Consumer behavior

174 terms by masttt91

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21

1. The income effect indicates that:
A) a rise in money income will cause consumers to buy smaller quantities of normal goods.
B) when the price of a product falls, the lower price will induce the consumer to buy more of that product now that it is relatively cheaper.
C) consumers should substitute among various products until the marginal utility from the last unit of each product purchased is the same.
D) when the price of a product falls, a consumer will be able to buy more of it with a specific money income.

D

Type: A Topic: 1 E: 372-373 MI: 128-129
2. If the price of normal good X rises, the income:
A) and substitution effects will both induce the consumer to buy less of X.
B) and substitution effects will both induce the consumer to buy more of X.
C) effect will induce the consumer to buy more of X and the substitution effect will induce him to buy less.
D) effect will induce the consumer to buy less of X and the substitution will induce him to buy more.

A

Type: A Topic: 1 E: 373 MI: 129
3. If the price of a product falls, that product becomes cheaper and people will want to purchase more of it in place of other goods. This statement best describes:
A) the income effect. B) the substitution effect. C) a complementary good. D) an inferior good.

B

Type: A Topic: 1 E: 372 MI: 128
4. A fall in the price of a good increases the real income or purchasing power of consumers so that they are able to buy more of the product. This statement best describes:
A) the income effect. B) a complementary good. C) the substitution effect. D) an inferior good.

A

Type: A Topic: 1 E: 372-373 MI: 128-129
5. Which of the following is correct? When the price of normal good Z falls:
A) both income and substitution effects cause the consumer to buy more.
B) both income and substitution effects cause the consumer to buy less.
C) the income effect causes the consumer to buy less, but the substitution effect causes her to buy more.
D) the income effect causes the consumer to buy more, but the substitution effect causes her to buy less.

A

Type: A Topic: 1 E: 372-373 MI: 128-129
6. If steak is a normal good and its price rises:
A) the amount purchased may either increase or decrease depending on the relative importance of the income and substitution effects.
B) both the income and substitution effects suggest that less will be purchased.
C) the substitution effect suggests more will be purchased, but the income effect suggests less will be purchased.
D) the income effect suggests more will be purchased, but the substitution effect suggests less will be purchased.

B

Type: D Topic: 1 E: 373 MI: 129
7. The substitution effect indicates that:
A) a decline in money income will cause the consumer to buy more inferior goods and fewer superior goods.
B) consumer equilibrium can only be achieved when the consumer is buying substitute goods.
C) when the price of a product falls, the lower price will induce the consumer to buy more of that product at the expense of other products.
D) when the price of a product falls, a consumer will be able to buy more of it with a specific money income.

C

Type: A Topic: 1 E: 373 MI: 129
8. The substitution effect causes a consumer to buy less of a product when its price rises because the:
A) consumer's real income has decreased.
B) consumer's real income has increased.
C) product is now less expensive compared to other products.
D) product is now more expensive compared to other products.

D

Type: A Topic: 1 E: 372-373 MI: 128-129
9. Suppose that Jean normally orders three tacos, but on seeing that their price has gone up, decides to buy only two. Jean's decision is best explained by:
A) income and substitution effects. C) the principle of comparative advantage.
B) the law of supply. D) the law of increasing opportunity costs.

A

Type: F Topic: 2 E: 373 MI: 129 Status: New
10. Utility:
A) is synonymous with usefulness. C) is easy to quantify.
B) is want-satisfying power. D) rarely varies from person to person.

B

Type: F Topic: 2 E: 373 MI: 129 Status: New
11. Marginal utility can be:
A) positive, but not negative. C) positive, negative, or zero.
B) positive or negative, but not zero. D) decreasing, but not negative.

C

Type: A Topic: 2 E: 373-374 MI: 129-130 Status: New
12. Brenda says, "You would have to pay me $50 to attend that pro wrestling event." For Brenda, the marginal utility of the event is:
A) zero. B) positive, but declines rapidly. C) negative. D) positive, but less than the ticket price.

C

Type: A Topic: 2 E: 373 MI: 129 Status: New
13. The ability of a good or service to satisfy wants is called:
A) utility maximization. B) opportunity cost. C) revenue potential. D) utility.

D

Type: T Topic: 2 E: 373-374 MI: 129-130 Status: New
14. Refer to the above data. The value for Y is:
A) 25. B) 30. C) 40. D) 45.

D

Type: T Topic: 2 E: 373-374 MI: 129-130 Status: New
15. Refer to the above data. The value for X is:
A) 15. B) 5. C) 55. D) 10.

A

Type: T Topic: 2 E: 373-374 MI: 129-130 Status: New
16. Refer to the above data. The value for W is:
A) 15. B) 20. C) 25. D) 30.

B

Type: T Topic: 2 E: 373-374 MI: 129-130 Status: New
17. Refer to the above data. The value for Z is:
A) -5. B) + 5. C) -10. D) zero.

A

Type: T Topic: 2 E: 375 MI: 131 Status: New
18. The above data illustrate the:
A) law of comparative advantage. C) law of diminishing marginal utility.
B) utility-maximizing rule. D) law of increasing opportunity costs.

C

Type: T Topic: 2 E: 373-374 MI: 129-130 Status: New
19. Refer to above data. Marginal utility becomes negative beginning with the:
A) first unit. B) second unit. C) third unit. D) fourth unit.

D

Type: D Topic: 2 E: 373 MI: 129
20. A product has utility if it:
A) takes more and more resources to produce successive units of it.
B) violates the law of demand.
C) satisfies consumer wants.
D) is useful.

C

Type: D Topic: 2 E: 375 MI: 131
21. The law of diminishing marginal utility states that:
A) total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed.
B) beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.
C) price must be lowered to induce firms to supply more of a product.
D) it will take larger and larger amounts of resources beyond some point to produce successive units of a product.

B

Type: A Topic: 2 E: 374 MI: 130
22. 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:
A) 26 units of utility. B) 6 units of utility. C) 8 units of utility. D) 38 units of utility.

C

Type: A Topic: 2 E: 375 MI: 131
23. If the price of product X rises, then the resulting decline in the amount purchased will:
A) necessarily increase the consumer's total utility from his total purchases.
B) increase the marginal utility of this good.
C) increase the total utility from purchases of this good.
D) reduce the marginal utility of this good.

B

Type: D Topic: 2 E: 373 MI: 129
24. Marginal utility is the:
A) sensitivity of consumer purchases of a good to changes in the price of that good.
B) change in total utility obtained by consuming one more unit of a good.
C) change in total utility obtained by consuming another unit of a good divided by the change in the price of that good.
D) total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.

B

Type: D Topic: 2 E: 373 MI: 129
25. Utility refers to the:
A) satisfaction that a consumer derives from a good or service.
B) rate of decline in a product demand curve.
C) relative scarcity of a product.
D) usefulness of a product.

A

Type: A Topic: 2 E: 373 MI: 129
26. Total utility may be determined by:
A) multiplying the marginal utility of the last unit consumed by the number of units consumed.
B) summing the marginal utilities of each unit consumed.
C) multiplying the marginal utility of the last unit consumed by product price.
D) multiplying the marginal utility of the first unit consumed by the number of units consumed.

B

Type: G Topic: 2 E: 374 MI: 130
27. Refer to the above diagram. The marginal utility of the third unit of X is:
A) 5. B) 4. C) 2. D) 1.

B

Type: G Topic: 2 E: 374 MI: 130
28. Refer to the above diagram. The total utility yielded by 4 units of X is:
A) 4. B) 15. C) 17. D) 18.

C

Type: G Topic: 2 E: 374 MI: 130
29. Refer to the above diagram. Total utility is at a maximum at _____ units of X.
A) 2 B) 3 C) 4 D) 6

D

Type: G Topic: 2 E: 374 MI: 130
30. Refer to the above diagram. Total utility:
A) increases so long as additional units of Y are purchased.
B) becomes negative at 4 units.
C) increases at a diminishing rate, reaches a maximum, and then declines.
D) is maximized at 2 units.

C

Type: G Topic: 2 E: 374 MI: 130
31. Refer to the above diagram. Marginal utility:
A) increases at an increasing rate.
B) becomes zero at 4 units of output.
C) is found by dividing total utility by the number of units purchased.
D) cannot be calculated from the total utility information.

B

Type: A Topic: 2 E: 373-375 MI: 129-131
32. If total utility is increasing, marginal utility:
A) is positive, but may be either increasing or decreasing.
B) must also be increasing.
C) may be either positive or negative.
D) will be increasing at an increasing rate.

A

Type: A Topic: 2 E: 373-374 MI: 129-130
33. Where total utility is at a maximum, marginal utility is:
A) negative. B) positive and increasing. C) zero. D) positive but decreasing.

C

Type: A Topic: 2 E: 373 MI: 129
34. Marginal utility:
A) is equal to total utility divided by the number of units consumed.
B) is equal to total utility if the demand curve is linear.
C) increases as more of a product is consumed.
D) diminishes as more of a product is consumed.

D

Type: A Topic: 2 E: 373-374 MI: 129-130
35. Which of the following is correct?
A) There is no firm mathematical relationship between marginal utility and total utility.
B) Total utility is equal to the change in marginal utility from consuming an additional unit of a product.
C) If marginal utility is diminishing and is a positive amount, total utility will increase.
D) If marginal utility is diminishing, total utility must also be diminishing.

C

Type: A Topic: 2 E: 373 MI: 129
36. Which of the following statements is correct?
A) Utility and usefulness are synonymous.
B) The marginal utility derived from successive units of a product tends to be similar for all consumers.
C) Because utility is not measurable, the utility-maximizing rule provides no useful insights as to consumer behavior.
D) A product may yield utility, but not be functionally useful.

D

Type: D Topic: 3 E: 376 MI: 132
37. The theory of consumer behavior assumes that :
A) consumers behave rationally, maximizing their satisfactions.
B) consumers have unlimited money incomes.
C) consumers do not know how much marginal utility they obtain from succesive units of various products.
D) marginal utility is constant.

A

Type: A Topic: 3 E: 376 MI: 132
38. To maximize utility a consumer should allocate money income so that the:
A) elasticity of demand on all products purchased is the same.
B) marginal utility obtained from the last dollar spent on each product is the same.
C) total utility derived from each product consumed is the same.
D) marginal utility of the last unit of each product consumed is the same.

B

Type: A Topic: 3 E: 377 MI: 133
39. Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending all her money income should buy:
A) less of X only if its price rises. C) more of Y and less of X.
B) more of Y only if its price rises. D) more of X and less of Y.

D

40. Mrs. Green 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 $.60 per bottle and $.40 per bag respectively. It can be concluded that:
A) the two commodities are substitute goods.
B) Mrs. Green should spend more on pretzels and less on soda.
C) Mrs. Green should spend more on soda and less on pretzels.
D) Mrs. Green is buying soda and pretzels in the utility-maximizing amounts.

C

Type: T Topic: 3 E: 376-377 MI: 132-133
41. Refer to the above data. If the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing:
A) 2 units of J and 7 units of K. C) 4 units of J and 5 units of K.
B) 5 units of J and 5 units of K. D) 6 units of J and 3 units of K.

C

Type: T Topic: 3 E: 376-377 MI: 132-133
42. Refer to the above data. What level of total utility is realized from the equilibrium combination of J and K determined in the previous question?
A) 156 utils B) 124 utils C) 276 utils D) 36 utils

C

Type: T Topic: 3 E: 377 MI: 133
43. Refer to the above data. If the consumer's money income were cut from $52 to $28, she would maximize her satisfaction by purchasing:
A) 3 units of J and 3 units of K. C) 4 units of J and 1 unit of K.
B) 1 unit of J and 3 units of K. D) 2 units of J and 3 units of K.

D

Type: A Topic: 3 E: 377 MI: 133
44. Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase:
A) more of A and less of B. C) more of both A and B.
B) more of B and less of A. D) less of both A and B.

B

Type: A Topic: 3 E: 377 MI: 133
45. The marginal utility of the last unit of A consumed is 12 and the marginal utility of the last unit of B consumed is 8. What set of prices for A and B respectively would be consistent with consumer equilibrium?
A) $4 and $6 B) $6 and $4 C) $8 and $12 D) $16 and $9

B

Type: A Topic: 3 E: 377 MI: 133
46. Suppose you have a limited money income and you are purchasing products A and B whose prices happen to be the same. To maximize your utility you should purchase A and B in such amounts that:
A) their marginal utilities are the same.
B) their total utilities are the same.
C) their marginal and total utilities are proportionate.
D) the income and substitution effects associated with each are equal.

A

Type: A Topic: 3 E: 378 MI: 134
47. A consumer is maximizing her utility with a particular money income when:
A) the total utility derived from each product consumed is the same.
B) MUa/Pa = MUb/Pb = MUc/Pc = ... = MUn/Pn.
C) MUa = MUb = MUc = ... = MUn.
D) Pa = Pb = Pc = ... = Pn.

B

Type: A Topic: 3 E: 376-377 MI: 132-133
48. Suppose that Ms. Spencer is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4 respectively. The marginal utility of the last units of A and B are 16 and 24 respectively. These data suggest that Ms. Spencer:
A) has preferences that are at odds with the principle of diminishing marginal utility.
B) considers A and B to be complementary goods.
C) should buy less A and more B.
D) should buy less B and more A.

D

Type: A Topic: 3 E: 376-377 MI: 132-133
49. If a rational consumer is in equilibrium, which of the following conditions will hold true?
A) MUa = MUb = MUc = ... = MUn.
B) The marginal utility of each good purchased will be zero.
C) The marginal utility of the last dollar spent on each good purchased will be the same.
D) The total utility obtained from each good purchased will be the same.

C

50. Assume MUc and MUd represent the marginal utility that a consumer gets from products C and D, the respective prices of which are Pc and P d. The consumer will increase his total utility from a specific money outlay by spending more on C and less on D if initially:
A) MUd < MUc
B)
C)
D) MUc > MUd

C

Type: A Topic: 3 E: 378 MI: 134
51. In purchasing products A and B, a consumer is in equilibrium when:
A) MUa/Pa = MUb/Pb B) MUa/Pb = MUb/Pa C) MUa - MUb = Pa/Pb D) MUa × Pa = MUb × Pb

A

Type: A Topic: 3 E: 378 MI: 134
52. A consumer who has a limited budget will maximize utility or satisfaction when the:
A) ratios of the marginal utility of each product purchased divided by its price are equal.
B) total utility derived from each product purchased is the same.
C) marginal utility of each product purchased is the same.
D) price of each product purchased is the same.

A

Type: A Topic: 3 E: 378 MI: 134
53. Mr. Chan has an income of $20 that he is spending on donuts and cheese in such amounts that he derives 25 utils of satisfaction from the donuts and 25 utils of satisfaction from the cheese. On the basis of this information we:
A) cannot say whether or not Chan is buying donuts and cheese in equilibrium amounts.
B) can say that Chan should buy more cheese and fewer donuts.
C) can say that Chan should buy more donuts and less cheese.
D) can say that Chan is buying the utility-maximizing amounts of donuts and cheese.

A

Type: A Topic: 3 E: 378 MI: 134
54. If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products b and c in consumer equilibrium:
A) cannot be determined from the information given.
B) are $105 and $140 respectively.
C) are $105 and $175 respectively.
D) are $100 and $200 respectively.

B

Type: A Topic: 3 E: 378 MI: 134
55. Assume that a consumer purchases products A, B, and C in quantities such that the last dollar spent on each yields the same marginal utility and the consumer's income is totally spent. We can conclude that:
A) total utility is being minimized. C) marginal utility exceeds total utility.
B) production costs are being minimized. D) total utility is being maximized.

D

Type: A Topic: 3 E: 378 MI: 134
56. Refer to the above data. How many units of the two products will the consumer purchase?
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 M

D

Type: A Topic: 3 E: 376 MI: 132
57. Refer to the above data. What level of total utility does the consumer realize in equilibrium?
A) 87 utils B) 114 utils C) 51 utils D) 58 utils

C

Type: A Topic: 3 E: 376 MI: 132
58. An increase in the price of product A will:
A) increase the marginal utility per dollar spent on A.
B) decrease the marginal utility per dollar spent on A.
C) not affect the marginal utility per dollar spent on A.
D) cause utility-maximizing consumers to buy more of A.

B

Type: A Topic: 3 E: 377 MI: 133
59. Rosenbaum is purchasing products C and D in utility-maximizing amounts. If the price of C is $4 and the price of D is $2, then:
A) the marginal utility of D is twice that of C.
B) the marginal utility of D is the same as that of C.
C) the marginal utility of C is twice that of D.
D) the marginal utility of C is four times that of D.

C

Type: D Topic: 3 E: 376 MI: 132
60. The theory of consumer behavior assumes that consumers attempt to maximize:
A) the difference between total and marginal utility.
B) total utility.
C) average utility.
D) marginal utility.

B

Type: A Topic: 3 E: 376-377 MI: 132-133
61. When a consumer is maximizing total utility,
A) the average utility from each dollar spent is the same.
B) total utility cannot be increased by reallocating expenditures among various products.
C) the total utility obtainable from each product is at a maximum.
D) the marginal utility of the last unit of each product purchased is zero.

B

Type: A Topic: 3 E: 376-377 MI: 132-133
62. When a consumer shifts purchases from product X to product Y the marginal utility of:
A) X falls and the marginal utility of Y rises. C) both X and Y rises.
B) X rises and the marginal utility of Y falls. D) both X and Y falls.

B

Type: A Topic: 3 E: 376-377 MI: 132-133
63. Sam decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Sam:
A) is relatively unappreciative of the arts.
B) obtains more marginal utility from the play than from the hockey game.
C) has a higher "marginal utility to price ratio" for the hockey game than for the play.
D) has recently attended several other Broadway plays.

C

Type: A Topic: 3 E: 376 MI: 132
64. Suppose that Dave normally orders two tacos, but on seeing they are on sale, decides to buy three. Dave's decision is best explained by the:
A) law of increasing opportunity costs. C) principle of comparative advantage.
B) law of supply. D) the principle of utility maximization.

D

Type: A Topic: 4 E: 379 MI: 135
65. Diminishing marginal utility explains why:
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.

D

Type: A Topic: 4 E: 379 MI: 135
66. What do the income effect, the substitution effect, and diminishing marginal utility have in common?
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.

D

Type: A Topic: 4 E: 379 MI: 135
67. A consumer's demand curve for a product is downsloping because:
A) total utility falls below marginal utility as more of a product is consumed.
B) marginal utility diminishes as more of a product is consumed.
C) time becomes less valuable as more of a product is consumed.
D) the income and substitution effects precisely offset each other.

B

Type: A Topic: 4 E: 378 MI: 134
68. The utility-maximizing rule:
A) is inconsistent with the law of demand. C) implies a leftward shifting demand curve.
B) implies a perfectly elastic demand curve. D) is consistent with the law of demand.

D

Type: T Topic: 4 E: 376-377 MI: 132-133
69. Refer to the above data. What quantities of X and Y should be purchased to maximize utility?
A) 2 of X and 1 of Y B) 4 of X and 5 of Y C) 2 of X and 5 of Y D) 2 of X and 6 of Y

C

Type: T Topic: 4 E: 376 MI: 132
70. Refer to the above data. What level of total utility will the utility-maximizing consumer realize?
A) 96 utils B) 108 utils C) 72 utils D) 142 utils

A

Type: T Topic: 4 E: 376 MI: 132
71. Refer to the above data. If the price of X decreases to $2, then the utility-maximizing combination of the two products is:
A) 2 of X and 5 of Y. B) 4 of X and 6 of Y. C) 6 of X and 3 of Y. D) 4 of X and 5 of Y.

D

Type: T Topic: 4 E: 379 MI: 135
72. Refer to the above data. Which of the following represents the demand schedule for X?

B

Type: T Topic: 4 E: 378 MI: 134
73. If the price of X and Y are $2 and $4 per unit, respectively, to maximize total utility this consumer should buy:
A) 1 units of X and 1 units of Y. C) 1 units of X and 2 units of Y.
B) 2 units of X and 2 units of Y. D) 5 units of X and no units of Y.

C

Type: G Topic: 4 E: 378-379 MI: 134-135
74. Refer to the above table and graph. Suppose that the price of X falls from $2 to $1, while the price of Y remains at $4. Which of the following represents the demand curve for X?
A) D1 B) D2 C) D3 D) D4

B

Type: A Topic: 5 E: 380-381 MI: 136-137
75. Some modern theories of consumer behavior have:
A) emphasized that consumption is basically an instantaneous act.
B) contended that in the MUx/Px = MUy/Py equation MU is understated for time-intensive goods.
C) introduced the opportunity cost of time as a component of product price.
D) argued that inflationary expectations negate the theory of consumer behavior.

C

Type: A Topic: 5 E: 380-381 MI: 136-137
76. In introducing the opportunity cost of time into the theory of consumer behavior we find that, all else equal:
A) one should consume less of time-intensive goods.
B) one should consume more of time-intensive goods.
C) the consumer's equilibrium position is not altered.
D) the marginal utility derived from each product must be multiplied by consumption time in determining equilibrium.

A

Type: C Topic: 5 E: 380-381 MI: 136-137
77. Assume you are spending your full budget and purchasing such amounts of X and Y that the marginal utility from the last units consumed is 40 and 20 utils respectively. Assume (a) the prices of X and Y are $8 and $4 respectively; (b) it takes 3 hours to consume a unit of X and 1 hour to consume a unit of Y; and (c) your time is worth $2 per hour. You
A) should substitute X for Y until the marginal utility per hour is the same for both products.
B) are consuming X and Y in the optimal amounts.
C) should consume less of Y and more of X.
D) should consume less of X and more of Y.

D

Type: A Topic: 5 E: 380 MI: 136
78. Which of the following has been a significant factor in DVDs replacing video cassettes (VCs) in the retail home video market?
A) DVDs are now less than one-half the price of VCs.
B) A scarcity of production capacity has curtailed the manufacture of VCs.
C) Most consumers perceive DVD sound and video reproduction to be of higher quality.
D) The price of DVD players has increased dramatically.

C

Type: A Topic: 5 E: 380 MI: 136
79. Consumer demand for DVDs has increased over time because the price of DVD players has:
A) decreased, and DVD players and video cassette players are substitute goods.
B) decreased, and DVD players and video cassette players are complementary goods.
C) increased, and DVD players and video cassette players are substitute goods.
D) increased, and DVD players and video cassette players are complementary goods.

B

Type: D Topic: 5 E: 380 MI: 136
80. The diamond-water paradox arises because:
A) essential goods may be cheap while nonessential goods may be expensive.
B) the marginal utility of certain products increases, rather than diminishes.
C) essential goods are always higher priced than nonessential goods.
D) we sometimes fail to use money as a standard of value.

A

Type: A Topic: 5 E: 380 MI: 136
81. The diamond-water paradox occurs because:
A) the price of a product is related to its total utility, not its marginal utility.
B) the price of a product is related to its marginal utility, not its total utility.
C) water is, in fact, very scarce in certain regions of the world.
D) diamonds are more useful than water.

B

Type: A Topic: 5 E: 380 MI: 136
82. "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.

B

Type: A Topic: 5 E: 381 MI: 137
83. The fact that most medical care purchases are financed through insurance:
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.
C) has decreased health care costs and therefore reduced aggregate health care expenditures.
D) increases the amount of health care consumed.

D

Type: A Topic: 5 E: 381 MI: 137
84. Most economists contend that:
A) noncash transfers are more efficient than cash transfers.
B) noncash transfers are less efficient than cash transfers.
C) noncash and cash transfers are equally efficient.
D) government can assess consumer preferences better than can consumers themselves.

B

Type: A Topic: 5 E: 381 MI: 137
85. Which of the following statements is correct?
A) Both cash and noncash gift-giving cause value losses.
B) Neither cash nor noncash gift-giving cause value losses.
C) Noncash gift-giving create a value loss, but cash gifts do not.
D) Cash gifts creates a value loss, but noncash gifts do not.

C

Type: A Topic: 5 E: 381 MI: 137
86. Noncash gifts:
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.

B

Type: A Topic: 5 E: 381 MI: 137
87. If you receive a gift whose market price is $20, but you consider it to be worth only $10, then:
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.

C

Type: A E: 375 MI: 131 Status: New
88. (Consider This) Newspapers dispensing devices seemingly "trust" people to take only a single paper but the devices actually rely on the law of:
A) supply. B) increasing opportunity costs. C) demand. D) diminishing marginal utility.

D

Type: A E: 375 MI: 131 Status: New
89. (Consider This) Unlike newspaper dispensing devices, soft drink dispensing machines do not permit people to take more than one can or bottle with each payment. The reason is that the:
A) opportunity cost of additional cans or bottles of soft drink increase very rapidly.
B) marginal utility of extra soft drink cans or bottles declines slowly, particularly because they are storable and can be consumed later.
C) marginal utility of extra soft drink cans or bottles declines quite rapidly.
D) opportunity cost of additional cans or bottles of soft drink increase very slowly.

B

Type: A E: 382 MI: 138
90. (Last Word) Theft and burglary:
A) can be viewed as attempts to maximize utility, given certain marginal costs and marginal benefits.
B) are examples of irrational behavior.
C) are applications of the law of increasing opportunity costs.
D) are examples of noneconomic behavior.

A

Type: A E: 382 MI: 138
91. (Last Word) Most people do not steal because:
A) the marginal utilities of stolen goods diminish as more of them are obtained.
B) the marginal utilities of stolen goods are negative.
C) their marginal costs, including guilt costs, are too high.
D) stolen goods can be sold only at deep discounts.

C

Type: A E: 382 MI: 138
92. (Last Word) All of the following would reduce property crime by increasing its "price," except:
A) imposing greater penalties for those who are caught and convicted.
B) using more sophisticated security systems.
C) enhancing the legitimate earnings of potential criminals.
D) cutting out the middlemen ("fences") by selling stolen goods via Internet auction sites.

D

Type: D E: 372 MI: 128
93. The income effect explains an exception to the law of demand.

False

Type: A E: 373-374 MI: 129-130
94. If marginal utility is diminishing, total utility must also be declining.

False

Type: A E: 373 MI: 129
95. The substitution effect suggests that, when consumers judge product quality by price, they will substitute high-priced products for low-priced products.

False

Type: A E: 372-373 MI: 128-129
96. 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.

False

Type: A E: 376 MI: 132
97. A rational consumer will cease purchasing a product at that quantity where marginal utility begins to diminish.

False

Type: D E: 373 MI: 129
98. Marginal utility is total utility divided by the number of units consumed.

False

Type: F E: 373-374 MI: 129-130
99. When total utility is at a maximum, marginal utility is zero.

True

Type: A E: 376 MI: 132
100. The limited money income of consumers results in a so-called budget constraint.

True

Type: A E: 376 MI: 132
101. When a consumer is maximizing total utility, he or she cannot increase total utility by reallocating expenditures among different products.

True

Type: A E: 379 MI: 135
102. The consumer demand curve for a product is downsloping because marginal utility is constant when price declines.

False

Type: A E: 380 MI: 136
103. Water has greater marginal utility than diamonds, yet diamonds have greater total utility than water.

False

Type: A E: 381 MI: 137
104. Noncash gift giving involves value loss when the marginal utility of the gift to the receiver is less than the product price.

True

Type: A E: 379 MI: 135
105. When a consumer shifts purchases from X to Y, the marginal utility of X falls and the marginal utility of Y rises.

False

Type: D Topic: 6 E: 386 MI: 142
106. The budget line shows:
A) the amount of product A that a consumer is willing to give up to obtain one more unit of product B.
B) all possible combinations of two goods that can be purchased, given money income and the prices of the goods.
C) all equilibrium points on an indifference map.
D) all possible combinations of two goods that yield the same level of utility to the consumer.

B

Type: D Topic: 6 E: 386 MI: 142
107. Which of the following statements is not correct?
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.

A

Type: A Topic: 6 E: 386 MI: 142
108. Refer to the budget line shown in the diagram above. If the consumer's money income is $20, the:
A) prices of C and D cannot be determined.
B) price of C is $2 and the price of D is $4.
C) consumer can obtain a combination of 5 units of both C and D.
D) price of C is $4 and the price of D is $2.

D

Type: G Topic: 6 E: 386-387 MI: 142-143
109. Refer to the budget line shown in the diagram above. Given the same money income, reductions in the prices of both products C and D will:
A) shift the budget line outward on the horizontal axis, but leave it anchored at "10" on the vertical axis.
B) shift the budget line to the left.
C) shift the budget line to the right.
D) have no effect on the budget line.

C

Type: G Topic: 6 E: 387 MI: 143
110. Refer to the budget line shown in the diagram above. The absolute value of the slope of the budget line is:
A) MUC/MUD. B) one-half. C) PD/PC. D) PC/PD.

D

Type: E Topic: 6 E: 386 MI: 142
111. In moving along a given budget line:
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.

A

Type: A Topic: 6 E: 386-387 MI: 142-143
112. Increases in product prices shift the consumer's:
A) budget line to the right. C) indifference curves to the left.
B) budget line to the left. D) indifference curves to the right.

B

Type: A Topic: 6 E: 386 MI: 142
113. An increase in money income shifts the consumer's:
A) budget line to the right. C) indifference curves to the left.
B) budget line to the left. D) indifference curves to the right.

A

Type: A Topic: 6 E: 387 MI: 143
114. A change in the slope of a budget line is solely the result of a change in:
A) consumer preferences. C) money income.
B) the price of one or both goods. D) the marginal rate of substitution.

B

Type: A Topic: 6 E: 386 MI: 142
115. In drawing a budget line it is assumed that:
A) consumer preferences are fixed.
B) the prices of the two products are variable.
C) money income is fixed.
D) consumer willingness to substitute between the two products is fixed.

C

Type: D Topic: 6 E: 386 MI: 142
116. The shift of the budget line from cd to ab in the above figure is consistent with:
A) decreases in the prices of both M and N .
B) an increase in the price of M and a decrease in the price of N .
C) a decrease in money income.
D) an increase in money income.

C

Type: G Topic: 6 E: 386 MI: 142
117. The budget line shift from ab to cd in the above figure is consistent with:
A) decreases in the prices of both M and N .
B) an increase in the price of M and a decrease in the price of N .
C) a decrease in money income.
D) an increase in money income.

B

Type: G Topic: 6 E: 386 MI: 142
118. Any combination of goods lying outside of the budget line:
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 unobtainable, given the consumer's income.

D

Type: A Topic: 6 E: 386-387 MI: 142-143
119. If money income increases and the prices of products A and B both increase, then the budget line:
A) must shift to the right.
B) must shift to the left.
C) may shift either to the right or the left.
D) will no longer be tangent to an indifference curve.

C

Type: C Topic: 6 E: 386-387 MI: 142-143
120. The movement of the budget line from BB to bb in the above figure suggests that income has:
A) increased and the price of X has decreased.
B) fallen and the price of Y has increased.
C) fallen and the price of X has decreased.
D) decreased but there have been no price changes.

B

Type: G Topic: 6 E: 386 MI: 142
121. Suppose you have a money income of $10 all of which you spend on Coke and popcorn. In the above diagram, the prices of Coke and popcorn respectively are:
A) $.50 and $1.00. B) $1.00 and $.50. C) $1.00 and $2.00. D) $.40 and $.50.

A

Type: G Topic: 6 E: 386-387 MI: 142-143
122. If the budget line shifts from BB to bb in the above diagram we can infer that the:
A) price of Y has increased and the price of X has decreased.
B) price of Y has decreased and the price of X has increased.
C) prices of both X and Y have increased.
D) prices of both X and Y have decreased.

A

Type: G Topic: 6 E: 386 MI: 142
123. A budget line shows the:
A) alternative combinations of two goods that a consumer can purchase with a given money income.
B) alternative combinations of two goods that will yield the same level of total utility to a consumer.
C) quantities of a particular good that a consumer will buy at various prices.
D) ratio of money income to product price.

A

Type: D Topic: 6 E: 386 MI: 142
124. Other things equal, an increase in a consumer's money income:
A) shifts her indifference curves rightward because she can now satisfy more of her wants.
B) shifts her budget line rightward because she can now purchase more of both products.
C) will be subject to the substitution effect, but not the income effect.
D) will not alter the location of consumer equilibrium.

B

Type: A Topic: 6 E: 386 MI: 142
125. The slope of a budget line reflects the:
A) elasticity of demand for the two products. C) amount of the consumer's income.
B) price ratio of the two products. D) utility ratio of the two products.

B

Type: D Topic: 6 E: 386 MI: 142
126. If the price of A is $12 and the price of B is $3, the budget line tells us that a consumer in effect can trade:
A) 12 units of A for 3 of B. C) 1 unit of A for 3 of B.
B) 1 unit of A for 4 of B. D) 1 unit of B for 4 of A.

B

Type: A Topic: 6 E: 386-387 MI: 142-143
127. 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:
A) shift rightward and become steeper. C) shift rightward, but its slope will not change.
B) shift rightward and become flatter. D) be unchanged.

D

Type: A Topic: 6 E: 386-387 MI: 142-143
128. Assume initially that the price of X (measured on the horizontal axis) is $9 and the price of Y (measured on the vertical axis) is $4. If the price of X now declines to $6, the budget line will:
A) be unaffected. C) shift inward on the horizontal axis.
B) shift outward on the vertical axis. D) shift outward on the horizontal axis.

D

Type: A Topic: 6 E: 386 MI: 142
129. Suppose Elroy's budget line is as shown on the above diagram. If his tastes change in favor of Coke and against popcorn, the budget line will:
A) become steeper. B) become flatter. C) shift rightward. D) be unaffected.

D

Type: G Topic: 6 E: 386 MI: 142
130. Edith is buying products X and Y with her money income. Suppose her budget line shifts rightward (outward). This might be the result of:
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 proportionately to increases in the prices of X and Y.
D) none of the above.

C

Type: A Topic: 6 E: 386 MI: 142
131. Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line:
A) is 5. B) is 1/5. C) is 4. D) is 20.

B

Type: A Topic: 7 E: 387 MI: 143
132. The indifference curve in the above diagram yields Juan 100 units of utility. If Juan's money income were to increase by 20 percent, the indifference curve would:
A) shift leftward. B) shift rightward. C) become steeper. D) not be affected.

D

Type: G Topic: 7 E: 387 MI: 143
133. At each point on an indifference curve:
A) money income is the same. C) total utility is the same.
B) the prices of the two products are the same. D) marginal utility is the same.

C

Type: A Topic: 7 E: 387 MI: 143
134. An indifference curve shows all:
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.

C

Type: D Topic: 7 E: 387 MI: 143
135. An indifference curve:
A) may be either upsloping or downsloping, depending on whether the two products are complements or substitutes.
B) is downsloping and convex to the origin.
C) is upsloping and has a constant slope.
D) is downsloping and concave to the origin.

B

Type: D Topic: 7 E: 388 MI: 144
136. An indifference map implies that:
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.

D

Type: A Topic: 7 E: 387 MI: 143
137. The marginal rate of substitution measures the:
A) magnitude of the substitution effect.
B) total utility received by a consumer when equilibrium is achieved.
C) extra utility that a consumer derives from successive units of a product.
D) consumer's willingness to substitute one product for another so that total utility will remain constant.

D

Type: D Topic: 7 E: 387 MI: 143
138. The marginal rate of substitution:
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.

D

Type: A Topic: 7 E: 387 MI: 143
139. Which of the following is not characteristic of indifference curves?
A) They are downsloping.
B) They are convex to the origin.
C) Their slope diminishes as we move from northwest to southeast on a given curve.
D) Curves closer to the origin reflect higher levels of total utility.

D

Type: A Topic: 7 E: 386-387 MI: 142-143
140. Which of the following is correct?
A) Budget lines are linear and upsloping; indifference curves are downsloping and concave to the origin.
B) Budget lines are linear and downsloping; indifference curves are downsloping and concave to the origin.
C) Budget lines are linear and downsloping; indifference curves are downsloping and convex to the origin.
D) Budget lines are downsloping and convex to the origin; indifference curves are linear and downsloping.

C

Type: A Topic: 7 E: 387 MI: 143
141. Indifference curve analysis:
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.

C

Type: A Topic: 8 E: 388-389 MI: 144-145
142. Refer to the above diagram where xy is the relevant budget line and I1 , I2, and I3 are indifference curves. The equilibrium position for the consumer is at:
A) any point on xy. B) point M. C) point K. D) point J.

C

Type: G Topic: 8 E: 388-389 MI: 144-145
143. Refer to the above diagram where xy is the relevant budget line and I1 , I2, and I3 are indifference curves. If the consumer is initially at point L, he or she should:
A) strive for point N by obtaining a larger money income.
B) purchase more of X and less of Y .
C) remain at that point to maximize utility.
D) purchase more of Y and less of X .

D

Type: G Topic: 8 E: 389 MI: 145
144. Refer to the above diagram where xy is the relevant budget line and I1 , I2, and I3 are indifference curves. Point M :
A) is the consumer's equilibrium position.
B) is unobtainable.
C) is inferior to point N .
D) entails the highest attainable level of total utility.

B

Type: G Topic: 8 E: 389 MI: 145
145. Refer to the above diagram where xy is the relevant budget line and I1 , I2, and I3 are indifference curves. At point K:
A) MUx = MUy. B) MRS = Px/Py. C) MRS = Py/Px. D) Px exceeds Py.

B

Type: G Topic: 8 E: 390 MI: 146
146. AA is Al's indifference curve and BB is Betty's. Al and Betty have the same budget line, LL. This information implies that:
A) Al's demand for X is stronger than Betty's.
B) Al's demand for Y is stronger than Betty's.
C) Al and Betty have the same demand for both products.
D) Al will buy some of X, but Betty will not.

B

Type: G Topic: 8 E: 390 MI: 146
147. In the above diagram:
A) the consumer is indifferent between points A and B, but neither point maximizes his utility.
B) the consumer is indifferent between points A and B and either point will maximize his utility.
C) any combination of X and Y entailing more of Y and less of X than shown at B would be preferred.
D) any combination of X and Y entailing more of X and less of Y than shown at A would be preferred.

A

Type: G Topic: 8 E: 386 MI: 142
148. If a consumer is initially in equilibrium, an increase in money income will:
A) move him to a new equilibrium on a lower indifference curve.
B) make his indifference curves steeper, but will not alter the equilibrium position.
C) have no effect on the equilibrium position because product prices have not changed.
D) move him to a new equilibrium on a higher indifference curve.

D

Type: A Topic: 8 E: 388-389 MI: 144-145
149. Assume a diagram in which a budget line is imposed on an indifference map. A consumer will maximize her utility:
A) at any point where the budget line and an indifference curve intersect.
B) at either point where the budget line intersects the horizontal and vertical axes.
C) where the budget line is tangent to an indifference curve.
D) where the ratio of the two product prices equals the reciprocal of the consumer's income.

C

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