Question 1

The consumer will select that point on the budget line which puts him or her on the highest attainable indifference curve.

Accepted Answer

A) True 
 B)False

Question 2

Diminishing marginal utility explains why

Accepted Answer

A)  the income effect exceeds the substitution effect.
B)  the substitution effect exceeds the income effect.
C)  supply curves are upsloping.
D)  demand curves are downsloping.E) All of the above
F) None of the above

Question 3

In drawing a particular budget line, money income and the prices of the two products are fixed.

Accepted Answer

A) True 
 B)False

Question 4

Indifference curve analysis

Accepted Answer

A)  presumes, as does utility analysis, that satisfaction is numerically measurable.
B)  presumes, unlike utility analysis, that satisfaction is numerically measurable.
C)  presumes only that the consumer can say one combination of two goods yields more or less utility than some other combination.
D)  is in conflict with the idea of a downsloping demand curve.E) C) and D)
F) B) and D)

Question 5

The reason the substitution effect works to encourage a consumer to buy less of a product when its price increases is that

Accepted Answer

A)  the real income of the consumer has been increased.
B)  the real income of the consumer has been decreased.
C)  the product is now relatively more expensive than it was before.
D)  other products are now relatively more expensive than they were before.E) All of the above
F) A) and B)

Question 6

If the price of product X rises, then the resulting decline in the amount purchased will

Accepted Answer

A)  necessarily increase the consumer's total utility from his total purchases.
B)  increase the marginal utility of the last unit consumed of this good.
C)  increase the total utility from purchases of this good.
D)  reduce the marginal utility of the last unit consumed of this good.E) All of the above
F) None of the above

Question 7

The marginal utility of leisure time appears to

Accepted Answer

A)  bethe same even for people with widely different incomes.
B)  beexempt from the law of diminishing marginal utility.
C)  increase as the quantity of available leisure time decreases.
D)  equal zero for successful business executives.E) A) and D)
F) All of the above

Question 8

When a consumer shifts purchases from product X to product Y, the marginal utility of

Accepted Answer

A)  X falls and the marginal utility of Y rises.
B)  X rises and the marginal utility of Y falls.
C)  both X and Y rises.
D)  both X and Y falls.E) B) and D)
F) None of the above

Question 9

To the average consumer, the marginal utility of a second copy of today's newspaper is

Accepted Answer

A)  constant.
B)  increasing.
C)  close to zero.
D)  close to one.E) None of the above
F) A) and C)

Question 10

You can drive from Kansas City to St.Louis in five hours.You can fly between the cities in two hours.The price of an airline ticket is $150.The cost of driving between the cities is $50.About what hourly wage would make the "full" cost of driving equal the "full" cost of flying, where "full" cost includes the value of time?

Accepted Answer

A)  $17
B)  $21
C)  $29
D)  $33E) B) and C)
F) B) and D)

Question 11

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the

Accepted Answer

A)  total utility is the same for each good.
B)  marginal utility of each good is maximized.
C)  marginal utility per dollar spent is the same for all goods.
D)  marginal utility per dollar spent is maximized for each good.E) C) and D)
F) A) and C)

Question 12

Which of the following defines marginal utility?

Accepted Answer

A)  the change in total utility divided by the price of a product
B)  the maximum amount of satisfaction from consuming a product
C)  the total satisfaction derived from a certain amount of the product
D)  the additional satisfaction from consuming one more unit of a productE) None of the above
F) B) and C)

Question 13

When total utility reaches a maximum, then marginal utility is

Accepted Answer

A)  increasing.
B)  decreasing.
C)  at a minimum.
D)  equal to zero.E) All of the above
F) B) and D)

Question 14

Children who dislike Brussels sprouts exemplify the notion that the marginal utility of Brussels sprouts is

Accepted Answer

A)  zero.
B)  negative.
C)  positive, but decreasing.
D)  less than the total utility.E) B) and C)
F) A) and C)

Question 15

Mrs.Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils.The prices of soda and pretzels are $0.60 per bottle and $0.40 per bag, respectively.It can be concluded that

Accepted Answer

A)  the two commodities are substitute goods.
B)  Mrs.Arnold should spend more on pretzels and less on soda.
C)  Mrs.Arnold should spend more on soda and less on pretzels.
D)  Mrs.Arnold is buying soda and pretzels in the utility-maximizing amounts.E) B) and D)
F) A) and B)

Question 16

Assume the price of product Y (the quantity of which is plotted on the vertical axis)  is initially $15 and the price of X (the quantity of which is plotted on the horizontal axis)  is initially $3.Assume money income is initially $60.If the prices of Y and X now increase to $30 and $6, respectively, and money income increases to $120, then the budget line will

Accepted Answer

A)  shift rightward and become steeper.
B)  shift rightward and become flatter.
C)  shift rightward, but its slope will not change.
D)  be unchanged.E) A) and D)
F) A) and C)

Question 17

According to economists, gift registries, returning gifts for cash refunds, and "recycling gifts"

Accepted Answer

A)  are inefficient because the time spent in these activities is never worth the benefit recipients receive from doing them.
B)  are equally efficient because the recipient gets exactly what he wants.
C)  are more efficient than if givers simply gave cash gifts.
D)  increase the efficiency of gift-giving because they allow the recipient to consume goods that provide greater utility and transfer away those goods that are less satisfying.E) A) and D)
F) A) and C)

Question 18

The substitution effect

Accepted Answer

A)  is generally so weak that its effect cannot be predicted.
B)  for an increase in the relative price of a good is sometimes positive but sometimes negative.
C)  measures the change in the quantity demanded of a good from a change in its relative price.
D)  measures the change in the quantity of a good demanded brought about by a change in real income associated with a change in the price of the good.E) B) and D)
F) All of the above

Question 19

When the price of a product falls for a normal good, the

Accepted Answer

A)  income and substitution effects will encourage consumers to purchase more of the product.
B)  income and substitution effects will encourage consumers to purchase less of the product.
C)  substitution effect will encourage consumers to purchase less of the product, and the income effect will encourage them to purchase more.
D)  substitution effect will encourage consumers to purchase more of the product, and the income effect will encourage them to purchase less.E) A) and B)
F) None of the above

Question 20

The satisfaction or pleasure one gets from consuming a good or service is called

Accepted Answer

A)  price.
B)  utility.
C)  income.
D)  profits.E) All of the above
F) B) and C)

Exam 7: Utility Maximization

The reason the substitution effect works to encourage a consumer to buy less of a product when its price increases is that

Correct Answer
verified

Indifference curve analysis

Correct Answer
verified

Diminishing marginal utility explains why

Correct Answer
verified

If the price of product X rises, then the resulting decline in the amount purchased will

Correct Answer
verified

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the

Correct Answer
verified

When a consumer shifts purchases from product X to product Y, the marginal utility of

Correct Answer
verified

When total utility reaches a maximum, then marginal utility is

Correct Answer
verified

Children who dislike Brussels sprouts exemplify the notion that the marginal utility of Brussels sprouts is

Correct Answer
verified

The substitution effect

Correct Answer
verified

To the average consumer, the marginal utility of a second copy of today's newspaper is

Correct Answer
verified

According to economists, gift registries, returning gifts for cash refunds, and "recycling gifts"

Correct Answer
verified

The satisfaction or pleasure one gets from consuming a good or service is called

Correct Answer
verified

The marginal utility of leisure time appears to

Correct Answer
verified

The consumer will select that point on the budget line which puts him or her on the highest attainable indifference curve.

Correct Answer
verified

Correct Answer
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Which of the following defines marginal utility?

Correct Answer
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Correct Answer
verified

In drawing a particular budget line, money income and the prices of the two products are fixed.

Correct Answer
verified

When the price of a product falls for a normal good, the

Correct Answer
verified

Correct Answer
verified

Exam 7: Utility Maximization

The reason the substitution effect works to encourage a consumer to buy less of a product when its price increases is that

Correct AnswerverifiedShow Answer

Indifference curve analysis

Correct AnswerverifiedShow Answer

Diminishing marginal utility explains why

Correct AnswerverifiedShow Answer

If the price of product X rises, then the resulting decline in the amount purchased will

Correct AnswerverifiedShow Answer

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the

Correct AnswerverifiedShow Answer

When a consumer shifts purchases from product X to product Y, the marginal utility of

Correct AnswerverifiedShow Answer

When total utility reaches a maximum, then marginal utility is

Correct AnswerverifiedShow Answer

Children who dislike Brussels sprouts exemplify the notion that the marginal utility of Brussels sprouts is

Correct AnswerverifiedShow Answer

The substitution effect

Correct AnswerverifiedShow Answer

To the average consumer, the marginal utility of a second copy of today's newspaper is

Correct AnswerverifiedShow Answer

According to economists, gift registries, returning gifts for cash refunds, and "recycling gifts"

Correct AnswerverifiedShow Answer

The satisfaction or pleasure one gets from consuming a good or service is called

Correct AnswerverifiedShow Answer

The marginal utility of leisure time appears to

Correct AnswerverifiedShow Answer

The consumer will select that point on the budget line which puts him or her on the highest attainable indifference curve.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following defines marginal utility?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In drawing a particular budget line, money income and the prices of the two products are fixed.

Correct AnswerverifiedShow Answer

When the price of a product falls for a normal good, the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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