AGSC chapter 6
17) Refer to Figure 6.2. Assume Mr. Lingle is on budget constraint AC. If the price of a beer is $5, Mr. Lingleʹs monthly income is A) $40. B) $80. C) $100. D) $200.
D
1) Assuming the properties of normal indifference curves, a consumer will maximize his utility where his indifference curve is just tangent to his budget constraint.
TRUE
3) If the substitution effect of a wage change outweighs the income effect of a wage change, the labor‐supply curve is A) upward sloping. B) horizontal. C) vertical. D) backward bending.
A
32) Refer to Figure 6.4. Billʹs budget constraint is AC. His budget constraint would shift to AB if the price of A) black beans increased. B) black beans decreased. C) bell peppers increased. D) bell peppers decreased.
A
3) Refer to Figure 6.8. The marginal utility of the first movie rental is A) 0. B) 15. C) 25. D) 40.
B
1) A rise in the price of Pepsi that causes a household to shift its purchasing pattern toward Coke and away from Pepsi is the ________ effect of a price change. A) income B) substitution C) complementary D) diminishing marginal utility
B
11) Refer to Table 6.1. The marginal utility of the third hamburger per day is A) 5. B) 15. C) 22. D) 67.
B
13) Refer to Figure 6.1. Along budget constraint AC, the opportunity cost of one hot dog A) is 1/4 of a hamburger. B) is 1/2 of a hamburger. C) is 2 hamburgers. D) changes as you move down along the budget constraint.
B
13) Refer to Figure 6.15. If the price of an ice cream cone is $2, the price of ice cream sandwiches is A) $2. B) $3. C) $50. D) $100.
B
13) Refer to Table 6.1. The total utility of five hamburgers per day is A) 76. B) 80. C) 96. D) indeterminate from this information.
B
14) Refer to Figure 6.1. Tomʹs budget constraint is AC. His choice set includes all points A) to the right of budget constraint AC. B) bounded by the area OAC. C) along budget constraint AC. D) along the vertical and horizontal axes.
B
14) Refer to Figure 6.16. If the price of a hot dog is $2, Jasonʹs income is A) $25. B) $200.C) $300. D) indeterminate because the price of sandwiches is not given.
B
14) Refer to Table 6.1. The total utility of five sodas per day is A) 35. B) 64. C) 92. D) indeterminate from this information.
B
15) Refer to Figure 6.16. Why was Jason NOT maximizing his utility at point C? A) He is not spending his entire budget. B) His marginal utility per dollar spent on the last sandwich is greater than his marginal utility per dollar spent on his last hot dog. C) His marginal utility per dollar spent on the last sandwich is less than his marginal utility per dollar spent on his last hot dog. D) He is maximizing his utility at point C.
B
18) Refer to Figure 6.2. The slope of budget constraint AC is A) ‐1/2. B) ‐1. C) ‐2. D) indeterminate from this information because prices are not given.
B
19) Refer to Table 6.2. The total utility of five candy bars per day is A) 115. B) 120. C) 130. D) indeterminate from this information.
B
4) A negative marginal utility implies negative total utility.
FALSE
26) Ellen is spending her entire income on goods X and Y. Her marginal utility from the last units of X and Y that she consumes is 25. Ellenʹs utility is only maximized if A) the prices of X and Y are the same. B) the price of good X is twice that of good Y. C) the price of good Y is twice that of good X. D) We cannot determine whether Ellen is maximizing her utility.
A
2) Assume leisure is a normal good. The substitution effect of a wage decrease implies a ________ demand for leisure and a ________ labor supply. A) lower; higher B) higher; lower C) higher; higher D) lower; lower
B
15) Refer to Table 6.1. If the price of a soda is $2, the price of a hamburger is $6, and George has $14 of income, Georgeʹs utility maximizing combination of sodas and hamburgers per day is A) 1 soda and 2 hamburgers. B) 4 sodas and 1 hamburger. C) 3 sodas and 1.5 hamburgers. D) indeterminate from this information.
B
17) We derive the demand curve for X from indifference curves and a budget constraint by changing the A) level of income. B) price of X. C) price of Y. D) consumersʹ preferences.
B
1) Refer to Figure 6.11. Gordonʹs opportunity cost of one hour of leisure is A) $10. B) $24. C) $240. D) indeterminate from this information.
A
10) Refer to Figure 6.15. Jason maximizes utility at point A) A. B) B. C) C. D) D.
A
11) Refer to Figure 6.1. Assume Tomʹs budget constraint is AC. At which point does Tom consume only hot dogs? A) A. B) B. C) E. D) D.
A
12) Refer to Figure 6.15. At point A, the slope of the indifference curve is A) ‐0.67. B) ‐1.5. C) ‐3.0. D) indeterminate because the marginal utilities are unknown.
A
11) Refer to Figure 6.15. The slope of the indifference curve is the ratio of the A) marginal utility of ice cream cones to the marginal utility of ice cream sandwiches. B) marginal utility of ice cream sandwiches to the marginal utility of ice cream cones. C) total utility of ice cream cones to the total utility of ice cream sandwiches. D) total utility of ice cream sandwiches to the total utility of ice cream cones.
A
12) Refer to Table 6.1. Diminishing marginal utility sets in after the ________ soda per day. A) first B) second C) third D) fourth
A
16) Refer to Figure 6.16. The highest indifference curve depicted is the one on which point D lies. Why is Jason NOT maximizing his utility at point D? A) He cannot afford point D. B) His marginal utility per dollar spent on the last sandwich is greater than his marginal utility per dollar spent on his last hot dog. C) His marginal utility per dollar spent on the last sandwich is less than his marginal utility per dollar spent on his last hot dog. D) He is maximizing his utility at point C.
A
18) Refer to Table 6.2. Diminishing marginal utility sets in after the ________ candy bar per day. A) first B) second C) third D) fourth
A
2) Kathy eats five slices of pizza on a Saturday night but admits each slice of pizza doesnʹt taste as good as the previous one. This suggests that for Kathy the A) marginal utility of a slice of pizza is positive but decreasing. B) marginal utility of a slice of pizza is negative. C) total utility of slices of pizza is declining. D) total utility of slices of pizza is increasing by larger and larger increments.
A
21) Refer to Figure 6.2. Assume Mr. Lingleʹs budget is AC. At which point does Mr. Lingle spend exactly his income? A) A. B) D. C) E. D) The answer cannot be determined with the given information.
A
23) Jon is consuming X and Y so that he is spending his entire income and MUx/Px = 4 and MUy/Py = 4. To maximize utility, he should consume A) the same amount of X and Y since he is already maximizing utility. B) less of both X and Y. C) more X and less Y. D) less X and more Y.
A
24) Refer to Figure 6.2. Mr. Lingleʹs budget constraint is AC. His choice set is all points A) in the area bounded by OAC. B) to the right of budget constraint AC. C) along budget constraint AC. D) along the vertical and horizontal axes.
A
26) Refer to Figure 6.2. Mr. Lingleʹs budget constraint is AC. Point C is A) an available option and Mr. Lingle exactly spends all of his income. B) an available option and Mr. Lingle does not spend all of his income. C) not in Mr. Lingleʹs opportunity set but is on his budget constraint. D) not available because it represents a combination of gardenburgers and beer that Mr. Lingle cannot purchase with his current income.
A
28) Refer to Figure 6.3. Mollyʹs budget constraint is AC. It would swivel to AB if the price of A) DVDs increased. B) DVDs decreased. C) CDs increased. D) CDs decreased.
A
33) If a householdʹs income doubles, its budget constraint will A) shift out parallel to the old one. B) pivot at the Y‐intercept. C) shift in parallel to the old one. D) be unaffected.
A
33) Total utility is A) the total amount of satisfaction yielded by the consumption of a good or service. B) the additional satisfaction gained by consuming one more unit of something. C) used to compare different peopleʹs likes and dislikes. D) relatively easy to measure.
A
36) Refer to Figure 6.5. Mollyʹs budget constraint is BD. If the price of CDs increases, her new budget constraint becomes A) AD. B) BD. C) CD. D) EF.
A
39) The law of diminishing marginal utility implies that A) demand curves always slope downward and to the right. B) supply curves always slope upward and to the right. C) a consumer will always buy positive amounts of all goods. D) total utility will always increase by an increasing amount as consumption increases.
A
4) Refer to Figure 6.8. The marginal utility of the fourth movie rental is A) 0. B) 3. C) 25. D) 28.
A
40) Refer to Figure 6.5. Mollyʹs budget constraint is BD. Mollyʹs income is $400, the price of a DVD is $15 and the price of a CD is $20. At point B the consumer is buying ________ DVDs and ________ CDs. A) 0;20 B) 20;0 C) 20; 15 D) 40; 30
A
42) Refer to Figure 6.6. Billʹs budget constraint was originally CD. If his new budget constraint is EF, then his income A) increased. B) decreased. C) did not change but the price of black beans decreased. D) did not change but the price of bell peppers decreased.
A
44) Refer to Figure 6.6. Billʹs budget constraint is BD. If the price of bell peppers increases, Billʹs new budget constraint is A) AD. B) AO. C) CD. D) EF.
A
48) Price decreases will ________ a householdʹs choice set. A) increaseB) decrease C) not change D) sometimes increase and other times decrease
A
5) Assuming that leisure is a normal good, if an individualʹs labor supply curve is backward bending, then the A) income effect outweighs the substitution effect at higher wages. B) substitution effect outweighs the income effect at higher wages. C) income effect and the substitution effects are equal. D) income effect is zero.
A
50) Refer to Figure 6.7. Along budget constraint AB, the price of good X is $10 and the price of good Y is $12. If the price of X increases to $15, the budget constraint will A) pivot in at point B. B) pivot out at point A. C) shift in parallel to AB. D) pivot in at point A.
A
6) Refer to Figure 6.14. Assume Ellen has two products available, pizza and hamburgers. Ellen is always willing to trade one pizza for one hamburger regardless of how many pizzas and hamburgers she has. The curve in Panel ________ represents her indifference curve. A) A B) B C) C D) D
A
6) Related to the on page 118: Cheap Foods claims that you will pay less for groceries by shopping at their stores. As evidence, Cheap Foods points out that the total price of the bundle of goods that a particular shopper purchased at Cheap Foods was lower than the total price of the same bundle of goods purchased at other stores. Which of the following point out a flaw in the grocery store's argument? A) Cheap Foods has not proven that their stores offer the lowest prices on non-grocery items. B) It ignores the possibility that Cheap Foods used to charge higher prices than their competitors. C) It fails to demonstrate that Cheap Foods offers the highest quality groceries. D) Prices on the day the bundle was purchased may not be representative of prices on a typical day.
A
6) Related to the on page 121: Google is famous for offering its employees extraordinary benefits, such as on-site oil changes and haircuts, free medical checkups, and free workout facilities. Which of the following best explains why offering these benefits provides Google with an important economic advantage? A) These benefits reduce the marginal utility of leisure time and therefore make people more willing to work longer hours. B) These benefits increase the expectations of the employees, making it difficult to reduce them without damaging employee morale. C) Encouraging activities such as purchasing a hybrid vehicle has a variety of benefits for the natural environment. D) Many of Google's benefits are available to all workers, and so they encourage even weak performers to stay with the company.
A
7) Refer to Figure 6.9. The marginal utility of the second video game rental is A) 8. B) 10. C) 25. D) 40.
A
8) As you move up an indifference curve, the absolute value of the slope A) increases. B) decreases. C) remains constant. D) initially increases and then decreases.
A
8) Refer to Figure 6.9. The marginal utility of the fourth video game rental is A) 0. B) 4. C) 8. D) 22.
A
2) For normal goods, the substitution and income effects of a price decrease will A) both decrease the quantity of the good demanded. B) both increase the quantity of the good demanded. C) the substitution effect will increase the quantity of the good demanded while the income effect will decrease the quantity of the good demanded. D) the substitution effect will decrease the quantity of the good demanded while the income effect will increase the quantity of the good demanded.
B
20) Refer to Table 6.2. If the price of a candy bar is $1, the price of a hot dog is $2, and Aaron has $6 of income, Aaronʹs utility maximizing combination of sodas and hamburgers per day is A) 1 candy bar and 2 hot dogs. B) 4 candy bars and 1 hot dog. C) 2 candy bars and 1.5 hot dogs. D) indeterminate from this information.
B
22) Refer to Figure 6.2. Along budget constraint AC, the opportunity cost of one gardenburger is A) 1/4 of a beer. B) a beer. C) 2 beers. D) changing as Mr. Lingle moves down his budget constraint.
B
23) Refer to Figure 6.2. Along budget constraint AC, the opportunity cost of one beer is A) 1/4 of a gardenburger. B) 1 gardenburger. C) 2 gardenburgers. D) changing as Mr. Lingle moves down his budget constraint.
B
24) If MUx/Px < MUy/Py, then A) spending a dollar less on Y and a dollar more on X increases utility. B) spending a dollar less on X and a dollar more on Y increases utility. C) X is more expensive than Y. D) Y is more expensive than X.
B
25) Refer to Figure 6.2. Mr. Lingleʹs budget constraint is AC. Point E is A) an available option and Mr. Lingle exactly spends all of his income. B) an available option and Mr. Lingle does not spend all of his income. C) not in Mr. Lingleʹs opportunity set but is on his budget constraint. D) not available because it represents a combination of gardenburgers and beer that Mr. Lingle cannot purchase with his current income.
B
25) Sue is maximizing her utility. Her MUx/Px=10 and MUy=40. Then the price of Y must be A) $1. B) $4. C) $10. D) $40.
B
27) Ellie is spending her entire income on goods X and Y. Her marginal utility from the last unit of X is 100 and the marginal utility from the last unit of Y that she consumes is 50. Ellieʹs utility is only maximized if A) the prices of X and Y are the same. B) the price of good X is twice that of good Y. C) the price of good Y is twice that of good X. D) We cannot determine whether Ellie is maximizing her utility.
B
27) Refer to Figure 6.3. Mollyʹs budget constraint is AC. It would swivel to AD if the price of A) DVDs increased. B) DVDs decreased. C) CDs increased. D) CDs decreased.
B
29) Refer to Figure 6.3. Mollyʹs budget constraint is AC. Molly can purchase A) none of the points along AD. B) all of the points along AB. C) all of the points along BD. D) None of the points along AC.
B
3) Assume Sally is initially in equilibrium and that X and Y are normal goods for her. Then the price of X rises. For Sally to move to a new equilibrium point her consumption of A) X must remain constant, but her consumption of Y must increase. B) X must decrease. C) X must increase. D) both X and Y must increase.
B
30) Refer to Figure 6.10. Kyle would increase his consumption of turkey sandwiches from 7 to 9 per week if their price fell from $6 to $4. This illustrates the idea of A) consumer surplus. B) the law of diminishing marginal utility. C) cross‐price elasticity of demand. D) technical efficiency.
B
31) The marginal utility of the first cup of coffee that Tom drinks in the morning is worth $2.00. The marginal utility of the 9th cup of coffee he drinks is positive while the marginal utility of the 10th cup of coffee he drinks in the morning is worth $0. This implies that at a price of $0, Tom would drink A) zero cups of coffee per morning. B) at most 10 cups of coffee per morning. C) more than 10 cups of coffee per morning, but the actual number is indeterminate from this information. D) an infinite number of cups of coffee each morning.
B
34) The law of diminishing marginal utility refers to A) a consumerʹs decrease in total satisfaction as she consumes more units of a good. B) a consumerʹs decrease in additional satisfaction as she consumes more and more units of a good. C) the idea that total utility is negative. D) the idea that marginal utility is negative.
B
4) An assumption underlying indifference curve analysis is that MUx/MUy ________ as more of X and less of Y is consumed. A) increases B) decreases C) remains constant D) always equals one
B
41) Refer to Figure 6.5. Mollyʹs budget constraint is BD. Mollyʹs income is $375, the price of a DVD is $15 and the price of a CD is $25. At point D the consumer is buying ________ DVDs and ________ CDs. A) 0;15 B) 25;0 C) 25; 15 D) 50; 30
B
45) Refer to Figure 6.6. Billʹs budget constraint is BD. Billʹs income is $800, the price of a bell pepper is $1, and the price of a bag of black beans is $1. At point B Bill is buying ________ bell peppers and ________ bags of black beans. A) 0; 800 B) 800; 0 C) 400; 400 D) 600; 200
B
47) Michael can buy either pizzas or submarine sandwiches. If the prices of pizza and submarine sandwiches double and Michaelʹs money income triples, we can conclude that Michaelʹs budget constraint will A) shift in but remain parallel to the old one. B) shift out but remain parallel to the old one. C) swivel in so that the slope of the budget constraint is doubled. D) remain unchanged.
B
5) Refer to Figure 6.13. If Arthur moves from indifference curve 1 to indifference curve 2, then Arthurʹs A) marginal utility increases. B) total utility increases. C) total income decreases. D) prices of the goods increase.
B
7) Refer to Figure 6.14. Assume Ellen has two products available, pizza and hamburgers. Ellen must be compensated with more pizzas as she gives up more burgers. The curve in Panel ________ represents her indifference curve. A) A B) B C) C D) D
B
8) Refer to Figure 6.1. The slope of budget constraint AC is A) ‐5.0. B) ‐2.0. C) ‐0.5. D) indeterminate from this information because prices are not given.
B
Topic: Household Choices in Output Markets 49) A carʹs real cost is its opportunity cost. Opportunity cost is determined by A) the price of the car. B) relative prices. C) wealth. D) the prices of the goods that are compliments to a car.
B
1) Harry tells you that he prefers Pepsi to Coke, Coke to 7‐UP, and 7‐UP to Pepsi. This violates what assumption made when analyzing consumer preferences? A) That more is better. B) That there is a diminishing marginal rate of substitution. C) That consumers are rational. D) That consumers are able to choose among all the combinations of goods and services available.
C
10) Refer to Table 6.1. The marginal utility of the second hamburger per day is A) 10. B) 15. C) 22. D) 52.
C
12) Refer to Figure 6.1. Along budget constraint AC, the opportunity cost of one hamburger A) is 1/4 of a hot dog. B) is 1/2 of a hot dog. C) is 2 hot dogs. D) changes as you move down along the budget constraint.
C
15) Refer to Figure 6.1. AC represents Tomʹs budget constraint. Point D then represents a point that is A) an available option, as Tom is just spending all of his income. B) available, but at which he does not spend all his income. C) not available because it represents a combination of hamburgers and hot dogs that he cannot purchase with his income. D) in his opportunity set but not on his budget constraint.
C
16) Refer to Table 6.1. Assume that a store is giving hamburgers and sodas away for free. Consumers can have as many sodas and hamburgers as they want, but the food has to be consumed one unit at a time. If George has already had one soda and two hamburgers, then George should A) next consume a soda to maximize his utility. B) next consume a hamburger to maximize his utility. C) be indifferent between consuming the second soda or the third hamburger. D) consume neither another soda nor another hamburger to maximize his utility.
C
17) Refer to Table 6.2. The marginal utility of the second candy bar per day is A) 10. B) 15. C) 35. D) 55.
C
2) A consumer satisfies the condition ________ when her indifference curve is just tangent to her budget constraint. A) MUx = MUy B) TUx = TUy C) MUx/Px = MUy/Py D) TUx/Px = TUy/Py
C
2) Jane has $500 a week to spend on clothing and food. The price of clothing is $25 and the price of food is $10. Jane spends her entire income when she purchases ________ units of clothing and ________ units of food. A) 10; 10 B) 25; 5 C) 12; 20 D) 16; 8
C
20) Refer to Figure 6.2. Assume Mr. Lingleʹs budget is AC. Given his current monthly income he cannot purchase the quantities of the two goods at point A) A. B) B. C) D. D) E.
C
22) Jon is consuming X and Y so that he is spending his entire income and MUx/Px = 8 and MUy/Py = 4. To maximize utility, he should consume A) the same amount of X and Y since he is already maximizing utility. B) less of both X and Y. C) more X and less Y. D) less X and more Y.
C
29) Refer to Figure 6.10. The current price of a turkey sandwich is $6. If Kyle is currently buying nine turkey sandwiches a week, he ________ maximizing utility because the marginal utility ________ than its price. A) is; from the ninth sandwich is greater B) is; from the ninth sandwich is less C) is not; gained from the ninth sandwich is less D) is not; gained from the ninth sandwich is greater
C
3) Jim has $600 a week to spend on clothing and food. The price of clothing is $30 and the price of food is $5. The clothing and food pairs in Jimʹs choice set include ________ units of clothing and ________ units of food. A) 20; 50 B) 15; 70 C) 10; 60 D) 0; 200
C
32) For Matthew, the marginal utility of the 9th soda in a day is positive and the marginal utility of the 10th soda in a day is zero. This A) implies that Matthewʹs demand curve for sodas per day will become upward sloping at 10 sodas per day. B) is impossible because each additional unit of consumption of any good must provide positive marginal utility. C) implies that at a zero price Matthewʹs demand curve will intersect the quantity axis at 10. D) implies that Matthew maximizes utility by consuming 9 sodas per day.
C
34) If a householdʹs income falls by 10%, its budget constraint will A) shift out parallel to the old one. B) pivot at the Y‐intercept. C) shift in parallel to the old one. D) be unaffected.
C
35) Refer to Figure 6.5. Mollyʹs budget constraint is BD. If the price of CDs decreases, her new budget constraint becomes A) AD. B) AO. C) CD. D) EF.
C
36) A utility‐maximizing consumer buys so as to make ________ for all pairs of goods. A) Px(MUx) = Py(MUv) B) TUx/Px = TUy/Py C) MUx/MUy = Px/Py D) MUx = MUy
C
37) Refer to Figure 6.5. Mollyʹs budget constraint is CD. If her income increases, her new budget constraint is A) AD. B) BD. C) EF. D) not shown on this graph.
C
37) The ratio of the marginal utility of coffee to the marginal utility of donuts is four for an individual maximizing utility. This implies that A) a donut is four times more valuable than a cup of coffee. B) the coffee to donuts price ratio is one to four. C) the coffee to donuts price ratio is four to one. D) this person always eats donuts with coffee.
C
38) Kathleen likes avocado and crab dip. After eating avocado and crab dip with four crackers, she switches to cheese with crackers. We can conclude that A) the avocado and crab dip cannot have tasted that good. B) the avocado and crab dip with crackers now has a marginal utility of zero. C) at this point cheese and crackers have a higher marginal utility per dollar spent than that of avocado and crab dip with crackers. D) Kathleen is no longer maximizing her utility.
C
38) Refer to Figure 6.5. Mollyʹs budget constraint is EF. If her income decreases while the price of the goods are unchanged, her new budget constraint could be A) AD. B) BD. C) CD. D) not shown on this graph.
C
4) Assume leisure is an inferior good instead of a normal good. The income effect of a wage increase will lead to a ________ demand for leisure and a ________ labor supply. A) higher; higher B) higher; lower C) lower; higher D) lower; lower
C
40) The diamond/water paradox states that things with the ________ value in use frequently have ________ value in exchange. A) least; the least B) least; little or no C) greatest; little or no D) greatest; the greatest
C
43) Refer to Figure 6.6. Billʹs budget constraint was originally AD. If his new budget constraint is EF, then his income A) increased. B) decreased. C) increased and the price of black beans price increased. D) decreased and the price of bell peppers increased.
C
5) Assuming that charitable giving is a normal good, the income effect of a decrease in personal tax rates would lead to A) less giving because giving to charity would become more expensive relative to other goods. B) more giving because giving to charity would become less expensive relative to other goods. C) more giving because households would have more disposable income. D) less giving because households would spend that money on luxury goods.
C
6) Refer to Figure 6.1. Assume Tom is on budget constraint AC and the price of a hamburger is $4.00. Tomʹs monthly income is A) $20. B) $60. C) $80. D) $100.
C
6) Refer to Figure 6.8. The total utility of the three movies is ________ and the marginal utility of the third movie is ________. A) 15; 0 B) 25; 10 C) 28; 3 D) 0; 0
C
7) Refer to Figure 6.1. Assume Tom is on budget constraint AC and the price of a hot dog is $2.00. Tomʹs monthly income is A) $40. B) $60. C) $80. D) $100.
C
9) Refer to Figure 6.15. If the price of an ice cream cone is $2, Jasonʹs income is A) $75. B) $250. C) $300. D) indeterminate because the price of ice cream sandwiches is not given.
C
1) Jane has $500 a week to spend on clothing and food. The price of clothing is $25 and the price of food is $10. The clothing and food pairs in Janeʹs choice set include ________ units of clothing and ________ units of food. A) 50; 50 B) 20; 50 C) 15; 25 D) 8; 30
D
1) Marginal utility is the ________ satisfaction gained by consuming ________ of a good. A) total; all units B) total; one more unit C) additional; all units D) additional; one more unit
D
10) Refer to Figure 6.1. Assume Tomʹs budget constraint is AC. Given his current monthly income he cannot purchase the bundle of goods at point A) A. B) B. C) E. D) D.
D
16) Refer to Figure 6.2. Assume Mr. Lingle is on budget constraint AC. If the price of a gardenburger is $6, Mr. Lingleʹs monthly income is A) $24. B) $60. C) $200. D) $240.
D
19) Refer to Figure 6.2. Assume Mr. Lingleʹs budget constraint is AC. He will not spend his entire income at point A) A. B) B. C) D. D) E.
D
21) Richard is consuming X and Y so that he is spending his entire income and MUx/Px = 6 and MUy/Py = 10. To maximize utility, he should A) continue to consume the same amount of X and Y since he is already maximizing utility. B) consume less of both X and Y. C) consume more X and less Y. D) consume less X and more Y.
D
28) Refer to Figure 6.10. The current price of a turkey sandwich is $6. If Kyle is currently buying five turkey sandwiches a week, he ________ maximizing utility because the marginal utility ________ than its price. A) is; from the fifth sandwich is greater B) is; from the fifth sandwich is less C) is not; gained from the fifth sandwich is less D) is not; gained from the fifth sandwich is greater
D
3) For inferior goods, the substitution and income effects of a price increase will A) both decrease the quantity of the good demanded. B) both increase the quantity of the good demanded. C) the substitution effect will increase the quantity of the good demanded while the income effect will decrease the quantity of the good demanded. D) the substitution effect will decrease the quantity of the good demanded while the income effect will increase the quantity of the good demanded.
D
30) Refer to Figure 6.4. Billʹs budget constraint is AC. If the black bean price decreases, Billʹs budget constraint will be A) AO. B) AB. C) AC. D) AD.
D
31) Refer to Figure 6.4. Billʹs budget constraint is AC. If the bell peppers price increases, Billʹs budget constraint will be A) AB. B) AC. C) AD. D) The budget constraint is not depicted on the diagram.
D
35) We can state the utility‐maximizing rule in words in the following way: A person maximizes utility when she equalizes the ________ across products. A) total utility B) total utility per dollar spent C) marginal utility D) marginal utility per dollar spent
D
39) Refer to Figure 6.5. Mollyʹs budget constraint is EF. If her income decreases and the price of CDs increases, her new budget constraint could be A) CD. B) BD. C) AD. D) Both (B) or (C) are correct.
D
4) A price change would have the largest income effect on a A) magazine. B) desktop computer. C) piece of clothing. D) car.
D
4) Jane has $500 a week to spend on clothing (c) and food (f). The price of clothing is $25 and the price of food is $10. What is the equation for Janeʹs budget constraint? A) ($25 × Clothing) x ($10 × Food) < $500 B) $25 × Clothing + $10 × Food ≥ $500 C) ($25 × Clothing) / ($10 × Food) = $500 D) $25 × Clothing + $10 × Food = $500
D
46) Michael can buy either pizzas or submarine sandwiches. If the prices of pizza and submarine sandwiches double and so does Michaelʹs money income, we can conclude that Michaelʹs budget constraint will A) shift in but remain parallel to the old one. B) shift out but remain parallel to the old one. C) swivel in so that the slope of the budget constraint is doubled. D) remain unchanged.
D
5) Refer to Figure 6.8. The ________ movie rental has a marginal utility of zero. A) first B) second C) third D) fourth
D
5) Ted has $600 a week to spend on clothing (c) and food (f). The price of clothing is $30 and the price of food is $5. What is the equation for Tedʹs budget constraint? A) $30 × Clothing + $5 × Food < $600 B) $30 × Clothing + $5 × Food ≤ $600 C) $30 × Clothing + $5 × Food > $600 D) $30 × Clothing + $5 × Food = $600
D
9) Refer to Figure 6.1. Assume Tomʹs budget constraint is AC. He does not spend his entire income at point A) A. B) B. C) D. D) E.
D
9) Refer to Figure 6.9. The ________ video game rental has a marginal utility of zero. A) first B) second C) third D) fourth
D
1) When the price of a good increases, the budget constraint does not change.
FALSE
2) The law of diminishing marginal utility implies that total utility never reaches a maximum.
FALSE
2) When the price of a good decreases, the budget constraint shifts out parallel to the original budget constraint.
FALSE
4) Homogeneous products are distinguishable from each other.
FALSE
6) When marginal utility is zero, total utility is at a minimum.
FALSE
1) The law of diminishing marginal utility implies that as a household consumes more of a product, its total utility will increase by smaller amounts ‐assuming marginal utility remains positive.
TRUE
3) When consumers maximize utility, they are equating the ratio of marginal utility to price across all goods consumed.
TRUE
5) If MUx/Px exceeds MUy/Py, then a household can increase its utility by spending more on X and less on Y.
TRUE
5) Price increases cause a decrease in a householdʹs choice set.
TRUE
6) Income increases cause an increase in a householdʹs choice set.
TRUE
7) The diamond/water paradox helps to illustrate the concept of marginal value.
TRUE
: 1) Ignoring income effects, an increase in the wage rate will cause an increase in the quantity of labor supplied.
TRUE
Topic: Household Choices in Output Markets 3) Assuming a perfectly competitive market implies that households have perfect knowledge of qualities and prices of everything available in the market.
TRUE
