The Exploration of Macroeconomics International Edition 6th Edition - Test Bank

The Exploration of Macroeconomics International Edition 6th Edition – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

Chapter 10—Consumer Choice Theory

 

TRUE/FALSE

 

1. The law of diminishing marginal utility is consistent with the consumer behavior that produces a negatively sloped demand curve.

 

ANS:  T                    PTS:   1                    REF:   p. 265-266

TOP:   10.2 The Consumer’s Choice | The Law of Demand and the Law of Diminishing Marginal Utility

 

2. When marginal utility begins to diminish, total utility always diminishes.

 

ANS:  F                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

3. At consumer equilibrium income is allocated to purchases so that the ratio of marginal utility to price is equal for different goods.

 

ANS:  T                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

4. If a consumer is maximizing utility, he will purchase quantities of output to the point where the price of the last unit purchased is equal across all goods.

 

ANS:  F                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

5. An individual’s level of utility is based on fulfillment of needs as opposed to wants.

 

ANS:  F                    PTS:   1                    REF:   p. 259

TOP:   10.1 Consumer Behavior | Utility Is a Personal Matter

 

6. At consumer equilibrium, the level of marginal utility per dollar spent is the same for all consumers.

 

ANS:  F                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

7. As long as a person had to pay a positive price for a good, he would never consume to the point where his total utility was falling with additional consumption.

 

ANS:  T                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

8. If a consumer is maximizing utility, she will purchase quantities of output to the point where the total utility per dollar spent on consumption is equal across all goods.

 

ANS:  F                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

9. If total utility from consuming five cups of cocoa is 10, 22, 32, 41, and 49 utils, respectively, the marginal utility of the fourth cup of coffee is 9.

 

ANS:  T                    PTS:   1                    REF:   p. 259-260

TOP:   10.1 Consumer Behavior | Total Utility and Marginal Utility

 

10. The total utility from consuming five muffins is 14, 24, 35, 43, and 50 utils, respectively. Marginal utility begins to diminish after consuming the first muffin.

 

ANS:  T                    PTS:   1                    REF:   p. 259-260

TOP:   10.1 Consumer Behavior | Total Utility and Marginal Utility

 

11. When a person’s income doubles, her consumption of each good will double in order for her to stay in consumer equilibrium.

 

ANS:  F                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

12. Marginal utility must be positive.

 

ANS:  F                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

13. The law of diminishing marginal utility is the reason for upward sloping supply curves.

 

ANS:  F                    PTS:   1                    REF:   p. 265-266

TOP:   10.2 The Consumer’s Choice | The Law of Demand and the Law of Diminishing Marginal Utility

 

14. If a university cafeteria changes from selling each food item separately to offering all-you-can-eat meals for one low price, one would expect that the marginal utility of the last food item consumed in the cafeteria by the typical student would decrease since more food is now likely to be consumed by students who eat a meal in the cafeteria.

 

ANS:  T                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

15. Utility theory is an efficient tool in making interpersonal utility comparisons.

 

ANS:  F                    PTS:   1                    REF:   p. 259

TOP:   10.1 Consumer Behavior | Utility Is a Personal Matter

 

16. Traditional economists base their models of human behavior on simplifying assumptions regarding rationality and decision making.

 

ANS:  T                    PTS:   1                    REF:   p. 267-269

TOP:   10.2 The Consumer’s Choice | In the News: Behavioral Economics

 

 

17. Behavioral economists use findings from psychology to explain complex consumer behavior that cannot always be explained by traditional economic models.

 

ANS:  T                    PTS:   1                    REF:   p. 267-269

TOP:   10.2 The Consumer’s Choice | In the News: Behavioral Economics

 

18. If a coin toss comes up heads five times in a row, on the sixth flip the odds are better that this coin will come up tails.

 

ANS:  F                    PTS:   1                    REF:   p. 267-269

TOP:   10.2 The Consumer’s Choice | In the News: Behavioral Economics

 

19. If housing prices have increased for the past 20 years, it is almost certain that prices will increase the following year.

 

ANS:  F                    PTS:   1                    REF:   p. 267-269

TOP:   10.2 The Consumer’s Choice | In the News: Behavioral Economics

 

20. The income effect occurs when an individual switches to another similar good when the price of the preferred good increases.

 

ANS:  F                    PTS:   1                    REF:   p. 281-283

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Income and Substitution Effects of a Price Change

 

21. In consumer equilibrium, one dollar’s worth of additional gasoline will yield the same marginal utility as one dollar’s worth of additional cheese.

 

ANS:  T                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

22. Higher indifference curves represent lesser satisfaction.

 

ANS:  F                    PTS:   1                    REF:   p. 275-277

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Properties of the Indifference Curve

 

23. If two commodities are perfect complements, the indifference curve is a straight line.

 

ANS:  F                    PTS:   1                    REF:   p. 275-277

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Properties of the Indifference Curve

 

24. Any combination of goods beyond the budget line is not feasible.

 

ANS:  T                    PTS:   1                    REF:   p. 277-278

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Budget Line

 

 

25. To maximize satisfaction, the consumer must reach the lowest indifference curve that can be reached with a given level of income.

 

ANS:  F                    PTS:   1                    REF:   p. 278-279

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Consumer Optimization

 

26. The budget line is downward sloping, reflecting the fact that you must give up some of one good to get more of the other.

 

ANS:  T                    PTS:   1                    REF:   p. 277-278

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Budget Line

 

MULTIPLE CHOICE

 

1. A consumer’s switch to another similar good when the price of the preferred good increases is termed the:

a.	income effect.
b.	substitution effect.
c.	utility effect.
d.	marginal effect.

 

 

ANS:  B                    PTS:   1                    REF:   p. 281-283

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Income and Substitution Effects of a Price Change

 

2. Reduction in quantity demanded of a good when its price increases because of a consumer’s decreased purchasing power is termed as:

a.	income effect.
b.	substitution effect.
c.	utility effect.
d.	marginal effect.

 

 

ANS:  A                    PTS:   1                    REF:   p. 281-283

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Income and Substitution Effects of a Price Change

 

3. If Tom purchases and consumes an entire Pizza, which of the following is likely to be true?

a.	The total utility of the first two pieces will be positive and the marginal utility of the second piece will be negative.
b.	The marginal utility of the second piece will be positive and the total utility of the first two pieces will be negative.
c.	The total utility of the first two pieces will be positive and the marginal utility of the second piece will be less than the marginal utility of the first piece.
d.	The marginal utility of the second piece will be positive and the total utility of the first two pieces will be less than the marginal utility of the first piece.

 

 

ANS:  C                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

 

4. One of the ugly stepsisters argues that she, rather than Cinderella, should go to the ball because she will derive more utility from it than Cinderella. An economist would:

a.	agree, since the ugly stepsister’s reasoning is sound.
b.	want to know how much utility each will receive from attending the ball in order to determine which woman should attend.
c.	point out that making interpersonal utility comparisons is not possible.
d.	ask how many balls each woman has attended in order to calculate the marginal utility that each would derive from attending, and then decide who should go to the ball.

 

 

ANS:  C                    PTS:   1                    REF:   p. 259

TOP:   10.1 Consumer Behavior | Utility Is a Personal Matter

 

5. The law of diminishing marginal utility states that:

a.	total utility decreases as consumption of a good increases.
b.	total utility increases as consumption of a good increases.
c.	the increase in total utility from consuming an additional unit decreases as consumption increases.
d.	the increase in total utility from consuming an additional unit increases as consumption increases.

 

 

ANS:  C                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

6. Marginal utility:

a.	generally increases as more of a good is acquired.
b.	generally remains constant as more of a good is acquired.
c.	generally decreases as more of a good is acquired.
d.	begins to fall when total utility reaches its highest point.

 

 

ANS:  C                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

7. As an individual consumes more of a given good or service, the marginal utility of that good to the consumer likely:

a.	increases.
b.	remains constant.
c.	falls.
d.	falls and then rises.

 

 

ANS:  C                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

8. The amount of added utility that an individual derives from consuming one more unit of a good or service is called:

a.	total utility.
b.	marginal utility.
c.	average utility.
d.	diminishing utility.

 

 

ANS:  B                    PTS:   1                    REF:   p. 259-260

TOP:   10.1 Consumer Behavior | Total Utility and Marginal Utility

 

9. Total utility:

a.	generally diminishes as consumption of a good increases.
b.	always increases as consumption increases.
c.	increases only as long as marginal utility increases.
d.	increases as long as marginal utility is positive.

 

 

ANS:  D                    PTS:   1                    REF:   p. 259-260

TOP:   10.1 Consumer Behavior | Total Utility and Marginal Utility

 

10. The total utility from consuming five cups of coffee is 15, 27, 37, 46, and 54 utils, respectively. The marginal utility of the fourth cup of coffee is:

a.	48.
b.	54.
c.	9.
d.	6.

 

 

ANS:  C                    PTS:   1                    REF:   p. 259-260

TOP:   10.1 Consumer Behavior | Total Utility and Marginal Utility

 

11. The total utility from consuming five donuts is 9, 19, 30, 38, and 45 utils, respectively. Marginal utility begins to diminish after consuming the ____ donut.

a.	first
b.	second
c.	third
d.	fourth

 

 

ANS:  C                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

12. For Brent, if the marginal utility of sleeping an extra hour, from 8 a.m. to 9 a.m., is negative:

a.	Brent is better off getting up at 8 a.m. or earlier.
b.	Brent is better off getting up at 9 a.m.
c.	Brent’s total utility from sleeping must be negative.
d.	Brent’s average utility from every hour he sleeps must be negative.

 

 

ANS:  A                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

13. For most goods and most people, marginal utility probably:

a.	continues to increase as larger quantities are purchased.
b.	declines as consumption increases.
c.	plummets after the first few units but soon begins to rise.
d.	is negative after the first unit of a good is purchased.

 

 

ANS:  B                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

14. The law of diminishing marginal utility helps explain:

a.	why most individual demand curves are straight lines.
b.	why most supply curves slope upward.
c.	why most individual demand curves slope downward.
d.	why marginal utility falls when total utility falls.

 

 

ANS:  C                    PTS:   1                    REF:   p. 265-266

TOP:   10.2 The Consumer’s Choice | The Law of Demand and the Law of Diminishing Marginal Utility

 

15. The law of diminishing marginal utility suggests that a demand curve:

a.	shows a direct relationship between price and quantity demanded.
b.	has a slope equal to zero.
c.	has a positive slope.
d.	has a negative slope.

 

 

ANS:  D                    PTS:   1                    REF:   p. 265-266

TOP:   10.2 The Consumer’s Choice | The Law of Demand and the Law of Diminishing Marginal Utility

 

16. Which economist is generally credited with developing utility theory?

a.	Adam Smith
b.	Alfred Marshall
c.	Jeremy Bentham
d.	David Ricardo

 

 

ANS:  C                    PTS:   1                    REF:   p. 259

TOP:   10.1 Consumer Behavior | Utility Is a Personal Matter

 

17. The amount of additional satisfaction derived from an additional unit of a good or service is called:

a.	total utility.
b.	marginal cost.
c.	total cost.
d.	marginal utility.

 

 

ANS:  D                    PTS:   1                    REF:   p. 259-260

TOP:   10.1 Consumer Behavior | Total Utility and Marginal Utility

 

18. When the incremental satisfaction derived from an additional unit of a good or service decreases as more is consumed, it is known as:

a.	consumer equilibrium.
b.	marginal benefit.
c.	diminishing marginal utility.
d.	decreasing opportunity cost.

 

 

ANS:  C                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

19. When a consumer allocates her limited budgetary resources to maximize her well-being, ____ is achieved.

a.	the elimination of scarcity
b.	market equilibrium
c.	consumer equilibrium
d.	the maximization of marginal utility

 

 

ANS:  C                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

 

20. Consumer equilibrium is reached when:

a.	an individual spends her entire income.
b.	there is no way a consumer, given the available income, could increase her satisfaction.
c.	marginal utility begins to diminish.
d.	marginal utility is maximized, subject to the available income.

 

 

ANS:  B                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

21. If the marginal benefit Isaac derives from the consumption of another candy bar is greater than the price of the candy bar, then:

a.	Isaac will not purchase any more candy bars.
b.	Isaac will increase his total satisfaction by purchasing the candy bar.
c.	the opportunity cost of the candy bar is less than the price.
d.	Isaac’s total utility will diminish if he purchases the candy bar.

 

 

ANS:  B                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

22. “I’m tired of eating muffins for breakfast. Today I am trying a bagel.” This statement most clearly reflects the:

a.	ceteris paribus condition.
b.	the law of supply.
c.	law of diminishing marginal utility.
d.	law of comparative advantage.

 

 

ANS:  C                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

23. As an individual increases his consumption of onion rings, it is likely that:

a.	his marginal utility and total utility both increase.
b.	his marginal utility and total utility both decrease.
c.	his marginal utility increases and his total utility decreases.
d.	his marginal utility decreases and his total utility increases.

 

 

ANS:  D                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

24. A university cafeteria changes from offering all-you-can-eat meals for one low price to selling each food item separately. After this change, one would expect that the marginal utility of the last food item consumed in the cafeteria by the typical student would:

a.	decrease since less food is now likely to be consumed by students who eat a meal in the cafeteria.
b.	increase since less food is now likely to be consumed by students who eat a meal in the cafeteria.
c.	not change since the same quantity of food is now likely to be consumed at each meal.
d.	decrease since more food is now likely to be consumed by students who eat a meal in the cafeteria.

 

 

ANS:  B                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

25. Which of the following occurs when a consumer equilibrium has been achieved?

a.	The marginal utility of the last unit purchased is identical for all goods.
b.	The price of the last unit purchased is identical for all goods.
c.	An equal amount of income is spent on all goods purchased.
d.	The ratio of the marginal utility of each good divided by its price is equal across all goods consumed.

 

 

ANS:  D                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

26. When a consumer maximizes utility subject to a limited income, she allocates income across goods to the point that:

a.	the marginal price is the same for all goods.
b.	marginal utility is zero.
c.	marginal utility is negative.
d.	the marginal utility per dollar spent is the same for all goods.

 

 

ANS:  D                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

27. The price of a pound of sirloin steak is five times the price of a pound of ground beef. You are not in consumer equilibrium unless:

a.	you consume five times as much ground beef as you do sirloin steak.
b.	you consume five times as much sirloin steak as you do ground beef.
c.	the total utility you derive from consuming sirloin steak is five times the total utility you derive from consuming ground beef.
d.	your marginal utility from the last pound of sirloin steak consumed is five times that of the last pound of ground beef consumed.

 

 

ANS:  D                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

28. Peanuts are $3 per pound and cashew nuts are $5 per pound. If the marginal utility from consuming the last pound of cashew nuts equals 15 utils, then the marginal utility from consuming the last pound of peanuts in consumer equilibrium should equal:

a.	18 utils.
b.	15 utils.
c.	9 utils.
d.	5 utils.

 

 

ANS:  C                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

29. Popeye receives a marginal utility of 12 utils for the last can of spinach consumed. If the price of a can of spinach is 50 cents per can, then the marginal utility per dollar spent on the last can of spinach is equal to:

a.	6 utils per dollar.
b.	12 utils per dollar.
c.	18 utils per dollar.
d.	24 utils per dollar.

 

 

ANS:  D                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

30. Jason buys only music downloads and food with his weekly income. In response to a decrease in the price of downloads, he buys more downloads and less food. As a result, we would expect:

a.	the marginal utility of downloads to increase and the marginal utility of food to decrease.
b.	the marginal utility of both downloads and food to remain unchanged.
c.	the marginal utility of downloads to decrease and the marginal utility of food to increase.
d.	the marginal utility of food to become negative.

 

 

ANS:  C                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

31. If the total utility for eating up to five $2.00 hamburgers is 40, 60, 70, 75, 70, respectively, which of the following is true?

a.	A rational consumer would choose to eat five hamburgers at the price of $2.00
b.	A rational consumer would choose to eat five hamburgers only if the price was reduced to $1.00.
c.	A rational consumer would choose to eat five hamburgers only if the 5th hamburger as free.
d.	A rational consumer would have to be compensated to eat the 5th hamburger.

 

 

ANS:  D                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

32. Assume that Michaela’s marginal utility from pizza consumption is 10 utils and the price is $2.00 per slice. Further, assume that her marginal utility from scone consumption is 20 utils and the price is $3.00 per scone. Which of the following is true?

a.	With her existing budget she should increase her consumption of pizza.
b.	With her existing budget she should increase her consumption of scones.
c.	She is currently maximizing her utility and should not change the amount of consumption for either good with her current budget.
d.	If her budget increases, she should increase her consumption of pizza but not scones.
e.	If her budget increases, she should increase her consumption of scones but not pizza.

 

 

ANS:  B                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

33. If a consumer is maximizing utility and then the price of Good A increases:

a.	the marginal utility from the consumption of Good A will fall.
b.	the marginal utility from the consumption of Good A will remain unchanged.
c.	the marginal utility per dollar spent on Good A will decrease.
d.	consumption of Good A will increase.

 

 

ANS:  C                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

34. If the marginal utility per dollar spent on Good X exceeds that of Good Y, the utility-maximizing consumer should:

a.	buy less of Good X and more of Good Y.
b.	buy less of Good Y and more of Good X.
c.	buy more of both Good X and Good Y.
d.	buy less of both Good X and Good Y.

 

 

ANS:  B                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

35. The price of a bagel with cream cheese equals $2 and the price of a donut equals 50 cents. The marginal utility to Joaquin of the last bagel consumed equals 16 utils. If Joaquin maximizes his satisfaction by consuming both bagels and donuts, we would expect the marginal utility of the last donut consumed to equal:

a.	20 utils.
b.	12 utils.
c.	8 utils.
d.	4 utils.

 

 

ANS:  D                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

36. Daniel enjoys both soda and pizza, allocating his purchases across these two goods so that his utility is maximized. If Daniel receives one-third as much utility from the last can of soda as from the last slice of pizza, we can say that:

a.	the price of pizza is one-third that of soda.
b.	the price of pizza is equal to that of soda.
c.	the price of pizza is twice that of soda.
d.	the price of pizza is three times that of soda.

 

 

ANS:  D                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

37. Grace maximizes her utility by consuming both gourmet cookies and ice cream. If the price of a dozen cookies is three times that of a pint of ice cream, we would expect that:

a.	the total utility of a dozen cookies is three times that of a pint of ice cream.
b.	the total utility of a dozen cookies is one-third that of a pint of ice cream.
c.	the marginal utility of the last dozen cookies is three times that of the last pint of ice cream.
d.	the marginal utility of the last dozen cookies is one-third times that of the last pint of ice cream.

 

 

ANS:  C                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

38. The price of shrimp is $10.00 per pound and the price of lobster is $15.00 per pound. The marginal utility to Mike of pound of shrimp consumed is 60 utils. If Mike maximizes his satisfaction by consuming both shrimp and lobster, we would expect the marginal utility of the last pound of lobster consumed to equal:

a.	40 utils
b.	60 utils
c.	90 utils
d.	150 utils

 

 

ANS:  C                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

39. Burritos and margaritas are priced at $3 and $5 each, respectively. If the marginal utility of the last burrito is 15 utils, then, in consumer equilibrium, the marginal utility of the last margarita is:

a.	15 utils.
b.	20 utils.
c.	25 utils.
d.	30 utils.

 

 

ANS:  C                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

40. Cheese is priced at $5 per pound and wine at $10 per bottle. A consumer who enjoys both cheese and wine will not be in consumer equilibrium until the marginal utility of a pound of cheese is:

a.	four times that of wine.
b.	one-fourth that of wine.
c.	two times that of wine.
d.	one-half that of wine.

 

 

ANS:  D                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

41. Rebecca consumes both iced tea and coffee. Iced tea is priced at $1.50 per bottle and coffee at $2.00 per 16-ounce cup. Which of the following marginal utility pairs is consistent with Rebecca’s consumer equilibrium at these prices?

a.	MU of iced tea = 1; MU of coffee = 1
b.	MU of iced tea = 1; MU of coffee = 2
c.	MU of iced tea = 2; MU of coffee = 3
d.	MU of iced tea = 3; MU of coffee = 4

 

 

ANS:  D                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

42. Jeremy maximizes utility by consuming both iced tea and coffee. Iced tea is priced at $1.50 per bottle and coffee at $2.00 per 16-ounce cup. Which of the following marginal utility pairs is inconsistent with Jeremy’s consumer equilibrium at these prices?

a.	MU of iced tea = 3; MU of coffee = 4
b.	MU of iced tea = 4; MU of coffee = 3
c.	MU of iced tea = 6; MU of coffee = 8
d.	MU of iced tea = 3/4; MU of coffee = 1

 

 

ANS:  B                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

43. A consumer’s utility is maximized when:

a.	the dollar amount spent on each good is the same.
b.	the marginal utility of each good purchased is the same.
c.	the price of each good is the same.
d.	None of the above are generally true.

 

 

ANS:  D                    PTS:   1                    REF:   p. 264-265

TOP:   10.1 Consumer Behavior | 10.2 The Consumer’s Choice

 

44. Brandon receives a marginal utility of 5, 4, 3, 2, 1, and 0 from eating successive donuts. Successive cups of coffee provide him with 9, 8, 6, 4, 3, and 2 utils of marginal utility. Donuts cost 50 cents each, coffee costs $1 per cup, and Brandon has $3 to spend. Which of the following options will yield Brandon the greatest utility?

a.	six donuts
b.	four donuts and one cup of coffee
c.	two donuts and two cups of coffee
d.	four donuts and one cup of coffee

 

 

ANS:  C                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

45. An individual consumes only hamburgers and milkshakes. The last hamburger consumed yields 25 utils of satisfaction, while the last milkshake consumed yields 10 utils of satisfaction. If the price of a hamburger is $2.50 and the price of a milkshake is $1.50, we can conclude that:

a.	the consumer should consume more hamburgers and fewer milkshakes.
b.	the consumer should consume more milkshakes and fewer hamburgers.
c.	the consumer has achieved consumer equilibrium.
d.	the consumer should buy only milkshakes.

 

 

ANS:  A                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

Exhibit 10-1

 

A consumer is faced with choosing between hamburgers and milkshakes that are priced at $2 and $1, respectively. The marginal utility derived from each of the two goods is as follows:

 

Marginal Utility of Hamburgers in Utils	Quantity of Hamburgers Consumed Each Week
20	1
16	2
14	3
10	4
8	5
Marginal Utility of Milkshakes in Utils	Quantity of Milkshakes Consumed Each Week
12	1
10	2
5	3
4	4
3	5

 

 

46. Refer to Exhibit 10-1. How many hamburgers and milkshakes will be consumed each if the consumer maximizes his utility subject to $11 of income each week?

a.	5 hamburgers and 1 milkshake
b.	1 hamburger and 5 milkshakes
c.	4 hamburgers and 3 milkshakes
d.	3 hamburgers and 4 milkshakes

 

 

ANS:  C                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

47. Refer to Exhibit 10-1. How many hamburgers and milkshakes will be consumed if the consumer maximizes his utility subject to $14 of income each week?

a.	4 hamburgers and 5 milkshakes
b.	5 hamburgers and 4 milkshakes
c.	4 hamburgers and 3 milkshakes
d.	3 hamburgers and 4 milkshakes

 

 

ANS:  B                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

48. Collin consumes both corned beef sandwiches and steak sandwiches. Corned beef is priced at $5.00 per sandwich and steak sandwiches are priced at $8.00. Which of the following marginal utility pairs is consistent with Collin’s consumer equilibrium at these prices?

a.	MU of corned beef sandwich = 1; MU of steak sandwich = 1
b.	MU of corned beef sandwich = 1; MU of steak sandwich = 1.6
c.	MU of corned beef sandwich = 1.6; MU of steak sandwich = 1
d.	MU of corned beef sandwich = 1; MU of steak sandwich = 5

 

 

ANS:  B                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

49. Which of the following is true?

a.	Total utility is the aggregate level of satisfaction that results from consumption of a given number of goods and services.
b.	Marginal utility is the additional satisfaction generated by the last unit of a good that is consumed.
c.	Total utility equals marginal utility of the last unit times the number of units consumed.
d.	Both a. and b. are true.

 

 

ANS:  D                    PTS:   1                    REF:   p. 259-260

TOP:   10.1 Consumer Behavior | Total Utility and Marginal Utility

 

50. Which of the following is false?

a.	We can be sure that people with more income get less marginal utility from their consumption of a good than those with less income.
b.	We can be sure that people with less income get less marginal utility from their consumption of a good than those with more income.
c.	We can be sure that those who receive greater marginal utility from consumption of a particular unit of an item receive greater total utility from consumption of that item.
d.	All of the above are false.

 

 

ANS:  D                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

51. Which of the following is not true about utility?

a.	Utility varies from individual to individual.
b.	Marginal utility tends to decline, the more of a good or service is consumed.
c.	When marginal utility is at its maximum, total utility is zero.
d.	All of the above are true about utility.

 

 

ANS:  D                    PTS:   1                    REF:   p. 259-262

TOP:   10.1 Consumer Behavior | Utility Is a Personal Matter

 

52. The law of diminishing marginal utility means that:

a.	marginal utility is maximized when consumers get the same amount of total utility from every good they consume.
b.	total utility is maximized when consumers get the same amount of marginal utility from the last unit of every good they consume.
c.	beyond some point, added units of a product provide lower and lower amounts of marginal utility.
d.	a consumer would get less utility from the last unit of a good consumed when that good costs $3 than when it costs $1.

 

 

ANS:  C                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

53. Diminishing marginal utility means that:

a.	marginal utility is maximized when consumers get the same amount of total utility from every good they consume.
b.	beyond some point, added units of a product provide lower and lower amounts of marginal utility.
c.	a consumer would get more utility from the last unit of a good consumed when that good costs $3 than when it costs $1.
d.	both (b) and (c) are true.

 

 

ANS:  D                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

54. If the price of good A falls, it will:

a.	increase a consumer’s total utility from the consumption of that good.
b.	increase a consumer’s marginal utility from consuming the last unit of that good.
c.	decrease a consumer’s marginal utility from consuming the last unit of that good.
d.	do both (a) and (c).

 

 

ANS:  D                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

55. Total utility can be determined by:

a.	summing the marginal utilities of each unit of a good consumed.
b.	multiplying the marginal utility of the last unit consumed by the number of units consumed.
c.	multiplying the marginal utility of the first unit consumed by the number of units consumed.
d.	multiplying the price of the good times the number of units consumed.

 

 

ANS:  A                    PTS:   1                    REF:   p. 259-260

TOP:   10.1 Consumer Behavior | Total Utility and Marginal Utility

 

56. Which of the following is true?

a.	A good for which the marginal utility of the last unit of a good consumed is greater will provide more total utility from consumption of the good.
b.	If marginal utility is positive but diminishing, total utility increases with consumption of a good.
c.	If marginal utility is diminishing, total utility must be diminishing.
d.	Total utility is equal to the change in marginal utility from consuming an added unit of a product.

 

 

ANS:  B                    PTS:   1                    REF:   p. 259-260

TOP:   10.1 Consumer Behavior | Total Utility and Marginal Utility

 

57. Diminishing marginal utility is best illustrated by which of the following statements?

a.	A decrease in the price of hot dogs will cause consumers to buy more hot dogs, because the lowered price has increased their effective real income.
b.	A person will receive less satisfaction from consuming four hot dogs than from consuming three hot dogs.
c.	A person will receive less added satisfaction from consuming a fourth hot dog in a week than from consuming the third hot dog in a week.
d.	If the price of hot dogs declines, people’s tastes for hot dogs will increase.

 

 

ANS:  C                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

58. Which of the following violates the law of diminishing marginal utility?

a.	Phil’s marginal utility from drinking another beer remains positive as he drinks more at a party.
b.	Phil’s marginal utility from drinking becomes negative after 6 beers at a party.
c.	Phil’s total utility from drinking 5 beers at a party is greater than his total utility of drinking 3 beers at a party.
d.	The more beer Phil drinks, the more he enjoys the next one.

 

 

ANS:  D                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Diminishing Marginal Utility

 

59. If total utility is increasing as more of a good is consumed:

a.	marginal utility must be decreasing.
b.	marginal utility must be increasing at an increasing rate.
c.	marginal utility is positive.
d.	both (b) and (c) are true.

 

 

ANS:  C                    PTS:   1                    REF:   p. 260-262

TOP:   10.1 Consumer Behavior | Total Utility and Marginal Utility

 

60. Suppose Carrie’s utility function for clams is as follows: If she consumes 1 clam, she gets 10 units of total utility; for 2 clams, she gets 18 units of total utility; for 3 clams, she gets 24 units of total utility; for 4 clams, she gets 28 units of total utility; for 5 clams, she gets 30 units of total utility; and for 6 clams, she gets 26 units of total utility.

a.	Carrie gets 6 units of marginal utility for the 5th clam.
b.	Carrie gets 6 units of marginal utility for the 3rd clam.
c.	Carrie would never choose to consume the 6th clam.
d.	Both b. and c. are true.

 

 

ANS:  D                    PTS:   1                    REF:   p. 259-260

TOP:   10.1 Consumer Behavior | Total Utility and Marginal Utility

 

61. Suppose Carrie’s utility function for clams is as follows: If she consumes 1 clam, she gets 10 units of total utility; for 2 clams, she gets 18 units of total utility; for 3 clams, she gets 24 units of total utility; for 4 clams, she gets 28 units of total utility; for 5 clams, she gets 30 units of total utility; and for 6 clams, she gets 26 units of total utility.

a.	Carrie gets 9 units of marginal utility for the 2nd clam.
b.	Carrie gets 8 units of marginal utility for the 3rd clam.
c.	Carrie gets 7 units of marginal utility for the 4th clam.
d.	None of the above are true.

 

 

ANS:  D                    PTS:   1                    REF:   p. 259-260

TOP:   10.1 Consumer Behavior | Total Utility and Marginal Utility

 

62. Ben consumes soda and cheeseburgers. If his total utility from sodas is currently 40, and his total utility from cheeseburgers is 30, and the price of cheeseburgers is twice the price of sodas,

a.	Ben is in equilibrium.
b.	Ben should increase his soda consumption and decrease his cheeseburger consumption.
c.	Ben should decrease his soda consumption and increase his cheeseburger consumption.
d.	we cannot conclude that any of the above are correct.

 

 

ANS:  D                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

63. Ben consumes soda and cheeseburgers. If his marginal utility from sodas is currently 20, and his marginal utility from cheeseburgers is 10, and the price of cheeseburgers is twice the price of sodas,

a.	Ben is in equilibrium.
b.	Ben should increase his soda consumption and decrease his cheeseburger consumption.
c.	Ben should decrease his soda consumption and increase his cheeseburger consumption.
d.	we cannot conclude that any of the above are correct.

 

 

ANS:  B                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

64. Suppose a consumer buys only food and clothing. If the quantity of food bought decreases while that of clothing remains the same, their marginal utility from food will:

a.	fall relative to the marginal utility of clothing.
b.	rise relative to the marginal utility of clothing.
c.	rise, but not as fast as their marginal utility of clothing rises.
d.	fall, but not as fast as their marginal utility of clothing falls.

 

 

ANS:  B                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

65. Betty spends all her income on wine and brie. Currently she gets 30 utils from the last bottle of wine and 15 utils from the last package of brie. The price of wine is $6 per bottle and the price of brie is $4 per package.

a.	Betty cannot increase her total utility by changing the combination of wine and brie she consumes.
b.	Betty can increase her total utility by buying more wine and less brie.
c.	Betty can increase her total utility by buying more brie and less wine.
d.	Betty could increase her total utility by buying less of both brie and wine.

 

 

ANS:  B                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

66. Stella’s marginal utility of the last unit of X consumed is 18 and her marginal utility of the last unit of Y consumed is 12. What prices for X and Y, respectively, are consistent with Stella being in consumer equilibrium?

a.	$4 and $6
b.	$12 and $18.
c.	$15 and $15.
d.	$12 and $8.

 

 

ANS:  D                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

67. Suppose both goods L and M have a price of $6. To maximize your utility from spending a given amount of income on the two goods you should:

a.	consume more each as long as they provide more than 6 units of marginal utility each.
b.	consume them so that consumption of each good provides the same total utility.
c.	consume them so that consumption of the last unit each good provides the same marginal utility.
d.	all of the above.

 

 

ANS:  C                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

68. In consumer equilibrium, which of the following is true?

a.	The marginal utility from the consumption of each good is the same.
b.	The marginal utility from the consumption of each good is zero.
c.	The marginal utility from the consumption of the last dollar’s worth of each good is the same.
d.	The total utility from the consumption of each good is the same.

 

 

ANS:  C                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

69. In consumer equilibrium, the marginal utility of good A, B and C are 100, 300, and 400 respectively. If the price of good A was $35, then the prices of goods B and C, respectively, are:

a.	$105 and $140.
b.	$140 and $105.
c.	$105 and $175.
d.	$140 and $175.

 

 

ANS:  A                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

70. A decrease in the price of product X will:

a.	increase the marginal utility per dollar spent on X.
b.	decrease the marginal utility per dollar spent on X.
c.	result in an increase in the total utility from consumption of X.
d.	do both (a) and (c).

 

 

ANS:  D                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

71. In consumer equilibrium:

a.	the average utility from each dollar spent is the same.
b.	total utility cannot be increased by reallocating spending among the goods consumed.
c.	total utility obtained from the consumption of each product is at a maximum.
d.	the marginal utility from the last unit of each good consumed is the same.

 

 

ANS:  B                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

72. Phyllis spends her income on beer and pretzels, and a six pack of beer costs the same as a bag of pretzels. If she is in consumer equilibrium, we know:

a.	she buys the same quantities of six packs of beer and bags of pretzels.
b.	she gets the same marginal utility from the last six pack of beer as from the last bag of pretzels.
c.	she gets the same total utility from beer as she does from pretzels.
d.	that all of the above are true.

 

 

ANS:  B                    PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

73. Economic analysis that focuses on bounded rationality and psychological insights is known as:

a.	behavioral economics.
b.	Keynesian economics.
c.	Austrian economics.
d.	supply-side economics.

 

 

ANS:  A                    PTS:   1                    REF:   p. 267-269

TOP:   10.2 The Consumer’s Choice | In the News: Behavioral Economics

 

74. Which of the following individuals was known for as an early contributor to behavioral economics?

a.	Jeremy Bentham
b.	Herbert Simon
c.	Milton Friedman
d.	Ben Bernanke

 

 

ANS:  B                    PTS:   1                    REF:   p. 267-269

TOP:   10.2 The Consumer’s Choice | In the News: Behavioral Economics

 

75. Which of the following is an example of a concept from behavioral economics?

a.	compartmentalizing
b.	the endowment effect
c.	behavior based on perceived fairness
d.	all of the above

 

 

ANS:  D                    PTS:   1                    REF:   p. 267-269

TOP:   10.2 The Consumer’s Choice | In the News: Behavioral Economics

 

76. Which of the following is an example a lack of self-control that contradicts the conclusions of standard economic analysis?

a.	Eating more food at an all-you-can-eat buffet
b.	Playing video games all night even with an exam the following morning that will determine your semester grade
c.	Decreasing the purchase of steak if the price increases 25%
d.	all of the above

 

 

ANS:  B                    PTS:   1                    REF:   p. 267-269

TOP:   10.2 The Consumer’s Choice | In the News: Behavioral Economics

 

77. The term used to describe a more realistic conception of human problem-solving that assumes less than perfect analysis is:

a.	framing.
b.	compartmentalizing.
c.	countercyclical policy.
d.	bounded rationality.

 

 

ANS:  D                    PTS:   1                    REF:   p. 267-269

TOP:   10.2 The Consumer’s Choice | In the News: Behavioral Economics

 

78. Which of the following is an example of the gambler’s fallacy?

a.	If you flip a coin six times and it comes up heads each time, when you flip for the seventh time the odds are better that it will come up tails.
b.	People think that housing prices will continue to rise because they have continually risen over the past 10 years.
c.	If I send my resume to enough employers, the law of averages says that someone will eventually hire me.
d.	all of the above

 

 

ANS:  D                    PTS:   1                    REF:   p. 267-269

TOP:   10.2 The Consumer’s Choice | In the News: Behavioral Economics

 

79. A consumer’s indifference curve shows:

a.	all the commodity bundles a consumer can afford.
b.	only commodity bundles that maximize utility.
c.	the equilibrium commodity bundles.
d.	various combinations of goods that yield the same level of total utility to this consumer.

 

 

ANS:  D                    PTS:   1                    REF:   p. 279

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Indifference Curves

 

80. Indifference curves have which of the following properties?

a.	Higher indifference curves represent greater total satisfaction.
b.	Indifference curves are negatively sloped.
c.	Indifference curves are convex from the origin.
d.	All of the above.

 

 

ANS:  D                    PTS:   1                    REF:   p. 275-277

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Properties of the Indifference Curve

 

81. Indifference curves typically

a.	cross each other.
b.	have a positive slope.
c.	are convex from the origin.
d.	are concave from the origin.

 

 

ANS:  C                    PTS:   1                    REF:   p. 275-277

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Properties of the Indifference Curve

 

82. The marginal rate of substitution is:

a.	the total amount a consumer is willing to trade to get another good.
b.	the rate at which the consumer is willing to trade one good to gain one more unit of another good.
c.	is reflected by the slope of the indifference curve.
d.	characterized by both b. and c.

 

 

ANS:  D                    PTS:   1                    REF:   p. 275-277

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Properties of the Indifference Curve

 

Exhibit 10-2

 

 

83. Refer to Exhibit 10-2. Which indifference curve depicts a perfect complement?

a.	(1)
b.	(2)
c.	(3)
d.	(4)

 

 

ANS:  C                    PTS:   1                    REF:   p. 275-277

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Properties of the Indifference Curve

 

84. Refer to Exhibit 10-2. Which indifference curve depicts a perfect substitute?

a.	(1)
b.	(2)
c.	(3)
d.	(4)

 

 

ANS:  B                    PTS:   1                    REF:   p. 275-277

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Properties of the Indifference Curve

 

85. Refer to Exhibit 10-2. Which indifference curve best reflects a person’s indifference between two $10 bills and a $20 bill?

a.	(1)
b.	(2)
c.	(3)
d.	(4)

 

 

ANS:  B                    PTS:   1                    REF:   p. 275-277

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Properties of the Indifference Curve

 

86. Refer to Exhibit 10-2. Which indifference curve best reflects a person’s indifference between a right shoe and a left shoe?

a.	(1)
b.	(2)
c.	(3)
d.	(4)

 

 

ANS:  C                    PTS:   1                    REF:   p. 275-277

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Properties of the Indifference Curve

 

87. Refer to Exhibit 10-2. Which indifference curve reflects a constant marginal rate of substitution?

a.	(1)
b.	(2)
c.	(3)
d.	(4)

 

 

ANS:  B                    PTS:   1                    REF:   p. 275-277

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Properties of the Indifference Curve

 

88. Refer to Exhibit 10-2. Which indifference curve best reflect the principle of diminishing marginal rate of substitution?

a.	(1)
b.	(2)
c.	(3)
d.	(4)

 

 

ANS:  A                    PTS:   1                    REF:   p. 275-277

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Properties of the Indifference Curve

 

89. The slope of a budget line:

a.	is the negative of the price ratio, -PX/PY
b.	depends on income.
c.	depends on preferences.
d.	is positive.

 

 

ANS:  A                    PTS:   1                    REF:   p. 277-278

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Budget Line

 

90. Budget lines:

a.	are typically positively sloped.
b.	are typically negatively sloped.
c.	often have the same slope as indifference curves.
d.	are generally horizontal.

 

 

ANS:  B                    PTS:   1                    REF:   p. 277-278

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Budget Line

 

91. If both prices increase by 10 percent and money income remains constant, the budget line for both goods in question will:

a.	become steeper
b.	become flatter
c.	will have the same slope
d.	will become vertical.

 

 

ANS:  C                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Changes in the Budget Line

 

Exhibit 10-3

 

 

92. Refer to Exhibit 10-3. Which budget line depicts an increase in the price of X?

a.	(1)
b.	(2)
c.	(3)
d.	(4)

 

 

ANS:  B                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Changes in the Budget Line

 

93. Refer to Exhibit 10-3. Which budget line depicts a decrease in the price of X?

a.	(1)
b.	(2)
c.	(3)
d.	(4)

 

 

ANS:  A                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Changes in the Budget Line

 

94. Refer to Exhibit 10-3. Which budget line depicts an increase in income?

a.	(1)
b.	(2)
c.	(3)
d.	(4)

 

 

ANS:  D                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Changes in the Budget Line

 

95. Refer to Exhibit 10-3. Which budget line depicts a decrease in income?

a.	(1)
b.	(2)
c.	(3)
d.	(4)

 

 

ANS:  C                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Changes in the Budget Line

 

96. Refer to Exhibit 10-3. Which of the following statements is(are) true?

a.	The point of tangency between the budget line and the indifference curve indicates the optimal quantities of each good that will maximize total satisfaction.
b.	At the point of tangency, the slope of the indifference curve will equal the slope of the budget line.
c.	Consumer optimization occurs at the point where the marginal rate of substitution is equal to the relative price of the two goods.
d.	All of the above are true.

 

 

ANS:  D                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Consumer Optimization

 

Exhibit 10-4

 

 

97. Refer to Exhibit 10-4. Which points are attainable?

a.	Point A
b.	Point B
c.	Point C
d.	either point A or B

 

 

ANS:  D                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Consumer Optimization

 

98. Refer to Exhibit 10-4. Which point represents consumer equilibrium?

a.	Point A
b.	Point B
c.	Point C
d.	all of the above points

 

 

ANS:  A                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Consumer Optimization

 

99. Refer to Exhibit 10-4. In the exhibit, Point C is:

a.	attainable.
b.	not attainable but is desirable because it is on a higher indifference curve.
c.	is on a lower indifference curve and is undesirable.
d.	None of the above.

 

 

ANS:  B                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Consumer Optimization

 

100. Refer to Exhibit 10-4. If a consumer were at Point B on the budget line:

a.	with the given level of income, she could make herself better off by consuming less clothing and more food.
b.	with the given level of income, she could make herself better off by consuming more clothing and less food.
c.	is at the consumer optimal position.
d.	All of the above statements are correct.

 

 

ANS:  A                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Consumer Optimization

 

Exhibit 10-5

 

 

101. Refer to Exhibit 10-5. In the exhibit, the line that connects points A and B is called:

a.	the price-consumption curve.
b.	the income-consumption curve.
c.	the Engels curve.
d.	the relative-price effect.

 

 

ANS:  B                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Changes in the Budget Line

 

102. Refer to Exhibit 10-5. The graph on the left implies that:

a.	clothing is a normal good and food is a normal good.
b.	clothing is a normal good and food is an inferior good.
c.	clothing is an inferior good and food is a normal good.
d.	clothing is an inferior good and food is an inferior good.

 

 

ANS:  A                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Changes in the Budget Line

 

103. Refer to Exhibit 10-5. The graph on the right implies that:

a.	clothing is a normal good and low quality meat is a normal good.
b.	clothing is a normal good and low quality meat is an inferior good.
c.	clothing is an inferior good and low quality meat is a normal good.
d.	clothing is an inferior good and low quality meat is an inferior good.

 

 

ANS:  B                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Changes in the Budget Line

 

104. The price-consumption curve:

a.	connects the various combinations of two goods as a consumer’s income changes.
b.	connects the various combinations of two goods as the relative price of one good changes.
c.	shows the quantity of a good consumed as a function on income.
d.	All of the above are correct statements.

 

 

ANS:  B                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Changes in the Budget Line

 

105. A budget line shows:

a.	the combinations of two goods that yield the same level of utility.
b.	the relationship between the price and the quantity supplied of a good or service.
c.	the combinations of two goods that can be purchased at given prices with a given level of income.
d.	the relationship between the price and the quantity demanded of a good or service.

 

 

ANS:  C                    PTS:   1                    REF:   p. 277-278

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Budget Line

 

106. A consumer’s budget line will shift to the right in a parallel manner if:

a.	the price of the good on the X-axis decreases.
b.	the price of the good on the Y-axis increases.
c.	the consumer’s income increases.
d.	the consumer’s income decreases.

 

 

ANS:  C                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Changes in the Budget Line

 

107. A consumer’s budget line will shift to the left in a parallel manner if:

a.	the price of the good on the X-axis increases.
b.	the price of the good on the Y-axis increases.
c.	the consumer’s income increases.
d.	the consumer’s income decreases.

 

 

ANS:  D                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Changes in the Budget Line

 

108. A consumer’s budget line will rotate outward along the horizontal axis if:

a.	the price of the good on the horizontal axis decreases.
b.	the price of the good on the vertical axis increases.
c.	the price of the good on the horizontal axis increases.
d.	the consumer’s income decreases.

 

 

ANS:  A                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Changes in the Budget Line

 

109. A consumer’s budget line will rotate outward along the vertical axis if:

a.	the price of the good on the horizontal axis decreases.
b.	the price of the good on the vertical axis increases.
c.	the price of the good on the horizontal axis increases.
d.	the price of the good on the vertical axis decreases.

 

 

ANS:  D                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Changes in the Budget Line

 

Exhibit 10-6

 

 

110. Refer to Exhibit 10-6. Based on the graph with the budget constraint as indicated, the highest level of utility possible would be:

a.	on I1.
b.	on I2.
c.	on I3.
d.	on any of the curves because they represent equal levels of utility.

 

 

ANS:  B                    PTS:   1                    REF:   p. 278-279

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Consumer Optimization

 

111. Refer to Exhibit 10-6. Based on the graph, how would the budget constraint change if the price of chicken fingers doubled?

a.	The intercept on the vertical axis would move upward and the intercept on the horizontal axis would not change.
b.	The intercept on the vertical axis would move downward and the intercept on the horizontal axis would not change.
c.	The intercept on the horizontal axis would move outward and the intercept on the vertical axis would not change.
d.	The intercept on the horizontal axis would move inward and the intercept on the vertical axis would not change.

 

 

ANS:  B                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Changes in the Budget Line

 

112. Moving down along an indifference curve:

a.	total utility remains constant.
b.	total utility decreases.
c.	total utility increases.
d.	total utility first decreases and then increases.

 

 

ANS:  A                    PTS:   1                    REF:   p. 275

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Indifference Curves

 

113. An increase in total utility would be depicted using indifference curve analysis as:

a.	a movement down along an indifference curve to the southeast.
b.	a movement up along an indifference curve to the northwest.
c.	a movement from one indifference curve to another located to the northeast.
d.	a movement from one indifference curve to another located to the southwest.

 

 

ANS:  C                    PTS:   1                    REF:   p. 275-277

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | The Properties of the Indifference Curve

 

114. Consumer equilibrium occurs at:

a.	the point where the indifference curve crosses the budget line from below.
b.	any point of intersection between an indifference curve and the budget line.
c.	the midpoint of every indifference curve.
d.	the point of tangency between an indifference curve and the budget line.

 

 

ANS:  D                    PTS:   1                    REF:   p. 278-279

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Consumer Optimization

 

115. A consumer equilibrium is depicted using indifference curve analysis as:

a.	the point where two indifference curves cross.
b.	the combination of two goods that minimizes total utility for a given level of income.
c.	the combination of two goods located where the highest attainable indifference curve is just tangent to the budget line.
d.	any combination of two goods where an indifference curve crosses the budget line.

 

 

ANS:  C                    PTS:   1                    REF:   p. 278-279

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Consumer Optimization

 

116. In the diagram, a consumer equilibrium is depicted by:

 

 

a.	Point A.
b.	Point B.
c.	Point C.
d.	Point D.

 

 

ANS:  C                    PTS:   1                    REF:   p. 278-279

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Consumer Optimization

 

117. The line joining the old and new optimum points following a pivotal rotation of the budget line is:

a.	the price-consumption curve.
b.	the income-consumption curve.
c.	the Engels curve.
d.	the hypothetical budget line

 

 

ANS:  A                    PTS:   1                    REF:   p. 279-280

TOP:   APPENDIX A More Advanced Theory of Consumer Choice | Changes in the Budget Line

 

SHORT ANSWER

 

1. Use the law of diminishing marginal utility to explain why a pizza parlor might price pizzas in the following way: “Buy one pizza for $12, get the second pizza for $6.” Why not simply charge $9 per pizza instead?

 

ANS:

The second pizza gives less marginal utility than the first. The pizza parlor is trying to encourage consumers to buy the second pizza by charging a price that reflects its relatively lower marginal utility. If price is set equal to $9 per pizza, some consumers with low marginal valuations for a second pizza might elect not to purchase a second one. If enough customers elect not to purchase a second pizza at a price of $9, the pizza parlor might be worse off than when employing the “buy one for $12, get the second pizza for $6” strategy.

 

PTS:   1                    REF:   p. 265-266

TOP:   10.2 The Consumer’s Choice | The Law of Demand and the Law of Diminishing Marginal Utility

 

2. Use the concept of diminishing marginal utility to explain why we would be more likely to see an all you can eat pizza buffet rather than an all you can carry sunglass “buffet.”

 

ANS:

As more food is consumed at one buffet sitting, the marginal utility declines substantially. At some point additional food could actually feature a negative marginal utility if the individual become sick from eating too much. However, the marginal utility of additional pairs of sunglasses does not decline a significantly and is unlikely to be negative since additional pairs will benefit the individual or could be given as gifts.

 

PTS:   1                    REF:   p. 265-266

TOP:   10.2 The Consumer’s Choice | The Law of Demand and the Law of Diminishing Marginal Utility

 

3. Explain the concept of utility.

 

ANS:

Utility is a measure of the relative levels of satisfaction that consumers get from the consumption of goods and services. The concept is used to more clearly define the relationship between consumer choice and resource allocation.

 

PTS:   1                    REF:   p. 259

TOP:   10.1 Consumer Behavior | Utility Is a Personal Matter

 

4. What do economists mean by “consumer equilibrium?”

 

ANS:

In order to reach consumer equilibrium, consumers must allocate their income in such a way that the marginal utility per dollar for each good is the same for every good. In essence, the value-per-dollar expended is equal for all goods at consumer equilibrium. If this was not so, consumers could make themselves better off by reallocating their expenditures among goods.

 

PTS:   1                    REF:   p. 264-265

TOP:   10.2 The Consumer’s Choice | Consumer Equilibrium

 

5. How does the law of demand reflect the law of diminishing marginal utility?

 

ANS:

The law of demand states that when the price of a good is reduced, the quantity of that good demanded will increase. At lower prices, consumers will buy more because they are getting relatively more satisfaction for each dollar spent on a good.

 

PTS:   1                    REF:   p. 265-266

TOP:   10.2 The Consumer’s Choice | The Law of Demand and the Law of Diminishing Marginal Utility

 

6. A one-day ticket to Sea World costs $37, but a two-day pass costs $42. What is the average cost per day for a one-day pass? For a two-day pass? What is the marginal cost of a second day at Sea World? Why might Sea World charge such a price for a second day’s entrance to the park?

 

ANS:

The one-day pass average cost is $37. The average cost per day of the two-day pass is $21. The marginal cost of the second day is $5. Sea World knows that due to diminishing marginal utility, the value of the first day’s visit is high, but the second day is much lower. So in order to entice people to visit for a second day and increase Sea World revenues, the price reflects the decrease in value to individuals.

 

PTS:   1                    REF:   p. 265-266

TOP:   10.2 The Consumer’s Choice | The Law of Demand and the Law of Diminishing Marginal Utility