demand for ice cream at the student union:

When price is $2 per scoop, each student’s consumer surplus is determined by

the difference between maximum willingness to pay of $4.50 and $2, or $2.50.
the area of the triangle of dimension ($4.50 – $2.00) high and 6 long = $7.50.

the difference between each student’s maximum price of $4.50 and $2 times the number of scoops, or $2.50 times 6 = $15.
The area of the triangle of dimension $4.50 high and 8 long = $18.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #137

Learning Objective: 05-05 Define and calculate consumer surplus.

Topic: Demand and Consumer Surplus

Consumer surplus measures
- marginal utility.
- total utility.

the cumulative difference between real and nominal prices.

the cumulative difference between price and maximum willingness to pay.

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #138

Learning Objective: 05-05 Define and calculate consumer surplus.

Topic: Demand and Consumer Surplus

Moe’s reservation price for his economics textbook is $100. The week before the semester began, Moe found a copy of the required text online for $75. Moe’s consumer surplus is

$125
$100

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #139

Learning Objective: 05-05 Define and calculate consumer surplus.

Topic: Demand and Consumer Surplus

140.

Refer to the figure above. What is the maximum price that the buyer of the first unit is willing to pay?

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #140

Learning Objective: 05-05 Define and calculate consumer surplus.

Topic: Demand and Consumer Surplus

141.

Refer to the figure above. At a price of $15, what is the consumer surplus for the buyer of the first unit?

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #141

Learning Objective: 05-05 Define and calculate consumer surplus.

Topic: Demand and Consumer Surplus

142.

Refer to the figure above. At a price of $15, what is the consumer surplus each day?

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #142

Learning Objective: 05-05 Define and calculate consumer surplus.

Topic: Demand and Consumer Surplus

143.

At a price of $25, what is the consumer surplus each day?

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #143

Learning Objective: 05-05 Define and calculate consumer surplus.

Topic: Demand and Consumer Surplus

144.

Refer to the figure above. What is the equilibrium quantity of bananas in this market?

3 pounds/day

4 pounds/day
5 pounds/day

AACSB: Reflective Thinking

Blooms: Understand

Difficulty: 2 Medium

Frank – Chapter 05 #144

Learning Objective: 05-05 Define and calculate consumer surplus.

Topic: Demand and Consumer Surplus

145.

Refer to the figure above. What is the equilibrium price of bananas in this market?

$1/pound

$4/pound
$5/pound

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #145

Learning Objective: 05-05 Define and calculate consumer surplus.

Topic: Demand and Consumer Surplus

146.

Refer to the figure above. At the equilibrium price consumer surplus is

$7.50/day

$10/day
$15/day

$40/day

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #146

Learning Objective: 05-05 Define and calculate consumer surplus.

Topic: Demand and Consumer Surplus

147.

Refer to the figure above. In the equilibrium shown, price is ________, quantity is ___________ and consumer surplus is __________.

$6; 40; $100
$6; 40; $120

$4; 40; $80
$4; 40; $120

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #147

Learning Objective: 05-05 Define and calculate consumer surplus.

Topic: Demand and Consumer Surplus

148.

increase; reach a new equilibrium at $8.00.
decrease; reach a new equilibrium at $8.00.

increase; have excess demand for cheese.

decrease; have excess supply of cheese.

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #148

Learning Objective: 05-05 Define and calculate consumer surplus.

Topic: Demand and Consumer Surplus

149.

$80
$120

AACSB: Analytic

Blooms: Apply

Difficulty: 3 Hard

Frank – Chapter 05 #149

Learning Objective: 05-05 Define and calculate consumer surplus.

Topic: Demand and Consumer Surplus

150.

necessarily increase it, because consumers would be able to purchase the same quantity of cheese at a lower price.
necessarily increase it, because consumers would purchase more cheese at a lower price.

increase it due to the reduction in price, but decrease it due to the reduction in quantity.

decrease it due to the reduction in price, but increase it due to the increase in quantity.

AACSB: Analytic

Blooms: Analyze

Difficulty: 3 Hard

Frank – Chapter 05 #150

Learning Objective: 05-05 Define and calculate consumer surplus.

Topic: Demand and Consumer Surplus

5 Summary

Category	# of Questions
AACSB: Analytic	111
AACSB: Reflective Thinking	39
Blooms: Analyze	6
Blooms: Apply	102
Blooms: Evaluate	1
Blooms: Remember	10
Blooms: Understand	31
Difficulty: 1 Easy	10
Difficulty: 2 Medium	31
Difficulty: 3 Hard	109
Frank – Chapter 05	150
Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle (Core Principle 2).	19
Learning Objective: 05-02 Discuss how individual wants are translated into demand.	38
Learning Objective: 05-	58
03 Explain the reasoning behind the rational spending rule and apply it to consumer decision making to show how the rule is relate
d to substitution and income effects.
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.	20
Learning Objective: 05-05 Define and calculate consumer surplus.	15
Topic: Demand and Consumer Surplus	15
Topic: Individual and Market Demand Curves	20
Topic: The Law of Demand	19
Topic: The Rational Spending Rule	58
Topic: Translating Wants into Demand	38

Principles Of Economics 5th Edition By Frank - Test Bank

Description

Additional Information

Reviews

Additional information

Add Review Cancel reply

NEW Pediatric Primary Care 4th Edition by Richardson

Advanced Health Assessment and Diagnostic Reasoning 4th Edition by Rhoads

Women’s Gynecologic Health 3rd Edition By Kerri Durnell Schuiling

Essentials of Psychiatric Nursing 2nd Edition By Boyd Luebbert

Pharmacotherapeutics for Advanced Practice 4th Edition By Virginia

Winningham’s Critical Thinking Cases in Nursing 6th Edition

Quick Links

Contact Information

Principles Of Economics 5th Edition By Frank - Test Bank

Description

Additional Information

Reviews

Additional information

Add Review Cancel reply

Related Products

NEW Pediatric Primary Care 4th Edition by Richardson

Advanced Health Assessment and Diagnostic Reasoning 4th Edition by Rhoads

Women’s Gynecologic Health 3rd Edition By Kerri Durnell Schuiling

Essentials of Psychiatric Nursing 2nd Edition By Boyd Luebbert

Pharmacotherapeutics for Advanced Practice 4th Edition By Virginia

Winningham’s Critical Thinking Cases in Nursing 6th Edition

Quick Links

Contact Information