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Consumer%20Demand%20Theory[1]

# Consumer%20Demand%20Theory[1] - Consumer Demand Theory...

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Consumer Demand Theory: Utility and Indifference Curve Approaches The next two questions refer to the following table. Number of Apples Consumed Total Utility 0 0 1 9 2 19 3 28 4 36 5 43 6 40 Marginal utility increases for the *a. First two apples b. First three apples c. First four apples d. First five apples The consumer begins to encounter diminishing marginal utility when she consumes the a. First apple b. Second apple *c. Third apple d. Fourth apple Glenn Hall is maximizing his satisfaction by consuming two goods, A and B. If the marginal utility of A is half that of B, what is the price of A if the price of B is \$2? a. \$0.50 *b. \$1.00 c. \$2.00 d. \$3.00 An indifference curve is a curve that shows the various combinations of two goods that: a. Have identical prices b. have differing prices c. Provide a consumer equal marginal utilities *d. Provide a consumer equal total utilities In indifference curve analysis, the consumer will be in equilibrium (maximizes total utility) at the point where the a. Indifference curve intersects the budget line *b. Indifference curve is tangent to the budget line

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c. Indifference curve lies below the budget line d. Indifference curve lies above the budget line If the indifference curve appears “L” shaped, the two produ cts in question are a. Perfect substitutes *b. Perfect complements c. Independent goods d. “bads” If an indifference curve is a downward sloping straight line, the two products in question are *a. Perfect substitutes b. Perfect complements c. Independent goods d. “bads” The next two refer to the following diagram. Assume the price of good B has declined. The substitution effect is denoted by: a. oa b. ab *c. bc d. ac The income effect is denoted by: a. Oa *b. ab c. bc d. ac
At all points along a budget line, a consumer: a. Has equal utility. b. Is buying the same quantity of each good. c. Is spending all his or her money. *d. Is spending a constant amount of money. Answer the next 3 questions from the following diagram: Goods A and B represented by the indifference curves in the diagram are: a. Prefect substitutes *b. Imperfect substitutes c. Perfect complements d. Not identified by the degree of substitution If the consumer’s budget is \$100, the price of A is \$10, and the price of B is \$20, the consumer will maximize satisfaction for this budget by purchasing that mix of goods represented by point: *a. a b. b c. c d. d Assuming the same prices of A and B as in the previous question and an \$80 budget, the consumer would maximize utility by purchasing that mix of goods represented by point: a. a *b. b c. c d. d

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A parallel shift in the budget line out or away from the origin could be the result of: a. An increase in the price of both goods b. A decrease in the price of one good, while the price of the other good remained constant c. A decrease in the consumer’s money income *d. An increase in the consumer’s money income assuming that the prices of both goods remain constant.
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