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20 multiple choice – Principles of Microeconomics

20 multiple choice – Principles of Microeconomics

Daniel Kevins

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1. Jennifer’s two favorite flavors of soda are cola and lemon-lime. On a normal week, Jennifer bought 3 cola sodas and 3 lemon-lime sodas. After the price of cola soda increases, Jennifer buys only 2 cola sodas and 2 lemon-lime sodas in a week. This can be explained by

the fact that lemon-lime soda is a normal good.

the substitution effect only.

the substitution effect and the income effect.

The fact that lemon-lime soda is an inferior good.

2. What happens in regards to moving along an indifference curve, if a consumer needs to make up for having one unit less of the good along the horizontal axis with only a small amount of good increased on the vertical axis?

It means that the indifference curve is mostly flat and the marginal rate of substitution is low.

It means that the indifference curve is steep and the marginal rate of substitution is high.

It means that the total utility is increasing.

It means that the indifference curve is upward sloping.

3. In comparison with behavioral economist, traditional economists operate with the assumption that ________.

when people encounter a variety of situations, they fluctuate between rational and irrational decisions

when people make decisions, they think rationally

when scarcity is involved, people make chaoisces

when money is involved in a decision, people constantly think irrationally

4. Juan’s marginal utility from strawberries is 200 and his marginal utility from cream is 100. Juan spends all of his budget. The price of strawberries is $5 per pound and the price of cream is $5 per pint. To maximize his utility, Juan should

consume more strawberries and more cream

change nothing because Juan is maximizing his utility now.

buy less cream and more strawberries.

buy less strawberries and more cream.

5. Which of the following statements is true based on what we know about the properties of utility?

Ally receives 15 utility from consuming one pizza while Jason receives 25 utility from eating one pizza. Therefore, Jason enjoys pizzas more than Ally.

Alexandra receives 20 utility from drinking one soda, and Ally receives 20 utility from consuming one soda. They both receive the same level of satisfaction from consuming a soda.

Natalie receives 20 utility from watching a movie while Andrew receives 30 utility from playing a video game. Therefore, Andrew enjoys video games more than Natalie enjoys movies.

Alexandra receives 20 utility from drinking one soda and 25 utility from eating a pizza. Therefore, Alexandra enjoys pizza more than sodas.

6. What is the typical pattern for consumers when they choose?

As the quantity consumed of a product rises total utility falls, but marginal utility rises.

As the quantity consumed rises, total utility falls.

As the quantity consumed of a product rises, total utility rises, but marginal utility falls.

As the quantity consumed of a product rises marginal utility rises.

7. What will happen if a good that is normal has a decrease in price which causes a substitution effect?

It will cause a substitution effect that is positive and an income effect that is negative.

It will cause a substitution effect that is positive and an income effect that is positive.

It will cause a substitution effect that is negative and an income effect that is positive.

The consumer will continue to purchase more of the lower priced good until his/her budget is exhausted.

8. If over the last twenty years consumer incomes declined by 20% and consumption of public transport increased by 10%, which of these statements must be true?

Consumers are choosing public transportation because of the high price of gasoline.

Public transportation is an inferior good.

Public transportation must have decreased its prices by more than 20%.

Public transportation’s demand curve is downward sloping.

9. Read over the following scenarios. Which one best represents how a behavioral economist might view a situation?

Ted lost $10 at home but found the $10 bill later when he went to read his book that evening because he had forgotten he’d used it as a bookmarker. Ted feels neutral about it because it was like he had never lost the $10.

People treat $5,000 is lottery winnings the same as $5,000 in wages.

Ted sat down on a park bench and found $200 on the bench. He is more likely to spend that $200 more freely than if he withdrew that $200 from his checking account.

When it comes to money, dollars represent equal value to every person no matter what their income situation. Behavioral economists understand that people view the value of a dollar differently in different situations.

10. Why do most demand curves have a negative slope?

Because as prices increase firms will supply more goods to the market.

Because consumers try to substitute away from the consumption for a commodity when the commodity’s price rises because of the substitution effect.

Because the income effect causes consumers to reduce consumption of a commodity when income falls because an increase in price reduces real income.

Because consumers substitute higher quality goods for lower quality goods because of the substitution effect.

11. What is involved in the step-by-step process of finding the choice with the maximum utility?

It involves a comparison of several budget constraints.

It involves a comparison of the marginal utility gained and lost from different choices along the budget constraint.

It involves a comparison of the budget constraint and net gains in satisfaction.

It involves a comparison of the relative prices of various goods

12. Behavioral economist use something called a nudge to boost rational economic behavior. Which of these is an example of that type of nudge?

Consumers have option to freely choose what bank they go for their financial needs.

Consumers buy larger packages of cookies since the cost per cookie is lower.

All new buildings in a city must secure a building permit.

Hospitals in the UK send text messages reminding people of their appointments and the cost they will be charged if the appointment is missed.

13. What economic concept is defined as the value, or satisfaction, that people derive from the goods and services they consume and the activities they pursue?

Elasticity

Utility

Opportunity cost

Contentment

14. Greg eats pizza every day of the week. The marginal utility of pizza will most likely ________ by the end of the week, and all else being equal, this demonstrates the law of ________.

increase; decreasing marginal utility

increase; increasing marginal utility

decrease; diminishing marginal utility

decline; total utility

15. Jacob has a budget of $21 to spend on either soda or popcorn at the movie theater. A bag of popcorn costs $5 while a can of soda costs $2. Use the table below to identify the utility maximizing quantity of soda and popcorn given Jacob’s budget constraint.

Soda (Quantity)	Total Utility	Popcorn (Quantity)	Total Utility
1	10	1	20
2	18	2	36
3	24	3	48
4	28	4	56
5	30	5	60
6	31	6	62

choose 1 answer

3 popcorn and 4 soda

3 popcorn and 3 soda

4 soda and 4 popcorn

4 soda and 2 popcorn

16. One difference between total utility and marginal utility is that

total utility measures happiness and marginal utility measures unhappiness

total utility is objective, and marginal utility is not.

total utility is more accurate than marginal utility.

total utility is cumulative, and marginal utility is not.

17. Which of the following best fits the typical pattern of total utility as consumption increases?

John’s total utility increases to 20 after consuming a slice of pizza Total utility stays the same no matter how many more pieces of pizza he consumes.

Joshua receives a total utility of 10 from consuming the first hot dog, 20 after consuming the second, and 30 after the third.

Jacob receives a total utility of 20 from consuming the first hamburger, 35 after consuming the second, and 45 after the third.

Ally receives a total utility of 20 from consuming the first sandwich, 15 after consuming the second, and 10 after the third.

18.The utility an individual will receive from consuming a good is determined by

producers of the good, who measure utility via customer feedback surveys.

the marginal rate of substitution (MRS)

that individual’s own preferences.

the supply and demand curves for the good.

19.When considering consumer equilibrium on an indifference curve/budget line diagram, what is the slope of the budget line doing?

The budget line slope is greater than the slope of the indifference curve.

The budget line slope equals the slope of the indifference curve.

The budget line slope is less than the slope of the indifference curve.

The budget line slope could be any of these; greater than, equal to, or less than the slope of the indifference curve.

20. What must take place for a consumer to retain their original indifference curve trajectory in the presence of declining marginal rates of substitution, when time after time a unit of a good is sacrificed for another good?

The consumer must receive compensation each time of equal units of the other good.

The consumer must receive compensation of ever larger units of another good.

The consumer must receive compensation of ever smaller units of another good.

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Daniel Kevins

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