principle of economics : chapter 21

Chapter 21—Consumer Choice: Maximizing Utility and Behavioral Economics

MULTIPLE CHOICE

1. The diamond-water paradox is the observation thata. those things that have the greatest price often have little value in exchange and those

things that have the lowest price often have the greatest value in exchange.b. those things that have the greatest value in use often have little value in exchange and

those things that have little value in use often have the greatest value in exchange.c. those things that have the least value in use often have little value in exchange and those

things that have the greatest value in use often have the greatest value in exchange.d. those things that have the least price often have little value in exchange and those things

that have the greatest price often have the greatest value in exchange.

ANS: B PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

2. When an economist talks about utility, she is talking abouta. a company that provides electricity, water, gas, etc.b. the satisfaction, in terms of price, that a producer receives from selling his product.c. the satisfaction that results from the consumption of a good.d. the amount of one good that a person is willing to give up in order to get a unit of another

good.e. the satisfaction that results from the consumption of a good minus the price that must be

paid to get the good.

ANS: C PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

3. A util is an artificial construct used as a means of measuring thea. price of a good.b. satisfaction one receives from the consumption of a good.c. costs of producing a good.d. difference between the price and the value of a good.

ANS: B PTS: 1 DIF: Difficulty: EasyNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

4. Total utility is defined as thea. change in marginal utility a person derives from the consumption of a good.b. change in total utility a person derives from the consumption of a good divided by the

price of that good.c. change in total utility a person derives from the consumption of a good divided by the

change in the consumption of that good.d. sum of the amounts of satisfaction a person receives from consuming a good.e. change in total utility a person derives from the consumption of a good.

ANS: D PTS: 1 DIF: Difficulty: Moderate

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

NAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

5. Marginal utility is defined as thea. change in marginal utility a person derives from the consumption of a good.b. change in total utility a person derives from the consumption of a good divided by the

price of that good.c. change in total utility a person derives from the consumption of a good divided by the

change in the quantity of the good consumed.d. sum of the amounts of satisfaction a person receives from consuming a good.e. change in total utility a person derives from the consumption of a good divided by the

value in use of that good.


6. Suppose Alice receives 250 utils from consuming one hamburger and 90 utils from consuming a second hamburger. What is the marginal utility of the second hamburger?a. 340 utilsb. 170 utilsc. 90 utilsd. 0 utilse. none of the above

ANS: C PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application NOT: New

7. Suppose Will receives 150 utils from consuming one banana and 250 utils from consuming two bananas. What is the marginal utility of the second banana?a. 50 utilsb. 125 utilsc. 100 utilsd. 58 utilse. none of the above

ANS: C PTS: 1 DIF: Difficulty: EasyNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application

8. Suppose you are eating slices of pizza and after consuming the first slice you receive 14 utils of total utility, after the second you receive 22 utils of total utility, and after the third 25 utils of total utility. Thena. the law of diminishing marginal utility is not applicable because your total utility is

increasing instead of diminishing.b. your total utility is 61 utils.c. your total utility is 25 utils, and the marginal utility of the first slice is 8 utils (22 - 14).d. your total utility is 25 utils, and the marginal utility of the third slice is 3 utils.

ANS: D PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choice


KEY: Bloom's: Application

9. Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 80, 116, 136, 146, respectively. The marginal utility of the seventh wing is __________ utils.a. 14b. 146c. 10d. 20.9


10. Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 80, 116, 136, 150, respectively. The marginal utility of the sixth wing is __________ utils.a. 14b. 136c. 20d. 22.7


11. Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 30, 50, 65, 72, respectively. In this situation we have __________ marginal utility, which is generally __________ in the analysis of consumer choice.a. increasing; assumedb. increasing; not assumedc. diminishing; assumedd. diminishing; not assumed


12. The law of diminishing marginal utility can be stated as follows:a. As the amount of a good consumed increases, the sum of satisfaction received tends to

decrease.b. As the amount of a good consumed increases, the additional satisfaction gained from

consuming additional units tends to decrease.c. As the amount of a good consumed decreases, the additional satisfaction gained from

consuming additional units tends to increase.d. As the amount of a good consumed increases, the sum of satisfaction received tends to

increase but at a diminishing rate.e. b and d

ANS: E PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension


13. The law of diminishing marginal utility says thata. the marginal utility gained by consuming equal successive units of a good will decline as

the amount consumed increases.b. the more of a particular good one consumes, the greater is the utility received from the

consumption of that good.c. the marginal utility gained by consuming equal successive units of a good will increase as

the amount consumed increases.d. the more of a particular product one sells, the less utility one receives from selling.e. none of the above

ANS: A PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

14. Suppose you are consuming a particular good and you could somehow give back the last unit you consumed. What would happen to total and marginal utility (assuming that the marginal utility of the unit given back is positive)?a. Both total and marginal utility would decrease.b. Both total and marginal utility would increase.c. Total utility would increase but marginal utility would decrease.d. Total utility would decrease but marginal utility would increase.e. There would be no change in marginal utility but total utility would decrease.

ANS: D PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application

15. Which of the following is true?a. It is possible for total utility to rise as marginal utility falls.b. Marginal utility is the same as total utility.c. As marginal utility falls, total utility always falls.d. a and c

ANS: A PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

16. We take one dollar from a millionaire and give it to a pauper. Assuming a diminishing marginal utility of money,a. total utility in the economy must rise.b. total utility in the economy must fall.c. total utility in the economy must remain the same.d. we cannot say whether or not total utility changes.


17. We take one dollar from a pauper and give it to a millionaire. Assuming a diminishing marginal utility of money,a. total utility in the economy must rise.


b. total utility in the economy must fall.c. total utility in the economy must remain the same.d. we cannot say whether or not total utility changes.


18. Jackson says that his fifth game of chess gave him greater utility than his first, and therefore the law of diminishing marginal utility does not hold. An economist who believes that marginal utility definitely and always declines with the consumption of equal successive units of a good will likely saya. the fifth game of chess is a different good than the first game of chess.b. there are exceptions to the law of diminishing marginal utility.c. the law of diminishing marginal utility does not apply to board games.d. a or be. a or c

ANS: A PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application

19. Suppose you just finished your third plateful of Thanksgiving dinner and it yielded zero units of additional satisfaction. Should you go back for more?a. Why not? Since the third plateful gave you zero units, the fourth can't give you any less

than zero.b. No way. You could get negative utility from the fourth plateful.c. Yes or no. It won't make any difference because your total utility is at its peak.d. Yes. If you received zero units of satisfaction from the third, then obviously the law of

diminishing marginal utility is not working in this case.

ANS: B PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application

20. You and your roommate are eating pizza and have already consumed all but the last slice. Your roommate claims that he is hungrier than you and therefore should get the last slice of pizza. Your roommate has madea. a diamond-water paradox.b. an interpersonal utility comparison.c. a correct statement.d. a marginal error.


21. Which of the following statements is false?a. A millionaire definitely receives less utility from an additional dollar than a poor person.b. A poor person definitely receives less utility from an additional dollar than a rich person.c. A millionaire definitely receives the same utility from an additional dollar as a poor

person.d. A millionaire generally receives less utility from an additional dollar than a poor person.


e. We do not know if any of the statements are true or false, because we do not know how much utility one person receives relative to another.


22. Rich has $100,000 and Poore has $1,000. Which of these statements is most strongly supported by the theory of consumer choice?a. An extra dollar given to Rich is worth less to him than his 100,000th dollar.b. An extra dollar is worth less to Rich than it is to Poore.c. An extra dollar is worth less to Poore than it is to Rich.d. Rich's 1,000th dollar is worth more to Rich than Poore's 1,000th dollar is worth to Poore.e. Rich's 100,000th dollar is worth to Rich exactly what Poore's 1,000th dollar is worth to

Poore.


23. In which of the following settings is an interpersonal utility comparison being made?a. Brandon says to Jack, "I get a lot more satisfaction out of eating pizza than you do."b. Stephanie says, "I don't know what Taylor is feeling or thinking; I can't read a person's

heart or mind."c. David says to Maria, "I know you like this course a lot more than I do."d. a and ce. a, b, and c


24. We would expect the total utility of diamonds to be __________ than the total utility of water and the marginal utility of diamonds to be __________ than the marginal utility of water.a. higher; higherb. lower; lowerc. higher; lowerd. lower; higher

ANS: D PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

25. Which of the following statements is true?a. The less you have of any one good, the less you would be willing to pay for one more unit

of it.b. The less you have of any one good, the more you would be willing to pay for one more

unit of it.c. The amount you have of any one good does not influence the price you would be willing

to pay for it, but it does affect the marginal utility received from consuming a particular unit.

d. none of the above



26. Suppose you could quantify the amount of satisfaction you receive from consuming ice cream in money terms. You might say, "I expect to get $3 worth of satisfaction from this ice cream cone." According to traditional economic theory, if the price of this ice cream cone were $3.05, would you buy one?a. Sure, why not? What's a nickel?b. Absolutely. It's worth it at that price.c. No way, because it's not worth it.d. There is no way to answer this question because you really can't compare the price of

something and the amount of satisfaction you expect to receive from it.

ANS: C PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application

27. Suppose the government provides peanut butter to everyone free of charge and everyone consumes it to the point at which he receives no additional satisfaction from another spoonful. Is this necessarily good?a. Yes, because everyone is satisfied.b. No, because there might be some cases where the resources used to produce peanut butter

could have been better used to produce more of other products.c. Yes, because the law of diminishing marginal utility indicates that in order to get the

greatest amount of satisfaction from the use of resources, people should consume as much of every good as they can.

d. none of the above


28. We would expect the total utility of water to be high but its marginal utility to be low. Why?a. Because water is a fluid and we don't need fluids to live as much as we need food.b. Because we need water to live and there is so much of it.c. Because we need water to live and there is very little of it.d. Because water's price is low.


29. Economists usually assume that money has __________ marginal utility.a. increasingb. constantc. decreasingd. zero

ANS: C PTS: 1 DIF: Difficulty: EasyNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension


30. Because there are so few diamonds in the world, the consumption of diamondsa. takes priority over the consumption of water.b. takes place at relatively high marginal utility.c. takes place at relatively low marginal utility.d. is more important than the consumption of water.


31. Dan is currently consuming 10 Cokes and 5 slices of pizza per week such that the marginal utility of the tenth Coke is 12 utils and that of the fifth slice of pizza is also 12 utils. How should Dan redirect his purchases so as to attain consumer equilibrium?a. He should buy more pizza slices and less Coke.b. He should buy fewer pizza slices and more Coke.c. He is currently attaining consumer equilibrium and should not redirect his purchases.d. He could gain more satisfaction by buying less of both and more of something else.e. There is not enough information to answer the question.

ANS: E PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application

32. Suppose the marginal utility (MU) of paperback books is 40 utils and each costs $5 while the MU of DVD rentals is 20 utils and each rents for $4. If you consume one movie and one book per week, are you attaining consumer equilibrium?a. Yes, so there is no need to change.b. No. You need to buy more books and rent fewer DVDs.c. No. You need to rent more DVDs and buy fewer books.d. There is not enough information to answer the question.


33. Suppose for a consumer the marginal utility (MU) of bread is 20 utils and the MU of milk is 10 utils; the price of bread is $3 and the price of milk is $1. Given this,a. more utility per dollar is gained from consuming bread than milk.b. more utility per dollar is gained from consuming milk than bread.c. the same amount of utility per dollar is gained from consuming milk as bread.d. the consumer is in consumer equilibrium.


34. If a person is receiving greater marginal utility per dollar from consuming one good than another, it follows that he or she isa. maximizing disutility.b. not maximizing utility.c. maximizing utility.


d. There is not enough information to answer the question.

ANS: B PTS: 1 DIF: Difficulty: EasyNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

35. Ari is currently consuming 10 hot dogs and 8 hamburgers per week. The last hot dog she consumed yielded 20 utils while the last hamburger she ate gave her 25 utils. If hot dogs cost $2 and hamburgers cost $2.50, is Ari consuming the correct quantities of these two goods to be in consumer equilibrium?a. No, she should consume more hamburgers and fewer hot dogs.b. No, she should consume more hot dogs and fewer hamburgers.c. Yes, so there is no need to change her eating habits.d. There is not enough information to answer the question.


36. In order for an individual to achieve consumer equilibrium through the consumption of two goods, A and B, that individual must fulfill the conditiona. TUA = TUB.b. TUA/PA = TUB/PB.c. MUA = MUB.d. MUA/PA = MUB/PB.e. MUB/PA = MUA/PB.


37. A consumer is in equilibrium if he or she derives the samea. total utility from each good consumed.b. total utility per dollar spent on each good consumed.c. marginal utility from each good consumed.d. marginal utility per dollar spent on each good consumed.

ANS: D PTS: 1 DIF: Difficulty: EasyNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

38. Which of the following statements is true?a. If a consumer is in equilibrium, it does not necessarily follow that he or she is also

achieving the greatest total utility.b. If a consumer is in equilibrium, it necessarily follows that he or she is also achieving the

greatest total utility.c. If a consumer is attaining the greatest marginal utility, then it necessarily follows that he

or she is also achieving the greatest total utility.d. If a consumer is attaining the greatest total utility, then it necessarily follows that he or she

is also achieving the greatest marginal utility.



39. The law of diminishing marginal utility helps to explaina. why people trade.b. the law of demand.c. why the production possibilities frontier is typically bowed-out.d. a and be. all of the above


40. In the Texas A & M study of the "buying" behavior of two white rats, as the "relative price" of one beverage was raised,a. both white rats began to consume more of the higher-priced beverage.b. both white rats began to consume less of the higher-priced beverage.c. one white rat began to consume more of the higher-priced beverage and the other began to

consume less.d. both white rats continued consuming the same amount of the beverage as before its price

was raised.e. There was no study done at Texas A & M with white rats.

ANS: B PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Economics 24/7

41. Suppose a consumer is purchasing Coke (c) and pretzels (p) in quantities such that he is achieving consumer equilibrium. Then the price of Coke increases. Which of the following will be true?a. MUC/PC = MUP/PP

b. MUC/PC > MUP/PP

c. MUC/PC < MUP/PP

d. We cannot say for certain what will happen to the MUC/PC relative to the MUP/PP.


42. Suppose a consumer is purchasing Coke and pretzels in quantities such that she is achieving consumer equilibrium. Then the price of Coke decreases. The consumer will likely __________ her consumption of Coke and the marginal utility of Coke will __________ while the total utility from Coke will __________.a. increase; increase; increaseb. increase; decrease; decreasec. increase; decrease; increased. decrease; increase; increasee. decrease; decrease; decrease

ANS: C PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application


43. Joe is currently in consumer equilibrium by consuming cheese and crackers, such that the last cracker consumed yielded 8 utils and the last piece of cheese consumed yielded 12 utils. Assume the price of crackers is two cents per cracker and the price of cheese is three cents per piece. If the price of crackers increases to four cents, Joe should __________ his consumption of crackers and his marginal utility from crackers will __________ and also __________ his consumption of cheese and his marginal utility from cheese will __________.a. increase; increase; increase; increaseb. increase; increase; decrease; decreasec. increase; decrease; increase; decreased. decrease; increase; decrease; increasee. decrease; increase; increase; decrease

ANS: E PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application

44. Suppose Valerie is consuming lipstick (L) and eye shadow (E) and nothing else. MUL = 24 and MUE = 40. The price of eye shadow is $5, and the price of lipstick is $4. What should Valerie do?a. Consume more eye shadow and less lipstick.b. Consume more lipstick and less eye shadow.c. Consume less of both.d. Consume more of both.e. Not change her consumption of either good.


45. Diamonds are more expensive than water becausea. markets do not always reflect value.b. they have fewer uses.c. they are relatively scarce and they yield higher marginal utility.d. they yield higher total utility.e. all of the above


46. To resolve the diamond-water paradox, it is important to note that under most circumstances,a. the marginal utility of water is lower than the marginal utility of diamonds.b. the marginal utilities of water and diamonds are about the same.c. the marginal utility of water is higher than the marginal utility of diamonds.d. the marginal utilities of water and diamonds are inversely related.e. the marginal utilities of water and diamonds are directly related.


47. To an economist, utility refers to thea. usefulness of a good or service.


b. satisfaction that results from the consumption of a good.c. relative scarcity of a good.d. rate of decline in the demand curve.

ANS: B PTS: 1 DIF: Difficulty: EasyNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Knowledge

48. Suppose that the total utility from consuming one unit of good Z is 220 utils, the total utility from consuming two units of good Z is 320 utils, and the total utility from consuming three units of good Z is 400 utils. The marginal utility received from consuming the third unit of good Z isa. 313.33 utils.b. 80 utils.c. 100 utils.d. 50 utils.

ANS: B PTS: 1 DIF: Difficulty: EasyNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application NOT: New

49. Suppose that the total utility from consuming one unit of good X is 54 utils, the total utility of two units of good X is 74 utils, and the total utility of three units of good X is 84 utils. The marginal utility of the third unit isa. 10 utils.b. 70.67 utils.c. 12.25 utils.d. 20 utils.

ANS: A PTS: 1 DIF: Difficulty: EasyNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application NOT: New

50. According to the traditional theory of marginal utility as presented in the textbook, as more units of a good are acquired, the consumer's marginal utilitya. always continues to rise.b. diminishes.c. remains constant.d. may diminish at first, but it must eventually rise.e. may rise at first, but it must eventually become constant.


51. The theory of consumer choice assumes that consumers attempt to maximizea. the difference between total utility and marginal utility.b. average utility.c. total utility.d. marginal utility.

ANS: C PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension


52. If the marginal utility of a good is negative, thena. consumers should buy less of it.b. consumers will consume it only if it is free.c. consumers should buy more of it to make its marginal utility positive.d. the law of diminishing marginal utility is being violated.


53. Given that MUX/PX < MUY/PY, consumers who spend all their income on these two goodsa. can never maximize utility.b. have maximized total utility.c. can increase utility by buying more of X and less of Y.d. can increase utility by buying more of Y and less of X.e. a and b


54. Suppose that a consumer purchases a combination of X and Y such that MUX/PX = 15 utils per dollar and MUY /PY = 10 utils per dollar. To maximize utility, the consumer should buya. less of X and more of Y.b. more of X and less of Y.c. more of both X and Y.d. less of both X and Y.e. neither X nor Y.


55. Given two goods, X and Y, and their prices, PX and PY a consumer will maximize utility by allocating expenditures such thata. MUX/PY = MUY/PX.b. PY/MUX = PX/MUY.c. MUX/PX = MUY /PY.d. MUX = PX = MUY = PY = MU$.e. MUX = MUY = PX = PY = MU$.


56. Given two goods, X and Y, their prices, PX and PY, a consumer is in equilibrium when the last dollar spent on X yieldsa. zero marginal utility for Y.b. the same marginal utility as if all the money were spent on Y.c. a smaller marginal utility than the last dollar spent on Y.d. the same marginal utility as the last dollar spent on Y.


e. none of the above


57. The diamond-water paradox is illustrated by which of the following statements?a. Water, a necessity, has a relatively low price whereas diamonds, usually a luxury, have a

relatively high price.b. Although water appears to have a relatively low price when compared to diamonds, in

reality, it has a relatively higher price.c. Although water appears to have a relatively low price when compared to diamonds, in

reality, the prices are equal.d. Although water appears to have a relatively low price when compared to diamonds, at the

margin, water has the relatively higher price.e. Although water appears to have a relatively low price when compared to diamonds, at the

margin, the prices are equal.


58. To economists, utility meansa. marginal value.b. relative value.c. satisfaction.d. usefulness.e. a, c, and d

ANS: C PTS: 1 DIF: Difficulty: EasyNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Knowledge

59. Total utilitya. is the total amount of satisfaction derived from consuming a particular quantity of a good.b. for quantity Y can be calculated by summing the marginal utilities of each unit that

comprises quantity Y.c. is the sum of the amounts of utility derived from consuming each unit of a good.d. a and be. all of the above


60. Marginal utility isa. the extra satisfaction derived from consuming an additional unit of a good.b. the total satisfaction derived from consuming an additional unit of a good.c. the total satisfaction derived from consuming a good.d. the change in total satisfaction as an additional unit of a good is consumed.e. a and d

ANS: E PTS: 1 DIF: Difficulty: Moderate© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

NAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

Exhibit 21-1

Units of Plums

Total Utility of Plums (utils)

1 222 343 444 525 57

61. Refer to Exhibit 21-1. The marginal utility of the third plum isa. 17 utils.b. 10 utils.c. 8 utils.d. 3 utils.e. cannot be determined

ANS: B PTS: 1 DIF: Difficulty: EasyNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application

62. Refer to Exhibit 21-1. The marginal utility of the second plum isa. 18.5 utils.b. 7.5 utils.c. 37 utils.d. 12 utils.

ANS: D PTS: 1 DIF: Difficulty: EasyNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application NOT: New

63. Refer to Exhibit 21-1. The marginal utility of the fourth plum isa. 8 utils.b. 2 utils.c. 10 utils.d. 13.5 utils.e. 50 utils.


64. Refer to Exhibit 21-1. In this example, marginal utilitya. constantly increases.b. constantly diminishes.c. increases then diminishes.d. diminishes then increases.

ANS: B PTS: 1 DIF: Difficulty: Moderate


NAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application

Exhibit 21-2

Units of Oranges

Marginal Utility of Oranges (utils)

1 202 163 134 115 8

65. Refer to Exhibit 21-2. Total utility for the first two oranges isa. 36 utils.b. 20 utils.c. 40 utils.d. 36 utils.e. cannot be determined


66. Refer to Exhibit 21-2. Total utility for the first three oranges isa. 12 utils.b. 62 utils.c. 49 utils.d. 15 utils.e. 42 utils.


67. Refer to Exhibit 21-2. Total utility for the first four oranges isa. 11 utils.b. 60 utils.c. 52 utils.d. 15 utils.e. 40 utils.


68. Refer to Exhibit 21-2. Total utility for all five oranges isa. 70 utils.b. 12 utils.c. 68 utils.d. 80 utils.e. 40 utils.



69. The law of diminishing marginal utilitya. allows us to make interpersonal utility comparisons.b. tells us that an additional dollar is worth less to a millionaire than to a poor person.c. tells us the worth of an additional dollar of income.d. tells us that an additional dollar of income is worth less than the preceding dollar of

income.e. a, b, and d


70. Assuming only two goods X and Y, if MUX/PX = MUY/PY, thena. the consumer is in equilibrium.b. the consumer cannot be made better off by redirecting his purchases.c. the consumer is deriving the same marginal utility per dollar for all goods.d. a and ce. a, b and c


71. The endowment effecta. states that we value an item more highly if we own it than if we do not own it.b. is the same as compartmentalizing.c. states that people are often willing to make themselves worse off in order to make

someone else worse off.d. states that people are often willing to make themselves worse off in order to make

someone else better off.e. a and d


72. If total utility of a good is high while the price of the good is low, it is likely that the gooda. is plentiful.b. is inferior.c. is rare.d. has high marginal utility.


73. A person is said to be in consumer equilibrium if shea. equates marginal utilities per dollar spent.


b. has diminishing marginal utility of money.c. purchases only normal goods.d. has an incentive to redirect her purchases.


74. Don receives 100 utils from consuming two oranges. The utility he derives from consuming the second orange equals 30 utils. The information provideda. is consistent with the law of diminishing marginal utility.b. is inconsistent with the law of diminishing marginal utility.c. is sufficient to determine the quantity of oranges Don will consume.d. lends support to the inferiority of oranges as consumer goods.


75. Don receives 100 utils from consuming two oranges. The utility he derives from consuming the second orange equals 30 utils. Which of the following conclusions is derived from the law of diminishing marginal utility?a. The marginal utility Don receives from consuming the third orange will be less than 30

utils.b. The marginal utility Don receives from consuming the third orange will be less than 100,

but greater than 30 utils.c. If the price of oranges decreases, Don will buy fewer oranges, ceteris paribus.d. The total utility Don receives from consuming the first orange is less than the marginal

utility from consuming the first orange.


Exhibit 21-3

Apples OrangesUnits Total Utility Units Total Utility

0 0 0 01 15 1 222 28 2 413 39 3 584 48 4 735 55 5 85

76. Refer to Exhibit 21-3. Linda spends $5 a week on apples and oranges. If the price of both goods is $1 per unit, how many apples and oranges, respectively, does she purchase per week if she wants to maximize her utility?a. 0 and 5b. 1 and 4c. 2 and 3d. 3 and 2


e. none of the above

ANS: B PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application

77. Refer to Exhibit 21-3. Linda spends $5 a week on apples and oranges. If the price of both goods is $1 per unit, what is Linda's total utility from consuming the optimal bundle of goods?a. 85b. 86c. 88d. 209e. 279

ANS: C PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application

78. Refer to Exhibit 21-3. Assume that the price of oranges increases to $2, while the price of apples remains at $1, and Linda allocates $5 of the weekly food budget to purchasing apples and oranges. If Linda wants to maximize her utility, her new consumption bundle will consist ofa. 1 apple and 2 oranges.b. 3 apples and 1 orange.c. 5 apples and no oranges.d. none of the above


79. Economist David Friedman pointed out thata. the endowment effect is not limited to humans.b. the law of diminishing marginal utility does not hold for money.c. the diamond-water paradox would not exist if water was scarce and diamonds were

plentiful.d. the government should provide the necessities of life for free.

ANS: A PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Knowledge

80. Which of the following statements does not invoke interpersonal utility comparisons?a. The total utility a millionaire derives from $100 is less than the total utility a poor person

derives from $100.b. The marginal utility a millionaire derives from the one-millionth dollar is less than the

marginal utility a poor person derives from the one-hundredth dollar.c. For both the millionaire and the pauper, the marginal utility they derive from the one-

thousandth dollar is less than the marginal utility they derive from the five-hundredth dollar.

d. None of the above, because all rely on interpersonal utility comparisons.

ANS: C PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choice


KEY: Bloom's: Application

81. Jack receives 30 utils from one apple, 45 utils from two apples, and 55 utils from three apples. It follows that the marginal utility of the third apple is __________ utils and that Jack's __________utility rises as his __________ declines.a. 55; marginal; totalb. 10; total; marginalc. 130; total; marginald. 100; marginal; totale. none of the above


82. If the rate of increase of total utility declines as the quantity consumed of a good increases, it follows that marginal utility must bea. declining.b. rising.c. staying constant.d. negative.e. There is not enough information to answer the question.


83. Smith says she gets 5 utils from consuming the fifth unit of a good whereas Jones says he gets 10 utils from consuming the fifth unit of a good. It follows thata. the fifth unit of the good means more to Jones than Smith.b. the fifth unit of the good means more to Smith than Jones.c. the fifth unit of the good means twice as much to Jones as it means to Smith.d. if the law of diminishing marginal utility holds, both Smith and Jones will get less utility

from the sixth unit of the good than the fifth.e. a and d


84. The 100th game of chess gives Jones more utility than the 32nd game of chess. It follows thata. neither the law or principle of diminishing marginal utility holds.b. the law of diminishing marginal utility may hold since the 32nd game of chess might have

been a different "good" than the 100th game of chess (after all, it could have been played with a different person).

c. there must be a law of increasing marginal utility.d. total utility after the 32nd game had to be higher than total utility after the 100th game.e. none of the above



85. Which of the following best describes an interpersonal utility comparison?a. Jones likes computers produced by Dell Computer Corporation and Smith likes computers

produced by Apple Computer Inc.b. Smith gets more utility from working on his computer than Jones gets from working on

his computer.c. Smith got less utility from eating the 30th cookie than eating the 29th cookie, and the

same holds for Jones.d. Usually, Smith seems a lot happier than Jones.e. Smith usually eats more in a day than Jones eats in a day.


86. The diamond-water paradox holds that often things that have high __________ have a __________ price and things that have a low __________ have a __________ price.a. value in exchange; high; value in use; lowb. value in use; low; value in use; highc. absolute price; low relative; relative price; low absoluted. relative price; low absolute; relative price; high absolutee. exchange value; high; exchange value; low


87. Which of the following statements is false?a. If total utility rises, so must marginal utility.b. If marginal utility rises, so must total utility.c. If marginal utility falls, so must total utility.d. If total utility falls, marginal utility is negative.e. a and c

ANS: E PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

88. Smith, who has $10,000, receives an extra dollar, as does Jones, who has $100,000. Smith receives more utility from the extra dollar than does Jones. This is an example ofa. an interpersonal utility comparison.b. the law of diminishing marginal utility.c. the diamond-water paradox.d. a and b


89. This is the solution to the diamond-water paradox: Those things that have high value in use sometimes have low prices because they are consumed at low __________ utility; those things that have low value in use sometimes have high prices because they are consumed at high __________utility.


a. marginal; totalb. total; totalc. total; marginald. marginal; marginale. none of the above


90. Implicit in the solution to the diamond-water paradox is the idea that prices reflect __________ utility instead of __________ utility.a. marginal; totalb. total; marginalc. average; totald. total; averagee. none of the above


91. If, as a person consumes additional units of a good, total utility rises by a constant amount, it follows thata. marginal utility is rising.b. marginal utility is falling.c. total utility and marginal utility are equal.d. marginal utility is constant.e. marginal utility is negative.


92. Which of the following statements is true?a. An extra dollar earned by a millionaire necessarily brings him or her less utility than an

extra dollar earned by a poor person.b. If marginal utility is constant, then total utility for two units of a good is equal to the

marginal utility of the second unit of the good.c. The marginal and total utility of a good are the same for the first unit of the good.d. Total utility will rise if marginal utility is negative.e. a and c

ANS: C PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

93. Consumer equilibrium exists whena. marginal utility for all goods is the same.b. total utility is constant.c. prices for all goods are the same.d. total utility for all goods is the same.


e. the MU/P ratio for all goods is the same.


94. If the MU/P ratio for good X is less than the MU/P ratio for good Y, this means thata. an individual is receiving more utility per dollar from good Y than good X.b. the price of good X is lower than the price of good Y.c. the price of good Y is lower than the price of good X.d. the MU of good X is lower than the MU of good Y.e. none of the above


95. Jones buys two goods, A and B. Currently, Jones receives marginal utility of 24 utils from good A and pays a price of $1.50 per unit. Jones receives a marginal utility of 43 utils from good B and pays a price of $1.99 per unit. Jones receives __________ per dollar from good B as he does from good A.a. the same marginal utilityb. more marginal utilityc. less marginal utilityd. more consumers' surpluse. less consumers' surplus


96. The MU/P ratio for good X is greater than the MU/P ratio for good Y. To achieve consumer equilibrium, the consumer reallocates dollars from the purchase of good Y to the purchase of good X. If the law of diminishing marginal utility holds, the marginal utility of good X __________ and the marginal utility of good Y __________.a. falls, risesb. rises, fallsc. rises, stays constantd. falls, stays constante. stays constant, rises


97. The MU/P ratio for good X is greater than the MU/P ratio for good Y as a result of a fall in the price of good X. To achieve consumer equilibrium, the consumer reallocates dollars from the purchase of good Y to the purchase of good X. In the process, shea. puts downward pressure on prices.b. maximizes total utility.c. acts according to the law of demand.d. b and ce. none of the above



98. The white rats in the Texas A & M study acted the same way a person whoa. sought to achieve consumer equilibrium would act.b. is irrational would act.c. didn't want to assume any risk would act.d. didn't like any goods would act.e. There was no study done at Texas A & M with white rats.

ANS: A PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Economics 24/7

99. A person is in consumer equilibrium, and then the price rises for one of the goods she purchases. If she wants to restore herself to consumer equilibrium, she will (most likely)a. buy less of the good whose price has risen and more of the relatively lower priced goods.b. try to increase the marginal utility she receives from the good whose price has risen.c. try to decrease the marginal utility she receives from the goods whose prices did not rise.d. buy more of both the good whose price has risen and of the goods whose prices have not

risen.e. There is not enough information to answer the question.


100. Suppose that in the year 2050, one gallon of water is more expensive than a one-carat diamond. What could explain this?a. There is much less water in the world of 2050 than today.b. There are many more diamonds in the world of 2050 than today.c. The diamond-water paradox does not hold for any pair of goods.d. The law of diminishing marginal utility no longer holds.e. a or b


101. The MU/P ratio for good X is the same as for good Y: 12 utils per dollar. If the price of good X rises to $2 from $1, a consumer who seeks (consumer) equilibrium will buy more of good __________ until the marginal utility of good __________ falls to __________ utils.a. Y; Y; 12b. X; X; 24c. Y; X; 12d. Y; Y; there is not enough information to answer this part of the question.e. X; X; there is not enough information to answer this part of the question.



102. No matter what the price of a given item of food, a person will eat the same amount of that food. This is __________ with the idea of __________.a. consistent; consumer equilibriumb. not consistent; consumer equilibriumc. consistent; maximizing total utilityd. consistent; consumers' surpluse. none of the above


103. Suppose people are in consumer equilibrium buying 10,000 units of good X at a given price. Then the price of good X falls to $0. It follows that people will buy more of good X and that the marginal utility of the last additional unit they buy will be __________ the __________ of the 10,000th unit.a. lower than; marginal utilityb. greater than; average utilityc. the same as; marginal utilityd. greater than; marginal utilitye. none of the above


104. If the marginal utility of X is negative, then the last unit of X isa. a badb. a normal goodc. an inferior goodd. not subject to the law of diminishing marginal utility


105. Consumer equilibrium exists when an individuala. can be made better off by buying more of a normal good and less of an inferior good.b. is receiving the same total utility from each of the goods he or she purchases.c. is receiving the same marginal utility from each of the goods he or she purchases.d. has the same MU/P ratio for each of the goods he or she purchases.e. none of the above


Exhibit 21-4

Units of Good Consumed Total Utility (utils) Marginal Utility (utils)1 50 502 (A) 45


3 (B) 204 125 (C)5 (D) 7

106. Refer to Exhibit 21-4. What value goes in blank (A)?a. 47.5b. 100c. 80d. 95e. There is not enough information to answer this question.

ANS: D PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application NOT: New

107. Refer to Exhibit 21-4. What value goes in blank (B)?a. 115b. 150c. 45d. 100e. There is not enough information to answer this question.

ANS: A PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application NOT: New

108. Refer to Exhibit 21-4. What value goes in blank (C)?a. 25b. 5c. 14.5d. 10e. There is not enough information to answer this question.

ANS: D PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application NOT: New

109. Refer to Exhibit 21-4. What value goes in blank (D)?a. 132b. 111c. 118d. 25e. There is not enough information to answer this question.

ANS: A PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application NOT: New

110. The marginal utility curve for units 6 through 8 of good Z lies below the horizontal axis. What does this imply must be true about the total utility curve for units 6 through 8 of good Z?a. That portion of good Z’s total utility curve must be upward sloping.b. That portion of good Z’s total utility curve must be downward sloping.


c. That portion of good Z’s total utility curve must be horizontal.d. That portion of good Z’s total utility curve must also lie below the horizontal axis.


111. The marginal utility curve for units 1 through 5 of good Z lies above the horizontal axis. What does this imply must be true about the total utility curve for units 1 through 5 of good Z?a. That portion of good Z’s total utility curve must be upward sloping.b. That portion of good Z’s total utility curve must be downward sloping.c. That portion of good Z’s total utility curve must be horizontal.d. That portion of good Z’s total utility curve must also lie above the horizontal axis.

ANS: A PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application

Exhibit 21-5

Units of Good Consumed Total Utility (utils) Marginal Utility (utils)1 20 202 30 (A)3 (B) 84 (C) 65 (D) 3

112. Refer to Exhibit 21-5. What value goes in blank (A)?a. 12.0b. 13.5c. 10.0d. 14.0e. There is not enough information to answer this question.


113. Refer to Exhibit 21-5. What value goes in blank (B)?a. 27b. 38c. 40d. 35e. There is not enough information to answer this question.


114. Refer to Exhibit 21-5. What value goes in blank (C)?a. 28b. 16


c. 44d. 50e. There is not enough information to answer this question.


115. Refer to Exhibit 21-5. What value goes in blank (D)?a. 47b. 15c. 35d. 60e. There is not enough information to answer this question.

ANS: A PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application

116. Suppose that there are two cities that are alike in every way except that one city has significantly better weather than the other city. Call the city with good weather Good-Weather City (GWC) and the other Bad-Weather City (BWC). Assume that the median price of a home in the two cities is originally the same. If the marginal utility of living in GWC is 500 and the marginal utility of living in BWC is 300, to make themselves better off economic theory tells us that a. at least some people will move from BWC to GWC, which will make housing prices rise

in GWC and BWC.b. at least some people will move from GWC to BWC, which make housing prices rise in

BWC and GWC.c. at least some people will move from BWC to GWC, which will make housing prices rise

in GWC and fall in BWC.d. at least some people will move from GWC to BWC, which will make housing prices rise

in BWC and fall in GWC.

ANS: C PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Economics 24/7

117. Research conducted by Nicholas Epley and his colleagues at Harvard showed that people will spend a _________________ percentage of money given to them if it is ________________ rather than a. smaller; cash; a rebate check.b. greater; termed a rebate; a bonus.c. greater; termed a bonus; a rebate.d. smaller; a rebate check; cash.


118. There are two goods, X and Y, and the absolute price of good Y falls. It follows thata. a person can buy more of good Y.b. a person cannot buy more of good Y.c. the slope of the budget constraint changes.


d. the indifference curve between X and Y changes.e. a and c

ANS: E PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Appendix E

119. Consumer equilibrium exists when thea. slope of the indifference curve is greater than the slope of the budget constraint.b. consumer is on his highest indifference curve.c. marginal rate of substitution equals the slope of the budget constraint.d. slope of the indifference curve equals the slope of the budget constraint.e. c and d


120. Indifference curves are convex to the origin ifa. a person's marginal rate of substitution declines as he or she consumes more of a good.b. a person's marginal rate of substitution increases as he or she consumes more of a good.c. the law of diminishing marginal utility holds.d. a and ce. none of the above

ANS: D PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Appendix E

121. If the MU/P ratio for two goods is the same, thena. the slope of the budget constraint between the two goods is equal to the marginal rate of

substitution (MRS) between the two goods.b. the indifference curve between the two goods is concave to the origin.c. the prices of the two goods are the same.d. it follows that consumers prefer fewer goods to more goods.e. a and c

ANS: A PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Appendix E

122. If Smith will give up three units of Y to get one additional unit of X, thena. he has transitive preferences.b. his budget constraint is upward sloping.c. his indifference curve is downward sloping.d. the price of X must be three times as high as the price of Y.e. none of the above

ANS: C PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Appendix E

123. An indifference curve shows© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

a. the bundles of two goods that give an individual equal total utility.b. two bundles of two goods each where one bundle gives greater utility to an individual than

the other bundle.c. two bundles of two goods each where one bundle is preferred to the other.d. the bundles of two goods that give an individual equal marginal utility.

ANS: A PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension MSC: Appendix E

124. The marginal rate of substitution is illustrated by thea. slope of the indifference curve.b. slope of the budget line.c. ratio of the marginal utility of the good on the vertical axis to the marginal utility of the

good on the horizontal axis.d. distance between the indifference curves.e. distance between the budget line and the indifference curve.

ANS: A PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension MSC: Appendix E

125. An indifference curve shows alla. 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 that will yield the same 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. none of the above

ANS: C PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension MSC: Appendix E

Exhibit 21-6


126. Refer to Exhibit 21-6. I1, I2 and I3 are indifference curves and line ab is the relevant budget constraint. The equilibrium position for the consumer is ata. any point on the budget constraint.b. point M.c. point J.d. point T.e. point R.

ANS: D PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Appendix E

127. Refer to Exhibit 21-6. I1, I2 and I3 are indifference curves and line ab is the relevant budget constraint. If the consumer is initially at point R, he shoulda. strive for point N by obtaining a larger money income.b. purchase more of X and less of Y.c. remain at that point in order to maximize utility.d. purchase more of Y and less of X.e. none of the above


128. Refer to Exhibit 21-6. I1, I2 and I3 are indifference curves and line ab is the relevant budget constraint. Point N isa. the consumer's equilibrium position.b. unattainable.c. inferior to every other labeled point on the diagram.d. attainable, but does not exhaust the consumer's income.


129. The budget constraint cuts the horizontal axis at 12 units of good X and it cuts the vertical axis at 20 units of good Y. If the price of good X is $20 and the price of good Y is $12, then what does income equal?a. $200b. $240c. $520d. $280e. There is not enough information to answer the question.

ANS: B PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Appendix E

130. The __________ one's income, the __________ one's budget constraint.a. smaller; further away from the originb. larger; closer to the originc. larger; further away from the origin


d. smaller; steeper the slope ofe. larger; steeper the slope of


131. If a person's income falls, his or her budget constraint movesa. inward toward the origin, and its slope changes.b. outward away from the origin, and its slope remains the same.c. inward toward the origin, and its slope remains the same.d. outward away from the origin, and its slope changes.e. none of the above


132. If a person's income and the prices of both goods all rise by the same percentage, then her budget constrainta. moves inward toward the origin, and its slope remains the same.b. moves outward away from the origin, and its slope changes.c. moves outward away from the origin, and its slope remains the same.d. does not change in any way.


133. If income rises, the budget constrainta. moves inward toward the origin.b. moves outward away from the origin.c. does not move.d. moves farther down the vertical axis.

ANS: B PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension MSC: Appendix E

Exhibit 21-7


134. Refer to Exhibit 21-7. Which of the following graphs represents a budget constraint of a consumer whose income is $120?a. (1)b. (2)c. (3)d. (1) and (2)e. This cannot be determined from the information provided.

ANS: E PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Appendix E

135. Refer to Exhibit 21-7. The price of X is $40 and the price of Y is $80. Assuming that the consumer allocates all of his income to good X, how many units of X will he purchase? (Request: Do not ask the instructor to which graph the question is referring.)a. 40b. 50c. 80d. 90e. 120

ANS: C PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Appendix E

136. Refer to Exhibit 21-7. For graph (2), if the price of X is $60, what is the consumer's income?a. $1,000b. $2,000c. $3,000d. $6,000e. This cannot be determined from the information provided.

ANS: C PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Appendix E

137. Refer to Exhibit 21-7. For graph (3), if the price of Y is $200, the price of X isa. $50.


b. $40.c. $30.d. $25.e. $15.

ANS: D PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Appendix E

138. Refer to Exhibit 21-7. For graph (1), if the price of X is $20, the price of Y isa. $10.b. $40.c. $80.d. $100.e. $160.

ANS: B PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Appendix E

139. Refer to Exhibit 21-7. The relative price of X in terms of Y is the greatest on grapha. (1).b. (2).c. (3).d. This cannot be determined based on the information provided

ANS: A PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Appendix E

Exhibit 21-8

140. Refer to Exhibit 21-8. If the price of good X falls, the budget constraint moves from budget constrainta. 1 to 2.b. 3 to 2.c. 3 to 1.d. 1 to 3.



141. Refer to Exhibit 21-8. If the price of good X rises, the budget constraint moves from budget constrainta. 1 to 2.b. 2 to 3.c. 3 to 1.d. 1 to 3.e. a or c


142. Refer to Exhibit 21-8. A move of the budget constraint from 1 to 2 is caused by aa. rise in the price of good X.b. fall in the price of good X.c. rise in the price of good Y.d. fall in income.

ANS: A PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Appendix E

143. Refer to Exhibit 21-8. A move of the budget constraint from 2 to 3 is caused by aa. rise in the price of good X.b. fall in the price of good X.c. rise in the price of good Y.d. fall in income.

ANS: B PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Appendix E

144. Research conducted by Nicholas Epley and his colleagues at Harvard showed that people will spend a _________________ percentage of money given to them if it is ________________ rather than a. smaller; cash; a rebate check.b. greater; termed a rebate; a bonus.c. greater; termed a bonus; a rebate.d. smaller; a rebate check; cash.


145. For economists, framing refers to thea. manner in which a problem is presented.b. degree of competition present in a given market.c. total satisfaction a consumer derives from consuming a good.d. level of total utility derived from consuming a good.e. c and d


ANS: A PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Knowledge NOT: New

146. As presented in the text, research by some economists has shown that even when there is no difference between options provided to people a. the way in which the options are framed has no impact on the outcome (i.e. there will be

no preference for one option over another).b. the preferred option will always be the one that is stated most simplistically.c. the preferred option will always be the one that sounds more complicated.d. the way in which the options are framed impacts the outcome (i.e. which option is

preferred).

ANS: D PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Knowledge NOT: New

147. As presented in the text, research on neuroeconomics has shown that when individuals are presented with present-future choices the a. analytic system (which weights the future heavily) seems to win out over the limbic

system (which weights the present heavily).b. limbic system (which weights the present heavily) seems to win out over the analytic

system (which weights the future heavily).c. limbic system and the analytic system are equally weighted, making the individuals

indifferent to the choices presented.d. limbic system (which weights the future heavily) seems to win out over the analytic

system (which weights the present heavily).

ANS: B PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Knowledge NOT: New

148. Consider two options: (A) you receive a guaranteed payment of $100; (B) a coin is tossed and if heads comes up, you win nothing; if tails comes up, you win $200. The expected payoff for option A is: a. $200b. $100c. $300d. $75e. There is not enough information to answer the question.

ANS: B PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application NOT: New

149. Consider two options: (A) you receive a guaranteed payment of $100; (B) a coin is tossed and if heads comes up, you win nothing; if tails comes up, you win $200. The expected payoff for option B is: a. $200b. $100c. $300d. $75e. There is not enough information to answer the question.


ANS: B PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application NOT: New

150. Given the choice between a sure-thing option and a gamble option with the same expected payoff, a____________ person will choose the sure thing. a. risk averseb. risk lovingc. risk neutrald. risk enjoyinge. none of the above

ANS: A PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension NOT: New

151. Given the choice between a sure-thing option and a gamble option with the same expected payoff, a____________ person will choose gamble. a. risk averseb. risk lovingc. risk neutrald. risk avoidinge. none of the above

ANS: B PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension NOT: New

152. Brain researchers think that the best reason the brain might weight the present high and the future low when faced with a present-future tradeoff is that: a. responding quickly and definitively to present rewards might have come with an

evolutionary advantage.b. people are naturally short-run thinkers.c. the future is harder to visualize than the present.d. people naturally think they may die in the future.e. a and c

ANS: A PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension NOT: New

TRUE/FALSE

1. If Dan's marginal utility from eating one apple is 100 utils and Jorge's marginal utility from eating one apple is 200 utils, it follows that Jorge likes apples more than Dan, assuming that Dan and Jorge measure the marginal utility of apples in exactly the same way.

ANS: F PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application


2. It is possible for total utility to rise as marginal utility falls.

ANS: T PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

3. Economists assume that the goal of consumers is to maximize marginal utility.

ANS: F PTS: 1 DIF: Difficulty: ChallengingNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

4. The two white rats in the "buying" behavior study conducted at Texas A & M acted in a manner that supported the law of demand and the concept of consumer equilibrium.

ANS: T PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Knowledge MSC: Economics 24/7

5. A good can have high total utility and low marginal utility.

ANS: T PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

6. Economists use the term utility to mean usefulness.

ANS: F PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

7. When people treat some dollars differently than others, they are said to be compartmentalizing.


8. Economists David Zizzo and Andrew Oswald found that the majority of their study participants made themselves worse off in order to make someone else worse off.

ANS: T PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Knowledge

9. Marginal utility is always a positive number.

ANS: F PTS: 1 DIF: Difficulty: EasyNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

10. If total utility is a positive number, marginal utility must also be a positive number.


ANS: F PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application

11. Adam Smith observed that often things that have the greatest value in use, or are the most useful, have a relatively low price, and things that have little or no value in use have a high price.

ANS: T PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Knowledge

12. Marginal utility is computed by dividing total utility by the quantity consumed of a good.

ANS: F PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension

13. Research presented in the text shows that people are more concerned with their absolute income position in a group than their relative income position in the group.

ANS: F PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Knowledge MSC: Economics 24/7

14. Research presented in the text shows that people are more likely to spend a larger percentage of money received from the government when it is called a “tax bonus” than they would if it were called a “tax rebate.”

ANS: T PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Knowledge MSC: Economics 24/7

15. An indifference curve shows all the combinations of bundles of two goods a person can purchase given a fixed amount of income.

ANS: F PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension MSC: Appendix E

16. Consumer equilibrium occurs at the point where the slope of the budget constraint is equal to the slope of the indifference curve.

ANS: T PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Comprehension MSC: Appendix E

17. Indifference curves are generally downward sloping and concave to the origin.

ANS: F PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choice


KEY: Bloom's: Comprehension MSC: Appendix E

18. For the consumer, a point on an indifference curve that lies farther from the origin is preferable compared to those points that are closer to the origin.

ANS: T PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Application MSC: Appendix E

19. The absolute value of the slope of the budget constraint is also known as the marginal rate of substitution.

ANS: F PTS: 1 DIF: Difficulty: ModerateNAT: BUSPROG: Analytic LOC: DISC: Utility and consumer choiceKEY: Bloom's: Knowledge MSC: Appendix E

20. Economists assume that the goal of consumers is to maximize total utility.


ESSAY

1. Explain the difference between total utility and marginal utility. Give a hypothetical example to help support your answer.

ANS:Total utility is the total amount of satisfaction derived from consuming a particular quantity of a good (for example, three slices of pizza). Marginal utility is the extra satisfaction derived from consuming an additional unit of the good (for example, the third slice of pizza).

PTS: 1 DIF: Difficulty: Moderate NAT: BUSPROG: AnalyticLOC: DISC: Utility and consumer choice KEY: Bloom's: Application

2. Describe some of the findings of behavioral economists presented in the text and explain how these findings differ from the traditional economic framework.

ANS:According to behavioral economists, not all human behavior fits easily into the traditional economic model of people acting rationally, consistently and in a self-interested manner. Some examples of their findings are: (1) individuals sometimes value a good more if it is theirs than if it isn't theirs and they are seeking to acquire it; (2) individuals sometimes treat some dollars differently than they treat other dollars; (3) individuals are willing to make themselves worse off in order to make others worse off.

PTS: 1 DIF: Difficulty: Challenging NAT: BUSPROG: AnalyticLOC: DISC: Utility and consumer choice KEY: Bloom's: Application

3. Describe the diamond-water paradox and its solution.


ANS:The diamond-water paradox states that some things that have great value in use, such as water, have little value in exchange and some things that have little value in use, such as diamonds, have great value in exchange. An understanding of the difference between total utility and marginal utility helps to explain this paradox. Water's total utility is high, but because water is relatively plentiful, its marginal utility is low. In contrast, because there are relatively few diamonds in the world, the marginal utility of diamonds is high.

PTS: 1 DIF: Difficulty: Moderate NAT: BUSPROG: AnalyticLOC: DISC: Utility and consumer choice KEY: Bloom's: Application

4. Explain how the conditions for consumer equilibrium help to support the law of demand. Give an example to support your answer.

ANS:Consumer equilibrium occurs where the marginal utility per dollar spent on each good is equal to the marginal utility per dollar spent on every other good (MUx/Px = MUy/Py). As the price of one good rises, the marginal utility per dollar spent on that good will fall, so the consumer will cut back on consumption of that good and purchase more of the other good, in order to restore equilibrium. The law of demand describes just such an inverse relationship between price and the quantity demanded of a good. (Examples will vary.)

PTS: 1 DIF: Difficulty: Challenging NAT: BUSPROG: AnalyticLOC: DISC: Utility and consumer choice KEY: Bloom's: Application


principle of economics : chapter 21

Documents