Problem Set 2
Econ 1200, Principle of Microeconomics, Mankiw’s Book
Dr. G. Chang
1) Exercises from Study Guide to Accompany Mankiw, UT edition.
(The Study Guide is the second half part of the UT edition textbook)
Chapter 5: Elasticity and Its Application
Terms and Definitions: All
Practice Problems: 3; 4a
True/False Questions: All
Multiple-Choice Questions: All
Chapter 6: Supply, Demand and Government Policies
Terms and Definitions: All
Practice Problems: 1, 2
True/False Questions: All
Multiple-Choice Questions: All
Chapter 7: Consumers, Producers, and the Efficiency of Markets
Terms and Definitions: All
Practice Problems: 4
2) Do the following multiple choice questions:
1. The total utility of any commodity bundle
a. should be the same for all individuals.
b. is defined as the maximum amount a consumer will spend for the bundle.
c. will equal expenditures on the commodity in question.
d. is not likely to change even if a consumer’s income changes.
2. Total utility will increase as long as
a. marginal utility is positive.
b. marginal utility is greater than price.
c. the good in question is not an inferior good.
d. consumers surplus is positive.
3. The law of diminishing marginal utility
a. implies that total utility declines as a consumer buys more of any good.
b. is an important psychological premise that helps explain why all demand curves
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c.
d.
must have a negative slope.
must hold for every commodity and every individual.
says that increments to total utility will decrease as an individual consumes more
of a commodity.
4. Rick is willing to spend up to $200 for one ski trip this winter and up to $300 for two
trips. The
marginal utility of the second trip to Rick is
a. $100.
b. $200.
c. $300.
d. $500.
5. The optimal purchase rule says that consumers should maximize
a.
b.
c.
d.
total utility.
the difference between total utility and consumer’s surplus.
marginal utility.
the difference between total utility and total expenditures on the good in question.
6. The optimal purchase rule says that to maximize the difference between total utility,
measured in money terms, and total expenditures, a consumer should purchase
additional units
a. as long as total utility is increasing.
b. until marginal utility equals zero.
c. as long as marginal utility exceeds price.
d. until marginal utility equals total utility.
7. Consumer’s surplus refers to the
a. money a consumer has left over at the end of the month.
b. accumulation of garbage that could be, but is not, recycled.
c. difference between total expenditures and what a consumer would have been
willing to pay for the same purchases.
d. the pleasure a consumer takes when he finds an especially good deal.
8. Consumer’s surplus will increase as long as the marginal utility of each additional
purchase is
a. positive.
b. increasing.
c. greater than total utility.
d. greater than the price of the commodity.
9. If consumers act to maximize consumer’s surplus, price will be closely related to
a. total utility.
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b.
c.
d.
average utility.
marginal utility.
consumer’s surplus.
10. On a demand curve diagram, consumer’s surplus is equal to the
a. Y-axis intercept of the demand curve.
b. the market price.
c. the areas between the demand curve and the horizontal line indicating the market
price.
d. the slope of the demand curve.
11.
The law of diminishing marginal utility implies that individual demand curves
will typically
a. have a negative slope.
b. show no response to a change in price.
c. slope up and to the right.
d. have a positive slope.
12.
a.
b.
c.
d.
A downward sloping demand curve means that the quantity demanded will
not change when price changes.
increase when price falls.
increase when price rises.
increase when income increases.
13.
a.
b.
c.
d.
Scarcity raises _____ utility but lowers
total; price
marginal; price
marginal; total utility
total; marginal utility
14.
a.
b.
c.
d.
The diamond-water paradox indicates that
contrary to economists’ assumptions, consumers are really irrational.
price is more closely related to marginal utility than to total utility.
water is an inferior good.
the demand for diamonds is very elastic.
_
_____
15. Total utility can be thought of as the
a. total satisfaction derived from a bundle of goods.
b. minimum amount of money a consumer is willing to spend on a bundle of goods.
c. additional satisfaction a consumer receives from the marginal unit of a good.
d. willingness to pay for the marginal unit of a good.
16. Kathy values the utility of her first banana $1; a second banana, $.75; and a third banana, $.50.
If Kathy has three bananas, her marginal utility is equal to
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a. $.50.
b. $1.00,
c. marginal utility.
d. $2.25.
e. $1.50.
17. Kathy values the utility of her first banana $1; a second banana, $.75; and a third banana, $.50.
If Kathy has three bananas, her total utility is equal to
a. $.50,
b. $1.00,.
c. marginal utility.
d. $2.25.
e. $1.50.
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