# IHI 52.doc

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1. The “law of demand” implies that (Points : 1)
as prices fall, demand increases.
as prices rise, demand increases.
as prices fall, quantity demanded increases.
as prices rise, quantity demanded increases.
2. The law of diminishing marginal utility refers to (Points : 1)
a consumer’s decrease in total satisfaction as she consumes more units of a good.
a consumer’s decrease in additional satisfaction as she consumes more and more units of a good.
the idea that total utility is negative.
the idea that marginal utility is negative.
3. In college you practically existed on instant noodles, but now you earn \$95,000 a year. You never want to see instant noodles again. We can safely conclude that you consider instant noodles to be a(n) (Points : 1)
normal good.
complementary good.
luxury.
inferior good.
4. A car’s real cost is its opportunity cost. Opportunity cost is determined by (Points : 1)
the price of the car.
relative prices.
wealth.
the prices of the goods that are compliments to a car.
5. According to the law of demand there is ________ relationship between price and quantity demanded. (Points : 1)
a positive
a negative
either a positive or negative
a constantly changing
6. When the decrease in the price of one good causes the demand for another good to decrease, the goods are (Points : 1)
normal.
inferior.
substitutes.
complements.
7. If a household’s income falls by 10%, its budget constraint will (Points : 1)
shift out parallel to the old one.
pivot at the Y-intercept.
shift in parallel to the old one.
be unaffected.
8. We can state the utility-maximizing rule in words in the following way: A person maximizes utility when she equalizes the ________ across products. (Points : 1)
total utility
total utility per dollar spent
marginal utility
marginal utility per dollar spent
9. The income elasticity of demand (Points : 1)
measures the change in income necessary for a given change in quantity demanded.
measures the responsiveness of income to changes in quantity demanded.
measures the responsiveness of quantity demanded to changes in income.
is the ratio of the percentage change in income to the percentage change in quantity demanded.
10. The diamond/water paradox states that things with the ________ value in use frequently have ________ value in exchange. (Points : 1)
least; the least
least; little or no
greatest; little or no
greatest; the greatest