ch 7 econ study
In introducing the opportunity cost of time into the theory of consumer behavior we find that, all else equal: A. one should consume less of time-intensive goods. B. one should consume more of time-intensive goods. C. the consumer's equilibrium position is not altered. D. the marginal utility derived from each product must be multiplied by consumption time in determining equilibrium.
A
Water has greater marginal utility than diamonds, yet diamonds have greater total utility than water. A. true B. false
B
Marginal utility: A. is equal to total utility divided by the number of units consumed. B. is equal to total utility if the demand curve is linear. C. increases as more of a product is consumed. D. diminishes as more of a product is consumed.
D
Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4 respectively. The marginal utility of the last units of A and B are 16 and 24 respectively. These data suggest that Ms. Thomson: A. has preferences that are at odds with the principle of diminishing marginal utility. B. considers A and B to be complementary goods. C. should buy less A and more B. D. should buy less B and more A.
D
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 units of satisfaction from the second round. She normally buys three massages each week, with the third giving her 30 units of satisfaction. If she were to buy a fourth massage in a week, it would give her 20 units of satisfaction. If the price of massages is reduced to $15, which of the following outcomes might we expect to occur? 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.
D
The ability of a good or service to satisfy wants is called: A. utility maximization. B. opportunity cost. C. revenue potential. D. utility.
D
Utility refers to the: A. satisfaction that a consumer derives from a good or service. B. rate of decline in a product demand curve. C. relative scarcity of a product. D. usefulness of a product.
A
When a consumer is maximizing total utility, he or she cannot increase total utility by reallocating expenditures among different products. A. true B. false
A
When total utility is at a maximum, marginal utility is zero. A. true B. false
A
While eating at Alex's "Pizza by the Slice" restaurant, Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed, and would only receive 5 units of satisfaction from consuming a second slice. Based on this information we can conclude that: A. Alex may have to lower the price to convince Kara to buy a second slice. B. Kara will not eat a second slice, even if it is given to her at no charge. C. Kara will definitely want to buy a second slice of pizza. D. even if Kara buys a second slice, she will not buy a third slice.
A
Mr. Chan has an income of $20 that he is spending on donuts and cheese in such amounts that he derives 25 utils of satisfaction from the donuts and 25 utils of satisfaction from the cheese. On the basis of this information we: A. cannot say whether or not Chan is buying donuts and cheese in equilibrium amounts. B. can say that Chan should buy more cheese and fewer donuts. C. can say that Chan should buy more donuts and less cheese. D. can say that Chan is buying the utility-maximizing amounts of donuts and cheese.
A
Noncash gift giving involves value loss when the marginal utility of the gift to the receiver is less than the product price. A. true B. false
A
Suppose that Steve heads to the local hamburger shop with $3, expecting to spend $2 for his favorite burger and $1 for French fries. When he gets there he discovers that his favorite burger is on sale for $1, so he buys two burgers and one order of French fries. Steve's consumption behavior is best explained by: A. the income effect. B. the substitution effect. C. diminishing marginal utility. D. increasing marginal utility.
A
Suppose you have a limited money income and you are purchasing products A and B whose prices happen to be the same. To maximize your utility you should purchase A and B in such amounts that: A. their marginal utilities are the same. B. their total utilities are the same. C. their marginal and total utilities are proportionate. D. the income and substitution effects associated with each are equal.
A
"Essential" water is cheaper than "nonessential" diamonds because: A. new industrial uses for diamonds have been discovered. B. the supply of water is great relative to demand and the supply of diamonds is small relative to demand. C. although the total utility of diamonds is greater, their marginal utility is small. D. the supply of diamonds is great relative to demand and the supply of water is small relative to demand.
B
A consumer's demand curve for a product is downsloping because: A. total utility falls below marginal utility as more of a product is consumed. B. marginal utility diminishes as more of a product is consumed. C. time becomes less valuable as more of a product is consumed. D. the income and substitution effects precisely offset each other.
B
A rational consumer will cease purchasing a product at that quantity where marginal utility begins to diminish. A. true B. false
B
If marginal utility is diminishing, total utility must also be declining. A. true B. false
B
If the price of product X rises, then the resulting decline in the amount purchased will: A. necessarily increase the consumer's total utility from his total purchases. B. increase the marginal utility of this good. C. increase the total utility from purchases of this good. D. reduce the marginal utility of this good.
B
Marginal utility is the: A. sensitivity of consumer purchases of a good to changes in the price of that good. B. change in total utility obtained by consuming one more unit of a good. C. change in total utility obtained by consuming another unit of a good divided by the change in the price of that good. D. total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.
B
Most economists contend that: A. noncash transfers are more efficient than cash transfers. B. noncash transfers are less efficient than cash transfers. C. noncash and cash transfers are equally efficient. D. government can assess consumer preferences better than can consumers themselves.
B
A product has utility if it: A. takes more and more resources to produce successive units of it. B. violates the law of demand. C. satisfies consumer wants. D. is useful.
C
If you receive a gift whose market price is $20, but you consider it to be worth only $10, then: A. there is a $10 or 50 percent value gain. B. there may or may not be a value loss. C. there is a $10 or 50 percent value loss. D. you can be relatively certain the giver was a sibling or other close relative.
C
Marginal utility can be: A. positive, but not negative. B. positive or negative, but not zero. C. positive, negative, or zero. D. decreasing, but not negative.
C
Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is: A. zero. B. positive, but declines rapidly. C. negative. D. positive, but less than the ticket price.
C
Some modern theories of consumer behavior have: A. emphasized that consumption is basically an instantaneous act. B. contended that in the MUx/Px MUy/Py equation MU is understated for time-intensive goods. C. introduced the opportunity cost of time as a component of product price. D. argued that inflationary expectations negate the theory of consumer behavior.
C
The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is: A. 26 units of utility. B. 6 units of utility. C. 8 units of utility. D. 38 units of utility.
C
Where total utility is at a maximum, marginal utility is: A. negative. B. positive and increasing. C. zero. D. positive but decreasing.
C
A consumer who has a limited budget will maximize utility or satisfaction when the: A. ratios of the marginal utility of each product purchased divided by its price are equal. B. total utility derived from each product purchased is the same. C. marginal utility of each product purchased is the same. D. price of each product purchased is the same.
A
The diamond-water paradox arises because: A. essential goods may be cheap while nonessential goods may be expensive. B. the marginal utility of certain products increases, rather than diminishes. C. essential goods are always higher priced than nonessential goods. D. we sometimes fail to use money as a standard of value.
A
The limited money income of consumers results in a so-called budget constraint. A. true B. false
A
The theory of consumer behavior assumes that: A. consumers behave rationally, attempting to maximize their satisfaction. B. consumers have unlimited money incomes. C. consumers do not know how much marginal utility they obtain from successive units of various products. D. marginal utility is constant.
A
Noncash gifts: A. increase the utility of recipients by introducing them to products they have not consumed before. B. reduce recipient utility relative to a cash gift because noncash gifts often fail to match recipient preferences. C. entail as much utility as do cash gifts. D. increase the utility of recipients because many people are uncertain of their own preferences.
B
The consumer demand curve for a product is downsloping because marginal utility is constant when price declines. A. true B. false
B
The diamond-water paradox occurs because: A. the price of a product is related to its total utility, not its marginal utility. B. the price of a product is related to its marginal utility, not its total utility. C. water is, in fact, very scarce in certain regions of the world. D. diamonds are more useful than water.
B
The law of diminishing marginal utility explains why: A. supply curves slope upward. B. demand curves slope downward. C. drug addicts can never get enough. D. people will only consume their favorite goods and not try new things.
B
The law of diminishing marginal utility states that: A. total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. B. beyond some point additional units of a product will yield less and less extra satisfaction to a consumer. C. price must be lowered to induce firms to supply more of a product. D. it will take larger and larger amounts of resources beyond some point to produce successive units of a product.
B
The marginal utility of the last unit of apples consumed is 12 and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium? A. $4 and $6 B. $6 and $4 C. $8 and $12 D. $16 and $9
B
The substitution effect suggests that when consumers judge product quality by price, they will substitute high-priced products for low-priced products. A. true B. false
B
To maximize utility a consumer should allocate money income so that the: A. elasticity of demand on all products purchased is the same. B. marginal utility obtained from the last dollar spent on each product is the same. C. total utility derived from each product consumed is the same. D. marginal utility of the last unit of each product consumed is the same.
B
Utility: A. is synonymous with usefulness. B. is want-satisfying power. C. is easy to quantify. D. rarely varies from person to person.
B
When a consumer is maximizing total utility, A. the average utility from each dollar spent is the same. B. total utility cannot be increased by reallocating expenditures among various products. C. the total utility obtainable from each product is at a maximum. D. the marginal utility of the last unit of each product purchased is zero.
B
When a consumer shifts purchases from X to Y, the marginal utility of X falls and the marginal utility of Y rises. A. true B. false
B
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. A. true B. false
B
Which of the following is correct? A. There is no firm mathematical relationship between marginal utility and total utility. B. Total utility is equal to the change in marginal utility from consuming an additional unit of a product. C. If marginal utility is diminishing and is a positive amount, total utility will increase. D. If marginal utility is diminishing, total utility must also be diminishing.
C
Which of the following statements is correct? A. Both cash and noncash gift-giving cause value losses. B. Neither cash nor noncash gift-giving cause value losses. C. Noncash gift-giving create a value loss, but cash gifts do not. D. Cash gifts creates a value loss, but noncash gifts do not.
C
According to economists, gift registries, returning gifts for cash refunds, and "recycling gifts": A. are inefficient because the time spent is these activities is never worth the benefit recipients receive from doing them. B. are selfish acts and morally wrong. C. are more efficient than if givers simply gave cash gifts. D. increase the efficiency of gift-giving because they allow the recipient to consume goods that provide greater utility and transfer away those goods that are less satisfying.
D
Diminishing marginal utility explains why: A. the income effect exceeds the substitution effect. B. the substitution effect exceeds the income effect. C. supply curves are upsloping. D. demand curves are downsloping.
D
The fact that most medical care purchases are financed through insurance: A. has no effect on health care consumption because aggregate costs are the same regardless of payment method. B. reduces the amount of health care consumed. C. has decreased health care costs and therefore reduced aggregate health care expenditures. D. increases the amount of health care consumed.
D
Which of the following statements is correct? A. Utility and usefulness are synonymous. B. The marginal utility derived from successive units of a product tends to be similar for all consumers. C. Because utility is not measurable, the utility-maximizing rule provides no useful insights as to consumer behavior. D. A product may yield utility, but not be functionally useful.
D