1. The additional satisfaction derived from consuming one more unit of a good or

Question

1. The additional satisfaction derived from consuming one more unit of a good or service is called:

a. Diminishing marginal utility

b. The substitution effect

c. The real-income effect

d. Marginal utility

e. The consumer optimum

2. A company in Irvine, California is interested in buying season tickets to the local baseball team. Tickets for scheduled games are sold individually for $12 each, but season tickets are only $4 each. The reason why the local baseball team has to charge less for season tickets can be explained by:

a. Diminishing marginal utility

b. The substitution effect

c. The consumer optimum

d. Marginal utility

e. The real-income effect

3. Assume that you can afford to buy as many candy bars and ice cream cones as you want. You would continue to consume both candy bars and ice cream until the:

a. Total utility of each becomes negative

b. Marginal utility of each becomes negative

c. Marginal utility of each decreases

d. Marginal utility of candy bars and ice cream bars is equal

e. Total utility of candy bars and ice cream bars is equal

4. Economic rent is:

a. What a landlord earns by leasing land or capital

b. The difference between the rental price and the amount of money that could have been earned using the piece of land for another purpose

c. The amount of money a person could have earned by using land for another purpose.

d. The profits earned by a firm in production

e. The difference between the market price and the rental price of a piece of land

5. A person who is _____ is likely to pay more for insurance to protect against financial loss than a person who is _____.

a. A risk taker; risk neutral

b. Afflicted by the hot-hand fallacy; afflicted by the gambler’s fallacy

c. Risk averse; a risk taker

d. Risk neutral; risk averse

e. A risk taker; risk averse

6. As the largest employer in a small town, I may be more likely to take business risks because, if the company struggles, I might expect the local government to provide financial assistance. This situation reflects which of the following?

a. A principle-agent problem that becomes a moral hazard problem

b. A moral hazard problem

c. A principle-agent problem

d. An adverse selection problem

e. A moral hazard problem that becomes an adverse selection problem

7. Eating a steak gives Jim satisfaction equal to 55 utils, whereas eating hamburger gives him a satisfaction of 25 utils. Jim should:

a. Eat hamburger only if he has recently eaten steak

b. Always choose to eat hamburger over steak

c. Eat hamburger only if it is cheaper than steak

d. Eat steak only if it is cheaper than hamburger

e. Always choose to eat steak over hamburger

Explanation / Answer

1. d. Marginal utility

2. c. The consumer optimum

3. b. Marginal utility of each becomes negative

4. b. The difference between the rental price and the amount of money that could have been earned using the piece of land for another purpose

5. c. Risk averse; a risk taker

6. b. A moral hazard problem

7. c. Eat hamburger only if it is cheaper than steak

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