Chapter 4 Self-test questions

* not completed

Marginal utility is ____________

the total satisfaction that arises from an increase or decrease in the supply of a product correct incorrect

the total satisfaction that arises from an increase or decrease in the consumption of a product correct incorrect

Utility that one gets from producing a commodity correct incorrect

the change in satisfaction that arises from an increase or decrease in the consumption of a product correct incorrect

* not completed

Which of the following assumptions about indifference theory is Incorrect when applied to normal goods?

Other things being equal, the consumer always prefers more of any one product to less of that same product correct incorrect

The less of one product that is being consumed, the smaller the amount of it that the consumer will be willing to forego in order to increase consumption of a second product by a given amount. correct incorrect

Consumers seek to maximize total satisfaction, which means reaching the highest possible indifference curve. correct incorrect

None of the above correct incorrect

* not completed

The compensating variation of a price fall is the amount of income ____________

that would have to be taken away from the consumer in order to leave them back on their initial indifference curve. correct incorrect

that, if given to the consumer before the price change, would have left them just as well off before the price change as they were after it. correct incorrect

that would have to be given to the consumer in order to leave them back on their initial indifference curve. correct incorrect

that the consumer was spending on the good concerned before the price fall took place. correct incorrect

* not completed

If all prices double with income remaining constant, a consumer's budget line will ____________.

shift outwards in a parallel movement. correct incorrect

shift inwards in a parallel movement. correct incorrect

remain constant correct incorrect

None of the above correct incorrect

* not completed

The substitution effect in indifference theory is defined as ____________.

the response of quantity demanded to a change in relative price, with real income being held constant. correct incorrect

the response of quantity demanded to a change in real income, with relative prices held constant correct incorrect

the responsiveness of price to a change in demand correct incorrect

None of the above correct incorrect

* not completed

A decrease in the price of an inferior good leads to:

more consumption through the substitution effect and less consumption through the income effect. correct incorrect

less consumption through the substitution effect and more consumption through the income effect correct incorrect

more consumption through both the income effect and substitution effect. correct incorrect

None of the above correct incorrect

* not completed

For two normal goods the price-consumption curve ____________

always slopes down. correct incorrect

always slopes up correct incorrect

is horizontal correct incorrect

None of the above correct incorrect

* not completed

An indifference curve that is L-shaped represents ____________.

goods that are perfect substitutes correct incorrect

goods that are perfect complements correct incorrect

goods that give zero utility correct incorrect

goods that are necessities correct incorrect

* not completed

The price-consumption line shows ____________

how a consumer's purchases react to a change in the price of one good, with income and other prices held constant correct incorrect

how a consumer's purchases react to a change in income, with all prices held constant correct incorrect

how a consumer's purchases react to a change in the price of both goods, with income held constant correct incorrect

price as a function of quantity correct incorrect

* not completed

In the real world, we can use the concept of income and substitution effects to analyse ____________

Whether people are evading taxes correct incorrect

Whether lowering the wage rate will affect number of hours worked by workers. correct incorrect

Government failures correct incorrect

None of the above correct incorrect