Economics Exam Chapters 5-7
(Figure: Bowling and Chinese Buffet) If the price of a Chinese buffet increases, the budget line will rotate:A)out and become flatter.C)in and have the same slope.B)out and have the same slope.D)in and become steeper.
B
Indifference curves exhibit all of the following characteristics except:A)having negative slopes.B)being concave to the origin.C)not intersecting.D)representing bundles with the same level of utility.
B
The local convenience store advertises 50% off frozen slushies. As a result of the sale, the store sells 80% more slushies, but 20% fewer fountain drinks. The cross elasticity (in absolute value) between slushies and fountain drinks is _____.A) 0.25 B) 0.4 C) 2.5 D) 4.0
B
The price elasticity of demand measures the:A)change in quantity demanded divided by the change in price.B)percentage change in quantity demanded divided by the percentage change in price.C)slope of the demand curve.D)change in income divided by the change in price.
B
When a firm experiences increasing marginal returns:A)total output rises at a diminishing rate.C)average product falls.B)total output rises at an increasing rate.D)marginal product falls.
B
What is the difference between explicit and implicit costs? What is the difference between economic and accounting profits? Are these four concepts related? How?
Explicit costs are those out-of-pocket expenses paid to others, while implicit costs are opportunity costs. Economic profits are profits after both explicit and implicit costs are deducted, while accounting profits typically do not have implicit costs deducted. The four concepts are related in how they are defined, with implicit costs playing an important role.
Describe how time affects price elasticity of supply.
For firms to expand output in response to price changes requires time: time to hire more labor, time toorder raw materials, and so on. In the market period, supplies are essentially fixed. In the short run, plant capacity is fixed, but in the long run all factors are variable. The elasticity of supply will be most elastic in the long run, less so in the short run, and least in the market period.
(Figure: Interpreting the LRATC) Which region(s) in the graph indicate(s) diseconomies of scale? A) AB) BC) CD) Band C
C
(Figure: Effects of Excise Tax) Based on the graph, after the excise tax is placed on the product, the producer surplus is:A) AEB. B) BEFC. C) ECF. D) CFD.
A
A firm is an economic institution that transforms _____ of production into _____ for consumers.A) inputs; outputs B) inputs; resources C) factors; inputs D) outputs; outputs
A
A good with an income elasticity that is negative is said to be a(n):A) inferior good. B) superior good. C) normal good. D) luxury good.
A
Alvaro pays $40 in tax on a $120 item. Nurulpays $80 in tax on a $240 item. We can conclude that this tax is a:A) flat tax. B) lump-sum tax. C) progressive tax. D) regressive tax.
A
Andrea has $30 to spend on game apps and movie downloads. If game apps are $3 each and movie downloads are $5 each, which combination can Andrea afford?A)5 game apps and 3 movie downloadsC)2 game apps and 5 movie downloadsB)8 game apps and 2 movie downloadsD)10 game apps and 6 movie downloads
A
ndifference curves:A)represent a set of product bundles to which a consumer is indifferent.B)are concave to the origin.C)slope up and to the right.D)show the difference between the marginal utilities of two different goods.
A
(Figure: Determining Marginal Returns) Based on both the tableand the figure, adding a third worker leads to:A)increasing marginal returns.C)constant marginal returns.B)diminishing marginal returns.D)negative marginal returns.
A
(Figure: Interpreting Indifference Maps) Based on the figure, the consumer is indifferent between combination ______ and combination ______.A) C; BB) A; BC) D; ED) A; C
A
Walmart is able to order huge quantities of shovels and rakes at very low prices from many different factories in China as it opens more stores. This best represents:A)short-run economies of scale.C)economies of scope.B)long-run diseconomies of scale.D)long-run economies of scale.
D
When the price of coffee increased from $4.50 to $5.55, the quantity demanded decreased from 185 units sold to 150 units sold. Using the midpoint method, the price elasticity of demand is:A) 0.03. B) 6.95. C) 1. D) -0.03.
C
Xiao has a budget of $150 to spend on T-shirts and jeans. The jeans she likes cost $56, and T-shirts cost $10. The combination of three T-shirts and three pairs of jeans would fall:A)inside the budget line.B)on the budget line.C)outside the budget line.D)somewhere that cannot be determined in relation to the budget line because not enough information is provided.
C
(Table) Based on the table, average product is at its maximum for the:A) fifth worker. B) third worker. C) sixth worker. D) seventh worker.
D
Suppose that Bob has left a job that paid $50,000 per year in order to open a new sponge business. His insurance cost is $5,000, his material cost is $25,000, his lease payments are $10,000, and his sales revenue is $90,000. Bob's economic profit is:A) $50,000. B) $90,000. C) $40,000. D) $0.
D
Suppose a consumer has the utility structure of weekly tea and coffee consumption shown in the following table. f the price of a cup of tea is $1 and the price of a cup of coffee is $2, how many of each would the consumer purchase if the consumer had $10 to spend? What is the total utility level at the optimal consumption mix?
Given an income of $10, the consumer will maximize total utility by purchasing 4 cups of tea and 3 cups of coffee since MU/P is equal across products at this combination and all income is spent. Total utility = (12 + 10 + 9 + 7) + (24 + 22 + 14) = 98 utils.
Why should sunk costs not be taken into consideration when making decisions about the present or the future?
Sunk costs are costs that have been spent and cannot be recovered. Therefore, any future decision should compare the benefits of the action with the additional costs of that action (and not the costs that have already been incurred). For example, the preregistration fee for a 10K race is a sunk cost. Whether one actually runs the race or not, the fee cannot be recovered. Therefore, if one is injured, the lost registration fee should not be a factor in determining whether to run. The relevant cost to consider should be whether running the race would make one's injury worse.
Eric enjoys having sushi and sashimi for lunch every day. Suppose the marginal utility of the last roll of sushi Eric eats is 40 and the marginal utility of the last piece of sashimi Eric eats is 20. If the price of a roll of sushi is $8 and the price per piece of sashimi is $2, did Eric maximize his utility? Explain.
The last roll of sushi gave Eric 40 units of utility; at a price of $8 per roll, the marginal utility per dollar for sushi is 40/$8 = 5. The last piece of sashimi Eric ate gave him 20 units of utility; at a price of $2 per piece, the marginal utility per dollar for sashimi is 20/$2 = 10. Eric is not maximizing his utility, because the marginal utility per dollar for the last unit of sushi and sashimi consumed are not equal. Eric should be consuming more sashimi and less sushi until the marginal utility per dollar of the last unit consumed are equal.
Suppose you pay $10 to watch a movie at the local cineplex, and afterward you sneak into the next theater to watch a second movie without paying. What is your marginal cost of watching the second movie? What is the average cost of watching the two movies? After the movies, you go to the batting cages and stand in for two rounds of pitches, each round costing $2. What is your marginal cost of batting the second round? What is the average cost of batting two rounds?
The marginal cost of watching the second movie is $0. The average cost of watching the two movies is $10/2 movies = $5. The marginal cost of batting the second round is $2. The average cost of batting two rounds is $2 ($4 total/two rounds).
If demand is unitary elastic, what happens to total revenue if the price increases by 5%?A)It increases by 5%.C)It decreases by less than 5%.B)It decreases by 5%.D)It stays the same.
D
If the state government charges an 8% tax rate on the first $50,000 in income earned, and then a 6% tax rate on all income above $50,000, this tax structure would be described as:A) progressive. B) regressive. C) flat. D) lump-sum.
B
(Figure: Understanding Cost Curves 2) Match the curves in the figure (lines A, B,and C) with the correct cost curve name (average variable cost, average total cost, average fixed cost, or marginal cost). A)A= marginal cost; B = average variable cost; C= average total costB)A= average variable cost; B= average total cost; C= marginal costC)A= marginal cost; B= average fixed cost; C= average total costD)A= marginal cost; B= average total cost; C= average fixed cost
A
(Table) Refer to the demand schedule for honey in the table. In this price range, the demand for honey is:A) inelastic. B) elastic. C) unitary elastic. D) unknown.
A
(Table) Using the information in the table, assume the consumer has a weekly budget of $3; the price of a root beer is $1 and the price per candy bar is $0.50. If the consumer maximizes utility, total utility is _____ utils.A) 290 B) 240 C) 260 D) 350
A
10.In which situation would consumers bear the highest incidence of a tax?A)an inelastic demand with an elastic supplyC)an elastic demand with an inelastic supplyB)an inelastic demand with an inelastic supplyD)an elastic demand with an elastic supply
A
A demand curve that is elastic:A)implies that buyers are very sensitive to price changes.B)has an elasticity value of zero.C)has a positive slope.D)has an elasticity value less than one.
A
A normal rate of return on capital:A)is a return just sufficient to keep investors satisfied.B)sends a signal to investors to use their capital elsewhere.C)does not allow a business to keep its capital equipment in the long run.D)represents a positive economic profit.
A
Based on sales history, a retailer calculates that EY for Gummycrumbs is -0.8. Now, due to a recession, incomes in the market area are down 10%. Based on the given information, it can be estimated that Gummycrumb sales will:A) increase by 8%. B) decrease by 8%. C) increase by 80%. D) decrease by 80%.
A
Bob loves to eat blue jelly beans. He gets 50 units of utility for the first jelly bean, 40 units of utility for the second, 30 units of utility for the third, 20 units of utility for the fourth, and an additional 10 units of utility for the fifth. For thefirst jelly bean, the marginal utility is _____, and the total utility for eating five jelly beans is _____.A) 50; 150 B) 50; 140 C) 140; 50 D) 50; 20
A
Cross elasticity of demand is defined as percentage change in:A)quantity demanded of one product divided by the percentage change in the price of another product.B)quantity demanded of one product divided by the percentage change in the price of the same product.C)the price of one product divided by the percentage change in quantity demanded of another product.D)the price of one product divided by the percentage change in quantity demanded of the same product.
A
If ED = 4, then:A)a price increase of 1% will reduce quantity demanded by 4%.B)a price increase of 1% will increase quantity demanded by 4%.C)a price decrease of 1% will decrease quantity demand by 4%.D)the slope of the demand curve is equal to 4.
A
If the price of electricity falls by 10% per kilowatt hour, and the quantity demanded for electricity subsequently increases by 8%, the price elasticity of demand for electricity is _____ and would be classified as an _____ good.A) 0.8; inelastic B)0.8; elastic C) 1.25; inelastic D) 1.25; elastic
A
If the price of gasoline increases by 10% and quantity demanded decreases by 5%, then the demand curve for gasoline is:A) inelastic. B) elastic. C) unitary elastic. D) a perfect substitute.
A
Jim Delan eyemploys five people to make pizzas for his neighborhood. He makes $4,000 in profit per month, which he pays to himself. This firm is an example of a:A)sole proprietorship.B)partnership, because he has five employees.C)corporation, because he sells his pizzas to the public.D)nonprofit corporation.
A
Joni receives 8 utils from drinking her first glass of water and 5 utils from watching her favorite television show. Which statement is TRUE?A)All else constant, Joniwould prefer to drink a glass of water than watch TV.B)Joni should never watch television.C)Because tap water has no price, its utility value must be zero and Joni is irrational.D)Joni's preferences are wrong because water is a necessity.
A
Products with many close substitutes tend to have _____ demand, and products considered to be luxury goods tend to have _____ demand.A) elastic; elastic B) elastic; inelastic C) inelastic; elastic D) inelastic; inelastic
A
Suppose Peter faces this budget line for eating out. If his weekly budget for pancakes is $40, a breakfast at IHOP costs ____ and a breakfast at the Original Pancake House costs ____.A) $10; $8 B) $4; $5 C) $5; $4 D) $8; $10
A
Table) The table shows the total utility and marginal utility for ice cream consumption. In the table, the value for B is:A) 35. B) 40. C) 45. D) 50.
A
Using the utility maximization rule, if Vicky's marginal utility of the last appleconsumed is 20 and her marginal utility of the last pineappleconsumed is 80, what is the price of pineapples if the price of apples is $1 and Vicky has maximized her utility?A) $4 B) $2 C) $1 D) $0.25
A
Which event would cause the budget line to shift outward?A)An increase in income.C)An increase in the price of one of the goods.B)A decrease in income.D)A decrease in the price of one of the goods.
A
Which statement is NOT a characteristic of a corporation?A)Its investors face unlimited liability.B)It produces more value of goods and services than any other type of business structure.C)It has the ability to issue stock to raise capital.D)It usually consists of many owners (in some cases, tens of thousands of owners or more).
A
Which statement is true regarding the total product and marginal product curves?A)The total product curve reaches its peak when marginal product is zero.B)The total product curve begins to fall when marginal product begins to fall.C)The marginal product curve is upward sloping whenever total product is rising.D)The total product and marginal product curves both reach their maximum point at the same level of labor.
A
Table) Based on the table,_____ is the total cost when producing twenty-one units.
C
Using the equation TR= P× Q, explain the effect of elasticity on total revenue if price were to increase.
An increase in price would have two effects on total revenue. First, there is a higher price per unit, so more money is collected on the units that are sold. However, fewer are sold, so there is the revenue lost Page 8due to lower quantity demanded. If demand iselastic, the "lower quantity" effect outweighs the "greater price" effect and total revenue falls. If demand is inelastic, the impact of the "lower quantity" effect is smaller compared to that of the "greater price" effect, and total revenue rises.
If a product's price rises by 6% and its quantity demanded falls by 8%, then we can say that demand for this product is:A) perfectly inelastic. B) inelastic. C) unitary elastic. D) elastic.
D
(Figure: Determining Marginal Returns) Based on both the table and the figure, adding a fifth worker leads to:A)increasing marginal returns.C)constant marginal returns.B)diminishing marginal returns.D)negative marginal returns.
B
(Figure: Effects of Excise Tax) Based on the graph, after the excise tax is placed on the product, tax revenue is:A) AEB. B) BEFC. C) ECF. D) CFD.44.
B
(Table) Based on the table, diminishing marginal returns occur when the _____ worker is hired.A) fifth B) sixth C) eighth D) twelfth
B
(Table) Based on the table, negative marginal returns occur when the _____ worker is hired.A) fifth B) sixth C) eighth D) twelfth
B
(Table) Based on the table, the price of a Chinese buffet dinner costs $10 and an evening of bowling costs $20. Bill has $100 per month to spend. Assuming Bill is a utility-maximizing consumer, he will spend his first $20 _____ and his second $20 _____.A)eating two Chinese dinners; bowlingB)eating two Chinese dinners; eating two Chinese dinnersC)bowling; eating two Chinese dinnersD)bowling; bowling
B
A criticism of marginal utility analysis is that it is:A)difficult to obtain price information.C)easy to measure marginal utility.B)difficult to measure utility.D)easy to obtain price information.
B
By producing a number of products that are interdependent, firms are able to produce and market these goods at lower costs. This is known as:A)economies of scale.C)diseconomies of scale.B)economies of scope.D)constant returns to scale.
B
Economic costs are the sum of _____ and _____.A)sunk costs; implicit costsC)explicit costs; sunk costsB)explicit costs; implicit costsD)sunk costs; marginal costs
B
Enrique teaches in the math department at a local university, and he volunteers as a math tutor at thelocal high school. Enrique's behavior can be explained by:A) the sunk cost fallacy. B) altruism. C) overconfidence. D) framing bias.
B
How are corporations different from partnerships?A)Corporations are an example of a firm but partnerships are not.B)Corporations have limited liability but partnerships have unlimited liability.C)Corporations transform factors of production into products for consumers but partnerships do not.D)Partnerships have the legal rights of individuals but corporations do not.
B
If a product's price rises by 6% and its quantity demanded falls by 8%, then its elasticity is equal to:A) 0.75. B) 1.33. C) 2.00. D) 6.00.
B
If the cross elasticity of demand between fly rods and reels is -0.8, a decrease in the price of rods would _____ sales of reels because the two goods are _____.A)decrease; complementsC)decrease; substitutesB)increase; complementsD)increase; substitutes
B
In a partnership, legal responsibility for all debts of the partnership are:A)shared by the founding owners.C)shared by the stockholders.B)shared by all the partners.D)limited to the investment in the partnership.
B
In the graph, which shows the market for perfume, if a $10 excise tax is placed on each bottle of perfume, consumers would pay about _____ after the tax and producers would receive about _____ after the tax.A) $50; $40 B) $45; $35 C) $40; $30 D) $35; $25
B
In the table, as Samuel's consumption of ice cream cones increases,A)both his total utility and his marginal utility increase.B)his total utility increases, but his marginal utility decreases.C)his total utility decreases, but his marginal utility increases.D)his total utility increases, and his marginal utility decreases then increases.
B
In the town of Skateville, average incomes fall by 20% due to a recession; as a result the sales of skateboards fall by 15%. The income elasticity of demand is _____, and skateboards are a(n) _____ good.A) 0.75; inferior B) 0.75; normal C) 1.33; inferior D) 1.33; normal
B
José tried caviar at a restaurant and found he did not like it. However he ate all of it because he had paid such a high price for it. José'sbehavior can be explained as:A) a framing bias. B) a sunk cost fallacy. C) altruism. D) overconfidence.
B
Kama gets 180 total utils from taking three yoga classes per month. The additional utility derived from taking a fourth yoga class per month is 40 utils. Based on this information, which statement is TRUE?A)The total utility from taking four yoga classes will be 140 utils.B)The marginal utility from the fifth yoga class will be greater than 40 utils but less than 220 utils.C)The marginal utility of the third yoga class will be greater than 40 utils.D)The marginal utility from the second yoga class will be less than 40 utils.
B
Suppose the price elasticity of demand is 3.0 and the price elasticity of supply is 0.08. The burden of an excise tax:A)falls primarily on consumers.B)falls primarily on producers.C)is shared evenly by consumers and producers.D)falls entirely on producers.
B
Table) Based on the table, the marginal cost of the fourth unit produced is: A) $0. B) $92. C) $98. D) $105.
B
Table) Based on the table, the marginal product of the eighth worker is _____ bats. A) 10 B) 8 C) 23 D) 14
B
Table) Based on the table,_____ is the average variable cost when output is twelve units.A) $5.36 B) $41.67 C) $60.00 D) $75.00
B
Table) Refer to the table which shows the total utility and marginal utility for ice cream consumption. The value for E is:A) 6. B) 7. C) 8. D) 9.
B
Table) Referring to the table, which shows the total utility and marginal utility for ice cream consumption, the value for C will be:A) 11. B) 12. C) 13. D) 14.
B
When the price of hamburgers increased from $1.50 to $2.75, the quantity demanded decreased from 375 units sold to 250 units sold. Using the midpoint method,hamburgers are said to be:A) elastic. B) inelastic. C) unitary elastic. D) monetary elastic.
B
Which of the following periods describes when companies can alter output but not their plant capacity?A)market period B) in the short run C) in the long run D) infinity period
B
__ 10.Based on the figure, combination _____ is preferred to combination _____.A) C;BB) D;AC) E;BD) B;E
B
(Figure: Bowling and Chinese Buffet) The price of a Chinese buffet dinner is $10 and an evening of bowling costs $20. Bill has $100 per month to spend on these two goods. Assuming Bill is a utility-maximizing consumer, if he wants to eat at the Chinese buffet six times this month, he can only go bowling _____ time(s) this month.A) one B) two C) three D) four
C
(Figure: Effects of Excise Tax) Based on the graph, after the excise tax is placed on the product, the deadweight loss is:A) AEB. B) BEFC. C) EGF. D) CFD.
C
(Figure: Interpreting Indifference Maps) Based on the figure, combination ______ is preferred to combination ______.A) A; DB) D; AC) E; BD) A; C
C
(Figure: Interpreting Price Changes) Based on the graph, if the price for shoes increases from $40 to $80 (from point d to point b), the absolute value for the price elasticity of demand (using the midpoint method) is:A) 0.66. B) 1. C) 1.5. D) There is not enough information to solve this problem.
C
(Figure: Interpreting Price Changes) Based on the graph, if the price for shoes increases from $40 to $80 (from point d to point b), the net revenue lost, or gained, would be:A) $0 net loss/gain. B) $200 net gain. C) $200 net loss. D) $400 net gain.
C
(Figure: Maximizing Utility) Based on the figure, what combination would the utility-maximizing consumer choose?A) AB) BC) CD) D
C
A poultry rancher discovered what when she increased the price of organic eggs from $0.75 to $1.00 per dozen, the sales of her eggs fell from 300 dozen per week to 200 dozen per week. If she wants to increase her totalrevenue from egg sales, she should:A)raise the price of eggs even more.C)reduce the price of eggs back to $0.75.B)hold the price constant at $1.00.D)take up dairy farming.
C
A wedding planner determines that one waiter can serve 30 guests, two waiters can serve 70 guests, three waiters can serve 120 guests, four waiters can serve 160 guests, and five waiters can serve 180 guests. The marginal product of the third waiter is _____ guests.A) 36 B) 40 C) 50 D) 120
C
According to the figure, how many units of pizza should be purchased to maximize utility?A) 0 B) 1.5 C) 2 D) 5
C
As a person consumes more of a good or service, the person's _____ will increase. At the same time, this person's _____ will decrease with each additional unit.A)marginal utility; total utilityC)marginal utility; costB)total utility; marginal utilityD)cost; total utility
C
At 500 units of output, total cost is $100,000 and fixed cost is $50,000. What does variable cost equal at 500 units?A) $50,000 B) $5,000 C) $9,000 D) $45,000
C
If Mary wants to purchase two slices of pizza when the price is $3 per slice, then, based on the law of diminishing marginal utility, if the price drops to $1.50 per slice she will be willing to buy:A)fewer than two slices of pizza.C)more than two slices of pizza.B)between two and four slices of pizza.D)two slices of pizza.
C
If a firm can change all of its factors of production, then it is operating in:A) the short run. B) the mid-term run. C) the long run. D) balance.
C
If income increases by 12% and the quantity demanded of a good increases by 14%, the good is a(n) _____ good.A) inferior B)normal C) luxury D) complementary
C
Jenn's marginal utility of the last candy bar consumed is 8 and her marginal utility of the last smoothie consumed is 20. If candy bars cost $2 and smoothies cost $4, which statement is true according to the utility maximization rule?A)Jenn is maximizing her utility.B)Jenn must consume more candy bars and less smoothies to maximize utility.C)Jenn must consume more smoothies and less candy bars to maximize utility.D)Jenn must consume less of both candy bars and smoothies to maximize utility.
C
Justinowns a home entertainment installation company. One employee can complete two installations per month; two employees can complete 5 installations, three employees can complete 9 installations, four employees can complete 12 installations, and five employees can complete 11 installations. Diminishing marginal returns begin with the _____ worker.A) second B) third C) fourth D) fifth
C
Perfectly elastic demand is BEST represented by drawing a(n):A)vertical demand curve.C)horizontal demand curve.B)downward-sloping demand curve.D)upward-sloping demand curve.
C
Sharkey's Surfboards are all priced one cent lower than the next round dollar, for example, $89.99, $129.99, and $114.99. Sharkey believes that his customers are affected by:A) sunk costs. B) a sunk cost fallacy. C) a framing bias. D) overconfidence.
C
Suppose that the price of African safaris fell from $4,000 to $3,200 per person, and, as a result, tour operators reduced the number of trips offered by 25%. Using the midpoint method, the price elasticity of supply for African safaris is _____.A) 0.80 B) 0.89 C) 1.13 D) 1.25
C
Suppose the price of a taco is $1 and the price of a soft drink is $2. If Mehmet has $5, then he can buy:A)four tacos and two soft drinks.C)four tacos and one soft drink.B)three tacos and two soft drinks.D)three tacos and one soft drink.
C
Table) Based on the table, the average product of ten workers is _____ bats.A) 6 B) 60 C) 20 D) 200
C
The Wonderful Gadget Company produces 500 gadgets per week with 50 employees. It hires an additional worker and output rises to 507 gadgets. The marginal product of the last worker hired is _____ gadget(s).A) 500 B) 507 C) 7 D) 1
C
The _____ graphically illustrates the possible combinations of two goods a consumer can purchase with a given income, given the prices of both products.A) production possibilities frontier B) supply curve C) budget line D) demand curve
C
The law of diminishing marginal utility states:A)total utility falls as consumption of a good increases.B)that as a consumer consumes more of a given product, the added utility from consuming an additional unit declines.C)average utility increases as more of a product is consumed.D)total utility increases at an increasing rate as more of a product is consumed.
C
Tracey sells 100 gourmet cupcakes per day at $2 each. She is considering raising her price to $2.50 per cupcake in order to increase her revenues. If the price elasticity of demand for Tracey's cupcakes is 2, would she increase her revenues?A)Yes; revenues would rise since she would sell even more cupcakes due to its high elasticity.B)Yes; revenues would rise despite selling fewer cupcakes per day.C)No; revenues would fall because she would sell far fewer cupcakes.D)No; revenues would fall even though she would sell more cupcakes due to its high elasticity.
C
Walmart is thinking about offering a 25% discount on a brand of shoes. If the elasticity of demand is two, then the discount would increase sales by:A) 2%. B) 200%. C) 50%. D) 25%.
C
When a consumer chooses among a set of goods or services, utility is maximized when marginal utility:A)equals total utility.C)per dollar spent is equal for all goods.B)is minimized.D)is greater than total utility.
C
When the price of a good decreases from $10 to $8, the quantity supplied of the good decreases from 80 units to 65 units. The price elasticity of supply is (using the midpoint formula):A) 0.75. B) 0.80. C) 0.93. D) 0.60.
C
Which of these does NOT lead to economies of scale?A)specialization of resourcesC)increased bureaucratizationB)better use of existing capitalD)better use of complementary technologies
C
Describe cross elasticity of demand and use this concept to define substitutes and complements.
Cross elasticity of demand (Eab) measures how responsive the quantity demanded of one good (good A) is to changes in the price of another (good B):Using cross elasticity of demand, we can classify goods in three ways. First, goods A and B are substitutes if their cross elasticity of demand is positive (Eab> 0). Second, goods A and B are complements if their cross elasticity of demand is negative (Eab< 0). Finally, two goods are not related if a cross elasticity of demand is 0, or near 0.
(Figure: Bowling and Chinese Buffet) Bill can consume 10 Chinese buffets or go bowling five times per month (or any other specific combinations). This graph represents Bill's:A) utility curve. B) demand curve. C) production possibility frontier. D) budget line.
D
(Figure: Effects of Excise Tax) Based on the graph, after the excise tax is placed on the product, consumer surplus is:A) AEB. B) BEFC. C) ECF. D) CFD.
D
(Table) Based on the table, output equals _____ when seven workers are employed.A) 42 B) 54 C) 55.71 D) 7.71
D
(Table) Using the information in the table, assume the consumer has a weekly budget of $3; the price of a root beer is $1 and the price per candy bar is $0.50. The consumer maximizes utility by purchasing:A)3 root beers.C)6 candy bars.B)2 root beers and 2 candy bars.D)4 candy bars and 1 root beer.
D
Dan's Car Wash produces $150,000 in revenues and incurs $120,000 in labor wages, materials, rent, and other explicit costs. Moreover, Dan gave up a $40,000-a-year job as a hotel valet to start his car wash business. Dan's economic profit is _____, and he _____ earning a normal profit.A) $30,000; is B) $30,000; is not C) -$10,000; is D) -$10,000; is not
D
Figure: Bowling and Chinese Buffet) The price of a Chinese buffet dinner is $10 and an evening of bowling costs $20. Bill has $100 per month to spend on these two goods. If Bill wants to go bowling four times this month, he can only eat at his favorite Chinese buffet _____ times this month.A) two B) four C) six D) eight
D
Helping a friend struggling to pass a math class despite it taking valuable time away from your own studies is an example of:A) framing. B) sunk cost. C) overconfidence. D) altruism.
D
If a consumer's budget increases, the budget line shifts to the _____ and a consumer can reach a _____ level of consumption.A) right; lower B) right; higher C) left; lower D) left; higher
D
If the price of a product with an inelastic demand is increased, the:A)gain in revenue from the higher price is greater than the loss in revenue from selling fewer units.B)gain in revenue from thehigher price is greater than the gain in revenue from selling fewer units.C)loss in revenue from the higher price is smaller than the loss in revenue from selling fewer units.D)gain in revenue from the higher price is smaller than the loss in revenue from selling fewer units.
D
If the total cost of 3 units is $40 and the total cost of 4 units is $50, the marginal cost of the fourth unit is:A) $90. B) $50. C) $40. D) $10.
D
If you allocate your time between attending classes and practicing for an upcoming game, you will maximize your total utility by choosing a bundle in which the:A)marginal utility from each activity is maximized.B)total utility per hour from each activity is equal.C)total utility from each activity is equal.D)marginal utility per hour from each activity is equal.
D
In general, marginal product equals average product at:A)the maximum marginal product.C)the minimum average product.B)the minimum marginal product.D)the maximum average product.
D
In the diagram, what change must have occurred to rotate the budget line as shown?A)The price of roses rose.C)The price of orchids rose.B)The price of roses fell.D)The price of orchids fell.
D
Inelasticsupply curves, if linear, will always:A)cross the price axis.B)cross through the origin.C)have a price elasticity greater than or equal to 1.D)cross the quantity axis.
D
Marc and Jay spent $850 each for Super Bowl tickets. Unfortunately, the game was a blowout, and both of them were bored by halftime. Marc wanted to leave to attend a party, but Jay refused to leave early because they had paid so much for the tickets. Jay is subject to:A) altruism. B) a framing bias. C) overconfidence. D) a sunk cost fallacy.
D
Suppose that the quantity demanded for a product falls by 9% as people's incomes fall by 3%. What is the income elasticity for this good?A) -3.00 B) -0.33 C) 0.33 D) 3.00
D
Suppose the price of a bag of jelly beans rises from $1.60 to $2.00, with the result that sales of jelly beans falls from 120 bags to 80 bags a day. Using the midpoint method, what is the elasticity of demand for jelly beans?A) 0.55 B) 0.75 C) 1.33 D) 1.80
D
Table) Based on the table, the average product of three workers is _____ bats.A) 24 B) 22 C) 23 D) 25
D
Tax burdens are higher on consumers when:A)supply and demand are elastic.C)demand is elastic and supply is inelastic.B)demand and supply are inelastic.D)demand is inelastic and supply is elastic.
D
The following shows the costs associated with the number of pets groomed by Janee's Mobile Pet Grooming Service. What is the value of X?
D
The price of a mango is $2 and a farmer sells 2,000 mangos. However, the costs to the farmer are $400 for labor, $1,600 for rent, and $2,000 for advertising. Based on the above information, the farmer:A)makes $2,000 in profit.C)makes $2,000 in total revenue.B)loses $2,000 in profit.D)makes $4,000 in total revenue.
D
Total revenue is calculated as:A)price divided by quantity.C)price plus quantity.B)quantity divided by price.D)price times quantity.
D
Which statement describes a situation in which negative returns to labor occur.A)The marginal product of labor begins to fall.B)The total product of labor peaks.C)The average product of labor begins to fall.D)The marginal product of labor falls below zero.
D
What is the difference between accounting profits and economic profits?
Economic profits are accounting profits minus implicit costs. Accounting profits do not include implicit costs. Economic profits take implicit costs (opportunity costs) into consideration.
If marginal cost is less than average total cost, are average total costs rising or falling? Alternatively, if marginal cost is more than average total cost, are average total costs rising or falling? Explain how this example might apply to a basketball player attempting to achieve a high average points per game.
If marginal cost is less than average total cost, then average total cost is falling and vice versa. A baseball player hitting .333 (gets a hit one-third of the time on average) will see his average rise when he gets a hit and fall when he does not. If the average income of your class is $15,000 (some people work), and Tom Cruise decides to take a refresher course in economics and joins your class, the average income rises, and vice versa if someone with no income joins the class. A basketball player's average points per game (ppg) is calculated based on all games played to date in a season. Suppose a player's average is 10 ppg. If the player scores 15 points in the next game, her marginal score (15) is greater than her average (10), which means that her average will rise. Alternatively, if she scores only 5 points in the next game, her marginal score (5) is less than her average (10), which means her average will fall.
Explain the difference between marginal utility and total utility.
One way to look at marginal utility is that it expresses the satisfaction of an individual unit of a product. Total utility expresses the total satisfaction of a bundle of units. For example, a buyer may be putting loaves of bread in a shopping cart. Marginal utility refers to the satisfaction of each loaf placed in the cart. The total of satisfaction of all the loaves together in the cart is total utility.
List the determinants of elasticity of demand.
SubstitutabilityProportion of income spent on a productLuxuries vs necessitiesTime period
Define income elasticity and use this concept to classify normal, inferior, and luxury goods.
The income elasticity of demand (EY) measures how responsive quantity demanded is to changes in consumer income. We define the income elasticity of demand as normal, luxury, or inferior. A normal good is one where income elasticity is positive but less than1 (0 < EY< 1). As income rises, quantity demanded rises as well, but not as fast as the rise in income. Most products are normal goods. Luxury goods include products with income elasticity greater than 1 (EY > 1). As income rises, quantity demanded growsfaster than income. Inferior goods are goods for which income elasticity is negative (EY< 0). When income rises, the quantity demanded of these goods falls.
Explain what economists mean by "utility."
Utility, as the term is used in economics, is a hypothetical unit of satisfaction. One of its key characteristics is that utility is assumed to have a higher value for products that offer greater satisfaction. For example, an individual would prefer to consume an item that offers 18 utils of pleasure over an item that gives 16 utils.
Suppose you estimated the cross elasticities of demand for three pairs of products and came up with the following three values: 2.3, 0.1, −1.7. What could you conclude about these three pairs of products? If you wanted to know if two products from two different firms competed with each other in the marketplace, what would you look for?
When the cross elasticity estimate is 2.3, these products are close substitutes; for 0.1, the products are really unrelated; and a value of −1.7 would represent complements. To find out if the products of two firms compete in the market, we would look for a positive cross elasticity number: the higher the number, the more competitive the products (substitutable).
Assume a consumer has $40 to spend and for both products the marginal utilities are shown in the table below: Assume that each product sells for $10 per unit. a. How many units of each product will the consumer purchase? b. Assume the price of product B rises to $20 per unit. How will this consumer allocate her budget now? c. If the prices of both products rise to $20 per unit, what will the budget allocation be?
a. At $10 a unit for both products, the consumer will buy 2 units of each product, for a total utility of 80 + 40 + 35 + 20= 175. b. When the price of product B rises to $20, the combination will be 2 units of A and 1 unit of B. The first unit purchased will be a unit of B (80/$20 = 4 utils per dollar), the second unit purchased will be aunit of A (35/$10 = 3.5 utils per dollar), and finally the last $10 will be spent on a second unit of A (20/$10 = 2 utils per dollar). Total utility is 80 + 35 + 20 = 135. c. If the price of both products rises to $20, two units of B will be purchases for a total utility of 80 + 40 = 120.
a. Complete the table. b. Assume that you have $50 a month to devote to entertainment (column labeled First-Run Movies) and wine with dinner (column labeled Bottles of Wine). What will be your equilibrium allocation if the price to see a movie is $10 and a bottle of wine cost $10 as well? c. A grape glut in California results in Napa Valley wine dropping in price to $5 a bottle, and you view this wine as a perfect substitute for what you were drinking earlier. Now what will be your equilibrium allocation between movies and wine?
a. See aboveb. With the prices at $10 each, you will go to 2 movies and drink 3 bottles of wine. c. When the price of wine falls to $5 a bottle, you will go to 3 movies and drink 4 bottles of wine.
Rising peanut prices have forced peanut butter makers to raise the price of peanut butter from $2 to $3 per jar, causing quantity demanded to fall. In addition, sales of jelly also dropped by 15%. Soon thereafter, makers of chocolate spread dropped its price from $4 to $3 per jar. This resulted in a further decline in peanut butter sales by 20%. a. What is the cross elasticity of demand between peanut butter and jelly (use the midpoint method)? Are these two products complements or substitutes? b. What is the cross elasticity of demand between peanut butter and chocolate spread (use the midpoint method)? Are these two products complements or substitutes?
a. The cross elasticity of demand between peanut butter and jelly is ‒15%/(+$1/$2.50) = ‒15%/+40% = ‒0.375. When cross elasticity of demand is negative, the two goods are complements. b. The cross elasticity of demand between peanut butter and chocolate spread is ‒20%/(‒$1.00/$3.50) = ‒20%/‒28.57% = +0.70. When cross elasticity of demand is positive, the two goods are substitutes.
Suppose the demand and supply for imported Kobe beef is as shown in the figure below. Now assume that the U.S. government imposes a $10 import tax per pound of Kobe beef.a. How does the market price change with the imposition of the $10 per pound tax? b. Do buyers or sellers of Kobe beef bear the greater burden of the tax? c. How much tax revenue does the government collect from this market? d. Calculate the approximate value of deadweight loss created in this market from the tax.
a. The market price rises from $50 to $56 with the $10 tax. b. Buyers bear the greater burden of the tax, because the price rises by $6 while sellers earn $4 less after the tax. c. The government collects $10 per pound times 15,000 pounds = $150,000. d. The deadweight loss is 1/2 × (20,000 −15,000) × ($56 −$46) = $25,000.
