1 of 25
Assume that the marginal utility from good x is 10 units and that the price of good x is $5 per unit. The marginal utility from good y is 15 units and its unit price is $7. In this situation, a utility -maximizing consumer should
consume more of good x.
consume only good y.
consume more of good y.
consume neither x nor y.
2 of 25
A consumer has been buying 5 magazines and 2 books a month for many months. The price of books then increases. To attain a new optimum, the consumer will
buy more magazines because they are now relatively more valuable than they were before, while continuing to buy the same number of books.
buy more books because they are now relatively more valuable than they were before.
buy the same number of books and magazines as before because they provide different types of utility.
buy fewer books than before because they are relatively more expensive than they were before.
3 of 25
If marginal utility is negative,
total utility increases at a decreasing rate.
the consumer considers extra units of the commodity to be a ʺbad.ʺ
the consumer will want to consume the unit only if it is free.
the consumer likes the commodity, but not as much as he or she once did.
4 of 25
A budget constraint shows
all of the combinations of sets of goods that yield the same level of satisfaction.
all of the possible combinations of goods that can be purchased with a specific budget.
all of the goods the consumer gets positive marginal utility from when the goods are consumed.
all of the goods that a consumer substitutes for other goods when prices fall.
5 of 25
A consumer was at an optimum. She then discovers that the marginal utility per dollar spent on food is more than the marginal utility per dollar spent on gasoline. She knows then that
the price of gasoline must have decreased.
the price of food must have increased.
the price of gasoline must have increased or the price of food must have decreased.
the price of gasoline must have decreased or the price of food must have increased.
6 of 25
A consumer has been buying 4 magazines and 3 books a month for many months. The price of magazines then decreases, which directly causes the marginal utility per dollar spent on
magazines to increase, thereby inducing the consumer to purchase fewer magazines and more books.
magazines to increase, thereby inducing the consumer to purchase more magazines and fewer books.
books to increase, thereby inducing the consumer to purchase fewer magazines and more books.
books to decrease, thereby inducing the consumer to purchase fewer magazines and more books.
7 of 25
Which of the following best describes the consumer optimum?
MUa/Pa = TUb/Pb
MUa/TUa = Pa
MUa/Pa = MUb/Pb = . . . = MUz/Pz.
change in TU/change in P = MU
8 of 25
Kathleen has eaten five donuts. The fifth donut makes Kathleen sick. This means that for Kathleen
the fifth donut has little utility.
the fifth donut has negative utility.
the opportunity cost of donuts is high.
donuts must be inexpensive.
9 of 25
A certain athlete loves donuts. He receives 100 units of utility for the first donut, an additional 80 for the second, an additional 60 for the third, another 40 for the fourth, and another 20 for the fifth. The marginal utility of the fourth donut is _____ and the total utility from consuming four donuts is _____.
10 of 25
An increase in income will
shift the budget constraint to the right.
make the budget constraint steeper.
make the budget constraint flatter.
make the budget constraint more bowed.
11 of 25
If we are graphing total utility, then the total utility curve will
always be increasing.
always be decreasing.
be increasing as long as marginal utility is positive.
be horizontal if marginal utility is positive.
12 of 25
The inverse relationship between quantity demanded and price of a good or service can be explained, in part, by
a shift in the demand curve.
diminishing marginal utility only.
diminishing marginal utility and the rule of equal marginal utilities per dollar.
the real income effect.
13 of 25
The greater the interest rate
the greater the present value of a sum to be received a year in the future.
the greater the opportunity cost of another dollar of current consumption.
the more a dollar invested today will be worth a year from now.
the lower the discount rate.
14 of 25
A proprietorship is
difficult to form.
taxed twice—once when it pays business taxes and again when its owner pays personal income taxes.
not often found in developed economies, in which corporations have become the most common form of business organization.
risky for its owner, who is personally responsible for the firm’s debts.
15 of 25
Accounting profits are typically
greater than economic profits because accounting profits do not include explicit costs.
greater than economic profits because accounting profits do not include implicit costs.
smaller than economic profits because accounting profits do not include explicit costs.
equal to economic profits in the long run.
16 of 25
A key assumption of Ricardo’s economic rent concept was that
all land is equally productive.
land is too differentiated to be able to measure.
only land in large cities matters.
land is always cheap and needs development.
17 of 25
If the interest rate is 10 percent per year, and you have $100,000 now, which of the following is closest to what your $100,000 will be worth in one year?
18 of 25
The person least likely to receive a payment from a corporation in a year of losses is the
bank that loaned money to the corporation.
19 of 25
Suppose that the nominal rate of interest is holding steady at 8 percent even as the anticipated rate of inflation rises. What is happening to the real rate of interest?
It is unchanged.
It is increasing.
It is decreasing.
It equals the nominal interest rate.
20 of 25
Suppose that you borrow $10,000 for one year, and at the end of the year, you must repay $10,450. Also, during that year inflation was 2.5%. The real interest rate is
21 of 25
The most important source of financial capital for firms today is
sale of bonds.
sale of new issues of stock.
trade of previously issued stock.
reinvestment of profits.
22 of 25
The supply curve for land in New York City is most likely
horizontal or perfectly elastic.
a downward sloping straight line.
an upward sloping straight line.
vertical or perfectly inelastic.
23 of 25
A firm that is not maximizing profits
would never be able to operate in the United States.
must not be owned by stockholders.
may find it difficult to raise financial capital from external capital markets.
is likely to face legal prosecution from the Department of Commerce.
24 of 25
The theory that there is no way to “get rich quick” in securities due to a lack of predictable trends is
market trend analysis.
random walk theory.
25 of 25
Interest is paid to
all holders of stock.
individuals who own gold.
owners of capital.
borrowers of funds.