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1. Line A represents the Michael’s initial budget line. Which of the following could explain the line shifting from A to B? a) Price of chicken increased b) Price of rice increased c) Price of chicken decreased d) Price of rice decreased e) Income rose Answer: c. The decrease in the price of chicken means that Michael can consume more, which is what happens in the graph (answer c) 2. Line A represents Mary’s initial budget line. Which of the following could explain the line shifting from A to B? a) Income rose b) Income fell c) The prices of milk and cookies both increased d) The price of milk decreased e) The price of cookies increased Answer: The paralel shift translates an increase in

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Unformatted text preview: income (answer a) 3. Diminishing marginal utility means that an increase in the consumption of a good leads to a) a decrease in total utility. b) a decrease in marginal utility. c) an increase in marginal utility. d) no change in marginal utility. e) a negative marginal utility. Answer: b (by definition) 4. The table above gives Matt's utility from consuming slices of pizza. His marginal utility from the 4th slice is a) 30 units. b) 1 unit. c) 94 units. d) 28.5 units. e) 3 units. Marginal utility from 4th slice = Total utility with 4th slice – total utility with 3rd slice = 30 – 27 = 3. (answer e)...
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