 |
1 | |
"When the price of M & Ms fell, I bought more bags of M & Ms and fewer Snickers bars." This statement best illustrates: |
| | A) | an inferior good |
| | B) | a complementary good |
| | C) | the substitution effect |
| | D) | the income effect |
|
|
2 | |
Answer the next question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K.
| Units of J | MUj | | Units of K | MUk | | 1 | 20 | | 1 | 48 | | 2 | 18 | | 2 | 40 | | 3 | 16 | | 3 | 32 | | 4 | 14 | | 4 | 24 | | 5 | 12 | | 5 | 16 | | 6 | 10 | | 6 | 8 | | 7 | 8 | | 7 | 4 |
Refer to the table. If this consumer has an income of $26 and the prices of J and K are $2 and $4 respectively, the consumer will maximize her utility by purchasing: |
| | A) | 7 units of J and 3 units of K |
| | B) | 5 units of J and 4 units of K |
| | C) | 3 units of J and 5 units of K |
| | D) | 1 units of J and 6 units of K |
|
|
3 | |
The income effect suggests that an increase in price will: |
| | A) | cause consumers to buy smaller quantities of inferior goods |
| | B) | cause consumers to reduce their purchases of that good because it is now relatively more expensive |
| | C) | reduce the marginal utility per dollar spent on that good |
| | D) | reduce the amount a consumer can afford with a specific money income |
|
|
4 | |
The substitution effect suggests that as the price of a product increases: |
| | A) | its marginal utility falls |
| | B) | the consumer's real income falls |
| | C) | the consumer buys less of that product and more of products that are similar |
| | D) | the consumer buys more inferior goods and less normal goods |
|
|
5 | |
If the marginal utilities of each unit consumed are summed, one obtains: |
| | A) | the demand curve |
| | B) | maximum marginal utility |
| | C) | total income |
| | D) | total utility |
|
|
6 | |
True or false: The high marginal utility of water explains the diamond-water paradox. |
| | A) | True |
| | B) | False |
|
|
7 | |
Answer the next question on the basis of the following table which shows a consumer's total utility for products A, B, C, and D.
Units of
Product | TUA | TUB | TUC | TUD | | 1 | 11 | 28 | 12 | 17 | | 2 | 21 | 49 | 22 | 30 | | 3 | 30 | 63 | 30 | 39 | | 4 | 38 | 70 | 36 | 44 | | 5 | 45 | 70 | 40 | 45 |
Refer to the table. Demand is least elastic for product: |
| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
|
|
8 | |
Suppose the prices of products X and Y are $5 and $10, respectively. For a specific consumer who is currently exhausting her total income, the total utility from X is 100, while the total utility from Y is 200. The marginal utility of X and Y are both equal to 8. From this information, we can conclude: |
| | A) | she is maximizing total utility |
| | B) | she should purchase relatively more X |
| | C) | she should purchase relatively more Y |
| | D) | nothing about whether she is maximizing total utility |
|
|
9 | |
Suppose the price of X is $4 and the price of Y is $2. In order to maximize total utility, a consumer should allocate purchases such that: |
| | A) | the marginal utility of each good is the same |
| | B) | the marginal utility of X is half that of Y |
| | C) | the marginal utility of X is twice that of Y |
| | D) | the total utility of X is half that of Y |
|
|
10 | |
Suppose that Karen used to buy one latte every weekday, but now that the price has increased she has cut back her purchases to just one each weekday. Her decision is best explained by: |
| | A) | the income effect only |
| | B) | the substitution effect only |
| | C) | complementary effect only |
| | D) | both income and substitution effects the |
|