Question 1

If consumption of a good generates a marginal utility of zero, then consumption of an additionalunit would mean that total utility would
A) not change.
B) also be zero.
C) be negative.
D) be increasing.
E) be decreasing.

Accepted Answer

If the marginal utility of consuming an additional unit is zero, it means that the consumer is already consuming the optimal amount of the good. Therefore, adding an additional unit would not increase or decrease the total utility, resulting in no change.

Question 2

Suppose a consumer can purchase only two goods, soap and apples. If the price of soap falls andthe consumption of apples increases, we can conclude that the increased consumption of apples isdue to
A) the income effect only.
B) both the income effect and the substitution effect.
C) the deflation effect.
D) neither the income effect nor the substitution effect.
E) the substitution effect only.

Accepted Answer

A

Question 3

The condition required for a consumer to be maximizing utility, for any pair of products, X and Y,is
A) MUX/PY = MUY/PX.
B) MUX = MUY.
C) PX = PY.
D) PX(MUX) = PY(MUY).
E) MUX/PX = MUY/PY.

Accepted Answer

The condition required for a consumer to be maximizing utility is that the marginal utility per dollar spent on each product is equal. This is represented by the equation MUX/PX = MUY/PY. Therefore, the correct choice is E.

Question 4

The substitution effect is
A) the change in quantity demanded that occurs when one good is substituted for another.
B) the change in the relative prices of two or more goods.
C) the change in quantity demanded that occurs as a result of a change in absolute prices, with real income held constant.
D) the change in quantity demanded that occurs as a result of a change in relative prices with real income held constant.
E) the change in quantity demanded that occurs as a result of a change in relative prices with money income held constant.

Accepted Answer

The substitution effect is the change in quantity demanded that occurs as a result of a change in relative prices with real income held constant. This means that if the price of one good increases relative to another, consumers will substitute the cheaper good for the more expensive one. The substitution effect assumes that the consumer's money income stays the same while the prices of the goods change.

Question 5

In indifference curve analysis, a point to the left of the consumer's budget line
A) implies that the household is not spending all of its income on the goods in question.
B) implies the household is paying below-market prices for the goods in question.
C) implies the household is paying above-market prices for the goods in question.
D) shows a combination of goods that are beyond the income of the household.
E) indicates consumption spending beyond current income.

Accepted Answer

Points to the left of the budget line represent combinations of goods that the consumer cannot afford with their current income. This means that they are not spending all of their income on the goods in question, as some of it is being saved or spent on other goods.

Question 6

Christine is allocating her household expenditure between cleaning services and gardening services in order to maximize the household's total utility. For the quantities of cleaning and gardening services she has chosen, an increase in the price of cleaning service will, ceteris paribus,
A) increase the marginal utility of a unit of cleaning service.
B) increase the marginal utility per dollar spent on cleaning service.
C) have no effect on the marginal utility per dollar spent on cleaning service.
D) reduce the marginal utility of a unit of cleaning service.
E) reduce the marginal utility per dollar spent on cleaning service.

Accepted Answer

The answer of Christine is allocating her household expenditure between...

Question 7

Since there is a relatively plentiful supply of water in Canada (this is not true in many parts of the world), the consumption of water in Canada
A) takes place at a relatively high marginal value.
B) takes place at a relatively low marginal value.
C) should be regulated by the government.
D) takes priority over all other goods.
E) should be unlimited at a price of $0.

Accepted Answer

Since there is a relatively plentiful supply of water in Canada, the marginal value or the additional benefit received from consuming an additional unit of water is relatively low compared to other countries where water is scarce. Therefore, the consumption of water in Canada takes place at a relatively low marginal value.

Question 8

If the price of a normal good changes, the income effect of the price change will
A) produce a positively sloped demand curve.
B) reinforce the substitution effect.
C) always be to increase quantity demanded.
D) oppose the substitution effect.
E) always be larger than the substitution effect.

Accepted Answer

The answer of If the price of a normal good...

Question 9

If John consumes only two goods, A and B, and he is maximizing his utility subject to his budgetconstraint,
A) MUA/MUB equals the ratio of the price of A to the price of B.
B) MUA/MUB equals 1.
C) MUA/MUB equals the ratio of the total utility of A to the total utility of B.
D) MUA/MUB is at a maximum.
E) MUA/MUB equals zero.

Accepted Answer

When a consumer is maximizing utility subject to a budget constraint, the ratio of the marginal utilities of the two goods consumed must equal the ratio of their prices. Therefore, MUA/MUB equals the ratio of the price of A to the price of B (option A). This is known as the marginal rate of substitution (MRS) and represents the rate at which the consumer is willing to substitute one good for another while maintaining the same level of utility.

Question 10

In indifference curve analysis, the consumer's utility-maximizing point is where
A) the consumer's marginal utility curve is tangent to the relevant budget line.
B) the indifference curve farthest from the origin intersects with the budget line that is farthest from the origin.
C) each indifference curve has the same slope as the relevant budget line.
D) the price-consumption line is tangent to the budget line.
E) one indifference curve is tangent to the relevant budget line.

Accepted Answer

The answer of In indifference curve analysis, the consumer's utility-maximizing...

Question 11

The real purchasing power of an individual will NOT be affected if
A) money income doubles and the prices of all goods and services are cut in half.
B) money income is cut in half and prices of all goods and services remain constant.
C) money income is cut in half and the prices of all goods and services fall by fifty percent.
D) money income doubles and the prices of all goods and services remain constant.
E) money income falls and the price of one good falls.

Accepted Answer

The answer of The real purchasing power of an individual...

Question 12

The paradox in "the paradox of value" refers to the
A) confusion between supply curves and demand curves.
B) fact that goods with high total values command high prices.
C) fact that goods with low total values command low prices.
D) situation where a good with a low total value can command a high price, while a good with a high total value can command a low price.
E) situation where a good that is necessary to sustain life is "more valuable" than a decorative, luxury item.

Accepted Answer

The paradox of value refers to the situation where a good with a low total value can command a high price, while a good with a high total value can command a low price. This is a paradox because it challenges the traditional economic theory that prices are determined solely by supply and demand.

Question 13

Choose the one alternative that best completes the statement or answers the question.  FIGURE 6-8
-Refer to Table 6-1. If the prices of toffee bars and bags of cashews are both $1 and this consumerhas $11 per week to spend on snacks, how many of each will he/she purchase?
A) 4 toffee bars and 7 bags of cashews.
B) 5 toffee bars and 5 bags of cashews.
C) 6 toffee bars and 5 bags of cashews.
D) 5 toffee bars and 6 bags of cashews.
E) 3 toffee bars and 8 bags of cashews.

Accepted Answer

The total cost of one toffee bar and one bag of cashews is $2. Therefore, with $11 to spend, the consumer can purchase a maximum of 5 sets of the two snacks. Therefore, the consumer can purchase 5 toffee bars and 5 bags of cashews, which adds up to a total cost of $10. This leaves $1 leftover, which is not enough to purchase another set of snacks. Therefore, the answer is D, 5 toffee bars and 6 bags of cashews would exceed the budget.

Question 14

The substitution effect of a price change
A) outweighs the income effect for Giffen goods.
B) is equal to the income effect for normal goods.
C) is equal to the income effect for inferior goods.
D) will result in the consumer buying less of a good at a lower price.
E) will result in the consumer buying less of a good at a higher price.

Accepted Answer

The answer of The substitution effect of a price change
A)...

Question 15

The income effect refers to the change in quantity demanded that occurs as a result of a change in
A) real income, with relative prices held constant.
B) preferences, with real income held constant.
C) marginal utility, with real income held constant.
D) money income, with relative prices held constant.
E) relative prices, with real income held constant.

Accepted Answer

The income effect is the change in quantity demanded of a good or service resulting from a change in real income, with relative prices held constant. This means that when a person's income increases, their purchasing power increases, and they can afford to buy more of the same good or service at the same price. On the other hand, when a person's income decreases, their purchasing power decreases, and they can afford to buy less of the same good or service at the same price. This is the income effect.

Question 16

The idea that the utility a consumer derives from successive units of a good diminishes as totalconsumption of the good increases is known as
A) diminishing marginal utility.
B) the paradox of value.
C) the utility theory of demand.
D) diminishing total utility.
E) utility maximization.

Accepted Answer

Diminishing marginal utility is the concept that as a consumer consumes more units of a good or service, the satisfaction or utility they obtain from each additional unit decreases. This idea helps explain why demand curves slope downward and why consumers are willing to pay more for the first unit of a good than for subsequent units.

Question 17

Choose the one alternative that best completes the statement or answers the question.  FIGURE 6-8
-Refer to Figure 6-8. In part (ii), the line joining points X, Y, and Z is known asshows how _.
A) an indifference map; the value of various combinations of two goods changes.
B) an income-consumption line; consumption changes with changing relative prices and constant income
C) a price-consumption line; consumption changes as relative prices change, with money income constant
D) an income-consumption line; consumption changes as income changes, with relative prices held constant
E) a price-consumption line; consumption changes as money income and relative prices change

Accepted Answer

The line joining points X, Y, and Z in Figure 6-8 is a price-consumption line. This is because it shows how consumption changes as relative prices change, with money income held constant. The slope of the line represents the relative price of the two goods, and points on the line represents combinations of the two goods that have the same total expenditure at the given income level.

Question 18

Utility
A) can be measured with the appropriate equipment.
B) is not real as we cannot measure it directly.
C) is very difficult to observe empirically.
D) is an objective measure of a good's value.
E) measures the common value of a good, independent of the individual.

Accepted Answer

The answer of Utility
A) can be measured with the appropriate...

Question 19

If the income effect is negative and larger in absolute terms than the substitution effect, then thedemand curve will be
A) vertical.
B) horizontal.
C) upward sloping.
D) downward sloping.
E) of indeterminate slope.

Accepted Answer

The answer of If the income effect is negative and...

Question 20

A consumer maximizes his or her utility when expenditures are allocated such that
A) the utility received per dollar spent on the last unit of each good is equal.
B) the total number of dollars spent on each good is equal.
C) the utility received from the last unit of each good is equal.
D) the marginal utility is zero for each good consumed utility.
E) the total utility from each good is equal.

Accepted Answer

The answer of A consumer maximizes his or her utility...

Quiz 6: Consumer Behaviour

If consumption of a good generates a marginal utility of zero, then consumption of an additionalunit would mean that total utility would

Suppose a consumer can purchase only two goods, soap and apples. If the price of soap falls andthe consumption of apples increases, we can conclude that the increased consumption of apples isdue to

The condition required for a consumer to be maximizing utility, for any pair of products, X and Y,is

The substitution effect is

In indifference curve analysis, a point to the left of the consumer's budget line

Christine is allocating her household expenditure between cleaning services and gardening services in order to maximize the household's total utility. For the quantities of cleaning and gardening services she has chosen, an increase in the price of cleaning service will, ceteris paribus,

Since there is a relatively plentiful supply of water in Canada (this is not true in many parts of the world) , the consumption of water in Canada

If the price of a normal good changes, the income effect of the price change will

If John consumes only two goods, A and B, and he is maximizing his utility subject to his budgetconstraint,

In indifference curve analysis, the consumer's utility-maximizing point is where

The real purchasing power of an individual will NOT be affected if

The paradox in "the paradox of value" refers to the

Choose the one alternative that best completes the statement or answers the question. FIGURE 6-8 -Refer to Table 6-1. If the prices of toffee bars and bags of cashews are both $1 and this consumerhas $11 per week to spend on snacks, how many of each will he/she purchase?

The substitution effect of a price change

The income effect refers to the change in quantity demanded that occurs as a result of a change in

The idea that the utility a consumer derives from successive units of a good diminishes as totalconsumption of the good increases is known as

Choose the one alternative that best completes the statement or answers the question. FIGURE 6-8 -Refer to Figure 6-8. In part (ii) , the line joining points X, Y, and Z is known asshows how _.

Utility

If the income effect is negative and larger in absolute terms than the substitution effect, then thedemand curve will be

A consumer maximizes his or her utility when expenditures are allocated such that