Practice Questions Chapter 7,8 Ghazalian/Davidson spring 2009 1. Refer to the table below.

What is the total utility of the five cans of pop (soft drink)? Cans of Pop Total Utility 1 2 3 4 5 14 __ 36 44 __ Marginal Utility __ 12 __ __ 6

A) 6.

B) 8.

C) 50.

D) 44.

2. The following table describes utility for consuming cans of pop. At what point does the law of diminishing marginal utility set in? Cans of Pop 1 2 3 4 5 6 7 A) Between 3 and 4. B) Between 4 and 5. Total Utility 14 30 47 57 56 50 42 C) Marginal utility diminishes everywhere. D) Marginal utility never diminishes.

3. The principle of rational choice assumes people A) consume until marginal utility begins to fall. B) maximize total utility.

C) maximize marginal utility. D) maximize consumption.

4. A) B) C) D)

Faced with a bushel of strawberries, the rational individual would eat all of the strawberries. eat strawberries until the satisfaction from the last strawberry is maximized. eat strawberries until the satisfaction from eating strawberries is maximized. eat strawberries until the satisfaction from eating the last strawberry begins to fall.

5. In choosing between two products, a rational consumer will choose the product that gives her A) the greatest total utility per dollar. C) the highest cost per additional unit of utility. B) the least marginal utility per dollar. D) the lowest cost per additional unit of utility.

6. Joan is deciding where to spend her spring break. If she goes to Cancun, Mexico, the trip will give her 9,000 units of utility and will cost her $300. If, instead, she travels to Florida, the trip will give her 8,000 units of utility and will cost her only $200. Joan will do best A) going to Mexico because her total pleasure will be greater. B) going to Florida because her total cost will be lower. C) going to Mexico because her pleasure per dollar will be greater. D) going to Florida because her pleasure per dollar will be greater. 7. You're maximizing utility when A) (MU of X)/ (P of X) > (MU of Y)/ (P of Y) B) (MU of X)/ (P of X) < (MU of Y)/ (P of Y)

C) (MU of X)/ (P of X) = (MU of Y)/ (P of Y) D) (MU of X)/ (P of Y) = (MU of Y)/ (P of X)

8. A Big Mac hamburger meal costs $3.00 giving you an additional 5 units of utility; a meal at the Four Season's Hotel costs $27.00 giving you an additional 45 units of utility. According to the theory of rational choice A) you should eat the Big Mac meal. B) you should eat at the Four Season's Hotel. C) you would be indifferent between eating the Big Mac and eating at the Four Season's Hotel. D) you will decide that eating at the Four Season's Hotel is preferable because though the marginal utilities of both the meals are the same, the total utility is greater in the case of the meal at the Four Season's Hotel.

9. Refer to the following table to answer the question: Apple Pies (P = $1) Q TU MU 0 0 1 10 10 2 18 8 3 24 6 Fish Sandwich (P = $1.50) Q TU MU 0 0 1 12 12 2 18 6 3 21 3

Assuming the above tables describe your taste and that you must buy whole pies and whole sandwiches, how would you spend $3 to maximize utility? A) Buy three apple pies. C) Buy one apple pie and one fish sandwich. B) Buy two fish sandwiches. D) Buy two apple pies.

10. Refer to the table below. If the price of one can of Alpo is $1 and the price of each McBurger is $2, which of the following would Ms. Tightwad, a utility maximizing consumer, buy with her $4? Alpo Cans Total Consumed Utility per Day (Units of utility) 0 0 1 7 2 13 3 16 4 17 A) 4 cans of Alpo. B) 2 cans of Alpo and 2 McBurgers. McBurgers McBurgers Total Consumed Utility per day (Units of utility) 0 0 1 16 2 28 3 36 4 40 C) 2 cans of Alpo and 1 McBurger. D) 2 McBurgers.

11. Refer to the table below. If the price of one can of Alpo is $1 and the price of each McBurger is $1, which of the following would Ms. Tightwad, a utility maximizing consumer, buy with her $4? Alpo Cans Total Consumed Utility per Day (Units of utility) 0 0 1 7 2 13 3 16 4 17 A) 4 McBurgers. B) 3 McBurgers and 1 can of Alpo. McBurgers McBurgers Total Consumed Utility per day (Units of utility) 0 0 1 16 2 28 3 36 4 40 C) 2 McBurgers and 2 cans of Alpo. D) 1 McBurger and 3 cans of Alpo.

12. Refer to the table below. At this level of consumption of Goods A and B, the consumer Good A Good B MU 100 500 Price $ 20 $ 50 is maximizing satisfaction for the given expenditure. could increase total satisfaction for a given expenditure by increasing the consumption of A and decreasing that of B. could increase total satisfaction for a given expenditure by increasing the consumption of B and decreasing that of A. should only consume A.

A) B) C) D)

Chapter 8 Use the following to answer questions 13-14:

13. Refer to the graph above. Which price combination is consistent with the income constraint shown? A) $3 a bagel, $2 a croissant. C) $2 a bagel, $4 a croissant. B) $2 a bagel, $2 a croissant. D) $6 a bagel, $3 a croissant.

14. Refer to the graph above. Given this income constraint, if bagels cost $1.80 each, then croissants must cost A) $0.90 each. B) $1.80 each. C) $3.60 each. D) It is impossible to know from the information given.

Use the following to answer questions 15-17:

16 14 12 10 8 6 4 2 0 0

Carnival Games

2 3 4 5 6 7 Ferris Wheel Rides

15. Refer to the graph above. Assuming each carnival game costs $1 and each Ferris wheel ride costs $2, a consumer with $10 to spend would optimally choose to consume A) at point A. B) at point B. C) at point C. D) at point D.

16. Refer to the graph above. Assuming each carnival game costs $1 and each Ferris wheel ride costs $2, a consumer with $16 to spend would optimally choose to consume A) at point A. B) at point B. C) at point C. D) at point D. 17. Refer to the graph above. A consumer would be expected to change consumption from point A to point B in response to A) a decrease in the price of C) an increase in income. carnival games. B) a decrease in the price of Ferris D) a decrease in income. wheel rides.

18. Using indifference curve analysis, you can identify the point at which a consumer maximizes utility where A) the slope of the indifference curve is -1. B) the slope of the income line is -1. C) the slope of the indifference curve is equal to the slope of the income line. D) the slope of the indifference curve is greater than the slope of the income line.

Use the following to answer questions 19-22:

19. Refer to the graph above. Assuming a consumer has $5 to spend, if a pop costs $0.25 and a chocolate bar costs $0.50, the consumer would optimally choose to consume A) at point A. C) 0 cans of pop and 10 chocolate bars. B) at point B. D) 20 cans of pop and 0 chocolate bars.

20. Refer to the graph above. Assuming a consumer has $5 to spend, if a pop costs $0.50 and a chocolate bar costs $0.50, the consumer would optimally choose to consume A) at point A. C) 10 cans of pop and 0 chocolate bars. B) at point B. D) 0 cans of pop and 10 chocolate bars.

21. Refer to the graph above. A consumer would be expected to change consumption from point A to point B in response to A) an increase in the price of pop. C) an increase in income. B) an increase in the price of chocolate bars. D) a decrease in the price of pop.

22. Refer to the graph above. The diagram demonstrates that an increase in the price of pop will A) raise the quantity demanded of pop. C) raise the quantity demanded of chocolate bars. B) reduce the quantity demanded of pop. D) reduce the consumer's available income.

Use the following to answer questions 23-25:

20 18 16 14 12 10 8 6 4 2 0

Quantity of Good Y

C A B

0 2 4 6 8 1012141618202224262830

Quantity of Good X
7

Quantity of Good Y

6 5 4 3 2 1 0

E F

0 2 4 6 8 1012141618202224262830

Quantity of Good X

23. Refer to the graph above. Assume the consumer's income constraint is $60. A rational consumer will be at point D on the demand for X curve if A) the price of X is $2. B) the price of X is $3. C) the price of X is $6. D) the price of Y is $6.

24. Refer to the graph above. Which of the following combinations of points best illustrates rational consumer choice assuming income is $60, the price of X is $3, and the price of Y is $3? A) A and D. B) B and E. C) C and F. D) A and F.

25. Refer to the graph above. If income is $60 and the price of Y is $3, a decrease in the price of X from $3 to $2 would cause A) a movement from point A to point B. B) a movement from point C to point B. C) a movement along the demand curve from point D to point E. D) a movement along the demand curve from point E to point F.

26. A) B) C) D)

Using the indifference curve model, a demand for X curve is derived by allowing the price of Y to change and holding the price of X and income constant. allowing income to change and holding the price of X and the price of Y constant. allowing the price of X to change and holding the price of Y and income constant. allowing the price of X and the price of Y to change and holding income constant.

Use the following to answer questions 27-28:

B C D

27. Refer to the graph above. An indifference curve with a constant marginal rate of substitution is shown by A) A. B) B. C) C. D) D. Ans: A Difficulty: Medium LO: 7-6 Page: 164 Skill: Comprehension Source: Old Type: Graph 28. Refer to the graph above. If pen and ink are perfect complements, the indifference curve representing the consumption of pen and ink is best described by A) A. B) B. C) C. D) D. Ans: B Difficulty: Hard LO: 7-6 Page: 173 Skill: Application Source: Old Type: Graph