Question

1. The utility added by consuming an additional unit of a good is known as __________ utility

A. total

B. increasing

C. marginal

D. diminishing

2. The combination of Good A and Good Z that gives consumer equilibrium can be computed by which of the following?

A. Using the marginal utility of Good Z/price of Good A = marginal utility of Good Z/price of Good A

B. Using the total utility of Good A/price of Good A = total utility of Good Z/price of Good Z

C. Marginal utility of Good A/price of Good A = marginal utility of Good Z/price of Good Z

D. Price of Good A/marginal utility of Good A = price of Good Z/marginal utility of Good Z

3. If you are at consumer equilibrium and the price of one of your consumption goods decreases, you should purchase which of the following?

A. More of the good with decreasing price and less of others

B. Less of the good with decreasing price and more of others

C. The same amount of all goods

D. Less of all goods

4. A study showed that if the costs to the driver associated with speeding are reduced by incorporating seat belts and airbags into car design, then drivers drove _____ carefully and pedestrian deaths __________.

A. more; decreased

B. more; increased

C. less; decreased

D. less; increased

Answer 1

Q1. The utility added by consuming an additional unit of a good is known as marginal utility.

Ans. (C)

Q2. In a two-good model, consumer equilibrium is attained at a point where the marginal utility per dollar spent on good1 is equal to the marginal utility per dollar spent on good 2.

Thus, Marginal utility of Good A/price of Good A = marginal utility of Good Z/price of Good Z represents consumer equilibrium i.e. MUa/Pa = MUz/Pz

Ans. (C)

Q3. Assuming that the price of good A decreases and the economy is in equilibrium as given above, then MUa/Pa will increase. As a result, the consumer should purchase more of good A. This is because as more and more units of Good A are consumed, MUa falls. This will lead to a rebalancing of the equation MUa/Pa = MUz/Pz

Ans. (A)

Q4.  A study showed that if the costs to the driver associated with speeding are reduced by incorporating seat belts and airbags into car design, then drivers drove more carefully and pedestrian deaths decreased.

Ans. (A)