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Econ Chapter 21

60 Questions
Econ Chapter 21
Questions and Answers
  • 1. 
         1.   The diamond-water paradox is the observation that
    • A. 

      Those things that have the greatest price often have little value in exchange and those things that have the lowest price often have the greatest value in exchange.

    • B. 

      Those things that have the greatest value in use often have little value in exchange and those things that have little value in use often have the greatest value in exchange.

    • C. 

      Those things that have the least value in use often have little value in exchange and those things that have the greatest value in use often have the greatest value in exchange.

    • D. 

      Those things that have the least price often have little value in exchange and those things that have the greatest price often have the greatest value in exchange.

  • 2. 
    • A. 

      A company that provides electricity, water, gas, etc.

    • B. 

      The satisfaction, in terms of price, that a producer receives from selling his product.

    • C. 

      The satisfaction that results from the consumption of a good.

    • D. 

      The amount of one good that a person is willing to give up in order to get a unit of another good.

    • E. 

      The satisfaction that results from the consumption of a good minus the price that must be paid to get the good.

  • 3. 
         3.   A util is an artificial construct used as a means of measuring the
    • A. 

      Price of a good.

    • B. 

      Satisfaction one receives from the consumption of a good.

    • C. 

      Costs of producing a good.

    • D. 

      Difference between the price and the value of a good.

  • 4. 
         4.   Total utility is defined as the
    • A. 

      Change in marginal utility a person derives from the consumption of a good.

    • B. 

      Change in total utility a person derives from the consumption of a good divided by the price of that good.

    • C. 

      Change in total utility a person derives from the consumption of a good divided by the change in the consumption of that good.

    • D. 

      Sum of the amounts of satisfaction a person receives from consuming a good.

    • E. 

      Change in total utility a person derives from the consumption of a good.

  • 5. 
         5.   Marginal utility is defined as the
    • A. 

      Change in marginal utility a person derives from the consumption of a good.

    • B. 

      Change in total utility a person derives from the consumption of a good divided by the price of that good.

    • C. 

      Change in total utility a person derives from the consumption of a good divided by the change in the quantity of the good consumed.

    • D. 

      Sum of the amounts of satisfaction a person receives from consuming a good.

    • E. 

      Change in total utility a person derives from the consumption of a good divided by the value in use of that good.

  • 6. 
       10.   Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 80, 116, 136, 150, respectively. The marginal utility of the sixth wing is __________ utils.
    • A. 

      14

    • B. 

      136

    • C. 

      20

    • D. 

      22.7

  • 7. 
       15.   Which of the following is true?
    • A. 

      It is possible for total utility to rise as marginal utility falls.

    • B. 

      Marginal utility is the same as total utility.

    • C. 

      As marginal utility falls, total utility always falls.

    • D. 

      A and c

  • 8. 
       20.   You and your roommate are eating pizza and have already consumed all but the last slice. Your roommate claims that he is hungrier than you and therefore should get the last slice of pizza. Your roommate has made
    • A. 

      A diamond-water paradox.

    • B. 

      An interpersonal utility comparison.

    • C. 

      A correct statement.

    • D. 

      A marginal error.

  • 9. 
       25.   Which of the following statements is true?
    • A. 

      The less you have of any one good, the less you would be willing to pay for one more unit of it.

    • B. 

      The less you have of any one good, the more you would be willing to pay for one more unit of it.

    • C. 

      The amount you have of any one good does not influence the price you would be willing to pay for it, but it does affect the marginal utility received from consuming a particular unit.

    • D. 

      None of the above

  • 10. 
       30.   Because there are so few diamonds in the world, the consumption of diamonds
    • A. 

      Takes priority over the consumption of water.

    • B. 

      Takes place at relatively high marginal utility.

    • C. 

      Takes place at relatively low marginal utility.

    • D. 

      Is more important than the consumption of water.

  • 11. 
       35.   Ari is currently consuming 10 hot dogs and 8 hamburgers per week. The last hot dog she consumed yielded 20 utils while the last hamburger she ate gave her 25 utils. If hot dogs cost $2 and hamburgers cost $2.50, is Ari consuming the correct quantities of these two goods to be in consumer equilibrium?
    • A. 

      No, she should consume more hamburgers and fewer hot dogs.

    • B. 

      No, she should consume more hot dogs and fewer hamburgers.

    • C. 

      Yes, so there is no need to change her eating habits.

    • D. 

      There is not enough information to answer the question.

  • 12. 
       40.   In the Texas A & M study of the "buying" behavior of two white rats, as the "relative price" of one beverage was raised,
    • A. 

      Both white rats began to consume more of the higher-priced beverage.

    • B. 

      Both white rats began to consume less of the higher-priced beverage.

    • C. 

      One white rat began to consume more of the higher-priced beverage and the other began to consume less.

    • D. 

      Both white rats continued consuming the same amount of the beverage as before its price was raised.

    • E. 

      There was no study done at Texas A & M with white rats.

  • 13. 
       45.   Diamonds are more expensive than water because
    • A. 

      Markets do not always reflect value.

    • B. 

      They have fewer uses.

    • C. 

      They yield higher marginal utility.

    • D. 

      They yield higher total utility.

    • E. 

      All of the above

  • 14. 
       50.   According to the traditional theory of marginal utility as presented in the textbook, as more units of a good are acquired, the consumer's marginal utility
    • A. 

      Always continues to rise.

    • B. 

      Diminishes.

    • C. 

      Remains constant.

    • D. 

      May diminish at first, but it must eventually rise.

    • E. 

      May rise at first, but it must eventually become constant.

  • 15. 
       55.   Given two goods, X and Y, and their prices, PX and PY a consumer will maximize utility by allocating expenditures such that
    • A. 

      MUX/PY = MUY/PX.

    • B. 

      PY/MUX = PX/MUY.

    • C. 

      MUX/PX = MUY /PY.

    • D. 

      MUX = PX = MUY = PY = MU$.

    • E. 

      MUX = MUY = PX = PY = MU$.

  • 16. 
       60.   Marginal utility is
    • A. 

      The extra satisfaction derived from consuming an additional unit of a good.

    • B. 

      The total satisfaction derived from consuming an additional unit of a good.

    • C. 

      The total satisfaction derived from consuming a good.

    • D. 

      The change in total satisfaction as an additional unit of a good is consumed.

    • E. 

      A and d

  • 17. 
    Units of Plums Total Utility of Plums (utils)
    1 22
    2 34
    3 44
    4 52
    5 57
       61.   Refer to Exhibit 21-1. The marginal utility of the third plum is
    • A. 

      17 utils.

    • B. 

      10 utils.

    • C. 

      8 utils.

    • D. 

      3 utils.

    • E. 

      Cannot be determined

  • 18. 
    • A. 

      18.5 utils.

    • B. 

      7.5 utils.

    • C. 

      37 utils.

    • D. 

      12 utils.

  • 19. 
    Units of Plums Total Utility of Plums (utils)
    1 22
    2 34
    3 44
    4 52
    5 57
       63.   Refer to Exhibit 21-1. The marginal utility of the fourth plum is
    • A. 

      8 utils.

    • B. 

      2 utils.

    • C. 

      10 utils.

    • D. 

      13.5 utils.

    • E. 

      50 utils.

  • 20. 
    Units of Plums Total Utility of Plums (utils)
    1 22
    2 34
    3 44
    4 52
    5 57
       64.   Refer to Exhibit 21-1. In this example, marginal utility
    • A. 

      Constantly increases.

    • B. 

      Constantly diminishes.

    • C. 

      Increases then diminishes.

    • D. 

      Diminishes then increases.

  • 21. 
    Units of Oranges Marginal Utility of Oranges (utils)
    1 20
    2 16
    3 13
    4 11
    5   8
       65.   Refer to Exhibit 21-2. Total utility for the first two units is
    • A. 

      36 utils.

    • B. 

      20 utils.

    • C. 

      40 utils.

    • D. 

      36 utils.

    • E. 

      Cannot be determined

  • 22. 
    Units of Oranges Marginal Utility of Oranges (utils)
    1 20
    2 16
    3 13
    4 11
    5   8
       66.   Refer to Exhibit 21-2. Total utility for the first three units is
    • A. 

      12 utils.

    • B. 

      62 utils.

    • C. 

      49 utils.

    • D. 

      15 utils.

    • E. 

      42 utils.

  • 23. 
    Units of Oranges Marginal Utility of Oranges (utils)
    1 20
    2 16
    3 13
    4 11
    5   8
       67.   Refer to Exhibit 21-2. Total utility for the first four units is
    • A. 

      11 utils.

    • B. 

      60 utils.

    • C. 

      52 utils.

    • D. 

      15 utils.

    • E. 

      40 utils.

  • 24. 
    Units of Oranges Marginal Utility of Oranges (utils)
    1 20
    2 16
    3 13
    4 11
    5   8
       68.   Refer to Exhibit 21-2. Total utility for all five units is
    • A. 

      70 utils.

    • B. 

      12 utils.

    • C. 

      68 utils.

    • D. 

      80 utils.

    • E. 

      40 utils.

  • 25. 
       70.   The law of diminishing marginal utility
    • A. 

      Allows us to make interpersonal utility comparisons.

    • B. 

      Tells us that an additional dollar is worth less to a millionaire than to a poor person.

    • C. 

      Tells us the worth of an additional dollar of income.

    • D. 

      Tells us that an additional dollar of income is worth less than the preceding dollar of income.

    • E. 

      A, b, and d

  • 26. 
       75.   Which of the following is inconsistent with the proposition that gambling in a fair game is not worth it?
    • A. 

      Increasing total utility of money

    • B. 

      Increasing marginal utility of money

    • C. 

      Diminishing marginal utility of money

    • D. 

      Deriving displeasure from gambling

  • 27. 
    Apples Oranges
    Units Total Utility Units Total Utility
    0 0 0 0
    1 15 1 22
    2 28 2 41
    3 39 3 58
    4 48 4 73
    5 55 5 85
       78.   Refer to Exhibit 21-3. Linda spends $5 a week on apples and oranges. If the price of both goods is $1 per unit, how many apples and oranges, respectively, does she purchase per week if she wants to maximize her utility?
    • A. 

      0 and 5

    • B. 

      1 and 4

    • C. 

      2 and 3

    • D. 

      3 and 2

    • E. 

      None of the above

  • 28. 
    Apples Oranges
    Units Total Utility Units Total Utility
    0 0 0 0
    1 15 1 22
    2 28 2 41
    3 39 3 58
    4 48 4 73
    5 55 5 85
       79.   Refer to Exhibit 21-3. Linda spends $5 a week on apples and oranges. If the price of both goods is $1 per unit, what is Linda's total utility from consuming the optimal bundle of goods?
    • A. 

      85

    • B. 

      86

    • C. 

      88

    • D. 

      209

    • E. 

      279

  • 29. 
    Apples Oranges
    Units Total Utility Units Total Utility
    0 0 0 0
    1 15 1 22
    2 28 2 41
    3 39 3 58
    4 48 4 73
    5 55 5 85
       80.   Refer to Exhibit 21-3. Assume that the price of oranges increases to $2, while the price of apples remains at $1, and Linda allocates $5 of the weekly food budget to purchasing apples and oranges. If Linda wants to maximize her utility, her new consumption bundle will consist of
    • A. 

      1 apple and 2 oranges.

    • B. 

      3 apples and 1 orange.

    • C. 

      5 apples and no oranges.

    • D. 

      None of the above

  • 30. 
       85.   Smith says she gets 5 utils from consuming the fifth unit of a good whereas Jones says he gets 10 utils from consuming the fifth unit of a good. It follows that
    • A. 

      The fifth unit of the good means more to Jones than Smith.

    • B. 

      The fifth unit of the good means more to Smith than Jones.

    • C. 

      The fifth unit of the good means twice as much to Jones as it means to Smith.

    • D. 

      If the law of diminishing marginal utility holds, both Smith and Jones will get less utility from the sixth unit of the good than the fifth.

    • E. 

      A and d

  • 31. 
       90.   Smith, who has $10,000, receives an extra dollar, as does Jones, who has $100,000. Smith receives more utility from the extra dollar than does Jones. This is an example of
    • A. 

      An interpersonal utility comparison.

    • B. 

      The law of diminishing marginal utility.

    • C. 

      The diamond-water paradox.

    • D. 

      A and b

  • 32. 
       95.   If, as a person consumes additional units of a good, total utility rises by a constant amount, it follows that
    • A. 

      Marginal utility is rising.

    • B. 

      Marginal utility is falling.

    • C. 

      Total utility and marginal utility are equal.

    • D. 

      Marginal utility is constant.

    • E. 

      Marginal utility is negative.

  • 33. 
    100.   The MU/P ratio for good X is greater than the MU/P ratio for good Y. To achieve consumer equilibrium, the consumer reallocates dollars from the purchase of good Y to the purchase of good X. If the law of diminishing marginal utility holds, the marginal utility of good X __________ and the marginal utility of good Y __________.
    • A. 

      Falls, rises

    • B. 

      Rises, falls

    • C. 

      Rises, stays constant

    • D. 

      Falls, stays constant

    • E. 

      Stays constant, rises

  • 34. 
    • A. 

      Y; Y; 12

    • B. 

      X; X; 24

    • C. 

      Y; Y; there is not enough information to answer this part of the question.

    • D. 

      X; X; there is not enough information to answer this part of the question.

  • 35. 
    Units of Good Consumed Total Utility (utils) Marginal Utility (utils)
    1 40 40
    2 (A) 35
    3 (B) 20
    4 100 (C)
    5 (D) 2
    110.   Refer to Exhibit 21-4.  What value goes in blank (A)?
    • A. 

      30

    • B. 

      100

    • C. 

      80

    • D. 

      75

    • E. 

      There is not enough information to answer this question.

  • 36. 
    Units of Good Consumed Total Utility (utils) Marginal Utility (utils)
    1 40 40
    2 (A) 35
    3 (B) 20
    4 100 (C)
    5 (D) 2
    111.   Refer to Exhibit 21-4.  What value goes in blank (B)?
    • A. 

      95

    • B. 

      150

    • C. 

      45

    • D. 

      100

    • E. 

      There is not enough information to answer this question.

  • 37. 
    Units of Good Consumed Total Utility (utils) Marginal Utility (utils)
    1 40 40
    2 (A) 35
    3 (B) 20
    4 100 (C)
    5 (D) 2
    112.   Refer to Exhibit 21-4.  What value goes in blank (C)?
    • A. 

      25

    • B. 

      5

    • C. 

      14.5

    • D. 

      10

    • E. 

      There is not enough information to answer this question.

  • 38. 
    Units of Good Consumed Total Utility (utils) Marginal Utility (utils)
    1 40 40
    2 (A) 35
    3 (B) 20
    4 100 (C)
    5 (D) 2
    113.   Refer to Exhibit 21-4.  What value goes in blank (D)?
    • A. 

      102

    • B. 

      111

    • C. 

      118

    • D. 

      25

    • E. 

      There is not enough information to answer this question.

  • 39. 
    115.   The marginal utility curve for units 1 through 5 of good Z lies above the horizontal axis.  What does this imply must be true about the total utility curve for units 1 through 5 of good Z?
    • A. 

      That portion of good Z’s total utility curve must be upward sloping.

    • B. 

      That portion of good Z’s total utility curve must be downward sloping.

    • C. 

      That portion of good Z’s total utiity curve must be horizontal.

    • D. 

      That portion of good Z’s total utility curve must also lie above the horizontal axis.

  • 40. 
    Units of Good Consumed Total Utility (utils) Marginal Utility (utils)
    1 20 20
    2 30 (A)
    3 (B) 8
    4 (C) 6
    5 (D) 3
    • A. 

      12.0

    • B. 

      13.5

    • C. 

      10.0

    • D. 

      14.0

    • E. 

      There is not enough information to answer this question.

  • 41. 
    Units of Good Consumed Total Utility (utils) Marginal Utility (utils)
    1 20 20
    2 30 (A)
    3 (B) 8
    4 (C) 6
    5 (D) 3
    117.   Refer to Exhibit 21-5.  What value goes in blank (B)?
    • A. 

      27

    • B. 

      38

    • C. 

      40

    • D. 

      35

    • E. 

      There is not enough information to answer this question.

  • 42. 
    • A. 

      28

    • B. 

      16

    • C. 

      44

    • D. 

      50

    • E. 

      There is not enough information to answer this question.

  • 43. 
    Units of Good Consumed Total Utility (utils) Marginal Utility (utils)
    1 20 20
    2 30 (A)
    3 (B) 8
    4 (C) 6
    5 (D) 3
    119.   Refer to Exhibit 21-5.  What value goes in blank (D)?
    • A. 

      47

    • B. 

      15

    • C. 

      35

    • D. 

      60

    • E. 

      There is not enough information to answer this question.

  • 44. 
    120.   Suppose that there are two cities that are alike in every way except that one city has significantly better weather than the other city.  Call the city with good weather Good-Weather City (GWC) and the other Bad-Weather City (BWC).  Assume that the median price of a home in the two cities is originally the same.  If the marginal utility of living in GWC is 500 and the marginal utility of living in BWC is 300, to make themselves better off economic theory tells us that
    • A. 

      At least some people will move from BWC to GWC, which will make housing prices rise in GWC and BWC.

    • B. 

      At least some people will move from GWC to BWC, which make housing prices rise in BWC and GWC.

    • C. 

      At least some people will move from BWC to GWC, which will make housing prices rise in GWC and fall in BWC.

    • D. 

      At least some people will move from GWC to BWC, which will make housing prices rise in BWC and fall in GWC.

  • 45. 
    125.   If the MU/P ratio for two goods is the same, then
    • A. 

      The slope of the budget constraint between the two goods is equal to the marginal rate of substitution (MRS) between the two goods.

    • B. 

      The indifference curve between the two goods is concave to the origin.

    • C. 

      The prices of the two goods are the same.

    • D. 

      It follows that consumers prefer fewer goods to more goods.

    • E. 

      A and c

  • 46. 
    130.   Refer to Exhibit 21-6. I1, I2 and I3 are indifference curves and line ab is the relevant budget constraint. The equilibrium position for the consumer is at
    • A. 

      Any point on the budget constraint.

    • B. 

      Point M.

    • C. 

      Point J.

    • D. 

      Point T.

    • E. 

      Point R.

  • 47. 
    131.   Refer to Exhibit 21-6. I1, I2 and I3 are indifference curves and line ab is the relevant budget constraint. If the consumer is initially at point R, he should
    • A. 

      Strive for point N by obtaining a larger money income.

    • B. 

      Purchase more of X and less of Y.

    • C. 

      Remain at that point in order to maximize utility.

    • D. 

      Purchase more of Y and less of X.

    • E. 

      None of the above

  • 48. 
    132.   Refer to Exhibit 21-6. I1, I2 and I3 are indifference curves and line ab is the relevant budget constraint. Point N is
    • A. 

      The consumer's equilibrium position.

    • B. 

      Unattainable

    • C. 

      Inferior to every other labeled point on the diagram.

    • D. 

      Attainable, but does not exhaust the consumer's income.

  • 49. 
    135.   If a person's income falls, his or her budget constraint moves
    • A. 

      Inward toward the origin, and its slope changes.

    • B. 

      Outward away from the origin, and its slope remains the same.

    • C. 

      Inward toward the origin, and its slope remains the same.

    • D. 

      Outward away from the origin, and its slope changes.

    • E. 

      None of the above

  • 50. 
    138.   Refer to Exhibit 21-7. Which of the following graphs represents a budget constraint of a consumer whose income is $120?
    • A. 

      (1)

    • B. 

      (2)

    • C. 

      (3)

    • D. 

      (1) and (2)

    • E. 

      This cannot be determined from the information provided.

  • 51. 
    139.   Refer to Exhibit 21-7. The price of X is $40 and the price of Y is $80. Assuming that the consumer allocates all of his income to good X, how many units of X will he purchase? (Request: Do not ask the instructor to which graph the question is referring.)
    • A. 

      40

    • B. 

      50

    • C. 

      80

    • D. 

      90

    • E. 

      120

  • 52. 
    140.   Refer to Exhibit 21-7. For graph (2), if the price of X is $60, what is the consumer's income?
    • A. 

      $1,000

    • B. 

      $2,000

    • C. 

      $3,000

    • D. 

      $6,000

    • E. 

      This cannot be determined from the information provided.

  • 53. 
    141.   Refer to Exhibit 21-7. For graph (3), if the price of Y is $200, the price of X is
    • A. 

      $50.

    • B. 

      $40.

    • C. 

      $30.

    • D. 

      $25.

    • E. 

      $15.

  • 54. 
    142.   Refer to Exhibit 21-7. For graph (1), if the price of X is $20, the price of Y is
    • A. 

      $10.

    • B. 

      $40.

    • C. 

      $80.

    • D. 

      $100.

    • E. 

      $160.

  • 55. 
    143.   Refer to Exhibit 21-7. The relative price of X in terms of Y is the greatest on graph
    • A. 

      (1).

    • B. 

      (2).

    • C. 

      (3).

    • D. 

      This cannot be determined based on the information provided

  • 56. 
        144.    Refer to Exhibit 21-8. If the price of good X falls, the budget constraint moves from budget constraint
    • A. 

      1 to 2.

    • B. 

      3 to 2.

    • C. 

      3 to 1.

    • D. 

      1 to 3.

  • 57. 
    145.   Refer to Exhibit 21-8. If the price of good X rises, the budget constraint moves from budget constraint
    • A. 

      1 to 2.

    • B. 

      2 to 3.

    • C. 

      3 to 1.

    • D. 

      1 to 3.

    • E. 

      A or c

  • 58. 
    146.   Refer to Exhibit 21-8. A move of the budget constraint from 1 to 2 is caused by a
    • A. 

      Rise in the price of good X.

    • B. 

      Fall in the price of good X.

    • C. 

      Rise in the price of good Y.

    • D. 

      Fall in income.

  • 59. 
    • A. 

      Rise in the price of good X.

    • B. 

      Fall in the price of good X.

    • C. 

      Rise in the price of good Y.

    • D. 

      Fall in income.

  • 60. 
    148.   Research conducted by Nicholas Epley and his colleagues at Harvard showed that people will spend a _________________ percentage of money given to them if it is  ________________ rather than
    • A. 

      Smaller; cash; a rebate check.

    • B. 

      Greater; termed a rebate; a bonus.

    • C. 

      Greater; termed a bonus; a rebate.

    • D. 

      Smaller; a rebate check; cash.

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