question
Utility is the usefulness of a good
answer
False, Utility is the satisfaction consumers obtain from a good. Usefulness is
an objective concept and utility is a subjective concept.
an objective concept and utility is a subjective concept.
question
Marginal utility is the extra utility derived from consuming an additional unit of a good.
answer
True
question
Marginal utility is always positive.
answer
False, Marginal utility decreases as more of a product are consumed, and it can be negative if too much of a good is consumed.
question
When the marginal utility is decreasing, total utility is also decreasing.
answer
False, Total utility increases (decreases) only when marginal utility is positive (negative). That is total utility increases when marginal utility decreases as long as marginal utility is positive.
question
The total utility can be obtained by summing up the marginal utilities of each unit consumed.
answer
True
question
The "substitution effect" causes a consumer to buy more of a product when its price falls because the product is now less expensive compared to other products.
answer
True
question
The "income effect" causes a consumer to buy more of a normal good when its price falls because the consumer's real income has decreased.
answer
False, The "income effect" causes a consumer to buy more of a normal good when its price falls because the consumer's real income has increased.
question
In a two good case, a consumer is maximizing his total utility with a given money income when MU(A) = MU(B).
answer
False, In a two good case, a consumer is maximizing his total utility with a given money income when MU(A)/P(A) = MU(B)/P(B) - that is, when marginal utility per dollar spent on each good is the same.
question
When a consumer spends his (her) money income such that MU(A)/P(A) < MU(B)/P(B), the consumer can increase his (her) total utility with the same money income by buying more of (A) and less of (B).
answer
False, When a consumer spends his (her) money income such that MU(A)/P(A) < MU(B)/P(B,) the consumer can increase his (her) total utility with the same money income by buying less of (A) and more of (B)
question
The price of product X decreases from $6 to $4 and, as the result, the quantity of X demanded increases from 90 to 110 units. The arc price elasticity of demand for product X (from the mid-point formula) is -0.50.
answer
True
question
. A perfectly inelastic demand schedule is represented by a downsloping line with a constant Slope.
answer
False, A perfectly inelastic demand schedule is represented by a line parallel to the vertical axis.
question
The demand for a product is elastic with respect to price if (a) consumers are largely responsive to price changes; (b) the absolute value of the price elasticity coefficient is greater than one; (c) the percentage change in quantity demanded is greater than the percentage change in price; (d) a drop in price is accompanied by an increase in total revenue.
answer
True
question
A characteristic of a commodity with inelastic demand is that total revenue decreases when price falls.
answer
True
question
If quantity demanded is completely unresponsive to price changes, demand is perfectly elastic.
answer
False, If quantity demanded is completely unresponsive to price changes, demand is perfectly inelastic.
question
Technology is the main determinant of the price elasticity of demand.
answer
False, Technology is a main determinant of supply. Main determinants of price elasticity of demand are (a) number of substitute products, (b) luxury and necessity, c) percentage of spending on the good in the consumer's income and (d) time period under consideration.
question
If the demand for product X is inelastic, a 5% decrease in the price of X will increase the quantity demanded X by more than 5%.
answer
False, If the demand for product X is inelastic, a 5% decrease in the price of X will increase the quantity demanded X by less than 5%.
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