ECON 2106 Chapter 10
SI date: Thursday 10/07
Next exam 10/14
Use the following to answer question 1:
1. (Table: Utility) The marginal utility for the fifth unit is:
A) 15.
B) 10.
C) 5.
D) 0.
2. If a person's utility function exhibits diminishing marginal utility, this means that his or
her marginal utility curve is:
A) downward-sloping, since each additional unit of the good consumed yields less and
less satisfaction.
B) upward-sloping, since each additional unit of the good consumed yields more and
more satisfaction.
C) downward-sloping, since each additional unit of the good consumed yields more
and more satisfaction.
D) upward-sloping, since each additional unit of the good consumed yields less and
less satisfaction.
3. Jackson spends all his income on baseball cards and candy. At his current consumption
bundle, the marginal utility of baseball cards is 20 and the marginal utility of candy is
10. If the price of baseball cards is $10, and the price of candy is $2,
A) Jackson should increase his consumption of baseball cards and decrease his
consumption of candy.
B) Jackson should increase his consumption of candy and decrease his consumption of
baseball cards.
C) Jackson is maximizing his utility, and he should continue to consume the current
bundle.
D) Jackson should consume equal amounts of baseball cards and candy.
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Use the following to answer question 4:
4. (Table: Marginal Utility per Dollar) According to data in the table, if the price of clams
is $3 per pound, while the price of potatoes is $1 per pound, and this consumer has $9 to
spend on potatoes and clams, then the utility-maximizing combination is ________
pound(s) of clams and ________ pounds of potatoes.
A) 0; 9
B) 2; 2
C) 1; 6
D) 2; 3
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5. The income effect of a price change is the effect on the consumption of a good due to a
change in:
A) income when all prices change in the same proportion.
B) purchasing power caused by a change in the price of the good.
C) income caused by a change in the price of labor.
D) income sufficient to offset the effect of a price change.
6. Jane is a utility-maximizing consumer who is consuming the optimal quantity of Goods
X and Y and spending her entire budget. If the price of Good X falls, we would see
Jane:
A) decrease her consumption of Good X if Good X is an inferior good and the income
effect is weaker than the substitution effect.
B) increase her consumption of Good X if Good X is an inferior good and the income
effect is stronger than the substitution effect.
C) increase her consumption of Good X if Good X is a normal good, as the income
effect reinforces the substitution effect.
D) decrease her consumption of Good X if Good X is a normal good and the income
effect reinforces the substitution effect.
Use the following to answer question 7:
7. (Table: Consumer Equilibrium) Assume that the price of Good X is $1 per unit and the
price of Good Y is $2 per unit, and you consume 4 units of Good X and 2 units of Good
Y. To maximize utility, assuming that the goods are divisible, you would consume:
A) less of both X and Y.
B) more of both X and Y.
C) less of X and more of Y.
D) more of X and less of Y.
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Use the following to answer questions 8-9:
Figure: Budget Lines for Tea and Scones
8. (Figure: Budget Lines for Tea and Scones) For months now, Agnes has had $20 per
month to spend on tea and scones. The price of each cup of tea and each scone has been
$1. Which of the charts in the figure shows what will happen to her budget line if her
income decreases to $10?
A) Chart A
B) Chart B
C) Chart C
D) Chart D
9. (Figure: Budget Lines for Tea and Scones) For months now, Agnes has had $20 per
month to spend on tea and scones. The price of each cup of tea and each scone has been
$1. Which of the charts in the figure shows what will happen to her budget line if the
price of a cup of tea falls to $0.50?
A) Chart A
B) Chart B
C) Chart C
D) Chart D
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Answer Key
1.
2.
3.
4.
5.
6.
7.
8.
9.
D
A
B
C
B
C
D
C
D
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