Multiple Choice

QUESTION 21 After learning about indifference curves, Sandy realizes that her marginal rate of substitution of grapes for cheese is equal to 2. Since the price of cheese is $3 and the price of grapes is $1, Sandy: \"A should buy more grapes and less cheese. C\"; should buy more cheese and fewer grapes. 7' is maximizing her utility. f\"; is on her highest possible indifference curve, QUESTION 22 Decreases in the price of the good measured on the horizontal axis will make the horizontal intercept and make the budget line by larger; steeper 7'; larger; atter O smaller; steeper C' smaller; atter QUESTION 23 Marginal utility of a good refers to f\"; the amount total utility rises when consumption ofthe good increases by one unit. C' the diminishing amount of utility the consumer receives as consumption of the good increases. 0 the change in the amount of the good consumed that increases total utility by one unit. \"I the point where the consumer's total utility is at a maximum. QUESTION 24 Using the utility approach, the consumer is in equilibrium when O the marginal utility associated with consuming the last unit is zero. C\"; total utility from each good is at a maximum. C'; the marginal utilities associated with consuming an extra unit of each good are equal. 7'; the marginal utility per dollar's worth of each good is equal. QUESTION 25 Assume that the price of gasoline falls. Conceptually, if we wish to isolate the substitution effect of the price change we must: A A. place the consumer on the original indifference curve with the new relative prices. A B. place the consumer on the original indifference curve with the original relative prices A C. place the consumer at a new indifference curve with new relative prices. A D. place the consumer at a new indifference curve with the original relative prices. QUESTION 26 For normal goods, the demand curve is: A A. always upward sloping. A B. always downward sloping. A C. downward sloping only ifthe substitution effect is larger than the income effect. A D. upward sloping only ifthe income effect is larger than the substitution effect. QUESTION 27 How do inferior goods differ from economic "bads\"? A A. Economic "bads\" are commodities for which less is preferred to more under all conditions whereas for inferior goods, demand falls only when income increases. A B. For economic "bads" marginal utility is positive but gradually diminishes whereas for inferior goods, utility is negative from the first unit of consumption. A C. The demand for economic "bads" falls at higher levels of income whereas the demand for inferior goods falls at higher prices. A D. Economic "bads\" are commodities for which demand falls as price falls whereas for inferior goods, quantity demanded falls as more is consumed. QUESTION 28 The equation ofthe supply curve is 05 = 3 + 3P and the equation 0d the demand curve is 00 = 15 - P. The equilibrium quantity is: A 4 . 12 . 'I1 3 C) C) . f D QUESTION 29 The price-consumption curve traces the optimal market baskets for: O A. different prices of the good. 0 B. different years. 0 C. different consumers. O D.different income levels. QUESTION 30 The substitution effect causes more consumption of a good at a lower price. When does this statement hold true? 0 A. This statement is sometimes true for inferior goods, but never for normal goods. 0 B. This statement is always true regardless of the type of good. 0 C. This statement is true only for Giffen goods. 0 D. This statement is always true for normal goods, but never for inferior goods. QUESTION 31 Which of the following is true at any point along a consumer's demand curve? 0 A. The consumer's income increases successively as one moves downward along the demand curve. 0 B. The consumer's optimality condition is satised. 0 C. The marginal rate of substitution is constant. 0 D. The consumer's preferences for different goods can be ranked. QUESTION 32 Which of the following is true of a consumer's demand curve? 0 A. The price elasticity of demand is generally greater than one. 0 B. The distance from the horizontal axis equals the marginal rate of substitution. 0 C. Tastes and preferences for the good change along the demand curve. 0 D. Consumer's income successively decreases up along the demand curve. QUESTION 34 The amount by which an additional unit of an activity increases total cost is: net benefit. marginal benefit. negative benefit. marginal cost. QUESTION 35 Whenever marginal benefit is less than marginal cost, the decision maker should do of the activity. less that exact amount more none QUESTION 36 A firm finds that its long-run average total costs increase as it produces more output. This firm is experiencing: economies of scale. constant returns to scale. diseconomies of scale. O a spreading effect. QUESTION 37 A planning period during which all of a firm's resources are variable is the: O long run. O fixed run. short run. nominal run.QUESTION 38 Diminishing marginal returns means that: A each additional unit of an input used will decrease output. A each additional unit of an input used will increase output, but by smaller and smaller amounts. A each additional unit of an input used will increase output by larger and larger amounts. A the rm is maximizing prot. QUESTION 39 A curve that shows the quantity ofa good or service supplied at various prices after all long-run adjustments to a price change have been completed is a long-run: A marginal revenue curve. A marginal cost curve, A industry supply curve. A production curve. QUESTION 40 A decrease in production costs for rms in a perfectly competitive market will cause am): A permanent increase in the price. A economic prot for rms in the short run. A increase in demand. A increase in rms' marginal revenue. QUESTION 41 A firm produces at the output level at which its average total costs are minimized. At this output level, its average total costs are equal to all of the following except: A price, 0 MC. 0 MR. A AVC. QUESTION 33 Which of the following is true of the well-being of a consumer as represented by a demand curve? 0 A. The consumer's well-being remains constant along a demand curve only in case ofan inferior good. 0 B. The consumer's well-being decreases with a rightward shift of the demand curve. 0 C. The consumer's well-being varies along a demand curve. C D.The consumer's well-being is very low when the demand curve is parallel to the price axis