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# The substitution effect indicates that:

1.

The substitution effect indicates that:

a decline in money income will cause the consumer to buy more inferior goods and fewer superior goods.

consumer equilibrium can only be achieved when the consumer is buying substitute goods.

when the price of a product falls, the lower price will induce the consumer to buy more of that product at the expense of other products.

when the price of a product falls, a consumer will be able to buy more of it with a specific money income.

1 points
Question 2
Question 2

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Question 2 text

Total utility may be determined by:

multiplying the marginal utility of the last unit consumed by the number of units consumed.

summing the marginal utilities of each unit consumed.

multiplying the marginal utility of the last unit consumed by product price.

multiplying the marginal utility of the first unit consumed by the number of units consumed.

1 points
Question 3
Question 3

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Question 3 text

Consumer demand for DVDs has increased over time because the price of DVD players has:

decreased, and DVD players and video cassette players are substitute goods.

decreased, and DVD players and video cassette players are complementary goods.

increased, and DVD players and video cassette players are substitute goods.

increased, and DVD players and video cassette players are complementary goods.

1 points
Question 4
Question 4

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Question 4 text

Reference: F21020

Refer to the above diagram. Marginal utility:

increases at an increasing rate.

becomes zero at 4 units of output.

is found by dividing total utility by the number of units purchased.

cannot be calculated from the total utility information.

1 points
Question 5
Question 5

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Question 5 text

Marginal utility is the:

sensitivity of consumer purchases of a good to changes in the price of that good.

change in total utility obtained by consuming one more unit of a good.

change in total utility obtained by consuming another unit of a good divided by the change in the price of that good.

total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.

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Question 6
Question 6

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Question 6 text

Marginal utility:

is equal to total utility divided by the number of units consumed.

is equal to total utility if the demand curve is linear.

increases as more of a product is consumed.

diminishes as more of a product is consumed.

1 points
Question 7
Question 7

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Question 7 text

If total utility is increasing, marginal utility:

is positive, but may be either increasing or decreasing.

must also be increasing.

may be either positive or negative.

will be increasing at an increasing rate.

1 points
Question 8
Question 8

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Question 8 text

Which of the following is correct? When the price of normal good Z falls:

both income and substitution effects cause the consumer to buy more.

both income and substitution effects cause the consumer to buy less.

the income effect causes the consumer to buy less, but the substitution effect causes her to buy more.

the income effect causes the consumer to buy more, but the substitution effect causes her to buy less.

1 points
Question 9
Question 9

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Question 9 text

A fall in the price of a good increases the real income or purchasing power of consumers so that they are able to buy more of the product. This statement best describes:

the income effect.

a complementary good.

the substitution effect.

an inferior good.

1 points
Question 10
Question 10

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Question 10 text

the price of a product is related to its total utility, not its marginal utility.

the price of a product is related to its marginal utility, not its total utility.

water is, in fact, very scarce in certain regions of the world.

diamonds are more useful than water.

1 points
Question 11
Question 11

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Question 11 text

A product has utility if it:

takes more and more resources to produce successive units of it.

violates the law of demand.

satisfies consumer wants.

is useful.

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Question 12
Question 12

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Question 12 text

If the price of a product falls, that product becomes cheaper and people will want to purchase more of it in place of other goods. This statement best describes:

the income effect.

the substitution effect.

a complementary good.

an inferior good.

1 points
Question 13
Question 13

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Question 13 text

If a consumer is initially in equilibrium, an increase in money income will:

move him to a new equilibrium on a lower indifference curve.

make his indifference curves steeper, but will not alter the equilibrium position.

have no effect on the equilibrium position because product prices have not changed.

move him to a new equilibrium on a higher indifference curve.

1 points
Question 14
Question 14

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Question 14 text

AA is Al's indifference curve and BB is Betty's. Al and Betty have the same budget line, LL. This information implies that:

Al's demand for X is stronger than Betty's.

Al's demand for Y is stronger than Betty's.

Al and Betty have the same demand for both products.

Al will buy some of X, but Betty will not.

1 points
Question 15
Question 15

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Question 15 text

When a consumer is maximizing total utility,

the average utility from each dollar spent is the same.

total utility cannot be increased by reallocating expenditures among various products.

the total utility obtainable from each product is at a maximum.

the marginal utility of the last unit of each product purchased is zero.

1 points
Question 16
Question 16

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Question 16 text

(Last Word) Theft and burglary:

can be viewed as attempts to maximize utility, given certain marginal costs and marginal benefits.

are examples of irrational behavior.

are applications of the law of increasing opportunity costs.

are examples of noneconomic behavior.

1 points
Question 17
Question 17

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Question 17 text

If the budget line shifts from BB to bb in the above diagram we can infer that the:

price of Y has increased and the price of X has decreased.

price of Y has decreased and the price of X has increased.

prices of both X and Y have increased.

prices of both X and Y have decreased.

1 points
Question 18
Question 18

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Question 18 text

Answer the next question(s) on the basis of the following two schedules which show the amounts of additional satisfaction (marginal utility) which a consumer would get from successive quantities of products J and K.

Reference: REF21031

Refer to the above data. If the consumer's money income were cut from \$52 to \$28, she would maximize her satisfaction by purchasing:

3 units of J and 3 units of K.

1 unit of J and 3 units of K.

4 units of J and 1 unit of K.

2 units of J and 3 units of K.

1 points
Question 19
Question 19

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Question 19 text

In drawing a particular budget line, money income and the prices of the two products are fixed.
True
False

1 points
Question 20
Question 20

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Question 20 text

Which of the following definitions is correct?

Accounting profit + economic profit = normal profit.

Economic profit - accounting profit = explicit costs.

Economic profit = accounting profit - implicit costs.

Economic profit - implicit costs = accounting profits.

1 points
Question 21
Question 21

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Question 21 text

Average fixed costs diminish continuously as output increases.
True
False

1 points
Question 22
Question 22

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Question 22 text

Fixed costs are associated with:

highly adjustable inputs such as labor.

both the short run and the long run.

the short run only.

the long run only.

1 points
Question 23
Question 23

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Question 23 text

In the short run:

TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.

TVC will increase for a time at an increasing rate, but then beyond some point will increase at a diminishing rate.

TVC will increase by the same absolute amount for each additional unit of output produced.

one cannot generalize concerning the behavior of TVC as output increases.

1 points
Question 24
Question 24

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Question 24 text

Answer the next question(s) on the basis of the following cost data:

Reference: REF22121

Refer to the above data. Total fixed cost is:

\$6.25.

\$100.00.

\$150.00.

\$50.00.

1 points
Question 25
Question 25

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Question 25 text

The relationship between marginal cost and average fixed cost is such that:

declines in MC cause AFC to decline as output increases.

increases in MC cause AFC to increase as output increases.

MC intersects AFC at that output where AFC is at a minimum.

MC may either rise or fall as AFC declines.

1 points
Question 26
Question 26

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Question 26 text

Reference: F22153

The above diagram shows the short-run average total cost curves for five different plant sizes of a firm. The position of these five curves in relation to one another reflects:

economies and diseconomies of scale.

the effect of fixed costs on ATC as output increases.

the law of constant costs.

the law of diminishing returns.

1 points
Question 27
Question 27

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Question 27 text

Reference: F22173

Refer to the above diagram. Minimum efficient scale:

occurs at some output greater than Q3.

is achieved at Q1.

is achieved at Q3.

cannot be identified in this diagram.

1 points
Question 28
Question 28

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Question 28 text

Reference: F22108

Refer to the above short-run production and cost data. In Figure A curve (1) is:

total product and curve (2) is average product.

total product and curve (2) is marginal product.

average product and curve (2) is marginal product.

marginal product and curve (2) is average product.

1 points
Question 29
Question 29

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Question 29 text

Reference: F22153

The above diagram shows the short-run average total cost curves for five different plant sizes of a firm. In the long run the firm should produce output 0x with a plant of size:

#4

#3.

#2.

#1.

1 points
Question 30
Question 30

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Question 30 text

Reference: F22108

Refer to the above short-run production and cost data. In Figure B curve (3) is:

AVC and curve (4) is MC.

MC and curve (4) is AVC.

MC and curve (4) is AFC.

AFC and curve (4) is MC.

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