Question 1

A rational consumer will try to achieve the highest indifference curve that his or her income will allow.

Accepted Answer

A) True 
 B)False

Question 2

Marginal utility is total utility divided by the number of units consumed.

Accepted Answer

A) True 
 B)False

Question 3

Susie buys two goods: rounds of golf and massages.Suppose that the price of a round of golf is $20 and the price of a massage is $30.In a typical week, Susie will play two rounds of golf, getting 20 utils of satisfaction from the second round.She normally buys three massages each week, with the third giving her 30 utils of satisfaction.If she were to buy a fourth massage in a week, it would give her 20 utils of satisfaction.If the price of massages is reduced to $15, which of the following outcomes might we expect to occur?

Accepted Answer

A)  Susie would leave her consumption choices unchanged because of diminishing marginal utility in the consumption of massages.
B)  Susie would buy more massages and fewer rounds of golf, as predicted by the income effect.
C)  Susie would buy more massages and more rounds of golf, as predicted by the substitution effect.
D)  Susie would buy more massages and fewer rounds of golf, as predicted by the substitution effect.E) A) and B)
F) None of the above

Question 4

Which of the following statements is correct?

Accepted Answer

A)  When marginal utility is decreasing, an increase in the quantity consumed will decrease total utility.
B)  When marginal utility is positive, an increase in the quantity consumed will decrease total utility.
C)  When marginal utility is positive, an increase in the quantity consumed will increase total utility.
D)  When marginal utility is zero, an increase in the quantity consumed will make total utility zero.E) B) and D)
F) B) and C)

Question 5

In deciding what to buy, the consumer will choose the good with the

Accepted Answer

A)  highest marginal utility.
B)  lowest price.
C)  highest marginal utility-to-price ratio.
D)  lowest marginal utility-to-price ratio.E) A) and B)
F) B) and D)

Question 6

Indifference curves are convex to the origin due to diminishing marginal rates of substitution.

Accepted Answer

A) True 
 B)False

Question 7

When the price of a product falls, the income effect induces the consumer to purchase more of it, while the substitution effect prompts her to buy less.

Accepted Answer

A) True 
 B)False

Question 8

If you purchase a gift worth $25 for your sister, but your sister would be willing to pay only $10 ifshe bought the item for herself, then the

Accepted Answer

A)  total utility of the gift is $35.
B)  total utility of the gift is $15.
C)  marginal utility of the gift is $15.
D)  loss of value in the gift is $15.E) C) and D)
F) None of the above

Question 9

The goal of a rational consumer is to maximize

Accepted Answer

A)  the quantities of all goods consumed.
B)  the MU/P of all goods consumed.
C)  marginal utility of all goods consumed.
D)  total utility from all goods consumed.E) B) and C)
F) A) and B)

Question 10

How did Apple overcome consumers' diminishing marginal utility for iPads?

Accepted Answer

A)  Apple lowered the price of iPads so that previous buyers would purchase another unit.
B)  Apple introduced new features to entice previous buyers to purchase new models.
C)  Apple ignored the problem and focused solely on attracting new buyers.
D)  Apple was unable to overcome the problem and has faced steadily declining sales.E) B) and C)
F) B) and D)

Question 11

Betty is maximizing her satisfaction from spending her budget on two items, movie rentals and music downloads.If her marginal utility from the last movie rental is twice that from the last music download, what is the price of a movie rental if the price of a music download is $0.80?

Accepted Answer

A)  $0.40
B)  $0.80
C)  $1.20
D)  $1.60E) None of the above
F) All of the above

Question 12

Assume that a consumer purchases a combination of products Y and Z and that the MUy/Py = 25 and MUz/Pz = 20.To maximize utility, without spending more money, the consumer should

Accepted Answer

A)  purchase less of Y and more of Z.
B)  purchase more of Y and less of Z.
C)  purchase more of both Y and Z.
D)  make no change in the quantities Y and Z.E) None of the above
F) C) and D)

Question 13

Health insurance often pays 80 percent of health care costs.This situation will encourage the rational consumer to

Accepted Answer

A)  consume less health care because the cost is too expensive.
B)  obtain health insurance that pays less than 80 percent of medical care costs.
C)  use more medical services than they would if they had to paid the full price.
D)  eliminate their health care coverage because it does not cover 100 percent of the cost.E) B) and D)
F) A) and D)

Question 14

The budget line shows all the combinations of two products that the consumer can buy, given money income and product prices.

Accepted Answer

A) True 
 B)False

Question 15

Which situation is consistent with the law of diminishing marginal utility?

Accepted Answer

A)  The more pizza Joe eats, the more he enjoys an additional slice.
B)  The more pizza Joe eats, the less he enjoys an additional slice.
C)  Joe's marginal utility from eating pizza becomes positive after eating three slices.
D)  Joe's marginal utility from eating pizza reaches a maximum when total utility is zero.E) None of the above
F) All of the above

Question 16

If two combinations of goods X and Y give a consumer equal satisfaction, then these two combinations must both be on the same

Accepted Answer

A)  budget line.
B)  indifference curve.
C)  demand curve.
D)  supply curve.E) A) and D)
F) None of the above

Question 17

Assume that a consumer purchases a combination of products Y and Z and that the MUy/Py = 30/2 and MUz/Pz = 45/3.To maximize utility, without spending more money, the consumer should

Accepted Answer

A)  purchase less of Y and more of Z.
B)  purchase more of Y and less of Z.
C)  purchase more of both Y and Z.
D)  make no change in the quantities of Y and Z.E) A) and C)
F) All of the above

Question 18

Mr.Samuelson's current rates of purchase are such that the marginal utility of slacks is 18 and the marginal utility of ties for him is 5.If slacks and ties are priced at $12 and $2, respectively, it can be concluded that Mr.Samuelson

Accepted Answer

A)  is spending too much on slacks and not enough on ties.
B)  is spending too much on ties and not enough on slacks.
C)  is spending his income in such a way as to maximize his satisfaction.
D)  should buy six times as many ties as he does slacks.E) B) and D)
F) C) and D)

Question 19

It is possible that as a result of the budget line shifting outward, the consumer will buy less of a product.

Accepted Answer

A) True 
 B)False

Question 20

A parallel shift in a budget line is caused by changes in a consumer's level of satisfaction.

Accepted Answer

A) True 
 B)False

Exam 7: Utility Maximization

Marginal utility is total utility divided by the number of units consumed.

Correct Answer
verified

Mr.Samuelson's current rates of purchase are such that the marginal utility of slacks is 18 and the marginal utility of ties for him is 5.If slacks and ties are priced at $12 and $2, respectively, it can be concluded that Mr.Samuelson

Correct Answer
verified

Betty is maximizing her satisfaction from spending her budget on two items, movie rentals and music downloads.If her marginal utility from the last movie rental is twice that from the last music download, what is the price of a movie rental if the price of a music download is $0.80?

Correct Answer
verified

The goal of a rational consumer is to maximize

Correct Answer
verified

How did Apple overcome consumers' diminishing marginal utility for iPads?

Correct Answer
verified

The budget line shows all the combinations of two products that the consumer can buy, given money income and product prices.

Correct Answer
verified

If two combinations of goods X and Y give a consumer equal satisfaction, then these two combinations must both be on the same

Correct Answer
verified

In deciding what to buy, the consumer will choose the good with the

Correct Answer
verified

Assume that a consumer purchases a combination of products Y and Z and that the MUy/Py = 25 and MUz/Pz = 20.To maximize utility, without spending more money, the consumer should

Correct Answer
verified

Health insurance often pays 80 percent of health care costs.This situation will encourage the rational consumer to

Correct Answer
verified

Indifference curves are convex to the origin due to diminishing marginal rates of substitution.

Correct Answer
verified

Correct Answer
verified

When the price of a product falls, the income effect induces the consumer to purchase more of it, while the substitution effect prompts her to buy less.

Correct Answer
verified

A rational consumer will try to achieve the highest indifference curve that his or her income will allow.

Correct Answer
verified

Assume that a consumer purchases a combination of products Y and Z and that the MUy/Py = 30/2 and MUz/Pz = 45/3.To maximize utility, without spending more money, the consumer should

Correct Answer
verified

It is possible that as a result of the budget line shifting outward, the consumer will buy less of a product.

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

If you purchase a gift worth $25 for your sister, but your sister would be willing to pay only $10 ifshe bought the item for herself, then the

Correct Answer
verified

Which situation is consistent with the law of diminishing marginal utility?

Correct Answer
verified

A parallel shift in a budget line is caused by changes in a consumer's level of satisfaction.

Correct Answer
verified

Exam 7: Utility Maximization

Marginal utility is total utility divided by the number of units consumed.

Correct AnswerverifiedShow Answer

Mr.Samuelson's current rates of purchase are such that the marginal utility of slacks is 18 and the marginal utility of ties for him is 5.If slacks and ties are priced at $12 and $2, respectively, it can be concluded that Mr.Samuelson

Correct AnswerverifiedShow Answer

Betty is maximizing her satisfaction from spending her budget on two items, movie rentals and music downloads.If her marginal utility from the last movie rental is twice that from the last music download, what is the price of a movie rental if the price of a music download is $0.80?

Correct AnswerverifiedShow Answer

The goal of a rational consumer is to maximize

Correct AnswerverifiedShow Answer

How did Apple overcome consumers' diminishing marginal utility for iPads?

Correct AnswerverifiedShow Answer

The budget line shows all the combinations of two products that the consumer can buy, given money income and product prices.

Correct AnswerverifiedShow Answer

If two combinations of goods X and Y give a consumer equal satisfaction, then these two combinations must both be on the same

Correct AnswerverifiedShow Answer

In deciding what to buy, the consumer will choose the good with the

Correct AnswerverifiedShow Answer

Assume that a consumer purchases a combination of products Y and Z and that the MUy/Py = 25 and MUz/Pz = 20.To maximize utility, without spending more money, the consumer should

Correct AnswerverifiedShow Answer

Health insurance often pays 80 percent of health care costs.This situation will encourage the rational consumer to

Correct AnswerverifiedShow Answer

Indifference curves are convex to the origin due to diminishing marginal rates of substitution.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When the price of a product falls, the income effect induces the consumer to purchase more of it, while the substitution effect prompts her to buy less.

Correct AnswerverifiedShow Answer

A rational consumer will try to achieve the highest indifference curve that his or her income will allow.

Correct AnswerverifiedShow Answer

Assume that a consumer purchases a combination of products Y and Z and that the MUy/Py = 30/2 and MUz/Pz = 45/3.To maximize utility, without spending more money, the consumer should

Correct AnswerverifiedShow Answer

It is possible that as a result of the budget line shifting outward, the consumer will buy less of a product.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

If you purchase a gift worth $25 for your sister, but your sister would be willing to pay only $10 ifshe bought the item for herself, then the

Correct AnswerverifiedShow Answer

Which situation is consistent with the law of diminishing marginal utility?

Correct AnswerverifiedShow Answer

A parallel shift in a budget line is caused by changes in a consumer's level of satisfaction.

Correct AnswerverifiedShow Answer

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