Principles of Economics Robert Frank 7e - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Principles of Economics, 7e (Frank) Chapter 5 Demand 1) In most markets, scarce goods or services are rationed among competing users using: A) non-monetary prices. B) monetary prices. …
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Principles of Economics Robert Frank 7e – Test Bank
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Sample Questions Are Posted Below
Principles of Economics, 7e (Frank)
Chapter 5 Demand
1) In most markets, scarce goods or services are rationed among competing users using:
Answer: B
Explanation: In most markets, products are rationed among competing users using monetary prices.
Difficulty: 1 Easy
Topic: The Law of Demand
Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
2) In some countries, medical care is provided free-of-charge to citizens and is paid for by the government. In those countries, medical care:
Answer: C
Explanation: Medical care cannot be produced at zero cost, so if no price is charged for medical care, it must be rationed using some non-monetary method. However, in most markets, products are rationed among competing users using monetary prices.
Difficulty: 2 Medium
Topic: The Law of Demand
Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
3) Joe is shopping for a new computer. A computer can be delivered to Joe’s home for $1,200. Alternatively, Joe can pick up the same computer at the warehouse for $1,000. How should Joe buy the computer?
Answer: B
Explanation: Joe should drive to the warehouse if the cost of doing so is less than the added $200 cost of having it delivered.
Difficulty: 3 Hard
Topic: The Law of Demand
Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4) The tendency for consumers to purchase more of a good or service as its price falls is captured by the:
Answer: D
Explanation: The negative relationship between price and quantity demanded is implied by the law of demand.
Difficulty: 1 Easy
Topic: The Law of Demand
Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
5) The law of demand indicates that as the cost of an activity:
Answer: D
Explanation: The law of demand states that people do less of what they want to do as the cost of doing it rises.
Difficulty: 1 Easy
Topic: The Law of Demand
Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
6) According to the law of demand, when the price of shoes ________, people will consume ________ shoes.
Answer: B
Explanation: The law of demand states that people do less of what they want to do as the cost of doing it rises. This implies that there will be a negative relationship between the price of a product and the amount purchased.
Difficulty: 1 Easy
Topic: The Law of Demand
Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
7) As the price of computers falls, the quantity of computers demanded increases. This is an application of:
Answer: C
Explanation: The law of demand states that people do less of what they want to do as the cost of doing it rises. This implies that there will be a negative relationship between the price of a good and the quantity demanded.
Difficulty: 1 Easy
Topic: The Law of Demand
Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
8) After subsistence levels of food, shelter, and clothing have been provided, economists refer to all other goods and services as:
Answer: C
Explanation: Once subsistence levels of consumption have been achieved, economists refer to additional goods and services as “wants” rather than “needs”.
Difficulty: 1 Easy
Topic: The Law of Demand
Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
9) Taking a limousine to a five-star restaurant in New York is a:
Answer: C
Explanation: Since no one has to take a limousine to a five star restaurant in New York to sustain life, such a service is a want for anyone.
Difficulty: 2 Medium
Topic: The Law of Demand
Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
10) Shelter for homeless people is an example of:
Answer: B
Explanation: Since shelter is fundamental to sustaining life, it is considered a need for anyone who lacks it.
Difficulty: 2 Medium
Topic: The Law of Demand
Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
11) Higher education is a ________ and assigned textbooks are ________.
Answer: B
Explanation: Neither higher education nor textbooks are necessary to achieving a bare subsistence level of consumption, so they’re both wants.
Difficulty: 2 Medium
Topic: The Law of Demand
Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
12) Growing rice requires extensive irrigation in California. Economists consider water to be a ________ for rice farmers in California.
Answer: A
Explanation: Since rice farmers could switch to growing other grains if the price of water increased, water is considered a want rather than a need.
Difficulty: 2 Medium
Topic: The Law of Demand
Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
13) According to economists, the satisfaction people get from their consumption activities is called:
Answer: B
Explanation: For economists, utility represents the satisfaction people get from their consumption activities.
Difficulty: 1 Easy
Topic: Translating Wants into Demand
Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
14) The goal of utility maximization is to allocate your ________ in order to maximize your ________.
Answer: B
Explanation: Utility maximization is the process of allocating one’s resources to obtain the greatest possible satisfaction (or, utility).
Difficulty: 1 Easy
Topic: The Law of Demand
Learning Objective: 05-01 Relate the law of demand to the Cost-Benefit Principle.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
15) During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. Your total utility ________ with the first three pies you ate.
Answer: A
Explanation: Since you enjoyed the first three pies, they must have added to your total utility.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
16) During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. After the third pie, your total utility:
Answer: B
Explanation: Since the fourth pie made you ill, it must have reduced your total utility.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
17) During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. You got ________ utility from eating the first pie than from eating the third pie.
Answer: B
Explanation: The information states that you really enjoyed the first two pies, but the third one was only okay, implying that it provided less utility.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
18) During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. You got ________ utility from eating the fourth pie than from eating the second pie.
Answer: A
Explanation: Since the fourth pie made you ill while you really enjoyed the second pie, the fourth pie must have yielded less utility.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
19) Sven likes to water ski, but can only water ski during the one week each year when 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.
Answer: A
Explanation: While the additional utility Sven received from water skiing declined each day, his total utility must have increased otherwise he would not have gone water skiing.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
20) Sven likes to water ski, but can only water ski during the one week each year when 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:
Answer: C
Explanation: The fact that Sven went blueberry picking instead of skiing implies that he must have thought skiing would yield less utility than blueberry picking.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
21) Sven likes to water ski, but can only water ski during the one week each year when 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 marginal utility from his first hour of skiing was ________ his marginal utility from his tenth hour of skiing.
Answer: B
Explanation: The information states that tenth hour of skiing, which occurred during the second day, was fun but not as much fun as the first day, implying that he received more utility from the first hour of skiing than from the tenth.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
22) Sven likes to water ski, but can only water ski during the one week each year when 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:
Answer: A
Explanation: The fact that Sven’s total utility from each extra day’s skiing increased by smaller amounts indicates that he received less additional (or, marginal) utility from extra hours of skiing.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
23) The additional utility gained from consuming an additional unit of a good is called:
Answer: B
Explanation: Marginal utility is the additional utility gained from consuming an additional unit of a good. The word “additional” is synonymous with “marginal.”
Difficulty: 1 Easy
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
24) Pat’s total utility after eating 99 Reese’s Peanut Butter Cups was greater than his total utility after eating 100 Reese’s Peanut Butter Cups. Therefore, Pat’s marginal utility from the 100th peanut butter cup was:
Answer: D
Explanation: Since Pat’s total utility was lower after he ate the 100th Peanut Butter Cup, it must have been true that the marginal utility of the 100th peanut butter cup was negative.
Difficulty: 3 Hard
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
25) The term marginal utility denotes the amount by which ________ changes when consumption changes by ________ unit(s).
Answer: A
Explanation: Marginal utility is the change in total utility gained from consuming an additional unit of a good.
Difficulty: 1 Easy
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
26) As Lynn eats more pizza, we would typically expect her marginal utility from eating pizza to:
Answer: B
Explanation: We generally think most activities satisfy the law of diminishing marginal utility. That is, the additional utility gained from consuming an additional unit of a good tends to diminish as consumption increases.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
27) Laura’s total utility from consuming 8, 9, and 10 bonbons is 35, 42, and 45, respectively. Her marginal utility from the 9th bonbon is ________.
Answer: B
Explanation: Marginal utility is the additional utility gained from consuming an additional unit of a good. Here, total utility increases by 7 units (from 35 to 42) when consumption increases from 8 to 9, so the marginal utility of the 9th bonbon is 7.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
28) When Lorenzo eats 1 slice of pizza for lunch, his total utility is 23, and when he eats 2 slices of pizza for lunch, his total utility is 42. Assuming that Lorenzo’s marginal utility from eating pizza is always positive, we can infer that his total utility from eating 3 slices of pizza at lunch is:
Answer: C
Explanation: According to the law of diminishing marginal utility, the marginal utility of Lorenzo’s third slice of pizza must be less than the marginal utility of his second slice. Since the marginal utility of his 2nd slice of pizza is 19, we know that the marginal utility of his third slice must be less than 19, implying that his total must be greater than 42 but less than 61 (= 42 + 19).
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
29) Suppose Chris’s marginal utility from the first taco he eats is 15, and his marginal utility from the second taco he eats is 12. One can infer that:
Answer: A
Explanation: The total utility from consuming any given number of units of a good can be computed by adding the marginal utilities of all the units consumed.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
30) If marginal utility is positive, then as consumption increases:
Answer: C
Explanation: If marginal utility is positive, then total utility will increase as consumption increases.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
31) Refer to the accompanying figure. The total utility of consuming 4 pizzas a week is:
Answer: D
Explanation: From the graph, we can see that 4 pizzas per week yields a total utility of 90.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
32) Refer to the accompanying figure. The marginal utility of the 6th pizza is:
Answer: C
Explanation: Marginal utility is the additional utility gained from consuming an additional unit of a good. Here, when consumption increases from 5 to 6 pizzas a week (an one-unit increase), total utility increases from 100 to 105. Therefore, marginal utility is 5.
Difficulty: 3 Hard
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
33) Refer to the accompanying figure. The total utility of consuming two pizzas a week is:
Answer: C
Explanation: The graph indicates that consuming two pizzas a week is associated with a total utility of 55.
Difficulty: 3 Hard
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
34) Refer to the accompanying figure. The marginal utility of the 7th pizza is
Answer: D
Explanation: Marginal utility is the change in total utility accompanying an one-unit change in consumption. Here, total utility falls by five (from 105 to 100) as consumption rises from six to seven. Thus, the marginal utility of the 7th pizza is -5.
Difficulty: 3 Hard
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
35) Refer to the accompanying figure. Total utility increases with each additional pizza up to the ________ and then declines, but marginal utility ________ with each additional pizza consumed.
Answer: D
Explanation: The total utility curve is positively sloped up to the sixth pizza, indicating that total utility is increasing, On the other hand, the increases in total utility, or marginal utility, are smaller and smaller as consumption increases; as a result, we see that marginal utility is decreasing.
Difficulty: 3 Hard
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
36) Blair has vast riches and consumes thousands of dollars’ worth of consumer goods each week, yet she is never satisfied. Why not?
Answer: A
Explanation: People’s wants are unlimited, so even for someone with vast riches, their wants can never be satisfied.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
37) It is impossible for total utility to be ________ when marginal utility is ________.
Answer: B
Explanation: If marginal utility is positive that indicates that the last unit of the good consumed added to total utility so total utility must be increasing.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
38) For Michael, the first cup of coffee he drinks every morning is heavenly. The second one is pretty good, but not as good as the first, and if he drinks a third cup he feels jittery and sick. For Michael, the marginal utility from drinking a cup of coffee is clearly:
Answer: A
Explanation: Since the second cup isn’t as good as the first cup, and since the third cup isn’t as good as the second cup, Michael’s marginal utility from coffee must be decreasing.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
39) Refer to the accompanying table. The total utility of consuming two dinners out per week is:
| Number of Dinners
Out Per Week |
Total Utility | Marginal Utility |
| 1 | 100 | |
| 2 | 75 | |
| 3 | 235 | |
| 4 | 250 |
Answer: C
Explanation: The total utility of one dinner is 100, and the marginal utility of the second dinner is 75, so the total utility of two dinners is 175.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
40) Refer to the accompanying table. The marginal utility of the 3rd dinner is:
| Number of Dinners
Out Per Week |
Total Utility | Marginal Utility |
| 1 | 100 | |
| 2 | 75 | |
| 3 | 235 | |
| 4 | 250 |
Answer: A
Explanation: The total utility of two dinners is 175 (100 from the first dinner and 75 from the second dinner) and the total utility of the three dinners is 235, so the marginal utility of the third dinner is 60 (since the third dinner increases total utility from 175 to 235).
Difficulty: 3 Hard
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
41) Refer to the accompanying table. The marginal utility of the 4th dinner out per week is:
| Number of Dinners
Out Per Week |
Total Utility | Marginal Utility |
| 1 | 100 | |
| 2 | 75 | |
| 3 | 235 | |
| 4 | 250 |
Answer: D
Explanation: The 4th dinner out per week increases total utility from 235 to 250, so the marginal utility of the 4th dinner is 15.
Difficulty: 3 Hard
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Reflective Thinking; Knowledge Application
Accessibility: Keyboard Navigation
42) Refer to the accompanying table. The marginal utility of consuming the 2nd apple is:
| Number of Apples | Total
Utility |
| 1 | 20 |
| 2 | 35 |
| 3 | 45 |
| 4 | 50 |
| 5 | 45 |
Answer: C
Explanation: Total utility increases by 15, from 20 to 35, when the 2nd apple is consumed.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
43) Refer to the accompanying table. The marginal utility of consuming apples is:
| Number of Apples | Total
Utility |
| 1 | 20 |
| 2 | 35 |
| 3 | 45 |
| 4 | 50 |
| 5 | 45 |
Answer: C
Explanation: The marginal utility of the 2nd apple is 15, the marginal utility of 3rd apple is 10, the marginal utility of the 4th apple is 5 and the marginal utility of the 5th apple is -5, so marginal utility is decreasing after the first apple.
Difficulty: 3 Hard
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
44) Refer to the accompanying figure. The marginal utility of the 5th apple is:
| Number of Apples | Total
Utility |
| 1 | 20 |
| 2 | 35 |
| 3 | 45 |
| 4 | 50 |
| 5 | 45 |
Answer: A
Explanation: Since total utility decreases from 50 to 45 when the 5th apple is consumed, the marginal utility of the 5th apple is -5.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
45) Refer to the accompanying table. Total utility ________ as additional apples are consumed, but marginal utility ________ with each additional apple consumed.
| Number of Apples | Total
Utility |
| 1 | 20 |
| 2 | 35 |
| 3 | 45 |
| 4 | 50 |
| 5 | 45 |
Answer: B
Explanation: The table indicates that total utility increases up to the 4th apple, but then decreases. Marginal utility, however, is decreasing. To see this, note that the marginal utility of the 2nd apple is 15, the marginal utility of 3rd apple is 10, the marginal utility of the 4th apple is 5 and the marginal utility of the 5th apple is -5.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
46) If Terry’s total utility is maximized when he owns 10 pairs of shoes, then Terry’s total utility from owning 7 pairs of shoes is ________ Terry’s total utility from owning 8 pairs.
Answer: C
Explanation: If his total utility is maximized at 10 pairs of shoes, then each additional pair of shoes must add to his total utility (at least for the first 10 pairs), so the total utility from 7 pairs must be less than the total utility from 8 pairs.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
47) The tendency for marginal utility to decline as consumption increases beyond some point is called:
Answer: B
Explanation: The tendency described in the question describes the law of diminishing marginal utility.
Difficulty: 1 Easy
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
48) If the marginal utility of the 3rd cup of coffee is 23 and the marginal utility of the 4th cup is 15, then:
Answer: D
Explanation: The fact that the marginal utility of the fourth cup is smaller than that of the third cup reflects diminishing marginal utility.
Difficulty: 3 Hard
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
49) Joaquin’s marginal utility from an additional slice of pumpkin pie is 4 utils and his marginal utility from an additional slice of pecan pie is 6 utils. If a slice of pumpkin pie costs $2.50, and a slice of pecan pie costs $3.00, then Joaquin:
Answer: B
Explanation: Since Joaquin’s marginal utility per dollar spent on pumpkin pie is 4/2.5 = 1.6 utils, while his marginal utility per dollar of pecan pie is 6/3 = 2 utils, Joaquin should reallocate his spending towards pecan pie and away from pumpkin pie to maximize his utility.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
50) According to the law of diminishing marginal utility:
Answer: B
Explanation: The laws of diminishing marginal utility indicates that there is a negative relationship between consumption and marginal utility, so that as less of something is consumed, marginal utility increases.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
51) 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:
Answer: B
Explanation: The marginal utility of consuming an additional oyster gets smaller as more oysters are consumed. The marginal utility is 5 for the 11th oyster (total utility goes from 18 to 23) and 2 for the 12th oyster (total utility goes from 23 to 25), which is consistent with the law of diminishing marginal utility.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
52) Alex wants to maximize his utility. At his current level of consumption, Alex’s marginal utility from an additional cup of coffee is 15 utils, and his marginal utility from an additional can of soda is 11 utils. If the price of a cup of coffee is $3 and the price of a can of soda is $2, Alex should:
Answer: A
Explanation: Since Alex’s marginal utility per dollar spent on coffee is 15/3 = 5 utils, while his marginal utility per dollar spent on soda is 11/2 = 5.5 utils, Alex should reallocate his spending away from coffee and towards soda to maximize his utility.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
53) Refer to the accompanying figure. As Jeff watches more movies, his marginal utility:
Answer: B
Explanation: Jeff’s marginal utility curve is negatively sloped, as is consistent with the law of diminishing marginal utility, indicating that his marginal utility declines as he watches more movies per day.
Difficulty: 1 Easy
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
54) Refer to the accompanying figure. When Jeff goes from watching 3 to 4 movies a day, his total utility:
Answer: A
Explanation: Since Jeff’s marginal utility from the 4th movie is positive, Jeff’s total utility will increase when he goes from watching 3 to 4 movies.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
55) Refer to the accompanying figure. For Jeff, the consumption of movies reflects the law of:
Answer: B
Explanation: As Jeff consumes (or, watches) more movies, his marginal utility decreases, consistent with the law of diminishing marginal utility.
Difficulty: 2 Medium
Topic: Translating Wants into Demand
Learning Objective: 05-02 Discuss how individual wants are translated into demand using utility maximization.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
56) 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.
Answer: A
Explanation: If Dusty spent all of his income on bread, he could buy 20 loaves ($30/$1.50 = 20) and if he spent all of his income on peanut butter, he could buy 10 jars ($30/$3 = 10).
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
57) 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.
Answer: D
Explanation: If Dusty spent all of his income on bread, he could buy 30 loaves ($45/$1.50 = 30) and if he spent all of his income on peanut butter, he could buy 15 jars ($45/$3 = 15).
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
58) 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. At the original income of $30, if the price of a loaf of bread decreased to $1 and the price of a jar of peanut butter increased to $5, then Dusty could buy a maximum of ________ loaves of bread or a maximum of ________ jars of peanut butter.
Answer: C
Explanation: If Dusty spent the entire $30 on bread, he could buy 30 loaves ($30/$1 = 30) and if he spent the entire $30 on peanut butter, he could buy 6 jars ($30/$5 = 6).
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
59) 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 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.
Answer: A
Explanation: If Dusty spent the entire $30 on bread, he could buy 10 loaves ($30/$3 = 10) and if he spent the entire $30 on peanut butter, he could buy 15 jars ($30/$2 = 15).
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
60) 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.
Answer: B
Explanation: If Casey spent the entire $150 on fish, he could buy 50 pounds ($150/$3 = 50) and if he spent the entire $150 on shrimp, he could buy 30 pounds ($150/$5 = 30).
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
61) 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, he could buy a maximum of ________ pounds of fish or a maximum of ________ pounds of shrimp.
Answer: C
Explanation: If Casey spent the entire $210 on fish, he could buy 70 pounds ($210/$3 = 70) and if he spent the entire $210 on shrimp, he could buy 42 pounds ($210/$5 = 42).
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
62) 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. Suppose 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 now buy a maximum of ________ pounds fish or a maximum of ________ pounds shrimp.
Answer: D
Explanation: If Casey spent the entire $150 on fish, he could buy 100 pounds ($150/$1.50 = 100) and if he spent the entire $150 on shrimp, he could buy 30 pounds ($150/$5 = 30).
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
63) The ________ combination of goods is the combination that yields the highest total utility given a consumer’s income.
Answer: D
Explanation: The optimal combination of goods is the affordable combination that yields the highest total utility.
Difficulty: 1 Easy
Topic: The Rational Spending Rule
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.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
64) At his current level of consumption, Evan gets twice as much marginal utility from an additional bottle of water as that 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:
Answer: C
Explanation: The rational spending rule maintains that consumers should allocate their spending between two goods such that the marginal utility per dollar spent is the same for both goods (that is, MU/P must be the same for both goods). Here, since the marginal utility from an additional bottle of water is twice as high as that from an additional soda, Evan is maximizing his utility if the price of water is twice the price of soda.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
65) Suppose that Cathy spends all of her income on 20 units of good X and 25 units of good Y. Cathy’s marginal utility from the 20th unit of good X is 9 utils, and her marginal utility from the 25th unit of good Y is 19 utils. If the price of good X is $0.50 per unit and the price of good Y is $1.00 per unit, then to comply with the rational spending rule, Cathy should:
Answer: B
Explanation: Since MUX/PX = 18 and MUY/PY = 19, to comply with the rational spending rule, Cathy should reallocate her spending away from good X and towards good Y.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
66) Suppose that Fiona spends all of her income on 10 units of good X and 14 units of good Y. Fiona’s marginal utility from the 10th unit of good X is 24 utils, and her marginal utility from the 14th unit of good Y is 20 utils. If the price of good X is $8 per unit and the price of good Y is $5 per unit, then to comply with the rational spending rule, Fiona should:
Answer: B
Explanation: Since MUX/PX = 3 and MUY/PY = 4, to comply with the rational spending rule, Fiona should reallocate her spending away from good X and towards good Y.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
67) Suppose that each week Henry buys 12 peaches and 3 apples at his local farmer’s market. Both kinds of fruit cost $1 each. From this we can infer that:
Answer: C
Explanation: According to the rational spending rule, at a consumer’s optimal consumption bundle the ratio of marginal utility to price must be the same for all goods. Thus, if peaches and apples both cost $1 each, then Henry is maximizing his utility if his marginal utility from the 12th peach he buys is equal to his marginal utility from the 3rd apple he buys.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
68) Suppose that Coke and Sprite each sell for $2 a can. Each month Joe buys 6 cans of Sprite and 30 cans of Coke. From this we can infer that:
Answer: D
Explanation: According to the rational spending rule, at a consumer’s optimal consumption bundle the ratio of marginal utility to price must be the same for all goods. Thus, if Sprite and Coke each cost $1 per can, then Joe is maximizing his utility if his marginal utility from the 6th can of Sprite he buys is equal to his marginal utility from the 30th can of Coke he buys.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
69) Suppose a cup of tea costs $0.60 and a scone costs $1.20. If Edith spends all of her income on these two goods, and at her current level of consumption, she receives a marginal utility of 6 utils from the last cup of tea she buys and a marginal utility of 24 utils from the last scone she buys, then Edith should:
Answer: B
Explanation: Since MUT/PT = 10 and MUS/PS = 20, Edith should reallocate her spending away from tea and towards scones.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
70) At her current level of consumption, Jess gets half as much marginal utility from an additional bagel as from an additional muffin. If the price of muffin is $2 each, then Jess is maximizing her utility if the price of a bagel is:
Answer: A
Explanation: The rational spending rule maintains that consumers should allocate their spending between two goods such that the marginal utility per dollar spent is the same for both goods (that is, MU/P must be the same for both goods). Here, since the marginal utility from an additional bagel is half as big as that from a muffin, Jess is maximizing her utility if the price of a bagel is half the price of a muffin.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
71) At his current level of consumption, Cameron gets 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, then he is maximizing utility if the price of a pinball game is:
Answer: B
Explanation: The rational spending rule maintains that consumers should allocate their spending between two goods such that the marginal utility per dollar spent is the same for both goods (that is, MU/P must be the same for both goods). Here, since the marginal utility from an additional game of pinball is three times bigger than the marginal utility from a game of ping pong, Cameron is maximizing his utility of the price of a game of pinball is three times the price of a game of ping pong.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
72) Suppose that at Miles’s current level of consumption, his marginal utility from a pizza is 10 utils, and his marginal utility from a pint of ice cream is 16 utils. If the price of a pizza is $8, and the price of a pint of ice cream is $5, is Miles maximizing his utility?
Answer: C
Explanation: Miles’s marginal utility per dollar spent on pizza (10/8) is less than his marginal utility per dollar spent on ice cream (16/5). Thus, according to the rational spending rule, he should reallocate his spending away from pizza and towards ice cream.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
73) Angela is currently playing five games of pool and bowling three games. At this level of consumption, her marginal utility from a game of pool is 10 and her marginal utility from bowling a game is 6. If both pool and bowling cost $1 a game, Angela should:
Answer: D
Explanation: Angela’s marginal utility per dollar spent on pool (10) is greater than her marginal utility per dollar spent on bowling (6). Thus, according to the rational spending rule, she should reallocate her spending away from bowling and towards pool.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
74) Suppose the price of an apple is $0.75, and the price of a banana is $0.50. If Hugh is maximizing his utility, and his marginal utility from consuming an apple is 24 utils, then his marginal utility from consuming a banana must be:
Answer: B
Explanation: According to the rational spending rule, Hugh should allocate his spending across apples and bananas such that MUA/PA = MUB/PB. This implies that: 24/0.75 = MUB/0.5, so MUB = 0.5 × (24/0.75) = 16.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
75) Jamie’s marginal utility from muffins and from doughnuts (in utils) is shown in the accompanying table. Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of each muffin is $2 and the price of each doughnut is $1.
| Muffins
Per Day |
Marginal Utility
Per Muffin |
Doughnuts
Per Day |
Marginal Utility
Per Doughnut |
| 1 | 40 | 2 | 20 |
| 2 | 30 | 4 | 15 |
| 3 | 20 | 5 | 10 |
If Jamie consumes 3 muffins a day, then what is her marginal utility per dollar spent on the third muffin?
Answer: A
Explanation: As shown in the chart, Jamie’s marginal utility from the third muffin is 20 and the price of each muffin is $2, so her marginal, utility per dollar spent on the third muffin is 10.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
76) Jamie’s marginal utility from muffins and from doughnuts (in utils) is shown in the accompanying table. Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of each muffin is $2 and the price of each doughnut is $1.
| Muffins
Per Day |
Marginal Utility
Per Muffin |
Doughnuts
Per Day |
Marginal Utility
Per Doughnut |
| 1 | 40 | 2 | 20 |
| 2 | 30 | 4 | 15 |
| 3 | 20 | 5 | 10 |
If Jamie consumes 2 doughnuts a day, then what is her marginal utility per dollar spent on the second doughnut?
Answer: C
Explanation: As shown in the chart, Jamie’s marginal utility from the second doughnut is 20 and the price of each doughnut is $1, so her marginal utility per dollar spent on the second doughnut is 20.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
77) Jamie’s marginal utility from muffins and from doughnuts (in utils) is shown in the accompanying table. Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of each muffin is $2 and the price of each doughnut is $1.
| Muffins
Per Day |
Marginal Utility
Per Muffin |
Doughnuts
Per Day |
Marginal Utility
Per Doughnut |
| 1 | 40 | 2 | 20 |
| 2 | 30 | 4 | 15 |
| 3 | 20 | 5 | 10 |
What is Jamie’s optimal combination of muffins and doughnuts each day?
Answer: B
Explanation: When Jamie consumes 2 muffins and 4 doughnuts, she is allocating her spending according to the rational spending rule. That is, her marginal utility from her last dollar spent on muffins (30/$2 = 15) is exactly equal to her marginal utility from her last dollar spent on doughnuts (15/$1 = 15).
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
78) Taylor’s marginal utility from watching movies and from eating out (in utils) is shown in the accompanying table. Taylor spends exactly $100 every month on these two forms of entertainment; the price of each movie is $10 and the price of each dinner is $20.
| Movies
Per Month |
Marginal Utility
Per Movie |
Dinners Out
Per Month |
Marginal Utility
Per Dinner |
| 1 | 60 | 1 | 150 |
| 2 | 50 | 2 | 140 |
| 3 | 20 | 3 | 120 |
| 4 | 5 | 4 | 100 |
If Taylor watches 2 movies a month, Taylor will eat out ________ times per month, and have marginal utility per dollar of ________ from movies and a marginal utility per dollar of ________ from eating out.
Answer: C
Explanation: If Taylor watches 2 movies per month, the cost would be $20 (= 2 × $10), leaving Taylor with $80 to spend on dinners. At a price of $20 each, Taylor can now eat 4 dinners. The marginal utility per dollar for movies is 5 (= 50/$10), and for eating out, it is also 5 (= 100/$20).
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
79) Taylor’s marginal utility from watching movies and from eating out (in utils) is shown in the accompanying table. Taylor spends exactly $100 every month on these two forms of entertainment; the price of each movie is $10 and the price of each dinner is $20.
| Movies
Per Month |
Marginal Utility
Per Movie |
Dinners Out
Per Month |
Marginal Utility
Per Dinner |
| 1 | 60 | 1 | 150 |
| 2 | 50 | 2 | 140 |
| 3 | 20 | 3 | 120 |
| 4 | 5 | 4 | 100 |
If Taylor eats out 3 times a month, Taylor will watch ________ movies, and have marginal utility per dollar of ________ from eating out and a marginal utility per dollar of ________ from going to the movies.
Answer: C
Explanation: If Taylor eats out 3 times per month, the cost would be $60 (= 3 × $20), leaving Taylor with $40 to spend on movies. At a price of $10 each, Taylor can now watch 4 movies. The marginal utility per dollar for eating out is 6 (= 120/$20) and for movies it is 0.5 (= 5/$10).
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
80) Taylor’s marginal utility from watching movies and from eating out (in utils) is shown in the accompanying table. Taylor spends exactly $100 every month on these two forms of entertainment; the price of each movie is $10 and the price of each dinner is $20.
| Movies
Per Month |
Marginal Utility
Per Movie |
Dinners Out
Per Month |
Marginal Utility
Per Dinner |
| 1 | 60 | 1 | 150 |
| 2 | 50 | 2 | 140 |
| 3 | 20 | 3 | 120 |
| 4 | 5 | 4 | 100 |
Taylor’s optimal combination of movies and eating out is:
Answer: D
Explanation: If Taylor consumes 2 movies and 4 dinners, her marginal utility per dollar for each good is the same. Her marginal utility per dollar for movies is 5 (= 50/$10) and for eating out it is also 5 (= 100/$20).
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
81) Let MUc denote the marginal utility that Pablo receives from a cup of coffee, and let Pc denote the price of a cup of coffee. We typically expect that as Pablo buys more coffee:
Answer: B
Explanation: We typically expect goods to satisfy the law of diminishing marginal utility. That is, as our consumption increases, the additional utility gained from consuming an additional unit of a good will fall. Thus, as Pablo’s consumption of coffee increases, we would expect MUc/Pc to fall.
Difficulty: 2 Medium
Topic: The Rational Spending Rule
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.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
82) Purchasing goods such that the ratio of marginal utility to price is equal across all goods results in the:
Answer: A
Explanation: The utility-maximizing consumption bundle must satisfy the rational spending rule. That is, the ratio of marginal utility to price (which is the marginal utility per dollar) should be the same for all goods.
Difficulty: 1 Easy
Topic: The Rational Spending Rule
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.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
83) If a consumer buys two different goods, the rational spending rule requires that the:
Answer: D
Explanation: The rational spending rule maintains that the ratio of marginal utility to price must be the same for both goods.
Difficulty: 1 Easy
Topic: The Rational Spending Rule
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.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
84) For two goods, A and B, the rational spending rule is expressed as:
Answer: D
Explanation: The formula (MUA/PA) = (MUB/PB) indicates that the marginal utility per dollar spent is the same for the two goods, which is what is required for the rational spending rule to be satisfied.
Difficulty: 2 Medium
Topic: The Rational Spending Rule
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.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
85) Suppose Suzanne allocates her spending on apples and bananas according to the rational spending rule. If the price of apples is less than the price of bananas, then at Suzanne’s optimal consumption bundle, her marginal utility from apples will be:
Answer: A
Explanation: According to the rational spending rule, consumers should allocate their spending such that the marginal utility per dollar spent on each item is the same for all items. Therefore, at a consumer’s optimal consumption bundle, the lower the price of an item, the lower must be the consumer’s marginal utility from consuming that item.
Difficulty: 2 Medium
Topic: The Rational Spending Rule
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.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
86) You are trying to decide how to spend your last lunch dollar. You should use that dollar to buy more of the item:
Answer: C
Explanation: Buying the item that provides the highest marginal (or, additional) utility per dollar will add the most to total utility. Note that marginal utility per dollar is not the same as average utility per dollar.
Difficulty: 2 Medium
Topic: The Rational Spending Rule
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.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
87) Suppose you want to maximize your total utility. If your marginal utility per dollar spent is higher for one good than for all others, then you should:
Answer: B
Explanation: If your marginal utility per dollar spent is higher one good than for all others, then you should reallocate your spending towards that good in order to maximize your total utility.
Difficulty: 2 Medium
Topic: The Rational Spending Rule
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.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
88) For two goods, coffee and scones, suppose that MU(coffee)/P(coffee) = 4 and MU(scones)/P(scones) = 3. To maximize your total utility from these two goods, you should purchase:
Answer: B
Explanation: Since the ratio of marginal utility to price (i.e., marginal utility per dollar spent) is higher for coffee than for scones, the consumer should buy more coffee and fewer scones. The utility gained from spending an additional dollar on coffee will exceed the utility lost from spending a dollar less on scones; hence, total utility will rise.
Difficulty: 2 Medium
Topic: The Rational Spending Rule
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.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
89) Suppose that at your current consumption of two goods, A and B, MUA/PA = 25 and MUB/PB = 20. In order to maximize, your utility you should:
Answer: C
Explanation: If the ratio of marginal utility to price is higher for A than for B, then you should reallocate your spending away from B and towards A. The utility gained from spending an additional dollar on A will exceed the utility lost from spending a dollar less on B.
Difficulty: 2 Medium
Topic: The Rational Spending Rule
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.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
90) The rational spending rule is derived from the consumer’s desire to:
Answer: A
Explanation: Utility maximization is the presumed underlying goal of rational consumer behavior.
Difficulty: 1 Easy
Topic: The Rational Spending Rule
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.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
91) When the price of a good rises, marginal utility per dollar spent on that good ________, leading consumers to purchase ________ of that good.
Answer: D
Explanation: If the price of a good rises, then the ratio (MU/P) falls, and since the consumer is receiving less marginal utility per dollar spent on that good, this will induce the consumer to purchase less of it.
Difficulty: 2 Medium
Topic: The Rational Spending Rule
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.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
92) When the price of a good falls, marginal utility per dollar spent on that good ________, prompting consumers to purchase ________ of that good.
Answer: A
Explanation: If the price of a good falls, then the ratio (MU/P) rises, and since the consumer is receiving more marginal utility per dollar spent on the good, this will induce the consumer to buy more of it.
Difficulty: 2 Medium
Topic: The Rational Spending Rule
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.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
93) Refer to the accompanying table. The law of diminishing marginal utility:
| Units | Marginal Utility
of Good A |
Marginal Utility
of Good B |
| 1 | 30 | 40 |
| 2 | 27 | 33 |
| 3 | 15 | 24 |
| 4 | 8 | 14 |
Answer: D
Explanation: As indicated by the numbers in the chart, the marginal utility of each good falls as more of it is consumed, which characterizes the law of diminishing marginal utility.
Difficulty: 2 Medium
Topic: The Rational Spending Rule
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.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
94) Refer to the accompanying table. If the price of Good A is $1 and the price of Good B is $3, then the rational spending rule is satisfied when the consumer purchases ________ units of Good A and ________ units of Good B.
| Units | Marginal Utility
of Good A |
Marginal Utility
of Good B |
| 1 | 30 | 40 |
| 2 | 27 | 33 |
| 3 | 15 | 24 |
| 4 | 8 | 14 |
Answer: A
Explanation: The rational spending rule maintains that a consumer’s total utility is maximized if the ratio of marginal utility to price is the same for all goods the consumer purchases. Here, the rational spending rule is satisfied when the consumer purchases 4 units of Good A and 3 units of Good B because the ratio of marginal utility to price would be 8 for both goods. That is, MUA/PA = 8/1 = 8, and MUB/PB = 24/3 = 8.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
95) Refer to the accompanying table. If the price of Good A is $5 and the price of Good B is $4, then the rational spending rule is satisfied when the consumer purchases ________ units of Good A and ________ units of Good B.
| Units | Marginal Utility
of Good A |
Marginal Utility
of Good B |
| 1 | 30 | 40 |
| 2 | 27 | 33 |
| 3 | 15 | 24 |
| 4 | 8 | 14 |
Answer: B
Explanation: The rational spending rule maintains that a consumer’s total utility is maximized if the ratio of marginal utility to price is the same for all goods the consumer purchases. Here, the rational spending rule is satisfied when the consumer purchases 1 unit of Good A and 3 units of Good B because the ratio of marginal utility to price would be 6 for both goods. That is, MUA/PA = 30/5 = 6, and MUB/PB = 24/4 = 6.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
96) Refer to the accompanying table. If the price of Good A is $2 and the price of Good B is $6, then the rational spending rule is satisfies when the consumer purchases ________ units of Good A and ________ units of Good B.
| Units | Marginal Utility
of Good A |
Marginal Utility
of Good B |
| 1 | 30 | 40 |
| 2 | 27 | 33 |
| 3 | 15 | 24 |
| 4 | 8 | 14 |
Answer: C
Explanation: The rational spending rule maintains that a consumer’s total utility is maximized if the ratio of marginal utility to price is the same for all goods the consumer purchases. Here, the rational spending rule is satisfied when the consumer purchases 4 unit of Good A and 3 units of Good B because the ratio of marginal utility to price would be 4 for both goods. That is, MUA/PA = 8/2 = 4, and MUB/PB = 24/6 = 4.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
97) Refer to the accompanying table. The law of diminishing marginal utility:
| Units | Utils Per Year from T-shirts | Utils Per Year from Sweaters |
| 0 | 0 | 0 |
| 1 | 75 | 400 |
| 2 | 135 | 720 |
| 3 | 180 | 960 |
| 4 | 210 | 1120 |
Answer: D
Explanation: Computing the marginal utility of each good (i.e., the change in total utility accompanying an one unit change in consumption) yields 75, 60, 45, and 30 for each successive t-shirt and 400, 320, 240, and 160 for each successive sweater. The fact that the marginal utility of both goods declines is consistent with the law of diminishing marginal utility.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
98) Refer to the accompanying table. If the price of a t-shirt is $6 and the price of a sweater is $80, then the rational spending rule is satisfied when the consumer purchases ________ t-shirts and ________ sweaters.
| Units | Utils Per Year from T-shirts | Utils Per Year from Sweaters |
| 0 | 0 | 0 |
| 1 | 75 | 400 |
| 2 | 135 | 720 |
| 3 | 180 | 960 |
| 4 | 210 | 1120 |
Answer: D
Explanation: The rational spending rule maintains that a consumer’s total utility is maximized if the ratio of marginal utility to price is the same for all goods the consumer purchases. Here, the rational spending rule is satisfied when the consumer purchases 4 t-shirts and 1 sweater because the ratio of marginal utility to price would be 5 for both goods. That is, MUT/PT = 30/6 = 5, and MUJ/PJ = 400/80 = 5.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
99) Refer to the accompanying table. If the price of a t-shirt is $10 and the price of a sweater is $40, then the rational spending is satisfied when the consumer purchases ________ t-shirts and ________ sweaters.
| Units | Utils Per Year from T-shirts | Utils Per Year from Sweaters |
| 0 | 0 | 0 |
| 1 | 75 | 400 |
| 2 | 135 | 720 |
| 3 | 180 | 960 |
| 4 | 210 | 1120 |
Answer: D
Explanation: The rational spending rule maintains that a consumer’s total utility is maximized if the ratio of marginal utility to price is the same for all goods the consumer purchases. Here, the rational spending rule is satisfied when the consumer purchases 2 t-shirts and 3 sweaters because the ratio of marginal utility to price would be 6 for both good goods. That is, MUT/PT = 60/10 = 6, and MUJ/PJ = 240/40 = 6.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
100) If a consumer reallocates his or her spending away from Good A and towards Good B, then the consumer’s total utility will increase if:
Answer: B
Explanation: If MUA/PA < MUB/PB, then the loss in utility from spending a dollar less on Good A will be more than compensated for by the increase in utility from spending a dollar more on Good B.
Difficulty: 2 Medium
Topic: The Rational Spending Rule
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.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
101) If a consumer reallocates his or her spending away from Good B and towards Good A, then the consumer’s total utility will increase if:
Answer: A
Explanation: If MUA/PA > MUB/PB, then the loss in utility from spending a dollar less on Good B will be more than compensated for by the increase in utility from spending a dollar more on Good A.
Difficulty: 2 Medium
Topic: The Rational Spending Rule
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.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
102) The dollar price of a good relative to the average dollar price of all other goods is the good’s:
Answer: D
Explanation: A good’s real price is the dollar price of the good relative to the average dollar price of all other goods.
Difficulty: 1 Easy
Topic: The Rational Spending Rule
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.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
103) The absolute price of a good in dollar terms is the good’s:
Answer: C
Explanation: A good’s nominal price is the absolute price of the good in dollar terms.
Difficulty: 1 Easy
Topic: The Rational Spending Rule
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.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
104) The fact that the average price of a gallon of gasoline is much higher in England than in the U.S. leads to which of the following predictions?
Answer: D
Explanation: Given that the price of gasoline is higher in England than in the U.S., English drivers will want to purchase less of it than will drivers in the U.S., so large cars with poor gas mileage will be less popular in England than in the U.S.
Difficulty: 2 Medium
Topic: The Rational Spending Rule
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.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
105) Fran runs a doughnut shop in a tiny 3-person town. The accompanying table shows the quantity demand by the three townspeople at various prices.
| Price Per Doughnut | Quantity Demanded
by Al |
Quantity Demanded
by Betty |
Quantity Demanded
by Carol |
| 10 cents | 10 | 4 | 6 |
| 25 cents | 9 | 2 | 5 |
| 35 cents | 7 | 1 | 5 |
| 50 cents | 5 | 0 | 4 |
When the price of a doughnut is 50 cents, what is the market demand for doughnuts?
Answer: C
Explanation: At a price of 50 cents each, Al wants to buy 5, Betty wants to buy none, and Carol wants to buy 4, so the market demand is 9.
Difficulty: 2 Medium
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
106) Fran runs a doughnut shop in a tiny 3-person town. The accompanying table shows the quantity demand by the three townspeople at various prices.
| Price Per Doughnut | Quantity Demanded
by Al |
Quantity Demanded
by Betty |
Quantity Demanded
by Carol |
| 10 cents | 10 | 4 | 6 |
| 25 cents | 9 | 2 | 5 |
| 35 cents | 7 | 1 | 5 |
| 50 cents | 5 | 0 | 4 |
When the price of a doughnut is 25 cents, what is the market demand for doughnuts?
Answer: C
Explanation: At a price of 25 cents each, Al wants to buy 9, Betty wants to buy 2, and Carol wants to buy 5, so the market demand is 16.
Difficulty: 2 Medium
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
107) Suppose the market for shoes consists of three consumers. The accompanying table shows the quantity demanded at various prices for each consumer:
| Price
Per Pair |
Pairs Demanded
by Pat |
Pairs Demanded
by Leigh |
Pairs Demanded
by Chris |
| $100 | 0 | 1 | 0 |
| $75 | 0 | 3 | 1 |
| $50 | 1 | 7 | 3 |
| $30 | 2 | 10 | 5 |
What is the market demand for shoes when the price is $50 a pair?
Answer: B
Explanation: At $50, Pat wants to buy 1 pair, Leigh wants to buy 7 pairs, and Chris wants to buy 3 pairs, so the market demand is 11 pairs.
Difficulty: 2 Medium
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
108) Suppose the market for shoes consists of three consumers. The accompanying table shows the quantity demanded at various prices for each consumer:
| Price
Per Pair |
Pairs Demanded
by Pat |
Pairs Demanded
by Leigh |
Pairs Demanded
by Chris |
| $100 | 0 | 1 | 0 |
| $75 | 0 | 3 | 1 |
| $50 | 1 | 7 | 3 |
| $30 | 2 | 10 | 5 |
At $100 per pair, market demand:
Answer: C
Explanation: At $100 per pair, only Leigh wants to buy shoes, so the market demand is the same as Leigh’s demand.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
109) Suppose the market for shoes consists of three consumers. The accompanying table shows the quantity demanded at various prices for each consumer:
| Price
Per Pair |
Pairs Demanded
by Pat |
Pairs Demanded
by Leigh |
Pairs Demanded
by Chris |
| $100 | 0 | 1 | 0 |
| $75 | 0 | 3 | 1 |
| $50 | 1 | 7 | 3 |
| $30 | 2 | 10 | 5 |
The data suggest that Leigh:
Answer: D
Explanation: At each of the given prices, Leigh wants to buy more pairs of shoes than either Pat or Chris does.
Difficulty: 3 Hard
Topic: The Rational Spending Rule
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.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
110) Refer to the accompanying figure. If Laura and Chris are the only two consumers in this market, then at a price of $2.00 per pound, the market demand for hamburger is:
Answer: C
Explanation: At a price of $2.00 per pound, Laura demands 2 pounds per week and Chris demands 4 pounds per week, so market demand is 6 pounds per week.
Difficulty: 3 Hard
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
111) Refer to the accompanying figure. If Laura and Chris are the only two consumers in this market then at a price of $2.50 per pound, the market demand for hamburger is:
Answer: D
Explanation: At a price of $2.50 per pound, Laura wants to buy 1.5 pounds per week and Chris wants to buy 3 pounds per week, so market demand is 4.5 pounds per week.
Difficulty: 3 Hard
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
112) Refer to the accompanying figure. If Laura and Chris are the only two consumers in this market, then the market demand for hamburger will be 9 pounds per week when the price of hamburger is:
Answer: A
Explanation: At a price of $1.00 per pound, Laura wants to buy 3 pounds per week and Chris wants to buy 6 pounds per week, so market demand is 9 pounds per week.
Difficulty: 3 Hard
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
113) Refer to the accompanying figure. If Laura and Chris are the only two consumers in this market, then when the price of hamburger decreases from $2.50 to $2.00 per pound, the quantity demanded in the market will ________ by ________ pound(s) per week.
Answer: B
Explanation: At a price of $2.50 per pound, the market demand for hamburger is 4.5 pounds per week (1.5 by Laura and 3 by Chris), and at a price of $2.00 per pound, the market demand for hamburger is 6 pounds per week (2 by Laura and 4 by Chris). So, when the price falls from $2.50 to $2.00, market demand increases by 1.5 pounds per week.
Difficulty: 3 Hard
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Apply
AACSB: Analytical Thinking; Knowledge Application
Accessibility: Keyboard Navigation
114) Refer to the accompanying figures. If Mallory and Rick are the only two consumers in this market and the price of soda is $0.25 per can, then what will be the market demand for soda per month?
Answer: D
Explanation: If the price of soda is $0.25 per can, then Mallory will want to buy 70 cans per month and Rick will want to buy 60 cans per month, so market demand will be 130 cans per month.
Difficulty: 3 Hard
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
115) Refer to the accompanying figures. If Mallory and Rick are the only two consumers in this market and the price of soda is $0.75 per can, then what will be the market demand for soda each month?
Answer: B
Explanation: If the price of soda is $0.75 per can, then Mallory will want to buy 30 cans per month and Rick will want to buy 20 cans per month, so market demand will be 50 cans per month.
Difficulty: 3 Hard
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
116) Refer to the accompanying figures. If Mallory and Rick are the only two consumers in this market, then the market demand for soda will be 90 cans per month when the price of a can of soda is ________.
Answer: D
Explanation: If the price of a can of soda is $0.50, then Mallory will want to buy 50 cans per month and Rick will want to buy 40 cans per month, so market demand will be 90 cans per month.
Difficulty: 3 Hard
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
117) Refer to the accompanying figures. If Mallory and Rick are the only two consumers in this market and the price of soda increases from $0.75 to $1.00 per can, the quantity of soda demanded in the market will ________ by ________ cans per month.
Answer: C
Explanation: When the price of soda is $0.75 per can, the quantity of soda demanded in the market is 50 cans per month (30 by Mallory and 20 by Rick), and when the price of soda is $1.00 per can, the quantity of soda demanded in the market is 10 cans per month (10 by Mallory and 0 by Rick). So, when the price of a can of soda increases from $0.75 to $1.00, the market quantity of soda demanded decreases by 40 cans per month.
Difficulty: 3 Hard
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
118) Refer to the accompanying figures. If the price of soda is $1.25 per can, then the quantity of soda demanded in the market each month is:
Answer: D
Explanation: Neither Mallory nor Rick is willing to buy soda at a price of $1.25 per can.
Difficulty: 3 Hard
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
119) Suppose that at a price of 25 cents per orange, 500 consumers each demand 4 oranges, and at a price of 20 cents per orange, 750 consumers each demand 5 oranges. Therefore, the market demand for oranges is ________ at a price of 25 cents per orange and ________ at a price of 20 cents per orange.
Answer: D
Explanation: A price of 25 cents per orange, the quantity of oranges demanded in the market is 2,000 (= 200 × 4), and at a price of 50 cents per orange, the quantity of oranges demanded in the market is 3,750 (= 750 × 5).
Difficulty: 3 Hard
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
120) The accompanying figure shows the annual demand for haircuts for one person in the town of Beaumont. There are a total of 300 residents in Beaumont, each with this same demand curve.
If the residents of Beaumont purchase a total of 1,800 haircuts each year, then the market price for a haircut must be:
Answer: D
Explanation: If there are 300 residents and 1,800 haircuts in Beaumont annually, each individual must purchase 6 haircuts, implying that the price of each haircut is $20.
Difficulty: 2 Medium
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
121) The accompanying figure below shows a single consumer’s demand for ice cream at the student union.
During a regular semester, there are 500 students on campus. Each student’s weekly demand for ice cream is shown above. When the price of ice cream is $2.00 per scoop, those 500 students purchase a total of ________ scoops per week from the student union.
Answer: C
Explanation: At a price of $2.00 per scoop, each of the 500 students wants to buy 6 scoops per week, for a total of 3000 scoops.
Difficulty: 2 Medium
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
122) The accompanying figure shows a a single consumer’s demand for ice cream at the student union.
During the summer, there are 300 students on campus. Each student’s weekly demand for ice cream is shown above. When the price of ice cream is $2.00 per scoop, those 300 students purchase a total of ________ scoops per week from the student union.
Answer: C
Explanation: At a price of $2.00 per scoop, each of the 300 students wants to buy 6 scoops per week, for a total of 1800 scoops.
Difficulty: 2 Medium
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
123) The accompanying figure shows a single consumer’s demand for ice cream at the student union.
If there are 1,000 students on campus during a regular semester, and each student’s weekly demand for ice cream is shown above, then when the student union charges $3.00 per scoop, those 1,000 students purchase a total of ________ scoops per week.
Answer: D
Explanation: At a price of $3.00 per scoop, each of the 1,000 students wants to buy 4 scoops per week, for a total of 4,000 scoops.
Difficulty: 2 Medium
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
124) The accompanying figure shows a single consumer’s demand for ice cream at the student union.
The student union sells a total of 7,200 scoops of ice cream each week at a price of $2.00 per scoop. If every student who buys ice cream has the demand curve shown above, then there must be ________ students purchasing ice cream each week.
Answer: B
Explanation: At a price of $2.00 per scoop, each student wants to buy 6 scoops, so if 7,200 scoops are sold each week, there must be 1,200 students purchasing ice cream each week (= 7,200/6).
Difficulty: 2 Medium
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
125) The accompanying figure shows a single consumer’s demand for ice cream at the student union.
An increase in the number of students on this campus would cause:
Answer: C
Explanation: An increase in the number of buyers increases market demand.
Difficulty: 2 Medium
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
126) The accompanying figure shows a single consumer’s demand for ice cream at the student union.
Fran is one of the students whose demand curve for ice cream is shown above. When price is $4.00, Fran demands ________ scoops a week, and when price is $2.00, Fran demand ________ scoops.
Answer: D
Explanation: The answer can be gleaned from reading the graph.
Difficulty: 2 Medium
Topic: Individual and Market Demand Curves
Learning Objective: 05-04 Discuss the relationship between the individual demand curve and the market demand curve.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
127) Consumer surplus measures:
Answer: D
Explanation: Consumer surplus is defined as the difference between a buyer’s reservation price for a product and the price actually paid.
Difficulty: 1 Easy
Topic: Demand and Consumer Surplus
Learning Objective: 05-05 Define and calculate consumer surplus.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
128) Moe’s reservation price for his economics textbook is $100. The week before the semester begins, Moe finds a copy of his textbook online for $75. Moe’s consumer surplus from buying the textbook online is:
Answer: D
Explanation: Consumer surplus is the difference between a buyer’s reservation price for a product and the price actually paid, which in this case is $25 ($100 – $75).
Difficulty: 2 Medium
Topic: Demand and Consumer Surplus
Learning Objective: 05-05 Define and calculate consumer surplus.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
129) The accompanying figure shows the demand curve for a product that can be sold only in whole-number amounts.
What is the maximum price that any buyer would be willing to pay for the first unit?
Answer: A
Explanation: The graph reveals that maximum price any buyer would be willing to pay for the first unit is $40.
Difficulty: 2 Medium
Topic: Demand and Consumer Surplus
Learning Objective: 05-05 Define and calculate consumer surplus.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
130) The accompanying figure shows the demand curve for a product that can be sold only in whole-number amounts.
At a price of $15 per unit, what would be the total consumer surplus in this market each day?
Answer: D
Explanation: At a price of $15 per unit, a maximum of 6 units would be sold each day. Consumer surplus on the first unit would be $25 (= $40 – $15), on the second unit would $20 (= $35 – $15), on the third unit would be $15 (= $30 – $15), on the fourth unit would be $10 (= $25 – $15), on the fifth unit would be $5 (= $20 – $15) and on the sixth unit would be $0 (= $15 – $15). So, total consumer surplus in the market would be $75 (= $25 + $20 + $15 + $10 + $5 + $0) per day.
Difficulty: 3 Hard
Topic: Demand and Consumer Surplus
Learning Objective: 05-05 Define and calculate consumer surplus.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
131) The accompanying figure shows the demand curve for a product that can be sold only in whole-number amounts.
At a price of $25 per unit, what would be the total consumer surplus in this market each day?
Answer: D
Explanation: At a price of $25 per unit, a maximum of 4 units would be sold each day. Consumer surplus on the first unit would be $15 (= $40 – $25), on the second unit would $10 (= $35 – $25), on the third unit would be $5 (= $30 – $25), and on the fourth unit would be $0 (= $25 – $25). So, total consumer surplus in the market would be $30 (= $15 + $10 + $5 + $0) per day.
Difficulty: 3 Hard
Topic: Demand and Consumer Surplus
Learning Objective: 05-05 Define and calculate consumer surplus.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
132) Refer to the accompanying figure. What is the equilibrium quantity of bananas in this market?
Answer: D
Explanation: At the point at which the supply curve and the demand curve intersect, the quantity demanded and the quantity supplied are both 5 pounds/day, so this is the equilibrium quantity.
Difficulty: 2 Medium
Topic: Demand and Consumer Surplus
Learning Objective: 05-05 Define and calculate consumer surplus.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
133) Refer to the accompanying figure. What is the equilibrium price of bananas in this market?
Answer: D
Explanation: At a price of $5 per pound, the quantity demanded equals the quantity supplied, so this is the equilibrium price.
Difficulty: 2 Medium
Topic: Demand and Consumer Surplus
Learning Objective: 05-05 Define and calculate consumer surplus.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
134) Refer to the accompanying figure. At the equilibrium price, total consumer surplus is:
Answer: A
Explanation: Consumer surplus is the area of the triangle below the demand curve and above the equilibrium price. The area of any triangle is equal to ½(b × h), where b = base and h = height. So here, consumer surplus is equal to ½(5 × 3) = $7.50.
Difficulty: 3 Hard
Topic: Demand and Consumer Surplus
Learning Objective: 05-05 Define and calculate consumer surplus.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
135) Refer to the accompanying figure. What is total consumer surplus at the market equilibrium?
Answer: B
Explanation: Consumer surplus is the area of the triangle below the demand curve and above the equilibrium price. The area of any triangle is equal to ½(b × h), where b = base and h = height. So here, consumer surplus is equal to ½(40 × 4) = $80.
Difficulty: 3 Hard
Topic: Demand and Consumer Surplus
Learning Objective: 05-05 Define and calculate consumer surplus.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
136) Refer to the accompanying figure. Suppose the dairy lobby convinces the government to impose price controls in this market. If the government requires cheese to be sold for a price of $8 per pound, then, relative to before the price controls, total consumer surplus in the market would:
Answer: B
Explanation: Consumer surplus is the area of the triangle below the demand curve and above price. The area of any triangle is equal to ½(b × h), where b = base and h = height. So here, if the government requires cheese to be sold for $8 per pound, consumer surplus would equal ½(20 × 2) = $20. Note that this is less than consumer surplus at the market equilibrium price of $6 per pound.
Difficulty: 3 Hard
Topic: Demand and Consumer Surplus
Learning Objective: 05-05 Define and calculate consumer surplus.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
137) Refer to the accompanying figure. Suppose the dairy lobby convinces the government to impose price controls in this market. If the government requires cheese to be sold for a price of $8 per pound, total consumer surplus in the market would equal:
Answer: A
Explanation: Consumer surplus is the area of the triangle below the demand curve and above price. The area of any triangle is equal to ½(b × h), where b = base and h = height. So here, if the government requires cheese to be sold for $8 per pound, consumer surplus would equal ½(20 × 2) = $20. Note that this is less than consumer surplus at the market equilibrium price of $6 per pound.
Difficulty: 3 Hard
Topic: Demand and Consumer Surplus
Learning Objective: 05-05 Define and calculate consumer surplus.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
138) Refer to the accompanying figure. Suppose a consumer protection group convinces the government to impose price controls in this market. If the government requires cheese to be sold for less than the equilibrium price, then, relative to before the price controls, total consumer surplus in the market:
Answer: C
Explanation: If a price control were set below the equilibrium price, then this would lower the price that consumers paid for each pound of cheese, but, at a lower price, fewer pounds of cheese would be sold due to the reduction in quantity supplied. Thus, consumer surplus could either increase or decrease.
Difficulty: 3 Hard
Topic: Demand and Consumer Surplus
Learning Objective: 05-05 Define and calculate consumer surplus.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
139) Refer to the accompanying figure. At the equilibrium price, total consumer surplus in this market is:
Answer: C
Explanation: Consumer surplus is the area of the triangle below the demand curve and above the equilibrium price. The area of any triangle is equal to ½(b × h), where b = base and h = height. So here, consumer surplus is equal to ½(4000 × 6) = $12,000.
Difficulty: 3 Hard
Topic: Demand and Consumer Surplus
Learning Objective: 05-05 Define and calculate consumer surplus.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
140) Refer to the accompanying figure.
Suppose Zeynep’s budget constraint is initially given by BC1. If her budget constraint shifts to BC2, this could be the result of:
Answer: B
Explanation: Zeynep’s maximum number of ham sandwiches and cheese sandwiches have both increased, but her ability to buy cheese sandwiches has increased by a greater amount. The only available answer that can explain this is that her income has increased and the price of cheese sandwiches has decreased.
Difficulty: 3 Hard
Topic: The Budget Constraint
Learning Objective: 05A-01
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
141) Refer to the accompanying figure.
If Zeynep’s current budget constraint is BC2, and her budget for ham sandwiches and cheese sandwiches is $120, then the price of a cheese sandwich is:
Answer: B
Explanation: If Zeynep allocates all of her budget of $120 towards cheese sandwiches, she can buy 20 cheese sandwiches, so each cheese sandwich then must cost $120/20 = $6.
Difficulty: 2 Medium
Topic: The Budget Constraint
Learning Objective: 05A-01
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
142) At her current level of consumption, Wiebke’s marginal utility from an additional pencil is 15 utils, and her marginal utility from an additional pen is 10 utils. This implies that Wiebke would be willing to give up at most ________ pencils for an additional pen.
Answer: A
Explanation: At her current level of consumption, Weibke receives 10 additional utils for each additional pen and 15 additional utils for each additional pencil. This means that she would be willing to give up 10/15 = 2/3 = 0.66 pencils for one pen.
Difficulty: 2 Medium
Topic: Consumer Preferences
Learning Objective: 05A-02
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
143) Refer to the accompanying figure.
Suppose that James’ initial budget constraint shifts from BC1 to BC2, and as a result, his best affordable bundle moves from point A to point B. According to this figure:
Answer: C
Difficulty: 3 Hard
Topic: The Best Affordable Bundle
Learning Objective: 05A-03
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
144) Refer to the accompanying figure.
From the figure, we can infer that James’ marginal rate of substitution is:
Answer: C
Explanation: The slope of BC1 is greater than the slope of BC2, so the marginal rate of substitution at point A must be greater than the marginal rate of substitution at point B.
Difficulty: 3 Hard
Topic: The Best Affordable Bundle
Learning Objective: 05A-03
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
