If the income elasticity of demand is negative, this means that the good is:

If the income elasticity of demand is negative, this means that the good is:
a. an inferior good
b. at a lower than equilibrium price
c. provided by a monopoly producer
d. provided by competitive producers
e. a normal good

27. The cross-price elasticity of demand between butter and margarine is most likely:
a. positive, since the goods are substitutes
b. positive, since the goods are complements
c. negative, since the goods are complements
d. negative, since the goods are substitutes
e. zero, since the goods are both normal

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28. If the cross-price elasticity of demand is negative, then the:
a. two goods are complements
b. two goods are substitutes
c. two goods have no relationship to each other
d. price is below the equilibrium
e. price is above 29. In measuring the sensitivity of demand, the:
a. price and income elasticities refer to movements along the demand curve; other elasticities refer to shifts of the entire demand curve
b. price and cross-price elasticities analyze movements along the demand curve; other elasticities refer to shifts of the entire demand curve
c. income and cross-price elasticities refer to movements along the demand curve; price elasticity refers to shifts of the entire demand curve
d. price elasticity refers to movements along the demand curve; income and cross-price elasticities refer to shifts of the entire demand curve
e. income elasticity refers to movements along the demand curve; other elasticities refer to shifts

30. The term utility in economics refers to the:
a. satisfaction received by individuals from consuming goods and services
b. real income available to consumers for purchasing goods and services
c. relationship between the demand for a product and the supply of a product
d. usefulness of a good or service
e. slope of the budget line

31. The change in total utility arising from a one-unit increase in consumption of a good is referred to as:
a. average utility
b. the principle of diminishing marginal utility
c. real income
d. marginal utility
e. price

32. Which of the following most clearly illustrates the law of diminishing marginal utility?
a. the total satisfaction from consuming a good falls as more of the good is consumed
b. marginal utility falls as total utility falls
c. the quantity of a good demanded falls as price rises
d. the additional satisfaction from consuming a good falls as more of the good is consumed
e. there is a direct relationship between the price of a good and its total utility

33. As more of a good is consumed, the marginal utility of the good will ____ and total utility will ____:
a. increase; increase
b. increase; decrease
c. decrease; increase
d. decrease; decrease

34. If bread costs $2 per pound and meat costs $4 per pound, a consumer whose marginal utility of meat equals 80 utils per pound is maximizing utility only if the marginal utility per pound of bread equals:
a. 4 utils b. 5 utils c. 10 utils d. 20 utils e. 40 utils

35. If a consumer allocates her income between two goods, x and y, then she will be in equilibrium when:
a. MUx/Px = MUy/Py and she is below her budget constraint
b. MUx = MUy and she has spent all of her income
c. MUx/MUy > Px/Py and all of her income is spent
d. MUx/Px = MUy/Py and all of her income is spent
e. MUx = MUy and she is below her budget constraint

36. An indifference curve represents:
a. the combinations of two goods that yield the same level of total utility
b. the relationship between the price of a good and the quantity demanded
c. the relationship between price and utility
d. combinations of goods that could be purchased with the same level of income
e. the total output resulting from various combinations of inputs
37. If a person could increase total utility by purchasing more candy and fewer apples, then the:
a. total utility of candy must exceed the total utility of apples
b. marginal utility of candy must exceed the marginal utility of apples
c. marginal utility per dollar spent on candy must exceed the marginal utility per dollar spent on apples
d. total utility per dollar spent on candy must exceed the total utility per dollar spent on apples
e. marginal utility per dollar spent on candy must be less than the marginal utility per dollar spent on apples

38. Smith’s current rates of purchase are such that the marginal utility of shirts is 18 and the marginal utility of shoes is 4. If shirts and shoes are priced at $6 and $1 respectively, one can conclude that Smith:
a. should buy more shoes.
b. should buy more shirts.
c. is spending his income on shirts and shoes so as to maximize his satisfaction.
d. should buy shirts and shoes in the same respective quantities as the total utility derived from each.

39. Use the following table for questions 39 and 40.

Total Marginal
Units Utility Utility
1 35 35
2 65 ?
3 ? 25
4 110 20

The marginal utility for the second unit is:
a. 25
b. 30
c. 35
d. 65

40. The total utility for the third unit is:
a. 30
b. 35
c. 65
d. 90

41. The intercept of a budget line measures the:
a. amount of a good that a consumer will purchase
b. maximum amount of a good that a consumer could purchase, given his consumption of some other good
c. maximum amount of a good that could be consumed at given prices and income
d. minimum amount of a good that could be consumed at given prices and income
e. minimum consumption of a good consistent with utility maximization
42. If income and the prices of both goods all double, the budget line will:
a. become flatter
b. become steeper
c. remain unchanged
d. experience a parallel outward shift
e. experience a parallel inward shift

43. Assume that a consumer’s utility function is given by U = X1
2/5
X2
3/5. If the consumer is currently
consuming 10 units of good 1 and 20 units of good 2, what will be the consumer’s total utility?
a. 13.4
b. 15.2
c. 24.3
d. 35.6
e. 50.0

44. Assume that the consumer from the prior question has total utility of 50 and is consuming 10 units of good 1. How many units of good 2 are being consumed?
a. 20.0
b. 25.7
c. 47.3
d. 75.1
e. 146.2

45. If a consumer’s income rises, her:
a. indifference curve shifts inward
b. indifference curve shifts outward
c. budget line shifts outward
d. budget line shifts inward
e. budget line becomes steeper

46. A consumer spends a total of $100 on two goods. She buys 13 units of good 1 and 6 units of good 2. If the price of good 1 is $4, what is the price of good 2?
a. $4
b. $5
c. $6
d. $7
e. $8

Use the following information for questions 47 through 57. A consumer’s budget line is given by 16×1 + 24×2 = 184. The total utility that the consumer receives from consuming various amounts of the two goods is shown in the following table.

Total Utility:
Units Good 1 Good 2
1 200.0 374.4
2 382.4 688.8
3 545.6 974.4
4 689.6 1,233.6
5 819.2 1,449.6
6 934.4 1,639.2
7 1,035.2 1,797.6
8 1,121.6 1,939.2
47. What is the slope of the budget line?
a. -1/3
b. -2/3
c. -1.5
d. -3
e. -3.33

48. What is the maximum number of units of good 1 the consumer can buy?
a. 5
b. 6
c. 7 2/3
d. 8.4
e. 11.5

49. What is the maximum number of units of good 2 the consumer can buy?
a. 5
b. 6
c. 7 2/3
d. 8.4
e. 11.5

50. Assume that the consumer is consuming 3 units of good 2. How many units of good 1 are being consumed?
a. 4
b. 5
c. 6
d. 7
e. 8

51. How many units of good 1 will be consumed when the consumer is maximizing utility?
a. 4
b. 5
c. 6
d. 7
e. 8

52. How many units of good 2 will be consumed when the consumer is maximizing utility?
a. 4
b. 5
c. 6
d. 7
e. 8

53. What will be the consumer’s total utility in equilibrium?
a. 1,745.6
b. 1,923.2
c. 2,139.2
d. 2,268.8
e. 2,789.3
Use the following graph for questions 54 through 57. Label the points on the graph using the appropriate numbers that you determined from questions 47 through 53.

54. Point A is:
a. 4
b. 5
c. 7 2/3
d. 8.4
e. 11.5

55. Point B is:
a. 4
b. 5
c. 7 2/3
d. 8.4
e. 11.5

56. Point C is:
a. 4
b. 5
c. 7 2/3
d. 8.4
e. 11.5

57. Point D is:
a. 4
b. 5
c. 7 2/3
d. 8.4