Question 1

If you purchase a gift worth $25 for your sister, but your sister would be willing to pay only $10 ifshe bought the item for herself, then the

Accepted Answer

A)   total utility of the gift is $35.
B)   total utility of the gift is $15.
C)   marginal utility of the gift is $15.
D)   loss of value in the gift is $15.E) A) and C)
F) A) and B)

Question 2

Which of the following statements is correct?

Accepted Answer

A)   Marginal utility is the cumulation or summation of total utility.
B)   Total utility is the cumulation or summation of marginal utility.
C)   Total utility is the product of multiplying price times marginal utility.
D)   Total utility is the change in marginal utility as quantity consumed increases.E) None of the above
F) A) and B)

Question 3

Suppose a consumer has an income of $16, the price of A is $2, and the price of B is $1. Which of the following combinations is on the consumer's budget line?

Accepted Answer

A)   4A and 9B
B)   5A and 6B
C)   6A and 6B
D)   3A and 8BE) None of the above
F) C) and D)

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

A consumer has an income of $200, and the price of X is $5, while the price of Y is $10. If the consumer buys 8 units of X, then the maximum quantity of Y that she could also buy is

Accepted Answer

A)   16.
B)   18.
C)   20.
D)   14.E) B) and C)
F) All of the above

Question 6

The income and substitution effects will both induce the consumer to buy more of a normal good when its price decreases.

Accepted Answer

A) True 
 B)False

Question 7

Any combination of goods lying outside of the budget line

Accepted Answer

A)   implies that the consumer is not spending all his income.
B)   yields less utility than any point on the budget line.
C)   yields less utility than any point inside the budget line.
D)   is unattainable, given the consumer's income.E) All of the above
F) None of the above

Question 8

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 both product X and product Y, how much will the consumer buy of each in order to maximize utility?

Accepted Answer

A)   4X and 2Y
B)   3X and 4Y
C)   4X and 3Y
D)   5X and 3YE) B) and C)
F) All of the above

Question 9

The ratio of the prices of two products that a consumer could buy with a given fixed income is equivalent to the

Accepted Answer

A)   marginal rate of substitution.
B)   slope of the budget line.
C)   income elasticity of demand for the two products.
D)   price elasticity of demand for the two products.E) C) and D)
F) B) and D)

Question 10

The fact that an ounce of gold is priced higher than an ounce of chocolate suggests that

Accepted Answer

A)   the marginal utility of the last unit of gold consumed or purchased is greater than the marginal utility of the last unit of chocolate consumed.
B)   the total utility of gold purchased is greater than the total utility of chocolate consumed.
C)   gold is a normal good, while chocolate is an inferior good.
D)   there are many substitutes for chocolate but few for gold.E) B) and D)
F) B) and C)

Question 11

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

Accepted Answer

A)   price of K has increased.
B)   consumer's money income has fallen.
C)   price of K has decreased.
D)   price of J has increased.E) B) and D)
F) B) and C)

Question 12

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

Accepted Answer

A)   price of Y has increased.
B)   price of Y has decreased.
C)   price of X has increased.
D)   consumer's money income has increased.E) All of the above
F) B) and C)

Question 13

If you receive a gift whose market price is $20, but you consider it to be worth only $10, then

Accepted Answer

A)   there is a $10, or 50 percent, value gain.
B)   there may or may not be a value loss.
C)   there is a $10, or 50 percent, value loss.
D)   you can be relatively certain the giver was a sibling or other close relative.E) A) and B)
F) None of the above

Question 14

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

Accepted Answer

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 D)
F) B) and C)

Question 15

If the total utility from consuming five units of a product is 245 and the marginal utility of a sixth unit is 5, then the total utility from consuming six units would be

Accepted Answer

A)   240.
B)   250.
C)   49.
D)   1,225.E) A) and D)
F) A) and C)

Question 16

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.  What level of total utility is realized from the equilibrium combination of J and K, if the consumer has a money income of $52 and the prices of J and K are $8 and $4, respectively?

Accepted Answer

A)   156 utils
B)   124 utils
C)   276 utils
D)   36 utilsE) C) and D)
F) A) and C)

Question 17

A rational consumer will try to achieve the highest indifference curve that his or her income will allow.

Accepted Answer

A) True 
 B)False

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

The law of diminishing marginal utility explains why

Accepted Answer

A)   supply curves slope upward.
B)   demand curves slope downward.
C)   addicts can never get enough.
D)   people will only consume their favorite goods and not try new things.E) A) and B)
F) B) and D)

Question 20

The utility of a good or service

Accepted Answer

A)   is synonymous with usefulness.
B)   is the satisfaction or pleasure one gets from consuming it.
C)   is easy to quantify.
D)   rarely varies from person to person.E) A) and B)
F) C) and D)

Exam 7: Utility Maximization

If the total utility from consuming five units of a product is 245 and the marginal utility of a sixth unit is 5, then the total utility from consuming six units would be

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

If you purchase a gift worth $25 for your sister, but your sister would be willing to pay only $10 ifshe bought the item for herself, then the

Correct Answer
verified

If you receive a gift whose market price is $20, but you consider it to be worth only $10, then

Correct Answer
verified

The income and substitution effects will both induce the consumer to buy more of a normal good when its price decreases.

Correct Answer
verified

The law of diminishing marginal utility explains why

Correct Answer
verified

The fact that an ounce of gold is priced higher than an ounce of chocolate suggests that

Correct Answer
verified

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.

Correct Answer
verified

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

Correct Answer
verified

Suppose a consumer has an income of $16, the price of A is $2, and the price of B is $1. Which of the following combinations is on the consumer's budget line?

Correct Answer
verified

Correct Answer
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Which of the following statements is correct?

Correct Answer
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A rational consumer will try to achieve the highest indifference curve that his or her income will allow.

Correct Answer
verified

Any combination of goods lying outside of the budget line

Correct Answer
verified

The ratio of the prices of two products that a consumer could buy with a given fixed income is equivalent to the

Correct Answer
verified

A consumer has an income of $200, and the price of X is $5, while the price of Y is $10. If the consumer buys 8 units of X, then the maximum quantity of Y that she could also buy is

Correct Answer
verified

The utility of a good or service

Correct Answer
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Exam 7: Utility Maximization

If the total utility from consuming five units of a product is 245 and the marginal utility of a sixth unit is 5, then the total utility from consuming six units would be

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If you purchase a gift worth $25 for your sister, but your sister would be willing to pay only $10 ifshe bought the item for herself, then the

Correct AnswerverifiedShow Answer

If you receive a gift whose market price is $20, but you consider it to be worth only $10, then

Correct AnswerverifiedShow Answer

The income and substitution effects will both induce the consumer to buy more of a normal good when its price decreases.

Correct AnswerverifiedShow Answer

The law of diminishing marginal utility explains why

Correct AnswerverifiedShow Answer

The fact that an ounce of gold is priced higher than an ounce of chocolate suggests that

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose a consumer has an income of $16, the price of A is $2, and the price of B is $1. Which of the following combinations is on the consumer's budget line?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

A rational consumer will try to achieve the highest indifference curve that his or her income will allow.

Correct AnswerverifiedShow Answer

Any combination of goods lying outside of the budget line

Correct AnswerverifiedShow Answer

The ratio of the prices of two products that a consumer could buy with a given fixed income is equivalent to the

Correct AnswerverifiedShow Answer

A consumer has an income of $200, and the price of X is $5, while the price of Y is $10. If the consumer buys 8 units of X, then the maximum quantity of Y that she could also buy is

Correct AnswerverifiedShow Answer

The utility of a good or service

Correct AnswerverifiedShow Answer

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