Question 1

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $18  How many units of the two products will the rational consumer purchase?

Accepted Answer

A)   3 of L and none of M
B)   4 of L and 2 of M
C)   3 of L and 5 of M
D)   2 of L and 3 of ME) A) and C)
F) A) and D)

Question 2

The table shows a consumer's utility schedule.  Based on the data, you can conclude that the consumer

Accepted Answer

A)   receives increasing marginal utility from consuming the first three units.
B)   experiences diminishing marginal utility after consuming the first unit.
C)   experiences diminishing marginal utility only after consuming the fourth unit.
D)   will never consume just one unit of the product.E) C) and D)
F) A) and B)

Question 3

A consumer is in equilibrium and is spending income in such a way that the marginal utility of product X is 40 units and that of Y is 16 units. If the unit price of X is $5, then the price of Y must be

Accepted Answer

A)   $1 per unit.
B)   $2 per unit.
C)   $3 per unit.
D)   $4 per unit.E) C) and D)
F) None of the above

Question 4

Edith is buying products X and Y with her money income. Suppose her budget line shifts rightward (outward) . This might be the result of

Accepted Answer

A)   the prices of X and Y increasing while her money income remains constant.
B)   her money income decreasing while the prices of X and Y remain constant.
C)   her money income increasing more than increases in the prices of X and Y.
D)   none of these.E) A) and B)
F) A) and C)

Question 5

In deciding what to buy, the consumer will choose the good with the

Accepted Answer

A)   highest marginal utility.
B)   lowest price.
C)   highest marginal utility-to-price ratio.
D)   lowest marginal utility-to-price ratio.E) A) and B)
F) C) and D)

Question 6

The marginal rate of substitution

Accepted Answer

A)   may increase or decrease on a given indifference curve, depending on whether the substitution or the income effect is dominant.
B)   increases as one moves southeast along an indifference curve.
C)   is constant at all points on the budget line.
D)   declines as one moves southeast along an indifference curve.E) A) and B)
F) B) and D)

Question 7

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) A) and B)
F) All of the above

Question 8

An indifference map implies that

Accepted Answer

A)   money income is constant, but the prices of the two products vary directly with the quantities purchased.
B)   the two products under consideration are perfectly substitutable for one another.
C)   a consumer is better off to be at some point high on a given curve as opposed to a point low on the same curve.
D)   curves farther from the origin yield higher levels of total utility.E) A) and D)
F) All of the above

Question 9

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) A) and B)
F) B) and C)

Question 10

In a topographic map, each line represents a particular elevation above sea level, and in an indifference map, each line represents a particular level of

Accepted Answer

A)   total utility.
B)   marginal utility.
C)   income.
D)   demand.E) B) and D)
F) All of the above

Question 11

Answer the question based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4, and the price of product Y is $2. The income of the consumer is $20.
 If the consumer buys product X or product Y one unit at a time, which of the following will the consumer's first two purchases be?

Accepted Answer

A)   a first unit of X followed by a first unit of Y
B)   a first unit of X followed by a second unit of X
C)   a first unit of Y followed by a first unit of X
D)   a first unit of Y followed by a second unit of YE) A) and C)
F) A) and B)

Question 12

A consumer maximizes total utility when she or he purchases the combination of the two products at which her or his budget line is tangent to an indifference curve.

Accepted Answer

A) True 
 B)False

Question 13

The substitution effect of a price decrease for a good causes an increase in the consumption of the good, regardless of whether the good is normal or inferior.

Accepted Answer

A) True 
 B)False

Question 14

Refer to the diagram. If the budget line shifts from ab to ac, the

Accepted Answer

A)   consumer's level of total utility will increase.
B)   consumer will purchase more of both J and K.
C)   consumer will purchase less of both J and K.
D)   consumer will purchase more of J and less of K.E) B) and C)
F) A) and D)

Question 15

The fact that most medical care purchases are financed through insurance

Accepted Answer

A)   has no effect on health care consumption because aggregate costs are the same regardless of payment method.
B)   reduces the amount of health care consumed by raising the price of additional units of care.
C)   has decreased health care costs and therefore reduced aggregate health care expenditures.
D)   increases the amount of health care consumed by reducing the price of additional units of care.E) A) and B)
F) B) and C)

Question 16

What do the income effect, the substitution effect, and diminishing marginal utility have in common?

Accepted Answer

A)   All are required to explain the utility-maximizing position of a consumer.
B)   They are all empirically measurable.
C)   They all help explain the upsloping supply curve.
D)   They all help explain the downsloping demand curve.E) A) and B)
F) A) and C)

Question 17

Marginal utility can be

Accepted Answer

A)   positive, but not negative.
B)   positive or negative, but not zero.
C)   positive, negative, or zero.
D)   decreasing, but not negative.E) C) and D)
F) B) and C)

Question 18

In moving along a given budget line,

Accepted Answer

A)   the prices of both products and money income are assumed to be constant.
B)   each point on the line will be equally satisfactory to consumers.
C)   money income varies, but the prices of the two goods are constant.
D)   the prices of both products are assumed to vary, but money income is constant.E) All of the above
F) A) and D)

Question 19

Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility)  that a consumer would get from successive quantities of products J and K.  If the consumer's money income were cut from $52 to $28, and the prices of J and K remain at $8 and $4, respectively, she would maximize her satisfaction by purchasing

Accepted Answer

A)   3 units of J and 3 units of K.
B)   1 unit of J and 3 units of K.
C)   4 units of J and 1 unit of K.
D)   2 units of J and 3 units of K.E) C) and D)
F) All of the above

Question 20

Assume that Tonya consumes only two products, pizza and potato chips, out of a given budget. Both are normal goods for Tonya. If the price of pizza decreases, then Tonya's consumption of pizza will

Accepted Answer

A)   decrease due to the income effect.
B)   decrease due to the substitution effect.
C)   increase due to the income effect.
D)   increase due to the law of diminishing marginal utility.E) A) and D)
F) A) and C)

Exam 7: Utility Maximization

What do the income effect, the substitution effect, and diminishing marginal utility have in common?

Correct Answer
verified

The fact that most medical care purchases are financed through insurance

Correct Answer
verified

Assume that Tonya consumes only two products, pizza and potato chips, out of a given budget. Both are normal goods for Tonya. If the price of pizza decreases, then Tonya's consumption of pizza will

Correct Answer
verified

Edith is buying products X and Y with her money income. Suppose her budget line shifts rightward (outward) . This might be the result of

Correct Answer
verified

Marginal utility can be

Correct Answer
verified

Correct Answer
verified

An indifference map implies that

Correct Answer
verified

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

Correct Answer
verified

The substitution effect of a price decrease for a good causes an increase in the consumption of the good, regardless of whether the good is normal or inferior.

Correct Answer
verified

In a topographic map, each line represents a particular elevation above sea level, and in an indifference map, each line represents a particular level of

Correct Answer
verified

The marginal rate of substitution

Correct Answer
verified

A consumer maximizes total utility when she or he purchases the combination of the two products at which her or his budget line is tangent to an indifference curve.

Correct Answer
verified

In deciding what to buy, the consumer will choose the good with the

Correct Answer
verified

A consumer is in equilibrium and is spending income in such a way that the marginal utility of product X is 40 units and that of Y is 16 units. If the unit price of X is $5, then the price of Y must be

Correct Answer
verified

When total utility reaches a maximum, then marginal utility is

Correct Answer
verified

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $18 How many units of the two products will the rational consumer purchase?

Correct Answer
verified

The table shows a consumer's utility schedule. Based on the data, you can conclude that the consumer

Correct Answer
verified

Correct Answer
verified

Refer to the diagram. If the budget line shifts from ab to ac, the

Correct Answer
verified

In moving along a given budget line,

Correct Answer
verified

Exam 7: Utility Maximization

What do the income effect, the substitution effect, and diminishing marginal utility have in common?

Correct AnswerverifiedShow Answer

The fact that most medical care purchases are financed through insurance

Correct AnswerverifiedShow Answer

Assume that Tonya consumes only two products, pizza and potato chips, out of a given budget. Both are normal goods for Tonya. If the price of pizza decreases, then Tonya's consumption of pizza will

Correct AnswerverifiedShow Answer

Edith is buying products X and Y with her money income. Suppose her budget line shifts rightward (outward) . This might be the result of

Correct AnswerverifiedShow Answer

Marginal utility can be

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An indifference map implies that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The substitution effect of a price decrease for a good causes an increase in the consumption of the good, regardless of whether the good is normal or inferior.

Correct AnswerverifiedShow Answer

In a topographic map, each line represents a particular elevation above sea level, and in an indifference map, each line represents a particular level of

Correct AnswerverifiedShow Answer

The marginal rate of substitution

Correct AnswerverifiedShow Answer

A consumer maximizes total utility when she or he purchases the combination of the two products at which her or his budget line is tangent to an indifference curve.

Correct AnswerverifiedShow Answer

In deciding what to buy, the consumer will choose the good with the

Correct AnswerverifiedShow Answer

A consumer is in equilibrium and is spending income in such a way that the marginal utility of product X is 40 units and that of Y is 16 units. If the unit price of X is $5, then the price of Y must be

Correct AnswerverifiedShow Answer

When total utility reaches a maximum, then marginal utility is

Correct AnswerverifiedShow Answer

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $18 How many units of the two products will the rational consumer purchase?

Correct AnswerverifiedShow Answer

The table shows a consumer's utility schedule. Based on the data, you can conclude that the consumer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Refer to the diagram. If the budget line shifts from ab to ac, the

Correct AnswerverifiedShow Answer

In moving along a given budget line,

Correct AnswerverifiedShow Answer

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