Question 1

In indifference curve analysis,a point to the left of the consumerʹs budget line

Accepted Answer

A)  indicates consumption spending beyond current income.
B)  implies the household is paying above-market prices for the goods in question.
C)  implies the household is paying below-market prices for the goods in question.
D)  implies that the household is not spending all of its income on the goods in question.
E)  shows a combination of goods that are beyond the income of the household.F) C) and D)
G) All of the above

Question 2

When a consumerʹs marginal rate of substitution between X and Y is equal to the ratio of prices for X and Y,and when the consumer is spending all available income,then

Accepted Answer

A)  the budget line is tangent to an indifference curve.
B)  the consumer is not maximizing his utility.
C)  a higher indifference curve can be reached given the existing budget line.
D)  the budget line is tangent to the indifference curve at all quantities of X and Y.
E)  all budget lines are tangent to all indifference curves.F) B) and E)
G) C) and E)

Question 3

Given a typical downward-sloping demand curve in a market that has reached its equilibrium,the consumer surplus

Accepted Answer

A)  is measured by the area above the market price and under the demand curve.
B)  is measured by the area below the market price and under the demand curve.
C)  is measured by the area immediately above the demand curve.
D)  is calculated as the product of market price and quantity consumed.
E)  cannot be measured given the information.F) A) and E)
G) D) and E)

Question 4

Assume you are consuming two goods,X and Y.Suppose that the money prices for X and Y remain unchanged,but your income increases by 20%.What happens to your consumption of good X?

Accepted Answer

A)  it increases
B)  it stays the same
C)  it increases or decreases,depending on whether it is normal or inferior
D)  it decreases
E)  it increases by 20%F) A) and C)
G) A) and B)

Question 5

The total value that Doug places on his consumption of computer games equals

Accepted Answer

A)  the price multiplied by quantity demanded.
B)  his marginal utility multiplied by quantity demanded.
C)  price times marginal value.
D)  the total amount he pays for all the games he purchases.
E)  his total expenditure on computer games plus his consumer surplus.F) A) and E)
G) C) and D)

Question 6

Given a particular consumerʹs indifference map,the further the indifference curve is from the origin

Accepted Answer

A)  the lower the marginal rate of substitution.
B)  the higher the marginal rate of substitution.
C)  the lower the level of satisfaction.
D)  the higher the level of satisfaction.
E)  the more goods are included.F) B) and D)
G) A) and B)

Question 7

In which of the following situations will an individualʹs purchasing power be unaffected?

Accepted Answer

A)  money income is cut in half and the prices of all goods and services fall by 50%
B)  money income falls and the price of one good falls
C)  money income doubles and the prices of all goods and services are cut in half
D)  money income doubles and the prices of all goods and services remain constant
E)  money income is cut in half and prices of all goods and services remain constantF) C) and D)
G) All of the above

Question 8

Indifference theory is based on the assumption that

Accepted Answer

A)  consumers are not able to rank consumption bundles in order of preference.
B)  consumers can always say which of two consumption bundles they prefer without having to say by how much they prefer it.
C)  the consumer has equated the marginal utilities of all products,and is therefore indifferent between consumption bundles.
D)  the consumer is able to quantify the difference in total utility received from two different consumption bundles.
E)  the consumer receives the same utility and is therefore indifferent between any two consumption bundles.F) A) and E)
G) A) and D)

Question 9

Any consumption point that is on the budget line

Accepted Answer

A)  indicates consumption spending beyond current income.
B)  implies the household is paying above-market prices for the goods in question.
C)  implies the household is paying below-market prices for the goods in question.
D)  implies that the household is not spending all of its income on the goods in question.
E)  implies that the household is spending all of its income on the goods in question.F) C) and D)
G) B) and C)

Question 10

Bjorn is a student with a monthly budget of $500,which he allocates between transportation services and ʺall other goods.ʺ Suppose the price of transportation is $5 per unit,and the price of ʺall other goodsʺ is $20 per unit.The marginal utility he currently receives from his consumption of transportation services is 60.How many units of ʺall other goodsʺ is he consuming if he is maximizing his utility?

Accepted Answer

A)  25
B)  60
C)  200
D)  240
E)  There is not enough information to determine.F) B) and E)
G) B) and D) E

Question 11

At a garage sale,Dominique purchases a sewing machine for $30 when she was willing to pay $55.If the sewing machine costs $200 new,Dominiqueʹs consumer surplus would be

Accepted Answer

A)  $0.
B)  $25.
C)  $120.
D)  $145.
E)  $170.F) A) and C)
G) B) and D) B

Question 12

The ʺlawʺ of diminishing marginal utility implies that the

Accepted Answer

A)  first unit of a good consumed will contribute most to the consumerʹs satisfaction.
B)  last unit of a good consumed will contribute most to the consumerʹs satisfaction.
C)  total utility is negative.
D)  total utility is constant as more units are consumed.
E)  marginal utility of a good diminishes over time.F) A) and E)
G) B) and D)

Question 13

An indifference curve plotted for two different goods on the axes

Accepted Answer

A)  shifts when real income changes.
B)  shows all combinations of the two goods that give the same level of utility.
C)  changes its slope as the relative prices of the two goods change.
D)  shows the combinations of the two goods that will just use up a consumerʹs income.
E)  shows the different combinations of two goods that the same income can purchase.F) A) and B)
G) A) and E)

Question 14

The table below shows the quantities of toffee bars and bags of cashews that a consumer could consume over a 1-week period.  TABLE 6-1
-Refer to Table 6-1.The maximum utility that a consumer can obtain from toffee bars and bags of cashews per week is

Accepted Answer

A)  22.
B)  54.
C)  56.
D)  64.
E)  74.F) A) and B)
G) C) and D)

Question 15

Consider a consumer who divides his income between spending on good X and good Y.The opportunity cost of good X in terms of good Y is reflected by the

Accepted Answer

A)  absolute price of good X.
B)  absolute price of good Y.
C)  ratio of the price of X to the price of Y.
D)  ratio of the price of Y to the price of X.
E)  price of good X relative to the prices of all other goods.F) All of the above
G) None of the above

Question 16

If a consumer is faced with a choice of products A,B,C,...,and has a given money income,the consumerʹs utility will be maximized when

Accepted Answer

A)  MUA/PA = MUB/PB = MUC/PC = ...
B)  PA = PB = PC = ...
C)  MUA = MUB = MUC = ...
D)  TUA = TUB = TUC = ...
E)  MUA = PA; MUB = PB; MUC = PC; ...F) A) and D)
G) C) and D) A

Question 17

If consumption of an extra unit of some good generates a marginal utility of zero,then consumption of that additional unit would mean that total utility would

Accepted Answer

A)  also be zero.
B)  not change.
C)  be increasing.
D)  be decreasing.
E)  be negative.F) A) and E)
G) B) and D)

Question 18

The Smith family is allocating its monthly household expenditure between only two goods,food and clothing.Suppose that the price of food is $5 per unit,and the price of clothing is $10 per unit and that the marginal utility that the family is receiving from its consumption of food is currently 25.What is the familyʹs marginal utility from its consumption of clothing if it is maximizing its utility?

Accepted Answer

A)  5
B)  10
C)  12.5
D)  25
E)  50F) A) and B)
G) B) and D)

Question 19

The table below shows the quantities of toffee bars and bags of cashews that a consumer could consume over a 1-week period.  TABLE 6-1
-Refer to Table 6-1.If the prices of both toffee bars and bags of cashews are $2 and this consumer has $14 per week to spend on these two snacks,what is the maximum total utility achievable?

Accepted Answer

A)  10
B)  15
C)  33
D)  45
E)  57F) D) and E)
G) B) and D)

Question 20

If the income effect of a price change is negative and larger in absolute terms than the substitution effect,then the demand curve will be

Accepted Answer

A)  upward sloping.
B)  downward sloping.
C)  vertical.
D)  horizontal.
E)  of indeterminate slope.F) B) and E)
G) B) and D)

Exam 6: Consumer Behaviour

In indifference curve analysis,a point to the left of the consumerʹs budget line

Correct Answer
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When a consumerʹs marginal rate of substitution between X and Y is equal to the ratio of prices for X and Y,and when the consumer is spending all available income,then

Correct Answer
verified

Given a typical downward-sloping demand curve in a market that has reached its equilibrium,the consumer surplus

Correct Answer
verified

Assume you are consuming two goods,X and Y.Suppose that the money prices for X and Y remain unchanged,but your income increases by 20%.What happens to your consumption of good X?

Correct Answer
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The total value that Doug places on his consumption of computer games equals

Correct Answer
verified

Given a particular consumerʹs indifference map,the further the indifference curve is from the origin

Correct Answer
verified

In which of the following situations will an individualʹs purchasing power be unaffected?

Correct Answer
verified

Indifference theory is based on the assumption that

Correct Answer
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Any consumption point that is on the budget line

Correct Answer
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Correct Answer
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E

At a garage sale,Dominique purchases a sewing machine for $30 when she was willing to pay $55.If the sewing machine costs $200 new,Dominiqueʹs consumer surplus would be

Correct Answer
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B

The ʺlawʺ of diminishing marginal utility implies that the

Correct Answer
verified

An indifference curve plotted for two different goods on the axes

Correct Answer
verified

The table below shows the quantities of toffee bars and bags of cashews that a consumer could consume over a 1-week period. TABLE 6-1 -Refer to Table 6-1.The maximum utility that a consumer can obtain from toffee bars and bags of cashews per week is

Correct Answer
verified

Consider a consumer who divides his income between spending on good X and good Y.The opportunity cost of good X in terms of good Y is reflected by the

Correct Answer
verified

If a consumer is faced with a choice of products A,B,C,...,and has a given money income,the consumerʹs utility will be maximized when

Correct Answer
verified
A

If consumption of an extra unit of some good generates a marginal utility of zero,then consumption of that additional unit would mean that total utility would

Correct Answer
verified

Correct Answer
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Correct Answer
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If the income effect of a price change is negative and larger in absolute terms than the substitution effect,then the demand curve will be

Correct Answer
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Exam 6: Consumer Behaviour

In indifference curve analysis,a point to the left of the consumerʹs budget line

Correct AnswerverifiedShow Answer

When a consumerʹs marginal rate of substitution between X and Y is equal to the ratio of prices for X and Y,and when the consumer is spending all available income,then

Correct AnswerverifiedShow Answer

Given a typical downward-sloping demand curve in a market that has reached its equilibrium,the consumer surplus

Correct AnswerverifiedShow Answer

Assume you are consuming two goods,X and Y.Suppose that the money prices for X and Y remain unchanged,but your income increases by 20%.What happens to your consumption of good X?

Correct AnswerverifiedShow Answer

The total value that Doug places on his consumption of computer games equals

Correct AnswerverifiedShow Answer

Given a particular consumerʹs indifference map,the further the indifference curve is from the origin

Correct AnswerverifiedShow Answer

In which of the following situations will an individualʹs purchasing power be unaffected?

Correct AnswerverifiedShow Answer

Indifference theory is based on the assumption that

Correct AnswerverifiedShow Answer

Any consumption point that is on the budget line

Correct AnswerverifiedShow Answer

Correct AnswerverifiedE

At a garage sale,Dominique purchases a sewing machine for $30 when she was willing to pay $55.If the sewing machine costs $200 new,Dominiqueʹs consumer surplus would be

Correct AnswerverifiedB

The ʺlawʺ of diminishing marginal utility implies that the

Correct AnswerverifiedShow Answer

An indifference curve plotted for two different goods on the axes

Correct AnswerverifiedShow Answer

The table below shows the quantities of toffee bars and bags of cashews that a consumer could consume over a 1-week period. TABLE 6-1 -Refer to Table 6-1.The maximum utility that a consumer can obtain from toffee bars and bags of cashews per week is

Correct AnswerverifiedShow Answer

Consider a consumer who divides his income between spending on good X and good Y.The opportunity cost of good X in terms of good Y is reflected by the

Correct AnswerverifiedShow Answer

If a consumer is faced with a choice of products A,B,C,...,and has a given money income,the consumerʹs utility will be maximized when

Correct AnswerverifiedA

If consumption of an extra unit of some good generates a marginal utility of zero,then consumption of that additional unit would mean that total utility would

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the income effect of a price change is negative and larger in absolute terms than the substitution effect,then the demand curve will be

Correct AnswerverifiedShow Answer

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E

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B

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A

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