Question

Assume that Clark spends his entire income on the purchase of two goods, X and Y. If his income and the prices of good X and Y all double, Clark will

double the purchase of goods X and Y

buy more of good X and less of good Y

buy less of good X and more of good Y

buy less of both goods X and Y

buy the same amounts of goods X and Y

According to the law of diminishing marginal utility, which of the following is true?

Total satisfaction decreases as more units of a good are consumed.

The additional satisfaction received from consuming extra units of a good decreases as consumption of the good increases.

The additional satisfaction received from consuming extra units of a good decreases as consumption of the good decreases.

The additional satisfaction received from consuming extra units of a good increases as consumption of the good increases.

When marginal utility is decreasing, total utility is decreasing.

Which of the following helps explain why the demand curve for a normal good is downward sloping?

The income and substitution effects move the quantity demanded in the same direction.

The income effect moves the quantity demanded in the opposite direction of the substitution effect.

The income effect dominates the substitution effect.

The substitution effect dominates the income effect.

With an increase in income, the consumer decreases consumption of the good.

The utility-maximizing rule is to choose the basket of goods that

has the highest marginal utility of each good in the basket

has the lowest prices for the goods

has the highest value of marginal utility to price for each good

the marginal utility to price ratios equal for all goods in the basket

the marginal utility to price ratio equal for all goods in the basket subject to the income constraint

Incomes are received from several sources. Of the following which is the largest?

rent

interest

wages

At her current level of consumption, a consumer is willing to pay up to $1.50 for a bottle of water and up to $1,500 for a diamond ring because the

total utility of diamond rings is greater than the total utility of water

total utility of water is less than the marginal utility of a diamond ring

marginal utility of a bottle of water is less than the marginal utility of a diamond ring

marginal utility of a bottle of water is greater than the marginal utility of a diamond ring

consumer is irrational and does not understand that water is more important than a diamond

According to the theory of consumer behavior, which of the following decreases first as additional units of a product are consumed?

Total utility

Average utility

Marginal utility

Marginal physical product

Total physical product

If the price of a product decreases with the price of a substitute product remaining constant such that the consumer buys more of this product, this is called the

income effect

substitution effect

marginal effect

supply effect

CPI effect

According to the principle of diminishing marginal utility,

marginal utility stays the same

total utility stays the same

marginal utility decreases with each additional unit of a good that is consumed

marginal utility and total utility both decrease

total utility declines

Answer 1

1. Assume that Clark spends his entire income on the purchase of two goods, X and Y. If his income and the prices of good X and Y all double, Clark will

buy the same amounts of goods X and Y.

Assume his income to be $ 20 price of X = $1 and price of y= $ 2.

Currently he buys 6 units of X and 7 units of Y.

When his income is $ 40, and price doubles then 6 unit of x costs = $ 12 and 7 units of y costs = $ 28. No change in consumption.

2. According to the law of diminishing marginal utility, which of the following is true?

The additional satisfaction received from consuming extra units of a good decreases as consumption of the good increases.

3. When marginal utility is decreasing, total utility is decreasing.

False. Since, MUbis decreasing but Total utility increases at a decreasing rate.

4. Which of the following helps explain why the demand curve for a normal good is downward sloping?

The income effect moves the quantity demanded in the opposite direction of the substitution effect.

5. The utility-maximizing rule is to choose the basket of goods that(Law of equimarginal utility)

the marginal utility to price ratio equal for all goods in the basket subject to the income constraint

6. Incomes are received from several sources. Of the following which is the largest?

Wages

7. At her current level of consumption, a consumer is willing to pay up to $1.50 for a bottle of water and up to $1,500 for a diamond ring because the

marginal utility of a bottle of water is less than the marginal utility of a diamond ring

8. According to the theory of consumer behavior, which of the following decreases first as additional units of a product are consumed?

Marginal utility

9. If the price of a product decreases with the price of a substitute product remaining constant such that the consumer buys more of this product, this is called the

Income effect

10. According to the principle of diminishing marginal utility,

marginal utility decreases with each additional unit of a good that is consumed

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