Chapter 6

Consumer Choice
1) AM06 \ C \\ Utilitarianism \ 1 \\ Although the idea that people seek pleasure and try to avoid pain dates back to Epicurus and other ancient Greeks, the individual usually acknowledged as the founder of the modern school of thought known as utilitarianism was: (a) Thorstein Veblen. (b) John Stuart Mill. (c) Jeremy Bentham. (d) Fyodor Dostoyevsky. (e) William James. 2) AM06 \ C \\ Utilitarianism \ 1 \\ Advocacy of maximizing happiness for the greatest number of people is a hallmark for: (a) laissez faire capitalism. (b) monarchy. (c) utilitarianism. (d) democratic socialism. (e) communism. 3) AM06 \ A \\ Utilitarianism \ 1 \\ Possible use of a felicific calculation to determine punishments for crimes was derived from: (a) Jeremy Benthams utilitarianism. (b) Greshams Law. (c) Says Law. (d) Marshalls Maxim. (e) medieval scholasticism. 4) AM06 \ B \\ Utilitarianism \ 1 \\ Suppose that when faced with the Faustian option [a deal with the devil] of torturing an innocent child in the interest of securing world peace and an end to world hunger, Hamlet equivocates, but ultimately opts for the torture and becomes the worlds savior. In doing so, Hamlet would have shown an implicit belief in a moral system based on: (a) totalitarianism. (b) utilitarianism. (c) inquisition. (d) pragmatism. (e) utilization.

Ralph Byrns

Chapter 6: Consumer Choice

Test Bank One

5) AM06 \ B \\ Utilitarianism \ 1 \\ Utilitarianism proposes that the best society is one that provides the: (a) basic goods to meet peoples needs. (b) greatest happiness for the greatest number of people. (c) accurate measurement of utility and disutility. (d) highest guaranteed incomes for everyone. 6) AM06 \ D \\ Categories of Goods \ 1 \\ A produced tangible good is known as a: (a) service. (b) consumable. (c) utility. (d) commodity. 7) AM06 \ D \\ Value \ 2 \\ The value of commodities and services is often decomposed into value in: (a) dollars and value in Euros. (b) absolute prices and value in relative prices. (c) households and value in firms. (d) use and value in exchange. 8) AM06 \ A \\ Marginalism \ 2 \\ Economists believe that rational decisions are usually made: (a) at the margin. (b) on the average. (c) based on totals. (d) randomly. (e) All of the above. 9) AM06 \ C \\ Marginalism and Optimization \ 2 \\ Most microeconomic models hinge on assumptions that all choices by every individual reflect attempts to: (a) conform to cultural norms and social mores. (b) propagate the individuals gene pool into future generations. (c) balance the expected personal marginal benefits of each activity with its expected personal marginal costs. (d) maximize accounting profits and minimize losses. (e) achieve class, status, and power.

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10) AM06 \ C \\ Decisions at the Marginal \ 2 \\ The least clear example of how decisions are usually at the margin would be: (a) a floral shop hiring an extra clerk and opening earlier in hopes of boosting revenues by half. (b) eating less when the menu is a-la-carte than at an all-you-can-eat buffet. (c) basing the invasion of Iraq on fears that Iraq was acquiring weapons of mass destruction. (d) mulling about whether or not to eat a fifth cookie having already eaten four. (e) basing how much more you will study for a final exam on the score you need to earn an A. 11) AM06 \ A \\ Marginal Utility \ 2 \\ Marginal utilities: (a) reflect subjective preferences. (b) are realistically measured by wealth. (c) are set by a democratic majority. (d) decline as total production falls. 12) AM06 \ B \\ Optimization and Heuristics \ 2 \\ No one can perform all the mental gymnastics necessary to perfectly process information so that all their decisions are mathematically optimal, so most people rely heavily on mental shortcuts that cognitive psychologists and behavioral economists call: (a) windage. (b) heuristics. (c) compromises. (d) rational ignorance. (e) reconciliations. 13) AM06 \ E \\ Subjective Prices \ 1 \\ Mike trades six vintage baseball cards for Jakes original Ty Cobb card. If Mikes six cards had equal total market value with Jakes Ty Cobb card, this trade would reflect: (a) opportunity cost. (b) demand price. (c) unfair incentive. (d) comparative advantage. (e) differences in their subjective values for these cards. 14) AM06 \ A \\ Demand \ 2 \\ Changes in gasoline prices do NOT alter short-run demands for: (a) gasoline. (b) bigger versus smaller cars. (c) alternative forms of transportation. (d) tires, batteries, and spark plugs.

Ralph Byrns

Chapter 6: Consumer Choice

Test Bank One

15) AM06 \ A \\Substitutes and Complements\ 2 \\ An increase in the price of a good usually also increases the: (a) demands for its substitutes. (b) supply of its complements. (c) purchasing power of consumer incomes. (d) demand for its complements. 16) AM06 \ C \\ Product Differentiation \ 2 \\ Most mass advertising is intended to: (a) provide accurate information on price and product quality. (b) boost output to conform to consumer preferences. (c) alter consumer preferences. (d) provide free TV entertainment and keep newspaper prices low. 17) AM06 \ C \\ Law of Diminishing Marginal Utility \ 2 \\ Karina gets 27 utils from her first ice cream cone in an hour, and 23 extra utils from her second that hour. How many utils is she likely to get from a third cone? (a) 19 utils. (b) 15 utils. (c) probably less than 23 utils. (d) between 23 and 27 utils. 18) AM06 \ C \\ Law of Diminishing Marginal Utility \ 2 \\ You get an A on your Econ test on Monday and decide to reward yourself with a cookie every day for the rest of the week. By Thursday, you dont really care for any more cookies. This best represents the: (a) income effect (b) law of diminishing returns (c) law of diminishing marginal utility* (d) inefficiency (e) a demand curve 19) AM06 \ C \\ Law of Diminishing Marginal Utility \ 2 \\ The law of diminishing marginal utility states that: (a) total utility increases up to a point and then decreases as more units of the good are consumed. (b) total utility reaches a negative value when the good is considered a bad. (c) marginal utility decreases after some point, as more units of the goods are consumed. (d) None of the above.

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20) AM06 \ E \\ Law of Diminishing Marginal Utility \ 2 \\ Marginal utility most clearly diminished when: (a) Eric sang six songs instead of only one on karaoke night at the local club. (b) Mollys piano lessons absorbed 20 hours last week she could have spent studying. (c) Karen built twelve boxes but only needed nine for her current science project. (d) Dash lied to Amanda 22 times before she finally caught him on his 23rd lie. (e) Tom enjoyed his third piece of cherry pie last night less than his second. 21) AM06 \ A \\ Law of Diminishing Marginal Utility \ 2 \\ The law of diminishing marginal utility may be evidenced by a person: (a) smoking more but enjoying it less. (b) buying a new car after getting a raise. (c) distributing surplus food to starving children. (d) who studies harder in college than in high school. 22) AM06 \ C \\ Diminishing Marginal Utility \ 3 \\ An economic good becomes an economic bad when consumption is extended into a region where: (a) marginal returns are diminishing. (b) sellers experience a moral hazard. (c) marginal utility is negative. (d) buyers suffer from adverse selection. (e) excessive choices create confusion. 23) AM06 \ E \\ Goods and Bads \ 2 \\ When the marginal utility of a good becomes zero or negative: (a) goods are converted into bads. (b) total utility reaches a maximum and then declines. (c) the maximum net benefits have been squeezed from the good. (d) people are unwilling to pay for extra units of the good. (e) All of the above. 24) AM06 \ B \\ Income and Substitution Effects \ 2 \\ Economists decompose how consumers react to a change in the price of a good into the: (a) diminishing marginal utility effect and the indifference effect. (b) income effect and the substitution effect. (c) total utility effect and the preference effect. (d) indifference effect and the enhancement effect.

Ralph Byrns

Chapter 6: Consumer Choice

Test Bank One

25) AM06 \ D \\ Income and Substitution Effects \ 2 \\ The downward slope of consumer demand curves for normal goods is partially explained by: (a) income effects. (b) substitution effects. (c) diminishing marginal utility. (d) All of the above. 26) AM06 \ A \\ Substitution Effect \ 2 \\ The substitution effect helps most in explaining why: (a) demand curves slope down. (b) goods are either substitutes or complements. (c) air travel costs less than walking cross-country. (d) uncertainty about quality justifies government control. 27) AM06 \ C \\ Substitution Effect \ 2 \\ Sally is so rich that money barely matters to her, but when the price of JIF chunky peanut butter doubled Sally switched to Peter Pan chunky peanut butter. This change is an example of the: (a) income effect. (b) retribution effect. (c) substitution effect. (d) principle of equal total utilities per dollar. (e) payback effect. 28) AM06 \ D \\ Substitution Effect \ 3 \\ Price hikes yield less substitution away from a good the more: (a) close substitutes there are for the good. (b) different uses there are to which the good was put at the lower price. (c) extended are the time periods allowed for adjustment. (d) complements there are for the good. (e) rich people than poor people there are buying the good. 29) AM06 \ A \\ Substitution Effect \ 2 \\ Substitution occurs when prices change so that demand curves are negatively-sloped because of the behavior of consumers that most directly underpins the law of: (a) equal marginal utilities per dollar. (b) diminishing total utility. (c) the income effect. (d) supply. (e) the invisible hand.

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30) AM06 \ D \\ Income and Substitution Effects \ 3 \\ The direction of the income effect cannot be: (a) negative for inferior goods. (b) positive for luxury goods. (c) zero for a good that some people consider a necessity. (d) predicted if we know only the size and direction of the substitution effect. 31) AM06 \ C \\ Income and Inferior Goods \ 3 \\ For a non-vegetarian, Spam is to filet mignon as: (a) luxury goods are to necessities. (b) risk is to uncertainty. (c) inferior goods are to normal goods. (d) broccoli is to beets. (e) complementary goods are to substitute goods. 32) AM06 \ C \\ Income Effect\ 3 \\ For normal goods that experience price changes, the income effect: (a) identifies how higher money income affects demands for goods. (b) invalidates the law of diminishing marginal utility. (c) reinforces the substitution effect. (d) offsets the substitution effect. 33) AM06 \ C \\ Income Effect \ 2 \\ When your purchasing power falls because the price of a good you buy rises, you make adjustments because of the: (a) consumer surplus effect. (b) price level effect. (c) income effect. (d) marginal utility effect. 34) AM06 \ E \\ Income Effect \ 2 \\ Jay saved $200 to buy a Zowie digital camera after her friend showed Jay the Zowie she bought for $200 at a nearby camera store. Luckily, the camera was on sale for $150 during a one-hour Managers Special sale when Jay finally went to the store. Jay used the unexpected $50 discount to buy a case and a memory card. The purchase of the case and memory card is an example of the: (a) paradox of value. (b) substitution effect. (c) law of diminishing marginal utility. (d) utilitarianism principle. (e) income effect.

Ralph Byrns

Chapter 6: Consumer Choice

Test Bank One

Figure A0635

35) AM06 \ B \ A0635 \ Consumer Equilibrium \ 3 \\ Josh will spend $24 of his weekly food budget on tuna fish milk shakes and huge chorizo tacos, each of which cost $4 per unit. Josh maximizes his satisfaction by buying: (a) 1 shake, 5 tacos. (b) 2 shakes, 4 tacos. (c) 6 shakes, zero tacos. (d) zero shakes, 6 tacos. (e) 3 shakes, 3 tacos. 36) AM06 \ B \ A0635 \ Consumer Equilibrium \ 3 \\ If jollies and utils are synonyms, the combination of tuna fish milk shakes and chorizo tacos that maximizes Joshs weekly total satisfaction from these delicacies generates: (a) 112 utils or jollies. (b) 114 utils or jollies. (c) 116 utils or jollies. (d) 118 utils or jollies. 37) AM06 \ A \\ Income Effect \ 3 \\ If your income is closely and positively tied to the price of a given product, an increase in its price may cause: (a) an income effect that, in extreme cases, yields a positively sloped demand curve. (b) you to go bankrupt. (c) a powerful positive substitution effect. (d) elimination of any meaningful budget constraint. (e) an early heart attack.

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38) AM06 \ C \\ Inferior Goods \ 2 \\ If the amount of a good your family buys increases as your family income decreases, the good is a/an: (a) durable good. (b) complementary good. (c) inferior good. (d) normal good. (e) luxury good. 39) AM06 \ C \\ Consumer Equilibrium: Utility Maximization \ 2 \\ Suppose you are an avid golfer and gain $36 worth of pleasure from the first golf hole played on any given day, but the extra pleasure you gain from playing succeeding holes drops by $2 per extra hole. A $40 greens fee is required to start golfing but you can then play as many holes as you like with no additional fees. On days when you play golf, you will usually play: (a) nine holes per day. (b) twelve holes per day. (c) eighteen holes per day. (d) 24 holes per day. (e) 36 holes per day. 40) AM06 \ C \\ Consumer Equilibrium \ 2 \\ The relative utility from the last dollar spent on food is the ratio: (a) marginal utility of food/production cost of food. (b) price of food/total grocery bill. (c) marginal utility of food/price of food. (d) price of food/marginal utility of food. 41) AM06 \ C \\ Consumer Equilibrium \ 2 \\ Given a MU of French fries of 35 utils and a MU for a serving of potato chips at 25 utils, if their respective prices are $1.50 and $.80, a person who wishes to maximize utility from the consumption of both of these goods would consume: (a) the same amount of servings of both goods. (b) more French fries relative to potato chips. (c) more potato chips relative to French fries. (d) cannot be determined from information given.

Ralph Byrns

Chapter 6: Consumer Choice

Test Bank One

Figure A0642

42) AM06 \ D \ A0642 \ Consumer Equilibrium \ 3 \\ In equilibrium for this coffee drinker, the marginal utility of cappuccino diminishes when: (a) total utility per cup of cappuccino increases with a move from point b to point a. (b) the price of cappuccino increases from P1 to P2. (c) P1/q1 < P2/q2. (d) the price of cappuccino decreases from P5 to P4. (e) the ratio of the marginal utilities per dollar spent on cappuccino exceeds the ratios of the marginal utilities of all other goods per dollar. 43) AM06 \ C \ A0642 \ Law of Equal Marginal Advantage \ 3 \\ If this coffee drinker is in equilibrium in all forms of consumption and drinks q4 cappuccinos per week: (a) the price per cappuccino must be P4. (b) cappuccino must independently yield the maximum total utility possible from cappuccino. (c) the marginal utilities of all goods per dollar spent must equal the ratio MU[cappuccino]/P2. (d) the marginal utility of cappuccino must equal P4. 44) AM06 \ A \\ Consumer Equilibrium \ 3 \\ Most people cannot alter relative market prices but have some control over the relative subjective prices of goods they consume. They are most likely to make market prices and subjective prices compatible if they: (a) increase purchases of goods for which subjective prices exceed market prices, and vice versa. (b) consciously alter their tastes and preferences to conform with market prices. (c) decrease consumption of goods for which subjective prices exceed market prices, and vice versa. (d) learn to live with less whenever subjective prices are greater than market prices.

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45) AM06 \ A \\ Consumer Equilibrium \ 2 \\ If your marginal utility from $5 movies averages 50 utils and your marginal utility from $2 gallons of gasoline is 20 utils, you can: (a) not add to your satisfaction by changing this mix. (b) gain by buying less gasoline and seeing more movies. (c) gain by devoting less money to both gasoline and movies. (d) gain by watching fewer movies and buying more gasoline. (e) None of these. Figure A0646

46) AM06 \ C \ A0646 \ Consumer Spending \ 3 \\ If you had an irrational passion for tofu burgers, at $4 each you would spend: (a) $12.00 per week. (b) $14.00 per week. (c) $16.00 per week. (d) $18.00 per week. (e) $20.00 per week. 47) AM06 \ D \ A0646 \ Consumer Surplus \ 3 \\ Your consumer surplus at $4 per tofu burger would be: (a) $5.00 per week. (b) $6.00 per week. (c) $7.00 per week. (d) $8.00 per week. (e) $9.00 per week.

Ralph Byrns

Chapter 6: Consumer Choice

Test Bank One

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48) AM06 \ C \\ Consumer Equilibrium \ 2 \\ Kelly spends his entire food budget on doughnuts and steak, and could exchange 2 pounds. of steak for 4 doughnuts without changing his level of satisfaction. If the price of doughnuts is 50 cents and steak is $2.00 per pound., Kelly will probably adjust by: (a) raising his food budget and cutting spending on entertainment. (b) substituting some steak for some doughnuts to raise his level of utility. (c) substituting some doughnuts for some steak to raise his level of utility. (d) become a vegetarian. 49) AM06 \ E \\ Equal Marginal Utilities \ 2 \\ The idea that, in equilibrium, the more you pay for a good the more it is worth (at the margin) to you is most closely related to the: (a) law of diminishing returns. (b) equal satisfaction corollary. (c) increasing cost hypothesis. (d) Veblen effect. (e) principle of equal marginal utilities per dollar. 50) AM06 \ D \\ Law of Equal Marginal Advantage \ 2 \\ The last cents spent on every good must yield equivalent subjective gains according to the principle of: (a) diminishing returns. (b) demand and supply. (c) satiation. (d) equal marginal utilities per dollar. (e) subjective preferences. 51) AM06 \ B \\ Law of Equal Marginal Advantage \ 2 \\ A corollary of the law of equal marginal advantage is the principle of: (a) diminishing marginal utility. (b) equal marginal utilities per dollar. (c) diminishing returns. (d) substitution in demand. (e) income injection. 52) AM06 \ B \\ Law of Equal Marginal Advantage \ 2 \\ A consumer who spends income so that the ratio of MUs of all goods purchased equals the ratio of their prices is: (a) spending too much. (b) maximizing total utility. (c) beyond the point of diminishing negative utility. (d) behaving incompatibly with a purely competitive economy.

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53) AM06 \ C \\ Law of Equal Marginal Advantage \ 2 \\ Applying the law of equal marginal advantage to consumer behavior yields the principle of: (a) diminishing marginal utility. (b) overt selectivity. (c) equal marginal utilities per dollar. (d) effective demonstration. (e) increasing cost. 54) AM06 \ A \\ Law of Equal Marginal Advantage \ 2 \\ The marginal utility [extra jollies derived from the last unit consumed] of each of the particular goods you buy regularly is probably most closely correlated with each goods: (a) market price. (b) consumer surplus. (c) value as a status symbol. (d) total utility. (e) producers surplus. 55) AM06 \ D \\ Law of Equal Marginal Advantage \ 2 \\ Suppose that last week your food budget yielded five utils from your last $4 burrito; and four utils from your last $5 hot fudge sundae. Buying one: (a) more burrito and one less sundae this week would decrease total utility. (b) more sundae and one less burrito this week would increase total utility. (c) less burrito and one more sundae this week would increase total utility. (d) more burrito and one less sundae would increase total utility this week. 56) AM06 \ B \\ Law of Equal Marginal Advantage \ 2 \\ Zeus received one million dollars for winning every event in the recent Olympics. In the past, he would have frivolously exhausted his winnings on lightning bolts, but after studying economics, he knows that maximizing consumer jollies requires adjusting his purchases until: (a) he acquires enough exercise equipment to ensure winning all events at the next Olympics. (b) the last drachma spent on every other good he buys yields the same satisfaction as the last drachma he spends on lightning bolts. (c) spending each day until the next Olympics is the same as spending on every other day. (d) interest from his investments boosts his wealth so that it equals the treasure his brother, Poseidon, buried in the deep blue sea. 57) AM06 \ B \\Consumer Surplus\ 2 \\ The difference between the price a consumer would have been willing to pay for a commodity and the price the consumer actually has to pay is called: (a) profit. (b) consumer surplus. (c) the income effect. (d) the substitution effect.
Ralph Byrns Chapter 6: Consumer Choice Test Bank One

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Figure A0658

58) AM06 \ B \ A0658 \ Total Value including Consumer Surplus \ 3 \\ If quantities on the horizontal axis are measured in thousands of bottles of whiskey and if the market price of whiskey in this figure is $10 per bottle, the maximum amount of money whiskey drinkers would be willing to pay for 8,000 bottles of whiskey would equal: (a) $48,000 per year. (b) $80,000 per year. (c) $112,000 per year. (e) $200,000 per year. 59) AM06 \ C \ A0658 \ Consumer Surplus \ 3 \\ If the untaxed market price of whiskey in this figure is $10 per bottle, the annual consumer surplus experienced by whiskey drinkers would correspond to area: (a) area acd. (b) area 0bde. (c) area cbd. (d) area abd. (e) area 0cde. 60) AM06 \ A \ A0658 \ Consumer Surplus and Producer Surplus \ 3 \\ Suppose the initial equilibrium in this graph is at point f. The sum of consumer surplus and producer surplus [aka economic rent] would correspond to: (a) area acd. (b) area 0bde. (c) area cbd. (d) area abd. (e) area 0cde.

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61) AM06 \ C \\ Consumer Surplus \ 2 \\ Which of the following goods generates the greatest consumer surplus? (a) free downloading to pirate your favorite songs. (b) slices of pizza. (c) water. (d) college textbooks. (d) diamonds. 62) AM06 \ B \\ Consumer Surplus \ 2 \\ If a single price is charged for each unit of a good, the area above the price line but below an individuals demand curve is: (a) consumer income. (b) consumer surplus. (c) total revenue. (d) producer surplus. 63) AM06 \ C \\ Consumer Surplus \ 2 \\ Average prices for numerous goods tend to fall when Wal-Mart opens a store in a new market area. These price cuts are most likely to yield increases in the average: (a) economic profits of local restaurants. (b) accounting profits of local stores operated by Sears, K-Mart, and the Gap. (c) consumer surpluses of many people who customarily shop in the area. (d) price elasticities of market demands for the goods Wal-Mart sells. (e) producer surpluses enjoyed by the relatively smaller retail establishments in the area. 64) AM06 \ A \\ Consumer Surplus \ 3 \\ Consumer surplus is most likely to be increased by: (a) wise and efficient use of grocery store coupons. (b) increases in production costs. (c) legal limits on exorbitant profits. (d) growth of the average number of children per family. (e) regulation forbidding the sale of inferior goods.

Ralph Byrns

Chapter 6: Consumer Choice

Test Bank One

15

65) AM06 \ B \\ Consumer Surplus \ 3 \\ Suppose you gain $36 worth of pleasure from the first hole of golf played on any given day because you are an avid golfer, but the extra pleasure you gain from playing succeeding holes drops by $2 per extra hole. A $40 greens fee is required to start on any given day but you can then play as many holes as you like with no additional fees. If you played nine holes one morning and then had to leave the course because of a family emergency, the total consumer surplus you would have received that day from playing golf would have been worth roughly: (a) 252 dollars. (b) 212 dollars. (c) 172 dollars. (d) 132 dollars. (e) 92 dollars. 66) AM06 \ B \\ Consumer Surplus \ 1 \\ Kiley pays $1.00 for a cold Pepsi on a hot afternoon, but would be willing to pay $5.00. The $4.00 difference in these amounts is her: (a) income effect. (b) consumer surplus. (c) economic profit. (d) pleasure coefficient. (e) marginal utility. 67) AM06 \ A \\ Consumer Surplus \ 1 \\ Clark pays $99.95 for a new fishing rod. If Clark was willing to pay only a maximum of $99.95 for that fishing rod, his consumer surplus equals: (a) zero. (b) $99.95. (c) Clark would not be willing to purchase the fishing rod at $99.95. (d) Clark would be better-off buying fish at the store. 68) AM06 \ A \\ Consumer Surplus \ 3 \\ Sushi lovers would be most likely to gain more consumer surplus as a result of increases in the: (a) supply of sushi. (b) price of steamed rice. (c) incomes of sushi producers. (d) wages of sushi chefs. (e) population of sushi lovers.

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69) AM06 \ E \\ Deadweight Losses and Taxation \ 1 \\ When a tax on a good yields less government revenue than the sum of the losses of consumer and producer surpluses due to the tax, economists say that the tax has caused a/an: (a) bureaucratic loss. (b) market failure. (c) economic loss. (d) administrative loss. (e) deadweight loss. 70) AM06 \ B \\ Biography: Thorstein Veblen \ 1 \\ The idea that the desire of people to buy goods is culturally determined as opposed to price determined is the view of: (a) Antoine Augustin Cournot. (b) Thorstein Veblen. (c) Karl Marx. (d) Ludwig von Mises. (e) Irving Fisher. 71) AM06 \ A \\ Positional Goods \ 1 \\ Consider such things as tattoos, yachts, Harley-Davidsons, mansions, or bling. When the satisfaction derived from a good depends only weakly on the intrinsic attributes of the good and more strongly on how the good signals group membership or the power, status, or social class of a consumer, the individual who buys such a good is buying a: (a) positional good. (b) Veblen good. (c) luxury good. (d) bandwagon good. (e) snob good. 72) AM06 \ C \\ Paradox of Value \ 2 \\ Because diamonds are very expensive relative to water, the: (a) basic needs of people dont include water. (b) consumer surplus from consuming diamonds is relatively large. (c) marginal utility of diamonds is much higher than the marginal utility of water. (d) chemical in a diamond (carbon) is less common than those in water (H2O). 73) AM06 \ C \\ Paradox of Value \ 2 \\ The paradox of value (also known as the diamond-water paradox) arises from: (a) high transaction costs. (b) low transaction costs. (c) failures to distinguish between total utility and marginal utility. (d) marginal utility exceeding total utility. (e) total utility exceeding marginal utility.
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74) AM06 \ A \\ Paradox of Value \ 2 \\ Clean drinking water is available at a much lower price than the costs of equivalent amounts of gold. This fact is most consistent with the result that when a consumer is in equilibrium, the: (a) total utility of water is much higher than its marginal utility, but the total utility of gold does not exceed its marginal utility by very much. (b) marginal utility of gold and the marginal utility of water are equal. (c) water is necessary for survival but gold is a pure luxury good. (d) marginal utility of water is higher than the total utility of gold. (e) marginal utility of gold far exceeds its total utility. 75) AM06 \ B \\ Attributes of Goods \ 2 \\ The intrinsic characteristics that create or detract from the satisfaction derived from consuming a good are known as: (a) factors. (b) attributes. (c) utilities. (d) anomalies. (e) pedigrees. 76) AM06 \ A \\ Transaction Costs \ 2 \\ Higher income families are far more likely to buy automatic garage door openers than people with lower incomes primarily because automatic garage door openers: (a) save time and provide convenience that rich people value relatively more. (b) are status symbols only the rich can afford. (c) rich people have more cars and garages. (d) absorb fewer funds than manually opening the garage door. (e) require highly intelligent operators. 77) AM06 \ A \\ Transaction Costs \ 2 \\ In the long run, the activities of successful speculators tend to: (a) reduce the volatility of prices. (b) attract legal attention resulting in imprisonment. (c) increase the level and volatility of prices. (d) yield tremendous profits and raise costs to consumers. 78) AM06 \ D \\ Rational Ignorance \ 2 \\ When decision makers choose not to pursue further information because the expected reward for searching for it does not exceed its expected cost, the result is: (a) adverse selection. (b) consumer exploitation. (c) unintended consequences. (d) rational ignorance. (e) asymmetric information.
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79) AM06 \ B \\ Rational Ignorance \ 1 \\ Not learning everything possible about someone before you marry them is an example of: (a) adverse selection. (b) rational ignorance. (c) economic dishonesty. (d) blind indifference. (e) moral hazard. 80) AM06 \ E \\ Rational Ignorance \ 2 \\ Suppose a student takes out a college loan that requires 12% annual interest, but later learns that his aunt makes loans to family members at 5% interest. The student has suffered from a problem known as: (a) perverse opportunity costs. (b) blind indifference. (c) the adverse income effect. (d) the ethical dilemma. (e) rational ignorance. 81) AM06\ C \\Analysis Paralysis\1\\ Consumers confronting vast arrays of choices when they contemplate selecting one brand of toothpaste out of fifty, or whether to buy pulp-free, calcium-fortified, not-from-concentrate orange juice, or the extra-pulp, non-calcified, from-concentrate version, often experience: (a) cognitive slippage. (b) choice deprivation. (c) analysis paralysis. (d) sensory underload. 82) AM06 \ B \\ Asymmetric Information \ 2 \\ Adverse selection and moral hazard are most significant in: (a) the United States. (b) markets dominated by one-time transactions. (c) internet markets. (d) perfectly competitive markets. 83) AM06 \ E \\ Asymmetric Information \ \ 2 \\ Asymmetric information on quality can result in: (a) not all potential gains from exchange being realized. (b) lower equilibrium prices. (c) purchases of unexpectedly low-quality items known as lemons. (d) fewer transactions. (e) All of the above.

Ralph Byrns

Chapter 6: Consumer Choice

Test Bank One

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84) AM06 \ A \\ Asymmetric Information \ 3 \\ When two parties have unequal levels of knowledge about issues in a bargaining situation: (a) potential abuses of asymmetric information exist. (b) the payoff matrix is invariably asymmetric. (c) the more knowledgeable negotiator will gain from the transaction and the party with less knowledge will lose. (d) gains from the transaction will be split in proportion to relative knowledge. 85) AM06 \ B \\ Moral Hazard \ 2 \\ If insurance companies reimburse insured individuals for all medical bills they submit: (a) hypochondria will tend to be cured very quickly. (b) people would tend to frequent the doctor's office more often. (c) an immoral selection problem would foster underutilization. (d) the share of national income devoted to health care would fall. (e) all of the above. 86) AM06 \ C \\ Moral Hazard \ 3 \\ If you pay a straight A student in advance to write your term paper and that person spends the money on a party and then decides not to do a good job so that you wind up with an F for submitting sloppily written gibberish, you have just suffered because of: (a) plagiaristic license. (b) adverse selection. (c) moral hazard. (d) adaptive expectations. 87) AM06 \ A \\ Moral Hazard \ 1 \\ Failing to lock your door when you go out because you have theft insurance is an example of the problem of: (a) moral hazard. (b) apathy. (c) indifference. (d) market power. (e) adverse selection. 88) AM06 \ A \\ Adverse Selection \ 2 \\ A popular sporting goods magazine publishes a report on the quality and safety of various brands of ski equipment. This report would be most likely to resolve a problem consumers face because of: (a) adverse selection. (b) brand-name bias. (c) high priced ski equipment. (d) excess profit in the ski industry.

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89) AM06 \ B \\ Adverse Selection \ 3 \\ If an heiresss fianc plans to murder her soon after the wedding in order to inherit her estate, she has apparently been victimized by: (a) irrational ignorance. (b) adverse selection. (c) cognitive dissonance. (d) moral hazard. 90) AM06 \ C \\ Adverse Selection \ 2 \\ If Sally Sleaze sells Terry Tonedeaf a low quality boom-box by advertising it as top of the line, there is a problem of: (a) moral hazard. (b) irrational ignorance. (c) adverse selection. (d) paradoxical value. 91) AM06 \ B \\ Adverse Selection \ 2 \\ When an on-line seller deceived you into buying a defective fully preloaded iPod, you have lost because of: (a) cognitive dissonance. (b) adverse selection. (c) rational ignorance. (d) bait-and-switch deception. (e) moral hazard. 92) AM06 \ E \\ Laws and Regulations \ 1 \\ Caveat emptor means: (a) let the seller beware! (b) everything else held constant. (c) let things change if they must. (d) charge whatever the market will bear. (e) let the buyer beware! 93) AM06 \ B \\ Laws and Regulations \ 1 \\ The Latin phrase that means let the buyer beware is: (a) laissez - faire. (b) caveat emptor. (c) fiat justitia, ruat coelum. (d) caveat venditor. (e) e pluribus unum.

Ralph Byrns

Chapter 6: Consumer Choice

Test Bank One

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94) AM06 \ C \\ Laws and Regulations \ 2 \\ Caveat venditor is an ancient legal doctrine that encourages: (a) a buyer beware approach. (b) consumer exploitation. (c) enforcement of sellers liabilities for damages and penalties for fraud. (d) socialist forms of production. 95) AM06 \ A \\ Laws and Regulations \ 1 \\ Caveat venditor is an ancient legal doctrine that, when products are defective or fraudulently represented, imposes legal liabilities on the: (a) seller of the good. (b) resource owner. (c) government, for failing to protect consumers. (d) buyer, for failing to exert due caution. (e) workers who made the good.

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