1.The paradox of value refers to the fact that

A)different consumers value the same items differently.

B)the value of a good depends on its total utility.

C)water costs little, while diamonds cost a lot.

D)water brings little consumer surplus.

2.The water and diamonds paradox of value

A)is that water is essential for life and yet is cheap, whereas diamonds are totally nonessential and yet are expensive.

B)points out that we generally have a low total utility of water and a high total utility of diamonds.

C)is resolved by the principle that market price is determined by total utility, not marginal utility.

D)None of the above

3.The diamond-water paradox of value can be explained by

A)distinguishing between total utility and marginal utility.

B)water's high level of utility relative to diamonds.

C)water's low price relative to diamonds.

D)the fact that utility cannot be measured.

4.The paradox of value between diamonds and water is explained by the fact that the

A)total utility of diamonds exceeds the total utility of water.

B)marginal utility of diamonds exceeds the marginal utility of water.

C)total utility of diamonds exceeds the marginal utility of water.

D)marginal utility of diamonds exceeds the total utility of water.

5.As a consumer moves rightward along an indifference curve, the

A)consumer remains indifferent among the different combinations of goods.

B)consumer generally prefers the combinations of goods farther rightward along the indifference curve.

C)income required to buy the combinations of the goods always increases.

D)relative price of both goods falls.

6.Indifference curves shift or rotate

A)only when income changes.

B)only when prices change.

C)when either income or prices change.

D)with none of the above because changes in income and prices do not shift indifference curves.

7.Diminishing marginal rate of substitution means that

A)the budget line has a negative slope.

B)the budget line does not shift when people's preferences change.

C)indifference curves might have a positive slope.

D)indifference curves will be concave.

8.If two goods are perfect substitutes, their

A)indifference curves are positively sloped straight lines.

B)indifference curves are negatively sloped straight lines.

C)indifference curves are L-shaped.

D)marginal rate of substitution is infinity.

9.Which of the following statements is true?

A)The law of diminishing marginal rate of substitution means that indifference curves are convex (bowed out).

B)A demand curve can be derived from the indifference curve/budget line analysis.

C)Demand curves and indifference curves measure the same things.

D)Demand curves and indifference curves have negative slopes for the same reason.

10. An indifference curve shows

A)affordable combinations of goods.

B)the relative price of one good relative to another.

C)consumption possibilities that a consumer faces at different prices and income.

D)different combinations of two goods among which the consumer is indifferent.

11. Moving along an indifference curve the

A)consumer prefers some of the consumption points to others.

B)marginal rate of substitution for a good increases as more of the good is consumed.

C)marginal rate of substitution is constant.

D)consumer does not prefer one consumption point to another.

12. As a consumer moves away from the origin onto higher indifference curves, what happens?

A)The consumer reaches less preferred combinations of goods.

B)The consumer reaches more affordable combinations of goods.

C)The consumer reaches more preferred combinations of goods.

D)Nothing

13. The marginal rate of substitution of one good for another is measured by moving

A)among different indifference curves.

B)along a budget line.

C)among different budget lines.

D)along an indifference curve.

14. The magnitude of the slope of an indifference curve is the

A)marginal rate of substitution.

B)rate of increasing opportunity cost.

C)marginal rate of utility of income.

D)rate of relative prices.

15. In the indifference curve/budget line diagram, consumers reach higher indifference curves when

A)their budget decreases.

B)the price of only the good measured along the y-axis increases.

C)the price of either good falls.

D)the price of either good rises.

16. Normally shaped indifference curves are bowed towards the origin of the graph. The reason for this shape is

A)the principle of diminishing marginal rate of relative price.

B)diminishing marginal rate of substitution.

C)that the marginal rate of substitution is constant along an indifference curve.

D)that indifference curves farther away from the origin represent higher levels of utility.