Econ Exam 2
Which of the following statements is false?
If total utility rises, so must marginal utility.
Suppose a consumer can consume any quantity of goods at no cost. The maximum utility is achieved when:
Marginal utility is zero.
The amount of satisfaction obtained from consumption of an additional unit of a good or service is:
Marginal utility.
Marginal utility for a good is computed as:
The change in total utility divided by the change in quantity.
A budget line represents:
The frontier of consumption possibilities.
If the marginal utility of X is negative, then the last unit of X is
a bad
Marginal utility is
the total satisfaction derived from consuming an additional unit of a good.
Suppose Will receives 50 utils from consuming one banana and 92 utils from consuming two bananas. What is the marginal utility of the second banana?
42 utils
Which of the following will result in a decrease in a consumer's purchasing power?
A decrease in the consumer's income An increase in the price of the good on the vertical axis An increase in the price of the good on the horizontal axis
Which of the following is used to depict alternative combinations of goods that are equally satisfying?
An indifference curve.
The law of diminishing marginal utility can be stated as follows:
As the amount of a good consumed increases, the additional satisfaction gained from consuming additional units tends to decrease.
We would expect the total utility of water to be high but its marginal utility to be low. Why?
Because we need water to live and there is so much of it.
A budget line represents:
Combinations of two goods which can be purchased with a given budget.
According to the law of diminishing marginal utility:
Each successive unit of a good consumed yields less additional utility.
Which of the following statements is true?
If a consumer is in equilibrium, it necessarily follows that he or she is also achieving the greatest total utility.
As consumption increases, total utility must:
Increase as long as marginal utility is positive.
As more satisfaction is achieved from consuming a good with diminishing marginal utility, then total utility:
Increases at a decreasing rate.
Which of the following is true?
It is possible for total utility to rise as marginal utility falls.
The additional pleasure or satisfaction from a good declines as more of it is consumed in a given period. This is the definition of the:
Law of diminishing marginal utility.
The slope of the budget constraint, when a consumer has reached optimal consumption of two goods, is equal to the:
Marginal rate of substitution. Ratio of the prices of the two goods. Ratio of the marginal utilities of the two goods.
A consumer maximizes total utility from a given amount of income when the:
Marginal utility obtained from the last dollar spent on each good is the same.
The optimal consumption combination:
Maximizes total utility subject to a budget constraint. Is the point of tangency between the budget constraint and an indifference curve. Occurs when the marginal rate of substitution equals the ratio of the prices of the two goods.
The demand curve is typically downward sloping because:
Of the law of diminishing marginal utility. Consumers will not to pay as much for a good with a low marginal utility as they will for a good with a high marginal utility. Consumers have limited budgets.
The law of diminishing marginal utility suggests that:
People are willing to buy additional quantities of a good only if its price falls.
Which of the following is NOT an assumption regarding people's preferences in the theory of consumer behavior?
Preferences are complete. Preferences are transitive. Consumers prefer more of a good to less.
At a consumer's best affordable bundle, the slope of the budget constraint is always equal to the:
Ratio of the price of one good to the price of the other good.
The point where the budget line and an indifference curve are tangent:
Represents an optimal consumption point. Indicates the quantity and price that would appear on a demand curve. Indicates that the relative marginal utilities of the goods equal their relative prices.
Utility refers to the:
Satisfaction obtained from a good or service.
A budget line represents:
The amount of income that is required to purchase a given amount of a good.
An indifference curve shows:
The combinations of goods giving equal utiity to a consumer.
If a good had a zero price (i.e. the good was free), a rational person would consume:
The good until the marginal utility of the last unit was zero.
At some point during a meal each extra bite provides less and less additional satisfaction. This can be explained by:
The law of diminishing marginal utility.
Which of the following statements is true?
The less you have of any one good, the more you would be willing to pay for one more unit of it.
Which of the following statements is true?
The marginal and total utility of a good are the same for the first unit of the good.
The fact that a cup of gold is normally priced higher than a cup of water suggests that:
The marginal utility of a cup of gold is greater than the marginal utility of a cup of water.
Suppose that in the year 2050, one gallon of water is more expensive than a one-carat diamond. What could explain this?
The supply of diamonds is ample in 2050. People don't appreciate diamonds any more. In other words, the demand for it fall dramatically. The supply of water decreases dramatically, so it's price increases to a very high level.
If prices and income in a two-good society double, what will happen to the budget line?
There will be no effect on the budget line.
The diamond-water paradox is illustrated by which of the following statements?
Water, a necessity, has a relatively low price whereas diamonds, usually a luxury, have a relatively high price.
Which of the following statements is false?
We do not know if any of the statements are true or false, because we do not know how much utility one person receives relative to another.
An increase in income, holding prices constant, can be represented as:
a parallel outward shift in the budget line.
If the MU/P ratio for good X is less than the MU/P ratio for good Y, this means that
an individual is receiving more utility per dollar from good Y than good X.
Given that MUX/PX < MUY/PY, consumers who spend all their income on these two goods
can increase utility by buying more of Y and less of X.
The area below the demand curve and above the price line measures
consumer surplus.
Economists usually assume that money has __________ marginal utility.
decreasing
A person is said to be in consumer equilibrium if she
equates marginal utilities per dollar spent.
When a consumer reallocates dollars from the purchase of good Y to the purchase of good X, the marginal utility of good X __________ and the marginal utility of good Y __________.
falls, rises
Total utility
for quantity Y can be calculated by summing the marginal utilities of each unit that comprises quantity Y.
Consumer equilibrium exists when an individual
has the same MU/P ratio for each of the goods he or she purchases.
If a person is receiving greater utility per dollar from consuming one good than another, it follows that he or she
hasn't reached her maximum utility.
If a person's income falls, his or her budget constraint moves
inward toward the origin, and its slope remains the same.
If total utility of a good is high while the price of the good is low, it is likely that the good
is plentiful.
Total utility
is the total amount of satisfaction derived from consuming a particular quantity of a good.
If total utility derived from a good is high while the price of the good is low, it is likely that the good
is useful and is plentiful.
The __________ one's income, the __________ one's budget constraint.
larger; further away from the origin
If, as a person consumes additional units of a good, total utility rises by a constant amount, it follows that
marginal utility is constant.
A consumer is in equilibrium if he or she derives the same
marginal utility per dollar spent on each good consumed.
An upward sloping indifference curve defined over two goods violates which of the following assumptions from the theory of consumer behavior?
more is preferred to less.
If total utility declines as the quantity consumed of a good increases, it follows that marginal utility must be
negative
The assumption of transitive preferences implies that indifference curves must:
not cross one another.
According to the law of diminishing marginal utility, the second unit of a good may
not yield as much additional satisfaction as the first unit.
If a market basket is changed by adding more of at least one good, then rational consumers will:
rank the market basket more highly after the change.
Suppose that a market basket of two goods is changed by adding more of one of the goods and subtracting one unit of the other. The consumer will:
rank the market basket more highly after the change. rank the market basket more highly before the change. rank the market basket just as desirable as before.
The endpoints (horizontal and vertical intercepts) of the budget line:
represent the quantity of each good that could be purchased if all of the budget were allocated to that good.
A util is an artificial construct used as a means of measuring the
satisfaction one receives from the consumption of a good.
Total utility is defined as the
sum of the amounts of satisfaction a person receives from consuming a good.
Because there are so few diamonds in the world, the consumption of diamonds
takes place at relatively high marginal utility.
The law of diminishing marginal utility
tells us that an additional dollar of income is worth less than the preceding dollar of income.
Consumer equilibrium exists when
the MU/P ratio for all goods is the same.
Assuming only two goods X and Y, if MUX/PX = MUY/PY, then
the consumer is in equilibrium. the consumer cannot be made better off by redirecting his purchases. the consumer is deriving the same marginal utility per dollar for all goods.
The 100th game of chess gives Jones more utility than the 32nd game of chess.
the law of diminishing marginal utility may hold since the 32nd game of chess might have been a different "good" than the 100th game of chess (after all, it could have been played with a different person).
The law of diminishing marginal utility says that
the marginal utility gained by consuming equal successive units of a good will decline as the amount consumed increases.
To resolve the diamond-water paradox, it is important to note that under most circumstances,
the marginal utility of water is lower than the marginal utility of diamonds.
Given two goods, X and Y, their prices, PX and PY, and a constant marginal utility of money, a consumer is in equilibrium when the last dollar spent on X yields
the same marginal utility as the last dollar spent on Y.
To an economist, utility refers to the
the satisfaction that results from the consumption of a good.
When an economist talks about utility, she is talking about
the satisfaction that results from the consumption of a good.
Suppose that the prices of good A and good B were to suddenly double. If good A is plotted along the horizontal axis,
the slope of the budget line will not change.
Diamonds are more expensive than water because
they yield higher marginal utility.
The diamond-water paradox is the observation that
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.
The theory of consumer choice assumes that consumers attempt to maximize
total utility.
