Question 1

When the price of a product falls, the income effect induces the consumer to purchase more of it, while the substitution effect prompts her to buy less.

Accepted Answer

A) True 
 B)False

Question 2

Suppose you have money income of $10, all of which you spend on Coke and popcorn. In the diagram, the prices of Coke and popcorn, respectively, are

Accepted Answer

A)   $.50 and $1.00.
B)   $1.00 and $.50.
C)   $1.00 and $2.00.
D)   $.40 and $.50.E) A) and B)
F) C) and D)

Question 3

If a consumer has an income of $200, the price of X is $5, and the price of Y is $10, what is the maximum quantity of X the consumer is able to purchase?

Accepted Answer

A)   5
B)   10
C)   20
D)   40E) C) and D)
F) B) and D)

Question 4

After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicates that the

Accepted Answer

A)   marginal utility for four pizza slices is negative.
B)   total utility for five pizza slices is negative.
C)   marginal utility is positive for the fourth slice and negative for the fifth slice.
D)   marginal utility for the fourth slice is the largest among all slices.E) A) and C)
F) None of the above

Question 5

Betty is maximizing her satisfaction from spending her budget on two items, movie rentals and music downloads. If her marginal utility from the last movie rental is twice that from the last music download, what is the price of a movie rental if the price of a music download is $0.80?

Accepted Answer

A)   $0.40
B)   $0.80
C)   $1.20
D)   $1.60E) B) and C)
F) A) and D)

Question 6

The income effect explains an exception to the law of demand.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)   total utility stops increasing.
B)   marginal utility begins to diminish.
C)   marginal utility stops increasing.
D)   total utility reaches zero.E) A) and D)
F) A) and C)

Question 8

Indifference curves and budget lines can be used to derive an individual's demand curve for a product.

Accepted Answer

A) True 
 B)False

Question 9

Refer to the diagram, in which the downsloping lines are budget lines and I1, I2, and I3 comprise an indifference map. The combinations of products M and N indicated by points 1, 2, and 5 are such that 1, I2, and I3 comprise an indifference map. The combinations of products M and N indicated by points 1, 2, and 5 are such that   A)  point 2 yields more utility than either 1 or 5. B)  points 1 and 5 yield more utility than point 2. C)  points 1, 2, and 5 yield equal amounts of utility. D)  the levels of utility associated with these three points cannot be compared." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   point 2 yields more utility than either 1 or 5.
B)   points 1 and 5 yield more utility than point 2.
C)   points 1, 2, and 5 yield equal amounts of utility.
D)   the levels of utility associated with these three points cannot be compared.E) C) and D)
F) None of the above

Question 10

Noncash gifts

Accepted Answer

A)   increase the utility of recipients by introducing them to products they have not consumed before.
B)   reduce recipient utility relative to a cash gift because noncash gifts often fail to match recipient preferences.
C)   entail as much utility as do cash gifts.
D)   increase the utility of recipients because many people are uncertain of their own preferences.E) A) and B)
F) A) and C)

Question 11

Which of the following best expresses the law of diminishing marginal utility?

Accepted Answer

A)   The more of a product consumed, the smaller is the total utility from the product.
B)   The less of a product consumed, the greater is the marginal utility of the product.
C)   The more of a product consumed, the greater is the total utility from the product.
D)   The less of a product consumed, the smaller is marginal utility of the product.E) None of the above
F) A) and C)

Question 12

A consumer has two basic choices in making a trip: rent a car for $30.00 a day and spend two days of travel to the destination, or spend $400 for an airplane ticket and fly to the destination in two hours. The marginal utilities of the car rental and the airline ticket are the same. The consumer values time at $5 an hour. The rational consumer will most likely

Accepted Answer

A)   rent a car.
B)   buy an airline ticket.
C)   find the full cost of the two modes to be equal.
D)   not make the trip.E) A) and B)
F) B) and C)

Question 13

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is

Accepted Answer

A)   26 units of utility.
B)   6 units of utility.
C)   8 units of utility.
D)   38 units of utility.E) None of the above
F) C) and D)

Question 14

Noncash gift-giving involves value loss when the marginal utility of the gift to the receiver is less than the product price.

Accepted Answer

A) True 
 B)False

Question 15

Sharon purchases two products with a given fixed budget, orange juice and soda. Her marginal utility from orange juice is 60, and her marginal utility from soda is 30. The price of a bottle of orange juice is $2.00, and the price of soda is $1.00. These data suggest that

Accepted Answer

A)   Sharon is maximizing her utility from the given fixed budget.
B)   Sharon should buy more orange juice and less soda.
C)   Sharon should buy more soda and less orange juice.
D)   Sharon should buy less orange juice and soda.E) A) and B)
F) A) and C)

Question 16

An indifference curve shows all

Accepted Answer

A)   possible equilibrium positions on an indifference map.
B)   equilibrium combinations of two products that are obtainable with a given money income.
C)   combinations of two products yielding the same total utility to a consumer.
D)   possible combinations of two products that a consumer can purchase, given her income and the prices of the products.E) C) and D)
F) A) and D)

Question 17

Which of the following statements is not correct?

Accepted Answer

A)   A reduction in money income will shift the budget line to the right.
B)   A reduction in money income accompanied by an increase in product prices will necessarily shift the budget line to the left.
C)   An increase in product prices will shift the budget line to the left.
D)   An increase in money income will shift the budget line to the right.E) C) and D)
F) A) and C)

Question 18

A consumer allocates all income between two products, A and B. If, on an indifference map, the equilibrium position shifts onto a higher indifference curve, then

Accepted Answer

A)   the consumer must be purchasing more of both products.
B)   the relative prices of A and B must have changed.
C)   the prices of A and B must have increased.
D)    total utility must have increased.E) A) and B)
F) A) and C)

Question 19

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 A consumed?

Accepted Answer

A)   14 utils per dollar
B)   7 utils per dollar
C)   8 utils per dollar
D)   4 utils per dollarE) None of the above
F) A) and B)

Question 20

If the quantity of X is measured on the horizontal axis and the quantity of Y on the vertical, then the slope of the budget line is equal to the price of X divided by the price of Y.

Accepted Answer

A) True 
 B)False

Exam 7: Utility Maximization

Suppose you have money income of $10, all of which you spend on Coke and popcorn. In the diagram, the prices of Coke and popcorn, respectively, are

Correct Answer
verified

A consumer allocates all income between two products, A and B. If, on an indifference map, the equilibrium position shifts onto a higher indifference curve, then

Correct Answer
verified

Which of the following best expresses the law of diminishing marginal utility?

Correct Answer
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Refer to the diagram, in which the downsloping lines are budget lines and I₁, I₂, and I₃comprise an indifference map. The combinations of products M and N indicated by points 1, 2, and 5 are such that

Correct Answer
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Correct Answer
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Correct Answer
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After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicates that the

Correct Answer
verified

Indifference curves and budget lines can be used to derive an individual's demand curve for a product.

Correct Answer
verified

Noncash gifts

Correct Answer
verified

If the quantity of X is measured on the horizontal axis and the quantity of Y on the vertical, then the slope of the budget line is equal to the price of X divided by the price of Y.

Correct Answer
verified

When the price of a product falls, the income effect induces the consumer to purchase more of it, while the substitution effect prompts her to buy less.

Correct Answer
verified

The income effect explains an exception to the law of demand.

Correct Answer
verified

Which of the following statements is not correct?

Correct Answer
verified

If a consumer has an income of $200, the price of X is $5, and the price of Y is $10, what is the maximum quantity of X the consumer is able to purchase?

Correct Answer
verified

Sharon purchases two products with a given fixed budget, orange juice and soda. Her marginal utility from orange juice is 60, and her marginal utility from soda is 30. The price of a bottle of orange juice is $2.00, and the price of soda is $1.00. These data suggest that

Correct Answer
verified

Noncash gift-giving involves value loss when the marginal utility of the gift to the receiver is less than the product price.

Correct Answer
verified

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

Correct Answer
verified

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is

Correct Answer
verified

Betty is maximizing her satisfaction from spending her budget on two items, movie rentals and music downloads. If her marginal utility from the last movie rental is twice that from the last music download, what is the price of a movie rental if the price of a music download is $0.80?

Correct Answer
verified

An indifference curve shows all

Correct Answer
verified

Exam 7: Utility Maximization

Suppose you have money income of $10, all of which you spend on Coke and popcorn. In the diagram, the prices of Coke and popcorn, respectively, are

Correct AnswerverifiedShow Answer

A consumer allocates all income between two products, A and B. If, on an indifference map, the equilibrium position shifts onto a higher indifference curve, then

Correct AnswerverifiedShow Answer

Which of the following best expresses the law of diminishing marginal utility?

Correct AnswerverifiedShow Answer

Refer to the diagram, in which the downsloping lines are budget lines and I1, I2, and I3 comprise an indifference map. The combinations of products M and N indicated by points 1, 2, and 5 are such that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicates that the

Correct AnswerverifiedShow Answer

Indifference curves and budget lines can be used to derive an individual's demand curve for a product.

Correct AnswerverifiedShow Answer

Noncash gifts

Correct AnswerverifiedShow Answer

If the quantity of X is measured on the horizontal axis and the quantity of Y on the vertical, then the slope of the budget line is equal to the price of X divided by the price of Y.

Correct AnswerverifiedShow Answer

When the price of a product falls, the income effect induces the consumer to purchase more of it, while the substitution effect prompts her to buy less.

Correct AnswerverifiedShow Answer

The income effect explains an exception to the law of demand.

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

If a consumer has an income of $200, the price of X is $5, and the price of Y is $10, what is the maximum quantity of X the consumer is able to purchase?

Correct AnswerverifiedShow Answer

Sharon purchases two products with a given fixed budget, orange juice and soda. Her marginal utility from orange juice is 60, and her marginal utility from soda is 30. The price of a bottle of orange juice is $2.00, and the price of soda is $1.00. These data suggest that

Correct AnswerverifiedShow Answer

Noncash gift-giving involves value loss when the marginal utility of the gift to the receiver is less than the product price.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is

Correct AnswerverifiedShow Answer

Betty is maximizing her satisfaction from spending her budget on two items, movie rentals and music downloads. If her marginal utility from the last movie rental is twice that from the last music download, what is the price of a movie rental if the price of a music download is $0.80?

Correct AnswerverifiedShow Answer

An indifference curve shows all

Correct AnswerverifiedShow Answer

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Refer to the diagram, in which the downsloping lines are budget lines and I₁, I₂, and I₃comprise an indifference map. The combinations of products M and N indicated by points 1, 2, and 5 are such that

Correct Answer
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Correct Answer
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Correct Answer
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