Practicequestions-ConsumerTheory.pdf

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Department
English
Course
ENGL1202
Professor
Curtis
Semester
Winter

Description
E0C4N Halis Yildiz ECN 104 Practice Questions Consumer Theory 1. Which of the following statements is correct? A. Utility and usefulness are synonymous. B. The marginal utility derived from successive units of a product tends to be similar for all consumers. C. Because utility is not measurable, the utility-maximizing rule provides no useful insights as to consumer behaviour. D. A product may yield utility, but not be functionally useful 2. If a rational consumer is in equilibrium, which of the following conditions will hold true? A. MU =aMU = MUb= ... =cMU . n B. The marginal utility of each good purchased will be zero. C. The marginal utility of the last dollar spent on each good purchased will be the same. D. The total utility obtained from each good purchased will be the same. 3. If the price of normal good X rises, the income: A. and substitution effects will both induce the consumer to buy less of X. B. and substitution effects will both induce the consumer to buy more of X. C. effect will induce the consumer to buy more of X and the substitution effect will induce him to buy less. D. effect will induce the consumer to buy less of X and the substitution will induce him to buy more. 4. The price ratio of the two products is the: A. marginal rate of substitution. B. slope of the budget line. C. point of tangency for equilibrium. D. elasticity of demand for the two products. 5. Which of the following is correct? A. Budget lines are linear and upward sloping; indifference curves are downward sloping and concave to the origin. B. Budget lines are linear and downward sloping; indifference curves are downward sloping and concave to the origin. C. Budget lines are linear and downward sloping; indifference curves are downward sloping and convex to the origin. D. Budget lines are downward sloping and convex to the origin; indifference curves are linear and downward sloping. 6. Refer to the diagram above where xy is the relevant budget line and I , I , 1nd2I are i3difference curves. The equilibrium position for the consumer is at: A. any point on xy. B. point M. C. point K. D. point J. 7. Refer to the diagram above where xy is the relevant budget line and I , I , 1nd2I are i3difference curves. Point M: A. is the consumer's equilibrium position. B. is unobtainable. C. is inferior to point N. D. entails the highest attainable level of total utility. 8. Suppose X is a normal good. If the price of X decreases: A. the income and substitution effects will both cause the consumer to buy less of X. B. the income and substitution effects will both induce the consumer to buy more of X. C. the income effect will cause the consumer to buy more of X and the substitution effect will cause the consumer to buy less. D. the income effect will cause the consumer to buy less of X and the substitution will cause him to buy more. 9. If a product has a diminishing but positive marginal utility, then: A. a reduction in consumption by one unit will increase total utility. B. the product cannot be an inferior good. C. total utility increases at a diminishing rate. D. total utility decreases at a diminishing rate. 10. Other things equal, if the marginal utility from successive units of product Y yields to smaller and smaller amounts of extra satisfaction, we would expect the consumer: A. will buy additional units of Y if its price increases. B. will buy less units of Y if its price decreases. C. will buy additional units of Y if its price falls. D. will not change the units of Y purchased. 11. A consumer, faced with a fixed income and constant prices for all goods consumed, can only increase total utility if: A. the ratios of marginal utilities to prices are not equal for all goods consumed. B. all goods consumed have diminishing marginal utility. C. total utility is less than marginal utility. D. total utility is greater than marginal utility. 12. Assume that product Alpha and product Beta are both priced at $1 per unit and that Ellie has $20 to spend on Alpha and Beta. The marginal utility of Alpha is 40 and the marginal utility of Beta is 20. This indicates that: A. Ellie should make no change in consumption. B. given another dollar, Ellie should buy an additional unit of Beta. C. in order to maximize utility, Ellie should buy more of Beta and less of Alpha. D. in order to maximize utility, Ellie should buy more of Alpha and less of Beta. 13. A consumer is in equilibrium and is spending income in such a way that the marginal utility of product X is 40 units and Y is 16 units. The unit price of X is $5. The price of Y is: A. $1 per unit. B. $2 per unit. C. $3 per unit. D. $4 per unit. 14. Sharon Jones purchases two products, mineral water and popcorn. The marginal utility of mineral water is 60 and the marginal utility of popcorn is 30. The price of a bottle of mineral water is $2.00 and the price of a box of popcorn is $1.00. The utility-maximizing rule suggests that Sharon should: A. increase consumption of popcorn and decrease consumption of mineral water. B. increase consumption of popcorn and increase consumption of mineral water. C. decrease consumption of popcorn and increase consumption of mineral water. D. make no change in the consumption of mineral water or popcorn. 15. Mrs. Schultz is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that: A. the two commodities are substitute goods. B. Mrs. Schultz should spend more on pretzels and less on soda. C. Mrs. Schultz should spend more on soda and less on pretzels. D. Mrs. Schultz is buying soda and pretzels in the utility-maximizing amounts. 16. If MU /a =a100/$35 = MU /P = 3b0/b = MU /P = 400/?c tce prices of products b and c in consumer equilibrium: A. cannot be determined from the information given. B. are $105 and $140 respectively. C. are $105 and $175 respectively. D. are $100 and $200 respectively. The following total utility data is for products L and M. Assume that the prices of L and M are $3 and $4 respectively and that the consumer's income is $18. 17. Refer to the above data. How many units of the two products will the consumer purchase? A. 3 of L and none of M B. 4 of L and 2 of M C. 3 of L and 5 of M D. 2 of L and 3 of M 18. Refer to the above data. What level of total utility does the consumer realize in equilibrium? A. 87 utils B. 51 utils C. 114 utils D. 58 utils The marginal utility schedules for product X and produc
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