Test Bank + Answers Ch5 Consumer Choice Individual And - Microeconomics Principles and Policy 14e | Test Bank by Baumol by William J. Baumol. DOCX document preview.
Indicate whether the statement is true or false. |
1. Marginal utility can fall even as total utility from the consumption of a good is rising.
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2. The budget line represents a consumer’s preferences for a commodity.
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3. As a rule, the more of a commodity a consumer acquires, the smaller will be her total utility from that good.
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4. The market demand curve is the vertical summation of all individual demand curves.
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5. Scarcity raises both price and marginal utility but generally reduces total utility.
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6. A consumer cannot gain consumer’s surplus if she purchases more than one unit of a good.
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7. The slope of the budget line is the amount of one commodity that a consumer must give up in order to obtain an additional unit of the other commodity.
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8. An inferior good is one that consumers buy in smaller quantities when the price of that good rises.
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9. The law of diminishing marginal utility holds that at some point consumption of additional units of a commodity adds less to total utility.
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10. Total utility increases if one more unit of a product is purchased and marginal utility is positive.
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11. An increase in a consumer’s income will always increase the demand for a good.
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12. An inferior good is one that consumers buy in smaller quantities when incomes rise.
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13. A consumer who chooses the optimal bundle will go to a point on the highest attainable indifference curve.
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14. All decisions involve opportunity cost.
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15. If point A on an indifference curve lies higher (measured vertically) than point B on the same curve, Point A automatically represents higher total utility than point B.
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16. If the marginal net utility of beer is a positive number, the consumer should buy more beer in order to maximize utility.
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17. All points on an indifference curve represent combinations of two goods that are equally desirable to the consumer.
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18. The diamond-water puzzle, described by Adam Smith, suggests that the consumer’s surplus of water is high and the consumer’s surplus for diamonds is low.
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19. Total utility increases if one more unit of a product is purchased and marginal utility is negative.
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20. The law of demand ensures that a demand curve has a positive slope.
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21. Consumer’s surplus is the difference between the worth of a commodity to the consumer and the price the consumer pays for the commodity.
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22. In general, as a consumer acquires more and more of a good, the marginal utility remains constant.
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23. The law of diminishing marginal utility is consistent with the consumer behavior that produces a negatively sloped demand curve.
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24. Because of diminishing marginal utility, total utility always decreases when additional amounts of a commodity are consumed.
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25. If the marginal net utility of beer is negative, the consumer should buy more beer in order to increase the total utility.
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26. Since price tends to equal marginal utility, the price of water is low and the price of diamonds is high.
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27. The marginal rate of substitution represents the maximum amount of one commodity a consumer is willing to give up in exchange for one more unit of another commodity.
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28. A consumer will consume the combination of goods at the point of tangency between the budget line and the indifference curve.
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29. Rolls-Royce may actually sell fewer cars at lower prices due to the “snob effect.”
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30. Consumers should purchase a good up to the point where MU = P.
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31. Utility is the pleasure, satisfaction, or enjoyment derived from consumption.
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32. If income rises, most consumers will increase the quantity demanded of an inferior good.
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33. At the end points on a budget line, the consumer is not spending all of his budget, since one of the goods is not being purchased.
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34. Consumer’s surplus exists only for the last unit of a good that a buyer has purchased.
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35. The law of diminishing marginal utility states that total utility will decrease at an increasing rate as additional units of a commodity are consumed.
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36. Total utility always decreases when additional amounts of a commodity are consumed.
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37. Voluntary exchange requires that there must be mutual gain.
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38. The market demand curve represents the total quantity demanded at each price.
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39. The resolution of Adam Smith’s diamond-water puzzle is based on the distinction between marginal and total utility.
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40. Total utility decreases when diminishing marginal utility is present.
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41. A change in the price of one good, such as staples, may affect the quantity demanded of another good, such as rubber bands.
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42. Consumer’s surplus is what one consumer is willing to pay for a commodity over what another consumer is willing to pay for the same commodity.
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43. As a rule, as a consumer acquires more and more of a good, the marginal utility declines.
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44. If a good has “snob appeal,” consumers may purchase less when the price falls.
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45. An optimal purchase is one that maximizes total utility.
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46. The market demand curve is the horizontal summation of all individual demand curves.
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47. When a consumer has chosen an optimal bundle of goods, this bundle maximizes marginal utility.
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48. When drawn correctly and preferences are consistent, indifference curves do not intersect.
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49. All inferior goods have upward-sloping demand curves.
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50. Indifference curves show all combinations of commodities that are equally desirable to the consumer.
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51. A change in consumer preferences will shift the budget line.
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52. The demand curve can be derived from indifference curves by varying the price of the commodity in question.
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53. Consumers should purchase quantities of a good to the point where MU > P.
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54. A change in the price of one good results in a rotation of the budget line, so that it is steeper or flatter.
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55. Economic theory has traditionally focused on optimality in decision making.
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56. Any point on the lowest indifference curve is preferable to a point on a higher indifference curve.
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57. The slope of an indifference curve represents the maximum amount of one commodity that a consumer is willing to give up in exchange for one more unit of another commodity.
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58. An increase in income shifts indifference curves outward.
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59. The budget line and the indifference curve are geometric devices used to provide a closer look at consumer choice.
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60. The law of demand holds that as prices of goods decrease, people are willing to buy more.
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61. The slope of the budget line is determined only by the prices of the commodities purchased.
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62. The real cost of a decision is the opportunity cost measured in the commodities forgone.
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63. The law of diminishing marginal utility states that total utility will increase at a decreasing rate as additional units of a commodity are acquired.
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64. The number of compact discs purchased by a consumer depends on the price of the discs as well as the prices of all other goods purchased.
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65. A consumer will consume the combination of goods at the crossing point of a budget line and indifference curve.
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66. Given a typical demand curve and a decline in price, the consumer who wishes to maximize total utility must increase the quantity purchased of a good to arrive at an optimal MU = P point.
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67. An optimal consumption bundle will always be on the highest attainable indifference curve for the consumer.
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68. By changing the amount of income a consumer has to spend, a change in the price of one good may affect the quantity demanded of another good.
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69. Even if all individual demand curves are downwardly sloped, the market demand curve may slope upward.
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70. An increase in income produces a parallel, outward shift in the budget line.
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71. Points along a budget line represent the maximum combinations of two commodities that a consumer can afford.
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72. Marginal utility is measured by the maximum amount of money a consumer is willing to pay for one more unit of a commodity.
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73. The law of diminishing marginal utility guarantees that demand curves will have positive slopes.
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74. Because the consumer’s budget is limited, purchase decisions among available goods must of necessity be interdependent.
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75. All of the points on a budget line result in combination of goods that expend all of her income.
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76. Quantity demanded is affected not just by price but by other variables, such as income and the prices of other goods.
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77. Total utility can be objectively measured in numbers that indicate usefulness or benefit to the consumer.
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78. A change in the price of one good results in a rotation of the budget line around the point at which the consumer is currently consuming, so that it is steeper or flatter.
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79. A decrease in the price of one good results in a parallel shift in the budget line.
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80. Since price tends to equal total utility, the price of water is low and the price of diamonds is high.
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81. When the price of one good decreases, such as hot dogs, it may also increase the demand for other, related goods, like mustard.
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82. A change in the price of a good will shift the indifference curves.
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83. Economic behavior is always rational.
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Indicate the answer choice that best completes the statement or answers the question. |
84. Market demand curves may slope downward even if some individual demand curves do not because
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85. The budget line facing a household includes information on
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86. Which of the following is not a characteristic of indifference curves?
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Figure 5-12  |
87. In Figure 5-12, if a consumer equilibrium moves from B to A, this shows that
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88. What would happen to the budget line if income as well as prices of both goods increase by the same percentage?
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89. Adam Smith’s diamond-water puzzle
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90. When the price of a commodity falls, we can expect
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91. Which of the following is characteristic of indifference curves?
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92. Bobby is buying slices of pizza and place a value of his utility of the first slice at $5; a second slice at $4, and a third slice at $2. If Bobby eats three slices of pizza for lunch, his total utility is equal to
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93. In Poland’s free market, Felix Siemienas is making a fortune in cold cuts. Prices are much higher than formerly. Siemienas says, “Yes, my prices are high. If nobody buys, I bring my prices down. That is the market rule.” This “rule” best describes
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94. If indifference curves and budget lines are used to analyze consumer choice, an inferior good will
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95. Which of the following scenarios could be an example of increasing marginal utility?
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96. Modern economists measure how much utility Fred gets from a hot dog by
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97. If total utility declines as an additional unit of a commodity is purchased,
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98. What would happen to the budget line if income increases by the same percentage as the price of the two goods decreases (that is income up by, say, 10 percent and the prices down by 10 percent)?
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99. Table 5-4 shows the demand schedule for concert tickets for a particular consumer. What will be this consumer’s surplus if the price of tickets is $50?
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100. High price and low total utility indicate
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101. Economists consider instances of increasing marginal utility to be
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102. Total utility is maximized whenever
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103. If the marginal utility to Juan of sleeping an extra hour (from 8 a.m. to 9 a.m.) is negative,
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Figure 5-3  |
104. Assume the market consists of three consumers with the demand curves in Figure 5-3. At a price of 1, the total market demand is
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105. A budget line can show all but one of the following statements below. Which one does it not show?
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106. An inferior good is one
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107. If the slope of an indifference curve between two goods decreases as we move from left to right (dropping all minus signs), we infer that the consumer
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108. If a household’s income declines, then its budget line is
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109. Possible causes of an upward-sloping demand curve are
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Figure 5-4 |
110. In Figure 5-4, the rightward shift in budget lines from the one containing point A to the one containing point B
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111. Along a single indifference curve,
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112. The slope of an indifference curve at all points reflects
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113. In Figure 5-16, Adam is
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Figure 5-16  |
114. Figure 5-16 shows Adam’s purchases of bananas and apples when apples cost $5 each and bananas $4 each. The information implies that Adam’s income
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115. The law of demand states that as the price
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116. A consumer possesses five pounds of bananas and values their total utility at $2.14. If one additional pound is acquired and marginal utility is 11 cents, total utility will
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Figure 5-14  |
117. Martha initially buys the combination of pens and pencils shown as A in Figure 5-14. After the prices of both goods change, she buys combination B. It must be true that
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118. When using the terms “total utility“ or “marginal utility,” we assume
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119. Total utility
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120. The law of diminishing marginal utility explains why
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121. If a consumer is currently at Point E on Figure 5-13, she will
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122. The consumer maximizes his total utility (measured in money terms) when, at his chosen quantity of every good he buys, marginal utility
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123. Elaine values the utility of her first cup of coffee at $1; a second cup, $.75; and a third cup, $.50. If Elaine drinks three cups of coffee for breakfast, her total utility is equal to
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124. In Figure 5-13, the slope of the budget line (dropping all minus signs) equals
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125. If we graph marginal utility, the curve has a negative slope. This is because of the
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126. As a general rule, consumers have
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Figure 5-17  |
127. In Figure 5-17, which of the marked points would an economist use to help him construct a single demand curve for X?
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128. For a ____, if incomes rise and prices do not change, quantity demanded will increase.
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129. The slope of an indifference curve is called the
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130. When the price of a good changes but the price of the only other good bought by a consumer stays constant, his
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131. A bottle of wine costs $8 and a quiche costs $5. At Robert’s present levels of consumption, he spends all his income and receives marginal utility of $10 from the last bottle of wine and marginal utility of $4 from the last quiche. To maximize his total utility, Robert should
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Table 5-1
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132. Table 5-1 gives information on George’s total utility from consuming milkshakes and sandwiches. If George’s income this week is $15, milkshakes are $3 each, and sandwiches $2, he will maximize his utility if he buys
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133. A consumer has maximized her total utility (as measured in money) when, at the quantity of each good chosen
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134. In Figure 5-19, the consumer experiences at point C
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135. In Figure 5-13, the consumer is better off
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136. The slope of the budget line
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137. If marginal utility is a positive number,
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Figure 5-10  |
138. In the indifference curve pictured in Figure 5-10, which of the following is clearly true?
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139. The host at a party offers Justin a sixth beer. Justin says, “No thanks, man. The marginal utility of that fifth beer was, like, 20 cents, but the marginal utility of the sixth would be minus 10 cents.” From his comments, we deduce that Justin
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Figure 5-12 |
140. In Figure 5-12, the move in the consumer equilibrium from A to B shows that
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141. Robert decides not to attend a showing of the newest Star Wars movie when the price of a ticket is $10. From this, we can conclude that seeing the movie is
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142. The optimal combination of goods for a consumer to purchase is shown by
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Figure 5-13  |
143. In Figure 5-13, the line AB is
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144. A budget line is a straight line designed to show
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145. Net utility is
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146. Total utility will be at its maximum when
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147. The Wall Street Journal reports that “hard times aid poultry companies as people eat cheaper fowl.” In the language of economists, this means
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148. A normal good is a good whose quantity demanded
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149. A well-known women’s college whose tuition lagged below similar schools found recruiting difficult and enrollment falling. A substantial tuition increase was implemented, and dormitories were soon full again. This can be explained by
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150. For a consumer to maximize utility, he will choose
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151. An individual demand curve for a good is ____ her marginal utility curve for the good.
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Figure 5-8  |
152. In Figure 5-8, the consumer is indifferent between the combinations of beer and wine coolers indicated by points
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153. Which of the following factors is always present in consumer decision making?
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154. Consumer’s surplus can be written as
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155. In Figure 5-13, the consumer can afford any combination of X and Y represented by a point
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156. In Figure 5-2, consumer’s surplus is measured by the area
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157. Which of the following statements is correct?
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158. If a consumer is purchasing a good and her net marginal utility is positive,
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159. The marginal utility of a unit of good Y to Jane is
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160. If a commodity is inexpensive and its total utility is great,
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Figure 5-6  |
161. In Figure 5-6, a shift in the budget line from AC to AB indicates
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162. For most goods and most people, marginal utility probably
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163. Which of the following observations is not true of a budget line?
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164. If a graph of Robinson’s marginal utility were constructed from Table 5-1B, it would
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165. An indifference curve is a line showing
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166. Suppose that Joan, the only consumer of pork, has a downward-sloping demand curve for pork and faces an upward-sloping supply curve. If her demand curve shifts out because she develops a craving for pork, then at the new equilibrium (everything else equal),
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Figure 5-11  |
167. In Figure 5-11, a consumer is initially at point A. There is a price change and she moves to B. It follows that
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168. In Figure 5-7, budget line B compared to A clearly shows that the
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Figure 5-17 |
169. In Figure 5-17, the consumer would prefer
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170. According to Figure 5-13, if the price of good X falls, the optimal combination will move
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171. In Figure 5-18, point D for the consumer
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172. Lana spent $5 to see a movie. We know
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173. Scarcity
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174. If the law of demand holds, then
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175. Total utility can be thought of as the
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176. Americans choose cola over other flavors 70 percent of the time. Analysts say this is because cola’s flavor is more robust and durable. Orange soda, for example, suffers from flavor fatigue faster than cola. Also, because cola contains caffeine, people may be addicted to the stimulant. Which panel in Figure 5-1 best illustrates these facts?
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177. Figure 5-5 shows a consumer budget line for French fries and hamburgers. The household allocates a budget for these two goods. Suppose that the price of an order of French fries is $2, what is household income?
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178. A budget line is defined as
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179. The optimal purchase rule is stated as
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180. Consumer choice theory generally concludes that is based on the hypothesis that each consumer wants to
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181. Resolving Adam Smith’s diamond-water puzzle involves
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182. If a person receives a consumer’s surplus from the purchase of a good, it must be that
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183. Tom is buying a quantity of wheat at which the marginal utility (in dollars) exceeds price. He should
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184. When the price of one product falls,
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185. Elaine values the utility of her first cup of coffee at $1; a second cup, $.75; and a third cup, $.50. If Elaine drinks three cups of coffee for breakfast, her marginal utility is equal to
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186. Consumer’s surplus is a measure of how much
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Figure 5-3 |
187. Suppose that the market price rises from $3 to $5. What is the change in market demand?
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188. Marginal utility is
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Figure 5-6 |
189. A shift in the budget line in Figure 5-6 from AB to AC indicates
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Figure 5-3 |
190. In Figure 5-3, a decline in price from 3 to 1 will increase market quantity demanded by
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191. The law of diminishing marginal utility explains why
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192. Gwen’s decision to buy a new television instead of a bicycle for the same price
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Figure 5-17 |
193. Which of the following statements about Figure 5-17 must be correct?
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194. The marginal utility of a unit of good X
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195. Because of diminishing marginal utility, you
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196. According to the “law” of demand, we would expect
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197. If the demand curve for an inferior good is drawn,
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198. Vicki consumes meat loaf and pizza. To keep her utility constant, you must give her more of one good if you take some of the other away. This information implies that
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199. Jason considers a crystal bowl, a silver dish, and a pewter figurine, each priced $45 at the local gift shop. He chooses the silver dish because according to economic theory,
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200. Figure 5-5 shows a consumer budget line for French fries and hamburgers. The household allocates a budget for these two goods. If the price of an order of french fries is $2, how much income is allocated to fries and burgers combined?
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201. An increase in a family’s income will cause its budget line to
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202. The theory of consumer choice is based on the hypothesis that each consumer wants to
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203. The host at a party offers Justin a sixth beer. Justin says, “No thanks, man. The marginal utility of that fifth beer was, like, 20 cents, but the marginal utility of the sixth would be minus 10 cents.” If Justin consumes the sixth beer, his total utility will
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Figure 5-9  |
204. In Figure 5-9, the consumer’s marginal rate of substitution at his optimum choice of X and Y is
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205. Lisa is buying bread and at her current purchases, the marginal utility (in dollars) is less than price. If she wants to optimize, she should
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206. An inferior good is a good whose quantity demanded
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207. According to Table 5-2, Robinson’s total utility from having two coconuts is ____.
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208. In Figure 5-16, a decrease in the price of apples will
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209. Figure 5-5 shows a consumer budget line for french fries and hamburgers. The price of an order of fries is $2. This implies that the price of a burger is
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210. When the price of a commodity rises, we can expect
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211. If the prices of both goods increase by 10 percent, the budget line
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212. Consumer’s surplus
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213. Figure 5-5 shows a consumer budget line for French fries and hamburgers. If the household has $20 to spend, the price of hamburgers is
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214. The market demand curve
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215. The slope of a consumer’s indifference curve between two commodities represents
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Figure 5-15  |
216. Hal initially consumes the combination marked as A in Figure 5-15. After his income increases, Hal consumes combination B. We can conclude that Hal views
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217. Market demand curves are found by
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218. Are there ever exceptions to the law of demand? |
219. What is the relationship between marginal utility and an individual demand curve? |
220. Bob values the utility of a single scoop of Baskin-Robbins ice cream at $1.50. A double scoop gives total utility of $2.25, while a triple scoop yields $2.60. Baskin-Robbins charges $1.35 for a single, $1.95 for a double, and $2.35 for a triple. How many scoops will Bob buy? |
221. If marginal net utility is positive, the consumer must be buying too small a quantity to maximize total net utility. Why? |
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222. Given the demand curve in Figure 5-24, explain how consumer’s surplus is calculated. |
223. Why is it that the consumer can maximize total net utility only if the purchase quantity brings marginal utility as close as possible to equality with price? |
224. What are the properties of indifference curves? |
225. In Figure 5-1 from the text, if the price of pizzas is $8:
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226. Plot the demand for caviar given the following information on quantity consumed and total utility; then explain why caviar sells for such a high price.
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227. Define the following terms. Give a complete and precise definition in one sentence.
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228. Why is gold very expensive, even though it is not essential to life, while water, which is essential to life, is inexpensive? |
229. What is marginal analysis? |
230. If I use 1,000 gallons of water a month at a price of $.01 a gallon, is my consumer’s surplus likely to be large or small? Explain. |
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231. Using Table 5-3, graph the marginal utility curve. |
232. Use consumer indifference curves and budget lines to show the optimal consumption curves for a normal good and for an inferior good. (Use two graphs.) Be sure your graphs are completely and correctly labeled. |
233. Use the law of diminishing marginal utility to explain why Domino’s and Pizza Hut allow the purchase of a second pizza for only $4 when one pays full price (around $10) for the first pizza. Why not simply charge $7 a pizza instead? |
234. You have five hours left to study for two exams tomorrow. The relationship between hours of study and test scores is as follows:
Use the rule for determining optimal purchases to allocate your time, where each point is one “util” of utility. |
235. Use consumer indifference curves and budget lines to illustrate the effects of an increase in income for a normal good and an inferior good (use two graphs). Be sure your diagrams are fully and correctly labeled. |
236. If you go to a bar tonight and have three beers before going home to study economics, will you likely receive some consumer’s surplus? Explain why or why not. |
237. Draw individual demands for caviar for Al, Barbara, Chuck, and Denise where Al’s demand is relatively inelastic, Barbara’s is elastic, Chuck’s is upward sloping, and Denise refuses to eat caviar at any price. Then draw the corresponding market demand. |
238. What is the marginal rate of substitution, and what role does it play in determining the consumer’s optimum choice? |
239. What is a budget line? What does its slope indicate? |
240. Alice has $10 to spend on wine and cheese. If wine is $2.50 a glass and cheese $2, draw the corresponding budget line. Then draw three indifference curves, one showing the amount of wine and cheese Alice would choose, one showing less preferred combinations of wine and cheese, and the last showing preferred but unaffordable combinations. |
241. Draw the point of consumer equilibrium from an indifference map and budget line. Explain why this is the point of optimization. Be sure your diagram is fully and correctly labeled. |
242. Suppose the price of butter falls because milk price supports are removed. Will people’s tastes shift away from margarine and toward butter? |
243. How do you calculate consumer’s surplus? What happens to consumer’s surplus when the price of a commodity rises? |
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Microeconomics Principles and Policy 14e | Test Bank by Baumol
By William J. Baumol