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| 1 | |
Which of the following best expresses the law of diminishing marginal utility? |
| | A) | the more a person consumes of a product, the smaller becomes the total utility that he receives from its consumption. |
| | B) | the more a person consumes of a product, the smaller becomes the additional utility that he receives from consuming each additional unit. |
| | C) | the less a person consumes of a product, the smaller becomes the total utility that he receives from its consumption. |
| | D) | the less a person consumes of a product, the smaller becomes the additional utility that he receives from consuming each additional unit. |
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| 2 | |
Human behaviour that seeks to maximize total utility is called |
| | A) | rational behaviour |
| | B) | consumer choice theory |
| | C) | marginal utility |
| | D) | substitution effect |
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| 3 | |
Marginal utility is positive, but declining, when total utility is positive and |
| | A) | rising at an increasing rate. |
| | B) | falling at an increasing rate. |
| | C) | rising at a decreasing rate. |
| | D) | falling at a decreasing rate. |
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| 4 | |
A budget constraint is faced by |
| | A) | consumers below the poverty line |
| | B) | consumers earning less than the average income in a given society |
| | C) | consumers whose expenditures typically exceed their income |
| | D) | all consumers, no matter what their income is |
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| 5 | |
The substitution effect encourages a consumer to buy more of a product when its price decreases because |
| | A) | the real income of the consumer has increased |
| | B) | the real income of the consumer has decreased |
| | C) | the product is now relatively more expensive than it was |
| | D) | other products are now relatively less expensive than they were |
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| 6 | |
How does the law of diminishing marginal utility explain why a demand curve is downward sloping? |
| | A) | as the quantity consumed increases, marginal utility received from each successive unit decreases, so the price the consumer is willing to pay for higher quantities will fall. |
| | B) | as the quantity consumed increases, marginal utility from each successive unit increases, so the price the consumer is willing to pay for larger quantities will rise. |
| | C) | as the quantity consumed decreases, marginal utility from each successive unit increases, so the consumer is willing to pay less for smaller quantities of the good. |
| | D) | as the quantity consumed decreases, marginal utility received from each successive unit decreases, so the consumer is willing to pay less for smaller quantities of the good. |
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| 7 | |
A decrease in the price of product Z will |
| | A) | increase the marginal utility per dollar spent on Z |
| | B) | decrease the marginal utility per dollar spent on Z |
| | C) | decrease the total utility per dollar spent on Z |
| | D) | cause no change in the marginal utility per dollar spent on Z |
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| 8 | |
After eating eight chocolate chip cookies, you turn down the ninth cookie. Your refusal indicates that |
| | A) | the marginal utility for chocolate chip cookies is negative |
| | B) | the total utility for chocolate chip cookies is negative |
| | C) | the marginal utility is positive for the eighth and negative for the ninth cookie |
| | D) | the total utility was zero because you ate one cookie and refused the other |
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| 9 | |
A consumer has two basic choices: rent a movie for $4.00 which takes 2 hours of time to watch, or spend $15 for a restaurant meal which takes 1 hour to consume. If the marginal utilities of the movie and the dinner are the same, and the consumer values time at $15 an hour, the rational consumer will most likely |
| | A) | rent more movies and buy fewer restaurant meals |
| | B) | buy more restaurant meals and rent fewer movies |
| | C) | buy fewer restaurant meals and rent fewer movies |
| | D) | consume both equally |
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| 10 | |
Stella is maximizing her satisfaction by consuming equal amounts of two goods, X and Y. If the marginal utility of X is half that of Y, what is the price of X if the price of Y is $1.00? |
| | A) | $2.00 |
| | B) | $1.00 |
| | C) | $1.50 |
| | D) | $0.50 |
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| 11 | |
Which of the following is not true of the concept of "utility"? |
| | A) | utility is the amount of satisfaction a good or service provides |
| | B) | the utility received from a given good is subjective and differs from person to person |
| | C) | the utility of a product is measured by how useful it is |
| | D) | it is difficult to attach number values to the measure of utility |
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| 12 | |
The price of water is substantially less than the price of diamonds because |
| | A) | the marginal utility of a diamond is significantly less than the marginal utility of a gallon of water |
| | B) | the marginal utility of a diamond is significantly greater than the marginal utility of a gallon of water |
| | C) | the total utility of diamonds is greater than the total utility of water |
| | D) | diamonds have a low marginal utility |
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| 13 | |
The full price of a product to a consumer is |
| | A) | its market price |
| | B) | its market price plus the value of its consumption time |
| | C) | its market price less the value of its consumption time |
| | D) | the value of its consumption time less its market price |
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| 14 | |
Most economists contend that non-cash gifts are |
| | A) | of greater total utility but less marginal utility |
| | B) | of less total utility but greater marginal utility |
| | C) | more efficient because they do not waste scarce resources |
| | D) | less efficient because they may not match recipient's preferences |
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| 15 | |
The law of demand can be explained by the income effect because |
| | A) | as income increases, the demand for normal goods increases |
| | B) | as the price of a good increases, all else equal, the consumer's purchasing power falls, and quantity demanded falls as well |
| | C) | as the price of a good increases, all else equal, the consumer's purchasing power rises, and quantity demanded rises as well |
| | D) | as income falls, the demand for inferior goods will rise |
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