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Chapter 07 Test Bank

Student: _______________________________________________________________________________________
1. Utility is:
A. a way of describing a consumer’s wants.
B. only applicable to goods that are purchased.
C. a measure of a consumer’s income
D. All of these are true.
2. Which of the following statements is true about individuals and utility?

A. Individuals seek to maximize utility.
B. Individuals seek to maximize their income, not utility.
C. Individuals will either minimize or maximize utility depending on the situation.
D. Individuals rarely try to maximize their utility.
3. Individuals will make choices to maximize their:

A. constraints.
B. utility.
C. income.
D. values.
4. Utility measurements are:

A. a relative ranking of how much different people enjoy a particular good.
B. used to compare one person's preference for a good to another person's preference.
C. a relative ranking of the satisfaction a person gets from alternative combinations of things.
D. None of these is true.
5. Utility is:
A. maximized by rational individuals.
B. revealed by observing choices an individual makes.
C. the satisfaction individuals get from different bundles of goods.
6. Revealed preference is:

A. the idea that people's preferences can be determined by observing their choices and behavior.
B. the notion that people reveal the utility they get by reporting it on a numerical scale.
C. the method that psychologists, anthropologists, and economists use to measure utility.
7. According to revealed preference a consumer that chooses to smoke cigarettes:

A. derives more utility from smoking than the goods they could have purchased with that same money.
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of McGraw-Hill Education.
B. derives more happiness from smoking than the goods they could have purchased with that same
money.
C. is minimizing their utility given the options available to them.
D. is behaving irrationally.
8. One baseline assumption that economists make about consumer behavior is that:
A. people are rational utility maximizers.
B. people will always choose short-term benefits to longer-term payoffs.
C. people will always choose what makes them happiest.
D. people are unpredictable.
9. After browsing several pairs of shoes, Bob buys a pair of Nike running shoes. Economists would say
that:
A. Bob is revealing his strong distaste for New Balance running shoes.
B. Bob is revealing he will always choose Nike over any other shoe brand.
C. Bob will get more utility per dollar from the Nike running shoes than any other in the store.
D. Bob made a poor choice, if he really prefers Adidas.
10. Utility is:

A. a quantitative measure of consumers’ preferences.
B. an objective measure of a person’s happiness.
C. as difficult to measure as an individual's income level.
D. a meaningful number measuring a consumer’s precise level of satisfaction.
11. Billy is deciding whether to watch TV at home or go spend time with his friends. If Billy decides to stay
home, we can conclude that:
A. Billy is a homebody and never goes out.
B. Billy will get more utility from watching TV than spending time with his friends.
C. Billy will regret not spending more time with his friends.
D. Billy's revealed preference is to always be alone.
12. Utility is:

A. useful in comparing the relative satisfaction different consumers get from a particular good.
B. useful in predicting when to put an item on sale.
C. useful in quantitatively describing a person's preferences for one good over another.
D. an interesting concept, but not really useful for anything.
13. A utility function is:

A. an equation for calculating the most utility a particular person can derive.
B. an equation for calculating the total utility that a particular person derives from consuming a particular
good over a particular time period.
C. an equation for calculating the total utility that a group of people derive from consuming a particular
good.
D. an equation for calculating the total utility that a particular person derives from consuming a particular
combination of goods and services.
14. A bundle:
A. is a specific combination of goods and services an individual could consume.
B. describes the amount of people that choose a particular combination of goods.
C. is a curve describing different combinations of goods and services an individual could choose to
consume.
D. is when a store sells goods at a discounted price.
15. When economists observe someone make a choice, they assume the individual chooses:
A. what gives her the least utility.
B. what gives her the most utility.
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C. what creates the most utility for society.
D. what is the most efficient choice.
16. Barbie is deciding whether to play soccer or go swimming over the next hour. She decides to swim.
Economists would conclude that Barbie:
A. is revealing a preference for swimming over soccer.
B. will get less utility from swimming during the next hour than playing soccer.
C. was unable to play soccer at that time.
D. is more skilled at swimming than playing soccer.
17. After browsing his cabinets to see what meals he can make, Ken is deciding whether to make nachos
or spaghetti for dinner. If Ken makes spaghetti, we can conclude:
A. Ken doesn't like nachos.
B. Ken prefers nachos over spaghetti.
C. Ken will get more utility from making spaghetti for dinner than nachos.
18. Bart is seen standing in front of the cooler that contains containers of iced tea and lemonade.
Moments later, we see Bart drinking iced tea, and we conclude Bart is getting more utility from that drink
than lemonade. We drew that conclusion based on what economic concept?
A. Revealed preference
B. Utility minimization
C. Satisfaction scales
D. Rational behavior
19. Corey has a blue sweater and a denim jacket. On some days he chooses to wear the sweater but on
others he chooses to wear the jacket. Economists would most likely conclude that:
A. Corey’s preferences have changed.
B. Corey’s preferences have not changed, but other factors may have changed such as the temperature
outside.
C. Corey is irrational if he wears different clothing on different days.
D. Corey is indifferent between wearing a jacket or a sweater.
20. Bobby makes a New Year's resolution to lose weight. On January 3 rd, he decides to go to Ben amp;
Jerry's for ice cream instead of going to the gym. Using the concept of revealed preference, economists
would most likely conclude that Bobby:
A. is not a rational individual.
B. actually gains more utility from ice cream than working out.
C. has changed his preferences.
D. has no choice over the actions he takes.
21. Alison is deciding how to spend the next hour. We ask her to rate the utility she would get from an
hour of each activity. She would get utility of 4 from an hour of reading, utility of 2 from an hour of playing
video games, and utility of 6 from jogging. Based on this information, economists could predict that Alison
will:
A. read.
B. play video games.
C. go jogging.
D. do nothing, since none of the activities give her utility greater than 10.
22. Ben is asked to rate the utility he would get from reading different types of publications for the next
hour. If he read a graphic novel he would get utility of 5. If he read a biography, he would get utility of 4,
and if he read his economics textbook, he would get utility of 9. An economist would predict that Ben will
spend his next hour reading:
A. a graphic novel.
B. a biography.
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C. his economics textbook.
D. It is impossible to predict how Ben will spend his time.
23. The concept of marginal utility:

A. explains why individuals find it difficult to maximize their total utility.
B. is the change in total utility that comes from consuming one additional unit of a good or service.
C. can only be applied to situations in which individuals can choose among several goods or services.
D. is the loss in utility from making a bad decision.
24. The concept of diminishing marginal utility:

A. explains why individuals rarely maximize their total utility.
C. is the principle that the additional utility gained from consuming successive units of a good or service
tends to be smaller than the utility gained from the previous unit.
D. is the principle that the additional utility gained from consuming different bundles of goods and services
tend to be smaller than the utility gained from consuming just one bundle of goods and services.
25. Sadie has just eaten a donut and says it gave her a utility of 6. If she chooses to eat another donut:
A. we can assume she will get an increase in utility of at least 6 from the additional donut.
B. we can assume she will get a decrease in utility from the additional donut.
C. we can assume she will get an increase in utility of less than 6 from the additional donut.
D. we can assume Sadie's total utility will fall because of diminishing marginal utility.
26. Nona has just gone on a bike ride for an hour and says it gave her a utility of 7. If she chooses to
continue to ride her bike for another hour:
A. we can assume she will get at least a marginal utility of more than 7.
B. we can assume she will get a marginal utility of 7.
C. we can assume she will get a marginal utility of less than 7.
D. we can assume Nona's total utility will fall because of diminishing marginal utility.
27. Grace has just eaten a slice of pizza and says it gave her a utility of 8. If she chooses to eat a second
slice:
A. she will experience a drop in total utility.
B. she is not acting rationally.
C. she will experience an increase in total utility.
28. Howard has just smoked a cigarette. If he chooses to smoke a second one:
A. he will experience a drop in total utility.
B. he is not acting rationally.
C. he will derive less marginal utility from it than his first.
29. Elijah has just eaten his second popsicle. Using the concept of marginal utility, we can say:
A. the utility he will gain from his third will reduce his total utility.
B. the utility he will gain from his third will not reduce his total utility.
C. the utility he will gain from his third will be less than that of his second but will increase his total utility.
D. the utility he will gain from his third will be less than that of his second and may reduce his total utility.
30. Katie just finished a bottle of Coke. Using the concept of marginal utility, we can say:
A. the utility she will gain if she drinks another will reduce her total utility.
B. the utility she will gain if she drinks another will increase her total utility.
C. the utility she will gain if she drinks another will be the same as that of her first.
D. the utility she will gain may or may not reduce her total utility.
31. Claire has just eaten her second bowl of cereal. We can say:
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A. her second bowl likely reduced her total utility.
B. her second bowl likely added less to her total utility than the first.
C. her third bowl will likely decrease her total utility.
D. her third bowl will likely increase her total utility by at least as much as the second.
32. Linus has just watched two hours of TV. We can say:
A. his second hour of watching TV likely reduced his total utility.
B. his second hour of watching TV likely added less to his total utility than did the first.
C. if he watches a third hour it will likely decrease his total utility.
D. if he watches a third hour it will likely increase his total utility by at least as much as the second.
33. If successive units of a good are consumed, the marginal utility gained typically:
A. increases at the same rate for all people.
B. increases at different rates for different people.
C. decreases at the same rate for all people.
D. decreases at different rates for different people.
34. If Bella eats one piece of pie, she gains a utility of 10. If she continues, a second piece yields a
marginal utility of 8, a third will yield a marginal utility of 2, and a fourth piece of pie will yield a marginal
utility of 2. We can say:
A. Bella's marginal utility is not diminishing.
B. Bella's total utility will decrease if she eats the third piece of pie.
C. Bella's total utility will be maximized if she eats three pieces.
D. Bella's total utility decreases after the first piece of pie.
35. If Bob has one piece of gum in his mouth, he gains a utility of 12. If he adds a second piece to the
first, it yields a marginal utility of 6; adding a third will bring marginal utility of 1. Adding a fourth piece will
make Bob choke, yielding a marginal utility of 4. We can say:
A. Bob's total utility from chewing four pieces of gum would be 23.
B. Bob's total utility will decrease if he chews the fourth piece of gum.
C. Bob's total utility will be maximized if he eats two pieces.
D. Bob's total utility decreases after the first piece of gum.
36. Thinking about the total utility gained from the consumption of a typical good, we can say in general
that:
A. total utility will rise, peak, and then decline as more and more units are consumed.
B. consuming more and more units of a good will eventually cause marginal utility to increase
C. total utility increases by decreasing amounts, until it is maximized. Then it declines.
D. total utility is maximized where the marginal utility is greatest.
37. The marginal utility gained from the consumption of successive units of a typical good:
A. tends to decrease.
B. tends to increase.
C. may increase or decrease depending on the cost of the good.
D. tends to stay the same.
38. Johnny spends his day doing a variety of activities; he spends the morning exercising and doing yard
work, reads in the afternoon, and hosts a dinner party in the evening. Economists would say his choice to
do a variety of activities instead of spending all of his time on one activity illustrates the concept of:
A. tastes and preferences
B. budget constraints
C. diminishing marginal utility
D. income effect
39. After watching a movie, Alan chooses not to watch a second and goes for a walk instead. Economists
could explain his choices using the concept of:
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A. budget constraints.
B. diminishing marginal utility.
C. income effect.
D. substitution effect.
40. Jeff and Roel like to eat pizza twice a week, burritos once a week, and steak four days a week. This
variety of dinner choices illustrates the concept of:
A. instable preferences..
B. negative marginal utility.
C. diminishing marginal utility.
D. income maximization.
41. Dave and Buster play two games of tennis, and then decide to go have lunch. Using the concept of
utility to explain their choices, we can conclude that:
A. they each won one game of tennis.
B. the marginal utility from playing a third game must be negative for them.
C. the marginal utility from playing a third game must be less than the marginal utility from having lunch.
D. All of these must be true.
42. Courtney goes for an hour bike ride which yields a marginal utility of 8. She stops and gets an ice
cream cone, and then rides her bike for another hour. We can say:
A. the utility gained from a second ice cream cone was more than a second hour of bike riding.
B. the utility gained from the ice cream was more than 8.
C. the utility gained from the ice cream was less than the second hour of bike riding.
D. the utility gained from a third hour of biking would be less than the utility gained from the one ice
cream.
43. Zachary spends his day studying for a total of four hours and exercising for one hour. Using the
concept of utility to explain his choices, we can say
A. the total utility gained from exercising for one hour is greater than the total utility from studying for four
hours.
B. the marginal utility of exercising for the first hour was greater than the marginal utility of studying for the
first hour.
C. the marginal utility of studying for a fifth hour will be negative.
D. the marginal utility from studying for a fifth hour is less than the marginal utility from the first hour of
exercise.
44. When someone is served pizza and soda for dinner, it is typical behavior to eat some pizza, then
drink some soda, then eat more pizza, and so on, until the person stops consuming both. How can this
behavior be explained using economic concepts?
A. The individual is revealing that he can't decide whether he gains more utility from pizza or from soda.
B. People tend to act irrationally around food, and the concept of utility maximization cannot be applied.
C. The person eats pizza until his marginal utility for pizza is lower than it is for soda, then he switches to
soda.
D. The concept of unlimited wants says he will never tire of eating pizza and soda.
45. You decide to forgo a third slice of pizza and have a scoop of ice cream instead. This is an example
of the economic concept of:
A. diminishing marginal utility.
B. altruism.
C. reciprocity.
D. selfishness.
46. This table shows the different combinations of goods that Jack can consume, given that his income to
spend on these two items is $10.
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Number of Utility from Number of ice Utility from
Bundle popsicles popsicles cream cones ice cream cones
A 10 700 0 0
B 8 720 1 500
C 6 650 2 700
D 4 550 3 750
E 2 400 4 760
F 0 0 5 760
Considering the information in the table shown, the bundle of goods that will derive the highest total utility
for Jack is:
A. E.
B. B.
C. C.
D. D.

A 10 700 0 0
B 8 720 1 500
C 6 650 2 700
D 4 550 3 750
E 2 400 4 760
F 0 0 5 760
Considering the information in the table shown, if we assume Jack is a rational utility maximizer, then we
can predict he will buy which bundle with his $10?
A. A
B. B
C. C
D. D
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A 10 700 0 0
B 8 720 1 500
C 6 650 2 700
D 4 550 3 750
E 2 400 4 760
F 0 0 5 760
Considering the information in the table shown, if Jack consumes 2 popsicles and 2 ice cream cones:
A. Jack still has $4 left to spend.

B. Jack still has $6 left to spend.
C. Jack still has $8 left to spend.
D. Jack still has $2 left to spend.

A 10 700 0 0
B 8 720 1 500
C 6 650 2 700
D 4 550 3 750
E 2 400 4 760
F 0 0 5 760
Considering the information in the table shown, if Jack consumes 3 popsicles and 1 ice cream cone, then:
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B. the price of ice cream must have increased to $8.
C. the price of popsicles must have decreased.

A 10 700 0 0
B 8 720 1 500
C 6 650 2 700
D 4 550 3 750
E 2 400 4 760
F 0 0 5 760
Considering the information in the table shown, if Jack decides to consume bundle D, we can conclude
that Jack:
A. still has money left to spend.

B. is not maximizing his utility.
C. could consume more of both goods.

A 10 700 0 0
B 8 720 1 500
C 6 650 2 700
D 4 550 3 750
E 2 400 4 760
F 0 0 5 760
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Considering the information in the table shown, Jack's total utility from consuming bundle D would be:
A. 1,160.
B. 1,300.
C. 950.
D. 2,220.

A 10 700 0 0
B 8 720 1 500
C 6 650 2 700
D 4 550 3 750
E 2 400 4 760
F 0 0 5 760
Considering the information in the table shown, the price of ice cream is:
A. $2 per cone.
B. $1 per cone.
C. diminishing as Jack increases the amount consumed.
D. $5 per cone.
53. A budget constraint is:

A. a line that is composed of all the possible combinations of goods and services that maximize a
consumer’s total utility.
B. a line that is composed of the additional utility gained from consuming possible combinations of goods
and services that a consumer can buy with his or her income.
C. a line that is composed of all the possible combinations of goods and services that a consumer can
buy with his or her income.
D. a line that is composed of the total utility gained from consuming all possible combinations of goods
54. A budget constraint:

A. shows different bundles of goods that all yield the same total utility.
B. shows different bundles of goods that all cost the same amount.
C. shows different bundles of goods that all maximize an individual's utility.
D. shows how much income is needed to maximize total utility.

A. is the same across all individuals with the same income constraints.
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B. is different for each individual with the same income constraints.
C. is the same across all individuals with the same tastes and preferences.
D. is different for each individual with the same tastes and preferences.

A. shows a constant dollar amount spent on different combinations of goods, and each bundle brings the
same utility.
B. shows a constant dollar amount spent on different combinations of goods, and each bundle brings a
different amount of utility.
C. shows a constant amount of utility gained by consuming different combinations of goods, and each
bundle costs the same.
57.
The slope of the budget line in the graph shown:
A. represents the opportunity cost of the two goods relative to each other.
B. represents the relative marginal utilities from consuming the two goods.
C. measures the total utility the consumer gets from consuming the two goods.
D. is the consumer’s income level.
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58.
If the graph shown represents Stella's budget constraint, and hairbands cost $4, what must Stella's
income to spend on these two items be?
A. $32
B. $16
C. $48
D. Cannot answer this question without more information.
59.
If the graph shown represents Stella's budget constraint, and she has income of $48 to spend on these
two items, Stella could choose which consumption bundle?
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A. One pair of earrings and seven hairbands
B. Four pairs of earrings and eight hairbands
C. Three pairs of earrings and six hairbands
D. Two pairs of earrings and four hairbands
60.
If the graph shown represents Taylor's budget constraint, which of the following consumption bundles
could Taylor choose?
A. Taylor cannot choose to consume any of these bundles

B. Two pairs of earrings and six hairbands
C. One pair of earrings and six hairbands
D. Four pairs of earrings and eight hairbands
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61.
If the graph shown represents Tina's budget constraint, which of the following consumption bundles can
Tina not afford?
A. Three pairs of earrings and four hairbands

B. Two pairs of earrings and four hairbands
C. No earrings and six hairbands
D. Cannot answer this question without knowing Tina's income and the prices of the two goods
62.
Assume the graph shown represents Grace's budget constraint. Which of the following is true?
A. Grace's total utility is constant along her budget constraint.

B. Grace's marginal utility of each good is the same for each combination of goods on her budget line.
C. Grace's total expenditure is constant along her budget constraint.
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D. Grace is indifferent between consuming any bundle that lies on the budget constraint.
63.
If the graph shown represents Celia's budget constraint, which of the following must be true?
A. Celia will spend twice as much on earrings as she does hairbands.

B. Celia could consume either four pairs of earrings or eight hairbands.
C. Celia gets twice as much utility from earrings as she does from hairbands.
64.
If the graph shown represents Suzi's budget constraint, what can be said about hairbands?
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A. They cost twice as much as earrings.
B. They cost half as much as earrings.
C. Suzi likes hairbands more than earrings.
D. Suzi is willing to pay twice as much for hairbands.
65.
Assume Willow's income to spend on either earrings or hairbands is $24. If her budget constraint is
pictured in the graph shown, which of the following must be true?
A. Willow will buy more hairbands than earrings because they are less expensive.
B. Willow will buy more earrings than hairbands because they are less expensive.
C. Hairbands must cost $3, and earrings must cost $6.
D. Hairbands must cost $8, and earrings must cost $4.
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66.
Assume the graph shown shows Bobbi's budget constraint. If hairbands cost $5, then Bobbi's income to
spend on these two items must be:
A. $8.
B. $6.
C. $40.
D. Cannot be determined without more information.
67.
Assume Mimi's budget constraint is shown in the graph shown. If earrings cost $7, then hairbands must
cost:
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A. $3.50.
B. $7.
C. $5.25.
D. $4.
68.
Assume Bridget's budget constraint is shown in the graph shown. If she has $48 to spend on these two
items, then earrings must cost:
A. $8.
B. $6.
C. $4.
D. $12.
69.
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Assume Bonnie has $64 to spend on hairbands and earrings. Her budget constraint is shown in the graph
shown. Which of the following can be said about Bonnie's choices?
A. Bonnie can buy twice as many hairbands as earrings.

B. Earrings must cost $16 each.
C. Hairbands must cost $8 each.
70.
Assume Bill's income to spend on the two goods in the graph shown is $48, and movie tickets cost $8. If
Bill's budget constraint is one of the lines in the graph, which one must it be?
A. A
B. B
C. C
D. It could be line A or B.
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71.
Assume Kevin's income to spend on the two goods in the graph shown is $48, and books cost $12. If
Kevin's budget constraint is one of the lines in the graph, which one must it be?
A. A
B. B
C. C
D. It could be either A or B.
72.
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Assume Kara's budget constraint is represented by line A in the graph shown, and that her income to
spend on these two items is $24. What would cause her budget constraint to move to B?
A. The price of movie tickets falls to $4.

B. The price of movie tickets increases to $4.
C. The price of movie tickets falls to $6.
D. The price of movie tickets increases to $6.
73.
Assume Roger's income to spend on books and movie tickets is $48, and his budget constraint is
represented by line B. What would cause his budget constraint to move to A?
A. Roger gets a raise at work.

B. Roger gets unlimited coupons for $2 off the price of a movie ticket.
C. The price of movie tickets increases to $8.
D. None of these changes would cause Roger's budget constraint to move from B to A.
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74.
Assume Alan's budget constraint is demonstrated by line A in the graph shown. Which of the following
could cause Alan's budget constraint to change to line B?
A. The price of books could have decreased.

B. The price of books could have increased.
C. The price of movie tickets could have increased.
D. The price of movie tickets could have decreased.
75.
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A. Alan could have experienced a drop in income.

C. Alan could have decided he doesn't like going to the movies as much as he used to.
D. The price of movie tickets could have increased.
76.
Assume Claudia's budget constraint is demonstrated by line A in the graph shown. Which of the following
would cause Claudia's budget constraint to shift to line C?
A. The price of books dropped.

B. The price of movie tickets dropped.
C. Claudia's preferences for these two goods decreased.
D. Claudia’s income decreased.
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77.
A. Claudia's income increased.

B. Claudia's income decreased.
D. The prices of both goods have gone down.
78.
Assume Bryce's budget constraint is represented by line B in the graph shown. Which of the following
would cause Bryce's budget constraint to shift to A?
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A. The price of books increased.
B. The price of books decreased.
C. The price of movie tickets increased.
D. The price of movie tickets decreased.
79.
Assume Bryce's budget constraint is represented by line C in the graph shown. Which of the following
A. Bryce's income increased.

B. Bryce's income decreased.
C. Bryce's preferences for books and movies decreased.
D. Bryce's preferences for books and movies increased.
80. This graph shows three different budget constraints: A, B, and C.
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If Don has budget constraint C in the graph shown, what is the trade-off he faces in terms of the two
goods?
A. Two cases of soda for every three gallons of milk

B. One case of soda for every one and a half gallons of milk
C. Three cases of soda for every four and a half gallons of milk
D. All of these accurately reflect Don's tradeoff.
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If Gary has budget constraint A, and the price of milk is $3 a gallon, what is Gary's income?
A. $9
B. $27
C. $12
D. Cannot answer this without knowing the price of soda.
7-27
If Doug is on budget constraint C in the graph shown, what would cause it to shift to budget constraint B?
A. Doug loses his job.

B. Doug finds soda at a warehouse outlet for a lower price.
C. Doug's grocery store raises the price of milk by 10 percent.
D. Doug’s grocery store has lowered all prices by 33 percent.
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If Daniel has budget constraint C in the graph shown, what would cause it to shift to budget constraint B?
A. An increase in the price of milk

B. A decrease in the price of soda
C. An increase in the price of soda
D. None of these changes alone could cause a shift from C to B.
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If Larry has budget constraint B in the graph shown, what is his opportunity cost of one gallon of milk?
A. It is 6 cases of soda.
B. It is exactly one case of soda.
C. It is less than one case of soda.
D. It is more than one case of soda.
7-30
If we compare budget constraint A to budget constraint B in the graph shown, what can be said of the
relative prices reflected in the two?
A. Because A is steeper, soda is relatively less expensive in A than in budget constraint B.

B. Because B is steeper, soda is relatively less expensive in A than in budget constraint B.
C. Because B is flatter, soda is relatively more expensive in A than in budget constraint B.
D. Because A is flatter, soda is relatively more expensive in A than in budget constraint B.
7-31
If Bert has budget constraint A in the graph shown, what is his opportunity cost of three gallons of milk?
A. Twelve cases of soda

B. Eight cases of soda
C. Four cases of soda
D. It is impossible to say without knowing Bert's income.
7-32
If Joe has budget constraint C in the graph shown, what is the relative price of three gallons of milk?
A. 2 cases of soda
B. 4 cases of soda
C. $12
D. $9
7-33
If Bart has budget constraint A in the graph shown, what would cause his budget constraint to shift to B?
A. Bart's income has decreased.

B. The price of soda has increased.
C. The price of soda has decreased.
D. The price of milk has increased.
89. This graph shows three different budget constraints: A, B, and C. If Ted's budget constraint is shown
by line A in the graph shown, and Ted's income for these two items is $36, what are the prices of the two
goods?
A. Soda costs $3 per case, and milk costs $4 a gallon.
B. Soda costs $4 per case, and milk costs $3 a gallon.
C. Soda costs $12 per case and milk costs $9 a gallon.
D. Soda costs $6 per case and milk costs $3 a gallon.
90. Quinn's income to spend on either bowling or eating out each month is $100. It costs $10 to bowl for
the night and it costs $20 for Quinn to eat at a restaurant. A point on Quinn's budget constraint would be:
A. 4 nights of bowling and 3 trips to the restaurant.
B. 3 nights of bowling and 4 trips to the restaurant.
C. 2 nights of bowling and 5 trips to the restaurant.
D. 10 nights of bowling and 5 trips to the restaurant.
91. Sam has $200 a month to spend on either tanning sessions or rounds of golf. Tanning sessions are
$20 each, and a round of golf is $50. A point on Sam's budget constraint would be:
A. 20 tanning sessions and 8 rounds of golf.
B. 10 tanning sessions and 5 rounds of golf.
C. 10 tanning sessions and 4 rounds of golf.
D. 10 tanning sessions and 2 rounds of golf.
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$20 each, and a round of golf is $40. What can we say about Sam's utility?
A. Sam will get more utility from each round of golf than each tanning session.
B. Sam will get the same utility from one round of golf as he would from two tanning sessions.
C. Sam will maximize his utility from 2 rounds of golf and 6 tanning sessions.
D. We cannot say anything about Sam's utility from the consumption of these goods without more
information.
93. Rational utility maximizing consumers tend to:

A. buy the same bundle of goods regardless of the prices charged.
B. choose the same bundle of goods regardless of their income.
C. change their consumption choices when either prices or income changes.
D. change their consumption choices only when both prices and income changes simultaneously.
spend on these two items is $10. Considering the information in the table shown, if Jack's income to
spend on these two items were to increase to $16:
A. he could afford to buy 16 popsicles and 8 ice cream cones.
B. he could afford to buy either 16 popsicles or 8 ice cream cones.
C. he could afford to buy 8 ice cream cones and 4 popsicles.
95. When a person's income increases:

A. more bundles of goods and services become affordable.
B. less bundles of goods and services become affordable.
C. the bundles of goods and services that become affordable don't change.
D. the bundles of goods and services that become affordable must include more expensive goods and
services.

A. the individual's budget constraint shifts straight out, maintaining the same slope.
B. the individual's budget constraint shifts straight in, maintaining the same slope.
C. the individual's budget constraint rotates out and becomes flatter.
D. the individual's budget constraint rotates in and becomes steeper.
97. When a person's income decreases, the slope of the individual's budget constraint stays the same
because:
A. everything is relatively more expensive now.
B. everything is relatively less expensive now.
C. the relative prices of the goods haven't changed.
D. the prices of the goods change in the same proportion.
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98.
Assume the graph shown represents Kerri's budget constraint. If Kerri's income to spend on these two
items increased, which of the following would be true?
A. Kerri's budget constraint would shift out, maintaining the same slope.
B. Kerri's budget constraint would shift out, and get steeper.
C. Kerri's budget constraint would shift in, maintaining the same slope.
D. Kerri's budget constraint would shift out, and get flatter.
99.
Assume the graph shown represents Dana's budget constraint. If Dana's income to spend on these two
items decreased, which of the following could be said?
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A. Dana will buy more hairbands now because they are relatively less expensive.
B. Dana will be able to buy less of both goods.
C. Dana will derive more utility from each item, because she values each one more now that she's poorer.
100.
Assume the graph shown represents Dawn's budget constraint. If Dawn's income to spend on these two
items increased and Dawn spends all her income on these two goods, then Dawn's total utility from
consuming these two goods:
A. will likely go up, since she can afford more of both goods now.
B. will likely go down, since her marginal utility of additional items decreases the more she consumes.
C. will likely go down, since she is probably sick of these two things already.
D. will likely go up, since her marginal utility of additional items increases the more she consumes.
101. In general, a change in the price of a good:

A. causes a substitution effect only.
B. causes an income effect only.
C. causes both an income and substitution effect.
D. usually has no effect.
102. In general, an increase in the price of a good:

A. will cause the substitution effect to be bigger than the income effect.
B. will cause the income effect to be bigger than the substitution effect.
C. will cause both an income and substitution effect.
D. usually will have no effect.
103. In general, the income effect of an increase in the price of a normal good:
A. will cause the individual to buy more of that good because they have relatively more income.
B. will cause the individual to buy less of that good because they have relatively less income.
C. will cause the individual to buy more of that good because they have relatively less income.
D. will cause the individual to buy less of that good because they have relatively more income.
104. In general, the substitution effect of an increase in the price of a normal good:
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C. will cause the individual to buy more of that good and less of others because it is relatively less
expensive.
D. will cause the individual to buy less of that good and more of others because it is relatively more
expensive.
105. The substitution effect can be defined as:

A. the change in consumption that results from a change in the relative price of goods.
B. the change in consumption that results from increased effective wealth due to lower prices.
C. the change in consumption that results from increased effective wealth due to getting a raise.
D. the change in income that results from increased effective consumption due to lower prices
106. Sam has $200 a month to spend on two normal goods-tanning sessions or rounds of golf. Tanning
sessions are $20 each, and a round of golf is $40. Sam currently consumes six tanning sessions and two
rounds of golf. If the price of a round of golf drops to $20, the income effect:
A. predicts Sam will increase his consumption of both golf and tanning sessions.
B. predicts Sam will double his consumption of golf.
C. predicts Sam will consume more golf and less tanning sessions.
D. predicts Sam will consume less golf and more tanning sessions.
$20 each, and a round of golf is $40. Sam currently consumes six tanning sessions and two rounds of
golf. Both tanning and golf are normal goods. If the price of a round of golf drops to $20, the income and
substitution effects will cause Sam's consumption of tanning sessions:
A. to increase, since both effects predict an increase.
B. to decrease, since both effects predict a decrease.
C. to change, but the direction is dependent upon which effect is stronger.
D. It is impossible to say what will happen without more information.
108. Quinn's income to spend each month on two normal goods, bowling or eating out, is $100. It costs
$10 to bowl for the night, and it costs $20 for Quinn to eat at a restaurant. Quinn currently consumes four
nights of bowling and three meals at a restaurant. If the price of bowling increased to $15, the income
effect would predict:
A. Quinn would consume more of each good.
B. Quinn would consume less of each good.
C. Quinn would consume more bowling and less meals out.
D. Quinn would consume less bowling and more meals out.
109. Ethan enjoys buying books and going to the movies. He has income of $150 to spend on these two
goods each month. The price of a book is $15 and the price of going to the movies is also $15. He
currently consumes four books and six movies a month. If the price of a book drops to $10, the
substitution effect would predict:
A. Ethan would consume more of each good.
B. Ethan would consume less of each good.
C. Ethan would consume more books and fewer movies.
D. Ethan would consume fewer books and more movies.
currently consumes four books and six movies a month. If the price of a book increases to $20, then:
A. the substitution and income effects would both predict Ethan would consume more of both goods.
B. the substitution and income effects would both predict Ethan would consume less of both goods.
C. the substitution effect would predict Ethan would consume more books and less movies, and the
income effect would predict he would consume less of both.
D. the substitution effect would predict Ethan would consume less books and more movies and the
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111. Nick has $300 a month to spend on detailing his sports car or buying bottles of good wine. It costs
$100 to have his car detailed and $50 for a bottle of wine. He currently buys four bottles of wine and has
his car detailed once a month. If the price of detailing his car decreased to $75, Nick's budget constraint:
A. would shift straight outward, because he is relatively wealthier.
B. would rotate and change slope because relative prices have changed.
C. would shift straight inward because he is relatively wealthier.
D. One cannot determine what would happen without knowing Nick's marginal utility of each good.
112. When the price of one good changes, while the prices of all others stay the same:
A. the change in relative prices is reflected in a change in the slope of the budget constraint.
B. the change in relative prices can be thought of as a change in the opportunity costs of each good.
C. the change in relative prices is reflected in a change in the marginal utility per dollar spent on each
good.
D. All of these statements are true.
113. Kimberly decides to go back to college full time at the age of 30, and finds herself with a much lower
income than she was earning before. Now that she has less income, she finds herself eating less steak
and more pasta than ever before. We can conclude:
A. steak and pasta are both normal goods, because they are both food she eats regardless of her
income.
B. steak and pasta are both inferior goods, because they are both food she eats regardless of her
income.
C. pasta is an inferior good because her demand increased when her income went down.
D. steak and pasta are both inferior goods, because they are both food she eats regardless of her
income; also, pasta is an inferior good because her demand increased when her income went down.
114. Veblen goods:

A. are an excellent example of the individual nature of utility.
B. are goods which consumers buy to show how wealthy they are.
C. are goods that people buy more of when their income decreases.
D. are inferior goods.
115. Max is shopping for a new winter jacket. The salesperson explains that two coats have identical
features-the Columbia jacket that costs $120, and the Burton jacket that costs $300. Max buys the Burton
jacket. Burton jackets may be a good example of:
A. a normal good.
B. an inferior good.
C. a Veblen good.
D. a Giffen good.
116. The concept of utility maximization:

A. is solely used to measure an individual's satisfaction with his consumption choices.
B. can be used broadly to think about choices made motivated by satisfaction, envy, status, or kindness.
C. assumes each individual seeks to increase his own personal satisfaction regardless of others.
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117.
If the graph shown represents Hanna's budget constraint, and the price of hairbands were to decrease,
the slope of Hanna's budget constraint would become:
A. steeper, reflecting the fact that hairbands are now relatively less expensive.
B. flatter, reflecting the fact that hairbands are now relatively more expensive.
C. steeper, reflecting the fact that earrings are now relatively less expensive.
D. flatter, reflecting the fact that earrings are now relatively more expensive.
118.
If the graph shown represents Steph's budget constraint, and the price of hairbands were to increase, the
slope of Steph's budget constraint would become:
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119.
If the graph shown represents Donna's budget constraint, and the price of earrings were to decrease, the
slope of Donna's budget constraint would become:
120.
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If the graph shown represents Heather's budget constraint, and the price of hairbands were to decrease,
the slope of Heather's budget constraint would become:
A. flatter, reflecting the fact that hairbands are now relatively less expensive.
B. steeper, reflecting the fact that hairbands are now relatively more expensive.
C. flatter, reflecting the fact that earrings are now relatively less expensive.
D. steeper, reflecting the fact that earrings are now relatively more expensive.
121.
Consider budget constraints A and B in the graph shown. The slope of A compared to the slope of B:
A. is steeper, showing that movie tickets are relatively more expensive in line A.
B. is flatter, showing that books are relatively less expensive in line A.
C. shows that the opportunity cost of books is smaller in line A.
D. shows that the opportunity cost of books is greater in line A.
122. The utility we get from something:

A. is a measurement of our direct benefit of consuming the good.
B. is a measurement of the benefit of consuming the good relative to the opportunity cost.
C. is a measurement of outside perceptions and inner preferences.
D. is a measurement of outside benefits and inner costs.
123. Joe works for an environmental agency. Every day he chooses to fill his reusable water bottle and
bring it to work instead of bringing in a plastic disposable water bottle each day. Joe most likely derives
utility from:
A. the taste of water from his reusable water bottle.
B. the knowledge that he is doing something good for the environment by not using plastic water bottles.
C. the knowledge that others in his firm observe his environmentally-friendly choice of water bottle.
D. Joe likely derives utility from all three of these sources.
124. Betty is out on a first date with Barney. She decides to order the garden salad with dressing on the
side in an effort to make a good first impression, even though she prefers leg of lamb. Economic theory:
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A. cannot explain why someone would choose a meal that brings her less utility than another.
B. would suggest that making a good impression with her choice will bring her more utility than ordering
lamb and making a bad impression.
C. would suggest that she values what Barney thinks of her and will derive negative utility if she does not
impress him.
D. cannot be used to explain matters of the heart.
125. Altruism describes:

A. a motive for action in which a person's utility is unaffected when another's utility increases.
B. a motive for action in which a person's utility is decreased when another's utility increases.
C. a motive for action in which a person's utility is increased when another's utility increases.
D. a motive for action in which a person's utility becomes negative when another's utility increases.
126. The concept of utility:

A. cannot be used to explain why people are charitable.
B. cannot be used to explain why people are altruistic.
C. cannot be used to explain why people are selfish.
127. Seth is a surgeon who goes to Cambodia each summer and donates two weeks of his time to local
hospitals. From an economic standpoint, utility is gained by:
A. Seth's patients.
B. Seth, knowing he is doing a good deed.
C. Seth, knowing the local paper writes a story about his trip every time he comes home.
128. Reciprocity means:

A. responding to another's actions with a similar action.
B. deriving utility from an action that will cause another's utility to increase.
C. doing good things for people and asking nothing in return.
D. deriving utility from the action of a stranger.
129. The Golden Rule "Do unto others as you would have done unto you" is an example of the economic
concept of:
A. marginal utility.
B. altruism.
C. reciprocity.
D. selfishness.
130. You decide to buy your friend lunch after she helped you study for your exam. This is an example of
the economic concept of:
B. altruism.
C. reciprocity.
D. a Veblen good.
131. You decide to donate $5 to Jerry's Kids at the grocery store checkout, and get to sign your name to
a shamrock and hang it in their window. This is an example of the economic concept of:
B. altruism.
C. reciprocity.
D. selfishness.
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Chapter 07 Test Bank KEY
1. Utility is:
A. a way of describing a consumer’s wants.
B. only applicable to goods that are purchased.
C. a measure of a consumer’s income
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 07-01 Explain how revealed preferences indicate which goods or activities give a person the most utility.
Topic: Utility
2. Which of the following statements is true about individuals and utility?

A. Individuals seek to maximize utility.
B. Individuals seek to maximize their income, not utility.
C. Individuals will either minimize or maximize utility depending on the situation.
D. Individuals rarely try to maximize their utility.
Blooms: Understand
Topic: Utility
3. Individuals will make choices to maximize their:

A. constraints.
B. utility.
C. income.
D. values.
Blooms: Understand
Topic: Utility
4. Utility measurements are:

A. a relative ranking of how much different people enjoy a particular good.
B. used to compare one person's preference for a good to another person's preference.
C. a relative ranking of the satisfaction a person gets from alternative combinations of things.
Blooms: Understand
Topic: Utility
5. Utility is:
A. maximized by rational individuals.
B. revealed by observing choices an individual makes.
C. the satisfaction individuals get from different bundles of goods.
Blooms: Understand
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Topic: Utility
6. Revealed preference is:

A. the idea that people's preferences can be determined by observing their choices and behavior.
B. the notion that people reveal the utility they get by reporting it on a numerical scale.
C. the method that psychologists, anthropologists, and economists use to measure utility.
Blooms: Understand
Topic: Utility
7. According to revealed preference a consumer that chooses to smoke cigarettes:

A. derives more utility from smoking than the goods they could have purchased with that same money.
B. derives more happiness from smoking than the goods they could have purchased with that same
money.
C. is minimizing their utility given the options available to them.
D. is behaving irrationally.
Blooms: Understand
Topic: Utility
8. One baseline assumption that economists make about consumer behavior is that:
A. people are rational utility maximizers.
B. people will always choose short-term benefits to longer-term payoffs.
C. people will always choose what makes them happiest.
D. people are unpredictable.
Blooms: Understand
Topic: Utility
9. After browsing several pairs of shoes, Bob buys a pair of Nike running shoes. Economists would say
that:
A. Bob is revealing his strong distaste for New Balance running shoes.
B. Bob is revealing he will always choose Nike over any other shoe brand.
C. Bob will get more utility per dollar from the Nike running shoes than any other in the store.
D. Bob made a poor choice, if he really prefers Adidas.
Blooms: Understand
Topic: Utility
10. Utility is:

A. a quantitative measure of consumers’ preferences.
B. an objective measure of a person’s happiness.
C. as difficult to measure as an individual's income level.
D. a meaningful number measuring a consumer’s precise level of satisfaction.
Blooms: Understand
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Topic: Utility
11. Billy is deciding whether to watch TV at home or go spend time with his friends. If Billy decides to stay
home, we can conclude that:
A. Billy is a homebody and never goes out.
B. Billy will get more utility from watching TV than spending time with his friends.
C. Billy will regret not spending more time with his friends.
D. Billy's revealed preference is to always be alone.
Blooms: Understand
Topic: Utility
12. Utility is:

A. useful in comparing the relative satisfaction different consumers get from a particular good.
B. useful in predicting when to put an item on sale.
C. useful in quantitatively describing a person's preferences for one good over another.
D. an interesting concept, but not really useful for anything.
Blooms: Understand
Topic: Utility
13. A utility function is:

A. an equation for calculating the most utility a particular person can derive.
B. an equation for calculating the total utility that a particular person derives from consuming a particular
good over a particular time period.
C. an equation for calculating the total utility that a group of people derive from consuming a particular
good.
D. an equation for calculating the total utility that a particular person derives from consuming a particular
combination of goods and services.
Blooms: Understand
Topic: Utility
14. A bundle:
A. is a specific combination of goods and services an individual could consume.
B. describes the amount of people that choose a particular combination of goods.
C. is a curve describing different combinations of goods and services an individual could choose to
consume.
D. is when a store sells goods at a discounted price.
Blooms: Understand
Topic: Utility
15. When economists observe someone make a choice, they assume the individual chooses:
A. what gives her the least utility.
B. what gives her the most utility.
C. what creates the most utility for society.
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D. what is the most efficient choice.
Blooms: Understand
Topic: Utility
16. Barbie is deciding whether to play soccer or go swimming over the next hour. She decides to swim.
Economists would conclude that Barbie:
A. is revealing a preference for swimming over soccer.
B. will get less utility from swimming during the next hour than playing soccer.
C. was unable to play soccer at that time.
D. is more skilled at swimming than playing soccer.
Blooms: Understand
Topic: Utility
17. After browsing his cabinets to see what meals he can make, Ken is deciding whether to make nachos
or spaghetti for dinner. If Ken makes spaghetti, we can conclude:
A. Ken doesn't like nachos.
B. Ken prefers nachos over spaghetti.
C. Ken will get more utility from making spaghetti for dinner than nachos.
Blooms: Understand
Topic: Utility
18. Bart is seen standing in front of the cooler that contains containers of iced tea and lemonade.
Moments later, we see Bart drinking iced tea, and we conclude Bart is getting more utility from that drink
than lemonade. We drew that conclusion based on what economic concept?
A. Revealed preference
B. Utility minimization
C. Satisfaction scales
D. Rational behavior
Blooms: Understand
Topic: Utility
19. Corey has a blue sweater and a denim jacket. On some days he chooses to wear the sweater but on
others he chooses to wear the jacket. Economists would most likely conclude that:
A. Corey’s preferences have changed.
B. Corey’s preferences have not changed, but other factors may have changed such as the temperature
outside.
C. Corey is irrational if he wears different clothing on different days.
D. Corey is indifferent between wearing a jacket or a sweater.
Blooms: Understand
Topic: Utility
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20. Bobby makes a New Year's resolution to lose weight. On January 3 rd, he decides to go to Ben amp;
Jerry's for ice cream instead of going to the gym. Using the concept of revealed preference, economists
would most likely conclude that Bobby:
A. is not a rational individual.
B. actually gains more utility from ice cream than working out.
C. has changed his preferences.
D. has no choice over the actions he takes.
Blooms: Understand
Topic: Utility
21. Alison is deciding how to spend the next hour. We ask her to rate the utility she would get from an
hour of each activity. She would get utility of 4 from an hour of reading, utility of 2 from an hour of playing
video games, and utility of 6 from jogging. Based on this information, economists could predict that Alison
will:
A. read.
B. play video games.
C. go jogging.
D. do nothing, since none of the activities give her utility greater than 10.
Blooms: Understand
Topic: Utility
22. Ben is asked to rate the utility he would get from reading different types of publications for the next
hour. If he read a graphic novel he would get utility of 5. If he read a biography, he would get utility of 4,
and if he read his economics textbook, he would get utility of 9. An economist would predict that Ben will
spend his next hour reading:
A. a graphic novel.
B. a biography.
C. his economics textbook.
D. It is impossible to predict how Ben will spend his time.
Blooms: Understand
Topic: Utility
23. The concept of marginal utility:

A. explains why individuals find it difficult to maximize their total utility.
C. can only be applied to situations in which individuals can choose among several goods or services.
D. is the loss in utility from making a bad decision.
Blooms: Understand
Topic: Marginal Utility
24. The concept of diminishing marginal utility:

A. explains why individuals rarely maximize their total utility.
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C. is the principle that the additional utility gained from consuming successive units of a good or service
tends to be smaller than the utility gained from the previous unit.
D. is the principle that the additional utility gained from consuming different bundles of goods and services
tend to be smaller than the utility gained from consuming just one bundle of goods and services.
Blooms: Understand
25. Sadie has just eaten a donut and says it gave her a utility of 6. If she chooses to eat another donut:
A. we can assume she will get an increase in utility of at least 6 from the additional donut.
B. we can assume she will get a decrease in utility from the additional donut.
C. we can assume she will get an increase in utility of less than 6 from the additional donut.
D. we can assume Sadie's total utility will fall because of diminishing marginal utility.
Blooms: Understand
26. Nona has just gone on a bike ride for an hour and says it gave her a utility of 7. If she chooses to
continue to ride her bike for another hour:
A. we can assume she will get at least a marginal utility of more than 7.
B. we can assume she will get a marginal utility of 7.
C. we can assume she will get a marginal utility of less than 7.
D. we can assume Nona's total utility will fall because of diminishing marginal utility.
Blooms: Understand
27. Grace has just eaten a slice of pizza and says it gave her a utility of 8. If she chooses to eat a second
slice:
A. she will experience a drop in total utility.
B. she is not acting rationally.
C. she will experience an increase in total utility.
Blooms: Understand
28. Howard has just smoked a cigarette. If he chooses to smoke a second one:
A. he will experience a drop in total utility.
B. he is not acting rationally.
C. he will derive less marginal utility from it than his first.
Blooms: Understand
29. Elijah has just eaten his second popsicle. Using the concept of marginal utility, we can say:
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A. the utility he will gain from his third will reduce his total utility.
B. the utility he will gain from his third will not reduce his total utility.
C. the utility he will gain from his third will be less than that of his second but will increase his total utility.
D. the utility he will gain from his third will be less than that of his second and may reduce his total utility.
Blooms: Understand
30. Katie just finished a bottle of Coke. Using the concept of marginal utility, we can say:
A. the utility she will gain if she drinks another will reduce her total utility.
B. the utility she will gain if she drinks another will increase her total utility.
C. the utility she will gain if she drinks another will be the same as that of her first.
D. the utility she will gain may or may not reduce her total utility.
Blooms: Understand
31. Claire has just eaten her second bowl of cereal. We can say:
A. her second bowl likely reduced her total utility.
B. her second bowl likely added less to her total utility than the first.
C. her third bowl will likely decrease her total utility.
D. her third bowl will likely increase her total utility by at least as much as the second.
Blooms: Understand
32. Linus has just watched two hours of TV. We can say:
A. his second hour of watching TV likely reduced his total utility.
B. his second hour of watching TV likely added less to his total utility than did the first.
C. if he watches a third hour it will likely decrease his total utility.
D. if he watches a third hour it will likely increase his total utility by at least as much as the second.
Blooms: Understand
33. If successive units of a good are consumed, the marginal utility gained typically:
A. increases at the same rate for all people.
B. increases at different rates for different people.
C. decreases at the same rate for all people.
D. decreases at different rates for different people.
Blooms: Understand
34. If Bella eats one piece of pie, she gains a utility of 10. If she continues, a second piece yields a
marginal utility of 8, a third will yield a marginal utility of 2, and a fourth piece of pie will yield a marginal
utility of 2. We can say:
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A. Bella's marginal utility is not diminishing.
B. Bella's total utility will decrease if she eats the third piece of pie.
C. Bella's total utility will be maximized if she eats three pieces.
D. Bella's total utility decreases after the first piece of pie.
Blooms: Understand
35. If Bob has one piece of gum in his mouth, he gains a utility of 12. If he adds a second piece to the
first, it yields a marginal utility of 6; adding a third will bring marginal utility of 1. Adding a fourth piece will
make Bob choke, yielding a marginal utility of 4. We can say:
A. Bob's total utility from chewing four pieces of gum would be 23.
B. Bob's total utility will decrease if he chews the fourth piece of gum.
C. Bob's total utility will be maximized if he eats two pieces.
D. Bob's total utility decreases after the first piece of gum.
Blooms: Understand
36. Thinking about the total utility gained from the consumption of a typical good, we can say in general
that:
A. total utility will rise, peak, and then decline as more and more units are consumed.
B. consuming more and more units of a good will eventually cause marginal utility to increase
C. total utility increases by decreasing amounts, until it is maximized. Then it declines.
D. total utility is maximized where the marginal utility is greatest.
Blooms: Understand
37. The marginal utility gained from the consumption of successive units of a typical good:
A. tends to decrease.
B. tends to increase.
C. may increase or decrease depending on the cost of the good.
D. tends to stay the same.
Blooms: Understand
38. Johnny spends his day doing a variety of activities; he spends the morning exercising and doing yard
work, reads in the afternoon, and hosts a dinner party in the evening. Economists would say his choice to
do a variety of activities instead of spending all of his time on one activity illustrates the concept of:
A. tastes and preferences
B. budget constraints
C. diminishing marginal utility
D. income effect
Blooms: Understand
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39. After watching a movie, Alan chooses not to watch a second and goes for a walk instead. Economists
could explain his choices using the concept of:
A. budget constraints.
B. diminishing marginal utility.
C. income effect.
D. substitution effect.
Blooms: Understand
40. Jeff and Roel like to eat pizza twice a week, burritos once a week, and steak four days a week. This
variety of dinner choices illustrates the concept of:
A. instable preferences..
B. negative marginal utility.
C. diminishing marginal utility.
D. income maximization.
Blooms: Understand
41. Dave and Buster play two games of tennis, and then decide to go have lunch. Using the concept of
utility to explain their choices, we can conclude that:
A. they each won one game of tennis.
B. the marginal utility from playing a third game must be negative for them.
C. the marginal utility from playing a third game must be less than the marginal utility from having lunch.
D. All of these must be true.
Blooms: Understand
42. Courtney goes for an hour bike ride which yields a marginal utility of 8. She stops and gets an ice
cream cone, and then rides her bike for another hour. We can say:
A. the utility gained from a second ice cream cone was more than a second hour of bike riding.
B. the utility gained from the ice cream was more than 8.
C. the utility gained from the ice cream was less than the second hour of bike riding.
D. the utility gained from a third hour of biking would be less than the utility gained from the one ice
cream.
Blooms: Understand
43. Zachary spends his day studying for a total of four hours and exercising for one hour. Using the
concept of utility to explain his choices, we can say
A. the total utility gained from exercising for one hour is greater than the total utility from studying for four
hours.
B. the marginal utility of exercising for the first hour was greater than the marginal utility of studying for the
first hour.
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C. the marginal utility of studying for a fifth hour will be negative.
D. the marginal utility from studying for a fifth hour is less than the marginal utility from the first hour of
exercise.
Blooms: Understand
44. When someone is served pizza and soda for dinner, it is typical behavior to eat some pizza, then
drink some soda, then eat more pizza, and so on, until the person stops consuming both. How can this
behavior be explained using economic concepts?
A. The individual is revealing that he can't decide whether he gains more utility from pizza or from soda.
B. People tend to act irrationally around food, and the concept of utility maximization cannot be applied.
C. The person eats pizza until his marginal utility for pizza is lower than it is for soda, then he switches to
soda.
D. The concept of unlimited wants says he will never tire of eating pizza and soda.
Blooms: Understand
45. You decide to forgo a third slice of pizza and have a scoop of ice cream instead. This is an example
of the economic concept of:
A. diminishing marginal utility.
B. altruism.
C. reciprocity.
D. selfishness.
Blooms: Understand

A 10 700 0 0
B 8 720 1 500
C 6 650 2 700
D 4 550 3 750
E 2 400 4 760
F 0 0 5 760
Considering the information in the table shown, the bundle of goods that will derive the highest total utility
for Jack is:
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A. E.
B. B.
C. C.
D. D.
Blooms: Understand
Topic: Utility

A 10 700 0 0
B 8 720 1 500
C 6 650 2 700
D 4 550 3 750
E 2 400 4 760
F 0 0 5 760
Considering the information in the table shown, if we assume Jack is a rational utility maximizer, then we
can predict he will buy which bundle with his $10?
A. A
B. B
C. C
D. D
Blooms: Understand
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A 10 700 0 0
B 8 720 1 500
C 6 650 2 700
D 4 550 3 750
E 2 400 4 760
F 0 0 5 760
Considering the information in the table shown, if Jack consumes 2 popsicles and 2 ice cream cones:

B. Jack still has $6 left to spend.
C. Jack still has $8 left to spend.
D. Jack still has $2 left to spend.
Blooms: Understand
Learning Objective: 07-02 Show how the budget constraint affects utility maximization.
Topic: Budget Constraint

A 10 700 0 0
B 8 720 1 500
C 6 650 2 700
D 4 550 3 750
E 2 400 4 760
F 0 0 5 760
Considering the information in the table shown, if Jack consumes 3 popsicles and 1 ice cream cone, then:

B. the price of ice cream must have increased to $8.
C. the price of popsicles must have decreased.
Blooms: Understand
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A 10 700 0 0
B 8 720 1 500
C 6 650 2 700
D 4 550 3 750
E 2 400 4 760
F 0 0 5 760
Considering the information in the table shown, if Jack decides to consume bundle D, we can conclude
that Jack:
A. still has money left to spend.

B. is not maximizing his utility.
C. could consume more of both goods.
Blooms: Understand

A 10 700 0 0
B 8 720 1 500
C 6 650 2 700
D 4 550 3 750
E 2 400 4 760
F 0 0 5 760
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Considering the information in the table shown, Jack's total utility from consuming bundle D would be:
A. 1,160.
B. 1,300.
C. 950.
D. 2,220.
Blooms: Understand

A 10 700 0 0
B 8 720 1 500
C 6 650 2 700
D 4 550 3 750
E 2 400 4 760
F 0 0 5 760
Considering the information in the table shown, the price of ice cream is:
A. $2 per cone.
B. $1 per cone.
C. diminishing as Jack increases the amount consumed.
D. $5 per cone.
Blooms: Understand
53. A budget constraint is:

A. a line that is composed of all the possible combinations of goods and services that maximize a
consumer’s total utility.
B. a line that is composed of the additional utility gained from consuming possible combinations of goods
C. a line that is composed of all the possible combinations of goods and services that a consumer can
buy with his or her income.
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D. a line that is composed of the total utility gained from consuming all possible combinations of goods
Blooms: Understand

A. shows different bundles of goods that all yield the same total utility.
B. shows different bundles of goods that all cost the same amount.
C. shows different bundles of goods that all maximize an individual's utility.
D. shows how much income is needed to maximize total utility.
Blooms: Understand

A. is the same across all individuals with the same income constraints.
B. is different for each individual with the same income constraints.
C. is the same across all individuals with the same tastes and preferences.
D. is different for each individual with the same tastes and preferences.
Blooms: Understand

A. shows a constant dollar amount spent on different combinations of goods, and each bundle brings the
same utility.
B. shows a constant dollar amount spent on different combinations of goods, and each bundle brings a
different amount of utility.
C. shows a constant amount of utility gained by consuming different combinations of goods, and each
bundle costs the same.
Blooms: Understand
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57.
The slope of the budget line in the graph shown:
A. represents the opportunity cost of the two goods relative to each other.
B. represents the relative marginal utilities from consuming the two goods.
C. measures the total utility the consumer gets from consuming the two goods.
D. is the consumer’s income level.
Blooms: Understand
58.
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If the graph shown represents Stella's budget constraint, and hairbands cost $4, what must Stella's
income to spend on these two items be?
A. $32
B. $16
C. $48
D. Cannot answer this question without more information.
Blooms: Understand
59.
If the graph shown represents Stella's budget constraint, and she has income of $48 to spend on these
two items, Stella could choose which consumption bundle?
A. One pair of earrings and seven hairbands

B. Four pairs of earrings and eight hairbands
C. Three pairs of earrings and six hairbands
D. Two pairs of earrings and four hairbands
Blooms: Understand
7-60
60.
If the graph shown represents Taylor's budget constraint, which of the following consumption bundles
could Taylor choose?
A. Taylor cannot choose to consume any of these bundles

B. Two pairs of earrings and six hairbands
C. One pair of earrings and six hairbands
D. Four pairs of earrings and eight hairbands
Blooms: Understand
61.
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If the graph shown represents Tina's budget constraint, which of the following consumption bundles can
Tina not afford?
A. Three pairs of earrings and four hairbands

B. Two pairs of earrings and four hairbands
C. No earrings and six hairbands
D. Cannot answer this question without knowing Tina's income and the prices of the two goods
Blooms: Understand
62.
Assume the graph shown represents Grace's budget constraint. Which of the following is true?
A. Grace's total utility is constant along her budget constraint.

B. Grace's marginal utility of each good is the same for each combination of goods on her budget line.
C. Grace's total expenditure is constant along her budget constraint.
D. Grace is indifferent between consuming any bundle that lies on the budget constraint.
Blooms: Understand
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63.
If the graph shown represents Celia's budget constraint, which of the following must be true?
A. Celia will spend twice as much on earrings as she does hairbands.

B. Celia could consume either four pairs of earrings or eight hairbands.
C. Celia gets twice as much utility from earrings as she does from hairbands.
Blooms: Understand
64.
If the graph shown represents Suzi's budget constraint, what can be said about hairbands?
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A. They cost twice as much as earrings.
B. They cost half as much as earrings.
C. Suzi likes hairbands more than earrings.
D. Suzi is willing to pay twice as much for hairbands.
Blooms: Understand
65.
Assume Willow's income to spend on either earrings or hairbands is $24. If her budget constraint is
pictured in the graph shown, which of the following must be true?
A. Willow will buy more hairbands than earrings because they are less expensive.
B. Willow will buy more earrings than hairbands because they are less expensive.
C. Hairbands must cost $3, and earrings must cost $6.
D. Hairbands must cost $8, and earrings must cost $4.
Blooms: Understand
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66.
Assume the graph shown shows Bobbi's budget constraint. If hairbands cost $5, then Bobbi's income to
spend on these two items must be:
A. $8.
B. $6.
C. $40.
D. Cannot be determined without more information.
Blooms: Understand
67.
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Assume Mimi's budget constraint is shown in the graph shown. If earrings cost $7, then hairbands must
cost:
A. $3.50.
B. $7.
C. $5.25.
D. $4.
Blooms: Understand
68.
Assume Bridget's budget constraint is shown in the graph shown. If she has $48 to spend on these two
items, then earrings must cost:
A. $8.
B. $6.
C. $4.
D. $12.
Blooms: Understand
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69.
Assume Bonnie has $64 to spend on hairbands and earrings. Her budget constraint is shown in the graph
shown. Which of the following can be said about Bonnie's choices?
A. Bonnie can buy twice as many hairbands as earrings.

B. Earrings must cost $16 each.
C. Hairbands must cost $8 each.
Blooms: Understand
70.
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Assume Bill's income to spend on the two goods in the graph shown is $48, and movie tickets cost $8. If
Bill's budget constraint is one of the lines in the graph, which one must it be?
A. A
B. B
C. C
D. It could be line A or B.
Blooms: Understand
71.
Assume Kevin's income to spend on the two goods in the graph shown is $48, and books cost $12. If
Kevin's budget constraint is one of the lines in the graph, which one must it be?
A. A
B. B
C. C
D. It could be either A or B.
Blooms: Understand
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72.
Assume Kara's budget constraint is represented by line A in the graph shown, and that her income to
spend on these two items is $24. What would cause her budget constraint to move to B?
A. The price of movie tickets falls to $4.

B. The price of movie tickets increases to $4.
C. The price of movie tickets falls to $6.
D. The price of movie tickets increases to $6.
Blooms: Understand
Topic: Price Changes
73.
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Assume Roger's income to spend on books and movie tickets is $48, and his budget constraint is
represented by line B. What would cause his budget constraint to move to A?
A. Roger gets a raise at work.

B. Roger gets unlimited coupons for $2 off the price of a movie ticket.
C. The price of movie tickets increases to $8.
D. None of these changes would cause Roger's budget constraint to move from B to A.
Blooms: Understand
74.
A. The price of books could have decreased.

C. The price of movie tickets could have increased.
D. The price of movie tickets could have decreased.
Blooms: Understand
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75.
A. Alan could have experienced a drop in income.

C. Alan could have decided he doesn't like going to the movies as much as he used to.
D. The price of movie tickets could have increased.
Blooms: Understand
76.
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A. The price of books dropped.

B. The price of movie tickets dropped.
D. Claudia’s income decreased.
Blooms: Understand
Topic: Income Changes
77.
A. Claudia's income increased.

B. Claudia's income decreased.
D. The prices of both goods have gone down.
Blooms: Understand
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78.
Assume Bryce's budget constraint is represented by line B in the graph shown. Which of the following
A. The price of books increased.

B. The price of books decreased.
C. The price of movie tickets increased.
D. The price of movie tickets decreased.
Blooms: Understand
79.
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Assume Bryce's budget constraint is represented by line C in the graph shown. Which of the following
A. Bryce's income increased.

B. Bryce's income decreased.
C. Bryce's preferences for books and movies decreased.
D. Bryce's preferences for books and movies increased.
Blooms: Understand
If Don has budget constraint C in the graph shown, what is the trade-off he faces in terms of the two
goods?
A. Two cases of soda for every three gallons of milk

B. One case of soda for every one and a half gallons of milk
C. Three cases of soda for every four and a half gallons of milk
D. All of these accurately reflect Don's tradeoff.
Blooms: Understand
7-74
If Gary has budget constraint A, and the price of milk is $3 a gallon, what is Gary's income?
A. $9
B. $27
C. $12
D. Cannot answer this without knowing the price of soda.
Blooms: Understand
7-75
If Doug is on budget constraint C in the graph shown, what would cause it to shift to budget constraint B?
A. Doug loses his job.

B. Doug finds soda at a warehouse outlet for a lower price.
C. Doug's grocery store raises the price of milk by 10 percent.
D. Doug’s grocery store has lowered all prices by 33 percent.
Blooms: Understand
7-76
If Daniel has budget constraint C in the graph shown, what would cause it to shift to budget constraint B?
A. An increase in the price of milk

B. A decrease in the price of soda
C. An increase in the price of soda
D. None of these changes alone could cause a shift from C to B.
Blooms: Understand
7-77
If Larry has budget constraint B in the graph shown, what is his opportunity cost of one gallon of milk?
A. It is 6 cases of soda.
B. It is exactly one case of soda.
C. It is less than one case of soda.
D. It is more than one case of soda.
Blooms: Understand
7-78
If we compare budget constraint A to budget constraint B in the graph shown, what can be said of the
relative prices reflected in the two?
A. Because A is steeper, soda is relatively less expensive in A than in budget constraint B.

B. Because B is steeper, soda is relatively less expensive in A than in budget constraint B.
C. Because B is flatter, soda is relatively more expensive in A than in budget constraint B.
D. Because A is flatter, soda is relatively more expensive in A than in budget constraint B.
Blooms: Understand
7-79
If Bert has budget constraint A in the graph shown, what is his opportunity cost of three gallons of milk?
A. Twelve cases of soda

B. Eight cases of soda
C. Four cases of soda
D. It is impossible to say without knowing Bert's income.
Blooms: Understand
7-80
If Joe has budget constraint C in the graph shown, what is the relative price of three gallons of milk?
A. 2 cases of soda
B. 4 cases of soda
C. $12
D. $9
Blooms: Understand
7-81
If Bart has budget constraint A in the graph shown, what would cause his budget constraint to shift to B?
A. Bart's income has decreased.

B. The price of soda has increased.
C. The price of soda has decreased.
D. The price of milk has increased.
Blooms: Understand
89. This graph shows three different budget constraints: A, B, and C. If Ted's budget constraint is shown
by line A in the graph shown, and Ted's income for these two items is $36, what are the prices of the two
goods?
A. Soda costs $3 per case, and milk costs $4 a gallon.
B. Soda costs $4 per case, and milk costs $3 a gallon.
C. Soda costs $12 per case and milk costs $9 a gallon.
D. Soda costs $6 per case and milk costs $3 a gallon.
Blooms: Understand
90. Quinn's income to spend on either bowling or eating out each month is $100. It costs $10 to bowl for
the night and it costs $20 for Quinn to eat at a restaurant. A point on Quinn's budget constraint would be:
A. 4 nights of bowling and 3 trips to the restaurant.
B. 3 nights of bowling and 4 trips to the restaurant.
C. 2 nights of bowling and 5 trips to the restaurant.
D. 10 nights of bowling and 5 trips to the restaurant.
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Blooms: Understand
$20 each, and a round of golf is $50. A point on Sam's budget constraint would be:
A. 20 tanning sessions and 8 rounds of golf.
B. 10 tanning sessions and 5 rounds of golf.
C. 10 tanning sessions and 4 rounds of golf.
D. 10 tanning sessions and 2 rounds of golf.
Blooms: Understand
$20 each, and a round of golf is $40. What can we say about Sam's utility?
A. Sam will get more utility from each round of golf than each tanning session.
B. Sam will get the same utility from one round of golf as he would from two tanning sessions.
C. Sam will maximize his utility from 2 rounds of golf and 6 tanning sessions.
D. We cannot say anything about Sam's utility from the consumption of these goods without more
information.
Blooms: Understand
93. Rational utility maximizing consumers tend to:

A. buy the same bundle of goods regardless of the prices charged.
B. choose the same bundle of goods regardless of their income.
C. change their consumption choices when either prices or income changes.
D. change their consumption choices only when both prices and income changes simultaneously.
Blooms: Understand
spend on these two items is $10. Considering the information in the table shown, if Jack's income to
spend on these two items were to increase to $16:
A. he could afford to buy 16 popsicles and 8 ice cream cones.
B. he could afford to buy either 16 popsicles or 8 ice cream cones.
C. he could afford to buy 8 ice cream cones and 4 popsicles.
Blooms: Understand
Learning Objective: 07-03 Show how a change in income affects consumption choices.

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A. more bundles of goods and services become affordable.
B. less bundles of goods and services become affordable.
C. the bundles of goods and services that become affordable don't change.
D. the bundles of goods and services that become affordable must include more expensive goods and
services.
Blooms: Understand

A. the individual's budget constraint shifts straight out, maintaining the same slope.
B. the individual's budget constraint shifts straight in, maintaining the same slope.
C. the individual's budget constraint rotates out and becomes flatter.
D. the individual's budget constraint rotates in and becomes steeper.
Blooms: Understand
97. When a person's income decreases, the slope of the individual's budget constraint stays the same
because:
A. everything is relatively more expensive now.
B. everything is relatively less expensive now.
C. the relative prices of the goods haven't changed.
D. the prices of the goods change in the same proportion.
Blooms: Understand
98.
Assume the graph shown represents Kerri's budget constraint. If Kerri's income to spend on these two
items increased, which of the following would be true?
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A. Kerri's budget constraint would shift out, maintaining the same slope.
B. Kerri's budget constraint would shift out, and get steeper.
C. Kerri's budget constraint would shift in, maintaining the same slope.
D. Kerri's budget constraint would shift out, and get flatter.
Blooms: Understand
99.
Assume the graph shown represents Dana's budget constraint. If Dana's income to spend on these two
items decreased, which of the following could be said?
A. Dana will buy more hairbands now because they are relatively less expensive.
B. Dana will be able to buy less of both goods.
C. Dana will derive more utility from each item, because she values each one more now that she's poorer.
Blooms: Understand
7-85
100.
Assume the graph shown represents Dawn's budget constraint. If Dawn's income to spend on these two
items increased and Dawn spends all her income on these two goods, then Dawn's total utility from
consuming these two goods:
A. will likely go up, since she can afford more of both goods now.
B. will likely go down, since her marginal utility of additional items decreases the more she consumes.
C. will likely go down, since she is probably sick of these two things already.
D. will likely go up, since her marginal utility of additional items increases the more she consumes.
Blooms: Understand
101. In general, a change in the price of a good:

A. causes a substitution effect only.
B. causes an income effect only.
C. causes both an income and substitution effect.
D. usually has no effect.
Blooms: Understand
Learning Objective: 07-04 Show how a change in price affects consumption choices, and distinguish between income and substitution effects.
Topic: Substitution Effect
Topic; Income Effect
102. In general, an increase in the price of a good:

A. will cause the substitution effect to be bigger than the income effect.
B. will cause the income effect to be bigger than the substitution effect.
C. will cause both an income and substitution effect.
D. usually will have no effect.
Blooms: Understand
7-86
Topic; Income Effect
103. In general, the income effect of an increase in the price of a normal good:
C. will cause the individual to buy more of that good because they have relatively less income.
D. will cause the individual to buy less of that good because they have relatively more income.
Blooms: Understand
Topic: Income Effect
104. In general, the substitution effect of an increase in the price of a normal good:
C. will cause the individual to buy more of that good and less of others because it is relatively less
expensive.
D. will cause the individual to buy less of that good and more of others because it is relatively more
expensive.
Blooms: Understand
105. The substitution effect can be defined as:

A. the change in consumption that results from a change in the relative price of goods.
B. the change in consumption that results from increased effective wealth due to lower prices.
C. the change in consumption that results from increased effective wealth due to getting a raise.
D. the change in income that results from increased effective consumption due to lower prices
Blooms: Understand
106. Sam has $200 a month to spend on two normal goods-tanning sessions or rounds of golf. Tanning
sessions are $20 each, and a round of golf is $40. Sam currently consumes six tanning sessions and two
rounds of golf. If the price of a round of golf drops to $20, the income effect:
A. predicts Sam will increase his consumption of both golf and tanning sessions.
B. predicts Sam will double his consumption of golf.
C. predicts Sam will consume more golf and less tanning sessions.
D. predicts Sam will consume less golf and more tanning sessions.
Blooms: Understand
Topic: Income Effect
$20 each, and a round of golf is $40. Sam currently consumes six tanning sessions and two rounds of
golf. Both tanning and golf are normal goods. If the price of a round of golf drops to $20, the income and
substitution effects will cause Sam's consumption of tanning sessions:
A. to increase, since both effects predict an increase.
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B. to decrease, since both effects predict a decrease.
C. to change, but the direction is dependent upon which effect is stronger.
D. It is impossible to say what will happen without more information.
Blooms: Understand
Topic: Income and Substitution Effect
108. Quinn's income to spend each month on two normal goods, bowling or eating out, is $100. It costs
$10 to bowl for the night, and it costs $20 for Quinn to eat at a restaurant. Quinn currently consumes four
nights of bowling and three meals at a restaurant. If the price of bowling increased to $15, the income
effect would predict:
A. Quinn would consume more of each good.
B. Quinn would consume less of each good.
C. Quinn would consume more bowling and less meals out.
D. Quinn would consume less bowling and more meals out.
Blooms: Understand
currently consumes four books and six movies a month. If the price of a book drops to $10, the
substitution effect would predict:
A. Ethan would consume more of each good.
B. Ethan would consume less of each good.
C. Ethan would consume more books and fewer movies.
D. Ethan would consume fewer books and more movies.
Blooms: Understand
currently consumes four books and six movies a month. If the price of a book increases to $20, then:
A. the substitution and income effects would both predict Ethan would consume more of both goods.
B. the substitution and income effects would both predict Ethan would consume less of both goods.
C. the substitution effect would predict Ethan would consume more books and less movies, and the
D. the substitution effect would predict Ethan would consume less books and more movies and the
Blooms: Understand
111. Nick has $300 a month to spend on detailing his sports car or buying bottles of good wine. It costs
$100 to have his car detailed and $50 for a bottle of wine. He currently buys four bottles of wine and has
his car detailed once a month. If the price of detailing his car decreased to $75, Nick's budget constraint:
A. would shift straight outward, because he is relatively wealthier.
B. would rotate and change slope because relative prices have changed.
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C. would shift straight inward because he is relatively wealthier.
D. One cannot determine what would happen without knowing Nick's marginal utility of each good.
Blooms: Understand
112. When the price of one good changes, while the prices of all others stay the same:
A. the change in relative prices is reflected in a change in the slope of the budget constraint.
B. the change in relative prices can be thought of as a change in the opportunity costs of each good.
C. the change in relative prices is reflected in a change in the marginal utility per dollar spent on each
good.
D. All of these statements are true.
Blooms: Understand
113. Kimberly decides to go back to college full time at the age of 30, and finds herself with a much lower
income than she was earning before. Now that she has less income, she finds herself eating less steak
and more pasta than ever before. We can conclude:
A. steak and pasta are both normal goods, because they are both food she eats regardless of her
income.
B. steak and pasta are both inferior goods, because they are both food she eats regardless of her
income.
C. pasta is an inferior good because her demand increased when her income went down.
D. steak and pasta are both inferior goods, because they are both food she eats regardless of her
income; also, pasta is an inferior good because her demand increased when her income went down.
Blooms: Understand
Topic: Inferior Goods
114. Veblen goods:

A. are an excellent example of the individual nature of utility.
B. are goods which consumers buy to show how wealthy they are.
C. are goods that people buy more of when their income decreases.
D. are inferior goods.
Blooms: Understand
Topic: Veblen Goods
115. Max is shopping for a new winter jacket. The salesperson explains that two coats have identical
features-the Columbia jacket that costs $120, and the Burton jacket that costs $300. Max buys the Burton
jacket. Burton jackets may be a good example of:
A. a normal good.
B. an inferior good.
C. a Veblen good.
D. a Giffen good.
Blooms: Understand
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Topic: Veblen Goods
116. The concept of utility maximization:

A. is solely used to measure an individual's satisfaction with his consumption choices.
B. can be used broadly to think about choices made motivated by satisfaction, envy, status, or kindness.
C. assumes each individual seeks to increase his own personal satisfaction regardless of others.
Blooms: Understand
Topic: Utility
117.
If the graph shown represents Hanna's budget constraint, and the price of hairbands were to decrease,
the slope of Hanna's budget constraint would become:
Blooms: Understand
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118.
If the graph shown represents Steph's budget constraint, and the price of hairbands were to increase, the
slope of Steph's budget constraint would become:
Blooms: Understand
119.
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If the graph shown represents Donna's budget constraint, and the price of earrings were to decrease, the
slope of Donna's budget constraint would become:
Blooms: Understand
120.
If the graph shown represents Heather's budget constraint, and the price of hairbands were to decrease,
the slope of Heather's budget constraint would become:
A. flatter, reflecting the fact that hairbands are now relatively less expensive.
B. steeper, reflecting the fact that hairbands are now relatively more expensive.
C. flatter, reflecting the fact that earrings are now relatively less expensive.
D. steeper, reflecting the fact that earrings are now relatively more expensive.
Blooms: Understand
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121.
Consider budget constraints A and B in the graph shown. The slope of A compared to the slope of B:
A. is steeper, showing that movie tickets are relatively more expensive in line A.
B. is flatter, showing that books are relatively less expensive in line A.
C. shows that the opportunity cost of books is smaller in line A.
D. shows that the opportunity cost of books is greater in line A.
Blooms: Understand
122. The utility we get from something:

A. is a measurement of our direct benefit of consuming the good.
B. is a measurement of the benefit of consuming the good relative to the opportunity cost.
C. is a measurement of outside perceptions and inner preferences.
D. is a measurement of outside benefits and inner costs.
Blooms: Remember
Learning Objective: 07-05 Outline the ways in which utility is influenced by other people.
Topic: Utility
123. Joe works for an environmental agency. Every day he chooses to fill his reusable water bottle and
bring it to work instead of bringing in a plastic disposable water bottle each day. Joe most likely derives
utility from:
A. the taste of water from his reusable water bottle.
B. the knowledge that he is doing something good for the environment by not using plastic water bottles.
C. the knowledge that others in his firm observe his environmentally-friendly choice of water bottle.
D. Joe likely derives utility from all three of these sources.
Blooms: Understand
Topic: Utility and Status
7-93
124. Betty is out on a first date with Barney. She decides to order the garden salad with dressing on the
side in an effort to make a good first impression, even though she prefers leg of lamb. Economic theory:
A. cannot explain why someone would choose a meal that brings her less utility than another.
B. would suggest that making a good impression with her choice will bring her more utility than ordering
lamb and making a bad impression.
C. would suggest that she values what Barney thinks of her and will derive negative utility if she does not
impress him.
D. cannot be used to explain matters of the heart.
Blooms: Understand
125. Altruism describes:

A. a motive for action in which a person's utility is unaffected when another's utility increases.
B. a motive for action in which a person's utility is decreased when another's utility increases.
C. a motive for action in which a person's utility is increased when another's utility increases.
D. a motive for action in which a person's utility becomes negative when another's utility increases.
Blooms: Understand
Learning Objective: 07-06 Describe how people get utility from altruism and reciprocity.
Topic: Altruism
126. The concept of utility:

A. cannot be used to explain why people are charitable.
B. cannot be used to explain why people are altruistic.
C. cannot be used to explain why people are selfish.
Blooms: Understand
127. Seth is a surgeon who goes to Cambodia each summer and donates two weeks of his time to local
hospitals. From an economic standpoint, utility is gained by:
A. Seth's patients.
B. Seth, knowing he is doing a good deed.
C. Seth, knowing the local paper writes a story about his trip every time he comes home.
Blooms: Understand
128. Reciprocity means:

A. responding to another's actions with a similar action.
B. deriving utility from an action that will cause another's utility to increase.
C. doing good things for people and asking nothing in return.
D. deriving utility from the action of a stranger.
Blooms: Understand
Topic: Reciprocity
7-94
129. The Golden Rule "Do unto others as you would have done unto you" is an example of the economic
concept of:
B. altruism.
C. reciprocity.
D. selfishness.
Blooms: Understand
Topic: Reciprocity
130. You decide to buy your friend lunch after she helped you study for your exam. This is an example of
the economic concept of:
B. altruism.
C. reciprocity.
D. a Veblen good.
Blooms: Understand
Topic: Reciprocity
131. You decide to donate $5 to Jerry's Kids at the grocery store checkout, and get to sign your name to
a shamrock and hang it in their window. This is an example of the economic concept of:
B. altruism.
C. reciprocity.
D. selfishness.
Blooms: Understand
Topic: Altruism
Chapter 07 Test Bank Summary

# of Quest
Category
ions
AACSB: Reflective Thinking 131
Accessibility: Keyboard Navigation 82
Blooms: Remember 1
Blooms: Understand 130
Difficulty: 02 Medium 122
Learning Objective: 07-
01 Explain how revealed preferences indicate which goods or activities give a person th 47
e most utility.
47
02 Show how the budget constraint affects utility maximization.
Learning Objective: 07-03 Show how a change in income affects consumption choices. 7
7-95
04 Show how a change in price affects consumption choices, and distinguish between i 20
ncome and substitution effects.
3
05 Outline the ways in which utility is influenced by other people.
7
06 Describe how people get utility from altruism and reciprocity.
Topic: Altruism 2
Topic: Budget Constraint 56
Topic: Income and Substitution Effect 3
Topic: Income Changes 11
Topic: Income Effect 2
Topic: Inferior Goods 1
Topic: Marginal Utility 24
Topic: Price Changes 13
Topic: Reciprocity 3
Topic: Substitution Effect 5
Topic: Utility 25
Topic: Utility and Status 4
Topic: Veblen Goods 2
Topic; Income Effect 2
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Chapter 07 Test Bank

2. Which of the following statements is true about individuals and utility?

3. Individuals will make choices to maximize their:

4. Utility measurements are:

6. Revealed preference is:

7. According to revealed preference a consumer that chooses to smoke cigarettes:

10. Utility is:

12. Utility is:

13. A utility function is:

23. The concept of marginal utility:

24. The concept of diminishing marginal utility:

Number of Utility from Number of ice Utility from

Number of Utility from Number of ice Utility from

A. Jack still has $4 left to spend.

Number of Utility from Number of ice Utility from

Number of Utility from Number of ice Utility from

A. still has money left to spend.

Number of Utility from Number of ice Utility from

Number of Utility from Number of ice Utility from

53. A budget constraint is:

54. A budget constraint:

55. A budget constraint:

56. A budget constraint:

The slope of the budget line in the graph shown:

A. Taylor cannot choose to consume any of these bundles

A. Three pairs of earrings and four hairbands

A. Grace's total utility is constant along her budget constraint.

A. Celia will spend twice as much on earrings as she does hairbands.

A. Bonnie can buy twice as many hairbands as earrings.

A. The price of movie tickets falls to $4.

A. Roger gets a raise at work.

A. The price of books could have decreased.

A. Alan could have experienced a drop in income.

A. The price of books dropped.

A. Claudia's income increased.

A. Bryce's income increased.

80. This graph shows three different budget constraints: A, B, and C.

A. Two cases of soda for every three gallons of milk

81. This graph shows three different budget constraints: A, B, and C.

82. This graph shows three different budget constraints: A, B, and C.

A. Doug loses his job.

83. This graph shows three different budget constraints: A, B, and C.

A. An increase in the price of milk

84. This graph shows three different budget constraints: A, B, and C.

85. This graph shows three different budget constraints: A, B, and C.

A. Because A is steeper, soda is relatively less expensive in A than in budget constraint B.

86. This graph shows three different budget constraints: A, B, and C.

A. Twelve cases of soda

87. This graph shows three different budget constraints: A, B, and C.

88. This graph shows three different budget constraints: A, B, and C.

A. Bart's income has decreased.

93. Rational utility maximizing consumers tend to:

95. When a person's income increases:

96. When a person's income increases:

101. In general, a change in the price of a good:

102. In general, an increase in the price of a good:

105. The substitution effect can be defined as: