Q&A Hero

Q: Figure 10-9 Refer to Figure 10-9. Consider the budget constraint BC1. If the price of DVDs is $20 and the price of CDs is $10, what is the consumer's income? A) $120 B) $240 C) $360 D) $480

Q: The income effect of an increase in the price of salmon A) is the change in the demand for salmon when income increases. B) refers to the relative price effect - salmon is more expensive compared to other types of fish - which causes the consumer to buy less salmon. C) refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant. D) is the change in the demand for other types of fish, say trout, that result from a decrease in purchasing power.

Q: Figure 10-9 Refer to Figure 10-9. The change in the budget constraint from BC1 to BC2 implies A) the prices of DVDs and CDs have increased. B) income and the prices of DVDs and CDs have increased. C) the price of DVDs has increased and the price of CDs has decreased. D) the price of DVDs has decreased and the price of CDs has increased.

Q: The substitution effect of an increase in the price of Raisin Bran refers to A) the decrease in the demand for Raisin Bran when its price rises. B) the result that consumers will now switch to a substitute good such as Cheerios, and the demand curve for Raisin Bran shifts to the left. C) the fact that the higher price of Raisin Bran lowers consumer's purchasing power, holding money income constant. D) the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, cause consumers to buy less Raisin Bran.

Q: Assume that Anne has $300 to spend on DVDs and CDs. Her optimal consumption of DVDs and CDs is illustrated by a tangency between a budget line and an indifference curve. Now assume that the price of CDs rises but the price of DVDs falls. How can you show that Anne is made better off by these price changes? A) Show that the price changes shift Anne's budget line outward; the budget line is tangent to a higher indifference curve. B) Show that the price changes move Anne along her budget line to a higher indifference curve. C) Show that Anne can afford to buy the optimal combination of DVDs and CDs at their original prices; then show that Anne can now reach a higher indifference curve. D) Show that Anne can now afford to buy more DVDs, which give her greater utility than CDs.

Q: When the price of summer tank tops falls and you buy more of them because they are relatively less expensive, this is called A) the substitution effect. B) the income effect. C) the deadweight loss effect. D) the elasticity effect.

Q: Figure 10-8 Refer to Figure 10-8. If the price of biscotti is $1.50 and the price of a cappuccino is $3.00, what is the slope of the budget constraint? A) -2 B) -(3.00 - 1.50)/(3.00 + 1.50) = -1/3 C) -1/2 D) The slope cannot be determined without the value of income.

Q: When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to A) the substitution effect. B) the income effect. C) the deadweight loss effect. D) the elasticity effect.

Q: Figure 10-8 Refer to Figure 10-8. Given the budget constraint in the diagram, which of the following statements is false? A) The consumer receives the same level of utility from consumption bundles d, e and f. B) Consumption bundles b and c yield the same level of utility, which is higher than the utility represented by bundle a. C) Although the consumer receives the same level of utility from bundles d and e, she cannot afford to purchase bundle d. D) The consumer's optimal bundle could be bundle d, e or f.

Q: If Ewan is consuming his utility maximizing bundle and the price of one good falls, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Ewan do? A) MU/P has increased and Ewan should buy more of this good. B) MU/P has increased and Ewan should buy less of this good. C) MU/P has decreased and Ewan should buy more of this good. D) MU/P has decreased and Ewan should buy less of this good.

Q: Which of the following is not a characteristic of indifference curves? A) Indifference curves cannot intersect. B) Indifference curves are usually bowed in, or convex. C) The slope of an indifference curve is negative. D) The closer to the origin, the greater the utility level.

Q: If Callum is consuming his utility maximizing bundle and the price of one good rises, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Callum do? A) MU/P has increased and Callum should buy more of this good. B) MU/P has increased and Callum should buy less of this good. C) MU/P has decreased and Callum should buy more of this good. D) MU/P has decreased and Callum should buy less of this good.

Q: Which of the following statements is false? A) There is an indifference curve associated with any combination of goods selected by a consumer. B) A consumer is indifferent among all consumption bundles along a given budget line. C) All consumption bundles along a given indifference curve are equally desirable. D) Consumption bundles that lie on higher indifference curves yield higher utility.

Q: If Marlowe obtains 9 units of utility per dollar spent on apples and 6 units of utility per dollar spent on oranges, then Marlowe A) is maximizing total utility. B) should buy more apples and fewer oranges. C) should buy more oranges and fewer apples. D) should buy fewer oranges and fewer apples.

Q: Vinny consumes tacos and chicken wings. To keep his utility constant, he must consume more tacos if he consumes fewer chicken wings. This means that A) Vinny's indifference curve for tacos and chicken wings must have a negative slope. B) the prices Vinny pays for tacos and chicken wings are always the same. C) Vinny's marginal utility from each good must be constant along his convex indifference curves for tacos and chicken wings. D) Vinny's marginal rate of substitution must be constant along his indifference curves for tacos and chicken wings.

Q: If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she A) is maximizing total utility and does not want to change their consumption of ankle socks or bandanas. B) wants to consume more ankle socks and fewer bandanas. C) wants to consume more of bandanas and fewer ankle socks. D) wants to consume less of both ankle sock and bandanas.

Q: A consumer's budget constraint is A) the limited income that a consumer has to spend on goods and services. B) the rate at which the consumer must give up one good to purchase an additional unit of the other goods in the market. C) the price ratio a consumer faces in the marketplace. D) the extent to which one's preferences are limited by one's income.

Q: Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because A) car buyers are irrational. B) the total utility of less expensive cars is greater than that of luxury cars. C) the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars. D) luxury cars cost a lot more than non-luxury cars.

Q: What happens to the absolute value of marginal rate of substitution as you move down a convex (bowed toward the origin) indifference curve? A) increases B) decreases C) remains constant D) could increase or decrease

Q: Avner is maximizing total utility by buying sports magazines and protein supplements. For him to buy more sports magazines A) the price of protein supplements. has to fall. B) the price of sports magazines has to fall. C) the price of sports magazines has to rise. D) Since Avner is maximizing his utility, nothing can change the consumption of sports magazines.

Q: Why do convex indifference curve have a negative slope? A) because consumers take market prices as given B) because consumers face a budget constraint C) because to keep utility constant, a consumer must get more of one good if she is to give up some of the other D) because scarcity implies that it is not possible to consume more of one good without giving up some of the other

Q: Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be A) 2,000 units of utility. B) 500 units of utility. C) 100 units of utility. D) 80 units of utility.

Q: In the utility maximizing model, consumer preferences are assumed to be transitive. What does this mean? A) that consumers prefer more of a good to less B) that consumers have the freedom to change their preferences from time to time C) that consumers have preferences that are relatively consistent in the time period under consideration D) that consumers go through cycles in their consumption behavior

Q: Carolyn spends her income on popular magazines and music CDs. If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility, she buys A) both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased. B) both goods until the marginal utility of the last magazine purchased is four times the marginal utility of the last CD purchased. C) four times as much magazines as CDs. D) four times as much CDs as magazines.

Q: Which of the following is held constant along an indifference curve? A) the prices of the goods in question B) the marginal rate of substitution between the two goods in question C) the marginal utility derived from consuming any bundle of goods on the indifference curve D) the total utility derived from consuming any bundle of goods on the indifference curve

Q: Table 10-1Quantity of Pita WrapsTotal UtilityQuantity of Bubble TeaTotal Utility1601402102270313239141444106514451126138611571287115Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3. Table 10-1 shows his total utility from different quantities of the two items.Refer to Table 10-1. If Keegan can drink all the bubble tea he wants for free, how many glasses will he consume?A) 4 glassesB) 5 glassesC) 6 glassesD) 7 glasses

Q: What does the marginal rate of substitution measure? A) It measures the rate at which a consumer must give up one good to purchase another good. B) It measures the rate at which a consumer will substitute one good for another when the price of one good changes. C) It measures the change in utility from consuming one additional unit of a good. D) It measures the rate at which a consumer is willing to trade off one product for another while keeping utility constant.

Q: Table 10-1Quantity of Pita WrapsTotal UtilityQuantity of Bubble TeaTotal Utility1601402102270313239141444106514451126138611571287115Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3. Table 10-1 shows his total utility from different quantities of the two items.Refer to Table 10-1. What is Keegan's optimal consumption bundle?A) 3 pita wraps and 3 bubble teasB) 3 pita wraps and 4 bubble teasC) 4 pita wraps and 2 bubble teasD) 5 pita wraps and 0 bubble teas

Q: The slope of the indifference curve is referred to as A) the marginal rate of substitution. B) the price ratio. C) the marginal rate of consumption. D) the marginal tradeoff rate.

Q: If a consumer always buys goods rationally, then A) the total utilities of the different goods consumed will be equal. B) the average utilities of the different goods consumed will be equal. C) the marginal utility per dollar spent on all goods will be equal. D) the marginal utility of the different goods consumed will be equal.

Q: A curve that shows combinations of consumption bundles that give a consumer the same utility is called A) a utility curve. B) an indifference curve. C) a preference curve. D) a demand curve.

Q: Consumers maximize total utility within their budget constraint by A) buying the cheapest goods they can find. B) buying whatever they like the best. C) buying the goods with the largest marginal utility per dollar spent. D) spending the same dollar amount for each good.

Q: Which of the following statements about utility and preferences is false? A) If Sidra prefers tea to coffee and coffee to hot chocolate, then she must prefer tea to hot chocolate. B) Preferences can be ranked. C) If two individuals, Ingrid and Inez, each consume the same bundle of goods, then both Inez and Ingrid must receive the same utility from the bundle. D) Utility cannot be compared across consumers.

Q: Suppose your marginal utility from consuming the 3rd slice of cake is zero, then your total utility from consuming cake is A) maximized. B) decreasing. C) negative. D) increasing.

Q: Figure 10-7 Manuri has $300 to spend on Pilates classes and Yoga classes. The price of a group Pilates class is $20 and the price of a group Yoga class is $10. Manuri's optimal bundle is given by "A" in Figure 10-7. Refer to Figure 10-7. Suppose the price of Pilates sessions rise to $30 while income and the price of Yoga sessions remain unchanged. The income effect of this price change is represented by the movement from A) A to B. B) B to C. C) D to B D) D to C.

Q: An item has utility for a consumer if it A) is scarce. B) has a high price. C) is something everyone else wants. D) generates enjoyment or satisfaction.

Q: Figure 10-7 Manuri has $300 to spend on Pilates classes and Yoga classes. The price of a group Pilates class is $20 and the price of a group Yoga class is $10. Manuri's optimal bundle is given by "A" in Figure 10-7. Refer to Figure 10-7. Suppose the price of Pilates sessions rise to $30 while income and the price of Yoga sessions remain unchanged. The substitution effect of this price change is represented by the movement from A) A to B. B) A to C. C) A to D. D) D to B.

Q: If total utility increases at a decreasing rate as a consumer consumes more coffee, then marginal utility must A) remains constant. B) increase also. C) decrease. D) be negative.

Q: Figure 10-7 Manuri has $300 to spend on Pilates classes and Yoga classes. The price of a group Pilates class is $20 and the price of a group Yoga class is $10. Manuri's optimal bundle is given by "A" in Figure 10-7. Refer to Figure 10-7. Suppose the price of Pilates sessions rises to $30 while income and the price of Yoga sessions remain unchanged. What is her new optimal bundle? A) still remains at bundle A. B) bundle B. C) bundle C. D) bundle D.

Q: If your total satisfaction increases when you consume another unit, your marginal utility must be A) increasing. B) decreasing. C) negative. D) positive.

Q: Suppose the consumer's income increases while the prices of the goods remain constant. Then the A) budget constraint shifts inward parallel to the original budget constraint. B) budget constraint shifts outward parallel to the original budget constraint. C) indifference curves shift outward away from the origin. D) indifference curves become flatter.

Q: Consumers have to make tradeoffs in deciding what to consume because A) not all goods give them the same amount of satisfaction. B) the prices of goods vary. C) they are limited by a budget constraint. D) there are not enough of all goods produced.

Q: Figure 10-6 Refer to Figure 10-6. Which diagram demonstrates a decrease in total utility following an increase in the price of candy? A) the movement from e to d in Panel A B) the movement from g to f in Panel B C) the movement from k to h in Panel C D) none of the above

Q: If, when you consume another piece of candy, your marginal utility is zero, then A) you want more candy. B) you have maximized your total utility from consuming candy. C) you have not yet reached the point of diminishing marginal utility. D) you should consume less candy.

Q: Figure 10-6 Refer to Figure 10-6. Which diagram demonstrates an increase in total utility following a decrease in the price of popcorn? A) the movement from d to e in Panel A B) the movement from f to g in Panel B C) the movement from h to k in Panel C D) none of the above

Q: Which of the following is likely to occur as the result of the law of diminishing marginal utility? A) Petra's utility from her second apple was less than her satisfaction from her first orange. B) Hudson enjoyed his second slice of pizza more than his first. C) Sabine's utility from her first granola bar is greater than Rachel's utility from her second granola bar. D) Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant.

Q: Figure 10-6 Refer to Figure 10-6. A change in the price of popcorn only is shown in A) Panel A. B) Panel B. C) Panel C. D) none of the above panels.

Q: Marginal utility can be A) negative. B) zero. C) positive. D) positive, negative or zero.

Q: Figure 10-6 Refer to Figure 10-6. A change in the price of candy only is shown in A) Panel A. B) Panel B. C) Panel C. D) none of the above panels.

Q: The law of diminishing marginal utility states that A) eventually total utility falls as more of a good is consumed, other things constant. B) the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant. C) the extra satisfaction from consuming a good increases slowly as more of a good is consumed, other things constant. D) when the extra satisfaction from consuming a good becomes negative, total utility starts falling, other things constant.

Q: Figure 10-6 Refer to Figure 10-6. A change in income is shown in A) Panel A. B) Panel B. C) Panel C. D) none of the above panels.

Q: If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of A) the law of demand. B) the law of supply. C) the law of increasing marginal opportunity cost. D) the law of diminishing marginal utility.

Q: Aisha and Debbie both purchase milk and bread at the same Quik Mart. They have different tastes for milk and bread and different incomes. They both buy some milk and some bread, but they buy considerably different quantities of the two goods. Which of the following statements is true, given that Aisha and Debbie are utility-maximizers? A) In equilibrium, their marginal rate of substitution between milk and bread is the same. B) In equilibrium, their marginal rate of substitution between milk and bread is higher for the person with the higher income. C) In equilibrium, the marginal rate of substitution between milk and bread is greater for the person who prefers milk more than bread. D) No statement can be made about their respective marginal rates of substitution without their budget constraint/indifference curve diagrams.

Q: Total utility A) cannot decrease as a person consumes more and more of a good. B) has a constant rate of increase as a person consumes more and more of a good. C) is equal to the sum of the marginal utilities of all units consumed. D) is negative when marginal utility is declining.

Q: Figure 10-5 Refer to Figure 10-5. Suppose the price of pizza increases while the price of hamburger remains constant. Then, the consumer's A) indifference curve becomes more concave away from the origin. B) indifference curve becomes straighter. C) budget constraint moves inward toward the origin on the pizza axis while the hamburger intercept remains the same. D) budget constraint moves outward away from the origin on the pizza axis while the hamburger intercept remains the same.

Q: If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the second candy bar is A) 25 utility units. B) 20 utility units. C) 5 utility units. D) unknown as more information is needed to determine the answer.

Q: Figure 10-5 Refer to Figure 10-5. Which of the following statements is true? A) The consumer gets more utility from bundle r than from bundlev. B) The consumer gets less utility from bundle w than from bundlev. C) Bundlesr, s, t andu all cost the same. D) Bundlesr andw are not affordable.

Q: If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is A) 25 utility units. B) 20 utility units. C) 5 utility units. D) unknown as more information is needed to determine the answer.

Q: Figure 10-5 Refer to Figure 10-5. The consumer can afford consumption bundles A) r, s, t and u. B) r, s, v and u. C) s, v and u only. D) s, v, t and u.

Q: If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is A) 57 utility units. B) 35 utility units. C) 15 utility units. D) unknown as more information is needed to determine the answer.

Q: A consumer's utility-maximizing combination of goods is given by the bundle that corresponds to the point on A) the indifference curve that intersects the horizontal axis. B) the indifference curve that intersects the vertical axis. C) an indifference curve that is tangent to the budget constraint. D) the budget constraint where it intersects one of the axes.

Q: As a consumer consumes more and more of a product in a particular time period, eventually marginal utility A) rises. B) is constant. C) declines. D) fluctuates.

Q: The absolute value of the slope of the budget constraint is equal to A) the marginal rate of substitution between the two goods in question. B) the price of good on the vertical axis divided by the price of the good on the horizontal axis. C) the price of good on the horizontal axis divided by the price of the good on the vertical axis. D) quantity of the good on the vertical axis divided by the quantity of the good on the horizontal axis.

Q: Marginal utility is the A) total satisfaction received from consuming a given number of units of a product. B) average satisfaction received from consuming a product. C) extra satisfaction received from consuming one more unit of a product. D) satisfaction achieved when a consumer has had enough of a product.

Q: Figure 10-4 Refer to Figure 10-4. What is the marginal rate of substitution between h and j? A) cookie. B) cookie. C) 2 cookies. D) 4 cookies.

Q: Utility is A) easily measured in units called utils. B) subjective and difficult to measure. C) the consumption of a quasi-public good like electricity or natural gas. D) the production of a quasi-public good like electricity or natural gas.

Q: Figure 10-4 Refer to Figure 10-4. What is the marginal rate of substitution between g and h? A) cookie. B) cookie. C) 2 cookies. D) 3 cookies.

Q: Economists assume that the goal of consumers is to A) do as little work as possible to survive. B) make themselves as well off as possible. C) expend all their income. D) consume as much as possible.

Q: What is the marginal rate of substitution? A) the price ratio B) the rate at which the consumer must give up one good to purchase an additional unit of the other goods in the market C) the rate at which the consumer is willing to trade one good for another so that she increases her utility D) the rate at which the consumer is willing to trade one good for another without any loss in utility

Q: The slope of an indifference curve A) is calculated by dividing the price of good on the vertical axis by price of the good on the horizontal axis. B) measures total utility. C) measures the marginal rate of substitution between the two goods in question. D) is calculated by dividing the quantity of the good on the vertical axis by the quantity of the good on the horizontal axis.

Q: If preferences are transitive, indifference curves A) intersect at the equilibrium consumption bundle. B) intersect at the optimum consumption bundle. C) intersect where the marginal rate of substitution for each indifference curve is equal. D) do not intersect.

Q: If Dawson prefers pizza to hamburgers and hamburgers to hot dogs, then if preferences are transitive A) at times she could be indifferent among the three items. B) she must prefer pizza to hot dogs. C) she could prefer hamburgers to pizza on some occasions but not hot dogs to pizza. D) she could prefer hot dogs to pizza on some occasions but not hamburgers to hot dogs.

Q: Figure 10-3 Refer to Figure 10-3. Best friends Laurel and Hardy both enjoy watching romantic comedies and science fiction movies. Based on the diagrams above what can you conclude about their movie preferences? A) They have identical movie preferences. B) Hardy enjoys romantic comedies more than Laurel. C) Hardy enjoys science fiction movies more than Laurel. D) The diagrams do not provide any information about relative preferences.

Q: Figure 10-3 Refer to Figure 10-3. The Bobsey twins, Laurel and Hardy, both enjoy watching romantic comedies and science fiction movies. Based on the diagrams above what can you conclude about their movie preferences? A) They have identical movie preferences. B) Laurel enjoys romantic comedies more than Hardy. C) Laurel enjoys science fiction movies more than Hardy. D) The diagrams do not provide any information about relative preferences.

Q: What is an indifference curve? A) It is a curve that shows the total utility and the marginal utility derived from consuming a bundle of goods. B) It is a curve that shows the combinations of consumption bundles that gives the consumer the same utility. C) It is a curve that shows ranks a consumer's preference for various consumption bundles. D) It is a curve that shows the tradeoff a consumer faces among different combinations of consumption bundles.

Q: Some online penny auctions charge a fee, such as $1, for every bid placed. Why should these costs of $1 per bid be considered sunk costs? Would it be smart for someone who has "already invested $5 in bidding costs" to keep bidding to "protect his or her sunk investments"? Why or why not?

Q: Behavioral economists examine choices that consumers make that are not economically rational. Economists generally assume that people are rational; that is, they weigh the benefits and costs of an action and choose an action only if the benefits outweigh the costs. Why do consumers not act rationally when the result is that they make themselves worse off?

Q: A construction project in Congressman Foghorn's district is unfinished. Foghorn has asked that a new appropriations bill include funds to complete the project, despite a report by an independent agency that the project is a waste of taxpayer money. Foghorn's project is a bridge that crosses a river between two cities in his district. The press has criticized Foghorn and dubbed the project "a bridge too far" since another bridge, located closer to the same two cities Foghorn's bridge will connect, already exists and can accommodate all traffic between the two cities. Foghorn argues that if the bridge project is not completed, the $50 million already spent will have been wasted. Is Foghorn's argument economically rational? Explain your answer.

Q: Molly received an autographed poster of David Hasselhoff for her 21st birthday. Her friend Helga offered her $50 for the poster, but Molly refused to sell the poster even though she knows she would never pay that much to replace it if it was ever damaged or destroyed. Explain this inconsistency in Molly's behavior.

Q: Why do many film processing companies have a policy of printing every picture on a roll of film or a memory card, even if the picture is very fuzzy and customers are allowed to ask for refunds on any pictures they do not like?