1. QUIZ FOUR The Consumer Theory

2. 1.According to the principle of diminishing marginal utility: A. The more of a good a consumer consumes the lower her total utility B. The opportunity cost of each additional unit of a good declines as the consumption of that good increases C. There is a negative relationship between the price and the utility a consumer drives from consumption of a good D. Ceteris paribus, as the consumer’s consumption of a good increases each additional unit adds less to her total utility than the previous unit.

3. 2. Each point on a budget line corresponds to: A. The maximum amount of utility a consumer can achieve B. The highest level of utility a consumer can achieve with her limited income C. A certain quantity combination of two goods that a consumer can purchase with her given income D. The consumer’s preferred quantity combination of two goods

4. 3. To maximize her utility a consumer must A. equalize her marginal utility across all of the goods she consumes B. equalize her marginal utility per dollar spent across all of the goods that she purchases C. set her average utility per dollar spent equal to her marginal utility per dollar D. set her total income equal to her total utility

5. 4. The convexity of an indifference curve A. reflects the principle of diminishing marginal utility B. reflects the scarcity of resources C. indicates that consumers prefer more to less D. reflect the changing price ratio Px/Py E. indicates that if the consumer wishes to consume more X she has to give up some Y

6. 5. A firm’s economic profit A. can never be equal to its accounting profit B. is always equal to zero C. is equal to its accounting profit minus its implicit costs D. is equal to its accounting profit minus its explicit costs D. is always greater than its accounting profit E. is equal to the difference between its explicit costs and its implicit costs