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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 economic cost of any particular good or service to a consumer is 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.
| | You are lost in the desert. You would pay as much as €50 for a litre of cold water. You stumble into an oasis where water is on sale and you buy a litre, realizing a consumer surplus of €47. How much did you pay for the litre of water? |
| | 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 wheat which has an equilibrium price of €50 per tonne and an equilibrium quantity of 1000 tonnes per day. The demand durve is a straight line. Suppose the maximum possible price wheat will fetch is €150 per tonne. 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 in the US 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 fuel in the US increased in the 1970s, but fell in the 1990s. |
| | B) | the real price of fuel increased in the 1970s, but fell in the 1990s. |
| | C) | the nominal price of fuel fell in the 1970s, but the real price increased in the 1990s. |
| | D) | the real price of fuel 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 Europe than in the US can be explained by the fact that: |
| | A) | fuel is heavily taxed in Europe, which makes it almost four times as expensive as in the US. |
| | B) | consumers' income level in Europe is almost four times as much as in the US. |
| | C) | fuel is heavily taxed in the US, which makes it almost four
times as expensive as in Europe. |
| | D) | consumers' income level in the US is almost four times as much as in Europe. |
| | E) | None of the above. |
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9.
| | This question refers to the material in the optional section of Chapter 5.
Transitivity of preferences means that: |
| | A) | Indifference curves slope down from left to right. |
| | B) | An difference curve that is further from the origin indicates a lower level of consumer welfare. |
| | C) | An difference curve that is further from the origin indicates a higher level of consumer welfare. |
| | D) | Indifference curves cannot cross. |
| | E) | Indifference curves must be convexly curved. |
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10.
| | This question refers to the material in the optional section of Chapter 5.
When the consumer is in equilibrium: |
| | A) | The slope of the budget line is equal to relative prices. |
| | B) | The consumer will be at the middle point on an indifference curve. |
| | C) | The slope of the budget line will be the same as that of the consumer's indifference curve. |
| | D) | The slope of the consumer's indifference curve is given by hid marginal rate of substitution. |
| | E) | The idifference curve will be a straight line. |
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