Test Bank for Microeconomics Principles and

Applications 6th Edition Hall Lieberman

1111822565 9781285119434

Download full test bank at:

https://testbankpack.com/p/test-bank-for-microeconomics-principles-and-ap-
plications-6th-edition-hall-lieberman-1111822565-9781285119434/
Download full solution manual at:
https://testbankpack.com/p/solution-manual-for-microeconomics-principles-
and-applications-6th-edition-hall-lieberman-1111822565-9781285119434/

CHAPTER 6—CONSUMER CHOICE

MULTIPLE CHOICE

1. The budget line is useful for illustrating the notion of opportunity cost.
a. True
b. False
ANS: A PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Knowledge

2. The ratio of the prices of two goods multiplied by -1 is equal to the slope of the budget line.
a. True
b. False
ANS: A PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Knowledge

3. A consumer's budget line shows

a. the utility that an individual would receive from consuming various combinations of two
goods
b. the combinations of two goods that an individual is able to purchase, given prices and
income
c. how income is influenced by prices of goods
d. how changes in income affect utility
e. the relationship between prices and income
ANS: B PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
 TOP: The Budget Constraint KEY: Bloom's: Knowledge

4. Budget constraints exist for consumers because

a. their utility from consuming goods eventually reaches a maximum level
b. even with unlimited incomes, they have to pay for each good they consume
c. they have to pay for goods and they have limited incomes
d. prices and income are inversely related
e. demand curves for goods generally slope downward
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

5. The intercept of a budget line measures the

a. amount of a good that a consumer will purchase
b. maximum amount of a good that a consumer could purchase, given his consumption of
some other good
c. maximum amount of a good that could be consumed at given prices and income
d. minimum amount of a good that could be consumed at given prices and income
e. minimum consumption of a good consistent with utility maximization
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

6. A family on a trip budgets $800 for sit-down restaurant meals and fast food. If the price of a fast food
meal for the family is $20, how many such meals can the family buy if they do not eat at restaurants?
a. 8
b. 15
c. 20
d. 40
e. 160
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Analysis

7. A family on a trip budgets $800 for sit-down restaurant meals and fast food. The family can buy 16
restaurant meals if they don't buy any fast food. What is the price of a restaurant meal for the family?
a. $5
b. $16
c. $20
d. $50
e. it is impossible to tell from the information given
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Analysis

8. A family on a trip budgets $800 for restaurant meals and fast food. The family can buy 16 restaurant
meals if they don't buy any fast food. What is the price of a fast-food meal for the family?
a. $5
b. $16
c. $20
d. $50
 e. it is impossible to tell from the information given
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Analysis

9. A family on a trip budgets $800 for restaurant meals and fast food. The price of a fast-food meal is $20
and the family can afford 16 restaurant meals if they don't buy any fast food. How many fast-food
meals would the family gain if they gave up one restaurant meal?
a. 1
b. 0.4
c. 2
d. 2.5
e. 5
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Analysis

10. If food is measured on the horizontal axis of a budget line diagram, and clothing is measured on the
vertical axis, the slope of the budget line
a. may be positive if the price of clothing is high enough
b. may be positive if the price of food is high enough
c. may be positive if income is large enough
d. equals the maximum consumption of food divided by the maximum consumption of
clothing times -1
e. equals the maximum consumption of clothing divided by the maximum consumption of
food times -1
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

11. If a consumer's budget line between meat and potatoes has a vertical axis intercept at 100 pounds of
meat and a horizontal axis intercept at 100 pounds of potatoes
a. demand must be inelastic
b. the consumer's budget must equal $100
c. both meat and potatoes must be priced at $1 per pound
d. the price of a pound of meat must equal the price of a pound of potatoes
e. the opportunity cost of meat in terms of potatoes cannot be determined
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

12. If the price of bread were zero, a budget line between bread (on the vertical axis) and cheese (on the
horizontal axis) would
a. not exist
b. be vertical
c. coincide with the vertical axis
d. be horizontal
e. coincide with the horizontal axis
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
 TOP: The Budget Constraint KEY: Bloom's: Comprehension

Figure 6-1
Income = $ 100
Price per Ticket = $20
Price per Compact Disk $ 10

Quantity of Quantity of
Concert Tickets Compact Disks
5 0
4 2
3 4
2 6
1 8
0 10

13. Joe spends all of his money on concert tickets and compact disks. Figure 6-1 shows his budget
constraint when his income is $100. The price of a ticket is $20, while the price of a compact disk is
$10. If Joe currently buys 3 tickets and would like to purchase a fourth, his opportunity cost would be
a. 1 compact disk
b. $20
c. $10
d. 2 compact disks
e. 4 compact disks
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Analysis

14. Joe spends all of his money on concert tickets and compact disks. Figure 6-1 shows his budget
constraint when his income is $100. The price of a ticket is $20, while the price of a compact disk is
$10. What is the opportunity cost of a compact disk?
a. 1/2 ticket
b. $20
c. $10
d. 1 ticket
e. 2 tickets
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Analysis

15. The slope of the budget line

a. is always -1
b. represents the opportunity cost of consuming one more unit of the good measured on the
horizontal axis
c. increases as more of one good is consumed
d. decreases as more of one good is consumed
e. is negative because of the law of demand
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension
16. The ratio of the price of the good on the horizontal axis divided by the price of the good on the vertical
axis multiplied by -1
a. is the slope of the demand curve
b. measures the price elasticity of demand for a particular good
c. defines real income for the consumer
d. is the slope of the budget line
e. is the slope of the indifference curve
ANS: D PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

17. Suppose that Trey spends all of his income on vacation trips and textbooks. If the price of a trip is
$200 and the price of a textbook is $50, then the slope of his budget line (assuming vacation trips are
measured on the vertical axis) would be
a. -4
b. 4
c. 0.25
d. -1.75
e. -0.25
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Analysis

18. If income doubles and the prices of all goods remain the same, the budget line will shift outward by 50
percent along each axis.
a. True
b. False
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Analysis

19. If income decreases, there will be a parallel inward shift of the budget line.
a. True
b. False
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

20. If income decreases, the budget constraint will shift in but the slope will remain the same.
a. True
b. False
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

21. An increase in the price of the good measured on the vertical axis of a budget line diagram will
a. cause a parallel outward shift of the budget line
b. leave the budget line unchanged
c. cause a parallel inward shift of the budget line
d. make the budget line flatter
 e. make the budget line steeper
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

22. An increase in the price of the good measured on the horizontal axis of a budget line diagram will
a. make the budget line flatter
b. make the budget line steeper
c. leave the budget line unchanged
d. cause a parallel inward shift of the budget line
e. cause a parallel outward shift of the budget line
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

23. Which panel in Figure 6-2 shows the effect of a decrease in the price of apples, other things constant?
a. panel a
b. panel b
c. panel c
d. panel d
e. panel e
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

24. Which panel in Figure 6-2 shows the effect of an increase in income, other things constant?
a. panel a
b. panel b
c. panel c
d. panel d
e. panel e
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

25. Which panel in Figure 6-2 shows the effect of an increase in the price of oranges, other things
constant?
 a. panel a
b. panel b
c. panel c
d. panel d
e. panel e
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

26. Which panel in Figure 6-2 shows the combined effects of an increase in the price of oranges and a
decrease in the price of apples?
a. panel a
b. panel b
c. panel c
d. panel d
e. none of these
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

27. If income and the prices of both goods all double, the budget line will
a. become flatter
b. become steeper
c. remain unchanged
d. experience a parallel outward shift
e. experience a parallel inward shift
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

28. If the price of good X (measured on the horizontal axis of a budget line diagram) increases at the same
time that the price of good Y (measured on the vertical axis) decreases, the budget line
a. will become flatter
b. will become steeper
c. could become either steeper or flatter, depending on the sizes of the price changes
d. will rotate about its original point of intersection with the horizontal axis
e. will shift outward, but not in a parallel fashion
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

29. If the price of good X (measured on the horizontal axis of a budget line diagram) increases at the same
time that the price of good Y (measured on the vertical axis) increases, the budget line
a. will necessarily become steeper
b. will necessarily become flatter
c. will remain unchanged
d. will shift outward in a parallel fashion
e. could become either steeper or flatter, depending on the sizes of the price changes
ANS: E PTS: 1 DIF: Difficulty: Challenging
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
 TOP: The Budget Constraint KEY: Bloom's: Comprehension

30. If food is measured on the horizontal axis of budget line diagram, and clothing is measured on the
vertical axis, an increase in
a. the price of clothing will make the budget line steeper
b. income will make the budget line steeper
c. income will make the budget line flatter
d. the price of food will make the budget line steeper
e. the price of food will make the budget line flatter
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

31. If food is measured on the horizontal axis of a budget line diagram, and clothing is measured on the
vertical axis, an increase in
a. the price of food will decrease the slope (e.g., -9 instead of -6) of the budget line
b. the price of food will increase the slope of the budget line
c. income will decrease the slope of the budget line
d. income will increase the slope of the budget line
e. the price of clothing will decrease the slope of the budget line
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

32. Imagine a budget line depicting a consumer's possible allocation of a given income between fruit and
vegetables. If the consumer's income increases at the same time the price of vegetables rises, the
budget line's intercept with the
a. fruit axis will be unaffected
b. fruit axis will move toward the origin
c. vegetable axis will be unaffected
d. fruit axis will move toward the origin
e. vegetable axis might remain unchanged, move toward the origin, or move away from the
origin
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

33. Roger spends all of his money on racquetballs and food. What would happen to Roger's budget line if
his income increased by 10 percent, holding prices constant?
a. It would shift inward.
b. It would rotate about the axis for food.
c. It would rotate about the axis for racquetballs.
d. Nothing would happen to the budget line, because the relative prices for food and
racquetballs have not changed.
e. It would shift outward.
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Analysis

Figure 6-3
Income = $ 200
 Price per Ticket = $40
Price per Compact Disk $ 20

Quantity of Quantity of
Concert Tickets Compact Disks
5 0
4 2
3 4
2 6
1 8
0 10

34. Joe spends all of his money on concert tickets and compact disks. Figure 6-3 shows his budget
constraint when his income is $200. The price of a ticket is $40, while the price of a compact disk is
$20. What would happen to Joe's budget line if his income increased to $300 and the prices of concert
tickets and compact disks each increased by 50 percent?
a. There would be no change in the budget line.
b. His budget line would shift upward by 50 percent.
c. His budget line would shift downward by 50 percent.
d. He could purchase 50 percent more compact disks and the same number of tickets as
before.
e. He could purchase 50 percent more tickets and the same number of compact disks as
before.
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Analysis

35. Which of the following could change a consumer's budget line?

a. a change in utility
b. an increase in the availability of substitute goods
c. additional responsibilities taken on by the consumer
d. a change in the price of one or more goods
e. a reduction in the level of technical inefficiency in the market
ANS: D PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension
36. Suppose that a consumer's original budget line was AB in Figure 6-4, but it has now changed to line
AC. Which of the following must have occurred?
a. The price of good X must have risen.
b. The price of good Y must have risen.
c. The price of good Y must have fallen.
d. The price of good X must have fallen.
e. The consumer's income must have risen.
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

37. Suppose that a consumer's original budget line was AC in Figure 6-4, but it has now changed to line
AB. Which of the following must have occurred?
a. The price of good X must have risen.
b. The price of good Y must have risen.
c. The price of good Y must have fallen.
d. The price of good X must have fallen.
e. The consumer's income must have risen.
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

38. Suppose that a consumer used to be at point R on budget line AA' in Figure 6-5, and is now at point S
on line BB'. Which of the following is true if the consumer enjoys both goods?
a. The utility level at point S is higher than at point R.
b. Good X is an inferior good.
c. The consumer's income fell.
d. The price of X rose.
e. The utility level at point S is lower than at point R.
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

39. Suppose that a consumer used to be at point S on budget line BB' in Figure 6-5, and is now at point R
on line AA'. Which of the following is true?
 a. The price of X rose.
b. The price of X fell.
c. The consumer's income fell.
d. The utility level at point R is higher than at point S.
e. The substitution effect is positive.
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: The Budget Constraint KEY: Bloom's: Comprehension

40. Economists usually assume that all consumers have the same tastes and preferences.
a. True
b. False
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Preferences KEY: Bloom's: Knowledge

41. Economists usually assume

a. that Americans' preferences are systematically different from Europeans
b. that there are some features common to the preferences of a wide variety of people
c. that everyone has the same preferences
d. that everyone has the same preferences that they (the economists) do
e. that individuals prefer to purchases goods rather than services
ANS: B PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Preferences KEY: Bloom's: Knowledge

42. According to the assumption of consumer rationality, a consumer who prefers one head of broccoli to
one head of cauliflower, one head of cauliflower to one package of brussel sprouts, and one
a. package of brussel sprouts to one head of cabbage, must prefer a head of cabbage to a
head of cauliflower
b. package of brussel sprouts to one head of cabbage, must prefer a head of broccoli to any
other vegetable
c. package of brussel sprouts to one head of cabbage, must prefer a package of brussel
sprouts to a head of cauliflower
d. package of brussel sprouts to one head of cabbage, must prefer a head of cauliflower to a
head of cabbage
e. head of cabbage to one package of brussel sprouts, must prefer the package of brussel
sprouts to a head of broccoli
ANS: D PTS: 1 DIF: Difficulty: Challenging
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Preferences KEY: Bloom's: Comprehension

43. A rational consumer who prefers one apple to two oranges, and two oranges to one orange,
a. must prefer two oranges to one apple
b. must prefer one apple to one orange
c. must prefer two oranges to two apples
d. must be indifferent between two oranges and two apples
e. might prefer one orange to one apple
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
 TOP: Preferences KEY: Bloom's: Analysis

44. The feature of preferences that "more is better"

a. is a logical consequence of transitivity
b. is shared by most people, most of the time.
c. implies that 5 apples will always be preferred to 4 oranges
d. implies that 5 apples will always be preferred to 5 oranges
e. means that, when dining, people always try to eat as much as they possibly can
ANS: B PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Preferences KEY: Bloom's: Comprehension

45. Marginal utility is the extra utility a consumer derives from consuming an extra unit of a good.
a. True
b. False
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Knowledge

46. The principle of diminishing marginal utility implies that total utility falls as consumption rises above
a certain level.
a. True
b. False
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

47. If marginal utility from consuming an extra unit of a good is positive, then the consumer's total utility
must increase as more of the good is consumed.
a. True
b. False
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

48. The change in total utility arising from a one-unit increase in consumption of a good is referred to as
a. average utility
b. the principle of diminishing marginal utility
c. real income
d. marginal utility
e. price
ANS: D PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

49. Marginal utility

a. increases as more of a good is consumed
b. increases as the total utility of consuming a good increases
c. is the same as the utility of consuming a good
d. is the same as the utility of consuming an additional unit of a good
 e. is the same for all units of a good, but varies from one consumer to another
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Knowledge

50. The law of diminishing marginal utility

a. is valid only after basic necessities (such as food and shelter) have been obtained
b. says that marginal utility decreases as more of a good is consumed
c. implies that spending on a good will decrease as more of that good is consumed
d. says that marginal utility decreases as income increases
e. implies that spending on a good decreases as income increases
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

51. As Reba consumes four slices of pizza, her total utility rises from 0 to 18, to 24, to 28, and to 30,
respectively. What is her marginal utility of the fourth slice of pizza?
a. 28
b. 24
c. 2
d. 7
e. 8
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

52. As Reba consumes four slices of pizza, her total utility rises from 0 to 18, to 24, to 28, and to 30,
respectively. What is her marginal utility of the first slice of pizza?
a. 18
b. 24
c. 2
d. 7
e. 8
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

Figure 6-6
Quantity of Total
Apples Utility
0 0
1 20
2 34
3 44
4 50

53. Figure 6-6 shows the total utility that Jerry receives from consuming different numbers of apples per
week. What is his marginal utility from the fourth apple ?
a. 20
b. 6
 c. 34
d. 14
e. 10
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

54. Figure 6-6 shows the total utility that Jerry would receive from consuming different numbers of apples
per week. What is Jerry's marginal utility from consuming the second apple after he already consumed
the first one?
a. 0
b. 17
c. 20
d. 14
e. 34
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

55. Figure 6-6 shows the total utility that Jerry would receive from consuming several different quantities
of apples per week. What can be said about Jerry's utility schedule for apples?
a. It conforms to the law of supply.
b. Marginal utility rises as consumption rises.
c. Average utility rises as consumption rises.
d. It conforms to the law of diminishing marginal utility.
e. The marginal and total utility lines cross at four apples.
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

56. Which of the following most clearly illustrates the law of diminishing marginal utility?
a. The total satisfaction from consuming a good falls as more of the good is consumed.
b. Marginal utility falls as total utility falls.
c. The quantity of a good demanded falls as its price rises.
d. The additional satisfaction from consuming a good falls as more of the good is consumed.
e. There is a direct relationship between the price of a good and its total utility.
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

57. If Bill asks for a second helping of pancakes, then his

a. second helping must be free
b. marginal utility of the second helping must be negative
c. price per helping is too low
d. marginal utility of the second helping must be positive
e. marginal utility of the second helping must be less than the marginal utility of the first
helping
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension
58. If diminishing marginal utility holds, and a person consumes less of a good, then all else being equal
a. the price of the good will rise
b. total utility will rise
c. marginal utility will rise
d. expenditure on the good will increase
e. marginal utility will decline
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

59. Consuming goods until the ratio of marginal utilities of the goods is equal to the ratio of their prices is
consistent with maximizing total utility.
a. True
b. False
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

60. Consuming to the point where the marginal utility of each good is equal to the price of that good is
consistent with utility maximization.
a. True
b. False
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

61. The combination of two goods at which total utility is maximized must lie somewhere on the
consumer's budget line.
a. True
b. False
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

62. If MUx/Px is less than MUy/Py, then the consumer should consume more of X and less of Y.
a. True
b. False
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

63. If Sally maximizes her total utility by allocating time between two different activities, she will select
the combination at which the marginal utility per hour spent is the same in both activities.
a. True
b. False
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension
64. If all consumers satisfy economists' assumptions regarding utility, then
a. they will each choose a consumption bundle that is inside the budget line
b. everyone will choose the same consumption bundle
c. everyone will have the same budget line
d. all consumers will react in the same way to a price change
e. each person will choose a consumption bundle on his or her budget line
ANS: E PTS: 1 DIF: Difficulty: Challenging
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

65. A utility-maximizing consumer will choose a collection of goods

a. represented by a point below her budget line
b. represented by a point above her budget line
c. for which the marginal utility from each good is the same
d. for which the marginal utility divided by the price is the same or each good
e. for which the total utility from each good is the same
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

66. Beginning at the vertical axis intercept, as a consumer moves down the budget line, she will find that
a. the marginal utility per dollar spent on the vertical axis good decreases
b. the marginal utility per dollar spent on the vertical axis good increases
c. the marginal utility per dollar spent on the horizontal axis good increases
d. the marginal utilities per dollar spent on both goods increase
e. the marginal utilities per dollar spent on both goods remain constant along that particular
budget line
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

67. Beginning at the horizontal axis intercept, as a consumer moves upward along the budget line, he will
find that
a. the marginal utility per dollar spent on the vertical axis good increases
b. the marginal utility per dollar spent on the horizontal axis good increases
c. the marginal utility per dollar spent on the horizontal axis good decreases
d. the marginal utilities per dollar spent on both goods increase
e. the marginal utilities per dollar spent on both goods remain constant along that particular
budget line
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

68. The marginal utility per dollar spent on a good represents the
a. satisfaction received for each dollar spent on the last unit consumed
b. total satisfaction received from consuming a certain number of units of that good
c. dollar value of average utility
d. change in price due to a one-unit increase in total utility
e. price paid for the last unit of utility
ANS: A PTS: 1 DIF: Difficulty: Moderate
 NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

69. A utility-maximizing consumer will

a. consume at a point on her budget line
b. consume each good until its marginal utility is zero
c. adjust her consumption pattern so that the marginal utilities of all goods are equal
d. consume more of a good only if its price rises
e. stop consuming any good whose price rises
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

70. Suzy spends all of her income on potato chips and textbooks. To maximize her total utility, she should
a. allocate her income so that the marginal utilities of potato chips and textbooks are equal
b. allocate her income so that the marginal utilities per dollar spent on potato chips and
textbooks are equal
c. change her eating habits
d. choose a consumption point that is inside her budget constraint
e. allocate her income so that the total utilities of potato chips and textbooks are equal
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

71. Among all the combinations of goods attainable by a consumer facing a budget constraint, the one that
maximizes total utility is the one that
a. maximizes marginal utility per dollar spent on each good
b. maximizes marginal utility per pound, or other physical quantity, of each good
c. equates the marginal utilities per dollar spent on each good
d. equates the marginal utilities per pound, or other physical quantity, of each good
e. drives the marginal utility of each good to zero
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

72. If bread costs $1 per pound and meat costs $4 per pound, a consumer whose marginal utility of meat
equals 80 utils per pound is maximizing utility only if the marginal utility per pound of bread equals
a. 4 utils
b. 5 utils
c. 10 utils
d. 20 utils
e. 80 utils
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Analysis

73. Ignoring all other goods, if Yong's marginal utility per pound of bread is 10 utils and per pound of
cheese is 30 utils, his
a. total utility would be maximized if the price per pound of cheese is triple the price per
pound of bread
b. total utility could be increased by buying more bread and less cheese
 c. total utility could be increased by buying more cheese and less bread
d. total utility would be maximized if the price per pound of cheese is one-third the price per
pound of bread
e. marginal utility would be maximized if the price per pound of cheese is one-third the price
per pound of bread
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

74. Suppose that the price of a pizza is $10 and that the price of a blouse is $30. At her present level of
consumption, Magda's ratio of marginal utility of pizza to marginal utility of blouses is 1/4. To
maximize total utility, she should
a. buy more pizzas and fewer blouses
b. buy fewer pizzas and more blouses
c. continue to buy the same quantities of pizza and blouses
d. spend more time consuming pizza
e. spend more time buying blouses
ANS: A PTS: 1 DIF: Difficulty: Challenging
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Analysis

75. Suppose that the price of a pizza is $10 and that the price of a blouse is $30. At her present level of
consumption, Magda's ratio of marginal utility of pizza to marginal utility of blouses is 1/2. To
maximize total utility, she should
a. buy more pizzas and fewer blouses
b. buy fewer pizzas and more blouses
c. continue to buy the same quantities of pizza and blouses
d. spend more time consuming pizza
e. spend more time buying blouses
ANS: B PTS: 1 DIF: Difficulty: Challenging
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Analysis

76. Lin is maximizing total utility while consuming food and clothing. Her marginal utilities of food and
clothing are 50 utils and 25 utils, respectively. If clothing is priced at $10 per unit, the price of a unit of
food
a. must be rising
b. must be falling
c. must equal $10 as well
d. must equal $20
e. cannot be determined without additional information.
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Analysis

77. Stanley receives the following marginal utilities from the first four car washes that he buys each year,
respectively: 20, 15, 10, and 5. If each car wash sells for $10, then the marginal utility per dollar spent
on the third car wash is
a. 10
b. 4.5
c. 1
 d. 45
e. 5
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

78. Jeffrey spends all of his income on warm-up suits and running shoes, and the price of a warm-up suit
is four times the price per pair of shoes. Then, in order to maximize total utility, Jeffrey should
a. buy four times as many warm-up suits as pairs of running shoes
b. buy four times as many pairs of running shoes as warm-up suits
c. divide his income equally between warm-up suits and running shoes
d. buy both items until the marginal utility of a warm-up suit is four times the marginal
utility of a pair of running shoes
e. buy both items until the marginal utility of a pair of running shoes is four times the
marginal utility of a warm-up suit
ANS: D PTS: 1 DIF: Difficulty: Challenging
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

79. For dessert, Mac has the choice between cheesecake and apple pie. The cheesecake has a marginal
utility of 50 and a price of $5, and the apple pie has a marginal utility of 30 and a price of $3.
Therefore, Mac should buy
a. the cheesecake since the marginal utility is greater
b. the apple pie because its price is lower
c. two servings of apple pie and no cheesecake
d. four servings of cheesecake
e. either the apple pie or the cheesecake, it makes no difference
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Analysis

Figure 6-7
Quantity Marginal Quantity of Marginal
of Utility Frozen Utility
Hamburgers per Hamburger Pizzas per Pizza
1 30 1 18
2 25 2 16
3 20 3 14
4 15 4 12
5 10 5 10

80. Figure 6-7 shows the marginal utilities Kate receives from buying hamburgers and frozen pizzas,
assuming she buys only these two goods. Each hamburger sells for $5 and each pizza sells for $4.
What is her marginal utility per dollar spent on the fourth hamburger?
a. 15
b. 4
c. 3
d. 20
e. 12
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
 TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Analysis

81. Figure 6-7 shows the marginal utilities Kate receives from buying hamburgers and frozen pizzas,
assuming she buys only these two goods. Each hamburger sells for $5 and each pizza sells for $4.
What is her marginal utility per dollar spent on the second pizza?
a. 16
b. 6
c. 3
d. 20
e. 4
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Analysis

82. Figure 6-7 shows the marginal utilities Kate receives from buying hamburgers and frozen pizzas,
assuming she buys only these two goods. Each hamburger sells for $5 and each pizza sells for $4. If
Kate has $27 to spend how many hamburgers and frozen pizzas should she buy?
a. 1 hamburger and 5-1/2 pizzas
b. 2 hamburgers and 1-1/4 pizzas
c. 3 hamburgers and 3 pizzas
d. 4 hamburgers and 1-3/4 pizzas
e. 5 hamburgers and 1/2 pizza
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Analysis

83. If a consumer allocates her income between two goods, x and y, then she will be in equilibrium when
a. MUx/Px = MUy/Py and she is below her budget constraint
b. MUx = MUy and she has spent all of her income
c. MUx/MUy > Px/Py and all of her income is spent
d. MUx/Px = MUy/Py and all of her income is spent
e. MUx = MUy and she is below her budget constraint
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

84. If a person could increase total utility by purchasing more candy and fewer apples, then the
a. total utility from candy must exceed the total utility from apples
b. marginal utility of candy must exceed the marginal utility of apples
c. marginal utility per dollar spent on candy must exceed the marginal utility per dollar spent
on apples
d. total utility per dollar spent on candy must exceed the total utility per dollar spent on
apples
e. marginal utility per dollar spent on candy must be less than the marginal utility per dollar
spent on apples
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension
85. Suppose that Janis is maximizing her total utility from chairs and tables. If the marginal utility of the
last table she purchased is 200 utils, and the prices of chairs and tables are $50 and $100, respectively,
then the marginal utility of the last chair she purchased
a. is 100 utils
b. is 400 utils
c. is 200 utils
d. is 50 utils
e. cannot be determined without more information
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Analysis

86. Alice has spent all of her income on ten different goods, and knows that the marginal utilities per
dollar spent on the ten goods are equal. Which of the following statements is correct?
a. She could possibly increase her total utility by redistributing her income among the ten
items.
b. She has violated the assumption of rationality.
c. The law of diminishing marginal utility does not apply to her.
d. Any reallocation of income among the ten items will reduce her total utility.
e. She must be at a point inside of her budget line.
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

87. Steve buys Pepsi at $.60 per can and orange juice at $1.20 per can. In consumer equilibrium,
a. orange juice would yield a higher marginal utility per dollar spent than Pepsi would
b. he will consume twice as much Pepsi as orange juice
c. he will consume more orange juice than Pepsi
d. total utility from orange juice is twice that from Pepsi
e. his last can of orange juice would generate a higher marginal utility than his last can of
Pepsi
ANS: E PTS: 1 DIF: Difficulty: Challenging
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Analysis

88. If MUx/Px exceeds MUy/Py, then the consumer should

a. consume more of good X and less of good Y
b. consume less of good X and more of good Y
c. consume less of both goods X and Y
d. not change the consumption levels of X and Y
e. consume more of good Z
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

89. Suppose you have spent your entire budget and the marginal utilities per dollar spent on all the goods
you buy are equal. Which of the following is true?
a. You are not being rational.
b. There is a way to increase your utility by reallocating your purchases.
c. You will reduce your utility if you allocate your income in any other way.
d. You are minimizing your total utility.
 e. You have chosen a consumption bundle that lies below your budget line.
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

90. The law of diminishing marginal utility applies to goods with negative income elasticities; it does not
always apply for goods with positive income elasticities.
a. True
b. False
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

91. The Jones family is going to Disney World and has set a budget of $2000 for food and souvenirs. If
Mr. Jones finds a $50 bill on the ground during their trip and uses it to purchase additional souvenirs,
then
a. souvenirs are a normal good
b. food is an inferior good
c. the budget line has shifted to the left
d. the slope of the budget line has changed
e. souvenirs are a luxury good
ANS: A PTS: 1 DIF: Difficulty: Challenging
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

92. The Jones family is going to Disney World and has set a budget of $2000 for visiting the theme park
and hotel accommodations. Their original plan was to spend three days at the park and two nights in
the hotel. Mrs. Jones unexpectedly listens to a timeshare sales pitch and she is paid $400 for enduring
the ordeal. The family decides to spend an extra day at the park and two extra nights in the hotel. For
the Jones family, we can be certain that
a. hotels nights are an inferior good
b. their budget line has shifted to the left
c. theme parks days are an inferior good
d. hotel nights are a normal good
e. their budget line has changed its slope
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

93. The income effect measures how

a. the quantity of a good supplied changes in response to a change in income
b. the quantity of a good demanded changes in response to a change in the price of a good,
with income constant
c. far the budget line shifts due to a change in income
d. the quantity of a good demanded changes in response to a change in purchasing power
e. income changes when prices change, holding quantities demanded constant
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Knowledge
94. The income effect of a lower price for good A
a. invariably leads a consumer to buy more of good A, because the combination of
unchanged money income and lower price raises that consumer's real income or
purchasing power
b. invariably leads a consumer to buy less of good A because the combination of unchanged
money income and lower price encourages that consumer to buy more of other goods
c. may lead to a larger, smaller, or even an unchanged quantity of good A demanded; it all
depends on the nature of the good itself
d. creates a change in the good's relative price and, therefore, causes the consumer to
substitute good A in place of other goods
e. causes a parallel outward shift of the budget line, enabling the consumer to buy more of all
goods than before
ANS: C PTS: 1 DIF: Difficulty: Challenging
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

95. As the price of a computer falls, overall

a. the marginal utility of computers rises
b. the total utility of computers falls
c. the total utility per dollar spent on computers falls
d. individuals would purchase fewer computers in equilibrium
e. individuals would purchase more computers in equilibrium
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

96. Suppose there are only two goods, food and clothing, with food measured on the vertical axis. If the
price of clothing changes, holding all else constant,
a. the budget line undergoes a parallel shift to the right
b. the budget line undergoes a parallel shift to the left
c. a new point of utility maximization will be reached
d. the budget line becomes flatter
e. the slope of the budget line remains constant
ANS: C PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

97. A change in the price of one good leads to all of the following, except one. Which is the exception?
a. a change in the slope of the budget line
b. a new point of consumer utility maximization
c. a change in the trade-off between the two goods
d. a change in the marginal utility of each unit of the good
e. a change in the marginal utility per dollar spent on the good
ANS: D PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

98. A decrease in the price of a good or service

a. causes the budget line to rotate inward
b. causes a parallel outward shift of the budget line
c. means that less of the good can be purchased with a given income
 d. causes the budget line to rotate outward
e. causes a parallel inward shift of the budget line
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

99. An increase in the price of a loaf of bread will

a. cause the budget constraint to rotate outward
b. reduce the minimum number of loaves any individual consumer can purchase
c. increase the minimum number of loaves any individual consumer can purchase
d. increase the maximum number of loaves any individual consumer can purchase
e. reduce the maximum number of loaves any individual consumer can purchase
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

100. A consumer's demand curve

a. shows the quantity of a good or service that individual will demand at each different price
b. shows the quantity of a good or service that individual will demand at different levels of
income
c. is derived by equating the income and substitution effects
d. slopes downward because the income effect offsets the substitution effect
e. will be vertical if the income effect outweighs the substitution effect
ANS: A PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Knowledge

101. A consumer's demand curve for apples

a. is derived by varying the price of apples and determining the quantities of apples at which
the marginal utility per dollar spent on apples equals the marginal utility per dollar spent
on other goods
b. is derived by determining how many apples will be purchased at different levels of income
c. is derived by varying the prices of other goods and determining the quantities of apples at
which the marginal utilities per dollar spent on all goods are equal
d. slopes downward whenever the income and substitution effects cancel out
e. will be vertical if the substitution effect outweighs the income effect
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Knowledge

102. An individual's demand curve for a good is derived by

a. varying the income level and observing the resulting total utility derived from both goods
b. varying the price of one good and observing the resulting quantities demanded of the other
good
c. varying the prices of both goods and observing the changes in quantities demanded of both
goods
d. shifting the budget line to the left and calculating the loss in total utility
e. varying the price of one good and observing the resulting quantities demanded of that
good
ANS: E PTS: 1 DIF: Difficulty: Moderate
 NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Knowledge

103. The net change in quantity demanded of a good following a price change
a. is equivalent to the substitution effect
b. is equivalent to the income effect
c. must decrease as marginal utility rises
d. is negative only when the income effect is negative
e. reflects both the substitution and income effects
ANS: E PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

104. Higher education is a normal good. If its price falls,

a. the quantity of higher education demanded will fall
b. the substitution and income effects work in opposite directions
c. the income effect is negative
d. higher education will satisfy to the law of demand
e. real purchasing power will fall
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Decisions: The Marginal Utility Approach KEY: Bloom's: Comprehension

105. The substitution effect will never induce a consumer to buy more of a good when its price increases.
a. True
b. False
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

106. The substitution effect measures how

a. the quantity demanded of one good is influenced by a change in income, with prices
constant
b. the quantity demanded of one good is influenced by a change the price of another good
c. marginal utility per dollar spent is affected by income changes
d. an increase in the price of a good is effectively the same as a reduction in income
e. the quantity demanded of one good is influenced by a change in the price of that good,
with income constant
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

107. The substitution effect of a(n)

a. price increase works to reduce the quantity of the good demanded
b. price increase works to increase the quantity of the good demanded
c. price decrease works to reduce the quantity of the good demanded
d. income increase works to reduce the quantity of the good demanded
e. income decrease works to reduce the quantity of the good demanded
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
 TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

108. If the price of a haircut increases,

a. haircuts become more expensive relative to other goods and services
b. haircuts become less expensive relative to having a friend cut your hair
c. people will have their hair cut more often
d. haircuts become less expensive relative to other goods and services
e. the budget constraint will shift outward
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

109. If the price of paint increases, the substitution effect will cause
a. people to paint their homes more often
b. people to use more paint than they did before
c. the quantity of paint demanded to increase
d. the quantity of paint supplied to decrease
e. people to use less paint
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

110. If the price of a hamburgers increases, the substitution effect works to

a. decrease the quantity of hamburgers supplied
b. increase the number of hamburger buns demanded
c. decrease the quantity of hamburgers demanded
d. increase the number of hamburger buns supplied
e. increase the quantity of hamburgers demanded
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

111. The income effect

a. of a price increase works to increase the quantity of the good demanded
b. of a price increase works to decrease the quantity of the good demanded
c. of a price decrease works to increase the quantity of the good demanded
d. of a price decrease works to decrease the quantity of the good demanded
e. of a price decrease could work to increase or decrease the quantity of the good demanded
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

112. Steak is a normal good. If the price of steak increases,

a. the income effect on the demand for steak will reinforce the substitution effect
b. the income effect on the supply of steak will, to some extent, offset the substitution effect
c. the budget line will rotate outward
d. consumers' purchasing power will increase
e. the budget line will shift outward
ANS: A PTS: 1 DIF: Difficulty: Challenging
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
 TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

113. An inferior good is one that

a. people consume if their income falls
b. people consume more of if their income falls
c. people never consume
d. people consume if their income rises
e. people consume more of if their income rises
ANS: B PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Knowledge

114. Housing is a normal good. That means

a. that most people prefer to purchase their housing rather than rent it
b. that most people tend to purchase more housing if its price falls.
c. that people tend to purchase more housing if their income increases
d. that most people live in houses
e. the people tend to purchase more housing if its price rises
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Knowledge

115. For a normal good, such as steak,

a. quantity demanded increases as its price falls.
b. the income and substitution effects work in opposite directions
c. the income effect is negative
d. the income effect reinforces the substitution effect
e. the supply curve is vertical
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

116. For an inferior good, the income effect

a. is zero
b. at least partially offsets the substitution effect
c. operates to increase the quantity demanded
d. helps explain why the demand curve slopes upward
e. does not exist
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

117. Steak is a normal good. A decrease in the price of steak

a. causes the budget line to rotate inward
b. makes the supply of steak more elastic
c. decreases consumers' purchasing power
d. makes consumers poorer
e. increases consumers' purchasing power
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
 TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

118. For a normal good, the substitution and income effects of a price decrease work in the same direction
to increase the quantity demanded of that good.
a. True
b. False
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

119. If the price of an inferior good increases, the substitution effect encourages the consumer to purchase
less of it while the income effect encourages him to purchase more of it.
a. True
b. False
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

120. Inferior goods typically obey the law of demand because the substitution effect tends to dominate the
income effect.
a. True
b. False
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

121. The substitution effect of a decrease in the price of an inferior good encourages the consumer to
purchase more of the good while the income effect encourages the consumer to purchase less of it.
a. True
b. False
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

122. A decrease in the price of a good enhances the consumer's purchasing power. The income effect
applies to both normal and inferior goods by encouraging the consumer to purchase more.
a. True
b. False
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

123. Biscuits are an inferior good for Aster, then if their price falls, she
a. will definitely buy more biscuits
b. will definitely buy fewer biscuits
c. may buy more biscuits
d. will buy fewer biscuits if the substitution effect is larger than the income effect
e. will buy more biscuits if the substitution effect is larger than the income effect
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
 TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

124. For an inferior good, a rise in price causes

a. negative income and substitution effects
b. positive income and substitution effects
c. a negative income effect and a positive substitution effect
d. a positive income effect and a negative substitution effect
e. a positive income effect, but no substitution effect
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

125. If the substitution effect of a lowered price is partly or fully offset by the income effect, we know that
the good in question is a(n)
a. complementary good
b. inferior good
c. luxury good
d. normal good
e. substitute good
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

126. Normal goods always obey the law of demand because, as the price of such a good rises, the
a. fall in quantity demanded due to the substitution effect is offset by a rise in quantity
demanded due to the income effect
b. fall in quantity demanded due to the substitution effect is reinforced by a fall in quantity
demanded due to the income effect
c. substitution effect will lead to an inward shift of the demand curve
d. substitution effect will lead to an increase in quantity demanded
e. rise in quantity demanded due to the substitution effect is offset by a fall in quantity
demanded due to the income effect
ANS: B PTS: 1 DIF: Difficulty: Challenging
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

127. If macaroni and cheese is an inferior good, then

a. the income effect and the substitution effect work in opposite directions
b. as the budget line shifts to the right, consumers demand more macaroni and cheese
c. when the price of macaroni and cheese rises, the quantity demanded also rises
d. the quantity demanded rises as purchasing power rises
e. individuals will not consume macaroni and cheese
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

128. For a normal good, the

a. income effect is greater than 1.0
b. income effect is negative
c. substitution effect is zero
d. income effect and the substitution effect work in the same direction
 e. demand curve is horizontal
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension

129. The market demand curve for a good is found by

a. adding up the quantities demanded by all consumers at different prices of that good
b. adding up the quantities demanded by all consumers at different incomes
c. adding up the maximum price each consumer is willing to pay for each possible quantity
of the good
d. varying consumers' total income and determining what prices they are willing to pay
e. vertically summing the individual consumers' demand curves
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Supply and demand
TOP: Consumers in Markets KEY: Bloom's: Knowledge

130. The market demand curve for a particular good

a. may be horizontal even if the individual consumers' demand curves are downward sloping
b. will always shift to the right as the price of the good decreases
c. is even more likely to be downward sloping than an individual consumer's demand curve
d. will always shift to the right if consumers' incomes increase
e. must be flatter than the flattest of the individual consumer demand curves
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Supply and demand
TOP: Consumers in Markets KEY: Bloom's: Knowledge

131. The market demand curve for a particular good

a. will shift to the right if more consumers enter the market
b. could shift to the left if more consumers enter the market
c. will be upward sloping if the good is an inferior good
d. will always shift to the right if consumers' incomes increase
e. could shift downward if more consumers enter the market
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Supply and demand
TOP: Consumers in Markets KEY: Bloom's: Comprehension

132. Suppose there are three buyers in the market for bottled water. At a price of $2 per bottle, Jerry
demands 23 bottles, Elaine demands 14 bottles, and Kramer demands 7 bottles. One point on, the
market demand curve for bottled water is
a. price = $2 and quantity = 23 bottles
b. price = $88 and quantity = 44 bottles
c. price = $88 dollars and quantity = 14 bottles
d. price = $2 and quantity = 44 bottles
e. impossible to determine from the information given
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Supply and demand
TOP: Consumers in Markets KEY: Bloom's: Analysis

133. The market demand curve is

 a. any individual consumer's demand curve multiplied by the number of consumers in the
market
b. a relationship between total income and total quantity demanded
c. the horizontal sum of the individual demand curves of all consumers in the market
d. the vertical sum of the individual demand curves of all consumers in the market
e. the sum of the prices paid at each quantity demanded
ANS: C PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic STA: DISC: Supply and demand
TOP: Consumers in Markets KEY: Bloom's: Knowledge

134. Behavioral economics

a. helps explain why economic decision makers maximize either utility or profit
b. assumes that people behave "as if" they are maximizing something.
c. is a subfield of economics, but one that is rejected by most economists
d. explains why irrational behavior is better than typically "rational" behavior.
e. points out that some human behavior is not consistent with any type of maximization
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Theory in Perspective KEY: Bloom's: Knowledge

135. People sometimes try to limit the options they have available. This
a. is consistent with rational economic behavior.
b. can be explained by behavioral economic analysis
c. explains why demand curves are sometimes vertical
d. violates the assumption of transitive preferences
e. occurs when income and substitution effects cancel out.
ANS: B PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Theory in Perspective KEY: Bloom's: Knowledge

136. Procrastination, addiction, and honesty

a. may be explained by preferences that are not transitive
b. violate the economist's assumption that "more is better"
c. help to explain why the substitution effect is more powerful than the income effect
d. are often inconsistent with narrowly defined rationality
e. are inferior economic "goods".
ANS: D PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Theory in Perspective KEY: Bloom's: Knowledge

137. The theory of consumer demand

a. can be used to explain how an individual allocates time between two competing uses
b. is valid only for choices among various physical goods
c. is valid only for goods and services purchased for cash
d. is valid only if consumers are perfectly rational
e. can explain the demand for normal goods, but not the demand for inferior goods
ANS: A PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Using the Theory: Improving Education KEY: Bloom's: Comprehension
138. Behavioral economics
a. is a subfield of psychology that has partially replaced traditional economic analysis
b. is a subfield of economics that explains how people behavior
c. is a subfield of economics that incorporates insights from psychology and sociology
d. provides support for the traditional economic theory of rational utility maximization
e. predicts that demand curves slope upward
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Consumer Theory in Perspective KEY: Bloom's: Knowledge

139. In allocating time between studying French and studying economics,

a. exam points are inferior goods
b. we can think of students "buying" exam points with hours spent studying
c. we can think of students "buying" exam points with money
d. the demand curve for exam points is upward sloping
e. we can think of students "buying" study time for cash
ANS: B PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Using the Theory: Improving Education KEY: Bloom's: Comprehension

140. In allocating time between competing uses,

a. an individual will try to maximize marginal utility per hour spent on one activity
b. time is considered a free good
c. an individual will try to equate marginal utilities per hour spent on each activity
d. time can be purchased for cash
e. an individual will try to equate the marginal utilities derived from each activity
ANS: C PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Using the Theory: Improving Education KEY: Bloom's: Comprehension

141. Steve is planning to divide his study time between English and calculus. It will take him two hours of
study for each extra point in calculus and one hour of study to raise his English score by one point. He
should allocate his time so that
a. the marginal utility of an hour spent studying calculus is twice the marginal utility of an
hour spent studying English
b. the marginal utility of an hour spent studying English is twice the marginal utility of an
hour spent studying calculus
c. the marginal utility per hour spent studying calculus equals the marginal utility per hour
spent on English
d. he spends twice as much time on calculus as on English
e. he spends twice as much time on English as on calculus
ANS: C PTS: 1 DIF: Difficulty: Challenging
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Using the Theory: Improving Education KEY: Bloom's: Comprehension

142. A technological change that enables a student to learn more French in the same amount of study time
a. causes the budget line to rotate inward
b. causes an outward, parallel shift of the budget line
c. shifts the "demand curve" inward
d. is equivalent to a increase in the "price" of an hour spent studying French
e. makes the student better off
 ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Using the Theory: Improving Education KEY: Bloom's: Comprehension

143. Hamburger is an inferior good. If the price of hamburger increases,

a. the income effect on the demand for hamburger will reinforce the substitution effect
b. the income effect on the supply of hamburger will reinforce the substitution effect
c. the budget line will rotate outward
d. the budget line will shift outwards
e. the income effect on the demand for hamburger will offset, to some degree, the
substitution effect
ANS: E PTS: 1 DIF: Difficulty: Moderate
NAT: BUSPROG: Analytic STA: DISC: Utility and consumer choice
TOP: Income and Substitution Effects KEY: Bloom's: Comprehension