Chapter 13 Consumer Choice and Demand | Test Bank – 9th - Foundations of Microeconomics 9e | Test Bank with Answer Key by Robin Bade by Robin Bade. DOCX document preview.
View Product website:
https://selldocx.com/docx/chapter-13-consumer-choice-and-demand-test-bank-9th-1224
Foundations of Microeconomics, 9e (Bade)
Chapter 13 Consumer Choice and Demand
13.1 Consumption Possibilities
1) A budget line shows the
A) quantities of goods a buyer can purchase with given income and prices.
B) relationship between price and quantity demanded.
C) total utility a consumer realizes from consuming different quantities of a good.
D) quantities of consumption that maximizes marginal utility.
E) the prices of the two goods a buyer can purchase.
Topic: Budget line
Skill: Level 1: Definition
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
2) A consumption point inside the budget line
A) is unaffordable.
B) is possible to afford but has some unspent income.
C) shows that the consumer has chosen to spend all of his or her income on both products.
D) shows that the consumer spends income on only one of the goods.
E) is affordable and, because it is inside the budget line, means that all the person's budget has been spent.
Topic: Budget line
Skill: Level 1: Definition
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
3) Which of the following statements is correct?
A) Consumers have the ability to buy everything they desire.
B) A consumer's budget line shows the limits to what a consumer can buy.
C) A consumer's budget line shows the goods with the highest marginal utilities.
D) Rich consumers are unaffected by prices.
E) A budget line changes only if the person's budget changes.
Topic: Budget line
Skill: Level 1: Definition
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
4) Which of the following is shown by a budget line?
i. The combinations of goods a person can afford
ii. The production possibilities for a person
iii. The combinations of goods a person prefers
A) i only
B) i and ii
C) i and iii
D) ii and iii
E) ii only
Topic: Budget line
Skill: Level 1: Definition
Section: Checkpoint 13.1
Status: Revised
AACSB: Reflective thinking
5) The budget line is the boundary between
A) preferred and nonpreferred consumption combinations.
B) affordable and unaffordable consumption combinations.
C) goods and bads.
D) income and expenditure.
E) income and consumption.
Topic: Budget line
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
6) The point where the budget line intersects the y-axis represents a combination of goods that contains
A) some of both goods.
B) only the good measured on the y-axis.
C) only the good measured on the x-axis.
D) no goods.
E) the quantity of the good measured on the y-axis that has zero marginal utility.
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
7) A budget line
A) shows the limits to what can be consumed.
B) has a slope equal to a relative price.
C) rotates or shifts only when the consumer's budget changes.
D) Answers B and C are both correct.
E) Answers A and B are both correct.
Topic: Budget line
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
8) Which of the following statements is correct?
A) The slope of the budget line shows the opportunity cost of the good measured along the x-axis.
B) Along the budget line, consuming more of one good implies consuming more of the other.
C) The slope of the budget line shows there is no tradeoff between the two goods because the consumer can buy each of them.
D) If the consumer's budget increases, the budget line shifts leftward and its slope does not change.
E) None of the above answers is correct.
Topic: Budget line
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
9) In order to draw Lucky's budget line, we need to know
A) only Lucky's budget.
B) only the prices of the goods Lucky consumes.
C) both Lucky's budget and the prices of the goods Lucky consumes.
D) Lucky's budget, the prices of the goods lucky consumes, and the utilities of the goods Lucky does not consume.
E) the utilities of the goods Lucky consumes.
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
10) Katie has $15. She likes M&M candies and Hershey's white chocolate bars. M&M candies are $1.50 a pack and (the large) Hershey bars are $3.00 each. Katie can choose to buy
A) 4 Hershey bars and 2 packs of M&Ms.
B) 2 Hershey bars and 6 packs of M&Ms.
C) 5 Hershey bars and 10 packs of M&Ms.
D) Answers A and B are correct.
E) Answers A, B, and C are correct.
Topic: Budget line
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
11) Suppose a consumer has $100 to spend on two goods, shoes and shirts. If the price of a pair of shoes is $20 per pair and the price of a shirt is $15 each, which of the following combinations is unaffordable to the consumer?
A) 5 pairs of shoes and 0 shirts
B) 2 pairs of shoes and 4 shirts
C) 0 pairs of shoes and 7 shirts
D) 2 pairs of shoes and 3 shirts
E) 0 pairs of shoes and 0 shirts
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
12) If Fatma has $30 to spend on apples and bananas, where on the apple axis would Fatma's budget line intersect if the price of apples is $3 a pound?
A) 30 pounds
B) 10 pounds
C) 3 pounds
D) 0 pounds
E) It is impossible to determine with the given information.
Topic: Budget line
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
13) Timmy makes $100 per week as a taxidermist. He spends all this income to buy pizza and hair gel. The price of a pizza is $10 and the price of a bottle of hair gel is $4. If Timmy buys 5 bottles of hair gel, then he buys ________ pizzas.
A) 10
B) 4
C) 8
D) 20
E) None of the above answers is correct.
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
14) Timmy makes $100 per week as a taxidermist. He spends all this income to buy pizza and hair gel. The price of a pizza is $10 and the price of a bottle of hair gel is $4. If Timmy buys 6 pizzas per week, how many bottles of gel can he purchase?
A) 10
B) 60
C) 20
D) 40
E) None of the above answers is correct.
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
15) Reb earns $1,000 per week as a fishing guide in Texas. With this money he buys fishing lures and steaks. Lures cost $5 each, steaks cost $10 each. With this level of income, which consumption points are NOT possible?
A) 200 lures, 0 steaks
B) 100 lures, 60 steaks
C) 80 lures, 20 steaks
D) 0 lures, 50 steaks
E) 50 lures, 50 steaks
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
16) Reb earns $1,000 per week as a fishing guide in Texas. With this money he buys fishing lures and steaks. Lures cost $5 each, steaks cost $10 each. If Reb purchases 124 lures per week, how many steaks can he buy?
A) 620
B) 38
C) 123
D) 380
E) 100
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
17) Sarah earns $500 per week selling baskets made out of tree vines. With this money she buys sushi and rose bushes. Each piece of sushi costs $1 and each rose bush costs $10. If Sarah spends $170 per week on sushi, the maximum quantity of rose bushes can she buy each week is ________ bushes.
A) 33
B) 330
C) 3
D) 17
E) None of the above answers is correct.
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
18) Susan can watch movies or attend plays. The table above gives combinations of movies and plays that are on her budget line. If the price of a movie is $10, then her budget for movies and plays is
A) $10 per month.
B) $50 per month.
C) $60 per month.
D) $120 per month.
E) unknown from the information.
Topic: Budget line
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
19) The figure above shows Sarah's budget line. Sarah earns $500 per week selling baskets made out of tree vines. With this money she buys sushi and rose bushes. Each piece of sushi costs $1 and each rose bush costs $10. Sarah will be at what point on her budget line if she spends $200 per week on sushi?
A) Point a
B) Point b
C) Point c
D) Point d
E) Point f
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
20) The figure above shows Sarah's budget line. Sarah earns $500 per week selling baskets made out of tree vines. With this money she buys sushi and rose bushes. Each piece of sushi costs $1 and each rose bush costs $10. Sarah will be at what point on her budget line if she spends $500 per week on rose bushes?
A) Point a
B) Point b
C) Point c
D) Point f
E) Point e
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
21) The figure above shows Sarah's budget line. Sarah earns $500 per week selling baskets made out of tree vines. With this money she buys sushi and rose bushes. Each piece of sushi costs $1 and each rose bush costs $10. Sarah will be at what point on her budget line if she spends $300 per week on rose bushes?
A) Point a
B) Point b
C) Point c
D) Point f
E) Point e
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
22) The figure above shows Sarah's budget line. Sarah earns $500 per week selling baskets made out of tree vines. With this money she buys sushi and rose bushes. Each piece of sushi costs $1 and each rose bush costs $10. Sarah is NOT able to purchase the combination of
A) 50 roses bushes and 0 pieces of sushi.
B) 20 rose bushes and 200 pieces of sushi.
C) 0 roses bushes and 300 pieces of sushi.
D) 30 roses bushes and 300 pieces of sushi.
E) None of the above answers is correct because Sarah is able to purchase all the listed combinations of roses and sushi.
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
23) The figure above shows a consumer's budget line for sodas and DVD rentals. Point a represents an
A) affordable combination of sodas and DVDs that spends the entire budget.
B) affordable combination of sodas and DVDs that does not spend the entire budget.
C) unaffordable combination of sodas and DVDs.
D) affordable combination of sodas and DVDs but whether it spends the entire budget cannot be determined from the figure.
E) None of the above answers is correct.
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
24) The figure above shows a consumer's budget line between sodas and DVD rentals. Point b represents an
A) affordable combination of sodas and DVDs that spends the entire budget.
B) affordable combination of sodas and DVDs that does not spend the entire budget.
C) unaffordable combination of sodas and DVDs.
D) affordable combination of sodas and DVDs but whether it spends the entire budget cannot be determined from the figure.
E) None of the above answers is correct.
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
25) The figure above shows a consumer's budget line between sodas and DVD rentals. Point c represents an
A) affordable combination of sodas and DVDs that spends the entire budget.
B) affordable combination of sodas and DVDs that does not spend the entire budget.
C) unaffordable combination of sodas and DVDs.
D) affordable combination of sodas and DVDs, but whether it spends the entire budget cannot be determined from the figure.
E) None of the above answers is correct.
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
26) The figure above shows a consumer's budget line between sodas and DVD rentals. Point d represents an
A) affordable combination of sodas and DVDs that spends the entire budget.
B) affordable combination of sodas and DVDs that does not spend the entire budget.
C) unaffordable combination of sodas and DVDs.
D) affordable combination of sodas and DVDs, but whether it spends the entire budget cannot be determined from the figure.
E) None of the above answers is correct.
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
27) Bobby buys cat food for his cat, Pearl. If the price of cat food falls, then Bobby's budget line will
A) rotate outward and its slope will change.
B) rotate inward and its slope will change.
C) shift outward and its slope will not change.
D) shift inward and its slope will not change.
E) either rotate or shift outward depending on whether cat food has positive or negative marginal utility.
Topic: Budget line, change in price
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
28) The graph shows the budget line facing Jeanne. The price of smoothies is $4 and the price of a cup of coffee is $2. The combinations of smoothies and coffees on the budget constraint means that Jeanne
A) has a budget of $20.
B) has a budget of $10.
C) prefers to buy coffees over smoothies.
D) prefers to buy smoothies over coffees.
E) cannot afford to buy 4 coffees and 3 smoothies.
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
29) The graph shows Jeanne's budget line. Jeanne has a budget of $20 which means that smoothies must cost ________ and a cup of coffee must cost ________.
A) $4; $2
B) $2; $4
C) $10; $5
D) $5; $10
E) $20; $10
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Application of knowledge
30) The graph shows Jeanne's budget line.
A combination of ________ coffees and ________ smoothies is affordable.
A combination of ________ coffees and ________ smoothies is unaffordable.
A) 3; 2; 8; 2
B) 6; 1; 8; 1
C) 10; 0; 0; 5
D) 5; 0; 0; 10
E) 6; 2; 2; 6
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Application of knowledge
31) If one of the products a consumer buys rises in price, the consumer's budget line will
A) shift farther away from the origin of the graph and not change its slope.
B) rotate inward, closer to the origin.
C) vanish.
D) undergo no change.
E) shift farther away from the origin of the graph and become steeper.
Topic: Budget line, change in price
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
32) When the price of a good a consumer buys rises, the consumer's budget line
A) shifts inward and its slope does not change.
B) shifts outward and its slope does not change.
C) rotates inward and its slope changes.
D) rotates outward and its slope changes.
E) does not change.
Topic: Budget line, change in price
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
33) You consume hamburgers and hot dogs. If the price of a hamburger increases while the price of a hot dog and your budget do not change, then your budget line will
A) not change because your budget hasn't changed.
B) shift outward and not change its slope.
C) rotate outward and change its slope.
D) rotate inward and change its slope.
E) shift inward and not change its slope.
Topic: Budget line, change in price
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
34) If the slope of the budget line changes, there must have been
A) a change in the consumer's preferences.
B) an increase in the consumer's income.
C) a change in the price of at least one good.
D) a change in the price of both goods.
E) None of these could cause a change in the slope of the budget line.
Topic: Budget line, change in price
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
35) An increase in the price of a good
A) rotates the budget line inward and changes its slope.
B) rotates the budget line outward and changes its slope.
C) results in a movement downward along the budget line.
D) results in a movement upward along the budget line.
E) shifts the budget line inward and does not change its slope.
Topic: Budget line, change in price
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
36) If the price of the good measured on the x-axis becomes relatively cheaper, the budget line will
A) become vertical.
B) become steeper.
C) become flatter.
D) become horizontal.
E) shift rightward and not change its slope.
Topic: Budget line, change in price
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
37) Assume that there are two goods, x and y. The quantity of good x is measured on the x-axis and the quantity of good y is measured on the y-axis. If the price of good y rises, then the
A) y-axis intercept of the budget line increases.
B) y-axis intercept of the budget line increases and the x-axis intercept of the budget line decreases.
C) y-axis intercept of the budget line decreases and the x-axis intercept does not change.
D) slope of the budget line changes.
E) Both answers C and D are correct.
Topic: Budget line, change in price
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
38) Suppose Alice spends her budget on books and downloaded movies. If her budget does not change, and the price of a book stays the same but the price of a downloaded movie falls, her budget line
A) shifts outward and its slope does not change.
B) shifts inward and its slope does not change.
C) rotates inward and its slope changes.
D) rotates outward and its slope changes.
E) does not change because her budget has not changed.
Topic: Budget line, change in price
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
39) Reb buys fishing lures and steaks. If his budget does not change and the price of a fishing lure decreases, the maximum number of fishing lures he can purchase ________ and the maximum number of steaks he can purchase ________.
A) increases; increases
B) increases; decreases
C) increases; does not change
D) decreases; increases
E) does not change; does not change
Topic: Budget line, change in price
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
40) Samantha has an income of $40 and buys beef jerky and fried pork rinds. Her income does not change and the price of both beef jerky and fried pork rinds increases. As a result
A) Samantha's consumption possibilities have decreased.
B) Samantha's budget line shifts inward.
C) Samantha can still buy the combination of beef jerky and fried pork rinds she was initially consuming because her income did not change.
D) Answers A and B are correct.
E) Answers A and C are correct.
Topic: Budget line, change in price
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
41) Nadir and Nina consume the same goods. If Nadir has more income than Nina, then Nina's budget line will
A) lie to the left of Nadir's budget line.
B) be steeper than Nadir's budget line.
C) lie to the right of Nadir's budget line.
D) be flatter than Nadir's budget line.
E) More information is needed to determine how Nina's and Nadir's budget lines compare.
Topic: Budget line, change in income
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
42) Which of the following describes what happens to a consumer's budget line if that consumer's budget increases?
A) The budget line becomes steeper.
B) The budget line becomes more horizontal.
C) The budget line shifts farther away from the origin of the graph.
D) The budget line shifts closer to the origin of the graph.
E) The budget line does not change.
Topic: Budget line, change in income
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
43) When a consumer's budget increases, the budget line
A) becomes steeper.
B) becomes flatter.
C) shifts outward.
D) shifts inward.
E) does not change.
Topic: Budget line, change in income
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
44) An increase in a consumer's budget
A) shifts the budget line outward and does not change its slope.
B) shifts the budget line inward and does not change its slope.
C) rotates the budget line outward around the point where it intersects the x-axis.
D) rotates the budget line inward around the point where it intersects the x-axis.
E) rotates the budget line outward around the point where it intersects the y-axis.
Topic: Budget line, change in income
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
45) An increase in a consumer's budget
A) changes the relative prices of the goods.
B) changes the slope of the budget line.
C) decreases consumption possibilities.
D) increases consumption possibilities.
E) has no effect on the consumer's budget line.
Topic: Budget line, change in income
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
46) A budget line will shift outward and not change its slope if
A) there is an increase in the consumer's budget.
B) the consumer's preferences change.
C) the price of one good changes.
D) the price of both goods increase by the same percentage.
E) None of the above shift the budget line outward.
Topic: Budget line, change in income
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
47) If you consume hot dogs and hamburgers and your budget increases while the prices of hot dogs and hamburgers do not change, then your budget line
A) does not change.
B) shifts outward and its slope does not change.
C) rotates outward and its slope changes.
D) shifts inward and its slope does not change.
E) rotates inward and its slope changes.
Topic: Budget line, change in income
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
48) The graph shows Jeanne's budget line. She currently has a budget of $10. If Jeanne's budget increases
A) the budget line will become flatter.
B) the budget line will shift outward.
C) the budget line will become steeper.
D) the budget line will shift in toward the origin.
E) we cannot tell what will happen to the budget line without information about the prices of coffee and smoothies.
Topic: Budget line, change in budget
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Application of knowledge
49) The graph shows Jeanne's budget line. If the price of coffee increases, the budget line
A) rotates outward and becomes flatter.
B) may change, but we need information about what Jeanne's demand curve is.
C) rotates inward and becomes steeper.
D) shows that relative prices don't change.
E) shifts outward away from the origin.
Topic: Budget line, change in price
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
50) The graph shows Jeanne's budget line. When the price of a smoothie is $4 and the price of a cup of coffee is $2, which of the following is TRUE?
i. The slope of the budget line is 2 smoothies per cup of coffee.
ii. The opportunity cost of a smoothie is 2 cups of coffee.
iii. The relative price of a smoothie is 2 cups of coffee.
A) ii and iii only
B) i only
C) i, ii and iii
D) i and iii
E) iii only
Topic: Budget line, opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Application of knowledge
51) Which of the above figures reflects an increase in the price of chicken?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
E) Both Figure B and Figure C
Topic: Budget line, change in price
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
52) Which of the above figures reflects a decrease in the price of chicken?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
E) Both Figure A and Figure D
Topic: Budget line, change in price
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
53) Which of the above figures reflects an increase in the price of fish?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
E) Both Figure B and Figure C
Topic: Budget line, change in price
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
54) Which of the above figures reflects an increase in the consumer's budget?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
E) Both Figure A and Figure D
Topic: Budget line, change in income
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
55) The slope of the budget line can be interpreted as which of the following?
A) an opportunity cost
B) the consumer's budget divided by the price of the good measured on the y-axis
C) the consumer's budget divided by the price of the good measured on the x-axis
D) the number of units of the good measured on the y-axis plus the number of units of the good measured on the x-axis
E) the budget necessary to buy the combinations of goods on the budget line
Topic: Budget line, slope
Skill: Level 1: Definition
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
56) The slope of the budget line represents an opportunity cost because, moving along the line
A) income is increasing.
B) income is decreasing.
C) additional income must be earned in order to purchase more of one good.
D) a consumer must give up some of one good in order to get more of the other.
E) it is possible to consume more of both goods.
Topic: Budget line, slope
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
57) Sue consumes oysters and clams. Pounds of oysters are measured on the y-axis and pounds of clams on the x-axis. If the slope of Sue's budget line is 5 pounds of oysters per pound of clams, Sue must
A) give up 5 pounds of clams to obtain 1 pound of oysters.
B) give up 5 pounds of oysters to obtain 1 pound of clams.
C) pay $5 for a pound of clams only.
D) pay $5 for a pound of oysters only.
E) pay $5 for a pound of clams and pay $5 for a pound of oysters.
Topic: Budget line, slope
Skill: Level 4: Applying models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
58) When the price of one good changes while another good's price does not change, then there has been a change in the
A) relative price.
B) marginal utility price.
C) absolute price.
D) marginal price.
E) utility price.
Topic: Relative price
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
59) On a budget line, sub sandwiches are measured on the x-axis and sodas are measured on the y-axis. The price of a sub is $5 and the price of a soda is $1. If the price of a sub decreases to $4, the relative price of
A) sub sandwiches falls and the budget line becomes less steep.
B) sub sandwiches rises and the budget line becomes flatter.
C) sodas falls and the budget line becomes flatter.
D) both sub sandwiches and soda falls and the budget line shifts outward.
E) sodas does not change and neither does the budget line.
Topic: Relative price
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
60) If the price of a soda is $1 and the price of a sub sandwich is $5, the relative price of a sub sandwich is ________ because ________.
A) 5 sodas; it costs 5 sodas to buy a sub
B) $5; 5 sodas will cost $5
C) 20 cents; $1 divided by $5 is 20 cents
D) 1/5; a sub costs 1/5 of a soda
E) None of the above answers is correct.
Topic: Relative price
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
61) Over the past 10 years, the relative price of gasoline has ________. As a result, ________.
A) increased; consumers have found substitutes for gasoline and bought less gasoline
B) increased; the consumption possibilities for gasoline have increased
C) decreased; consumers have had an incentive to buy more gasoline
D) decreased; the relative prices of other goods have increased
E) not changed; the relative prices of other goods have fallen
Topic: Eye on the U.S. economy, Relative Prices on the Move
Skill: Level 5: Critical thinking
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
62) A budget line shows the
A) limits to production possibilities.
B) limits to production opportunities.
C) slope of the demand curve.
D) limits to consumption possibilities.
E) way the demand curve shifts if the consumer's budget changes.
Topic: Budget line
Skill: Level 1: Definition
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
63) A budget line
A) represents combinations of goods a consumer desires.
B) marks the boundary between what a consumer can afford and cannot afford.
C) has a positive slope.
D) is the same as the production possibilities frontier.
E) is the same as a demand curve.
Topic: Budget line
Skill: Level 1: Definition
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
64) Linda has $10 a month to spend on ice cream cones and chocolate bars. If the price of an ice cream cone is $2 a cone and the price of a chocolate bar is $1 a bar, which of the following is a point on Linda's budget line?
A) 4 cones and 0 chocolate bars
B) 1 cone and 8 chocolate bars
C) 3 cones and 1 chocolate bar
D) 5 cones and 10 chocolate bars
E) 0 cones and 0 chocolate bars
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
65) If a budget line rotates inward and becomes steeper, then the
A) consumer's budget decreased.
B) consumer's budget increased.
C) price of one of the goods decreased.
D) price of one of the goods increased.
E) price of both of the goods must have decreased.
Topic: Budget line, change in price
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
66) If the budget line rotates inward and becomes steeper, there is a
A) higher opportunity cost of the good measured on the x-axis.
B) lower opportunity cost of the good measured on the x-axis.
C) larger budget.
D) higher price for the good measured on the y-axis.
E) lower price for the good measured on the x-axis.
Topic: Budget line, opportunity cost
Skill: Level 4: Applying models
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
67) A relative price is the
A) price of a substitute.
B) price of a related good.
C) price of one good divided by the price of another.
D) absolute price of a good.
E) price of one good multiplied by the price of another.
Topic: Relative price
Skill: Level 1: Definition
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
68) If a consumer's budget increases, the budget line
A) rotates outward and its slope changes.
B) rotates inward and its slope changes.
C) shifts outward and its slope does not change.
D) shifts inward and its slope does not change.
E) does not change.
Topic: Budget line, change in income
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
69) Reb buys fishing lures and steaks. If his budget increases, the maximum number of fishing lures he can purchase ________ and the maximum number of steaks he can purchase ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
Topic: Budget line, change in income
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
13.2 Marginal Utility Theory
1) Utility is the
A) benefit or satisfaction that a person gets from the consumption of a good or service.
B) measure of how useful a resource is in the production process.
C) measure of productivity associated with a good or service.
D) economic term for consumption possibilities.
E) economic term for how changes in price affect a consumer's purchases.
Topic: Utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
2) The benefit that John gets from eating an additional grape is called the ________ the grape.
A) net gain from
B) demand for
C) quantity demanded of
D) total utility from
E) marginal utility from
Topic: Utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
3) As more of a good is consumed, total utility
A) increases.
B) decreases.
C) remains the same.
D) becomes negative and then turns positive.
E) might change but whether or not it changes depends on why more of the good is consumed.
Topic: Total utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
4) If you get 40 units of utility from eating the first bag of pretzels, 30 from the second bag, and 20 from the third bag, the total utility of three bags of pretzels is ________ units of utility.
A) 40
B) 70
C) 90
D) 50
E) 20
Topic: Total utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
5) If a consumer obtains 20 units of utility for the first unit consumed, 10 for the second, and 5 for the third, what is the total utility of consuming three units?
A) 20 units
B) 30 units
C) 35 units
D) 5 units
E) None of the above answers is correct.
Topic: Total utility and marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
6) For Jack, the total utility from three shirts is 50 units and the marginal utility of one more shirt is 5. The total utility of four shirts is
A) 45.
B) 55.
C) 55/4.
D) 55/5.
E) None of the above answers is correct.
Topic: Total utility and marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
7) Marginal utility is equal to which of the following?
A) total income divided by the price of the product
B) the change in total utility from consuming one more unit of a good
C) the satisfaction obtained from consuming any number of units of a good
D) total utility divided by the number of units of the good
E) None of the above answers is correct.
Topic: Marginal utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
8) Marginal utility is the change in total utility that results from
A) an increase in the price of the good.
B) a change in the budget line.
C) a one-unit change in the quantity of a good consumed.
D) a decrease in the price of the good.
E) an increase in the consumer's income.
Topic: Marginal utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
9) If the total utility of 2 bags of chips is 25, the total utility of 3 bags is 33, and the total utility of 4 bags is 40 units, then the marginal utility of the 3rd and 4th bags are
A) 8 and 7, respectively.
B) 12.5 and 11, respectively.
C) 11 and 10, respectively.
D) 58 and 73, respectively.
E) 33 and 40, respectively.
Topic: Marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
10) If Joan consumes 1 dinner roll, she has total utility of 15; if she consumes 2, she has total utility of 27; if she consumes 3, she has total utility of 37; and if she consumes 4, she has total utility of 45. What is the marginal utility of the fourth dinner roll consumed?
A) 124 units of utility
B) 45 units of utility
C) 11.25 units of utility
D) 8 units of utility
E) 37 units of utility
Topic: Marginal utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
11) If Sarah gets 40 units of utility from her first piece of toast for breakfast and a total of 70 units from two pieces of toast, then the marginal utility of the first piece is ________ units and the marginal utility of the second piece is ________ units.
A) 40; 70
B) 40; 110
C) 40; 30
D) 40; 35
E) 70; 40
Topic: Marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
Box of doughnuts | Homer's total utility |
1 | 30 |
2 | 55 |
3 | 75 |
4 | 90 |
5 | 100 |
6 | 103 |
12) The above table shows Homer's total utility from boxes of doughnuts. As Homer's consumption of doughnuts increases
A) both his total utility and his marginal utility increase.
B) his total utility increases, but his marginal utility decreases.
C) his total utility decreases, but his marginal utility increases.
D) both his total utility and his marginal utility decrease.
E) None of the above answers is correct.
Topic: Total utility and marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
13) The above table shows Homer's utility from boxes of doughnuts. If Homer decreases his consumption of doughnuts from 4 boxes to 3 boxes, his
A) total utility and marginal utility will both decrease.
B) total utility will decrease, but his marginal utility will increase.
C) total utility will increase, but his marginal utility will decrease.
D) total utility and marginal utility will both increase.
E) None of the above answers is correct.
Topic: Total utility and marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
14) The above table shows Homer's utility from boxes of doughnuts. The marginal utility that Homer receives from the third box of doughnuts is equal to
A) 75.
B) 25.
C) 20.
D) 3.
E) 50.
Topic: Marginal utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
15) The above table shows Homer's utility from boxes of doughnuts. As Homer's consumption of doughnuts increases, his
A) marginal utility is positive and increasing.
B) marginal utility is positive but decreasing.
C) marginal utility is negative but increasing.
D) marginal utility is negative and decreasing.
E) total utility is not related to his marginal utility.
Topic: Marginal utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
Quantity of ice cream (quarts) | Total utility from ice cream |
0 | 0 |
1 | 80 |
2 | 150 |
3 | 210 |
4 | 260 |
16) Given the data in the above table, what is the marginal utility of the third quart of ice cream?
A) 80
B) 70
C) 60
D) 230
E) 210
Topic: Total utility and marginal utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
17) Given the data in the above table, what is the marginal utility of the second quart of ice cream?
A) 80
B) 70
C) 60
D) 75
E) 150
Topic: Total utility and marginal utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
18) Given the data in the above table, what is the marginal utility of the fourth quart of ice cream?
A) 210
B) 50
C) 60
D) 65
E) 260
Topic: Total utility and marginal utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
19) If a consumer's total utility increases when another unit of a good is consumed, which of the following is TRUE? Marginal utility must be
A) negative.
B) equal to one.
C) positive.
D) increasing.
E) some amount, but more information is needed to determine if marginal utility is positive, negative, or equal to zero.
Topic: Marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
20) Diminishing marginal utility means that as more of a good is consumed
A) the price of the good rises.
B) the price of the good falls.
C) more income is spent.
D) the utility of an additional unit decreases.
E) the consumption of some other good must diminish.
Topic: Diminishing marginal utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
21) Diminishing marginal utility means that
A) marginal utility decreases as consumption decreases.
B) marginal utility increases as consumption increases.
C) marginal utility decreases as consumption increases.
D) total utility decreases as marginal utility decreases.
E) total utility decreases as marginal utility increases.
Topic: Diminishing marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
22) Brenda's marginal utility per dollar from the second hamburger is 20. Her marginal utility from the third hamburger would be
A) less than 20.
B) more than 20.
C) equal to 20.
D) not comparable to the marginal utility per dollar from the second hamburger.
E) some amount, but we need more information to determine how it compares to 20.
Topic: Diminishing marginal utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
23) Total utility ________ as a person consumes more of one good and marginal utility ________.
A) increases; increases
B) increases; decreases
C) remains constant; decreases
D) fluctuates; decreases
E) decreases; increases
Topic: Diminishing marginal utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
24) Diminishing marginal utility means that an increase in the consumption of a good leads to
A) a decrease in total utility.
B) a decrease in marginal utility.
C) a decrease in the fall of the price of the good.
D) a decrease in the consumer's budget.
E) an increase in the consumer's budget.
Topic: Diminishing marginal utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
25) Kevin likes weasel leg stew. But every bite of the stew that he eats provides him with less and less total utility. This fact means that Kevin's marginal utility is
A) decreasing.
B) increasing, but at a decreasing rate.
C) increasing at an increasing rate.
D) not changing.
E) changing, but the rate of change is not certain without more information.
Topic: Diminishing marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
26) The table above shows Buffy's utility from wooden stakes and cloves of garlic. The total utility Buffy gets from 5 wooden stakes is
A) 7.
B) 65.
C) 222.
D) 122.
E) None of the above answers is correct.
Topic: Total utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
27) The table above shows Buffy's utility from wooden stakes and cloves of garlic. If Buffy increases her consumption of wooden stakes from 4 to 5 stakes, her marginal utility from the 5th stake is
A) 65.
B) 7.
C) 58.
D) 7 ÷ 5 = 1.29.
E) None of the above answers is correct.
Topic: Marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
28) The table above shows Buffy's utility from wooden stakes and cloves of garlic. The marginal utility of which clove of garlic is the largest?
A) the first clove
B) the second clove
C) the fifth clove
D) the third clove
E) The marginal utility of all cloves is the same.
Topic: Marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
29) The table above shows Buffy's utility from wooden stakes and cloves of garlic. As Buffy uses more stakes, the marginal utility of a stake ________ and as she uses more cloves of garlic, the marginal utility of a clove of garlic ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
Topic: Diminishing marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
30) The table above gives Matt's utility from consuming slices of pizza. His marginal utility from the 3rd slice is
A) 27 units.
B) 5 units.
C) 9 units.
D) 11 units.
E) None of the above answers is correct.
Topic: Marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
31) The table above gives Matt's utility from consuming slices of pizza. His marginal utility from the 4th slice is
A) 30 units.
B) 3 units.
C) 94 units.
D) 23.5 units.
E) 7.5 units.
Topic: Marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
Quantity (bananas) | Total utility |
0 | 0 |
1 | 35 |
2 | 60 |
3 | 80 |
4 | 100 |
5 | 115 |
6 | 127 |
7 | 137 |
8 | 145 |
32) Sam's total utility for bananas is in the table above. Sam's marginal utility from the fourth banana is
A) 100.
B) 25.
C) 20.
D) 15.
E) It cannot be determined from the given information.
Topic: Marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
33) Sam's total utility for bananas is in the table above. Sam's total utility shows that the law of diminishing marginal utility
A) holds because his marginal utility from bananas decreases as Sam eats more bananas.
B) does not hold because Sam's total utility does not reach its maximum.
C) does not hold because Sam's marginal utility does not decrease to zero.
D) holds because Sam's total utility from bananas increases as Sam eats more bananas.
E) None of the above answers is correct because there are no data for marginal utility with which to answer the question.
Topic: Diminishing marginal utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
34) The table above gives Matt's utility from consuming slices of pizza. As Matt consumes more slices of pizza, he
A) obtains greater amounts of marginal utility.
B) obtains less total utility.
C) has diminishing marginal utility.
D) has diminishing total utility.
E) has unchanging marginal utility.
Topic: Diminishing marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
35) For a consumer to maximize utility, in part the consumer must
A) allocate the entire available budget.
B) make the marginal utility per dollar from each good as much different as possible for all goods.
C) make the marginal utility per dollar from each good as small as possible for all goods.
D) spend as little of the budget as possible.
E) Answers A and B are both correct.
Topic: Maximizing utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
36) In order to maximize his or her utility, a consumer must allocate his or her entire budget and
A) buy the combination of goods that makes the marginal utility per dollar from all goods as small as possible.
B) buy the combination of goods that equalizes the total utility per dollar from all goods.
C) do nothing else because when the entire budget is allocated, utility is maximized.
D) buy the combination of goods that equalizes the marginal utility per dollar from all goods.
E) buy the combination of goods that makes the marginal utility per dollar from all goods as large as possible.
Topic: Maximizing utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
37) The utility-maximizing rule says that consumers must
A) only allocate the entire available budget.
B) only make the marginal utility per dollar the same for all goods.
C) allocate the entire available budget and make the marginal utility per dollar the same for all goods.
D) either allocate the entire available budget or make the marginal utility per dollar the same for all goods, but not both.
E) None of the above answers is correct.
Topic: Maximizing utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
38) Suppose the consumer has allocated his or her entire budget. Which of the following conditions is also required for total utility to be maximized?
A) Marginal utility has decreased to zero for all goods.
B) The least inexpensive combination of goods has been purchased.
C) The marginal utility for each good is equal.
D) The marginal utility divided by price for each good is equal.
E) The number of units of each good consumed must be the same.
Topic: Maximizing utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
39) Carter spends his entire budget on pizza and Pepsi. He maximizes his utility when he allocates his entire available budget and buys pizza and Pepsi so that the
A) marginal utility from pizza is equal to the marginal utility from Pepsi.
B) total utility from both pizza and Pepsi is maximized.
C) marginal utility per dollar from pizza is equal to the marginal utility per dollar from Pepsi.
D) total utility per dollar from both pizza and Pepsi are equal.
E) None of the above answers is correct.
Topic: Maximizing utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
40) For David, the marginal utility from an additional car is 2,000 units and the marginal utility from an additional vacation is 1,000 units. David is allocating all his budget. Hence to maximize his utility, David will
A) shift his consumption from the vacation to the car.
B) shift his consumption from the car to the vacation.
C) save his budget by not spending it until he can afford both the car and the vacation.
D) buy both the car and the vacation now.
E) possibly do something, but there is not enough information available to determine what he would do.
Topic: Maximizing utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
41) If a consumer has allocated his or her budget and found the combination of goods where all marginal utilities divided by price are equal, what would happen if the consumer were forced to consume some other combination of goods? The consumer
A) will definitely have higher total utility.
B) will definitely have lower total utility.
C) will definitely not experience any change in total utility.
D) might be have higher, lower, or the same total utility, but more information is needed to determine which.
E) None of the above answers is correct.
Topic: Maximizing utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
42) If Raul's marginal utility per dollar from bread is 25 and the marginal utility per dollar from butter is 30
A) Raul should purchase more butter and less bread to increase his total utility.
B) Raul's marginal utility from butter will fall if he buys more butter.
C) Raul's marginal utility from bread will rise if he buys less bread.
D) Only answers B and C are correct.
E) Answers A, B, and C are correct.
Topic: Maximizing utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
43) Sheryl is maximizing her utility. She notices that her marginal utility from the last package of bubble gum consumed is greater than her marginal utility from the last package of mints consumed. This result means that the
A) price of a package of gum is greater than the price of a package of mints.
B) price of a package of mints is greater than the price of a package of gum.
C) total utility of gum must be falling as more gum is consumed.
D) total utility of mints must be falling as more mints are consumed.
E) More information is needed to determine which, if any, of the above answers is correct.
Topic: Equalize marginal utility per dollar spent
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
44) Assume you are in a store looking at a shirt you want. You expect to buy the shirt until you look at the price, then you decide the shirt is not a good buy. How can your decision be viewed in economic terms?
A) The shirt's marginal utility divided by price was too low compared to other goods.
B) The shirt has zero marginal utility for you.
C) The opportunity cost of the shirt was too low.
D) The shirt's marginal utility divided by price was too high compared to other goods.
E) None of the above answers is correct.
Topic: Equalize marginal utility per dollar spent
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
45) In a month, Samantha consumes the quantity of lobster dinners so that her marginal utility from a lobster dinner is 500 units. The price of a lobster dinner is $25. She also is consuming the quantity of spaghetti dinners so that its marginal utility is 300 units, while its price is $15. Samantha is allocating her entire budget. What should she do to maximize her total utility?
A) consume more lobster dinners and fewer spaghetti dinners
B) consume more spaghetti dinners and fewer lobster dinners
C) consume the current combination of lobster and spaghetti dinners
D) consume fewer lobster dinners and fewer spaghetti dinners
E) Not enough information is given to answer the question.
Topic: Maximizing utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
46) Suppose the price of a pair of jeans is $25 and the price of a T-shirt is $15. The consumer's budget is entirely allocated. If the marginal utility from a pair of jeans is 100 units and the marginal utility from a T-shirt is 75 units, the consumer is
A) in equilibrium because his or her utility is maximized.
B) not in equilibrium and should purchase fewer jeans and more T-shirts.
C) not in equilibrium and should purchase fewer T-shirts and more jeans.
D) not in equilibrium but should maintain the current level of purchases.
E) not in equilibrium and should purchase more T-shirts and more jeans.
Topic: Maximizing utility
Skill: Level 4: Applying models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
47) Mary is currently buying apples and oranges such that the last unit of apples has 30 units of utility and the last unit of oranges has 40 units of utility. She has allocated her entire budget. If the price of an apple is 10 cents and the price of an orange is 20 cents, to maximize her utility, what should Mary do?
A) buy more apples and fewer oranges
B) buy more oranges and fewer apples
C) continue to buy the same amounts of both goods
D) buy fewer apples and fewer oranges
E) None of the above answers is correct.
Topic: Maximizing utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
48) Suppose that Jen receives 400 units of utility from her last soda and 200 units of utility from her last slice of pizza. What can we conclude about Jen's choices if the price of a soda is $2 and the price of a slice of pizza is $4?
A) Jen is maximizing utility because she buys more of the good providing the most utility.
B) Jen should buy more soda to maximize her utility.
C) Jen should buy more pizza to maximize her utility.
D) Jen needs to buy less soda and less pizza to maximize her utility.
E) None of the above answers is correct.
Topic: Maximizing utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Revised
AACSB: Analytical thinking
49) The price of coffee increases because of low crop yields. If the consumer's utility schedule for coffee remains constant, we can predict that coffee consumption
A) will increase.
B) will decrease.
C) will stay the same.
D) will increase if the marginal utility of coffee diminishes and will decrease if the marginal utility of coffee increases.
E) might change, but we need more information to determine if it increased, decreased, or did not change.
Topic: Maximizing utility
Skill: Level 4: Applying models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
50) The consumption of bottled water increased dramatically during the 2010s. If consumers' utility schedules for water remained constant over this time period, in order for consumers to stay in equilibrium, the price of bottled water must have
A) risen because marginal utility increased since people consumed more bottled water.
B) fallen.
C) remained constant because the marginal utility schedule did not change.
D) risen because the supply of water must have increased.
E) We don't have enough information to say what happened to the price.
Topic: Maximizing utility
Skill: Level 4: Applying models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
Bottles of Soda Slices of Pizza
51) The table above gives Ali's total utility from consuming bottles of soda and slices of pizza. The price of pizza is $2 per slice and the price of soda is $1 per bottle. His marginal utility from the 4th slice of pizza is
A) 7.
B) 3.50.
C) 34.
D) 17.50.
E) 27.
Topic: Marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
52) The table above gives Ali's total utility from consuming bottles of soda and slices of pizza. The price of pizza is $2 per slice and the price of soda is $1 per bottle. His marginal utility from the 4th bottle of soda is
A) 21.
B) 3.
C) 3 units for soda ÷ 7 units for pizza.
D) 34.
E) 5.25.
Topic: Marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
53) The table above gives Ali's total utility from consuming bottles of soda and slices of pizza. The price of pizza is $2 per slice and the price of soda is $1 per bottle. Ali has $14 in his budget. When Ali maximizes his utility, how many bottles of soda does he buy?
A) fewer than 3
B) 3
C) 4
D) 5
E) more than 5
Topic: Maximizing utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
54) The table above gives Ali's total utility from consuming bottles of soda and slices of pizza. The price of pizza is $2 per slice and the price of soda is $1 per bottle. Ali has $14 in his budget. When Ali maximizes his utility, how many slices of pizza does he buy?
A) fewer than 2
B) 2
C) 3
D) 4
E) more than 4
Topic: Maximizing utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
55) The table above gives Ali's total utility from consuming bottles of soda and slices of pizza. The price of pizza is $2 per slice and the price of soda is $1 per bottle. Ali has $14 in his budget. When Ali maximizes his utility he buys ________ bottles of soda and ________ slices of pizza.
A) 4; 5
B) 6; 4
C) 2; 6
D) 6; 6
E) None of the above answers is correct.
Topic: Maximizing utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
56) The table above gives Ali's total utility from consuming bottles of soda and slices of pizza. The price of pizza is $2 per slice and the price of soda is $1 per bottle. Ali has $14 in his budget. When Ali maximizes his utility, his total utility equals
A) 6.
B) 9.
C) 69.
D) 61.
E) None of the above answers is correct.
Topic: Maximizing utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
57) The table above gives Ali's total utility from consuming bottles of soda and slices of pizza. Suppose the price of a slice of pizza increases. As a result, Ali's
A) marginal utility per dollar from pizza decreases.
B) total utility increases.
C) purchases of pizza might increase.
D) marginal utility from all the slices of pizza he consumes decreases.
E) marginal utility per dollar from soda increases.
Topic: Marginal utility per dollar
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
58) Chase has a budget of $14 which he must allocate between steak and cranberry juice. The table gives his marginal utility and the marginal utility per dollar for both of those goods. The price of steak is $10 per serving and the price of cranberry juice is $2 per serving. To maximize his utility, Chase should buy
A) 2 servings of steak and 2 servings of cranberry juice.
B) 2 servings of steak and 4 servings of cranberry juice.
C) 1 serving of steak because this has the highest marginal utility.
D) 1 serving of steak and 2 servings of cranberry juice.
E) 4 servings of steak and 4 servings of cranberry juice.
Topic: Maximizing utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
59) Liz consumes two goods, candy bars and potato chips. Her budget is $4 per day. The price of a candy bar is $1.00 and the price of a bag of chips is 50 cents. Her utility is in the table above. How much marginal utility per dollar does the 3rd bag of potato chips give Liz?
A) 18
B) 4
C) 8
D) 36
E) We need more information to be able to answer the question.
Topic: Marginal utility per dollar
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
60) Liz consumes two goods, candy bars and potato chips. Her budget is $4 per day. The price of a candy bar is $1.00 and the price of a bag of chips is 50 cents. Her utility is in the table above. For Liz to maximize her utility, what combination of candy bars and potato chips should she eat?
A) 4 candy bars and 0 bags of potato chips
B) 3 candy bars and 2 bags of potato chips
C) 2 candy bars and 4 bags of potato chips
D) 1 candy bar and 5 bags of potato chips
E) None of the above answers is correct.
Topic: Maximizing utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
Quantity of pizza | Total utility from pizza | Quantity of Diet Pepsi | Total utility from Diet Pepsi |
0 | 0 | 0 | 0 |
1 | 24 | 1 | 14 |
2 | 44 | 2 | 26 |
3 | 60 | 3 | 36 |
4 | 72 | 4 | 44 |
5 | 76 | 5 | 50 |
6 | 79 | 6 | 54 |
7 | 80 | 7 | 56 |
61) Suppose that you consume only pizza and Diet Pepsi. The table above gives your utility from consuming these two goods. What is the marginal utility you get from the fourth slice of pizza?
A) 36
B) 18
C) 12
D) 4
E) 72
Topic: Marginal utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
62) Suppose that you consume only pizza, which costs $4 per slice, and Diet Pepsi, which costs $2 each. The table above gives your utility from consuming these two goods. If your income is $14, which of the following consumption combinations will you choose?
A) 3 slices of pizza and 1 Diet Pepsi
B) 2 slices of pizza and 3 Diet Pepsis
C) 1 slice of pizza and 5 Diet Pepsis
D) 0 slices of pizza and 7 Diet Pepsis
E) None of the above answers is correct.
Topic: Equalize marginal utility per dollar spent
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
63) Suppose that you consume only pizza, which costs $4 per slice, and Diet Pepsi, which costs $2 each. The table above gives your utility from consuming these two goods. If your income is $20, which of the following consumption combinations will you choose?
A) 5 slices of pizza and no Diet Pepsi
B) 4 slices of pizza and 2 Diet Pepsis
C) 3 slices of pizza and 4 Diet Pepsis
D) 2 slice of pizza and 6 Diet Pepsis
E) None of the above answers is correct.
Topic: Equalize marginal utility per dollar spent
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
64) If the price of steak rises, a consumer who had been maximizing his or her utility before will buy less steak because its
A) total utility falls.
B) ratio of marginal utility to price is now less than that for other goods.
C) marginal utility has fallen.
D) ratio of marginal utility to total utility falls.
E) ratio of marginal utility to price is now larger than that for other goods.
Topic: Marginal utility and the demand curve
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
65) The figure above shows that when Jen buys
A) 3 pairs of jeans, she enjoys a total of 42 units of utility.
B) 3 pairs of jeans, she enjoys 7 additional units of utility.
C) a 3rd pair of jeans, she enjoys 7 additional units of utility.
D) more than 3 pairs of jeans, her total utility will fall.
E) both A and C are correct.
Topic: Marginal analysis
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Application of knowledge
66) The figure above shows that
A) only the first pair of jeans increases total utility.
B) only the second pair of jeans increases total utility.
C) all three pairs of jeans increase total utility.
D) the third pair of jeans has greater marginal utility than the second pair of jeans.
E) the first and second pair of jeans have equal marginal utility.
Topic: Marginal analysis
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Application of knowledge
67) The figure above exhibits the concept of ________ because as more pairs of jeans are consumed, ________.
A) diminishing marginal utility; each extra pair of jeans is consumed brings less utility
B) diminishing marginal utility; total utility declines as more jeans are bought
C) diminishing total utility; total utility declines as more jeans are bought
D) increasing marginal utility; total utility declines as more jeans are bought
E) increasing marginal utility; marginal utility increases as more jeans are bought
Topic: Diminishing marginal utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Application of knowledge
68) Suppose the price of jeans is $100 and the price of boots is $100. If Charles buys 3 pairs of jeans and 2 pairs of boots each year
A) Charles cannot be maximizing utility.
B) jeans must provide more marginal utility than boots.
C) boots must provide more marginal utility than jeans.
D) Charles must receive the same marginal utility from the 3rd pair jeans as he does from the 2nd pair of boots.
E) Charles is not spending all of this budget.
Topic: Marginal utility per dollar
Skill: Level 4: Applying models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
69) Moving downward along a demand curve, so that the price falls and the quantity demanded increases, the marginal utility of each additional unit of the good consumed
A) always increases.
B) always decreases.
C) stays the same.
D) could increase, decrease, or stay the same.
E) at first increases and then decreases.
Topic: Marginal utility and the demand curve
Skill: Level 5: Critical thinking
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
70) The demand curve for macadamia nuts is downward sloping. This slope is because consumers maximize their utility and an increase in the price of macadamia nuts leads to
A) no change in quantity demanded.
B) an increase in the marginal utility per dollar from macadamia nuts.
C) a decrease in the marginal utility per dollar from macadamia nuts.
D) consumers' budget lines rotating outward with their slopes changing.
E) consumers' budget lines shifting outward with no change in their slope.
Topic: Marginal utility and the demand curve
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
71) Juan's marginal utility from strawberries is 200 and his marginal utility from cream is 100. Juan spends all his budget. The price of strawberries is $5 per pound and the price of cream is $5 per pint. To maximize his utility, Juan should
A) buy more cream and fewer strawberries.
B) buy less cream and more strawberries.
C) buy more cream and more strawberries.
D) buy less cream and fewer strawberries.
E) change nothing because Juan is maximizing his utility now.
Topic: Marginal analysis
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
72) Paula is currently spending all of her budget and she finds that the marginal utility per dollar from dresses exceeds the marginal utility per dollar from hats. To maximize her utility, Paula should therefore buy
A) more dresses and fewer hats.
B) more hats and fewer dresses.
C) more dresses and hats.
D) fewer dresses and hats.
E) probably change her purchases but more information is needed to determine if she should buy more or fewer dresses and hats.
Topic: Marginal analysis
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
73) In economics, utility
A) always decreases as income increases.
B) equals opportunity cost.
C) is an index of satisfaction.
D) is measured by the same units as relative price.
E) and relative price are the same thing.
Topic: Utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
74) Marginal utility is the
A) change in total utility that results from a one-unit increase in the quantity of a good consumed.
B) total benefit from the consumption of a good or service.
C) quantity of a good a consumer prefers.
D) average utility per unit consumed.
E) change in total utility that results from a one dollar increase in the price of a good consumed.
Topic: Marginal utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
75) Sushi costs $3 per piece. Cynthia's total utility after eating one piece is 30 and her total utility after eating 2 pieces is 51, so her marginal utility from the second piece is
A) 17.
B) 10.
C) 51.
D) 7.
E) 21.
Topic: Marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
76) As Shaniq drinks additional cups of tea at breakfast, Shaniq's
A) marginal utility from tea decreases.
B) total utility from tea increases.
C) total utility from tea decreases.
D) Both answers A and B are correct.
E) Both answers B and C are correct.
Topic: Diminishing marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
77) Marginal utility per dollar is calculated by ________ the price of the good.
A) multiplying the marginal utility from a good by
B) dividing the marginal utility from a good by
C) multiplying the total utility from a good by
D) dividing the total utility from a good by
E) averaging the marginal utility from the good with
Topic: Marginal utility per dollar
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
78) Sushi costs $3 per piece. Cynthia's total utility after eating one piece is 30 and her total utility after eating 2 pieces is 51, so her marginal utility per dollar from the second piece is
A) 17.
B) 10.
C) 51.
D) 7.
E) 21.
Topic: Marginal utility per dollar
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
79) When Chris maximizes his total utility, then his entire available budget is allocated in such a way that the
A) marginal utility of all goods is equal.
B) marginal utility per dollar is equal for all goods.
C) marginal utility is as large as possible for goods.
D) marginal utility will start decreasing if it consumes fewer goods.
E) quantities consumed of each good are equal.
Topic: Maximizing utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
80) Suppose that Misty likes pizza and hotdogs. If her marginal utility per dollar from pizza is 6 and from hotdogs it is 5, Misty
A) is maximizing her total utility.
B) could increase her total utility by buying more hotdogs and less pizza.
C) could increase her total utility by buying more pizza and fewer hotdogs.
D) is maximizing her marginal utility.
E) must obtain more income in order to reach her consumer equilibrium.
Topic: Maximizing utility
Skill: Level 4: Applying models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
81) You can use marginal utility theory to find the demand curve by changing
A) only the price of one good.
B) only income.
C) the utility schedule.
D) only the prices of both goods.
E) income and the prices of both goods.
Topic: Marginal utility and the demand curve
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
82) Suppose that Hank consumes only Mountain Dew and pizza. If Hank's total utility from all amounts of both Mountain Dew and pizza double from what they were before, then Hank's demand for
A) both goods must double.
B) one of the goods must double.
C) both goods must decrease by one-half.
D) one of the goods must decrease by one-half.
E) neither good changes.
Topic: Marginal utility and the demand curve
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
13.3 Efficiency, Price, and Value
1) The maximum price a consumer is willing to pay for an extra unit of a good or service when total utility is maximized is known as
A) demand.
B) marginal benefit.
C) quantity demanded.
D) total utility.
E) marginal utility.
Topic: Consumer efficiency
Skill: Level 1: Definition
Section: Checkpoint 13.3
Status: Old
AACSB: Reflective thinking
2) Jen consumes 5 CDs and 2 tacos. She receives 500 units of utility from her 5th CD and 200 units of utility from her 2nd taco. The price of a CD is $10, the price of a taco is $4, and she is spending her entire budget. Which of the following is TRUE regarding Jen's choices?
A) Jen is consuming on her demand curve for tacos.
B) Jen is maximizing utility.
C) Jen is consuming on her demand curve for CDs.
D) Only answers A and B are correct
E) Answers A, B, and C are correct.
Topic: Consumer efficiency
Skill: Level 4: Applying models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
3) The fact that diamonds have a much higher price than water
A) violates the rules of utility maximization because water is necessary for life.
B) does not violate the rules of utility maximization because globally, fresh water is actually very rare.
C) does not violate the rules of utility maximization because water's marginal utility is low.
D) violates the rules of utility maximization because diamonds are not necessities.
E) violates the rules of utility maximization because the consumer actually consumes a large amount of water.
Topic: Paradox of value
Skill: Level 2: Using definitions
Section: Checkpoint 13.3
Status: Old
AACSB: Reflective thinking
4) Suppose the price of jeans is $100 and the price of boots is $100. If Charles buys only jeans and boots and purchases 3 pairs of jeans and 2 pairs of boots each year
A) Charles may be maximizing his utility, but only if his budget is $500.
B) Charles may be maximizing his utility, but only if the marginal utility from jeans and boots are equal.
C) Charles' total utility will increase if his budget increases.
D) Charles can only maximize utility if he buys equal amounts of jeans and boots.
E) A, B and C are correct.
Topic: Maximizing utility
Skill: Level 4: Applying models
Section: Checkpoint 13.3
Status: Revised
AACSB: Application of knowledge
5) Suppose the price of jeans is $100 and the price of boots is $100. If Charles buys 3 pairs of jeans and 2 pairs of boots each year and maximizing utility, which of the following are TRUE?
i. Charles is on his demand curve for jeans.
ii. Charles is on his demand curve for boots.
iii. Charles is using his resources efficiently.
A) i, ii and iii
B) i and ii only
C) i and iii only
D) iii only
E) ii and iii only
Topic: Maximizing utility
Skill: Level 4: Applying models
Section: Checkpoint 13.3
Status: Old
AACSB: Reflective thinking
6) Which of the following is the best statement of the paradox of value?
A) Why does the amount people are willing to pay for a good vary with the amount consumed?
B) Why do some goods like water, which is necessary for life, have a low price while other goods like diamonds have a high price?
C) What is the logical relationship between value and price?
D) Why is efficiency so valuable for a society?
E) None of the above states the paradox of value.
Topic: Paradox of value
Skill: Level 1: Definition
Section: Checkpoint 13.3
Status: Old
AACSB: Reflective thinking
7) To resolve the paradox of value, you must
A) compare price elasticities of demand across goods.
B) distinguish between marginal and total utility.
C) sacrifice efficiency.
D) minimize consumer surplus.
E) distinguish between marginal utility and price.
Topic: Paradox of value
Skill: Level 4: Applying models
Section: Checkpoint 13.3
Status: Old
AACSB: Reflective thinking
8) The solution to the paradox of value is found by looking at which of the following?
A) total usefulness of different goods
B) the difference between marginal utility and total utility
C) relative prices and total utility
D) the difference between marginal utility and price
E) None of the above helps solve the paradox of value.
Topic: Paradox of value
Skill: Level 2: Using definitions
Section: Checkpoint 13.3
Status: Old
AACSB: Reflective thinking
9) One reason why the price of diamonds is so high is because the
A) marginal utility of diamonds is zero.
B) marginal utility of diamonds is high.
C) marginal utility of diamonds is low.
D) total utility of diamonds is low.
E) total utility of diamonds is high.
Topic: Paradox of value
Skill: Level 2: Using definitions
Section: Checkpoint 13.3
Status: Old
AACSB: Reflective thinking
10) Why does the paradox of value between diamonds and water arise?
A) because water has a low price and a low total utility, while diamonds have a high price and a high total utility
B) because water has a low price and a low marginal utility, while diamonds have a high price and a high marginal utility
C) because necessities like water are higher priced than luxuries like diamonds
D) because diamonds have a higher value to people even though water is essential to life
E) because water has a low price and a low total utility, while diamonds have a high price but also a low total utility
Topic: Paradox of value
Skill: Level 2: Using definitions
Section: Checkpoint 13.3
Status: Old
AACSB: Reflective thinking
11) Related to the paradox of value, which of the following statements is correct?
A) The marginal utility of water is enormous but the total utility is small.
B) We consume so much water so its marginal utility is enormous.
C) The marginal utility of water is small but the total utility is enormous.
D) The consumer surplus from water is small.
E) The total utility of water is equal to the marginal utility of water.
Topic: Paradox of value
Skill: Level 2: Using definitions
Section: Checkpoint 13.3
Status: Old
AACSB: Reflective thinking
12) The paradox of value with respect to water and diamonds can be explained using consumer surplus because
A) water is cheap but provides a large consumer surplus, while diamonds are expensive with a small consumer surplus.
B) diamonds are in large supply relative to their demand, while water is scarce in supply relative to its demand.
C) water is cheap but provides a small consumer surplus, while diamonds are expensive but provide a large consumer surplus.
D) the total consumer surplus from diamonds is greater than the total consumer surplus from water.
E) None of the above answers is correct.
Topic: Paradox of value, consumer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 13.3
Status: Old
AACSB: Reflective thinking
13) At all points on a demand curve, the
i. consumer's budget has been allocated to maximize total utility.
ii. quantity is the quantity demanded at each price when total utility is maximized.
iii. price represents the marginal benefit the consumer gets from an extra unit of a good.
A) i only
B) ii only
C) i and ii
D) i and iii
E) i, ii, and iii
Topic: Consumer efficiency
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Reflective thinking
14) As more of a good is consumed, the marginal utility of an additional unit ________, so consumers are willing to pay ________ for an additional unit.
A) decreases; less
B) increases; less
C) decreases; more
D) increases; more
E) does not change; less
Topic: Consumer efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 13.3
Status: Old
AACSB: Reflective thinking
15) The paradox of value refers to the
A) utility maximizing rule.
B) fact that water is vital but cheap while diamonds are relatively useless but expensive.
C) fact that consumers have different preferences and utility schedules.
D) law of demand.
E) issue of why the consumer surplus from water equals the consumer surplus from diamonds.
Topic: Paradox of value
Skill: Level 2: Using definitions
Section: Checkpoint 13.3
Status: Old
AACSB: Reflective thinking
16) One reason why water is cheap compared to diamonds is because the
A) marginal utility of water is enormous.
B) marginal utility of water is small.
C) total utility of water is enormous.
D) total utility of water is small.
E) total utility of water and diamonds must be equal, but the marginal utility of water is much lower than the marginal utility of diamonds.
Topic: Paradox of value
Skill: Level 2: Using definitions
Section: Checkpoint 13.3
Status: Old
AACSB: Reflective thinking
17) In the paradox of value between expensive diamonds and inexpensive water, we see that
A) the consumer surpluses are very high for both goods.
B) diamonds have a low consumer surplus while water has a high consumer surplus.
C) diamonds have a high consumer surplus while water has a low consumer surplus.
D) the consumer surpluses are very low for both goods.
E) the consumer surpluses for the two goods cannot be compared.
Topic: Paradox of value
Skill: Level 2: Using definitions
Section: Checkpoint 13.3
Status: Old
AACSB: Reflective thinking
18) ________ in consumer surplus occurs when the price of a good ________.
A) An increase; decreases and consumers can buy more of the good at the lower price
B) A decrease; decreases and consumers buy less of the good at the cheaper price
C) An increase; decreases and consumer efficiency declines
D) A decrease; increases and the paradox of value is no longer valid
E) An increase; increases but the relative price does not change
Topic: Eye on Song Downloads
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
19) Goods that are valuable will have a ________ consumer surplus because ________ units of the good are consumed at a ________ price.
A) large; more; lower
B) large; less; higher
C) smaller; more; lower
D) smaller; fewer; lower
E) larger; fewer; lower
Topic: Consumer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
20) Diamonds have ________ consumer surplus because ________.
A) a smaller; fewer diamonds are sold at higher prices
B) a smaller; there is a lower marginal utility for diamonds
C) a large; diamonds are a rare and valuable stone
D) zero; diamonds have a high price and provide low total utility
E) zero; diamonds are not necessary for life
Topic: Paradox of value
Skill: Level 5: Critical thinking
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
13.4 Chapter Figures
The figure above shows three budget lines.
1) Based on the figure above, which of the following would lead the consumer's budget line to shift from BL0 to BL1?
A) a rise in the price of water
B) a fall in the price of water
C) a rise in the price of water and the price of gum
D) a decrease in the consumer's budget
E) an increase in the consumer's budget
Topic: Budget line, change in income
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
2) Based on the figure above, which of the following would lead the consumer's budget line to shift from BL0 to BL2?
A) a rise in the price of water
B) a fall in the price of water
C) a rise in the price of water and the price of gum
D) a decrease in the consumer's budget
E) an increase in the consumer's budget
Topic: Budget line, change in income
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
3) Based on the figure above, on which budget line is the relative price of gum the highest?
A) budget line BL2
B) budget line BL0
C) budget line BL1
D) The relative price is the same along all three budget lines.
E) To answer the question, more information is needed about the consumer's income.
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
The figure above shows two budget lines.
4) Based on the figure above, which of the following would lead the budget line to change from BL0 to BL1?
A) a rise in the price of water
B) a fall in the price of water
C) a rise in the price of water and the price of gum
D) a decrease in the consumer's budget
E) an increase in the consumer's budget
Topic: Budget line, change in price
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
The figure above shows the markets for water and diamonds.
5) Based on the figures above, it is the case that the consumer surplus from water ________ the consumer surplus from diamonds and the marginal utility from water ________ the marginal utility from diamonds.
A) is equal to; is equal to
B) is larger than; is equal to
C) is larger than; is larger than
D) is larger than; is smaller than
E) is smaller than; is smaller than
Topic: Paradox of value
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
13.5 Appendix: Indifference Curves
1) Consumers' preferences are described by
A) budget lines.
B) indifference curves.
C) relative prices.
D) household income.
E) demand curves.
Topic: Indifference curve
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
2) An indifference curve shows
A) different combinations of two goods among which the consumer is indifferent.
B) consumption possibilities that a consumer faces at different prices and income.
C) affordable combinations of goods.
D) the opportunity cost of one good relative to another.
E) the relative price of one good relative to another.
Topic: Indifference curve
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
3) An indifference curve shows all combinations of two goods
A) that can be purchased with a given income.
B) that can be purchased if relative prices are constant.
C) among which the consumer is indifferent.
D) that have the same marginal rate of substitution.
E) that have the same opportunity cost.
Topic: Indifference curve
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
4) An indifference curve is a line that shows
A) what the consumer can afford to buy.
B) how the quantity demanded of a good changes as its price changes.
C) combinations of goods among which the consumer is indifferent.
D) combinations of goods that have the same marginal rate of substitution.
E) combinations of goods that are affordable.
Topic: Indifference curve
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
5) An indifference curve is a line that shows
A) combinations of goods among which a consumer is indifferent.
B) different combinations of goods a consumer is able to buy.
C) the indifference of consumers for the budget constraint.
D) Both answers B and C are correct.
E) Both answers A and C are correct.
Topic: Indifference curve
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
6) An indifference curve shows
A) utility maximizing levels of consumption.
B) preferred combinations of goods.
C) a diminishing marginal rate of substitution as more of both goods are consumed.
D) combinations of goods among which a person is indifferent.
E) an increasing marginal rate of substitution for a good as more of it is consumed.
Topic: Indifference curve
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
7) A curve that shows combinations of goods among which a consumer does not prefer one combination to another is
A) a budget line.
B) an indifference curve.
C) a production possibilities curve.
D) a demand curve.
E) a marginal rate of substitution curve.
Topic: Indifference curve
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
8) Sam's budget is $60.00. The combinations of gasoline and coffee along one of Sam's indifference curves are combinations
A) that require the same total expenditure.
B) that he can afford with his $60.00 budget.
C) among which he is indifferent.
D) that give him the same marginal rate of substitution.
E) None of the above answers is correct.
Topic: Indifference curve
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
9) Moving along an indifference curve the
A) marginal rate of substitution is constant.
B) consumer does not prefer one consumption point to another.
C) marginal rate of substitution is equal to 0.
D) consumer prefers some of the consumption points to others.
E) marginal rate of substitution for a good increases as more of the good is consumed.
Topic: Indifference curve
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
10) As a consumer moves away from the origin onto higher indifference curves, what happens?
A) nothing
B) The consumer reaches more preferred combinations of goods.
C) The consumer reaches less preferred combinations of goods.
D) The consumer reaches more affordable combinations of goods.
E) None of the above because it is impossible to move from one indifference curve to another.
Topic: Indifference curve
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
11) Any point above a given indifference curve ________ affordable and is ________ to any point on the indifference curve.
A) is not; inferior
B) might or might not be; preferred
C) is not; preferred
D) might or might not be; inferior
E) is; preferred
Topic: Indifference curve
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
12) Any point below a given indifference curve is
A) inferior to any point on the indifference curve.
B) preferred to any point on the indifference curve.
C) definitely affordable.
D) definitely unaffordable.
E) More information is needed to determine if the point is or is not affordable and if the point is or is not preferred.
Topic: Indifference curve
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
13) We have asked Mac to rank his preferences between three market baskets, A, B, and C. If Mac prefers B to C but does not care if he gets A or B, then
A) A is on a higher indifference curve than B.
B) B and C are on the same indifference curve.
C) both A and B are on a higher indifference curve than C.
D) C is on a higher indifference curve than A.
E) B is on a higher indifference curve than C, but it is not possible to determine whether C is on a higher, lower, or the same indifference curve as A.
Topic: Indifference curve
Skill: Level 4: Applying models
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Analytical thinking
14) A preference map is a set of
A) indifference curves.
B) budget lines.
C) demand curves.
D) substitution curves.
E) marginal rate of substitution curves.
Topic: Preference map
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
15) Which of the following statements is FALSE?
A) A consumer has only one indifference curve.
B) A consumer possesses a preference map.
C) An indifference curve is a curve that shows the combination of goods among which a consumer is indifferent.
D) The marginal rate of substitution is equal to the magnitude of the slope of the indifference curve.
E) Diminishing marginal rate of substitution means that the marginal rate of substitution decreases as more of the good is consumed.
Topic: Preference map
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
16) A preference map is a
A) series of indifference curves.
B) positively sloped series of curves, which reflect a consumer's preferences.
C) contour map of a consumer's budget.
D) map showing how much a consumer prefers one good for another.
E) None of the above answers is correct.
Topic: Preference map
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
17) An indifference curve is a line that shows combinations of goods among which a consumer
A) prefers one over the other.
B) places no value on any of the items.
C) can afford to buy all the combinations.
D) is indifferent.
E) believes that all combinations have the same marginal rate of substitution.
Topic: Indifference curve
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
18) What is the difference between a budget line and an indifference curve?
A) One is measured in dollars while the other in units of goods.
B) One shows what is affordable while the other shows what is preferred.
C) One shows a positive relationship, and the other shows a negative relationship.
D) The budget line is bowed in toward the origin, and the indifference curves are linear.
E) There is no difference.
Topic: Indifference curve
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 1
Status: Revised
AACSB: Reflective thinking
19) In a preference map, consumption combinations on higher indifference curves
A) always cost more than any combination on a lower indifference curve.
B) always are preferred to combinations on lower indifference curves.
C) always cost less than any combination on a lower indifference curve.
D) always are less preferred than combinations on lower indifference curves.
E) are sometimes more preferred, sometimes less preferred, and sometimes equally preferred to any combination on a lower indifference curve.
Topic: Preference map
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Reflective thinking
20) The marginal rate of substitution is equal to the magnitude of the
A) slope of the demand curve.
B) price of the good measured along the x-axis.
C) slope of the indifference curve.
D) relative prices of the two goods.
E) price of the good measured along the y-axis.
Topic: Marginal rate of substitution
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 2
Status: Old
AACSB: Reflective thinking
21) The marginal rate of substitution of one good for another is measured by moving
A) along an indifference curve.
B) among different indifference curves.
C) along a budget line.
D) among different budget lines.
E) along a demand curve.
Topic: Marginal rate of substitution
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 2
Status: Old
AACSB: Reflective thinking
22) The magnitude of the slope of an indifference curve is the
A) marginal rate of substitution.
B) rate of relative prices.
C) marginal utility of substitution.
D) marginal rate of utility of income.
E) rate of increasing opportunity cost.
Topic: Marginal rate of substitution
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 2
Status: Old
AACSB: Reflective thinking
23) The magnitude of the slope of an indifference curve at a particular point measures the
A) total utility.
B) marginal utility.
C) marginal rate of substitution.
D) total rate of substitution.
E) demand.
Topic: Marginal rate of substitution
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 2
Status: Old
AACSB: Reflective thinking
24) Normally shaped indifference curves are bowed towards the origin of the graph. The reason for this shape is
A) that indifference curves farther away from the origin represent higher levels of utility.
B) diminishing marginal rate of substitution.
C) the law of demand.
D) that the marginal rate of substitution is constant along an indifference curve.
E) the principle of diminishing marginal rate of relative price.
Topic: Marginal rate of substitution
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 2
Status: Old
AACSB: Reflective thinking
25) As Sam moves rightward along his indifference curve, his marginal rate of substitution for the good on the horizontal axis
A) is diminishing.
B) is increasing.
C) remains constant.
D) shows the change in his income.
E) first increases and then diminishes.
Topic: Marginal rate of substitution
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 2
Status: Old
AACSB: Reflective thinking
26) When the indifference curve is steep, the consumer has a
A) high marginal rate of substitution for the good on the horizontal axis.
B) low marginal rate of substitution for the good on the horizontal axis.
C) large budget.
D) small budget.
E) steep budget line.
Topic: Marginal rate of substitution
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 2
Status: Old
AACSB: Analytical thinking
27) Moving along an indifference curve, if a consumer requires a large amount of the good measured along the y-axis to make up for one unit less of the good measured on the x-axis, then
A) total utility is increasing.
B) the marginal rate of substitution is low and the indifference curve is flat.
C) the marginal rate of substitution is low and the indifference curve is steep.
D) the marginal rate of substitution is high and the indifference curve is steep.
E) the marginal rate of substitution is high and the indifference curve is flat.
Topic: Marginal rate of substitution
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 2
Status: Old
AACSB: Analytical thinking
28) Moving along an indifference curve, if a consumer requires a small amount of the good measured along the y-axis to make up for one unit less of the good measured on the x-axis, then
A) total utility is increasing.
B) the marginal rate of substitution is low and the indifference curve is flat.
C) the marginal rate of substitution is low and the indifference curve is steep.
D) the marginal rate of substitution is high and the indifference curve is steep.
E) the marginal rate of substitution is high and the indifference curve is flat.
Topic: Marginal rate of substitution
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 2
Status: Old
AACSB: Analytical thinking
29) Suppose the quantity of burgers is measured on the horizontal axis and the quantity of bags of French fries is measured on the vertical axis. The marginal rate of substitution for burgers is
A) the ratio of burgers consumed to bags of fries consumed.
B) the ratio of bags of fries consumed to burgers consumed.
C) the rate at which a person is willing to give up burgers to get more bags of fries while staying on the same indifference curve.
D) the rate at which a person is willing to give up bags of fries to get more burgers while staying on the same indifference curve.
E) the number of burgers consumed minus the number of bags of fries consumed.
Topic: Marginal rate of substitution
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 2
Status: Old
AACSB: Analytical thinking
30) Suppose the quantity of burgers is on the horizontal axis and the quantity of bags of French fries is measured on the vertical axis and Carol's indifference curves are drawn in the graph. As Carol consumes more
A) burgers, moving along an indifference curve her marginal rate of substitution for burgers decreases.
B) bags of fries, moving along an indifference curve her marginal rate of substitution for burgers decreases.
C) burgers and bags of fries moving along an indifference curve, Carol reaches her best affordable point.
D) of either good, moving along an indifference curve her marginal rate of substitution for burgers increases.
E) of both goods, moving from one indifference curve to a higher indifference curve, her marginal rate of substitution definitely does not change.
Topic: Marginal rate of substitution
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 2
Status: Old
AACSB: Analytical thinking
31) Along an indifference curve, if the marginal rate of substitution is 3, then the consumer is willing to
A) give up 1 unit of the good measured along the y-axis for 3 units of the good measured along the x-axis.
B) give up 3 units of the good measured along the y-axis for 1 unit of the good measured along the x-axis.
C) pay $3 for one unit of the good measured along the y-axis.
D) pay $3 for one unit of the good measured along the x-axis.
E) give up 3 units of the good measured along the y-axis for 1 unit of income, that is, $1 of income.
Topic: Marginal rate of substitution
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 2
Status: Old
AACSB: Analytical thinking
32) The marginal rate of substitution for the good on the horizontal axis is
A) the consumer surplus.
B) the same as the consumer's budget line.
C) equal to the magnitude of the slope of the indifference curve.
D) equal to the magnitude of the slope of the consumer surplus curve.
E) equal to 1.0 if the indifference curves are linear.
Topic: Marginal rate of substitution
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 2
Status: Old
AACSB: Reflective thinking
33) In an indifference curve/budget line diagram, a consumer's equilibrium consumption combination will occur
A) always inside the budget line.
B) always outside the budget line.
C) always on the budget line.
D) sometimes on and sometimes inside the budget line, depending on the indifference curves.
E) at the origin.
Topic: Consumer equilibrium
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 3
Status: Old
AACSB: Reflective thinking
34) Which of the following is TRUE if Clarice is at her consumer equilibrium?
i. Clarice is on her budget line.
ii. Clarice is on her highest attainable indifference curve.
iii. Clarice is dividing her budget equally across all goods.
A) i only
B) i and ii
C) i and iii
D) ii and iii
E) iii only
Topic: Consumer equilibrium
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 3
Status: Old
AACSB: Reflective thinking
35) The indifference curve/budget line diagram concludes that Jim is definitely in equilibrium when he is
A) spending all his budget.
B) saving some of his budget.
C) consuming the combination of goods and services that is affordable and on the highest attainable indifference curve.
D) consuming a combination of goods and services that is on an indifference curve.
E) None of the above answers is correct.
Topic: Consumer equilibrium
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 3
Status: Old
AACSB: Reflective thinking
36) A point where the budget line is just touching an indifference curve at one point is
A) the least affordable point.
B) the best affordable point.
C) on the lowest attainable indifference curve.
D) Both answers B and C are correct.
E) Both answers A and C are correct.
Topic: Consumer equilibrium
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 3
Status: Old
AACSB: Reflective thinking
37) In the indifference curve/budget line framework, at the consumer equilibrium, the consumer
A) is on the budget line.
B) is on the highest attainable indifference curve.
C) has a marginal rate of substitution equal to the relative price of the goods.
D) Only answers A and B are correct.
E) Answers A, B, and C are correct.
Topic: Consumer equilibrium
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 3
Status: Old
AACSB: Reflective thinking
38) In an indifference curve/budget line diagram, at the consumer equilibrium the slope of the budget line
A) equals the slope of the indifference curve.
B) is greater than the slope of the indifference curve.
C) is less than the slope of the indifference curve.
D) may be greater than, equal to, or less than the slope of the indifference curve.
E) has nothing to do with the equilibrium.
Topic: Consumer equilibrium
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 3
Status: Old
AACSB: Reflective thinking
39) At the best affordable point
A) the marginal rate of substitution reaches its minimum value.
B) relative prices reach their minimum value.
C) the marginal rate of substitution equals the relative price.
D) the marginal rate of substitution equals real income.
E) the marginal rate of substitution reaches its maximum value.
Topic: Consumer equilibrium
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 3
Status: Old
AACSB: Reflective thinking
40) At the point where the budget line is just touching an indifference curve at one point
A) the slope of the budget line is equal to the slope of the indifference curve.
B) the marginal rate of substitution equals the relative price.
C) the consumer can change his or her consumption and can move to a higher indifference curve.
D) Both answers A and B are correct.
E) Both answers B and C are correct.
Topic: Consumer equilibrium
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 3
Status: Old
AACSB: Analytical thinking
41) A consumer is in equilibrium when the
A) consumer is buying any combination of goods and services on his or her budget line.
B) consumer is buying the combination of goods and services on the budget line and on the highest attainable indifference curve.
C) marginal rate of substitution is as small as possible.
D) marginal rate of substitution is as large as possible.
E) marginal rate of substitution exceeds the relative price of the two goods by as much as possible.
Topic: Consumer equilibrium
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 3
Status: Old
AACSB: Reflective thinking
42) Luke enjoys eating tuna sashimi and drinking Pepsi. His consumer equilibrium occurs where his budget line
A) just touches the lowest indifference curve at one point.
B) just touches the highest indifference curve at one point.
C) touches every indifference curve.
D) is below every indifference curve.
E) More information about Luke's budget is needed to determine his consumer equilibrium.
Topic: Consumer equilibrium
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 3
Status: Old
AACSB: Reflective thinking
43) The point where an indifference curve just touches the budget line at one point
A) is the best affordable point.
B) is where the marginal rate of substitution exceeds the relative price by as much as possible.
C) is a point on the consumer's supply of spending curve.
D) cannot be possible because indifference curves always cross the budget line at two points.
E) None of the above answers is correct.
Topic: Consumer equilibrium
Skill: Level 1: Definition
Section: Chapter 13 Appendix - Checkpoint 3
Status: Old
AACSB: Reflective thinking
44) In a budget line/indifference curve diagram, at the consumer's equilibrium at the best affordable point
A) any movement upward or downward on the budget line will move the consumer to a less preferred point.
B) any movement to the northeast to higher indifference curves moves the consumer to a less preferred point.
C) the slope of the budget line exceeds the marginal rate of substitution by as much as possible.
D) the budget line has a positive slope and the indifference curve has a negative slope.
E) the budget line has a negative slope and the indifference curve has a positive slope.
Topic: Consumer equilibrium
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 3
Status: Old
AACSB: Analytical thinking
45) If a person consumes only two goods, which of the following is NOT necessary for a consumer to be at his or her best affordable point of consumption?
A) The consumer chooses a bundle of goods that lies on his or her budget line.
B) The consumer is on his or her highest attainable indifference curve.
C) The consumer chooses equal amounts of both goods.
D) The marginal rate of substitution between the two goods is equal to the relative price of those two goods.
E) The indifference curve is tangent to the budget line.
Topic: Consumer equilibrium
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 3
Status: Old
AACSB: Reflective thinking
46) If a consumer's marginal rate of substitution is greater than the relative price of the goods, the consumer is
A) at his or her best affordable point.
B) perhaps at his or her best affordable point.
C) not at his or her best affordable point and should move along his or her indifference curve to a higher budget line.
D) not at his or her best affordable point and should move along his or her budget line to a higher indifference curve.
E) More information is needed to determine if the consumer is or is not at his or her best affordable point.
Topic: Consumer equilibrium
Skill: Level 4: Applying models
Section: Chapter 13 Appendix - Checkpoint 3
Status: Old
AACSB: Analytical thinking
47) At her best affordable point, Kris
i. is on her budget line.
ii. is on the highest attainable indifference curve.
iii. has a marginal rate of substitution equal to the relative price of the goods.
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii
Topic: Consumer equilibrium
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 3
Status: Old
AACSB: Reflective thinking
48) When Bo is at his best affordable consumption point, his marginal rate of substitution is
A) greater than the relative price.
B) equal to the relative price.
C) less than the relative price.
D) equal to one.
E) maximized.
Topic: Consumer equilibrium
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 3
Status: Old
AACSB: Reflective thinking
49) A consumer's demand for tuna can be found from an indifference curve diagram by doing which of the following?
A) observing what happens to the consumption of tuna for different income levels
B) finding where the budget line is tangent to an indifference curve for one price of tuna
C) allowing the price of tuna to change and observing the different best, affordable levels of tuna
D) changing the indifference curves and seeing the changes in the quantity of tuna the consumer demands
E) It is impossible to derive a demand curve from an indifference curve graph.
Topic: Deriving the demand curve
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 4
Status: Old
AACSB: Reflective thinking
50) Using Gabriel's budget line and his indifference curves between horseback riding lessons and baseball lessons, and then changing the prices of each activity holding his income constant, which of the following can be derived?
A) Gabriel's demand curve for each activity
B) Gabriel's supply curve for each activity
C) Gabriel's marginal benefit for each activity
D) Gabriel's net gain for each activity
E) Both answers A and B are correct.
Topic: Deriving the demand curve
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix - Checkpoint 4
Status: Old
AACSB: Reflective thinking
51) In the indifference curve/budget line diagram, consumers reach higher indifference curves when
A) their budget decreases.
B) the price of only the good measured along the y-axis increases.
C) the price of only the good measured along the x-axis increases.
D) the price of either good falls.
E) the price of either good rises.
Topic: Deriving the demand curve
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 4
Status: Old
AACSB: Analytical thinking
52) In an indifference curve/budget line diagram, generally when the price of a good increases, the consumer purchases
A) less of the good and moves to a lower indifference curve.
B) less of the good and moves to a higher indifference curve.
C) more of the good and moves to a higher indifference curve.
D) more of the good and moves to a lower indifference curve.
E) the same amount of the good and moves to a higher indifference curve.
Topic: Deriving the demand curve
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 4
Status: Old
AACSB: Analytical thinking
53) Gertrude has a $15 budget to spend on soda and crackers. Soda costs $1 per bottle and crackers cost 50¢ each. If the price of soda increases to $2 per bottle, the ________ rotates inward and there is a movement along the ________.
A) budget line; demand curve for crackers
B) demand curve; indifference curve for crackers
C) budget line; demand curve for soda
D) demand curve; indifference curve for soda
E) indifference curves; demand curve for soda
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
54) Gertrude has a $15 budget to spend on soda and crackers. Soda costs $1 per bottle and crackers cost 50¢ each. The quantity of soda is measured on the vertical axis. If the price of soda increases to $2 per bottle and the price of crackers increase to $1 each, the
A) indifference curves shift inward.
B) indifference curves shift outward.
C) budget line shifts inward.
D) budget line shifts outward.
E) demand curve for soda shifts leftward.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
55) Moving down along an indifference curve
A) the price of the good measured on the vertical axis decreases.
B) total utility decreases.
C) the marginal rate of substitution for the good on the horizontal axis decreases.
D) the slope of the budget line decreases.
E) the consumer increasingly prefers the new consumption points to the old consumption points.
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
56) Suppose you have one point on a demand curve. To plot another point for this demand curve using a group of indifference curves
A) transfer all points from the indifference curve to the corresponding demand curve.
B) horizontally sum the indifference curves.
C) change the price of a good, rotate the budget line, and find the new best affordable point. This new price and quantity is another point on the demand curve.
D) calculate the marginal rates of substitution from the indifference curve and transfer these values to the demand curve.
E) transfer the budget line so that it becomes the demand curve.
Topic: Deriving the demand curve
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 4
Status: Old
AACSB: Analytical thinking
57) To derive a demand curve using the indifference curve model, you must change the
A) consumer's preferences.
B) consumer's income.
C) price of one good, holding the price of the other good and income constant.
D) price of both goods simultaneously but by different amounts.
E) price of both goods simultaneously but by the same percentage.
Topic: Deriving the demand curve
Skill: Level 4: Applying models
Section: Chapter 13 Appendix - Checkpoint 4
Status: Old
AACSB: Analytical thinking
58) Points on a demand curve
A) reflect best affordable points along indifference curves.
B) show diminishing marginal rate of substitution.
C) show increasing marginal rate of substitution.
D) show combinations of goods among which a consumer is indifferent.
E) show all the combinations of affordable goods the consumer can buy.
Topic: Deriving the demand curve
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 4
Status: Old
AACSB: Reflective thinking
59) In the above figure, I is an indifference curve. Moving from point a to point b
A) the marginal rate of substitution for books decreases.
B) the budget line rotates inward.
C) the budget line rotates outward.
D) there is diminishing total utility.
E) the marginal rate of substitution for books increases.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
60) The above figure shows one of Cheri's indifference curves. Suppose point a represents the best affordable point for Cheri. Cheri's best affordable point could move to point b if
A) marginal utility increases.
B) total utility increases.
C) the price of a CD falls and the price of a book rises.
D) the price of a CD rises and the price of a book falls.
E) Cheri's budget increases.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
61) Consider an indifference curve for sodas and pizza, drawn in a figure with sodas measured along the horizontal axis. Moving downward along the indifference curve, the
A) marginal utility per dollar for sodas must increase.
B) marginal utility per dollar for pizza must increase.
C) consumer remains indifferent among the different combinations of soda and pizza.
D) the level of total utility must change.
E) marginal rate of substitution is constant.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
62) ________ leads to a decrease in marginal utility per dollar for soda.
A) Increasing marginal utility
B) The diminishing marginal rate of substitution as fewer sodas are consumed
C) An outward shift in the indifference curves for soda
D) An increase in the price of soda
E) A fall in the price of soda
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
63) Suppose Lizzie consumes soda and pizza. If the last bottle of soda she drinks provides 100 units of utility per dollar while the last slice of pizza she eats provides 300 units of utility per dollar
A) the demand curve for soda must have shifted outward.
B) the demand curve for pizza must have shifted inward.
C) Lizzie should buy more pizza and less soda to maximize her utility.
D) the indifference curve for soda and pizza must have rotated inward.
E) the marginal rate of substitution between soda and pizza equals 3.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
13.6 Appendix Figures
The figure above shows three of a consumer's indifference curves.
1) Which point is most preferred?
A) Point C only
B) Point J only
C) Point G only
D) Points C and G are tied for the most preferred.
E) More information is needed to determine which point is most preferred.
Topic: Indifference curve
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Analytical thinking
2) Which of the following are TRUE?
i. Points C and G are equally preferred because they lie on the same indifference curve.
ii. Points C and J are equally preferred because on them the consumption of chewing gum is equal.
iii. Points G and J are equally preferred because on them the consumption of water is equal.
A) i only
B) ii only
C) iii only
D) ii and iii
E) i, ii, and iii
Topic: Indifference curve
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Analytical thinking
The figure above shows one of a consumer's indifference curves.
3) The marginal rate of substitution (MRS) at point C equals
A) 4.
B) 8.
C) 2.
D) 1/2.
E) More information is needed to calculate the MRS.
Topic: Marginal rate of substitution
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Analytical thinking
4) The marginal rate of substitution (MRS) at point G equals
A) 4.
B) 8.
C) 2.
D) 1/2.
E) More information is needed to calculate the MRS.
Topic: Marginal rate of substitution
Skill: Level 3: Using models
Section: Chapter 13 Appendix - Checkpoint 1
Status: Old
AACSB: Analytical thinking
13.7 Integrative Questions
1) Billy has a $20 budget to spend on yogurt and cereal. Yogurt cost $2 each and cereal costs $4 each. Suppose that the quantity of yogurt is on the vertical axis and the quantity of cereal is on the horizontal axis. If the price of yogurt increases, which of the following is TRUE?
i. The budget line rotates outward.
ii. Yogurt's marginal utility per dollar decreases.
iii. The relative price of yogurt increases.
A) i and ii
B) i and iii
C) ii and iii
D) i, ii, and iii
E) only i
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
2) Billy has a $20 budget to spend on yogurt and cereal. Yogurt cost $2 each and cereal costs $4 each. Suppose that the quantity of yogurt is on the vertical axis and the quantity of cereal is on the horizontal axis. The budget line's vertical intercept equals
A) $10.
B) 5 yogurts.
C) 10 yogurts.
D) 5 cereals.
E) None of the above answers is correct.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
13.8 Essay: Consumption Possibilities
1) You are studying with a friend and your friend says "A budget line shows the various combinations of two goods that can be purchased with the buyer's income at current prices." Is your friend's assessment correct or not?
Topic: Budget line
Skill: Level 1: Definition
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
2) How is a budget line similar to a production possibilities frontier? How do they differ?
Topic: Budget line
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
3) Why is the budget line negatively sloped?
Topic: Budget line
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
4) If the price of a good rises and the consumer's budget remains the same, what happens to the consumer's consumption possibilities?
Topic: Budget line, change in price
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
5) What does the slope of the budget line equal?
Topic: Budget line, slope
Skill: Level 2: Using definitions
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
6) If your budget increases, what is the effect on your budget line?
Topic: Budget line, change in budget
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Reflective thinking
7) If Bill's income increases from $30,000 per year to $41,000 per year. He consumes pickup trucks and lamb chops, so with his increase in budget Bill's budget line shifts outward. This increase in Bill's budget means he can consume more trucks and more lamb." Are these statements true or false? Briefly explain your answer.
Topic: Budget line, change in budget
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
8) Explain how changes in the price of goods and the consumer's budget affect the budget line.
If the price of the good measured on the y-axis increases, the y-intercept decreases as the budget line rotates inward and becomes flatter. However, if the price of the good measured on the y-axis decreases, the budget line rotates outward as the y-intercept increases, and the budget line becomes steeper.
Finally, if the budget increases, the budget line shifts outward (both intercepts increase) and the slope remains unchanged while if the budget decreases, the budget line shifts inward (both intercepts decrease), and the slope remains unchanged.
Topic: Budget line, change in price and change in income
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Written and oral communication
9) The table above has different combinations of egg rolls and sushi rolls that Richard can buy. Richard's budget for egg rolls and sushi rolls is $120 per week. What are the prices of an egg roll and a sushi roll?
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
10) Joe has $100 a week to purchase either computer online service or film for his other hobby, photography. The price of on-line service is $5 an hour while the price of film is $10 a roll. Draw Joe's budget line in the figure below.
Joe's budget line is illustrated in the figure above.
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
11) Suppose you have a $20 budget per week, the price of soda is $1 per bottle, and the price of pizza is $4 per slice. In the above below, draw a budget line for soda and pizza, placing soda on the horizontal axis. Correctly label the axes.
The budget line is illustrated in the figure above.
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
12) John likes to spend Thursday nights playing pool and drinking soda. John's budget for Thursday nights is $10, a soda costs $2, and one game of pool costs $1.
a. Draw a graph of John's budget line in the figure below.
b. In your graph, label the affordable and unaffordable areas.
a. The budget line is in the figure above.
b. The affordable area is the lighter area and the budget line itself. The unaffordable area is the darker area.
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
13) The table above has different combinations of hamburgers and hot dogs that Alex can buy. After labeling the axes, graph Alex's budget line in the figure, putting hot dogs on the x-axis.
a. Alex's income is $8 per day. What is the price of a hot dog? Of a hamburger?
b. What is the slope of the budget line?
The figure above has Alex's budget line.
a. The price of a hot dog is $1 and the price of a hamburger is $2.
b. The slope of the budget line is 1/2 of a hamburger per hot dog.
Topic: Budget line
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
14) Sherry is on vacation and wants to bring souvenirs home to family and friends. Her souvenir budget is $100, and she can choose between T-shirts, which cost $20 each, and key chains, which cost $5 each.
a. Draw a graph of Sherry's budget line in the figure below.
b. What is the slope of Sherry's budget line? How does that slope represent an opportunity cost? Suppose that Sherry now finds a store where T-shirts are on sale for $10 each. (Key chains still cost $5 each).
c. Draw the new budget line in the figure.
d. What is the slope of the new budget line? How has the opportunity cost changed?
a. The budget line is in the figure above and is the budget line labeled BL1.
b. The slope of the budget line is 20 key chains divided by 5 T-shirts, which equals 4 key chains per T-shirt. 4 key chains per T-shirt is an opportunity cost because it represents the quantity of key chains that must be given up to acquire one more T-shirt.
c. The new budget line is in the figure above and is labeled BL2.
d. The slope of the new budget line is 2 key chains per T-shirt, which means that the opportunity cost of one T-shirt is now 2 key chains, rather than 4. Thanks to the new store, the opportunity cost of a T-shirt has fallen.
Topic: Budget line, change in price and change in budget
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
15) The figure above contains several budget lines for Sarah, who uses her income to purchase two goods, cheese and crackers.
a. A movement between which two budget lines represents an increase in Sarah's budget for cheese and crackers?
b. A movement between which two budget lines represents an increase in the price of a pound of cheese?
c. A movement between which two budget lines represents an increase in the price of a box of crackers?
a. A movement from BL1 to BL3 shows an increase in Sarah's budget.
b. A change from BL2 to BL1 shows an increase in the price of a pound of cheese.
c. A change from BL3 to BL2 shows an increase in the price of a box of crackers.
Topic: Budget line, change in price and change in budget
Skill: Level 3: Using models
Section: Checkpoint 13.1
Status: Old
AACSB: Analytical thinking
13.9 Essay: Marginal Utility Theory
1) Is "utility" another word for the cost we give up when we consume a good?
Topic: Utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
2) What is "marginal utility"?
Topic: Marginal utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
3) How are total utility and marginal utility related?
Topic: Marginal utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
4) What is the "principle of diminishing marginal utility"?
Topic: Diminishing marginal utility
Skill: Level 1: Definition
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
5) "As Rob consumes more dates over the course of a day, it is likely that his marginal utility from date consumption will rise." Is the previous statement likely correct or incorrect?
Topic: Diminishing marginal utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
6) How can restaurants offer all-you-can-eat specials without fear of going bankrupt?
Topic: Diminishing marginal utility
Skill: Level 5: Critical thinking
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
7) If Tommy is consuming a combination of goods and services on his budget line, has he allocated his entire budget?
Topic: Maximizing utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
8) You are studying with a friend, and your friend says "To maximize utility, a consumer must consume the combination of goods so that the marginal utility of good X equals the marginal utility of good Y." Explain whether your friend's statement is correct or incorrect.
Topic: Maximizing utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Reflective thinking
9) What is the utility-maximizing rule?
Topic: Maximizing utility
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Written and oral communication
10) Explain why total utility is maximized when the marginal utility per dollar from a good is equal across goods.
Topic: Maximizing utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Written and oral communication
11) To maximize utility, why does a consumer consume the combination of goods that equates marginal utility per dollar from the different goods rather than just equating the marginal utility of the different goods?
Topic: Maximizing utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Written and oral communication
12) Amy has the total utility values given above for video downloads a week. Complete the table by calculating her marginal utilities.
The completed table is above.
Topic: Marginal utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
13) The table above gives the utility Andy receives from different quantities of vanilla ice cream cones. Complete the table.
The completed table is above.
Topic: Marginal utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
14) The table above gives Jessie's marginal utility and total utility from tacos. Complete the table.
The completed table is above.
Topic: Marginal utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
15) The table gives the total utility Jamal derives from the consumption of eclairs and cream puffs. Jamal has $12 to spend on these two confectionery goods. The price of an eclair is $3 and the price of a cream puff is $1.50.
a. Jamal's budget is $12. In order for Jamal to maximize his utility, how many eclairs and cream puffs should he buy?
b. Suppose the price of an eclair increase to $6. Jamal's income does not change and neither does the price of a cream puff. What combination of eclairs and cream puffs will Jamal buy now?
c. Using your answers to parts (a) and (b), derive two points on Jamal's demand curve for eclairs.
a. Jamal's utility maximizing combination will allocate (spend) his budget and be such that the marginal utility per dollar from the last eclair equals the marginal utility per dollar from the last cream puff. Jamal's utility maximizing combination is 3 eclairs and 2 cream puffs. At this combination, Jamal spends $9 on eclairs (3 eclairs × $3) and $3 on cream puffs (2 cream puffs × $1.50) for a total of $12. The marginal utility from the third eclair is 99 (= 342 - 243), so the marginal utility per dollar from eclairs is 99 ÷ 3 = 33. The marginal utility from the second cream puff is 49.50 (= 103.5 - 54.0), so the marginal utility per dollar from cream puffs is 49.5 ÷ $1.50 = 33. Hence the marginal utilities per dollar are equal, so the combination of 3 eclairs and 2 cream puffs maximizes Jamal's utility.
b. Jamal's new utility maximizing combination is 1 eclair and 4 cream puffs. As in part (a), this combination allocates all of Jamal's income and equalizes the marginal utility per dollar from the two goods. (Both are equal to 21.)
c. When the price of an eclair is $3, Jamal buys 3 eclairs, so one point on Jamal's demand curve is the price of $3 and the quantity demanded of 3 eclairs. When the price of an eclair increases to $6, Jamal buys only 1 eclair. So another point on Jamal's demand curve is the price of $6 and quantity demanded of 1 eclair.
Topic: Maximizing utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
16) Tris is shopping for pants and belts. He has a budget of $100. The price of a pair of pants is $20 and the price of a belt is $5. His marginal utility schedules are above. What combination of pants and belts does Tris buy? Explain your answer.
Topic: Maximizing utility
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
17) Ricardo likes to rent videos and attend concerts. The videos cost $4 and the concerts cost $40. Ricardo's marginal utility from the last video is 20 units. Ricardo is maximizing his utility. What is his marginal utility from the last concert he attended?
Topic: Equalize marginal utility per dollar spent
Skill: Level 4: Applying models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
18) Suppose Abe is allocating his entire income and he receives 100 units of utility per dollar from the tenth slice of pizza and 200 units of utility per dollar from his second soda. Is Abe maximizing his utility? Should Abe change his consumption of pizza and soda?
Topic: Equalize marginal utility per dollar spent
Skill: Level 4: Applying models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
19) The table above gives Sam's marginal utility schedule for bananas and apples. Sam's fruit budget is $10.
a. If bananas cost $1 per pound and apples cost $2 per bag, what is Sam's marginal utility per dollar for all quantities of both goods?
b. What is the utility maximizing combination of bananas and apples for Sam?
c. If the price of bananas increases to $2 per pound, how does Sam's marginal utility per dollar for bananas change?
d. At the banana price of $2 per pound, what is the new utility maximizing combination of bananas and apples for Sam?
e. List two points on Sam's demand curve for bananas.
a. The table above has Sam's marginal utility per dollar for bananas and apples.
b. Sam's utility maximizing combination of bananas and apples is 4 pounds of bananas and 3 bags of apples. This quantity allocates (spends) his budget and equates the marginal utility per dollar from bananas and apples.
c. The table with Sam's new marginal utility per dollar from bananas is above.
d. Sam's new utility maximizing combination of bananas and apples is 2 pounds of bananas and 3 bags of apples.
e. When the price of a pound of bananas is $1, the quantity demanded is 4 pounds and when the price rises to $2, the quantity demanded decreases to 2 pounds.
Topic: Marginal utility and the demand curve
Skill: Level 4: Applying models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
20) For a consumer, the marginal utility of good A is 25 and its price is $5. The marginal utility of good B is 60 and its price is $12. The consumer has allocated his entire budget. Is this consumer maximizing his total utility? Explain your answer.
Topic: Marginal analysis
Skill: Level 2: Using definitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
21) If Mark's marginal utility per dollar from the last taco is 15 and his marginal utility per dollar from the last burrito is 20 units, what should Mark do to increase his total utility?
Topic: Marginal analysis
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
22) Suppose Jenny's marginal utility from another serving of fish is 40 and her marginal utility from another serving of chips is 20. The price of a serving of fish is $10 and the price of a serving of chips is $1. What should Jenny do to maximize her utility? Explain your answer.
Topic: Marginal analysis
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
13.10 Essay: Efficiency, Price, and Value
1) Explain the paradox of value.
Topic: Paradox of value
Skill: Level 1: Definition
Section: Checkpoint 13.3
Status: Old
AACSB: Written and oral communication
2) "Water is very inexpensive. Thus the marginal and total utility of water is small." Analyze the previous statements.
Topic: Paradox of value
Skill: Level 2: Using definitions
Section: Checkpoint 13.3
Status: Old
AACSB: Written and oral communication
3) Does the fact that diamonds, which we do not need to survive, are more expensive than water, which is a necessity, constitute a violation of utility maximization?
Topic: Paradox of value
Skill: Level 2: Using definitions
Section: Checkpoint 13.3
Status: Old
AACSB: Written and oral communication
4) Why does gold, which is a relatively nonessential item, have a higher price than water, which is essential to life?
Topic: Paradox of value
Skill: Level 2: Using definitions
Section: Checkpoint 13.3
Status: Old
AACSB: Written and oral communication
5) Kevin allocates his budget according to rules of utility maximization. What are the rules of utility maximization and how do they explain the paradox of value, which is that diamonds are expensive but useless, while water is inexpensive but essential?
Topic: Paradox of value
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Written and oral communication
6) "Because the price of a diamond is much greater than the price of a gallon of water, the consumer surplus from diamonds is greater than the consumer surplus from water." Is the previous analysis correct? Explain your answer.
Topic: Paradox of value, consumer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 13.3
Status: Old
AACSB: Written and oral communication
7) Does the fact that diamonds are so expensive imply that the demand curve for diamonds has a positive slope? Use marginal utility theory to answer the question.
Topic: Paradox of value, demand curve
Skill: Level 5: Critical thinking
Section: Checkpoint 13.3
Status: Old
AACSB: Written and oral communication
13.11 Essay: Appendix: Indifference Curves
1) What does the term "indifferent" mean and what is its relationship to an indifference curve?
Topic: Indifference curve
Skill: Level 1: Definition
Section: Chapter 13 Appendix
Status: Old
AACSB: Written and oral communication
2) "If Ivan says he is indifferent between the consumption of a new pair of jeans or a set of earrings, he means that he does not want either product." Is the previous analysis correct? Explain your answer.
Topic: Indifference curve
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix
Status: Old
AACSB: Reflective thinking
3) Why do consumers prefer higher indifference curves?
Topic: Indifference curve
Skill: Level 3: Using models
Section: Chapter 13 Appendix
Status: Old
AACSB: Written and oral communication
4) "Every point on a budget line has an indifference curve passing through it." Explain if the previous statement is correct or not.
Topic: Preference map
Skill: Level 3: Using models
Section: Chapter 13 Appendix
Status: Old
AACSB: Reflective thinking
5) Tom is stranded on a deserted island where he can only consume coconuts and crabs. Two of his indifference curves are in the figure above.
a. Would Tom prefer his consumption to be at point a or at point b? At point b or at point c? Explain your answers.
b. Between points a and b, what is Tom's marginal rate of substitution for a crab?
a. Tom is indifferent between consuming at point a or at point b because both points are on the same indifference curve, I1. Tom would prefer to consume at point c rather than point b because point c is on a higher indifference curve, I2 versus I1.
b. Between points a and b, Tom's marginal rate of substitution for a crab is 2 coconuts per crab.
Topic: Indifference curve
Skill: Level 3: Using models
Section: Chapter 13 Appendix
Status: Old
AACSB: Analytical thinking
6) The figure above shows a preference map for Sarah, who likes hamburgers and milk shakes.
a. Which two combinations contain the same amount of hamburgers but different quantities of shakes?
b. Which combination(s) does Sarah most prefer? Why?
c. Which combination(s) does Sarah least prefer? Why?
d. Between which combinations is Sarah indifferent? Why?
a. Combinations a and b have the same amount of hamburgers but different amounts of milk shakes.
b. Sarah most prefers combination d because it is on the highest indifference curve.
c. Sarah least prefers combination a because it is on the lowest indifference curve.
d. Sarah is indifferent between combinations b and c because they are on the same indifference curve.
Topic: Indifference curve
Skill: Level 3: Using models
Section: Chapter 13 Appendix
Status: Old
AACSB: Analytical thinking
7) What is the marginal rate of substitution and how does it relate to an indifference curve?
Topic: Marginal rate of substitution
Skill: Level 3: Using models
Section: Chapter 13 Appendix
Status: Old
AACSB: Analytical thinking
8) "The marginal rate of substitution of the good measured along the x-axis increases as a consumer moves downward along an indifference curve." Is the previous statement correct or not?
Topic: Diminishing marginal rate of substitution
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix
Status: Old
AACSB: Reflective thinking
9) "As Mike consumes more dates over the course of a day, it is likely that his marginal rate of substitution of dates for other goods will rise." Is the previous statement correct or incorrect?
Topic: Diminishing marginal rate of substitution
Skill: Level 2: Using definitions
Section: Chapter 13 Appendix
Status: Old
AACSB: Reflective thinking
10) The figure above shows one of Bob's indifference curves for CDs and books.
a. Is the indifference curve steeper at point a or point b?
b. What is Bob's marginal rate of substitution at point a?
c. What is Bob's marginal rate of substitution at point b?
a. The indifference curve is steeper at point a.
b. The marginal rate of substitution at point a is 5 CDs per book, the slope of the line that just touches the indifference curve at this one point.
c. The marginal rate of substitution at point b is 1 1/2 CDs per book, the slope of the line that just touches the indifference curve at this one point.
Topic: Marginal rate of substitution
Skill: Level 3: Using models
Section: Chapter 13 Appendix
Status: Old
AACSB: Analytical thinking
11) In an indifference curve/budget line framework, how does a consumer decide which of all possible combinations of goods to purchase?
Topic: Consumer equilibrium
Skill: Level 3: Using models
Section: Chapter 13 Appendix
Status: Old
AACSB: Written and oral communication
12) Describe the consumer equilibrium in the indifference curve/budget line model.
∙ spending his or her entire income (is on the budget line),
∙ and is on the highest attainable indifference curve (is consuming the "best" point on the budget line). The equilibrium occurs at the point where the budget line just touches the highest indifference curve at one point. At this point, the budget line and indifference curve have the same slope, so the marginal rate of substitution (the slope of the indifference curve) is equal to the relative price (the slope of the budget line).
Topic: Consumer equilibrium
Skill: Level 3: Using models
Section: Chapter 13 Appendix
Status: Old
AACSB: Written and oral communication
13) Mary likes to consume either pizza or spaghetti. She has $48 to spend on these meals.
a. One week the price of pizza is $8 and the price of spaghetti is $6. Mary uses the indifference curve analysis she learned in microeconomics to decide how much of each type of meal to buy. She puts pizza on the vertical axis and spaghetti on the horizontal axis. What is the marginal rate of substitution at the combination of pizza and spaghetti that Mary chooses?
b. The next week, the price of pizza is $6 and the price of spaghetti is $8 so Mary adjusts her consumption combination to maximize her total utility. What is her marginal rate of substitution now?
a. The marginal rate of substitution is equal to the slope of the budget line. Given the price of pizza, Maria can buy 6 pizzas and, given the price of spaghetti, Maria can buy 8 spaghetti meals. Hence the slope of the budget line equals (6 pizza ÷ 8 spaghetti meals) = 3/4 of a pizza per spaghetti meal, which is the same as Mary's marginal rate of substitution at her consumer equilibrium point.
b. This question is answered similarly to part (a), and so the marginal rate of substitution is 1 1/3 of a pizza per spaghetti meal.
Topic: Consumer equilibrium, marginal rate of substitution
Skill: Level 4: Applying models
Section: Chapter 13 Appendix
Status: Old
AACSB: Analytical thinking
14) The figure above gives a consumer's budget line and two indifference curves.
a. At which point is the marginal rate of substitution greater than the relative price?
b. At which point is the marginal rate of substitution less than the relative price?
c. Which point represents the consumer equilibrium?
a. The marginal rate of substitution is greater than the relative price at point a.
b. The marginal rate of substitution is less than the relative price at point c.
c. The consumer equilibrium occurs at point b.
Topic: Consumer equilibrium, marginal rate of substitution
Skill: Level 4: Applying models
Section: Chapter 13 Appendix
Status: Old
AACSB: Analytical thinking
15) "Every point on a demand curve represents a consumer equilibrium in the indifference curve model." Explain why the previous statement is correct or not.
Topic: Deriving the demand curve
Skill: Level 4: Applying models
Section: Chapter 13 Appendix
Status: Old
AACSB: Written and oral communication
16) George has a $600 annual entertainment budget that he uses to buy trips to the movies and dinners at local restaurants. The figure above shows indifference curves and budget lines for these two goods. The price of a movie is $15.
a. Along budget line BL1, what is the price of a dinner?
b. What combination of dinners and movies will George select along budget line BL1?
c. Budget line BL2 represents a change in the price of dinners from that along BL1. What is the new price of dinners along this budget line?
d. What combination of dinners and movies will George select along budget line BL2?
e. Use the information in this problem to give two points on George's demand curve for dinners.
a. George can buy 20 dinners and his income is $600, so the price of a dinner is $30.
b. George will buy 20 movies and 10 dinners because this combination is on his budget line, and hence is affordable, as well as on the highest attainable indifference curve, and hence is the "best" combination.
c. If George spends all his income on dinners, he can purchase 40. Therefore the price of a dinner must be $15 (= $600 income/40 dinners = $15 per dinner).
d. George will buy 20 movies and 20 dinners because this combination is on his budget line, and hence is affordable, as well as on the highest attainable indifference curve, and hence is the "best" combination.
e. One point on George's demand curve for dinners is a price of $30 per dinner and a quantity demanded of 10 dinners (from part b). Another point is a price of $15 per dinner and a quantity demanded of 20 dinners (from part d).
Topic: Deriving the demand curve
Skill: Level 4: Applying models
Section: Chapter 13 Appendix
Status: Old
AACSB: Analytical thinking
Document Information
Connected Book
Foundations of Microeconomics 9e | Test Bank with Answer Key by Robin Bade
By Robin Bade