Chapter 6 Practice Quiz

Let's suppose you own a business and you are considering raising the price of your product. If the demand curve of your product faces an inelastic demand curve then the higher price will increase your total revenue. A. TRUE B. FALSE

A. TRUE

When price decreases, consumer surplus a. increases b. remains constant c. decreases d. becomes negative

A. increases

On a hot summer day, an individual decides to eat three ice-cream sundaes at a price of $2 each. If he is a utility-maximizer, what is the value of the marginal utility of the fourth sundae to him that day? a. less than $2 b. more than $2 c. zero d. negative

A. less than $2

The law of demand states that a. quantity demanded is inversely related to price b. quantity demanded is directly related to income c. marginal utility is inversely related to quantity consumed d. demand curves are linear

A. quantity demanded is inversely related to price

Your willingness to pay additional dollars for time-saving goods depends primarily on a. the opportunity cost of your time b. your wealth and property c. your social status d. the distance between your home and your workplace

A. the opportunity cost of your time

Total utility can be measured as a. the sum of all marginal utilities b. the sum of all average utilities c. the total revenue spent on goods and services d. the price of a product

A. the sum of all marginal utilities

Consumer surplus exists a. when actual market price is greater than the equilibrium market price b. when actual market is less than the equilibrium market price c. because producers charge a price that is greater than the cost of production d. when consumers pay the same price for each unit of a good, because the price reflects only the value of the last unit purchased to the consumer

A. when actual market price is greater than the equilibrium market price

Given the following total utility schedule, what is the marginal utility of the third unit consumed? a. 20 b. 30 c. 60 d. 180

B. 180 minus 150 equals 30 utils.

Marginal utility is the a. overall satisfaction from consuming a good b. additional satisfaction from consuming one more unit of a good c. average satisfaction from consuming a good d. the change in satisfaction from consuming 1% more of a good

B. additional satisfaction from consuming one more unit of a good

Which of the following is not true with regard to consumer surplus? a. consumer surplus reflects the net benefit to consumers from market exchange b. consumer surplus is zero if the good is given away for free c. consumer surplus is used as a measure of economic welfare d. consumer surplus can be used to compare the effects of different market structures and different tax policies

B. consumer surplus is zero if the good is given away for free

If the income effect is the only economic principle operating, when price increases the quantity a. demanded of a normal good will increase b. demanded of an inferior good will increase c. demanded of a complement will increase d. demanded of any good will decrease

B. demanded of an inferior good will in

In terms of utility theory, equilibrium in the real world means that a. households are consuming as much of every commodity as they would like b. households have spent their incomes in such a way that their overall satisfaction is maximized c. households have spent their incomes in such a way that their marginal utility is zero for every product consumed

B. households have spent their incomes in such a way that their overall satisfaction is maximized

Using numerical values to measure utility a. is essential, and is the only way to analyze utility b. shows the relationship between total utility and marginal utility in a simple manner c. allows us to compare utility between different consumers d. is only possible in a world without sc

B. shows the relationship between total utility and marginal utility in a simple manner

The market demand curve for a product is a. the horizontal sum of the demand curves for each of the individual brands of the product b. the horizontal sum of the demand curves of each of the individual buyers in the market c. the same as the demand curve facing each of the individual sellers in the market d. the same as the individual demand curve of one of the buyers in the market

B. the horizontal sum of the demand curves of each of the individual buyers in the market

Given the following total utility schedule, where does marginal utility begin to diminish? a. 1 b. 2 c. 3 d. 4 e. 5

C. At the third unit marginal utility is 70 whereas in the previous units it is 100.

A word that can be substituted for utility is a. cost b. price c. satisfaction d. income

C. Satisfaction

In most markets, each consumer a. faces the same money price and time price b. faces different money prices and different time prices c. faces the same money price but different time prices d. has the same individual demand curve for the product

C. faces the same money price but different time prices

As long as scarcity exists, a. product prices play no role in utility maximization b. income plays no role in utility maximization c. income and product prices must both be considered in utility maximization d. consumers maximize utility by consuming all products until their marginal utility is zero

C. income and product prices must both be considered in utility maximization

A Medicaid experiment in California showed that a nominal fee of $1 charged for doctors' visits a. caused beneficiaries to stop going to the doctor altogether b. significantly reduced benefits to those covered by Medicaid without reducing the cost of the program to taxpayers c. reduced the cost of the program to taxpayers without creating a substantial burden for recipients

C. reduced the cost of the program to taxpayers without creating a substantial burden for recipients

Consumer surplus is defined as a. the amount by which quantity supplied exceeds quantity demanded at the current market price b. the amount by which quantity demanded exceeds quantity supplied at the current market price c. the difference between the maximization amount that a consumer is willing to pay for a given amount of a good and the amount that the consumer actually pays

C. the difference between the maximization amount that a consumer is willing to pay for a given amount of a good and the amount that the consumer actually pays

Along a consumer's demand curve, price reflects a. the costs of production b. the dollar value of the total utility from the good c. the dollar value of the marginal utility of each additional unit of the good d. the maximum quantity which could be purchased, given income

C. the dollar value of the marginal utility of each additional unit of the good

Newspaper vending machines illustrate that newspaper publishers believe a. the average utility of two identical newspapers is zero or less b. the total utility from two identical newspapers is zero or less c. the marginal utility of a second identical newspaper is zero or less d. the marginal utility of a second identical newspaper is greater than the marginal utility of the first newspaper

C. the marginal utility of a second identical newspaper is zero or less

The basic hypothesis of utility theory states that as more of a commodity is consumed during a given period of time, a. total utility and marginal utility will both decrease b. total utility and marginal utility will both increase c. total utility will increase but marginal utility will eventually decrease

C. total utility will increase but marginal utility will eventually decrease

If you are willing to pay $250 for a certain VCR, but you purchase it on sale for $200, your consumer surplus is a. impossible to determine from the information given b. 1/5 = 0.2 c. $250 d. $50

D. $50

Refer to Exhibit 19-1. Consumer surplus at market equilibrium is a. represented by triangle RPT b. represented by triangle PTK c. represented by triangle RTK d. zero

D. Zero

The substitution effect describes how a. an increase in income causes buyers to purchase different products b. the opportunities for minorities are affected by affirmative action's policies c. the additional satisfaction from each additional unit of the product consumed in a given time period decreases d. a price increase creates incentives for buyers to seek alternatives

D. a price increase creates incentives for buyers to seek alternatives

Which of the following people would probably be least likely to search the newspaper ads for bargains and clip store coupons? a. a retired person b. an unemployed person c. a waitress earning $5 an hour d. an attorney earning $100 an hour

D. an attorney earning $100 an hour

Economic analysis of utility a. is used to teach consumers how to spend their income b. is used to explain how tastes develop and why different people have different tastes c. is used to measure utility objectively and to compare the utilities of different people d. assumes that tastes are given and that they are also stable

D. assumes that tastes are given and that they are also stable

Total utility a. has all of the following as correct responses b. decreases as price increases c. can be used to compare two people's experiences d. depends on individual attitudes and preferences

D. depends on individual attitudes and preferences

In animal experiments examining implications of the law of demand, researchers a. discovered that the law of demand does not apply to animal behavior b. were unable to establish "prices", so could not answer the question of whether the law of demand applies to animal behavior c. proved that rats will not drink root beer d. found that animal consumption choices are consistent with the law of deman

D. found that animal consumption choices are consistent with the law of demand

A utility-maximizing consumer buys only CDs and books. After all of his income is spent, he finds that the last CD he bought gave him 60 units of satisfaction, and the last book he purchased gave him 30 units of satisfaction. CDs cost $12 each and books cost $5 each. Which statement is true? a. he should buy fewer CDs and fewer books b. he should buy more CDs and more books c. he should buy more CDs and fewer books d. he should buy more books and fewer CDs

D. he should buy more books and fewer CDs

If a good is offered to a rational individual for free, she will a. accept unlimited quantities of the good each time period b. stop consuming it when its marginal utility begins to increase c. stop consuming it when its marginal utility begins to diminish d. stop consuming it when its marginal utility equals zero

D. stop consuming it when its marginal utility equals zero

As a utility-maximizer, you would be willing to pay twice as much for Good X as you pay for Good Y if a. Goods X and Y are substitutes for each other b. you purchase twice as much of Good Y as you do of Good X c. you spend equal amounts on both goods d. the last unit of Good X you buy is twice as satisfying as the last unit of Good Y you buy

D. the last unit of Good X you buy is twice as satisfying as the last unit of Good Y you buy

The utility-maximizing combinations of goods occurs when a. the marginal utility of each good is equal b. the total utility of each good is equal c. the quantity consumed of each good is equal d. the marginal utility per dollar spent on each good is equal

D. the marginal utility per dollar spent on each good is equal

The cost of consumption has two components: a. the substitution effect and the income effect b. the law of demand and the law of diminishing marginal utility c. the price effect and the income effect d. the money price and the time price

D. the money price and the time price

To derive a consumer's demand curve using utility analysis, note the effect of the consumer's utility-maximizing combination of goods purchased when a. the consumer's marginal utilities change b. the consumer's income changes c. the consumer's tastes and preferences change d. the price of a product changes

D. the price of a product changes

Negative marginal utility means that a. total utility is also negative b. marginal utility is increasing c. the price of the product is increasing as additional units are consumed d. total utility is decreasing as additional units are consumed

D. total utility is decreasing as additional units are consumed

Johanna often buys her favorite soft drink every week. She will buy cans up to the last can where her marginal utility is greater than the price (MU>P). True False

TRUE