Exercises 3.2
1. A buyer has purchased three units of good X. The marginal benefit of the fourth unit of X exceeds the marginal cost of the fourth unit of good X. Which of the following reasons explains why the buyer should purchase the fourth unit?
I.The marginal net benefit of the fourth unit is positive.
II. Buying the fourth unit will increase total benefits by more than total costs.
III. Buying the fourth unit will increase total benefits and decrease total costs.
a) I only
b) I and II only
c) II only
d) I, II, III
2. According to marginal analysis, optimal decision-making involves:
a) Taking actions whenever the marginal benefit is positive.
b) Taking actions only if the marginal cost is zero.
c) Taking actions whenever the marginal benefit exceeds the marginal cost.
d) All of the above.
The following TWO questions refer to an individual’s demand curve diagram, illustrated below.
3. If the price of this good is $1 per unit, what will be the quantity demanded?
a) 5.
b) 10.
c) 15.
d) 20.
4. What are the TOTAL benefits to this individual if she consumes 10 units of the good?
a) $5.
b) $10.
c) $20.
d) $30.
5. The demand curve for a good is derived from the:
a) Marginal cost of the good.
b) Marginal benefit of the good.
c) Marginal benefits of the good minus marginal costs of the good.
d) Production Possibilities Frontier
6. Which of the following statements about demand curves is TRUE?
I. The “Law of Demand” holds if a consumer’s marginal benefit is lower at higher quantities consumed than it is at lower quantities consumed.
II. If the consumer’s marginal benefit is the same no matter what quantity is consumed, then her demand curve will be vertical.
III. All else equal, the marginal benefit of consuming a normal good will be higher for richer consumers than for poorer consumers.
a) III only.
b) I and II only.
c) I and III only.
d) I only.
The following FOUR questions refer to the diagram below, which illustrates a consumer’s demand curve for a good.
7. If the price of this good is $30, what quantity will be demanded?
a) 5 units.
b) 10 units.
c) 15 units.
d) 20 units.
8. If the price of this good is $20, what quantity will be demanded?
a) 5 units.
b) 10 units.
c) 15 units.
d) 20 units.
9. If the price of this good is $20, what will consumer surplus equal?
a) $100.
b) $200.
c) $300
d) $400.
10. If the price of this good falls from $30 to $20, but the consumer is prohibited from buying more than 5 units of the good, by how much will consumer surplus increase?
a) $100.
b) $75.
c) $50
d) $25.
Exercises 3.3
1. Which of the following statements about demand curves is TRUE?
a) If price falls and quantity demanded increases, this is represented by a movement along a given demand curve.
b) If price falls and quantity demanded increases, this is represented by a shift of the demand curve.
c) If price falls and quantity demanded increases, this can be represented by either a movement along a given demand curve, or a shift of the demand curve.
d) None of t