ECON EXAM 2 TOPHAT

Assume that the elasticity of demand is 1.6. Is demand elastic or inelastic? A Elastic B Inelastic

A

A business should ___________ (increase/decrease) the price of a good with an inelastic demand if it wants to increase revenues. A Increase B Decrease

A

A government may impose a price ceiling if which of the following is true? A Consumers can persuade legislators that lower prices are needed B Producers can persuade legislators that lower prices are needed C Consumers can persuade legislators that higher prices are needed D Producers can persuade legislators that higher prices are needed

A

A major city was thinking about increasing its bus fares and commissioned a study to estimate the price elasticity of demand. The study estimated that elasticity was 0.4. What action should the city have taken to increase revenue from bus fares? A Increase fares B Decrease fares C Do not change fares

A

A utility-maximizing consumer of coffee also enjoys consuming tea. Coffee prices rise, while tea prices do not change. This consumers consumes only these two goods and all else remains the same. For this consumer, consumption of tea will ______________, and marginal utility of coffee will ______________. A increase; increase B increase; decrease C decrease; not change D decrease, decrease E one cannot tell

A

An increase in an effective minimum legal price will do what to prices and quantities actually sold in a market? Prices will __________ and the quantities actually sold will ___________. A Increase; decrease B Increase; increase C Decrease; decrease D Decrease; increase

A

Assume that Jill is NOT consuming at the utility-maximizing level. The marginal utility of soda is 40 and its price is $2, but the marginal utility of popcorn is now 30, and its price is $1. What should Jill do to maximize her utility? A Consume less soda and more popcorn B Consume more soda and less popcorn C Consume more of both D Consume less of both

A

Assume that Jill is consuming at the utility-maximizing point. If the utility from the last soda she consumes is 40 and its price is $2, and the utility from the last bucket of popcorn is 20, then we know that the price of the bucket of popcorn is ____. A $1 B $2 C $4 D $5

A

Assume you spend all of your income on two goods: peanuts and chips. Also assume that you are consuming the combination of peanuts and chips that maximize your utility. Which of the following statements is true? A If the price of peanuts is equal to the price of chips, then the marginal utilities must also be equal. B If the price of peanuts is more than the price of chips, then the marginal utility of peanuts is less than the marginal utility of chips. C If the price of peanuts is less than the price of chips, then the marginal utility of peanuts is more than the marginal utility of chips. D The marginal utilities of the two goods and their prices are not related.

A

If David buys more coffee and less ice cream, the ______________ of coffee will ______________ , and the ___ of ice cream will ______________. A Marginal utility; fall; marginal utility; rise B Marginal utility; rise; marginal utility; fall C Total utility; fall; marginal utility; rise D Marginal utility; rise; total utility; rise

A

If a consumer is currently maximizing her satisfaction, what will happen to the marginal utility of a good when its price increases and the consumer adjusts consumption accordingly? The marginal utility will __________. A Increase, because the consumer will decrease her consumption of the good. B Decrease, because the consumer will increase her consumption of the good. C Decrease, because a consumer will decrease her consumption of the good. D Increase, because the consumer will increase her consumption of the good.

A

If the government mandates that a price cannot be set above some specified level, then A None of the below. B Only the demand curve will shift. C Only the supply curve will shift. D There will always be excess supply. E There will always be excess demand.

A

If the government taxes car producers, what will happen in the market for cars? A The supply curve will shift to the left. B The demand curve will shift to the right. C There will be a movement along the supply curve to the left. D There will be a movement along the demand curve to the right.

A

If the income elasticity of a good is 0.8, what do we know about the good? A It is a normal good. B It is an inelastic good. C It is an inferior good. D It is an elastic good.

A

If the price of a hot dog is $2 and your willingness to pay is $3, then your consumer surplus is _____. A $1 B $2 C $3 D $5

A

If the price of a normal good decreases, the substitution effect ______________ the quantity demanded of that good. A Increases B Decreases

A

If you were selling a product with an elasticity of 1.6 and you wanted to increase your revenue, what should you do to the price? A Lower price B Increase price C Do not change price

A

Sometimes consumers purchase goods because of "conspicuous consumption"; i.e., they want others to know that they can afford to buy the goods. There are many examples of these goods, such as Rolex watches, Coach purses, and flying first class. What would you expect the income elasticity of demand to be for these goods? A These are luxury goods, so income elasticity would be greater than 1. B These are normal goods, so income elasticity would be greater than 1. C These are inferior goods, so income elasticity would be greater than 1.

A

Suppose that a 10 cent tax per apple is imposed on apple growers (producers). Then A the effective supply curve will shift upwards by 10 cents B the effective supply curve will shift upwards by 5 cents C the effective supply curve will shift downwards by 10 cents D the effective demand curve will shift upwards by 5 cents E the effective demand curve will shift downwards by 10 cents

A

The current equilibrium price of a specific type of automobiles is $23,000. An increase of a price ceiling on automobiles from $20,000 to $25,000 will do what to the amount sold in the market and to the price of automobiles? A The price of automobiles will increase and more will be sold. B The price of automobiles will not change and no more will be sold. C The price of automobiles will increase to $25,000 and fewer will be sold. D The price ceiling must not be effective as the equilibrium price is above the initial price ceiling.

A

When the federal government subsidizes higher education in the form of direct subsidies to universities, it results in: A An increase in the supply of higher education B A decrease in the supply of higher education C An increase in the demand for higher education D A decrease in the demand for higher education

A

A business should ___________ (increase/decrease) the price of a good with an elastic demand if it wants to increase revenues. A Increase B Decrease

B

An example of price controls given in your text concerns minimum wage increases. On a supply and demand diagram (with wages on the vertical axis and number of workers on the horizontal), would minimum wage be considered a price ceiling or a price floor? A Price ceiling B Price floor C Neither D Cannot tell

B

If a man spends approximately 45% of his income on air travel and his sister only spends about 2% of her income on air travel (and that is the only difference), would the man's demand for air travel be less or more elastic than his sister's? A Less B More C Cannot tell

B

If the country enters a period of prosperity, resulting in consumer incomes increasing by 4% and the income elasticity of a good is 0.8, what will happen to the demand for that good as a result? A Demand will increase by 1.2% B Demand will increase by 3.2% C Demand will increase by 4.8%

B

Situation A: When a $10 per unit tax is imposed on the producer of Bippies (a candy), the equilibrium price increases by $4.Situation B: When a $10 per unit tax is imposed on the producer of Bippies, the equilibrium price increases by $2.Based on the two situations above, Bippies in Situation A has a _________ elastic supply OR faces a _________ elastic demand than exists in Situation B. A More; more B More; less C Less; less D Less; more

B

Suppose Frank chooses to buy hot dogs at their current price. When the price of hot dogs increases, Frank's consumer surplus ________. A Increases B Decreases C Doesn't change D Cannot be determined unless the size of the price increases is known

B

The total amount spent on a service with an inelastic demand will ______________ if supply decreases. A One cannot tell without knowing the size of the change in supply. B increase C decrease D remain the same

B

When Jane's income doubles, she increases her consumption. For all normal goods that Jane consumes, what is true? A Her marginal utility per dollar will increase B Her marginal utility per dollar will decrease C Her marginal utility per dollar will not change D Her total utility will decrease

B

Who is likely to be in favor of a price ceiling on a good? A All consumers of that good B The consumers of the good who can still purchase it after the ceiling is imposed C All producers of the good D The producers of the good who can still sell it after the ceiling is imposed

B

A consumer is maximizing her satisfaction and currently consuming three goods. If her tastes change so that the marginal utility she gains from movies increases, what will happen to her consumption of the other two goods - hamburgers and football games? A Her consumption will increase because the ratio of their marginal utilities to their prices is now greater than the ratio of the marginal utility of movies to the price of a movie. B Her consumption will increase because the ratio of their marginal utilities to their prices is now less than the ratio of the marginal utility of movies to the price of a movie. C Her consumption will decrease because the ratio of their marginal utilities to their prices is now less than the ratio of the marginal utility of movies to the price of a movie. D Her consumption will decrease because the ratio of their marginal utilities to their prices is now greater than the ratio of the marginal utility of movies to the price of a movie.

C

A firm has a choice of raising or lowering its price. If the firm wishes to increase its revenues (the price times the quantity sold), what should it do? A Raise price when demand is elastic, because the quantity demanded will increase. B Lower price when demand is elastic, because the quantity demanded will decrease. C Raise price when demand is inelastic, because the revenues gained from the price increase will be larger than the revenues lost from the smaller quantity sold. D Lower price when demand is inelastic, because the revenues lost from the lower price will be smaller than the revenues gained from the increase in quantity sold.

C

Fred just ate a hamburger and received total utility of 15 from consuming it. If he eats another one, which of the following will be true? A His total utility will likely stay at 15 B His total utility will likely decrease C His total utility will likely increase

C

If a good is provided for free, it is likely to have a marginal utility that is relatively ______________ and be ______________ the marginal utility that could be gained from consuming some other good which must be paid for. A High; less than B High; greater than C Low; less than D Low; greater than E Unknown; equal to

C

If diminishing marginal utility exists and a person decreases consumption of a good, then (all else equal) it must be true that A the person's total utility will rise B the person's marginal utility will decline C the person's marginal utility will rise D the price of the good will fall

C

If the government imposes an effective price ceiling in a market, what will be the result? A Equilibrium B A surplus C A shortage D Demand will shift left and supply will shift right

C

If the price of a good changes, why does an income effect exist? A You need income to purchase the good B Diminishing marginal utility exists C The price change causes a change in real income D People prefer larger incomes

C

Many major U.S. cities have adopted rent controls for some housing. An effective rent control is what kind of price control? A A price ceiling with a maximum price above equilibrium price B A price floor with a minimum price above equilibrium price C A price ceiling with a maximum price below equilibrium price D A price floor with a minimum price below equilibrium price

C

Suppose at her current level of consumption, a person enjoys going to an additional baseball game three times as much as seeing an additional new movie. The price of a ticket for a baseball game is $30, and the price of a ticket for a movie is $15. Is the person spending her income (for these two goods) in a manner that maximizes her satisfaction? A Yes, she is. B No, she should increase the consumption of baseball games and movies. C No, she should increase the consumption of baseball games and decrease the consumption of movies. D No, she should decrease the consumption of baseball games and increase the consumption of movies.

C

Suppose you know that the price elasticity of demand for your product is 0.5, and you are thinking about raising your price by 8%. How much can you expect quantity to decrease? A 8% B 5% C 4% D We can't tell how much quantity will decrease.

C

When the federal government subsidizes higher education in the form of Pell grants to students, it results in A An increase in the supply of higher education B A decrease in the supply of higher education C An increase in the demand for higher education D A decrease in the demand for higher education

C

When will a minimum wage be an effective price control? When it is a _________. A Maximum "price" that is above equilibrium price B Maximum "price" that is below equilibrium price C Minimum "price" that is above equilibrium price D Minimum "price" that is below equilibrium price

C

A change in demand will cause the equilibrium price to change by ______________ and the equilibrium quantity to change by ______________ with an elastic supply than if supply were inelastic. A more; more B more; less C less; less D less; more E the same amount; the same amount

D

Assume Anna is consuming two goods, movies and books, and at her current level of consumption, the marginal utility of the last movie is 60 and the marginal utility of the last book is 30. The price of a movie is $12 and the price of a book is $4. In order to maximise her utility, what should Anna do? A Increase her consumption of both movies and books B Decrease her consumption of both movies and books C Do nothing—she's maximizing her utility D Decrease her consumption of movies and increase her consumption of books E Increase her consumption of movies and decrease her consumption of books

D

Assume that as your income increases, your consumption of burgers decreases. We can assume that your income elasticity of demand for burgers is what? A Between 0 and 1 B Greater than 1 C Equal to 1 D Negative

D

Assuming a fixed budget, when the price good X increases, consumers will adjust their consumption patterns in a way that the marginal utilities of all other goods will _________. A Increase B Decrease C Not change D Decrease, but the marginal utility of good X will increase. E Increase, but the marginal utility of the higher priced good will decrease.

D

Consider a good with a price floor that is above the EP. If D decreases, what will happen to the price in the market and the amount produced? A The price will increase and the amount produced will stay the same. B The price will stay the same and the amount produced will increase C The price and the amount produced will increase D The price will stay the same and the amount produced will decrease

D

If population increases in a city with effective rent controls (and nothing else changes), which of the following describes what will happen in the market for rental housing? A An increase in the number of rental housing units available, but no change in rent. B An increase in quantity supplied and quantity demanded. C An increase in supply, but no change in quantity demanded. D An increase in demand, but no change in quantity supplied.

D

Suppose Gail is willing to pay $89 for a new pair of shoes and Karen is willing to pay $60. What is the gain in total consumer surplus if the price of the shoes falls from $70 to $50? A $10 B $19 C $29 D $30

D

Suppose that the price of a pizza is $10 and the price of a video game is $30. Currently, Aaron is consuming such that the ratio of his marginal utility of pizza to marginal utility of video games is ¼. If he wants to maximize his utility, what should he do? A Buy more pizzas and fewer video games B Buy more pizzas and more video games C Buy fewer pizzas and video games D Buy fewer pizzas and more video games

D

Which of the following statements about the effects of a government setting maximum prices is true? A A maximum price will always cause a surplus of a good to be produced. B A maximum price will always cause a shortage of a good to be produced. C A maximum price will cause a surplus of a good to be produced only if the maximum price is above the equilibrium price. D A maximum price will cause a shortage of a good to be produced only if the maximum price is below the equilibrium price.

D

Which of the following statements about the effects of rent control is true? A A maximum price will always cause a surplus of a good to be produced. B A maximum price will always cause a shortage of a good to be produced. C A maximum price will cause a surplus of a good to be produced only if the maximum price is above the equilibrium price. D A maximum price will cause a shortage of a good to be produced only if the maximum price is below the equilibrium price.

D

Which of the following statements about utility is most accurate? As one consumes more of a good: A marginal and total utility are likely to increase. B marginal and total utility are likely to decrease. C marginal utility is likely to increase; total utility is likely to decrease. D marginal utility is likely to decrease; total utility is likely to increase. E None of the above is true.

D

Consider a good with a price floor that is above the equilibrium price. If demand decreases, what will happen to the price in the market and the amount produced? A The price will increase and the amount produced will stay the same. B The price will stay the same and the amount produced will increase. C The price and the amount produced will increase. D The price and the amount produced will stay the same. E The price will stay the same and the amount produced will decrease.

E

You are running a small business and are thinking about ways to increase your profits. Assume you are facing an elastic demand. Would you raise or lower your prices? A Raise because revenues would increase B Lower because revenues would increase C Raise because revenues and costs would decrease D Lower because revenues would increase and costs would decrease E I do not know because I cannot tell how much costs would change in relationship to revenues.

E

It is expensive for taxpayers and consumers, distorts buying and eating habits, blunt instrument for poor farmers, benefits go to wealthy, cheaper and more efficient to specifically target those in need

critics of the price floor