Utility

A budget line for Shannon shows her consumption options for two of her favorite goods. An increase in Shannon's income would lead to A-a parallel shift in her budget line to the right, allowing her to buy more of both goods. B-a parallel shift in her budget line to the left, allowing her to buy less of both goods. C-either a shift of the budget line to the right or the left depending on Shannon's personal preferences.

A

In the presence of declining marginal rates of substitution, consumers who again and again sacrifice a unit of one good cannot remain on their original indifference curve unless they receive as compensation A-ever larger units of another good. B-ever smaller units of another good. C-again and again equal units of another good.

A

LaKiesha purchases only two items, shoes and tacos, both of which are normal goods for her. Suppose that when the price of shoes decreases, LaKiesha's consumption of tacos increases. The reason for this is A-because the income effect is greater than the substitution effect. B-because the income effect is less than the substitution effect. C-because of the substitution effect. D-because the substitution effect means LaKiesha will spend more of her budget on shoes.

A

Thrill-seeker Larry likes to spend his budget on car racing lessons and boat driving lessons. Suppose the price of car racing lessons decreases, but his income and the price of boat driving lessons remains unchanged. This would allow us to derive: A-Larry's demand curve for car racing lessons. B-Larry's demand for boat driving lessons. C-Larry's budget line. D-Larry's marginal benefit for car racing lessons and boat driving lessons.

A

What happens to the consumption of a good if it is following the law of diminishing marginal utility? A-The marginal utility is maximized when diminishing returns begins, usually when the first unit is consumed. B-The marginal utility is maximized when total utility starts to decline, typically after the third unit. C-The marginal utility is maximized when total utility is also maximized.

A

Which of the following is considered to be a tell-tale signal that the choice with the maximum total utility has been found? A-The marginal utility per dollar is the same for both goods. B-The marginal utility is the same for both goods. C-The marginal utility per dollar is controlled by trade-offs. D-The marginal utility is maximized for both goods.

A

Rizwanur's favorite food is pretzels but he often doesn't know when to stop. After the sixth pretzel he no longer receives any positive utility from consumption and starts to feel sick. Which of the following statements must be true? A-His total utility is maximized when he eats the sixth pretzel. B-Rizwanur's pretzel habit does not follow the principle of diminishing marginal utility. C-His marginal utility is maximized at the sixth pretzel. D-According to the principle of diminishing marginal utility Rizwanur should stop eating after one pretzel.

A-His total utility is maximized when he eats the sixth pretzel.

What happens in regards to moving along an indifference curve, if a consumer needs to make up for having one unit less of the good along the horizontal axis with only a small amount of good increased on the vertical axis? A-It means that the indifference curve is mostly flat and the marginal rate of substitution is low. B-It means that the indifference curve is steep and the marginal rate of substitution is high. C-It means that the total utility is increasing. D-It means that the indifference curve is upward sloping.

A-It means that the indifference curve is mostly flat and the marginal rate of substitution is low.

What determines the utility an individual receives from consuming a good? A-The individual's own preferences. B-The producers conducting customer feedback surveys of that good and the feedback provided. C-The demand and supply curves for that good.

A-The individual's own preferences.

Greg eats pizza every day of the week. The marginal utility of pizza will most likely ________ by the end of the week, and all else being equal, this demonstrates the law of ________. A-decrease; diminishing marginal utility B-increase; increasing marginal utility C-decline; total utility D-increase; decreasing marginal utility

A-decrease; diminishing marginal utility

Both Diana and Sarah like jazz music and music by the Beatles. Diana likes music by the Beatles much better than jazz music, whereas Sarah prefers jazz music to music by the Beatles. If we were to graph an indifference curve with cd's by the Beatles on the horizontal axis and jazz cd's on the vertical axis, then ________. (Hint: What do these preferences say about Diana's & Sarah's marginal rates of substitution?) A-Sarah's indifference curve would be steeper than Diana's indifference curve B-Diana's indifference curve would be steeper than Sarah's indifference curve C-we do not have enough information to compare their

B

What are the main differences between traditional economics and behavioral economics? A-Traditional economics is mainly theoretical. B-Behavioral economics does not take as a given that decision makers are rational. C-Traditional economics assumes that decision makers are fully informed.

B

Which of the following statements is true based on what we know about the properties of utility? A-Ally receives 15 utility from consuming one pizza while Jason receives 25 utility from eating one pizza. Therefore, Jason enjoys pizzas more than Ally. B-Alexandra receives 20 utility from drinking one soda and 25 utility from eating a pizza. Therefore, Alexandra enjoys pizza more than sodas. C-Mekayla receives 20 utility from drinking one soda, and Sienna receives 20 utility from consuming one soda. They both receive the same level of satisfaction from consuming a soda. D-Natalie receives 20 utility from watching a movie while Andrew receives 30 utility from playing a video game. Therefore, Andrew enjoys video games more than Natalie enjoys movies.

B-Alexandra receives 20 utility from drinking one soda and 25 utility from eating a pizza. Therefore, Alexandra enjoys pizza more than sodas.

If Ralph rides the bus to work which is considered an inferior good/service. After Ralph applies for and accepts a new management job at twice his old salary he starts to make changes. Based on what you have learned about changes in income and consumer choices, what will most likely happen to Ralph's use of public transportation? A-Ralph would discontinue riding the bus and switch to riding his bike. B-Ralph would discontinue riding the bus and purchase a car. C-Ralph would continue riding the bus. D-It will decrease since Ralph will ask his boss if he can telework to avoid the long commute.

B-Ralph would discontinue riding the bus and purchase a car.

If Melissa is at her consumer equilibrium, which of the following statement is true? i. Melissa is off of her budget line. ii. Melissa is on her highest possible indifference curve. iii. Melissa is dividing her budget equally across all goods. A-i and ii B-ii only C-ii and iii D-all of these answers are correct.

B-ii only

Jenna's two favorite flavors of soda are cola and lemon-lime. On a normal week, Jenna bought 3 cola sodas and 3 lemon-lime sodas. After the price of cola soda increases, Jenna buys only 2 cola sodas and 2 lemon-lime sodas in a week. This can be explained by A-the fact that lemon-lime soda is an inferior good. B-the substitution effect and the income effect. C-the substitution effect only. D-the fact that lemon-lime soda is a normal good.

B-the substitution effect and the income effect.

Below are three examples of total utility as consumption increases. Which of these examples fits the typical total utility pattern the most accurately? A-LaTanisha receives a total utility of 5 from eating one Cobb salad, a total utility of 10 from consuming two Cobb salads, and a total utility of 15 from consuming three Cobb salads. B-Arthur receives a total utility of 30 from eating one chicken pot pie, a total utility of 20 from consuming two chicken pot pies, and a total utility of 15 from consuming three chicken pot pies. C-Glenda receives a total utility of 20 from eating one baked potato, a total utility of 35 from consuming two baked potatoes, and a total utility of 45 from consuming three baked potatoes.

C

Which of the following is an example of consumers failing to treat money as fungible? A-Carlos finds a $100 bill on the ground and puts the money in his bank account. B-Alex wins the office betting pool and promptly uses his winnings to pay for much needed dental work. C-Susan would rather overdraw her bank account and incur a large fee than deposit the money (the cash) she inherited.

C

When looking along an indifference curve you see that the marginal rate of substitution is 2, what does that indicate the consumer is willing to do? A-The consumer is willing for the good measured on the vertical axis to pay $2 for one unit. B-Consume $2 worth of good one, or $2 worth of good two, since he/she is indifferent between the two goods. C-Along the vertical axis the consumer is willing to give up 2 units of the good for 1 unit of the good measured along the horizontal axis. D-Along the vertical axis the consumer is willing to give up 1 unit of the good for 2 units of the good measured along the horizontal axis.

C-Along the vertical axis the consumer is willing to give up 2 units of the good for 1 unit of the good measured along the horizontal axis.

Behavioral economists use something called a nudge to boost rational economic behavior. Which of these is an example of that type of nudge? A-Consumers buy larger packages of cookies since the cost per cookie is lower. B-Consumers have the option to freely choose what bank they go for their financial needs. C-Hospitals in the UK send text messages reminding people of their appointments and the cost they will be charged if the appointment is missed. D-All new buildings in a city must secure a building permit.

C-Hospitals in the UK send text messages reminding people of their appointments and the cost they will be charged if the appointment is missed.

Juan's marginal utility from strawberries is 200 and his marginal utility from cream is 100. Juan spends all of his budget. The price of strawberries is $5 per pound and the price of cream is $5 per pint. To maximize his utility, Juan should A-change nothing because Juan is maximizing his utility now. B-buy less strawberries and more cream. C-buy less cream and more strawberries. D-consume more strawberries and more cream

C-buy less cream and more strawberries.

Question Which of the following statements are true at all the points on a demand curve? i. Consumer's budget has been allocated to maximize total utility ii. Quantity is the quantity demanded at each price when total utility is maximized iii. Changes in quantity demanded due to changes in income are accounted for A-i and iii only B-i only C-i and ii only D-i, ii, and iii

C-i and ii only

If you consume pasta every day of the week, the marginal utility of pasta is likely to ________ at the end of the week, ceteris paribus, and this demonstrates the law of ________. A-decrease; total utility B-increase; increasing marginal utility C-increase; diminishing marginal utility D-decline; diminishing marginal utility

D

Select the following answer that best indicates maximum total utility has been found in the decision made selecting goods. A-Trade-offs control the marginal utility per dollar. B-Both goods have the same marginal utility. C-Both goods are maximized with their marginal utility. D-Both goods have the same marginal utility per dollar.

D-Both goods have the same marginal utility per dollar.

What is true of total utility and consumer behavior? A-Utility will continue to increase at a steady rate with every additional purchase. B-Utility will increase with each additional purchase, at an increasing rate. C-Utility will steadily decrease with each additional purchase. D-Utility will increase with each additional purchase, but at a decreasing rate.

D-Utility will increase with each additional purchase, but at a decreasing rate.

In order to explain consumer behavior that is irrational, behavioral economics uses observations from ________. A-sociology B-international cultural models C-statistical models D-psychology

D-psychology