ECON 231
Chapter 8 Study Quiz


1.
Suppose that Jean normally orders three tacos, but on seeing that their price has gone up, decides to buy only two. Jean's decision is best explained by:
A.
income and substitution effects.
B.
the law of supply.
C.
the principle of comparative advantage.
D.
the law of increasing opportunity costs.


2.
(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.


3.
It is possible for a consumer's indifference curves to intersect.
A. True
B. False


Reference: F21017

4.
Refer to the above diagram. The total utility yielded by 4 units of X is:
A.
4.
B.
15.
C.
17.
D.
18.


Reference: F21020

5.
Refer to the above diagram. Total utility:
A.
increases so long as additional units of Y are purchased.
B.
becomes negative at 4 units.
C.
increases at a diminishing rate, reaches a maximum, and then declines.
D.
is maximized at 2 units.


6.
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.


7.
When a consumer is maximizing total utility, he or she cannot increase total utility by reallocating expenditures among different products.
A. True
B. False


8.
Which of the following has been a significant factor in DVDs replacing video cassettes (VCs) in the retail home video market?
A.
DVDs are now less than one-half the price of VCs.
B.
A scarcity of production capacity has curtailed the manufacture of VCs.
C.
Most consumers perceive DVD sound and video reproduction to be of higher quality.
D.
The price of DVD players has increased dramatically.


9.
Suppose that Ms. Spencer is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4 respectively. The marginal utility of the last units of A and B are 16 and 24 respectively. These data suggest that Ms. Spencer:
A.
has preferences that are at odds with the principle of diminishing marginal utility.
B.
considers A and B to be complementary goods.
C.
should buy less A and more B.
D.
should buy less B and more A.


10.
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.


Reference: F21147

11.
Refer to the above diagram in which the downsloping linear lines are budget lines and I1, I 2, and I3 comprise an indifference map. The combinations of products M and N indicated by points 1, 3, and 5 are such that:
A.
all three imply the same level of utility.
B.
1 and 5 imply a higher level of utility than does 3.
C.
3 implies a higher level of utility than does 1 or 5.
D.
the person is indifferent among the three combinations.


12.
(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 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 increase very slowly.


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.


14.
Sam 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 Sam:
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.


Reference: REF21014

15.
The above data illustrate the:
A.
law of comparative advantage.
B.
utility-maximizing rule.
C.
law of diminishing marginal utility.
D.
law of increasing opportunity costs.


16.
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.


17.
The ability of a good or service to satisfy wants is called:
A.
utility maximization.
B.
opportunity cost.
C.
revenue potential.
D.
utility.


18.
Assume MUc and MUd represent the marginal utility that a consumer gets from products C and D, the respective prices of which are Pc 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.
MUd < MUc
B.

C.


D.
MUc > MUd


19.
Noncash gift giving involves value loss when the marginal utility of the gift to the receiver is less than the product price.
A. True
B. False


20.



Suppose you have a money income of $10 all of which you spend on Coke and popcorn. In the above diagram, the prices of Coke and popcorn respectively are:
A.
$.50 and $1.00.
B.
$1.00 and $.50.
C.
$1.00 and $2.00.
D.
$.40 and $.50.


21.
Indifference curve analysis indicates that consumer equilibrium exists:
A.
where an indifference curve has a slope of 1.
B.
where any two indifference curves intersect.
C.
at any point where the budget line intersects an indifference curve.
D.
where the budget line touches the highest possible indifference curve.


22.
If the price of a product falls, that product becomes cheaper and people will want to purchase more of it in place of other goods. This statement best describes:
A.
the income effect.
B.
the substitution effect.
C.
a complementary good.
D.
an inferior good.


23.
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.


24.
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.


25.
If a consumer chooses a combination of goods that lies inside of her budget line, the consumer:
A.
is maximizing utility.
B.
is spending in excess of her current income.
C.
could obtain more goods with her money income.
D.
has upsloping indifference curves.


Answer the next question(s) 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.

Reference: REF21046

26.
Refer to the above data. How many units of the two products will the 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


27.
Assume initially that the price of X (measured on the horizontal axis) is $9 and the price of Y (measured on the vertical axis) is $4. If the price of X now declines to $6, the budget line will:
A.
be unaffected.
B.
shift outward on the vertical axis.
C.
shift inward on the horizontal axis.
D.
shift outward on the horizontal axis.


28.
Assume the price of product Y (the quantity of which is plotted on the vertical axis) is initially $15 and the price of X (the quantity of which is plotted on the horizontal axis) is initially $3. Assume money income is initially $60. If the prices of Y and X now increase to $30 and $6 respectively and money income increases to $120, then the budget line will:
A.
shift rightward and become steeper.
B.
shift rightward and become flatter.
C.
shift rightward, but its slope will not change.
D.
be unchanged.


29.
(Consider This)   The lines on a topographical map are analogous to a(n):
A.
series of demand curves.
B.
series of supply curves.
C.
indifference map.
D.
series of budget constraints.


30.
Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line:
A.
is 5.
B.
is 1/5.
C.
is 4.
D.
is 20.


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