Chapter 5 Quiz

Consumers in a competitive market are considered to be price takers because the purchases made by each _____ have an effect on the market as a whole.

will not

In the diagram on the right, the consumer surplus in the market is represented by area _____.

A

Tami is working on a school report on the proposed merger between American Airlines and U.S. Airways. She finds that U.S. Airways' annual revenue fro 2012 rose by 8.7 percent over the previous year, while the revenue for American Airlines recorded an increase of almost 7.3 percent. Based on this, she concludes that, in 2012, passenger traffic must have increased more for U.S. Airways than for American Airlines. Is Tammi's conclusion correct? Explain your answer.

A. No, since total revenue is the product of price and quantity. Knowing only that revenue has increased says nothing about the reasons behind the increase.

Consider the following statement: Given that burgers and fries are complementary goods, if the price of fries decreases the demand for both goods will rise. Is this an accurate statement?

B. It is somewhat inaccurate. the decrease in the price of fries will increase the quantity demanded (not the demand) for fries. It will, however, as the statement claims, increase the demand for burgers.

The price elasticity of demand for a good is likely to be more elastic _____. A. the higher the budget share spent on the good. B. the longer the available time during which consumers can adjust. C. the larger the number of close substitutes for the good. D. all of the above.

D. all of the above.

Which of the following shows the arc elasticity method of calculating the price elasticity of demand?

Q2-Q1/(Q2+Q1)/2 /P2-P1/(P2+P1)/2

A consumer's satisfaction is maximized when the marginal benefit from the last dollar she spent on one good is equal to the marginal benefit from the last dollar she spent on another good because ______.

A. the reality of diminishing marginal benefits assures that any shift in consumption toward either good must necessarily maker her worse off.

Walmart and Target are both discount retailers. However, during the Great Recession of 2009, Target's same-store sales fell while sales at Walmart actually increased. Examine the following statements and identify the ones that could explain this outcome.

B. Walmart stocks more goods like food and health items than Target. D. Target positions itself in the market as a low-cost retailer of home accessories and clothing.

Charley spends all of his income on soft drinks and pizza. Suppose he is currently buying these products in amounts such that his marginal benefit from an additional soft drink is $110 and his marginal benefit from an additional slice of pizza is $120. If the price of a soft drink is $4 and the price of a slice of pizza is $6, is Charley maximizing his total benefits?

D. No, he should shift consumption toward soft drinks and away from pizza to maximize total benefits.

Georgina, an economics student, notices that the price of coal has been decreasing steadily. She also observes that the total consumption of coal has actually decreased. Georgina concludes that this is an exception to the Law of Demand. Do you agree?

D. No, she is mistakenly assuming stationary demand curve when most likely she is observing changes in the equilibrium caused by a decreasing quantity supplied and shifting demand.