Question

2 . 8) Diminishing marginal utility means that A) marginal utility decreases as consumption decreases. B) marginal utility increases as consumption increases. C) marginal utility decreases as consumption increases. D) total utility decreases as marginal utility decreases E) total utility decreases as marginal utility increases. 9) Which of the following is the best example of how the invisible hands works? A) The government places restrictions on prices of products, B) The government decides to force firms to produce more electricity. C) Consumer behavior indicates to firms that more of the good should be produced. D) Producers "hide" part of their profits from the government. 10) Marginal utility is equal to A) change in total utility change in number of units consumed. B) total utility number of units consumed. C) total utility number of units consumed. D) change in total utility change in number of units consumed. 11) If tea and coffee are substitute goods, which of the following is likely to occur if the price of coffee has increased? A) A rightward or downward movement along the demand curve for tea. B) The demand curve for coffee to shift to the right. C) The demand curve for tea shifts to the right D) The demand curve for coffee to shift to the left. 12) A market demand curve is found by A) finding the average demand curve of all consumers B) adding the prices each consumer would pay for each quantity C) adding the prices and the quantities demanded of each consumer D) adding the quantities demanded for each individual at each price

Answer 1

Ans 8: (C) MArginal utility decreases as consumption increases (The MU keeps on decreasing as we consume more and more units of good).

Ans 9: (C) is the correct option. (invisible hands implies the market is correcting itself and reaches equilibrium level).

Ans 10: (A) Marginal Utility is obtained by the formula, change in total utility divided by change in number of units consumed.

Ans 11: (C) The demand curve for tea shift to right. An increase in price of substitute good (Coffee), will increase the demand for tea, so the demand curve shift for tea shift to right.

Ans 12: (D) The market demand is obtained by adding the quantities of good demanded by all the consumers at each price level.

Ans 13: (B) Microeconomics studies the behaviour of individual units in the society. Whereas, macroeconomics studies the economy as a whole.

Ans 14: (B) Quantity demanded = quantity supplied at a single price. Then, only equilibrium price is achieved.