Question 1

Sally likes Jim twice as much as she likes Bob. This is an example of
A) ordinal preferences.
B) cardinal preferences.
C) transitivity.
D) diminishing marginal utility.

Accepted Answer

The statement "Sally likes Jim twice as much as she likes Bob" implies that Sally has some form of quantitative (numerical) measure of her level of liking for Jim and Bob, indicating that she has cardinal preferences.

Question 2

Marginal utility is
A) the slope of the total utility function.
B) the slope of a ray from the origin to the total utility function.
C) always less than average utility.
D) always greater than average utility.

Accepted Answer

Marginal utility is the additional utility gained from consuming an additional unit of a good or service. It is measured by taking the derivative of the total utility function with respect to the quantity consumed, making it the slope of the total utility function. Therefore, choice A is the correct answer.

Question 3

If I prefer steak to burritos, burritos to pasta and pasta to steak:
A) My preferences are irrational.
B) My preferences violate the transitivity assumption.
C) My preferences violate the "more is better assumption.
D) I must have been exhibiting diminishing marginal utility.

Accepted Answer

This violates the transitivity assumption because if A is preferred to B and B is preferred to C, then A must be preferred to C. However, in this case, steak is preferred to burritos, burritos are preferred to pasta, but pasta is preferred to steak, which is a contradiction.

Question 4

If a consumer is unable to compare two baskets, then this consumer's preferences violate which of the following key assumptions?
A) Completeness.
B) Transitivity.
C) More is better.
D) Both completeness and transitivity.

Accepted Answer

Completeness is a key assumption that states a consumer can compare any two bundles and determine that one is preferred to the other, or that they are equally preferred. If a consumer cannot compare two baskets, it means their preferences do not satisfy the completeness assumption.

Question 5

Indifference curves that intersect are said to be:
A) Irrational.
B) Non-transitive.
C) Inconsistent with our basic assumptions about preferences.
D) Complete, but not consistent.

Accepted Answer

Indifference curves represent different levels of utility, and if they intersect, it violates the assumption that more is preferred to less, leading to inconsistency in preference ranking.

Question 6

Consider the following three market baskets. $\begin{array} { c c c } 
\hline \text { Basket } & \text { Good } x & \text { Good } y \
\hline \mathrm { A } & 2 & 8 \
\mathrm {~B} & 10 & 2 \
\mathrm { C } & 6 & 5 \
\hline
\end{array}$
 If Basket A and Basket B are on the same indifference curve, preferences satisfy the usual assumptions, and the indifference curves have a diminishing marginal rate of substitution,
A) Basket C is preferred to Basket A
B) Basket A is preferred to Basket C
C) The consumer is indifferent between Basket A and Basket C
D) There is not enough information to determine how the consumer would rank Basket A relative to Basket C.

Accepted Answer

Basket A and Basket B are on the same indifference curve, so the consumer is indifferent between them. Since the indifference curves have a diminishing marginal rate of substitution, the consumer must prefer Basket C to Basket A.

Question 7

Identify the truthfulness of the following statements. I. Ordinal utility gives us information about which basket the consumer prefers and quantitative information about the intensity of the preference.
II) Cardinal utility gives us information about which basket the consumer prefers but not about the intensity of those preferences.
A) Both I and II are true.
B) Both I and II are false.
C) I is true; II is false.
D) I is false; II is true.

Accepted Answer

Ordinal utility only ranks preferences without indicating intensity, while cardinal utility measures the intensity of preferences.

Question 8

The assumption that preferences are complete requires the consumer
A) to rank any two baskets.
B) to say that basket C is preferred to basket A if basket B is preferred to basket A and basket C is preferred to basket B.
C) to rank a basket with more units of all goods higher than a basket with fewer units of all goods.
D) to have a diminishing marginal rate of substitution.

Accepted Answer

The assumption that preferences are complete means that the consumer is able to rank any two baskets. Completeness does not necessarily require the consumer to have a diminishing marginal rate of substitution, nor does it require them to always rank a basket with more units of all goods higher than a basket with fewer units of all goods. The explanation for choice B describes transitivity, which is another assumption of consumer preferences.

Question 9

Assume that two baskets A and B  lie on the same indifference curve. Assume that basket A contains more of good B than basket B but less of good X than basket B . As the consumer moves down and to the right (from basket A to basket B ) along his indifference curve, total utility
A) increases.
B) remains constant.
C) decreases.
D) is ambiguous.

Accepted Answer

Since the two baskets lie on the same indifference curve, the consumer is indifferent between them, meaning they provide the same level of utility. As the consumer moves from basket A to basket B, they are getting less of good B but more of good X, which may offset the decrease in utility from less of good B, resulting in a constant level of total utility.

Question 10

Jacob's estimated utility from pizza is given by 3Z, where Z is the number of pizzas he consumes per month. We can say that:
A) Jacob likes pizza better than steak.
B) Jacob is a vegetarian.
C) Jacob's preferences are transitive.
D) Jacob's marginal utility from pizza is constant.

Accepted Answer

Jacob's estimated utility from pizza is linear with respect to the number of pizzas he consumes. This means that his marginal utility from each additional pizza is constant.

Question 11

The assumption that more is better requires the consumer
A) to rank any two baskets.
B) to say that basket C is preferred to basket
A if basket B is preferred to basket A and basket C is preferred to basket B .
C) to rank a basket with more units of all goods higher than a basket with fewer units of all goods.
D) to have a diminishing marginal rate of substitution.

Accepted Answer

The assumption that more is better implies that the consumer values quantity over other factors, such as variety or quality. Therefore, the consumer would rank a basket with more units of all goods higher than a basket with fewer units of all goods, which is choice C.

Question 12

The assumption that more is preferred to less:
A) is called transitivity.
B) implies that if basket A lies to the northeast of basket B, then basket A is preferred to basket B .
C) is called completeness.
D) implies that indifference curves are "thick".

Accepted Answer

The answer of The assumption that more is preferred to...

Question 13

John tends to order pizza once or twice a week to his college dorm room. When his parents come to visit, he always asks them to take him to the local steakhouse. Bob is probably suffering from:
A) Veganism
B) Transitivity.
C) Diminishing marginal utility from pizza consumption.
D) Completeness and transitivity.

Accepted Answer

Bob’s behavior indicates that he may have reached a point where he is experiencing diminishing marginal utility from the consumption of pizza. This means that he no longer derives as much satisfaction or pleasure from each additional pizza he consumes. However, he still seems to enjoy going out to eat at a steakhouse with his parents, which suggests that he still has some utility to gain from that particular dining experience. The other options (veganism, transitivity, completeness and transitivity) do not necessarily apply to this scenario.

Question 14

If a consumer would rather eat three bars of chocolate than four bars of chocolate, this consumer's preferences violate which of the following key assumptions?
A) Completeness.
B) Transitivity.
C) More is better.
D) Both completeness and transitivity.

Accepted Answer

The "more is better" assumption is violated because the consumer prefers less of a good (three bars of chocolate) over more of it (four bars of chocolate), which goes against the typical economic assumption that consumers will prefer more of a good to less, all else being equal.

Question 15

One adhesive having twice the adhesive power of another is an example of
A) Ordinal ranking.
B) Johnson's theory of adhesivity.
C) Cardinal ranking.
D) Transitivity.

Accepted Answer

The statement describes a quantitative relationship between the two adhesives – specifically, one has twice the adhesive power of the other. This indicates a cardinal ranking, which captures the magnitude of a relationship between variables. Ordinal ranking only captures the direction of a relationship (e.g. higher or lower), while Johnson's theory of adhesivity and transitivity are not relevant in this context.

Question 16

Consumer preferences:
A) are fixed exogenously and unchanging in reality.
B) indicate how a consumer would rank any two possible baskets of goods, taking into account her budget constraint.
C) indicate how a consumer would rank any two possible baskets of goods, taking into account the current prices of those goods.
D) indicate how a consumer would rank any two possible baskets of goods, assuming that the baskets were available to the consumer at no cost.

Accepted Answer

The answer of Consumer preferences:
A) are fixed exogenously and unchanging...

Question 17

Wendy is very indecisive. She can't decide whether she should go on a cruise or spend her vacation at her friend's home. Her preferences violate the assumption of:
A) Completeness.
B) Transitivity.
C) More is better.
D) Both completeness and transitivity.

Accepted Answer

The answer of Wendy is very indecisive. She can't decide...

Question 18

Assume that a consumer prefers watching Yu-Gi-Oh to watching Teen Titans, and that this same consumer prefers watching Teen Titans to watching Sponge Bob. Further assume that this same consumer states, "I would prefer to watch Sponge Bob to watching Yu-Gi-Oh." This consumer's preferences violate which of the following key assumptions?
A) Completeness.
B) Transitivity.
C) More is better.
D) Both completeness and transitivity.

Accepted Answer

The answer of Assume that a consumer prefers watching Yu-Gi-Oh...

Question 19

The assumption that preferences are transitive requires the consumer
A) to rank any two baskets.
B) to say that basket C is preferred to basket
A if basket B is preferred to basket A and basket C is preferred to basket B.
C) to rank a basket with more units of all goods higher than a basket with fewer units of all goods.
D) to have a diminishing marginal rate of substitution.

Accepted Answer

Transitivity requires that if A is preferred to B and B is preferred to C, then A must be preferred to C. This can be represented as A>B and B>C, implying A>C. If the consumer cannot rank any two baskets or does not follow this logic, then preferences cannot be considered transitive. Therefore, choice B is the best answer because it requires the consumer to rank baskets in a specific way that follows the logic of transitivity.

Question 20

Marginal utility
A) is the ratio of total utility to total consumption.
B) is the rate at which total utility changes as the level of consumption rises.
C) will always be equal to the product's price.
D) tells us nothing; we're only concerned with total utility.

Accepted Answer

Marginal utility is the additional satisfaction gained from consuming one more unit of a good. It is the rate at which total utility changes as consumption increases. Therefore, option B is the correct choice. Option A is incorrect because it refers to the ratio of two variables that are not necessarily related in that way. Option C is incorrect because marginal utility is not always equal to the price of a product. Option D is incorrect because marginal utility is important in understanding how consumption affects total utility.

Quiz 3: Consumer Preferences and the Concept of Utility

Sally likes Jim twice as much as she likes Bob. This is an example of

Marginal utility is

If I prefer steak to burritos, burritos to pasta and pasta to steak:

If a consumer is unable to compare two baskets, then this consumer's preferences violate which of the following key assumptions?

Indifference curves that intersect are said to be:

The assumption that preferences are complete requires the consumer

Assume that two baskets A and B lie on the same indifference curve. Assume that basket A contains more of good B than basket B but less of good X than basket B . As the consumer moves down and to the right (from basket A to basket B ) along his indifference curve, total utility

Jacob's estimated utility from pizza is given by 3Z, where Z is the number of pizzas he consumes per month. We can say that:

The assumption that more is better requires the consumer

The assumption that more is preferred to less:

John tends to order pizza once or twice a week to his college dorm room. When his parents come to visit, he always asks them to take him to the local steakhouse. Bob is probably suffering from:

If a consumer would rather eat three bars of chocolate than four bars of chocolate, this consumer's preferences violate which of the following key assumptions?

One adhesive having twice the adhesive power of another is an example of

Consumer preferences:

Wendy is very indecisive. She can't decide whether she should go on a cruise or spend her vacation at her friend's home. Her preferences violate the assumption of:

The assumption that preferences are transitive requires the consumer

Marginal utility