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Indifference Curve and Units Essay

When a good or service satisfies wants, we say that it provides:  A. utility maximization. B. opportunity cost. C. revenue potential. D. utility. 2. Refer to the above data. The value for Y is: A. 25. B. 30. C. 40. D. 45. 3. Refer to the above data. The value for X is: A. 15. B. 5. C. 55. D. 10. 4. Refer to the above data. The value for W is: A. 15. B. 20. C. 25. D. 30. 5. Refer to the above data. The value for Z is: A. -5. B. +5. C. -10. D. zero. 6. A product has utility if it: A. takes more and more resources to produce successive units of it. B. violates the law of demand. C. satisfies consumer wants.

D. is useful. 7. The law of diminishing marginal utility states that: A. total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. B. beyond some point additional units of a product will yield less and less extra satisfaction to a consumer. C. price must be lowered to induce firms to supply more of a product.

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D. it will take larger and larger amounts of resources beyond some point to produce successive units of a product. 8. The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility.

His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is:  A. 26 units of utility. B. 6 units of utility. C. 8 units of utility. D. 38 units of utility. 9. Marginal utility is the: A. sensitivity of consumer purchases of a good to changes in the price of that good. B. change in total utility obtained by consuming one more unit of a good. C. change in total utility obtained by consuming another unit of a good divided by the change in the price of that good. D. total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed. 0. Marginal utility: A. is equal to total utility divided by the number of units consumed. B. is equal to total utility if the demand curve is linear. C. increases as more of a product is consumed. D. diminishes as more of a product is consumed. 11. Which of the following is correct? A. There is no firm mathematical relationship between marginal utility and total utility. B. Total utility is equal to the change in marginal utility from consuming an additional unit of a product. C. If marginal utility is diminishing and is a positive amount, total utility will increase. D.

If marginal utility is diminishing, total utility must also be diminishing. 12. The law of diminishing marginal utility explains why:  A. supply curves slope upward. B. demand curves slope downward. C. drug addicts can never get enough. D. people will only consume their favorite goods and not try new things. 13. While eating at Alex’s “Pizza by the Slice” restaurant, Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed, and would only receive 5 units of satisfaction from consuming a second slice. Based on this information we can conclude that:  A.

Alex may have to lower the price to convince Kara to buy a second slice. B. Kara will not eat a second slice, even if it is given to her at no charge. C. Kara will definitely want to buy a second slice of pizza. D. even if Kara buys a second slice, she will not buy a third slice. 14. The alternative combinations of two goods which a consumer can purchase with a given money income is shown by:  A. a production possibilities curve. B. a demand curve. C. consumer expenditure line. D. a budget line. 15. The budget line shows: A. the amount of product A that a consumer is willing to give up to obtain one more unit of product B.

B. all possible combinations of two goods that can be purchased, given money income and the prices of the goods. C. the minimum amount of two goods that a consumer can purchase with a given money income. D. all possible combinations of two goods that yield the same level of utility to the consumer. 16. Refer to the budget line shown in the diagram above. If the consumer’s money income is $20, the:  A. prices of C and D cannot be determined. B. price of C is $2 and the price of D is $4. C. consumer can obtain a combination of 5 units of both C and D. D. price of C is $4 and the price of D is $2. 17.

Refer to the budget line shown in the diagram above. If the consumer’s money income is $20, which of the following combinations of goods is unattainable? A. 4 units of C, and 6 units of D. B. 5 units of C, and no units of D. C. 1 unit of C, and 8 units of D. D. 2 units of C, and 6 units of D. 18. In moving along a given budget line: A. the prices of both products and money income are assumed to be constant. B. each point on the line will be equally satisfactory to consumers. C. money income varies, but the prices of the two goods are constant. D. the prices of both products are assumed to vary, but money income is constant. 9. An increase in money income: A. shifts the consumer’s budget line to the right. B. shifts the consumer’s budget line to the left. C. increases the slope of the budget line. D. has no effect on the budget line. 20. In drawing a budget line it is assumed that: A. consumer preferences are fixed. B. the prices of the two products are variable. C. money income is fixed. D. consumer willingness to substitute between the two products is fixed. 21. Any combination of goods lying outside of the budget line:  A. implies that the consumer is not spending all his income. B. yields less utility than any point on the budget line.

C. yields less utility than any point inside the budget line. D. is unattainable, given the consumer’s income. 22. Suppose you have a money income of $10, all of which you spend on Coke and popcorn. In the above diagram, the prices of Coke and popcorn respectively are:  A. $. 50 and $1. 00. B. $1. 00 and $. 50. C. $1. 00 and $2. 00. D. $. 40 and $. 50. 23. Suppose Elroy’s budget line is as shown on the above diagram. If his tastes change in favor of Coke and against popcorn, the budget line will: A. become steeper. B. become flatter. C. shift rightward. D. be unaffected. 24. A budget line shows the: A. lternative combinations of two goods that a consumer can purchase with a given money income. B. alternative combinations of two goods that will yield the same level of total utility to a consumer. C. quantities of a particular good that a consumer will buy at various prices. D. ratio of money income to product price. 25. Other things equal, an increase in a consumer’s money income:  A. increases the amount of utility a consumer receives from a given quantity of a good. B. shifts her budget line rightward because she can now purchase more of both products. C. eliminates the individual’s economizing problem.

D. causes the consumer to choose a different combination of goods along a given budget line. 26. The slope of a budget line reflects the: A. desirability of the two products. B. price ratio of the two products. C. amount of the consumer’s income. D. utility ratio of the two products. 27. Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line:  A. is 5. B. is 1/5. C. is 4. D. is 20. 28.

Suppose that Julia receives a $20 gift card for the local coffee shop, where she only buys lattes and muffins. If the price of a latte is $4 and the price of a muffin is $2, then we can conclude that Julia:  A. should only buy muffins. B. should only buy lattes. C. can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods. D. can buy 5 lattes and 10 muffins with her $20 gift card. 29. To maximize utility a consumer should allocate money income so that the:  A. elasticity of demand on all products purchased is the same. B. marginal utility obtained from the last dollar spent on each product is the same.

C. total utility derived from each product consumed is the same. D. marginal utility of the last unit of each product consumed is the same. 30. Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending all her money income should buy:  A. less of X only if its price rises. B. more of Y only if its price rises. C. more of Y and less of X. D. more of X and less of Y. 31. Mrs. Arnold 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. Arnold should spend more on pretzels and less on soda. C. Mrs. Arnold should spend more on soda and less on pretzels. D. Mrs. Arnold is buying soda and pretzels in the utility-maximizing amounts. Answer the next question(s) on the basis of the following two schedules which show the amounts of additional satisfaction (marginal utility) which a consumer would get from successive quantities of products J and K. 2. Refer to the above data. If the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing:  A. 2 units of J and 7 units of K. B. 5 units of J and 5 units of K. C. 4 units of J and 5 units of K. D. 6 units of J and 3 units of K. 33. Refer to the above data. What level of total utility is realized from the equilibrium combination of J and K, if the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively? A. 156 utils B. 124 utils C. 276 utils D. 36 utils 4. Refer to the above data. If the consumer’s money income were cut from $52 to $28, and the prices of J and K remain at $8 and $4 respectively, she would maximize her satisfaction by purchasing:  A. 3 units of J and 3 units of K. B. 1 unit of J and 3 units of K. C. 4 units of J and 1 unit of K. D. 2 units of J and 3 units of K. 35. Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase:  A. more of A and less of B. B. more of B and less of A. C. more of both A and B. D. less of both A and B. 6. The marginal utility of the last unit of apples consumed is 12 and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium? A. $4 and $6 B. $6 and $4 C. $8 and $12 D. $16 and $9 37. Suppose you have a limited money income and you are purchasing products A and B whose prices happen to be the same. To maximize your utility you should purchase A and B in such amounts that:  A. their marginal utilities are the same. B. their total utilities are the same. C. heir marginal and total utilities are proportionate. D. the income and substitution effects associated with each are equal. 38. Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4 respectively. The marginal utility of the last units of A and B are 16 and 24 respectively. These data suggest that Ms. Thomson:  A. has preferences that are at odds with the principle of diminishing marginal utility. B. considers A and B to be complementary goods. C. should buy less A and more B. D. should buy less B and more A. 39. Mr.

Chan has an income of $20 that he is spending on donuts and cheese in such amounts that he derives 25 utils of satisfaction from the donuts and 25 utils of satisfaction from the cheese. On the basis of this information we:  A. cannot say whether or not Chan is buying donuts and cheese in equilibrium amounts. B. can say that Chan should buy more cheese and fewer donuts. C. can say that Chan should buy more donuts and less cheese. D. can say that Chan is buying the utility-maximizing amounts of donuts and cheese. 40. If MUa/Pa= 100/$35 = MUb/Pb= 300/? = MUc/Pc= 400/? , the prices of products b and c in consumer equilibrium:  A. annot be determined from the information given. B. are $105 and $140 respectively. C. are $105 and $175 respectively. D. are $100 and $200 respectively. 41. Rosenbaum is purchasing products C and D in utility-maximizing amounts. If the price of C is $4 and the price of D is $2, then:  A. the marginal utility of D is twice that of C. B. the marginal utility of D is the same as that of C. C. the marginal utility of C is twice that of D. D. the marginal utility of C is four times that of D. 42. The theory of consumer behavior assumes that consumers attempt to maximize:  A. he difference between total and marginal utility. B. total utility. C. average utility. D. marginal utility. 43. When a consumer shifts purchases from product X to product Y the marginal utility of:  A. X falls and the marginal utility of Y rises. B. X rises and the marginal utility of Y falls. C. both X and Y rises. D. both X and Y falls. 44. Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Prashanth:  A. is relatively unappreciative of the arts. B. btains more marginal utility from the play than from the hockey game. C. has a higher “marginal utility to price ratio” for the hockey game than for the play. D. has recently attended several other Broadway plays. 45. If money income increases and the prices of products A and B both increase, then the budget line:  A. must shift to the right. B. must shift to the left. C. may shift either to the right or the left, or not at all. D. will no longer be tangent to an indifference curve. 46. If the price of A is $12 and the price of B is $3, the budget line tells us that a consumer in effect can trade:  A. 2 units of A for 3 of B. B. 1 unit of A for 4 of B. C. 1 unit of A for 3 of B. D. 1 unit of B for 4 of A. 47. Assume the price of product Y (the quantity of which is plotted on the vertical axis) is initially $15 and the price of X (the quantity of which is plotted on the horizontal axis) is initially $3. Assume money income is initially $60. If the prices of Y and X now increase to $30 and $6 respectively and money income increases to $120, then the budget line will:  A. shift rightward and become steeper. B. shift rightward and become flatter. C. shift rightward, but its slope will not change. D. e unchanged. 48. Assume initially that the price of X (measured on the horizontal axis) is $9 and the price of Y (measured on the vertical axis) is $4. If the price of X now declines to $6, the budget line will:  A. be unaffected. B. shift outward on the vertical axis. C. shift inward on the horizontal axis. D. shift outward on the horizontal axis. 49. An indifference curve shows all: A. possible equilibrium positions on an indifference map. B. equilibrium combinations of two products that are obtainable with a given money income. C. combinations of two products yielding the same total utility to a consumer.

D. possible combinations of two products that a consumer can purchase, given her income and the prices of the products. 50. An indifference map implies that: A. money income is constant, but the prices of the two products vary directly with the quantities purchased. B. the two products under consideration are perfectly substitutable for one another. C. a consumer is better off to be at some point high on a given curve as opposed to a point low on the same curve. D. curves farther from the origin yield higher levels of total utility. 51. The marginal rate of substitution measures the: A. agnitude of the substitution effect. B. total utility received by a consumer when equilibrium is achieved. C. extra utility that a consumer derives from successive units of a product. D. consumer’s willingness to substitute one product for another so that total utility will remain constant. 52. Refer to the above diagram where xy is the relevant budget line and I1, I2, and I3 are indifference curves. The equilibrium position for the consumer is at:  A. any point on xy. B. point M. C. point K. D. point J. 53. Refer to the above diagram where xy is the relevant budget line and I1, I2, and I3 are indifference curves.

If the consumer is initially at point L, he or she 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 to maximize utility. D. purchase more of Y and less of X. 54. Refer to the above diagram where xy is the relevant budget line and I1, I2, and I3 are indifference curves. At point K:  A. MUx = MUy. B. MRS = Px/Py. C. MRS = Py/Px. D. Px exceeds Py. 55. In the above diagram: A. the consumer is indifferent between points A and B, but neither point maximizes his utility. B. the consumer is indifferent between points A and B and either point will maximize his utility. C. ny combination of X and Y entailing more of Y and less of X than shown at B would be preferred. D. any combination of X and Y entailing more of X and less of Y than shown at A would be preferred. 56. Refer to the above diagram in which the downsloping lines are budget lines, and I1, I 2, and I3 comprise an indifference map. The combinations of products M and N indicated by points 1, 2, and 5 are such that:  A. point 2 yields more utility than either 1 or 5. B. points 1 and 5 yield more utility than point 2. C. points 1, 2, and 5 yield equal amounts of utility. D. the levels of utility associated with these three points cannot be compared. 7. Refer to the above diagram in which the downsloping lines are budget lines and I1, I 2, and I3 comprise an indifference map. The combinations of products M and N indicated by points 1, 3, and 5 are such that:  A. all three imply the same level of utility. B. 1 and 5 imply a higher level of utility than does 3. C. 3 implies a higher level of utility than does 1 or 5. D. the person is indifferent among the three combinations. 58. Refer to the above diagram. If the budget line shifts from ab to ac the:  A. price of K has increased. B. consumer’s money income has fallen. C. price of K has decreased. D. rice of J has increased. 59. Refer to the above diagram. If the budget line shifts from ab to ac the:  A. consumer’s level of total utility will increase. B. consumer will purchase more of both J and K. C. consumer will purchase less of both J and K. D. consumer will purchase more of J and less of K. 60. In the diagram above, suppose the consumer is currently exhausting his or her income at a point where the marginal rate of substitution of apples for oranges is greater than 5/4. That is, MUA/MU0> 5/4. To maximize utility, the consumer should move from point:  A. a to e B. b to e C. c to e D. d to e

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