Deck 7: Utility Maximization

Question 1

The ability of a good or service to satisfy wants is called:

A) utility maximization.
B) opportunity cost.
C) revenue potential.
D) utility.

Answer 1

utility.

Question 2

Mary says,"You would have to pay me $50 to attend that pro wrestling event." For Mary,the marginal utility of the event is:

A) zero.
B) positive,but declines rapidly.
C) negative.
D) positive,but less than the ticket price.

Answer 2

negative.

Question 3

Suppose that MU_x/P_x exceeds MU_y/P_y.To maximize utility,the consumer who is spending all her money income should buy:

A) less of X only if its price rises.
B) more of Y only if its price rises.
C) more of Y and less of X.
D) more of X and less of Y.

Answer 3

more of X and less of Y.

Question 4

Answer the question on the basis of the following two schedules,which show the amounts of additional satisfaction (marginal utility)that a consumer would get from successive quantities of products J and K. $\begin{array}{c}\begin{array}{ccc}Unit&&\\\text { of } J & & M U_{j} \\\hline1 & & 56 \\2 & & 48 \\3 & & 32 \\4 & & 24 \\5 & & 20 \\6 & & 16 \\7 & & 12\end{array}\begin{array}{ccc}Unit&&\\\text { of } K & & M U_{k} \\\hline1 & & 32 \\2 & & 28\\3 & & 24\\4 & & 20\\5 & & 12\\6 & & 10\\7 & & 8\end{array}\end{array}$ Refer to the data.If the consumer has money income of $52 and the prices of J and K are $8 and $4 respectively,the consumer will maximize her utility by purchasing:

A) 2 units of J and 7 units of K.
B) 5 units of J and 5 units of K.
C) 4 units of J and 5 units of K.
D) 6 units of J and 3 units of K.

Question 5

While eating at Alex's "Pizza by the Slice" restaurant,Kara experiences diminishing marginal utility.She gained 10 units of satisfaction from her first slice of pizza consumed and would only receive 5 units of satisfaction from consuming a second slice,at the same price.Based on this information we can conclude that:

A) Alex may have to lower the price to convince Kara to buy a second slice.
B) Kara will not eat a second slice,even if it is given to her at no charge.
C) Kara will definitely want to buy a second slice of pizza.
D) even if Kara buys a second slice,she will not buy a third slice.

Question 6

The law of diminishing marginal utility explains why:

A) supply curves slope upward.
B) demand curves slope downward.
C) addicts can never get enough.
D) people will only consume their favorite goods and not try new things.

Question 7

A product has utility if it:

A) takes more and more resources to produce successive units of it.
B) violates the law of demand.
C) satisfies consumer wants.
D) is useful.

Question 8

Marginal utility can be:

A) positive,but not negative.
B) positive or negative,but not zero.
C) positive,negative,or zero.
D) decreasing,but not negative.

Question 9

Which of the following is correct?

A) There is no firm mathematical relationship between marginal utility and total utility.
B) Total utility is equal to the change in marginal utility from consuming an additional unit of a product.
C) If marginal utility is diminishing and is a positive amount,total utility will increase.
D) If marginal utility is diminishing,total utility must also be diminishing.

Question 10

Utility refers to the:

A) satisfaction that a consumer derives from a good or service.
B) rate of decline in a product demand curve.
C) relative scarcity of a product.
D) usefulness of a product.

Question 11

Mrs.Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils.The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively.It can be concluded that:

A) the two commodities are substitute goods.
B) Mrs.Arnold should spend more on pretzels and less on soda.
C) Mrs.Arnold should spend more on soda and less on pretzels.
D) Mrs.Arnold is buying soda and pretzels in the utility-maximizing amounts.

Question 12

Marginal utility is the:

A) sensitivity of consumer purchases of a good to changes in the price of that good.
B) change in total utility obtained by consuming one more unit of a good.
C) change in total utility obtained by consuming another unit of a good divided by the change in the price of that good.
D) total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.

Question 13

The law of diminishing marginal utility states that:

A) total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed.
B) beyond some point,additional units of a product will yield less and less extra satisfaction to a consumer.
C) price must be lowered to induce firms to supply more of a product.
D) it will take larger and larger amounts of resources beyond some point to produce successive units of a product.

Question 14

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility.His total utility from three Pepsis is 38 units of utility.The marginal utility of the third Pepsi is:

A) 26 units of utility.
B) 6 units of utility.
C) 8 units of utility.
D) 38 units of utility.

Question 15

The utility of a good or service:

A) is synonymous with usefulness.
B) is the satisfaction or pleasure one gets from consuming it.
C) is easy to quantify.
D) rarely varies from person to person.

Question 16

To maximize utility,a consumer should allocate money income so that the:

A) elasticity of demand on all products purchased is the same.
B) marginal utility obtained from the last dollar spent on each product is the same.
C) total utility derived from each product consumed is the same.
D) marginal utility of the last unit of each product consumed is the same.

Question 17

The theory of consumer behavior assumes that:

A) consumers behave rationally,attempting to maximize their satisfaction.
B) consumers have unlimited money incomes.
C) consumers do not know how much marginal utility they obtain from successive units of various products.
D) marginal utility is constant.

Question 18

Total utility may be determined by:

A) multiplying the marginal utility of the last unit consumed by the number of units consumed.
B) summing the marginal utilities of each unit consumed.
C) multiplying the marginal utility of the last unit consumed by product price.
D) multiplying the marginal utility of the first unit consumed by the number of units consumed.

Question 19

If the price of product X rises,then the resulting decline in the amount purchased will:

A) necessarily increase the consumer's total utility from his total purchases.
B) increase the marginal utility of the last unit consumed of this good.
C) increase the total utility from purchases of this good.
D) reduce the marginal utility of the last unit consumed of this good.

Question 20

Where total utility is at a maximum,marginal utility is:

A) negative.
B) positive and increasing.
C) zero.
D) positive but decreasing.

Question 21

Answer the question on the basis of the following marginal utility data for products X and Y.Assume that the prices of X and Y are $4 and $2 respectively and that the consumer's income is $18. $\begin{array}{c}\begin{array}{c}\text {Units}\\\underline{\text {of X }}\\1\\2\\3\\4\\5\\6\end{array}\begin{array}{c}\text {Marginal}\\\underline{\text {Utility, X}}\\20\\16\\12\\8\\6\\4\end{array}\begin{array}{c}\text {Units}\\\underline{\text {of Y }}\\1\\2\\3\\4\\5\\6\end{array}\begin{array}{c}\text {Marginal}\\\underline{\text {Utility, Y}}\\16\\14\\12\\10\\8\\6\end{array}\end{array}$
Refer to the data.What quantities of X and Y should be purchased to maximize utility?

A) 2 of X and 1 of Y
B) 4 of X and 5 of Y
C) 2 of X and 5 of Y
D) 2 of X and 6 of Y

Question 22

Answer the question on the basis of the following total utility data for products L and M.Assume that the prices of L and M are $3 and $4 respectively and that the consumer's income is $18. $\begin{array}{l}\begin{array}{ccc}\text { Units}&\text{ Total }\\\text { of L } & \text { Utility } \\\hline1 & 9 \\2 & 15 \\3 & 18 \\4 & 20 \\5 & 21\end{array}\begin{array}{ccc}\begin{array}{c}\text { Units } \\\text { of M }\\\hline\end{array} & \begin{array}{c}\text { Total } \\\text { Utility }\\\hline\end{array} \\1 & 16 \\2 & 28 \\3 & 36 \\4 & 40 \\5 & 42\end{array}\end{array}$ Refer to the data.What level of total utility does the rational consumer realize in equilibrium?

A) 87 utils.
B) 104 utils.
C) 51 utils.
D) 58 utils.

Question 23

If MU_a/P_a = 100/$35 = MU_b/P_b = 300/? = MU_c/P_c = 400/?,the prices of products B and C in consumer equilibrium:

A) cannot be determined from the information given.
B) are $105 and $140 respectively.
C) are $105 and $175 respectively.
D) are $100 and $200 respectively.

Question 24

Suppose you have a limited money income and you are purchasing products A and B,whose prices happen to be the same.To maximize your utility,you should purchase A and B in such amounts that:

A) their marginal utilities are the same.
B) their total utilities are the same.
C) their marginal and total utilities are proportionate.
D) the income and substitution effects associated with each are equal.

Question 25

Diminishing marginal utility explains why:

A) the income effect exceeds the substitution effect.
B) the substitution effect exceeds the income effect.
C) supply curves are upsloping.
D) demand curves are downsloping.

Question 26

Answer the question on the basis of the following marginal utility data for products X and Y.Assume that the prices of X and Y are $4 and $2 respectively and that the consumer's income is $18. $\begin{array}{c}\begin{array}{c}\text {Units}\\\underline{\text {of X }}\\1\\2\\3\\4\\5\\6\end{array}\begin{array}{c}\text {Marginal}\\\underline{\text {Utility, X}}\\20\\16\\12\\8\\6\\4\end{array}\begin{array}{c}\text {Units}\\\underline{\text {of Y }}\\1\\2\\3\\4\\5\\6\end{array}\begin{array}{c}\text {Marginal}\\\underline{\text {Utility, Y}}\\16\\14\\12\\10\\8\\6\end{array}\end{array}$
Refer to the data.If the price of X decreases to $2,then the utility-maximizing combination of the two products is:

A) 2 of X and 5 of Y.
B) 4 of X and 6 of Y.
C) 6 of X and 3 of Y.
D) 4 of X and 5 of Y.

Question 27

Assume MU_c and MU_d represent the marginal utility that a consumer gets from products C and D,the respective prices of which are P_c and P_d.The consumer will increase his total utility from a specific money outlay by spending more on C and less on D if initially:

A)
$$\mathrm { MU } _ { d } < \mathrm { MU } _ { c }$$
B)
$$\frac { \mathrm { MU } _ { c } } { P _ { c } } < \frac { \mathrm { MU } _ { d } } { P _ { c } }$$
C)
$$\frac { \mathrm { MU } _ { c } } { P _ { c } } > \frac { \mathrm { MU } _ { d } } { P _ { d } }$$
D)
$$\mathrm { MU } _ { d } > \mathrm { MU } _ { c }$$

Question 28

A consumer is maximizing her utility with a particular money income when:

A) the total utility derived from each product consumed is the same.
B) MU_a/P_a = MU_b/P_b = MU_c/P_c = ...= MU_n/P_n.
C) MU_a = MU_b = MU_c = ...= MU_n.
D) P_a = P_b = P_c = ...= P_n.

Question 29

When a consumer shifts purchases from product X to product Y,the marginal utility of:

A) X falls and the marginal utility of Y rises.
B) X rises and the marginal utility of Y falls.
C) both X and Y rises.
D) both X and Y falls.

Question 30

If a rational consumer is in equilibrium,which of the following conditions will hold true?

A) MU_a = MU_b = MU_c = ...= MU_n.
B) The marginal utility of each good purchased will be zero.
C) The marginal utility of the last dollar spent on each good purchased will be the same.
D) The total utility obtained from each good purchased will be the same.

Question 31

The marginal utility of the last unit of apples consumed is 12 and the marginal utility of the last unit of bananas consumed is 8.What set of prices for apples and bananas,respectively,would be consistent with consumer equilibrium?

A) $4 and $6
B) $6 and $4
C) $8 and $12
D) $16 and $9

Question 32

Answer the question on the basis of the following marginal utility data for products X and Y.Assume that the prices of X and Y are $4 and $2 respectively and that the consumer's income is $18. $\begin{array}{c}\begin{array}{c}\text {Units}\\\underline{\text {of X }}\\1\\2\\3\\4\\5\\6\end{array}\begin{array}{c}\text {Marginal}\\\underline{\text {Utility, X}}\\20\\16\\12\\8\\6\\4\end{array}\begin{array}{c}\text {Units}\\\underline{\text {of Y }}\\1\\2\\3\\4\\5\\6\end{array}\begin{array}{c}\text {Marginal}\\\underline{\text {Utility, Y}}\\16\\14\\12\\10\\8\\6\end{array}\end{array}$
Refer to the data.What level of total utility will the utility-maximizing consumer realize?

A) 96 utils.
B) 108 utils.
C) 72 utils.
D) 142 utils.

Question 33

Answer the question on the basis of the following two schedules,which show the amounts of additional satisfaction (marginal utility)that a consumer would get from successive quantities of products J and K. $\begin{array}{c}\begin{array}{ccc}Unit&&\\\text { of } J & & M U_{j} \\\hline1 & & 56 \\2 & & 48 \\3 & & 32 \\4 & & 24 \\5 & & 20 \\6 & & 16 \\7 & & 12\end{array}\begin{array}{ccc}Unit&&\\\text { of } K & & M U_{k} \\\hline1 & & 32 \\2 & & 28\\3 & & 24\\4 & & 20\\5 & & 12\\6 & & 10\\7 & & 8\end{array}\end{array}$ Refer to the data.If the consumer's money income were cut from $52 to $28,and the prices of J and K remain at $8 and $4 respectively,she would maximize her satisfaction by purchasing:

A) 3 units of J and 3 units of K.
B) 1 unit of J and 3 units of K.
C) 4 units of J and 1 unit of K.
D) 2 units of J and 3 units of K.

Question 34

The theory of consumer behavior assumes that consumers attempt to maximize:

A) the difference between total and marginal utility.
B) total utility.
C) average utility.
D) marginal utility.

Question 35

What do the income effect,the substitution effect,and diminishing marginal utility have in common?

A) All are required to explain the utility-maximizing position of a consumer.
B) They are all empirically measurable.
C) They all help explain the upsloping supply curve.
D) They all help explain the downsloping demand curve.

Question 36

A consumer who has a limited budget will maximize utility or satisfaction when the:

A) ratios of the marginal utility of each product purchased divided by its price are equal.
B) total utility derived from each product purchased is the same.
C) marginal utility of each product purchased is the same.
D) price of each product purchased is the same.

Question 37

Answer the question on the basis of the following total utility data for products L and M.Assume that the prices of L and M are $3 and $4 respectively and that the consumer's income is $18. $\begin{array}{l}\begin{array}{ccc}\text { Units}&\text{ Total }\\\text { of L } & \text { Utility } \\\hline1 & 9 \\2 & 15 \\3 & 18 \\4 & 20 \\5 & 21\end{array}\begin{array}{ccc}\begin{array}{c}\text { Units } \\\text { of M }\\\hline\end{array} & \begin{array}{c}\text { Total } \\\text { Utility }\\\hline\end{array} \\1 & 16 \\2 & 28 \\3 & 36 \\4 & 40 \\5 & 42\end{array}\end{array}$ Refer to the data.How many units of the two products will the rational consumer purchase?

A) 3 of L and none of M
B) 4 of L and 2 of M
C) 3 of L and 5 of M
D) 2 of L and 3 of M

Question 38

Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play.We can conclude that Prashanth:

A) is relatively unappreciative of the arts.
B) obtains more marginal utility from the play than from the hockey game.
C) has a higher "marginal utility-to-price ratio" for the hockey game than for the play.
D) has recently attended several other Broadway plays.

Question 39

A consumer's demand curve for a product is downsloping because:

A) total utility falls below marginal utility as more of a product is consumed.
B) marginal utility diminishes as more of a product is consumed.
C) time becomes less valuable as more of a product is consumed.
D) the income and substitution effects precisely offset each other.

Question 40

Answer the question on the basis of the following two schedules,which show the amounts of additional satisfaction (marginal utility)that a consumer would get from successive quantities of products J and K. $\begin{array}{c}\begin{array}{ccc}Unit&&\\\text { of } J & & M U_{j} \\\hline1 & & 56 \\2 & & 48 \\3 & & 32 \\4 & & 24 \\5 & & 20 \\6 & & 16 \\7 & & 12\end{array}\begin{array}{ccc}Unit&&\\\text { of } K & & M U_{k} \\\hline1 & & 32 \\2 & & 28\\3 & & 24\\4 & & 20\\5 & & 12\\6 & & 10\\7 & & 8\end{array}\end{array}$ Refer to the data.What level of total utility is realized from the equilibrium combination of J and K,if the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively?

A) 156 utils
B) 124 utils
C) 276 utils
D) 36 utils

Question 41

The fact that most medical care purchases are financed through insurance:

A) has no effect on health care consumption because aggregate costs are the same regardless of payment method.
B) reduces the amount of health care consumed by raising the price of additional units of care.
C) has decreased health care costs and therefore reduced aggregate health care expenditures.
D) increases the amount of health care consumed by reducing the price of additional units of care.

Question 42

The diamond-water paradox occurs because:

A) the price of a product is related to its total utility,not its marginal utility.
B) the price of a product is related to its marginal utility,not its total utility.
C) water is,in fact,very scarce in certain regions of the world.
D) diamonds are more useful than water.

Question 43

Answer the question on the basis of the following marginal utility data for products X and Y.Assume that the prices of X and Y are $4 and $2 respectively and that the consumer's income is $18. $\begin{array}{c}\begin{array}{c}\text {Units}\\\underline{\text {of X }}\\1\\2\\3\\4\\5\\6\end{array}\begin{array}{c}\text {Marginal}\\\underline{\text {Utility, X}}\\20\\16\\12\\8\\6\\4\end{array}\begin{array}{c}\text {Units}\\\underline{\text {of Y }}\\1\\2\\3\\4\\5\\6\end{array}\begin{array}{c}\text {Marginal}\\\underline{\text {Utility, Y}}\\16\\14\\12\\10\\8\\6\end{array}\end{array}$
Refer to the data.Which of the following represents the demand schedule for X?

A)
$\underline{P} \quad\quad$$\underline{Q_{d}}$
$\$ 4 \quad\quad2$
2 $\quad\quad 5$ .
B)
$\underline{P} \quad\quad$$\underline{Q_{d}}$
$\$ 4 \quad\quad2$
2 $\quad\quad 5$
C)
$\underline{P} \quad\quad$$\underline{Q_{d}}$
$\$ 4 \quad\quad3$
2 $\quad\quad 6$
D)
$\underline{P} \quad\quad$$\underline{Q_{d}}$
$\$ 4 \quad\quad3$
2 $\quad\quad 5$ .

Question 44

If you receive a gift whose market price is $20,but you consider it to be worth only $10,then:

A) there is a $10 or 50 percent value gain.
B) there may or may not be a value loss.
C) there is a $10 or 50 percent value loss.
D) you can be relatively certain the giver was a sibling or other close relative.

Question 45

The diamond-water paradox arises because:

A) essential goods may be cheap while nonessential goods may be expensive.
B) the marginal utility of certain products increases,rather than diminishes.
C) essential goods are always higher priced than nonessential goods.
D) we sometimes fail to use money as a standard of value.

Question 46

Which of the following has been a significant factor in the ability of iPads to compete effectively against laptop and desktop computers?

A) iPads are often superior to laptop and desktop computers in their ability to create content.
B) A scarcity of production capacity has curtailed the manufacture of laptop and desktop computers.
C) Many consumers perceive that iPads are superior to laptops and desktop computers for the consumption of digital media.
D) The prices of laptops and desktop computers have increased dramatically.

Question 47

Susie buys two goods: rounds of golf and massages.Suppose that the price of a round of golf is $20 and the price of a massage is $30.In a typical week,Susie will play two rounds of golf,getting 20 units of satisfaction from the second round.She normally buys three massages each week,with the third giving her 30 units of satisfaction.If she were to buy a fourth massage in a week,it would give her 20 units of satisfaction.If the price of massages is reduced to $15,which of the following outcomes might we expect to occur?

A) Susie would leave her consumption choices unchanged because of diminishing marginal utility in the consumption of massages.
B) Susie would buy more massages and fewer rounds of golf,as predicted by the income effect.
C) Susie would buy more massages and more rounds of golf,as predicted by the substitution effect.
D) Susie would buy more massages and fewer rounds of golf,as predicted by the substitution effect.

Question 48

According to economists,gift registries,returning gifts for cash refunds,and "recycling gifts":

A) are inefficient because the time spent in these activities is never worth the benefit recipients receive from doing them.
B) are equally efficient because the recipient gets exactly what he wants.
C) are more efficient than if givers simply gave cash gifts.
D) increase the efficiency of gift-giving because they allow the recipient to consume goods that provide greater utility and transfer away those goods that are less satisfying.

Question 49

(Last Word)Theft and burglary:

A) can be viewed as attempts to maximize utility,given certain marginal costs and marginal benefits.
B) are examples of irrational behavior.
C) are applications of the law of increasing opportunity cost.
D) are less economically rational than crimes of passion and violence.

Question 50

(Consider This)Unlike newspaper dispensing devices,soft drink dispensing machines do not permit people to take more than one can or bottle with each payment.The reason is that the:

A) opportunity cost of additional cans or bottles of a soft drink increase very rapidly.
B) marginal utility of extra soft drink cans or bottles declines slowly,particularly because they are storable and can be consumed later.
C) marginal utility of extra soft drink cans or bottles declines quite rapidly.
D) opportunity cost of additional cans or bottles of soft drink increases very slowly.

Question 51

(Last Word)Most people do not steal because:

A) stolen goods are subject to the law of diminishing marginal utility.
B) the marginal utilities of stolen goods are negative.
C) their marginal costs,including guilt costs,are too high.
D) stolen goods can only be sold at deep discounts.

Question 52

Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately?

A) Once the all-you-can-eat meal is purchased,consumers view additional trips back to the buffet as having a price of zero.
B) MU/P is consistently greater at all-you-can-eat restaurants.
C) People who eat at all-you-can-eat restaurants do not experience diminishing marginal utility.
D) Food at all-you-can-eat restaurants tends to have fewer calories,so consumers feel the need to consume a greater volume of food.

Question 53

Most economists contend that:

A) noncash gifts are more efficient than cash gifts.
B) noncash gifts are less efficient than cash gifts.
C) noncash and cash gifts are equally efficient.
D) government can assess consumer preferences better than can consumers themselves.

Question 54

(Consider This)Newspaper dispensing devices seemingly "trust" people to take only a single paper,but the devices actually rely on the law of:

A) supply.
B) increasing opportunity costs.
C) demand.
D) diminishing marginal utility.

Question 55

Which of the following statements is correct?

A) Both cash and noncash gift-giving cause value losses.
B) Neither cash nor noncash gift-giving causes value losses.
C) Noncash gift-giving creates a value loss,but cash gifts do not.
D) Cash gifts create a value loss,but noncash gifts do not.

Question 56

Noncash gifts:

A) increase the utility of recipients by introducing them to products they have not consumed before.
B) reduce recipient utility relative to a cash gift because noncash gifts often fail to match recipient preferences.
C) entail as much utility as do cash gifts.
D) increase the utility of recipients because many people are uncertain of their own preferences.

Question 57

How did Apple overcome consumers' diminishing marginal utility for iPads?

A) Apple lowered the price of iPads so that previous buyers would purchase another unit.
B) Apple introduced new features to entice previous buyers to purchase new models.
C) Apple ignored the problem and focused solely on attracting new buyers.
D) Apple was unable to overcome the problem and has faced steadily declining sales.

Question 58

"Essential" water is cheaper than "nonessential" diamonds because:

A) new industrial uses for diamonds have been discovered.
B) the supply of water is great relative to demand and the supply of diamonds is small relative to demand.
C) although the total utility of diamonds is greater,their marginal utility is small.
D) the supply of diamonds is great relative to demand and the supply of water is small relative to demand.

Question 59

Assume you are spending your full budget and purchasing such amounts of X and Y that the marginal utility from the last units consumed is 40 and 20 utils respectively.Assume (a)the prices of X and Y are $8 and $4 respectively; (b)it takes 3 hours to consume a unit of X and 1 hour to consume a unit of Y;and (c)your time is worth $2 per hour.You:

A) should substitute X for Y until the marginal utility per hour is the same for both products.
B) are consuming X and Y in the optimal amounts.
C) should consume less of Y and more of X.
D) should consume less of X and more of Y.

Question 60

In introducing the opportunity cost of time into the theory of consumer behavior,we find that,all else equal:

A) one should consume less of time-intensive goods.
B) one should consume more of time-intensive goods.
C) the consumer's equilibrium position is not altered.
D) the marginal utility derived from each product must be multiplied by consumption time in determining equilibrium.

Question 61

A rational consumer will cease purchasing a product at that quantity where marginal utility begins to diminish.

Question 62

When a consumer shifts purchases from X to Y,the marginal utility of X falls and the marginal utility of Y rises.

Question 63

Any combination of goods lying outside of the budget line:

A) implies that the consumer is not spending all his income.
B) yields less utility than any point on the budget line.
C) yields less utility than any point inside the budget line.
D) is unattainable,given the consumer's income.

Question 64

When total utility is at a maximum,marginal utility is zero.

Question 65

Which of the following statements is not correct?

A) A reduction in money income will shift the budget line to the right.
B) A reduction in money income accompanied by an increase in product prices will necessarily shift the budget line to the left.
C) An increase in product prices will shift the budget line to the left.
D) An increase in money income will shift the budget line to the right.

Question 66

The substitution effect suggests that when consumers judge product quality by price,they will substitute high-priced products for low-priced products.

Question 67

(Last Word)All of the following would reduce property crime by increasing its "price," except:

A) imposing greater penalties for those who are caught and convicted.
B) using more sophisticated security systems.
C) enhancing the legitimate earnings of potential criminals.
D) cutting out the middlemen ("fences")by selling stolen goods via Internet auction sites.

Question 68

A change in the slope of a budget line is solely the result of a change in:

A) consumer preferences.
B) the price of one good relative to the other.
C) money income.
D) the slope of the indifference curve that is tangent to the budget line.

Question 69

The consumer demand curve for a product is downsloping because marginal utility is constant when price declines.

Question 70

The income effect explains an exception to the law of demand.

Question 71

When a consumer is maximizing total utility,he or she cannot increase total utility by reallocating expenditures among different products.

Question 72

A budget line shows the:

A) alternative combinations of two goods that a consumer can purchase with a given money income.
B) alternative combinations of two goods that will yield the same level of total utility to a consumer.
C) quantities of a particular good that a consumer will buy at various prices.
D) ratio of money income to product price.

Question 73

Noncash gift-giving involves value loss when the marginal utility of the gift to the receiver is less than the product price.

Question 74

When the price of a product falls,the income effect induces the consumer to purchase more of it while the substitution effect prompts her to buy less.

Question 75

Marginal utility is total utility divided by the number of units consumed.

Question 76

The limited money income of consumers results in a so-called budget constraint.

Question 77

If money income increases and the prices of products A and B both increase,then the budget line:

A) must shift to the right.
B) must shift to the left.
C) may shift either to the right or the left,or not at all.
D) will no longer be tangent to an indifference curve.

Question 78

In moving along a given budget line:

A) the prices of both products and money income are assumed to be constant.
B) each point on the line will be equally satisfactory to consumers.
C) money income varies,but the prices of the two goods are constant.
D) the prices of both products are assumed to vary,but money income is constant.

Question 79

If marginal utility is diminishing,total utility must also be declining.

Question 80

Increases in product prices shift the consumer's:

A) budget line to the right.
B) budget line to the left.
C) indifference curves to the left.
D) indifference curves to the right.