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| 1 | |
Which of the following is correct about marginal and total utility? |
| | A) | Both marginal and total utility must always be strictly positive. |
| | B) | If marginal utility is positive, total utility must be rising. |
| | C) | If marginal utility is rising, total utility must be declining. |
| | D) | If total utility is zero, marginal utility must be at its maximum. |
| | E) | Both marginal and total utility can not be negative at the same time. |
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| 2 | |
George spends all of his income on two goods: CDs and DVDs. The price of a CD is $10 and the price of a DVD is $20. At his current consumption levels, his marginal utilities for the two goods are 10 utils per CD and 20 utils per DVD. To maximize his utility, George should |
| | A) | buy more CDs. |
| | B) | buy more DVDs. |
| | C) | buy fewer DVDs. |
| | D) | buy fewer CDs. |
| | E) | change nothing, as he is already maximizing utility. |
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| 3 | |
The cost of any particular good or service is equal to the |
| | A) | list price. |
| | B) | monetary cost minus any non-monetary costs. |
| | C) | monetary cost plus any non-monetary costs. |
| | D) | difference between the list price and the price one actually pays. |
| | E) | monetary cost divided by any non-monetary costs. |
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| 4 | |
Josh is lost in the desert. He determines that he would pay as much as $50 for a quart of cold Gatorade. He happens upon a grocery store, buys a quart of cold Gatorade, and realizes a consumer surplus of $47. How much did he pay for the quart of Gatorade? |
| | A) | $3.00. |
| | B) | $97.00. |
| | C) | $48.50. |
| | D) | $6.00. |
| | E) | Impossible to determine from the information given. |
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| 5 | |
Consider a market for corn which has an equilibrium price of $5 per bushel and an equilibrium quantity of 10,000 bushels per day. Suppose the maximum price corn will fetch is $15 per bushel. How much consumer surplus do the buyers in this market reap? |
| | A) | $50,000 |
| | B) | $75,000 |
| | C) | $25,000 |
| | D) | $100,000 |
| | E) | $200,000 |
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| 6 | |
Joe has a fixed amount of income and buys two different goods, M and N, in accordance with the rational spending rule. If the price of M were to rise, one could predict that Joe would buy |
| | A) | the same amount of M and reduce purchases of N. |
| | B) | the same amount of N and reduce purchases of M. |
| | C) | more N and less M. |
| | D) | less of both M and N. |
| | E) | less N and more M. |
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| 7 | |
According to the text, the phenomenon that people turned to four-cylinder cars in the 1970s, only to shift back to six- and eight-cylinder cars in the 1990s, can be explained by the fact that |
| | A) | the nominal price of gasoline increased in the 1970s, but fell in the 1990s. |
| | B) | the real price of gasoline increased in the 1970s, but fell in the 1990s. |
| | C) | the nominal price of gasoline fell in the 1970s, but the real price increased in the 1990s. |
| | D) | the real price of gasoline fell in the 1970s, but the nominal price increased in the 1990s. |
| | E) | None of the above. |
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| 8 | |
According to the text, the phenomenon that automobile engines are smaller in England than in the US can be explained by the fact that |
| | A) | gasoline is heavily taxed in England, which makes it almost four times as expensive as in the US. |
| | B) | consumers' income level in England is almost four times as much as in the US. |
| | C) | gasoline is heavily taxed in the US, which makes it almost four times as expensive as in England. |
| | D) | consumers' income level in the US is almost four times as much as in England. |
| | E) | None of the above. |
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| 9 | |
According to the text, the explosive growth in the market of sports utility vehicles (SUVs) in the 1990s can be partially explained by |
| | A) | a sharp decline in the income tax rates. |
| | B) | a sharp decline in the real price of SUVs. |
| | C) | a sharp decline in the nominal price of SUVs. |
| | D) | a sharp decline in the real price of gasoline. |
| | E) | a sharp decline in the nominal price of gasoline. |
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| 10 | |
The property of diminishing marginal utility means that as more units of a good are consumed, |
| | A) | total utility falls. |
| | B) | the marginal utility of the extra units is negative. |
| | C) | the marginal utility of the extra units becomes smaller and smaller. |
| | D) | total utility diminishes. |
| | E) | total utility becomes negative. |
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