Econ Chapter 7

Economists assume that the goal of consumers is to maximize total utility. A. True B. False

A

For economists, framing refers to the A manner in which a problem is presented. B. degree of competition present in a given market. C. total satisfaction a consumer derives from consuming a good. D. level of total utility derived from consuming a good. E. 3 and 4

A

Given the choice between a sure-thing option and a gamble option with the same expected payoff, a____________ person will choose the sure thing. A. risk averse B. risk loving C. risk neutral D. risk enjoying E. none of the above

A

It is possible for total utility to rise as marginal utility falls. A. True B. False

A

The endowment effect A. states that we value an item more highly if we own it than if we do not own it. B. is the same as compartmentalizing. C. states that people are often willing to make themselves worse off in order to make someone else worse off. D. states that people are often willing to make themselves worse off in order to make someone else better off. E. 1 and 4

A

A util is an artificial construct used as a means of measuring the A. price of a good. B. satisfaction one receives from the consumption of a good. C. costs of producing a good. D. difference between the price and the value of a good.

B

Consider two options: (A) you receive a guaranteed payment of $100; (B) a coin is tossed and if heads comes up, you win nothing; if tails comes up, you win $200. The expected payoff for option B is: A. $200 B. $100 C.$300 D. $75 E. There is not enough information to answer the question.

B

If a person is receiving greater marginal utility per dollar from consuming one good than another, it follows that he or she is A. maximizing disutility. B. not maximizing utility. C. maximizing utility. D. There is not enough information to answer the question.

B

Marginal utility is always a positive number. A. True B. False

B

No matter what the price of a given item of food, a person will eat the same amount of that food. This is __________ with the idea of __________. A. consistent; consumer equilibrium B. not consistent; consumer equilibrium C. consistent; maximizing total utility D. consistent; consumers' surplus E. none of the above

B

Research presented in the text shows that people are more concerned with their absolute income position in a group than their relative income position in the group. A. True B. False

B

The diamond-water paradox is the observation that A. those things that have the greatest price often have little value in exchange and those things that have the lowest price often have the greatest value in exchange. B. those things that have the greatest value in use often have little value in exchange and those things that have little value in use often have the greatest value in exchange. C. those things that have the least value in use often have little value in exchange and those things that have the greatest value in use often have the greatest value in exchange. D. those things that have the least price often have little value in exchange and those things that have the greatest price often have the greatest value in exchange.

B

Which of the following best describes an interpersonal utility comparison? A. Jones likes computers produced by Dell Computer Corporation and Smith likes computers produced by Apple Computer Inc. B. Smith gets more utility from working on his computer than Jones gets from working on his computer. C. Smith got less utility from eating the 30th cookie than eating the 29th cookie, and the same holds for Jones. D. Usually, Smith seems a lot happier than Jones. E. Smith usually eats more in a day than Jones eats in a day.

B

Economists usually assume that money has __________ marginal utility. A. increasing B. constant C. decreasing D. zero

C

Research conducted by Nicholas Epley and his colleagues at Harvard showed that people will spend a _________________ percentage of money given to them if it is ________________ rather than A. smaller; cash; a rebate check. B. greater; termed a rebate; a bonus. C. greater; termed a bonus; a rebate. D. smaller; a rebate check; cash.

C

When an economist talks about utility, she is talking about A. a company that provides electricity, water, gas, etc. B. the satisfaction, in terms of price, that a producer receives from selling his product. C. the satisfaction that results from the consumption of a good. D. the amount of one good that a person is willing to give up in order to get a unit of another good. E. the satisfaction that results from the consumption of a good minus the price that must be paid to get the good

C

A consumer is in equilibrium if he or she derives the same A. total utility from each good consumed. B. total utility per dollar spent on each good consumed. C. marginal utility from each good consumed. D. marginal utility per dollar spent on each good consumed.

D

Marginal utility is defined as the A. change in total utility a person derives from the consumption of a good divided by the value in use of that good. B. change in marginal utility a person derives from the consumption of a good. C. change in total utility a person derives from the consumption of a good divided by the price of that good. D. change in total utility a person derives from the consumption of a good divided by the change in the quantity of the good consumed. E. sum of the amounts of satisfaction a person receives from consuming a good.

D

Total utility is defined as the A. change in marginal utility a person derives from the consumption of a good. B. change in total utility a person derives from the consumption of a good divided by the price of that good. C. change in total utility a person derives from the consumption of a good divided by the change in the consumption of that good. D. sum of the amounts of satisfaction a person receives from consuming a good. E. change in total utility a person derives from the consumption of a good.

D

The law of diminishing marginal utility can be stated as follows: A. As the amount of a good consumed increases, the sum of satisfaction received tends to decrease. B. As the amount of a good consumed increases, the additional satisfaction gained from consuming additional units tends to decrease. C. As the amount of a good consumed decreases, the additional satisfaction gained from consuming additional units tends to increase. D. As the amount of a good consumed increases, the sum of satisfaction received tends to increase but at a diminishing rate. E. 2 and 4

E