Professional Documents
Culture Documents
True / False
1. Because the consumer's budget is limited, purchase decisions among available goods must of necessity be
interdependent.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Scarcity and Demand
KEYWORDS: BLOOM’S: Comprehension
2. The number of Compact Discs purchased by a consumer depends on the price of the discs as well as the prices of all
other goods purchased.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Scarcity and Demand
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
KEYWORDS: BLOOM’S: Comprehension
4. Marginal utility is measured by the maximum amount of money a consumer is willing to pay for one more unit of a
commodity.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
5. Total utility always decreases when additional amounts of a commodity are consumed.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
6. Total utility can be objectively measured in numbers that indicate usefulness or benefit to the consumer.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
7. Marginal utility can fall even as total utility from the consumption of a good is rising.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
8. Total utility increases if one more unit of a product is purchased and marginal utility is positive.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
9. The law of diminishing marginal utility holds that at some point consumption of additional units of a commodity adds
less to total utility.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
10. The law of diminishing marginal utility states that total utility will increase at a decreasing rate as additional units of a
commodity are acquired.
a. True
b. False
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
11. As a rule, the more of a commodity a consumer acquires, the smaller will be her total utility from that good.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
13. As a rule, as a consumer acquires more and more of a good, the marginal utility declines.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
15. Consumers should purchase quantities of a good to the point where MU > P.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
17. Given a typical demand curve and a decline in price, the consumer who wishes to maximize total utility must increase
the quantity purchased of a good to arrive at an optimal MU = P point.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Difficult
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
KEYWORDS: BLOOM’S: Analysis
18. If the marginal net utility of beer is a positive number, the consumer should buy more beer in order to maximize
utility.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Analysis
19. If the marginal net utility of beer is negative, the consumer should buy more beer in order to increase the total utility.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Analysis
20. The law of diminishing marginal utility is consistent with the consumer behavior that produces a negatively sloped
demand curve.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
21. The law of diminishing marginal utility guarantees that demand curves will have positive slopes.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
22. The real cost of a decision is the opportunity cost measured in the commodities forgone.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOM’S: Comprehension
24. Consumer surplus is the difference between the worth of a commodity to the consumer and the price the consumer
pays for the commodity.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOM’S: Comprehension
25. Consumer surplus is what one consumer is willing to pay for a commodity over what another consumer is willing to
pay for the same commodity.
a. True
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOM’S: Comprehension
27. A consumer cannot gain consumer's surplus if she purchases more than one unit of a good.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOM’S: Comprehension
28. The resolution of Adam Smith's diamond-water puzzle is based on the distinction between marginal and total utility.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOM’S: Comprehension
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
29. Since price tends to equal marginal utility, the price of water is low and the price of diamonds is high.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOM’S: Comprehension
30. Since price tends to equal total utility, the price of water is low and the price of diamonds is high.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOM’S: Comprehension
31. Scarcity raises both price and marginal utility but generally reduces total utility.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOM’S: Comprehension
32. Quantity demanded is not only affected by price but by variables such as income and the prices of other goods.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
KEYWORDS: BLOOM’S: Comprehension
33. An inferior good is one that consumers buy in smaller quantities when incomes rise.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOM’S: Comprehension
34. If income rises, most consumers will increase the quantity demanded of an inferior good.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOM’S: Comprehension
36. The market demand curve represents the total quantity demanded at each price.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
ACCREDITING STANDARDS: Supply and demand
TOPICS: From Individual Demand Curves to Market Demand Curves
KEYWORDS: BLOOM’S: Comprehension
37. The market demand curve is the horizontal summation of all individual demand curves.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: From Individual Demand Curves to Market Demand Curves
KEYWORDS: BLOOM’S: Comprehension
38. The law of demand ensures that a demand curve has a positive slope.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: From Individual Demand Curves to Market Demand Curves
KEYWORDS: BLOOM’S: Comprehension
39. The law of demand holds that as prices of goods decrease, people are willing to buy more.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: From Individual Demand Curves to Market Demand Curves
KEYWORDS: BLOOM’S: Comprehension
40. Even if all individual demand curves are downwardly sloped, the market demand curve may slope upward.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: From Individual Demand Curves to Market Demand Curves
KEYWORDS: BLOOM’S: Comprehension
41. If a good has "snob appeal," consumers may purchases less when the price falls.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: From Individual Demand Curves to Market Demand Curves
KEYWORDS: BLOOM’S: Comprehension
42. Rolls Royce may actually sell fewer cars at lower prices due to the "snob effect."
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: From Individual Demand Curves to Market Demand Curves
KEYWORDS: BLOOM’S: Comprehension
43. Points along a budget line represent the maximum combinations of two commodities that a consumer can afford.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: Geometry of Available Choices: The Budget Line
KEYWORDS: BLOOM’S: Comprehension
44. The slope of the budget line is determined only by the prices of the commodities purchased.
a. True
b. False
ANSWER: True
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: Geometry of Available Choices: The Budget Line
45. An increase in income produces a parallel, outward shift in the budget line.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: Geometry of Available Choices: The Budget Line
KEYWORDS: BLOOM’S: Comprehension
46. A change in the price of one good results in a rotation of the budget line, so that it is steeper or flatter.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: Geometry of Available Choices: The Budget Line
KEYWORDS: BLOOM’S: Comprehension
47. A decrease in the price of one good results in a parallel shift in the budget line.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: Geometry of Available Choices: The Budget Line
KEYWORDS: BLOOM’S: Comprehension
49. Indifference curves show all combinations of commodities that are equally desirable to the consumer.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: What the Consumer Prefers: Properties of the Indifference Curve
KEYWORDS: BLOOM’S: Comprehension
50. A change in the price of a good will shift the indifference curves.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: What the Consumer Prefers: Properties of the Indifference Curve
KEYWORDS: BLOOM’S: Comprehension
51. Any point on the lowest indifference curve is preferable to a point on a higher indifference curve.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: What the Consumer Prefers: Properties of the Indifference Curve
KEYWORDS: BLOOM’S: Comprehension
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
52. If point A on an indifference curve lies higher (measured vertically) than point B on the same curve, Point A
automatically represents higher total utility than point B.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: What the Consumer Prefers: Properties of the Indifference Curve
KEYWORDS: BLOOM’S: Comprehension
53. The budget line and the indifference curve are geometric devices used to provide a closer look at consumer choice.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: What the Consumer Prefers: Properties of the Indifference Curve
KEYWORDS: BLOOM’S: Comprehension
54. All points on an indifference curve represent combinations of two goods that are equally desirable to the consumer.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: What the Consumer Prefers: Properties of the Indifference Curve
KEYWORDS: BLOOM’S: Comprehension
56. The marginal rate of substitution represents the maximum amount of one commodity a consumer is willing to give up
in exchange for one more unit of another commodity.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Comprehension
57. The slope of an indifference curve represents the maximum amount of one commodity that a consumer is willing to
give up in exchange for one more unit of another commodity.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Comprehension
58. The slope of the budget line is the amount of one commodity that a consumer must give up in order to obtain an
additional unit of the other commodity.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Comprehension
59. The demand curve can be derived from indifference curves by varying the price of the commodity in question.
a. True
b. False
ANSWER: True
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Comprehension
62. A consumer will consume the combination of goods at the point of tangency between the budget line and the
indifference curve.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Comprehension
63. A consumer will consume the combination of goods at the crossing point of a budget line and indifference curve.
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Comprehension
64. An increase in a consumer's income will always increase the demand for a good.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Comprehension
65. A change in the price of one good, such as staples, may affect the quantity demanded of another good, such as rubber
bands.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Supply and demand
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Comprehension
66. By changing the amount of income a consumer has to spend, a change in the price of one good may affect the quantity
demanded of another good.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Comprehension
Multiple Choice
69. Scarcity
a. necessitates choice among consumer goods.
b. of income renders purchase decisions interdependent.
c. affects all consumer decisions.
d. may involve forgoing the pleasure of one good in order to enjoy another.
e. All of the above answers are correct.
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Scarcity, tradeoffs, and o - DISC: Scarcity, tradeoffs, and opportunity cost
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Scarcity, tradeoffs, and opportu - Scarcity, tradeoffs, and opportunity cost
TOPICS: Scarcity and Demand
KEYWORDS: BLOOM’S: Comprehension
70. Which of the following factors is always present in consumer decision making?
a. taxes
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
b. high prices
c. scarcity
d. changing consumer tastes
e. cost-of-living adjustments to income
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Scarcity and Demand
KEYWORDS: BLOOM’S: Comprehension
73. Modern economists measure how much utility Fred gets from a hot dog by
a. asking Fred how many utils he gets from its consumption.
b. examining the price of the hamburger Fred chose not to buy.
c. asking Fred how much of some other good he would give up to get the hot dog. The "other good" can be any
good except money.
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
d. asking Fred how much of some other good he would give up to get the hot dog. The "other good" can be any
good, including money.
ANSWER: d
POINTS: 1
DIFFICULTY: Difficult
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Analysis
Figure 5-1
79. Americans choose cola over other flavors 70 percent of the time. Analysts say this is because cola's flavor is more
robust and durable. Orange soda, for example, suffers from flavor fatigue faster than cola. Also, because cola contains
caffeine, people may be addicted to the stimulant. Which panel in Figure 5-1 best illustrates these facts?
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
a. 1
b. 2
c. 3
d. 4
ANSWER: a
POINTS: 1
DIFFICULTY: Difficult
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOMS: Application
80. A bottle of wine costs $8 and a quiche costs $5. At Robert's present levels of consumption, he spends all his income
and receives marginal utility of $10 from the last bottle of wine and marginal utility of $4 from the last quiche. To
maximize his total utility, Robert should
a. buy less wine and more quiche.
b. buy more wine and less quiche.
c. spend all of his money on wine.
d. change his spending pattern until he buys 8/5ths as much wine as quiche.
ANSWER: b
POINTS: 1
DIFFICULTY: Difficult
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Analysis
Table 5-1
Number of milkshakes consumed 1 2 3
Total utility from milkshakes (in $) $23 $28 $31
Number of sandwiches consumed 1 2 3
Total utility from sandwiches (in $) $40 $43 $45
81. Table 5-1 gives information on George's total utility from consuming milkshakes and sandwiches. If George's income
this week is $15, milkshakes are $3 each, and sandwiches $2, he will maximize his utility if he buys
a. three milkshakes and two sandwiches.
b. three milkshakes and three sandwiches.
c. no milkshakes and as many sandwiches as possible.
d. two milkshakes and three sandwiches.
ANSWER: b
POINTS: 1
DIFFICULTY: Difficult
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOMS: Application
82. The theory of consumer choice is based on the hypothesis that each consumer wants to
a. maximize her total utility.
b. maximize her marginal utility.
c. minimize the rate at which her marginal utility diminishes.
d. minimize the percentage of her consumption diverted to inferior goods.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
88. Total utility will be at its maximum when
a. marginal utility is negative.
b. marginal utility is positive.
c. marginal utility is maximized.
d. marginal utility is zero.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
89. For most goods and most people, marginal utility probably
a. continues to increase as larger quantities are purchased.
b. plummets after the first few units but soon begins to rise.
c. declines as consumption increases.
d. is negative after the first unit of a good is purchased.
e. is positive and rising for most goods.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
90. Elaine values the utility of her first cup of coffee at $1; a second cup, $.75; and a third cup, $.50. If Elaine drinks three
cups of coffee for breakfast, her total utility is equal to
a. $.50, the value of her last cup of coffee.
b. $1.00, the value of her first cup of coffee.
c. marginal utility.
d. $2.25.
e. $1.50.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOMS: Application
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
91. Elaine values the utility of her first cup of coffee at $1; a second cup, $.75; and a third cup, $.50. If Elaine drinks three
cups of coffee for breakfast, her marginal utility is equal to
a. $.50, the value of her last cup of coffee.
b. $1.00, the value of her first cup of coffee.
c. marginal utility.
d. $2.25.
e. $1.50.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOMS: Application
92. Jason considers a crystal bowl, a silver dish, and a pewter figurine, each priced $45 at the local gift shop. He chooses
the silver dish because, according to economic theory
a. his marginal utility per dollar is greatest.
b. his total utility is minimized.
c. his marginal utility is equal to his total utility.
d. silver costs more per ounce than pewter.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Analysis
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
Table 5-2
Number of coconuts 0 1 2 3 4
Robinson's marginal utility C $2.00 $1.88 $1.60 $1.30
94. According to Table 5-2, Robinson's total utility from having two coconuts is ____.
a. $1.87
b. $1.66
c. $3.88
d. This is not determinable from the information in the table.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOMS: Application
Table 5-1B
Number of coconuts 0 1 2 3 4
Robinson's marginal utility C $2.00 $1.88 $1.60 $1.30
96. If a graph of Robinson's marginal utility were constructed from Table 5-1B, it would
a. illustrate the "law" of diminishing marginal utility.
b. be a negatively sloped curve.
c. illustrate a typical consumer's satisfaction derived from consumption of consecutive units of a good.
d. All of the above are correct.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
97. If the marginal utility to Juan of sleeping an extra hour (from 8 a.m. to 9 a.m.) is negative,
a. Juan is better off getting up at 8 a.m.
b. Juan is better off getting up at 9 a.m.
c. Juan's total utility from sleeping must be negative.
d. Juan's average utility from every hour he sleeps must be negative.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
98. The host at a party offers Justin a sixth beer. Justin says, "No thanks, man. The marginal utility of that fifth beer was,
like, 20 cents, but the marginal utility of the sixth would be minus 10 cents." From his comments, we deduce that Justin
a. is an alcoholic.
b. may think that a sixth beer would make him sick.
c. is irrational.
d. wrongly estimates the marginal utility of the fifth beer.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOMS: Application
99. The host at a party offers Justin a sixth beer. Justin says, "No thanks, man. The marginal utility of that fifth beer was,
like, 20 cents, but the marginal utility of the sixth would be minus 10 cents." If Justin consumes the sixth beer, his total
utility will
a. rise by 10 cents.
b. reach a plateau and remain constant.
c. fall by 10 cents.
d. fall below his marginal utility.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Analysis
100. The consumer maximizes his total utility (measured in money terms) when, at his chosen quantity of every good he
buys, marginal utility
a. equals zero.
b. divided by price equals zero.
c. equals price.
d. equals total utility.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
101. Tom is buying a quantity of wheat at which the marginal utility (in dollars) exceeds price. He should
a. reduce wheat consumption, thus raising P to the level at which MU = P.
b. reduce wheat consumption, thus raising MU to the level at which MU = P.
c. increase wheat consumption, thus raising P to the level at which MU = P.
d. increase wheat consumption, thus lowering MU to the level at which MU = P.
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
106. An individual's demand curve for a good is ____ her marginal utility curve for the good.
a. based on
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
b. the mirror image around the vertical axis of
c. twice as steep as
d. half as steep as
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
108. Which of the following scenarios could be an example of increasing marginal utility?
a. A father buying three game CDs for his son.
b. A shopkeeper selling the tenth unit of hamburger.
c. A philatelist buying an additional stamp for collection.
d. A consumer buying an additional unit of apple.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
Table 5-4
Price Quantity
in $ Demanded
80 1
70 2
60 3
50 4
40 5
30 6
20 7
10 8
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
112. Table 5-4 shows the demand schedule for concert tickets for a particular consumer. What will be this consumer's
surplus if the price of tickets is $50?
a. $200
b. $60
c. $260
d. $210
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOM’S: Comprehension
113. Gwen's decision to buy a new television instead of a bicycle for the same price
a. means that opportunity cost is zero since both cost the same amount.
b. would not have involved trade-off and opportunity cost if Gwen had decided to put the money in a bank CD
instead.
c. would not imply a trade-off because of scarcity if Gwen were a multimillionaire.
d. means that the opportunity cost to Gwen is the bicycle that she has given up.
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOM’S: Comprehension
Figure 5-2
117. Suppose that Joan, the only consumer of pork, has a downward-sloping demand curve for pork and faces an upward-
sloping supply curve. If her demand curve shifts out because she develops a craving for pork, then at the new equilibrium
(everything else equal),
a. the price of pork relative to other goods will be higher than before.
b. Joan's marginal utility from every unit of pork she eats will be higher than before.
c. Joan's real income will be lower than before.
d. All of the above are correct.
ANSWER: d
POINTS: 1
DIFFICULTY: Difficult
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOM’S: Analysis
119. For a ____, if incomes rise and prices do not change, quantity demanded will increase.
a. normal good
b. inferior good
c. Giffen good
d. substitute good
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOM’S: Comprehension
123. The Wall Street Journal reports that "hard times aid poultry companies as people eat cheaper fowl." In the language
of economists, this means
a. chicken is an inferior good.
b. chicken has a negative substitution effect.
c. chicken has a positive substitution effect.
d. people's tastes change during recessions.
e. chicken has a positive income effect.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOM’S: Comprehension
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
124. Market demand curves are found by
a. vertically summing individual demand curves.
b. horizontally summing individual demand curves.
c. summing individual demand curves in a parallel fashion.
d. adding the slopes of individual demand curves.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: From Individual Demand Curves to Market Demand Curves
KEYWORDS: BLOOM’S: Comprehension
Figure 5-3
125. Assume the market consists of three consumers with the demand curves in Figure 5-3. At a price of 1, the total
market demand is
a. 40.
b. 80.
c. 140.
d. 150.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Supply and demand
TOPICS: From Individual Demand Curves to Market Demand Curves
KEYWORDS: BLOOM’S: Analysis
126. In Figure 5-3, a decline in price from 3 to 1 will increase market quantity demanded by
a. 30.
b. 40.
c. 50.
d. 60.
ANSWER: a
POINTS: 1
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Supply and demand
TOPICS: From Individual Demand Curves to Market Demand Curves
KEYWORDS: BLOOMS: Application
127. Market demand curves may slope downward even if some individual demand curves do not because
a. the law of demand requires that this is true.
b. lower prices may bring more purchasers into the market.
c. merchants try to sell more at lower prices.
d. people believe expensive goods are better goods.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: From Individual Demand Curves to Market Demand Curves
KEYWORDS: BLOOM’S: Comprehension
129. In Poland's free market, Felix Siemienas is making a fortune in cold cuts. Prices are much higher than formerly.
Siemienas says, "Yes, my prices are high. If nobody buys, I bring my prices down. That is the market rule." This "rule"
best describes
a. the law of diminishing returns.
b. opportunity cost.
c. the law of increasing costs.
d. the law of demand.
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Supply and demand
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: From Individual Demand Curves to Market Demand Curves
KEYWORDS: BLOOMS: Application
130. A well-known women's college whose tuition lagged below similar schools found recruiting difficult and enrollment
falling. A substantial tuition increase was implemented, and dormitories were soon full again. This can be explained by
a. the law of demand.
b. the fact that education at the school was an inferior good.
c. the fact that people sometimes base perceptions of quality on price (snob effect).
d. elastic demand.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: From Individual Demand Curves to Market Demand Curves
KEYWORDS: BLOOM’S: Comprehension
Figure 5-4
135. In Figure 5-4, the rightward shift in budget lines from the one containing point A to the one containing point B
a. resulted from equal price reductions in beer and wine.
b. resulted from an increase in the consumer's income.
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
c. could have been caused by income or price changes.
d. All of the answers above are correct possibilities.
e. None of the above is correct.
ANSWER: d
POINTS: 1
DIFFICULTY: Difficult
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: Geometry of Available Choices: The Budget Line
KEYWORDS: BLOOM’S: Analysis
137. What would happen to the budget line if income as well as prices of both goods increase by the same percentage?
a. A rightward parallel shift in the budget line.
b. A leftward parallel shift in the budget line.
c. A rightward shift in the budget line.
d. No shift in the budget line.
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: Geometry of Available Choices: The Budget Line
KEYWORDS: BLOOM’S: Analysis
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
Figure 5-5
138. Figure 5-5 shows a consumer budget line for french fries and hamburgers. The price of an order fries is $2. The price
of a burger is
a. $1.
b. $2.
c. $4.
d. $8.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: Geometry of Available Choices: The Budget Line
KEYWORDS: BLOOMS: Application
139. Figure 5-5 shows a consumer budget line for French fries and hamburgers. The household allocates a budget for
these two goods.. If the price of an order of french fries is $2, how much income is allocated to fries and burgers
combined?
a. $2
b. $4
c. $20
d. $40
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: Geometry of Available Choices: The Budget Line
KEYWORDS: BLOOM’S: Analysis
140. In Figure 5-5, if the household is spending enough of its budget to purchase 4 orders of fries and the price of an order
of fries is $2, the remainder of the budget available for hamburgers is
a. $10.
b. $12.
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
c. $16.
d. $20.
ANSWER: b
POINTS: 1
DIFFICULTY: Difficult
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: Geometry of Available Choices: The Budget Line
KEYWORDS: BLOOMS: Application
Figure 5-6
Figure 5-8
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
145. In Figure 5-8, the consumer is indifferent between the combinations of beer and wine coolers indicated by points
a. A, C.
b. B, D.
c. C, B.
d. A, B.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: What the Consumer Prefers: Properties of the Indifference Curve
KEYWORDS: BLOOMS: Application
Figure 5-9
147. In Figure 5-9, the consumer's marginal rate of substitution at his optimum choice of X and Y is
a. −1.
b. 16.
c. 8.
d. −8.
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
ANSWER: a
POINTS: 1
DIFFICULTY: Difficult
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: What the Consumer Prefers: Properties of the Indifference Curve
KEYWORDS: BLOOMS: Application
149. If indifference curves and budget lines are used to analyze consumer choice, an inferior good will
a. escape detection when income rises.
b. be easily identified because the quantity purchased will fall as income rises.
c. be easily identified because the quantity purchased will rise as income rises.
d. be easily identified because it will change the slope of the budget line.
e. escape detection because this model does not show that relationship.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Comprehension
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
Figure 5-10
150. In the indifference curve pictured in Figure 5-10, which of the following is clearly true?
a. B is preferred to D.
b. B is preferred to C.
c. A is preferred to B.
d. C is preferred to D.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Analysis
Figure 5-11
151. In Figure 5-11, a consumer is initially at point A. There is a price change and she moves to B. It follows that
a. the demand for beer follows the law of demand.
b. the demand for beer does not follow the law of demand.
c. wine is an inferior good.
d. the consumer is confused.
ANSWER: b
POINTS: 1
DIFFICULTY: Difficult
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Comprehension
Figure 5-12
152. In Figure 5-12, the move in the consumer equilibrium from A to B shows that
a. beer is an inferior good, but wine is a normal good.
b. wine is an inferior good, but beer is a normal good.
c. both beer and wine are normal goods.
d. both beer and wine are inferior goods.
ANSWER: c
POINTS: 1
DIFFICULTY: Difficult
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Analysis
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
Figure 5-13
155. In Figure 5-13, the consumer can afford any combination of X and Y represented by a point
a. on line AB only.
b. on or below line AB.
c. on or above line AB.
d. anywhere on the graph.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Comprehension
157. In Figure 5-13, the slope of the budget line (dropping all minus signs) equals
a. price of good X/price of good Y.
b. price of good Y/price of good X.
c. the minimum number of units of good Y the consumer would have to receive to make him willing to give up
one unit of good X.
d. the minimum number of units of good X the consumer would have to receive to make him willing to give up
one unit of good Y.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOMS: Application
158. According to Figure 5-13, if the price of good X falls, a consumer making her optimal decision will move from a
point on
a. U1 to a point on U3.
b. U2 to a point on U3.
c. U1 to a point on U3.
d. U2 to a point on U1.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOMS: Application
159. If the slope of an indifference curve between two goods decreases as we move from left to right (dropping all minus
signs), we infer that the consumer
a. is less willing to trade away a good when he has a lot of it.
b. is more willing to trade away a good when he has a lot of it.
c. always tries to keep the percentage of his budget spent on each good constant.
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
d. views one of the goods as inferior.
ANSWER: b
POINTS: 1
DIFFICULTY: Difficult
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOMS: Application
160. When the price of a good changes but the price of the only other good bought by a consumer stays constant, his
a. budget line shifts.
b. indifference curves shift.
c. budget line changes slope.
d. indifference curves change slope.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOMS: Application
Figure 5-14
161. Martha initially buys the combination of pens and pencils shown as A in Figure 5-14. After the prices of both goods
change, she buys combination B. It must be true that
a. Martha prefers A to B.
b. Martha prefers B to A.
c. Martha is indifferent between A and B.
d. Martha's preferences between A and B cannot be determined from the information given.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Analysis
162. The slope of a consumer's indifference curve between two commodities represents
a. her marginal rate of substitution between the commodities.
b. the relative prices of the goods.
c. her marginal revenue from selling the commodities.
d. her marginal revenue product from consuming the commodities.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOMS: Application
Figure 5-15
163. Hal initially consumes the combination marked as A in Figure 5-15. After his income increases, Hal consumes
combination B. We can conclude that Hal views
a. X as an inferior good and Y as a noninferior good.
b. X as a noninferior good and Y as an inferior good.
c. both X and Y as noninferior goods.
d. both X and Y as inferior goods.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Analysis
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
Figure 5-16
164. Figure 5-16 shows Adam's purchases of bananas and apples when apples cost $5 each and bananas $4 each. The
information implies that Adam's income
a. must be $9.
b. must be $20.
c. must be $40.
d. Adam's income cannot be determined without further information.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOMS: Application
167. Vicki consumes meatloaf and pizza. To keep her utility constant, you must give her more of one good if you take
some of the other away. This information implies that
a. Vicki's marginal rate of substitution must be constant along her indifference curve.
b. Vicki's indifference curve must have a negative slope.
c. the prices Vicki must pay for meatloaf and pizza are always the same.
d. Vicki's marginal utility from each good must be constant along her indifference curve.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOMS: Application
Figure 5-17
168. In Figure 5-17, which of the marked points would an economist use to help him construct a single demand curve for
X?
a. A and B
b. C and D
c. A and C
d. A and D
ANSWER: d
POINTS: 1
DIFFICULTY: Difficult
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Analysis
169. Which of the following statements about Figure 5-17 must be correct?
a. The consumer pays a higher dollar price per unit for good Y at A than at D.
b. The consumer pays the same dollar price per unit for good Y at A and at B.
c. The consumer pays a higher dollar price per unit for good X at D than at A.
d. The consumer pays a higher dollar price per unit for good X at A than at C.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Analysis
Figure 5-18
Figure 5-19
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Knowledge
Figure 5-7
174. In Figure 5-7, budget line B compared to A clearly shows that the
a. price of wine increased.
b. price of beer decreased.
c. price of beer increased.
d. consumers' money income increased.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Comprehension
176. If the prices of both goods increase by 10 percent, the budget line
a. shifts to the right in parallel fashion.
b. shifts to the left in parallel fashion.
c. is unaffected since only relative price changes matter.
d. pivots on the axis of the more expensive good.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Appendix: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Comprehension
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
179. If marginal utility is a positive number:
a. the more you purchase, the more total utility you get
b. the more you purchase, the less total utility you get
c. utility is not affected by more purchases
d. none of these is correct
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
180. When using the terms "total utility" or "marginal utility" we assume:
a. the consumer will exchange one commodity for another
b. the consumer will part with money for the commodity
c. the consumer has declined to purchase the commodity
d. a and b are correct
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
Essay
181. Why is gold very expensive, even though it is not essential to life, while water, which is essential to life, is
inexpensive?
ANSWER: Because there is a lower supply of gold it has a higher marginal utility, and hence the
willingness to pay for the marginal unit is very high for most consumers. Water is
relatively abundant, and hence its marginal utility is rather low, meaning that the
willingness to pay for the marginal unit is low for most consumers.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOM’S: Comprehension
182. In Figure 5-1 from the text, if the price of pizzas is $8:
a. how many pizzas will the consumer purchase?
b. what is the payment for the optimal number of pizzas?
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
c. how much consumer surplus will the consumer receive?
ANSWER: a. The consumer will purchase 5 pizzas at a price of $8.
b. The payment for 8 pizzas will be $40 ($8 per pizza multiplied by 5 pizzas).
The consumer surplus will be $10 (actual payment of $40 subtracted from total
c.
utility of $50).
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Comprehension
183. Define the following terms. Give a complete and precise definition in one sentence.
a. total utility
b. marginal utility
c. consumer's surplus
d. "law" of demand
ANSWER: Total utility of a good is the satisfaction the consumer receives from consuming a
a. given quantity of the commodity. Measured in money terms, it is the maximum
amount a consumer is willing to give in exchange for the good.
Marginal utility of a good is the satisfaction the consumer receives from the
b. marginal unit consumed. Measured in money terms, it is the maximum amount of
money the consumer is willing to pay for one more unit of the commodity.
Consumer's surplus is the difference between the amount that the quantity of
c. commodity X purchased is worth to the consumer and the amount that the market
requires the consumer to pay for that quantity of X.
The "law" of demand is the principle that a lower price generally is associated with
d.
an increased quantity demanded of a commodity.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOM’S: Knowledge
184. How do you calculate consumer's surplus? What happens to consumer's surplus when the price of a commodity
rises?
ANSWER: Consumer's surplus = Total utility (in money terms) − Total expenditure
Amount of consumer's surplus will decrease when price rises because part of the
consumer surplus will be taken away by the supplier in the form of a higher price.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
KEYWORDS: BLOOM’S: Comprehension
185. Plot the demand for caviar given the following information on quantity consumed and total utility; then explain why
caviar sells for such a high price.
Quantity Total Utility
(in ounces) (in dollars)
1 50
2 75
3 88
4 95
5 99
ANSWER: Figure 5-20
To plot demand, find marginal utility for each ounce of caviar and plot quantity and MU
(see Figure 5-20). At Q = 1, plot $50, at Q = 2, plot 25, . . . , at Q = 5, plot 4.
Since there is only a small supply, the price can be as high as $50 an ounce (if S
intersects D at one ounce). A larger supply would drop P to $25 (if S intersects D at Q =
2), etc.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Supply and demand
TOPICS: Scarcity and Demand
KEYWORDS: BLOOMS: Application
186. Use the law of diminishing marginal utility to explain why Domino's and Pizza Hut allow the purchase of a second
pizza for only $4 when one pays full price (around $10) for the first pizza. Why not simply charge $7 a pizza instead?
ANSWER: The second pizza gives less marginal utility than the first. The companies are trying to
charge a high price for the first pizza, which gives high marginal utility, and get
customers to buy that second pizza, with relatively low marginal utility, by charging a
price that reflects the lower MU. At $7 apiece, the companies might lose selling the
second pizza and be worse off than selling two pizzas at an average price of $7.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
KEYWORDS: BLOOM’S: Comprehension
187. You have five hours left to study for two exams tomorrow. The relationship between hours of study and test scores is
as follows:
Economics Sociology
Hours Score Hours Score
1 50 1 75
2 65 2 85
3 75 3 90
4 80 4 93
5 85 5 5
Use the rule for determining optimal purchases to allocate your time, where each point is one "util" of utility.
ANSWER: Time is money in this example, so you want the most marginal utility per hour spent. The
first hour goes to sociology, which yields MU = 75; hour 2 goes to economics for MU =
50. Hour 3 goes to economics, where MU = 15, and hours 4 and 5 are split between
economics and sociology, each worth MU = 10. Three hours of additional study for
economics yields a 75, and two hours toward sociology yields an 85.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOMS: Application
188. If I use 1,000 gallons of water a month at a price of $.01 a gallon, is my consumer surplus likely to be large or small?
Explain.
ANSWER: The 1,000th gallon will yield no consumer surplus, since MU = P is the decision rule for
optimal purchases. But since MU declines, all gallons before 1,000 will yield CS. The
first gallons will have particularly high CS, since if I had to forgo any drinking water,
water for showers, and water to keep my plants alive, I would lose a lot of utility. In sum,
CS is likely to be large.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOMS: Application
189. Draw individual demands for caviar for Al, Barbara, Chuck, and Denise where Al's demand is relatively inelastic,
Barbara's is elastic, Chuck's is upward sloping, and Denise refuses to eat caviar at any price. Then draw the corresponding
market demand.
ANSWER: Figure 5-21
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
(See Figure 5-21). Al's demand is steep with respect to price, while Barbara's is relatively
flat. Chuck's D slopes up with respect to price, while Denise consumes zero at all prices.
Market demand is a horizontal summation of individual demands at quantities purchased
by A, B, and C (D is zero). Market D will slope down unless Chuck has such a strong
opposite relationship to offset the downward demands of both Al and Barbara.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Supply and demand
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Supply and demand
TOPICS: Demand and Elasticity
KEYWORDS: BLOOMS: Application
190. Bob values the utility of a single scoop of Baskin-Robbins ice cream at $1.50. A double scoop gives total utility of
$2.25, while a triple scoop yields $2.60. Baskin-Robbins charges $1.35 for a single, $1.95 for a double, and $2.35 for a
triple. How many scoops will Bob buy?
ANSWER: Bob will buy a double. The first scoop has marginal utility of $1.50, which exceeds the
price of $1.35. The second scoop has MU of 75 cents, exceeding the marginal price of 60
cents. The third scoop adds MU of 35 cents, which falls below the marginal 40 cents
addition to price.
POINTS: 1
DIFFICULTY: Difficult
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOMS: Application
191. Alice has $10 to spend on wine and cheese. If wine is $2.50 a glass and cheese $2, draw the corresponding budget
line. Then draw three indifference curves, one showing the amount of wine and cheese Alice would choose, one showing
less preferred combinations of wine and cheese, and the last showing preferred but unaffordable combinations.
ANSWER: See Figure 5-22, below.
Figure 5-22
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOMS: Application
192. Draw the point of consumer equilibrium from an indifference map and budget line. Explain why this is the point of
optimization. Be sure your diagram is fully and correctly labeled.
ANSWER: The diagram should look like Figure 5-10 in the text, with for example, point T as the
equilibrium. Point T, the tangency between an indifference curve and the budget line,
maximizes utility on the limited budget. Any other point on the budget line is on a lower
indifference curve (and provides less utility); any other point on the same indifference
curve is more expensive and unattainable for the same amount of money.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOMS: Application
193. Suppose the price of butter falls because milk price supports are removed. Will people's tastes shift away from
margarine and toward butter?
ANSWER: No. This change in relative prices will result in a change in consumption but will not
affect preferences. The indifference map, which measures tastes, does not change when
prices of goods change.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Utility: A Tool to Analyze Purchase Decisions
KEYWORDS: BLOOMS: Application
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
ANSWER: Marginal analysis is a method for calculating optimal choices⎯the choices that best
promote the decision maker's objective. It works by testing whether, and by how much, a
small change in a decision will move things toward or away from the goal. It helps
consumers determine their optimal purchase decisions.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Marginal costs & benefits
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Marginal costs & benefits
TOPICS: Output, Price, and Profit: The Importance of Marginal Analysis
KEYWORDS: BLOOM’S: Comprehension
195. If marginal net utility is positive, the consumer must be buying too small a quantity to maximize total net utility.
Why?
ANSWER: Because marginal utility exceeds price, the consumer can increase total net utility further
by buying (at least) one more unit of the product. In other words, since marginal net
utility (which is marginal utility minus price) tells us how much the purchase of an
additional unit raises or lowers total net utility, a positive marginal net utility means that
total net utility is still going uphill.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Output, Price, and Profit: The Importance of Marginal Analysis
KEYWORDS: BLOOM’S: Analysis
196. Why is it that the consumer can maximize total net utility only if the purchase quantity brings marginal utility as
close as possible to equality with price?
ANSWER: The decision to purchase a quantity of a good that leaves marginal utility greater than
price cannot maximize total net utility, because buying an additional unit would add more
to total utility than it would increase cost. Similarly, it cannot be optimal for the
consumer to buy a quantity of a good that leaves marginal utility less than price, because
then a reduction in the quantity purchased would save more money than it would sacrifice
in utility. Consequently, the consumer can maximize total net utility only if the purchase
quantity brings marginal utility as close as possible to equality with price.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Output, Price, and Profit: The Importance of Marginal Analysis
KEYWORDS: BLOOM’S: Analysis
197. What is the relationship between marginal utility and an individual demand curve?
ANSWER: The marginal utility reveals how much of an item a consumer will purchase at various
prices and is implicitly an individual demand curve. Because marginal utility falls as
consumption increases, a lower price is necessary to generate increased unit purchases of
an item.
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Output, Price, and Profit: The Importance of Marginal Analysis
KEYWORDS: BLOOM’S: Analysis
198. Use consumer indifference curves and budget lines to show the optimal consumption curves for a normal good and
for an inferior good. (Use two graphs.) Be sure your graphs are completely and correctly labeled.
ANSWER: The graphs should look like Figure 5-11 in the text for the normal good and Figure 5-12
for the inferior good.
POINTS: 1
DIFFICULTY: Difficult
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPRPOG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOMS: Application
199. Use consumer indifference curves and budget lines to illustrate the effects of an increase in income for a normal good
and an inferior good (use two graphs). Be sure your diagrams are fully and correctly labeled.
ANSWER: The graphs should look like Figure 5-11 in the text for the normal good and Figure 5-12
for the inferior good. The graph for the inferior good should clearly show the
consumption for one of the goods declining.
POINTS: 1
DIFFICULTY: Difficult
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPRPOG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOMS: Application
Table 5-3
Ice Cream Cones Total Utility
1 50
2 80
3 95
4 95
200. Using Table 5-3, graph the marginal utility curve.
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
ANSWER: Figure 5-23
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Output, Price, and Profit: The Importance of Marginal Analysis
KEYWORDS: BLOOMS: Application
Figure 5-24
201. Given the demand curve in Figure 5-24, explain how consumer's surplus is calculated.
ANSWER: The area under the demand curve above market price is the consumer's surplus, equal in
dollar terms to $36. It represents additional value above market cost for which the
consumer does not have to pay.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Reflective Thinking - BPROG: Analysis
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOMS: Application
202. If you go to a bar tonight and have three beers before going home to study economics, will you likely receive some
consumer surplus? Explain why or why not.
ANSWER: The law of diminishing marginal utility indicates that as more and more of a commodity
is consumed, the marginal utility declines. The optimal purchase rule states that a rational
consumer will keep buying a commodity until the MU falls until it is equal to the price of
the good. These two rules together suggest that you will buy beers until the MU of the
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.
last one is equal to the price. Hence the MU of the first two beers were higher than the
price, and the difference between the MU and the price of each beer is the consumer
surplus.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: Consumer Choice as a Trade-Off: Opportunity Cost
KEYWORDS: BLOOMS: Application
206. What is the marginal rate of substitution, and what role does it play in determining the consumer's optimum choice?
ANSWER: The MRS is the slope of the indifference curve and represents the maximum amount of
one commodity the consumer is willing to give up in exchange for one more unit of
another commodity. The optimum choice of goods occurs where the budget line is
tangent to the highest attainable indifference curve. At that point the MRS equals the
slope of the budget line. In other words, the consumer's willingness to trade one good for
another just equals the market cost of the trade-off.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: DISC: Utility and consumer choic - DISC: Utility and consumer choice
NATIONAL STANDARDS: United States - BPROG: Analytic
ACCREDITING STANDARDS: Utility and consumer choice
TOPICS: The Slopes of Indifference Curves and Budget Lines
KEYWORDS: BLOOM’S: Comprehension
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed
with a certain product or service or otherwise on a password-protected website for classroom use.