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Exam 7: Utility Maximization

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Question 111

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The consumer demand curve for a product is downsloping because marginal utility is constant when price declines.

A) True
B) False

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Question 112

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"Essential" water is cheaper than "nonessential" diamonds because

A) new industrial uses for diamonds have been discovered.
B) the supply of water is great relative to demand and the supply of diamonds is small relative to demand.
C) although the total utility of diamonds is greater, their marginal utility is small.
D) the supply of diamonds is great relative to demand and the supply of water is small relative to demand.

E) B) and C)
F) C) and D)

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Question 113

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The law of diminishing marginal utility implies that in order to induce a buyer to buy more of a product, the seller must lower its price.

The table shows the marginal-utility schedules for goods A and B for a hypothetical consumer. The price of good A is $1, and the price of good B is $2. The income of the consumer is $8. If the consumer spends the given budget and gets maximum utility out of it, then she is receiving how much satisfaction from each dollar spent on the final unit of good B consumed?

The limited money income of consumers results in a so-called budget constraint.

A product has utility if it

Refer to the diagram. Suppose the budget line shifts so that the consumer's equilibrium changes from point A to point B. This means that the

Given the indifference curves for an individual as shown above, if the price of good Y = $1, it can be determined that two points on his or her demand curve for good X are

Refer to the graph. Suppose you had tastes as described by the indifference curves above. If your income was $90, Pₓ = 30, and Pᵧ = 10, which combination of X and Y would maximize your utility?

It is possible for a consumer's indifference curves to intersect.

In moving northeasterly from the origin, we encounter indifference curves that reflect higher and higher levels of total utility.

A child is given $5.20 of pocket money to be spent on either hard candies or chocolates. Chocolates cost 40 cents and hard candies 80 cents each. The marginal utilities derived from each product are as shown in the following table. Which combination would give the child the maximum utility out of spending $5.20?

Refer to the diagram. The budget line shift that moves the consumer's equilibrium position from point A to point B suggests

A change in the relative prices for two goods can be shown as a parallel shift in a consumer's budget line.

Consider the diagram, where E is the consumer's original equilibrium position. We know good Y is not a normal good if, as income increases, the consumer's new equilibrium position is at point

Suppose that football tickets at your university are given away for free and that there are still empty seats for all games. Ignoring all other costs of going to the games, you should continue attending until your

Which of the graphs shows a change in the buyer's income, but no changes in the prices of X and Y?

Understanding the water and diamond paradox is valuable because it explains why

The table shows an indifference schedule for several combinations of X and Y. Approximately how much of Y is the consumer willing to give up to obtain the tenth unit of X?

The diamond-water paradox arises because