ECON 1000 / ECON1000 QUIZ ANSWERS - CHAPTER 8 & 9
Economics: Chapter 8 Sample Tests/Study Plan
1. A change in the prices of goods and a change in a consumer’s income
Answer: changes the slope of the budget line; shifts the budget line
2. Utility is the benefit or satisfaction that a person gets from
Answer: the consumption of goods and services
3. We use the concept of utility to describe a consumer’s preferences by looking at the
Answer: total utility they obtain by consuming goods and services and by looking at the increase in
utility they gain by consuming one more unit of a good or service.
4. A key assumption about marginal utility is that marginal utility
Answer: decreases as consumption increases.
5. Khalid’s latte and paperback book budget is $20 a week. The price of a latte is $2 and the price of
a paperback book is $5. Choose the correct statement.
Answer: All of the statements are correct.
6. Allison’s lottery ticket and candy bar budget is $30 a week. The price of a lottery ticket is $2 and the
price of a candy bar is $5. Other things remaining the same, if the price of a lottery falls, Allison can
afford to buy lottery tickets if she spends all her income on
lottery tickets. Other things remaining the same, if Allison’s income increases, her budget line .
Answer: more; shifts outwards
7. Andre has $13.50 a week to spend on cookies and donuts. The price of a bag of cookies is $2.25 and
the price of a box of donuts is $0.75. Draw & label Andre’s budget line.
,Andre can afford to by 10 boxes of donuts and 3 bags of cookies
Answer: True.
8. The graph shows Sarah’s budget line when the price of a pack of gum is $1.50, the price of a box of
mints is $1.50, and she has $27.00 a week to spend on chewing gum and mints. Then the price of a
pack of gum rises to $2.25. Draw and label Sarah’s budget line after the price rise.
If Sarah buys 9 boxes of mints, the maximum number of packs of gum she can buy after the price rise is 6
a week.
The new relative price of a pack of gum is 1.5 boxes of mint.
When the price of a pack of gum rises to $2.21, the relative price of a box of mints increases. True or false?
False.
9. Max enjoys windsurfing and snorkeling. The table shows the total utility he gets from each
activity. Because Max’s utility from his 6th hour of windsurfing is
than that from his 6 hour of snorkeling, he enjoys his 6th hour of windsurfing
th
than his 6th hour
of snorkeling
Answer: marginal; greater; more
11. A consumer spends the entire budget because .
Answer: more consumption brings more utility and only those choices that exhaust income can
maximize utility.
,12. Marginal Utility per dollar .
Answer: is the marginal utility from a good that results from spending one more dollar on it.
13. Marginal utility per dollar is calculated as
Answer: marginal utility divided by the price of the good.
14. The table shows the utility that Jason receives from DVDs and spy novels. When Jason is
maximizing his total utility he spends all his available income and equalizes the .
Answer: marginal utility per dollar for all goods.
If the price of a DVD is $20 and the price of a spy novel is $10, and Jason has $60 to spend on these two
goods, how many of each does he buy if he is maximizing utility?
Jason buys 2 DVDs and 2 spy novels.
15. If the marginal utility per dollar from hot chocolate exceeds the marginal utility per dollar from
video games, buy hot chocolate and play video games. If the
marginal utility per dollar from video games exceeds the marginal utility per dollar from hot chocolate,
play video games and buy hot chocolate.
Answer: more; fewer; more; less
When the last dollar spent on each good gives the same marginal utility, then total utility cannot be
increased by changing the consumption combination. True or false? True.
16. Max enjoys windsurfing and snorkeling. Max has $35 a day to spend, and he can spend as much time
as he likes on his leisure pursuits. The price of renting equipment for windsurfing is $10 an hour and for
snorkeling is $5 an hour. The table shows the total utility Max gets from each activity. If Max equalizes
the marginal utility per hour from windsurfing and from snorkeling, .
Answer: he can increase his total utility by spending less time windsurfing and more time snorkeling.
17. Statistics Canada figures showed on Wednesday, July 7,2011: The price of fresh milk was 4.3
percent higher, the price of bread was up 10.6 percent, meat prices rose 5.4 percent, and the gasoline
price rose
8.3 percent over the year.
In terms of fresh milk, the change in the relative price of bread is 2.46.
In terms of fresh milk, the change in the relative price of meat is 1.26
In terms of fresh milk, the change in the relative price of gasoline is 1.93
The prices per unit reported by Statistics Canada tell us that everything else remaining the same, the
marginal utility from a carton of milk . Th emarginal utility from a loaf of bread , the marginal
utility from a serving of meat , and the marginal utility from a litre of gasoline .
Answer: increased; increased; increased; increased
18. The fundamental assumption of marginal utility theory suggests that as a person gets more
money, total utility and marginal utility .
, Answer: increases; decreases.
The news clip consistent with the marginal utility theory because it states that .
Answer: is; the increase in happiness when income increases from $50,0000 to $90,0000 is less than
when income increases from $20,0000 to $50,000.
19. The price of a movie falls which the marginal utility per dollar from movies. To return to
consumer equilibrium, Ben the number of movies he sees and the number of video games
he plays. His marginal utility per dollar for movies and his marginal utility per dollar for video games
as he returns to consumer equilibrium.
Answer: increases; increases; decreases; decreases; increases
20. Movies and video games are substitures. Suppose the price of a movie falls. The left graph shows
Ben’s demand curve for movies. Show the effect of a fall in the price of a movie. The right graph
shows Ben’s demand curve for video games. Show the effect of a fall in the price of a movie.
21. If a consumer’s income increases and if all goods are normal goods, .
Answer: the quantity bought of each good increases.
22. The paradox of value asks why .
Answer: the price of water is low and the price of a diamond is high, but water is essential to life while
diamonds are not.
The paradox of value is resolved by distinguishing between and .
Answer: total utility; marginal utility
Economics: Chapter 8 Sample Tests/Study Plan
1. A change in the prices of goods and a change in a consumer’s income
Answer: changes the slope of the budget line; shifts the budget line
2. Utility is the benefit or satisfaction that a person gets from
Answer: the consumption of goods and services
3. We use the concept of utility to describe a consumer’s preferences by looking at the
Answer: total utility they obtain by consuming goods and services and by looking at the increase in
utility they gain by consuming one more unit of a good or service.
4. A key assumption about marginal utility is that marginal utility
Answer: decreases as consumption increases.
5. Khalid’s latte and paperback book budget is $20 a week. The price of a latte is $2 and the price of
a paperback book is $5. Choose the correct statement.
Answer: All of the statements are correct.
6. Allison’s lottery ticket and candy bar budget is $30 a week. The price of a lottery ticket is $2 and the
price of a candy bar is $5. Other things remaining the same, if the price of a lottery falls, Allison can
afford to buy lottery tickets if she spends all her income on
lottery tickets. Other things remaining the same, if Allison’s income increases, her budget line .
Answer: more; shifts outwards
7. Andre has $13.50 a week to spend on cookies and donuts. The price of a bag of cookies is $2.25 and
the price of a box of donuts is $0.75. Draw & label Andre’s budget line.
,Andre can afford to by 10 boxes of donuts and 3 bags of cookies
Answer: True.
8. The graph shows Sarah’s budget line when the price of a pack of gum is $1.50, the price of a box of
mints is $1.50, and she has $27.00 a week to spend on chewing gum and mints. Then the price of a
pack of gum rises to $2.25. Draw and label Sarah’s budget line after the price rise.
If Sarah buys 9 boxes of mints, the maximum number of packs of gum she can buy after the price rise is 6
a week.
The new relative price of a pack of gum is 1.5 boxes of mint.
When the price of a pack of gum rises to $2.21, the relative price of a box of mints increases. True or false?
False.
9. Max enjoys windsurfing and snorkeling. The table shows the total utility he gets from each
activity. Because Max’s utility from his 6th hour of windsurfing is
than that from his 6 hour of snorkeling, he enjoys his 6th hour of windsurfing
th
than his 6th hour
of snorkeling
Answer: marginal; greater; more
11. A consumer spends the entire budget because .
Answer: more consumption brings more utility and only those choices that exhaust income can
maximize utility.
,12. Marginal Utility per dollar .
Answer: is the marginal utility from a good that results from spending one more dollar on it.
13. Marginal utility per dollar is calculated as
Answer: marginal utility divided by the price of the good.
14. The table shows the utility that Jason receives from DVDs and spy novels. When Jason is
maximizing his total utility he spends all his available income and equalizes the .
Answer: marginal utility per dollar for all goods.
If the price of a DVD is $20 and the price of a spy novel is $10, and Jason has $60 to spend on these two
goods, how many of each does he buy if he is maximizing utility?
Jason buys 2 DVDs and 2 spy novels.
15. If the marginal utility per dollar from hot chocolate exceeds the marginal utility per dollar from
video games, buy hot chocolate and play video games. If the
marginal utility per dollar from video games exceeds the marginal utility per dollar from hot chocolate,
play video games and buy hot chocolate.
Answer: more; fewer; more; less
When the last dollar spent on each good gives the same marginal utility, then total utility cannot be
increased by changing the consumption combination. True or false? True.
16. Max enjoys windsurfing and snorkeling. Max has $35 a day to spend, and he can spend as much time
as he likes on his leisure pursuits. The price of renting equipment for windsurfing is $10 an hour and for
snorkeling is $5 an hour. The table shows the total utility Max gets from each activity. If Max equalizes
the marginal utility per hour from windsurfing and from snorkeling, .
Answer: he can increase his total utility by spending less time windsurfing and more time snorkeling.
17. Statistics Canada figures showed on Wednesday, July 7,2011: The price of fresh milk was 4.3
percent higher, the price of bread was up 10.6 percent, meat prices rose 5.4 percent, and the gasoline
price rose
8.3 percent over the year.
In terms of fresh milk, the change in the relative price of bread is 2.46.
In terms of fresh milk, the change in the relative price of meat is 1.26
In terms of fresh milk, the change in the relative price of gasoline is 1.93
The prices per unit reported by Statistics Canada tell us that everything else remaining the same, the
marginal utility from a carton of milk . Th emarginal utility from a loaf of bread , the marginal
utility from a serving of meat , and the marginal utility from a litre of gasoline .
Answer: increased; increased; increased; increased
18. The fundamental assumption of marginal utility theory suggests that as a person gets more
money, total utility and marginal utility .
, Answer: increases; decreases.
The news clip consistent with the marginal utility theory because it states that .
Answer: is; the increase in happiness when income increases from $50,0000 to $90,0000 is less than
when income increases from $20,0000 to $50,000.
19. The price of a movie falls which the marginal utility per dollar from movies. To return to
consumer equilibrium, Ben the number of movies he sees and the number of video games
he plays. His marginal utility per dollar for movies and his marginal utility per dollar for video games
as he returns to consumer equilibrium.
Answer: increases; increases; decreases; decreases; increases
20. Movies and video games are substitures. Suppose the price of a movie falls. The left graph shows
Ben’s demand curve for movies. Show the effect of a fall in the price of a movie. The right graph
shows Ben’s demand curve for video games. Show the effect of a fall in the price of a movie.
21. If a consumer’s income increases and if all goods are normal goods, .
Answer: the quantity bought of each good increases.
22. The paradox of value asks why .
Answer: the price of water is low and the price of a diamond is high, but water is essential to life while
diamonds are not.
The paradox of value is resolved by distinguishing between and .
Answer: total utility; marginal utility
