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1 | |
For a normal good, the income effect: |
| | A) | reinforces the substitution effect of a price increase |
| | B) | offsets the substitution effect of a price increase |
| | C) | offsets the substitution effect of a price decrease |
| | D) | suggests that a price increase will increase the quantity demanded of other normal goods |
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2 | |
Tulia consumes only two goods, burgers and fries, both of which are normal goods. If the price of burgers decreases, Tulia's consumption of burgers will: |
| | A) | increase due to the income effect |
| | B) | decrease due to the income effect |
| | C) | decrease due to the substitution effect |
| | D) | not change due to the offsetting income and substitution effects |
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3 | |
Which one of the following is inconsistent with the law of diminishing marginal utility? Jenny's marginal utility of cookies: |
| | A) | increases for the first two, but falls for each successive cookie |
| | B) | falls with each successive cookie |
| | C) | falls for the first four cookies, but increases for each successive cookie |
| | D) | turns negative after the fifth cookie |
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4 | |
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 $32 and the prices of J and K are both $4, the consumer will maximize her utility by purchasing: |
| | A) | 1 units of J and 7 units of K |
| | B) | 3 units of J and 5 units of K |
| | C) | 4 units of J and 4 units of K |
| | D) | 6 units of J and 2 units of K |
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5 | |
When offered another helping of mashed potatoes at dinner, your dinner guest passes but asks for a second glass of wine. We can conclude that your guest's: |
| | A) | marginal utility of wine is positive but marginal utility of mashed potatoes is zero or negative |
| | B) | total utility of mashed potatoes is less than her total utility of wine |
| | C) | total utility of mashed potatoes exceeds her total utility of wine |
| | D) | marginal utility of mashed potatoes is decreasing but marginal utility of wine is increasing |
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6 | |
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 most elastic for product: |
| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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7 | |
Suppose that the marginal utilities per dollar of goods X and Y are 4 and 2, respectively. Further suppose the prices of the two goods are $10 and $5. If the consumer is just exhausting his income, he: |
| | A) | should buy relatively more X and less Y |
| | B) | should buy relatively more Y and less X |
| | C) | is currently maximizing utility |
| | D) | may or may not be maximizing utility--more information is required |
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8 | |
Suppose the price of a compact disc (CD) is half that of a DVD. A consumer who purchases both DVDs and CDs will allocate her income between them such that: |
| | A) | the marginal utility of CDs is double that of DVDs |
| | B) | the marginal utility of CDs is half that of DVDs |
| | C) | the marginal utility per dollar of CDs is double that of DVDs |
| | D) | the marginal utility per dollar of CDs is half that of DVDs |
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9 | |
Tonya currently rents four DVDs per week for $4 each and plays 2 rounds of golf, priced at $10 per nine-hole round. She values her time at $8 per hour and it takes 2 hours either to watch a DVD or play a round of golf. The marginal utilities of a DVD and a round of golf are 40 and 60, respectively. Based on the information, Tonya should: |
| | A) | play more golf and watch fewer DVDs |
| | B) | play less golf and watch more DVDs |
| | C) | play less golf and watch fewer DVDs |
| | D) | play more golf and watch more DVDs |
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10 | |
True or false: All else equal, people will eat more at an all-you-can-eat buffet than at a traditional ala carte restaurant. |
| | A) | True |
| | B) | False |
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