Deck 5: Demand and Consumer Behavior

Question 1

A consumer is said to be in equilibrium in his or her choice between two goods A and B when:

A)the total purchase of good A gives the same satisfaction as the total purchase of good B.
B)the last unit of good A purchased gives the same addition to satisfaction as the last unit of good b purchased.
C)each penny spent on good A gives the same satisfaction as each penny spent on good B.
D)the last penny spent on good A gives the same addition to satisfaction as the last penny spent on good B.
E)the last pennies spent on goods A and B generate no additions to satisfaction.

Answer 1

the last penny spent on good A gives the same addition to satisfaction as the last penny spent on good B.

Question 2

A consumer has $20 per week available to spend as she wishes on commodities A and B.She is currently spending all her money; the prices of these commodities, the quantities she now buys, and her evaluation of the utility provided by these quantities are as follows: For maximum satisfaction, this consumer should (assuming she can buy fractions of units of A and B):

A)buy less of A, more of B.
B)buy same quantity of A, more of B.
C)buy more of A, less of B.
D)buy more of A, same quantity of B.
E)do nothing, being already at best possible position.

Answer 2

buy more of A, less of B.

Question 3

Which of the following describes "utility"?

A)how consumers rank different goods and services.
B)how useful is a good or service.
C)how many different things a good or service can do.
D)when consumers use goods or services.
E)none of the above.

Answer 3

how consumers rank different goods and services.

Question 4

To be in equilibrium (i.e., to maximize satisfaction), the consumer must:

A)purchase no inferior goods.
B)equalize the marginal utilities of the last unit purchased of every commodity.
C)be sure that the prices of all commodities purchased are proportional to their total utilities.
D)be sure that the price of each good is equal to the marginal utility of money.
E)allocate income so that the last penny spent on any good generates the same increment of utility as the last penny spent on any other good.

Question 5

The law of diminishing marginal utility states:

A)marginal utility is always going down.
B)as the amount of a good consumed increases, the marginal utility of that good tends to decline.
C)some goods have a lower marginal utility than others.
D)you can never have too much ice cream.
E)none of the above.

Question 6

The rule for rational budget allocation by a consumer is that the marginal utility of each good:

A)purchased divided by its price must be equal.
B)purchased multiplied by its price must be equal.
C)must be zero.
D)must be infinite.
E)none of the above.

Question 7

If two goods, such as tea and coffee, may be considered perfect substitutes, their price-quantity relations may be depicted by which panel in the figure below?

A)a.
B)b.
C)c.
D)d.
E)e.

Question 8

At a consumer's equilibrium demand choices for goods 1 and 2:

A)MU₁ = MU₂
B)MU₁/Q₁ = MU₂/Q₂
C)MU₁/P₁ = MU₂/P₂
D)P₁ = P₂
E)none of the above.

Question 9

A consumer spends all of her income on two goods, coffee and doughnuts.She purchases coffee at 25 cents a unit with a total utility of 800 and a marginal utility of 12.Doughnuts are purchase at 75 cents a unit with a total utility of 200 and a marginal utility of 24.In order to reach consumer equilibrium, she should consume:

A)less doughnuts and more coffee.
B)more doughnuts but the same amount of coffee.
C)more coffee but the same amount of doughnuts.
D)more doughnuts and less coffee.
E)the same amount of coffee and doughnuts.

Question 10

If we know each consumer's demand curve, we can derive the market demand curve by:

A)vertically summing the individual demand curves.
B)horizontally summing the individual demand curves.
C)averaging the individual demand curves.
D)obtaining consumer incomes and summing them.
E)none of the above.

Question 11

In the figure below, the decline in consumer surplus resulting from an increase in price from $5 to $10 is given by the area:

A)FGH
B)CEH
C)FGDC
D)CEGF
E)DEG

Question 12

If a good which is important for welfare sells for a lower price than one which is less important for welfare, we are describing:

A)an inferior good.
B)marginal consumer surplus.
C)the paradox of value.
D)the substitution effect.
E)total utility.

Question 13

The area of consumer surplus is correctly identified by the shaded region in which panel of the figure below?

A)a.
B)b.
C)c.
D)d.
E)e.
F)None of them.

Question 14

The fundamental condition of maximum satisfaction or utility is what principle?

A)Marginal utility principle.
B)Jevons principle.
C)Equimarginal principle.
D)Samuelson principle.
E)none of the above.

Question 15

The rise in the price of butter will lead to:

A)a fall in the demand curve for butter.
B)a rightward shift in the demand curve for butter's substitute.
C)a leftward shift in the demand curve for butter's substitute.
D)an increase in the marginal utility of the last unit consumed of butter's substitute.
E)none of the above.

Question 16

Why are most demand curves downward sloping?

A)consumers get tired of goods and use less of them.
B)consumers want more variety in goods and services.
C)a higher price for a good reduces the consumer's desired consumption of a good.
D)a lower price for a good reduces the consumer's desired consumption of a good.
E)none of the above.

Question 17

An upward shift in the supply curve of good Y, a complement of some good X, will tend to cause:

A)the demand curve for X to shift to the left.
B)the demand curve for X to shift to the right.
C)the price of X to increase even though the demand curve for X is unaffected.
D)the price of X to fall even though the demand curve for X is unaffected.
E)none of the above.

Question 18

The "income-effect" is best described as the:

A)effect on demand for a good brought about by a change in money income regardless of the changes in prices.
B)effect on demand for a good induced by a change in real income.
C)change in consumer preferences effected by a redistribution of income.
D)effect on demand for a good induced by a change in the market price of the good.
E)none of the above.

Question 19

The paradox of value notes that:

A)there is no rational explanation why people should set a high value on objects such as diamonds, which have little real usefulness.
B)the price obtained from selling any commodity may bear little relationship to the cost of producing it.
C)supply and demand curves do very little to explain how value (or price)is determined.
D)no one consumer has any control over the price (or value)of a commodity, but consumers collectively do have such control.
E)there is no consistent relationship between the total utility obtained from any commodity and the price charged for it.

Question 20

The price of good X falls.The income-effect of this price change:

A)will usually cause X purchases to increase.
B)will usually cause X purchases to decrease.
C)may cause X purchases either to increase or decrease, there being no "usually" consequence.
D)by definition, neither increases nor decreases X purchases.
E)will not apply, since income-effects refer to changes in spendable income, not to price changes.

Question 21

The income-effect:

A)isolates the effect of a change in the relative price structure on the demand of the given commodity.
B)is the sole cause of the increase in quantity demanded when the price of a good falls.
C)is identical to the substitution effect for most goods.
D)is the change in the quantity demanded of the given commodity due to a change in real income.
E)is none of the above.

Question 22

If I get 10 units of total utility (TU)from 2 oranges, 14 of TU from 3 oranges, and 17 of TU from 4 oranges, I obey the law of diminishing marginal utility because:

A)MU falls as consumption increases.
B)TU increases as consumption increases.
C)TU > MU.
D)MU > TU.
E)MU = TU.

Question 23

Suppose Mary is currently spending all her income on cookies and milk.The marginal utility of cookies is 15, the price of cookies is $5, the marginal utility of milk is 10, and the price of milk is $1.To increase her total utility, Mary should:

A)buy more cookies and less milk.
B)buy more milk and fewer cookies.
C)buy more of both goods.
D)buy less of both goods.
E)do nothing.She is currently maximizing utility with her limited budget.

Question 24

A fall in the demand for commodity X can be caused by

A)a fall in the price of a substitute.
B)a fall in the price of a complement.
C)a rise in the price of a substitute.
D)a redistribution of income to groups who favor this commodity.
E)none of the above.

Question 25

Use the following to answer questions :
Figure 5-1
Refer to Figure 5-1.What is total market demand at P = 5?

A)0
B)5
C)10
D)15
E)None of the above

Question 26

The substitution effect says:

A)when the price of a beef increases, consumers will tend to substitute with chicken.
B)when the price of a beef increases, consumers will tend not to substitute.
C)when the price of a beef increases, consumers will tend to eat more beef.
D)when the price of a beef decreases, consumers will tend to substitute with chicken.
E)none of the above.

Question 27

Let there be two goods, X and Y.For individual A, the marginal utility of X is 2 while the marginal utility of Y is 1.If the prices of X and Y were both equal to $10, then individual A could improve his welfare even without an infusion of extra income by consuming:

A)more X even at the expense of consuming less Y.
B)more Y even at the expense of consuming less X.
C)more X only if consumption of Y could be maintained at the original level.
D)less X, but only if consumption of Y could be maintained at the original level.
E)none of the above.

Question 28

The "paradox of value," with respect to prices and consumer purchases, refers to which one of the following?

A)Prices of commodities are not always proportional to the total satisfaction they give us.
B)It is impossible to explain the price of a commodity in terms of either demand factors alone or supply factors alone.
C)It is impossible to explain why people's tastes are what they are, or why tastes vary from one person to the next.
D)Some consumers tend to value commodities according to their price, even to the point of buying more if the price goes up.
E)None of the above.

Question 29

Suppose there are only two consumers (A & B)of good X in the economy.At a price of $1 per unit consumer A demands 12 units and consumer B demands 24 units.The market demand for X at $1 per unit is:

A)36 units.
B)18 units.
C)12 units.
D)288 units.
E)cannot be determined without knowledge of each consumer's marginal utility for the good.

Question 30

Use the following to answer questions :
Figure 5-1
Refer to Figure 5-1.What is the slope of the total market demand curve at P = 3?

A)17.5
B)about .20
C)about -.06
D)about -.20
E)-17.5

Question 31

If both income and substitution effects are strong, this region of the demand curve must be:

A)relatively price elastic.
B)relatively price inelastic.
C)unit-elastic.
D)perfectly inelastic.
E)perfectly elastic.

Question 32

Use the following to answer questions :
Figure 5-1
Refer to Figure 5-1.What is total demand at P = 3?

A)20
B)25
C)27.5
D)45
E)None of the above

Question 33

For the consumer to act rationally (i.e., achieve the greatest amount of satisfaction), he or she must:

A)maximize the sum of the marginal utilities of the last unit purchased of all goods in his or her budget.
B)equalize the marginal utilities of the last unit purchased of all commodities.
C)purchase no inferior goods.
D)equalize the marginal utilities of the last dollar spent upon each commodity or service purchased.
E)do none of the above.

Question 34

Use the following to answer questions :
Table 5-1
Refer to Table 5-1.If good X costs $6 per unit and good Y costs $5 per unit, at what quantities of X and Y is utility maximized if the budget is $33?

A)X = 2, Y = 3
B)X = 4, Y = 5
C)X = 3, Y = 4
D)X = 3, Y = 3
E)None of the above

Question 35

The price of good X is $1.50 and that of good Y, $1.A particular consumer who evaluates the marginal utility of Y to be 30 units, and is in equilibrium with respect to purchases of X and Y, must consider the marginal utility of X to be:

A)15 units.
B)20 units.
C)30 units.
D)45 units.
E)none of the above.

Question 36

Let the price of some good X exceed the price of a second good Y.In consumer equilibrium, it must be true that

A)total utility derived from both X and Y has begun to decline.
B)the marginal utility of X exceeds the marginal utility of Y.
C)the marginal utility of X equals the marginal utility of Y.
D)the marginal utility of Y exceeds the marginal utility of X.
E)any of the above could be, depending upon economic circumstance.

Question 37

In the figure below, which area represents consumer surplus at a price of 5?

A)OADC.
B)OBEC.
C)CEH.
D)OBEH.
E)CEGF.

Question 38

Which of the following does not affect the demand curve for automobile tires?

A)The price of gasoline.
B)Consumer incomes.
C)Gasoline rationing.
D)The price of tires.
E)None of the above.

Question 39

If two goods, such as tea and lemon, may be considered perfect complements, their price-quantity relations may be depicted by which panel of the figure below?

A)a.
B)b.
C)c.
D)d.
E)e.

Question 40

Use the following to answer questions :
Table 5-1
Refer to Table 5-1.Suppose X costs $8 per unit and Y costs $5 per unit.What quantities of X and Y will the consumer buy if she has $31 to spend?

A)X = 3, Y = 4
B)X = 4, Y = 5
C)X = 2, Y = 3
D)X = 1, Y = 2
E)None of the above

Question 41

In equilibrium for the consumer, the marginal utility of good A must equal the marginal utility of good B.

Question 42

If A and B are substitutes, then an increase in the price of A will tend to result in an increase in the demand for B.

Question 43

Two goods are considered to be independent if a change in the price of one good has no effect on the demand curve for the other good.

Question 44

The concept of consumer surplus is useful in helping evaluate government spending decisions.

Question 45

When a buyer experiences consumer surplus, the seller experiences a loss.

Question 46

Total utility tends to rise as the level of consumption rises.

Question 47

If prices go up, your real income goes down.

Question 48

If we know a consumer's tastes, if we know how much his income (or budget)is, and if we know the price of any one good, then we can predict how much of that good he will buy.

Question 49

As you consume more of a good, your marginal utility always rises.

Question 50

Diamonds cost more than water, so diamonds must be worth more to us than water.

Question 51

A higher price for a good reduces the consumer's desired consumption of that commodity, therefore the demand curve is upward sloping.

Question 52

If the price of harmful addictive substances goes up, it will reduce the number of causal users.

Question 53

A condition for consumer equilibrium is that the total utility derived from good A is equal to the total utility derived from good B.

Question 54

The saying "more is better" is a denial of the law of diminishing marginal utility.

Question 55

As you increase the consumption of X, total and marginal utility tend to increase.

Question 56

Good A is said to be complementary to good B if more of B is bought when the price of A falls.

Question 57

Consumer surplus is the gap between the total utility of a good and its total market value.

Question 58

In equilibrium, the ratio of marginal utilities for any two goods will be the same for all consumers who purchase positive quantities of both goods.

Question 59

It is possible to sum individual demand curves to get the market demand curve only when all consumers are exactly alike in their demands.

Question 60

Economists assume that consumers make rational and consistent decisions.

Question 61

Water tends to have a low marginal utility because substitutes for it are widely available.

Question 62

A commodity important for welfare may sell for less in the market than one that is less important.

Question 63

An increase in the price of a substitute good may or may not cause total spending on a particular good to climb, depending upon the price elasticities of supply and demand of the good in question.

Question 64

The maximum-satisfaction rule for spending consumer income is: equalize the marginal utilities of the last unit purchased of every commodity.

Question 65

If the price of beef goes up then many consumers will substitute chicken for their meat purchase.

Question 66

Marginal utility tends to increase as total utility increases.

Question 67

The market demand curve for all consumers is derived by adding horizontally the separate demand curves of each consumer.

Question 68

Marginal utility tends to rise as total utility increases.

Question 69

If a merchant could charge a price for a good which reflected the marginal utilities of each unit sold, then consumer surplus for that good would not be enjoyed by the consumers.

Question 70

In an economically efficient society, pure water should sell for more than diamonds.

Question 71

Billy is consuming pancakes for breakfast.He gets 10 utils from the first one he eats, 8 from the second, 2 from the third, and -1 from the fourth.His total utility is 19.

Question 72

The gap between total utility and total market value benefits the buyer, for she receives more utility than she pays for.

Question 73

Consumer surplus is always strictly greater than zero, even when demand is perfectly elastic.

Question 74

The theory of "consumer surplus" really says that when goods are exchanged between seller and buyer, the buyer gains at the expense of the seller.