AP Econ Unit 3 Exam

The concept of price elasticity of demand measures

the sensitivity of consumer purchases to price changes

Graphically, consumer surplus is measured as the triangle

under the demand curve and above the actual price

The ability of a good or service to satisfy wants is called

utility

When the total utility is at a maximum, marginal utility is

zero

Suppose the price elasticity of demand for bread is 0.20. If the price of bread falls by 10 percent, the quantity demanded will increase by

2 percent and total expenditures on bread will rise

The demand for a product is inelastic with respect to price if

consumers are largely unresponsive to a per unit price change

The price elasticity of supply measures how

responsive the quantity supplied of X is to changes in the price of X

The marginal utility of the last unit of A consumed is 12 and the marginal utility of the last unit of B consumed is 8. What set of prices for A and B respectively would be consistent with the consumer equilibrium?

$4 and $6

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from 3 Pepsis is 38 units of utility. The marginal utility of the 3rd Pepsi is

8 units of utility

Refer to the above diagram. Between prices $5.70 and $6.30

D2 is more elastic than D1

Which of the following is correct?

If marginal utility is diminishing and is a positive amount, total utility will increase

Which of the following is NOT a characteristic of the demand for a commodity that is elastic?

The elasticity coefficient is less than one

A supply curve that is parallel to the horizontal axis suggests that

a change in demand will change the equilibrium quantity but not price

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences:

a consumer surplus of $10 and Tony experiences a produce surplus of $190

Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences

a consumer surplus of $9 and Nathan experiences a producer surplus of $3

Graphically, producer surplus is measured as the triangle

above the supply curve and below the actual price

The price elasticity of demand coefficient measures

buyer responsiveness to price changes

Marginal utility

diminishes as more of a product is consumed

If the supply of product X is perfectly elastic, an increase in the demand for it will increase

equilibrium quantity but equilibrium price will be unchanged

If the demand for a product is elastic, the value of the price elasticity coefficient is

greater than 1

Refer to the above diagram and assume a single good. If the price of the good decreases from $6.30 to $5.70 consumer spending would

increase if demand were either D1 or D2

Assume there is an increase in the demand for hand calculators. The subsequent

increase in price will be greater the greater the inelasticity of supply

If the price of the product X rises, then the resulting decline in amount purchased will

increase the marginal utility of this good

An efficiency loss (or deadweight loss)

is measured as the combined loss of the consumer surplus and producer surplus

Consumer surplus

is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price

Producer surplus

is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price

A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the

more elastic the demand for the product

Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa=5 and MUa/Pb=8. Ben should purchase

more of B and less of A

Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending as her money income should buy

more of X and less than Y

Brenda says, "You would have to pay me $50 to attend that pro wrestling event". For Brenda, the marginal utility of the event is

negative

Suppose the price of the product rises and the total revenue of sellers increases

no conclusion can be reached with respect to the elasticity of supply

The basic formula for the price elasticity of demand coefficient is

percentage change in the quantity demanded/percentage change in price

A demand curve which is parallel to the horizontal axis is

perfectly elastic

A demand curve is parallel to the vertical axis is

perfectly inelastic

If total utility is increasing, marginal utility is

positive, but may be either increasing or decreasing

If the coefficient of price elasticity is less than 1 but greater than zero, demand is

relatively inelastic

The larger the coefficient of price elasticity of demand for a product, the:

smaller the resulting price change for an increase in supply

Total utility is determined by

summing the marginal utilities of each unit consumed

Allocative efficiency occurs only at that output where

the combined amounts of consumer surplus and producer surplus are maximized

An increase in demand will increase equilibrium price to a greater extent

the less elastic the supply curve