Exam 2 (Chapters 4, 19, 20)
At a consumer optimum involving goods A and B, the marginal utility of good A is three times the marginal utility of good B. The price of good B is $4.00. The price of good A is
$12.00
Mark is selling gourmet apples at a price of $2 per pound. Currently, he sells 100 pounds of apples per week. This week, Mark raises his price to $3, and his sales of apples fall to 75 lbs. Mark's initial revenue from apple sales was $ Mark's new revenue from apple sales is $ Since Mark's revenue increased when the price of apples rose, the demand for Mark's gourmet apples must be
$200 $225 inelastic
If price decreases by 10 percent and quantity demanded increases by 2 percent, the price elasticity of demand will be
0.2
When Raul's income was $100 per week, 10 units of good A were demanded. Now Raul's income is $150 per week and 12 units of good A are demanded. Using the percentage change formula, the income elasticity of demand for good A equals
0.45
OLED television prices rise by 10 percent, and in response the quantity of those OLED televisions supplied increases by 5 percent. The supply elasticity for OLED television sets in that price range is
0.5
When the price of a soft drink from the campus vending machine was $0.60 per can, 100 cans were sold each day. After the price increased to $0.75 per can, sales dropped to 85 cans per day. Over this range, the absolute price elasticity of demand for soft drinks was approximately equal to
0.73
If the price of oranges went up by 20 percent, which of the following values of the cross price elasticity for apples would be most reasonable to anticipate?
1.2
If the price of good A increases from $15 to $20 per unit and quantity demanded falls from 150 to 100 units, then by using the method of average values, we can calculate the absolute price elasticity of demand to be
1.4
At a consumer optimum involving goods A and B, the marginal utility of good A is 6 utils, and the marginal utility of good B is 12 utils. The price of good B is ____ times the price of good A. (Enter your response as a whole number.)
2
Suppose that Dallas derives 40 utils of total utility from eating 3 hotdogs and 42 utils of total utility from eating 4 hotdogs. What is Dallas's marginal utility from eating the 6th hotdog?
2
When the Gizmo Company could sell a gizmo for $10, it produced 2,500 per month. More recently, the price of a gizmo has fallen to $9 and so Gizmo is only producing 2,000 units per month. What is the price elasticity of supply for gizmos?
2.11
Stella receives 40 utils from her first slice of pizza, 20 utils from her second slice of pizza, and 10 utils from her third slice of pizza. Stella's marginal utility from her second slice of pizza is
20
Robert is buying CDs. He receives 80 utils from his first CD, 40 utils from his second CD, and 24 utils from his third CD. (Round your answers to the nearest integer.) Robert's marginal utility from his third CD is Robert's total utility from consuming three CDs is
24 144
At Roy's Music Shack, when the price of CDs is $12, 800 are demanded. When the price of CDs is $13, 600 are demanded. Using the averages of the two prices and quantities, the price elasticity of demand for CDs is
3.6
Ginger earns an income of $2,000 a week and goes out to dinner 4 times a week. If her income increased to $2,100 she would go out to dinner 5 times a week. Ginger's income elasticity of demand is
4.56
Alyssa is maximizing her utility buying bagels and bread. This week, the price of bagels has increased. Alyssa considers these goods to be close substitutes. Which of the following best describes what Alyssa would be expected to do?
Alyssa will buy less bagels and more bread
Which of the following statements best explains how utility usually changes with the quantity of a good consumed?
As the quantity consumed increases, total utility increases but marginal utility decreases.
David buys pizza from the campus pizzeria. He calculates his total utility from pizza as follows: Slices of Pizza Total Utility 0 0 1 12 2 17 3 20 4 22 All of the following statements regarding David's utility from pizza are true except
David experiences increasing marginal utility since his total utility is rising.
There are simultaneous changes in the demand for and supply of global-positioning-system (GPS) devices, with the consequences being an unambiguous decrease in the market clearing price of these devices but no change in the equilibrium quantity. What changes in the demand for and supply of GPS devices could have generated these outcomes?
Demand decreases and supply increases
There are simultaneous changes in the demand for and supply of tablet devices, with the consequences being an unambiguous increase in the equilibrium quantity of these devices but no change in the market clearing price. What changes in the demand for and supply of tablet devices could have generated these outcomes?
Demand increases and supply increases
Suppose that the cross price elasticity of demand between goods A and B equals 1.25. Which of the following is TRUE?
Goods A and B are substitutes because the cross price elasticity is positive.
Suppose Jeremy's marginal utility from attending his 10th San Antonio Spurs game was 50 and the marginal utility from attending his 1st Rihanna concert was 70. Assume that the price of a Spurs ticket is $30 and the price of a Rihanna ticket is $100. Which of the following would be TRUE?
Jeremy would attend more Spurs games and less Rihanna concerts.
Kalia is currently spending all of her weekly income purchasing the two goods that she likes tacos and nachos. She is currently purchasing 10 tacos and 5 plates of nachos. She receives 50 utils from her 10th taco and 25 utils from her 5th plate of nachos. The price of tacos is $12, and the price of nachos is $4. Is Kalia maximizing her utility, and if not, what should she do?
Kalia should buy fewer tacos and more nachos.
Teri is currently spending all of her weekly income purchasing the two goods that she likes brownies and milk. She is currently purchasing 10 brownies and 5 cartons milk. She receives 30 utils from her 10th brownie and 15 utils from her 5th carton milk. The price of brownies is $12, and the price of milk is $4. Is Teri maximizing her utility, and if not, what should she do?
Teri should buy fewer brownies and more milk.
If one day it was discovered that lime juice caused cancer, which of the following would likely result?
The demand curve for lime juice would shift to the left.
In 2010, a British Petroleum oil rig exploded in the Gulf of Mexico. The explosion resulted in a major oil spill and a decrease in the supply of oil. At the same time, the average price of gasoline decreased. Which of the following best explains the decrease in the price of gasoline?
The demand for gasoline decreased, and the effect of the decrease in demand on the gasoline price was greater than the price effect of the decrease in supply.
In the market for domestic avocados, what would happen to the market clearing price and the equilibrium quantity if there was a drought in avocado growing areas?
The market clearing price would rise, and the equilibrium quantity would fall.
The market for corn is initially in equilibrium. Suppose the production of biofuels, which use corn as an input, decreases, and at the same time, decreases in the price of oil cause farm production costs to fall. Which of the following explains the effect on equilibrium price and quantity in the corn market?
The price of corn will fall, but the effect on equilibrium quantity cannot be determined without more information.
The government of the state of Arizona decided to boost its own minimum wage by an additional $1.60 per hour above the minimum wage established by the federal government. This pushed the wage rate earned by Arizona teenagers above the equilibrium wage rate in the teen labor market. What is the predicted effect of this action by Arizona's government on each of the following?
The quantity of labor supplied by Arizona teenagers will increase. The quantity of labor demanded by employers of Arizona teenagers will decrease. The number of unemployed Arizona teenagers in this city will increase
The price elasticity of demand for gizmos is known to be 1.0 (in absolute value). Therefore, the demand for gizmos can be described as
Unitary
The value of cross price elasticity of demand between goods X and Y is 0.75, while the cross price elasticity of demand between goods X and Z is −2.00. Which of the following are true?
X and Y are substitutes and X and Z are complements.
A market in which a price-controlled good is sold at an illegally high price is known as
a black market
An increase in supply, all other factors held constant, will cause which of the following to occur?
a rightward shift in the demand curve as the price falls.
Based on only the information provided, characterize the demand for the following goods as being more elastic or more inelastic. a. A 45-cent box of salt that you buy once a year: b. A type of high-powered ski boat that you can rent from any one of a number of rental agencies: c. A specific brand of bottled water: d. Automobile insurance in a state that requires autos to be insured but has few insurance companies: e. A 75-cent guitar pick for the lead guitarist of a major rock band:
a. more inelastic b. more elastic c. more elastic d. more inelastic. e. more inelastic
It is very difficult to find goods with perfectly elastic or perfectly inelastic demand. We can, however, find goods that lie near these extremes. Characterize the demand for the following goods as being near perfectly elastic or near perfectly inelastic. a. Corn grown and harvested by a small farmer in Iowa b. Heroin for a drug addict. c. Water for a desert hiker. d. One of several optional textbooks in a pass-fail course
a. near perfectly elastic demand. b. near perfectly inelastic demand c. near perfectly inelastic demand d. near perfectly elastic demand.
The result of the calculation of the price elasticity of demand is
always negative
Ryan is deciding between attending Western State University and Eastern State University. He cannot attend both universities simultaneously. Both are fine universities, but the reputation of Western is slightly higher, as is the tuition. Let MUe and MUw be Ryan's marginal utilities from attending Eastern and Western State Universities respectively and Pe and Pw be the prices of attending Eastern and Western State Universities. Using the rule of consumer optimum, Ryan will decide to
attend Eastern State University, if MUe/Pe exceeds MUw/Pw
When supply and demand for a product decrease simultaneously, we
cannot predict equilibrium price, but know that equilibrium quantity will decrease.
If the cross price elasticity of demand between two goods is negative, then the two goods are
complements
Suppose that the cross price elasticity of demand between good A and good B is -1.2. This indicates that the two goods are
complements
If the calculated price elasticity of demand between two points is −4, demand is
elastic
When the consumer spends a large portion of her income on a good, demand will be
elastic
The price elasticity of demand for gizmos is known to be 2.0 (disregarding the negative sign). If sellers of gizmos increase their prices, total revenue from gizmo sales will
fall
The longer any price change persists, the
greater is the price elasticity of demand
If the income elasticity of a good is known to be +0.5, as income rises, consumers will buy a _____ of the good, and the proportion of the budget spent on the good will ______. If the income elasticity of a good is known to be −0.5, as income rises, consumers will buy a ______ of the good. Goods of this type are called inferior.
greater quantity; decrease smaller quantity; inferior
Utility analysis helps economists understand
how people make decisions about what they buy and how much.
Suppose that the absolute price elasticity for cookies equals 0.8. We could then say that the demand for cookies is
inelastic
The price of one piece of pizza is $2 and the price of movies is $4. The consumer has $14 of income. The consumer is purchasing 3 pieces of pizza and receiving 20 utils for the last piece. He is also purchasing 2 movies and receiving 40 utils for the last movie. This set of goods
is an optimum since the entire income is spent and the marginal utility per dollar spent is the same for the last unit of each good.
Suppose the price of crude oil used to produce gasoline rises significantly. At the same time, consumers purchase electric cars in great numbers. In the market for gasoline, demand shifts to the ________ and supply shifts to the ________.
left; left
The long-run elasticity of supply in most industries is ___________ than the short-run elasticity because in the long run, ________________.
more elastic; resources and firms can enter the industry
If milk and cookies are complements, then their cross price elasticity of demand will be
negative
If total utility is decreasing, then marginal utility is
negative
The price elasticity of demand is the
percentage change in quantity demanded divided by the percentage change in price.
Suppose that you observe that total utility rises as more of an item is consumed. You can say for sure that marginal utility is Marginal utility is also
positive. could be rising or falling.
An import quota is an example of a
quantity restriction. Restricting the quantity of a good that can be imported is likely to mean that the price of that good will rise
In a price system,
relative prices change constantly to reflect changes in supply and demand.
Rationing goods on the basis of price is a direct result of
scarcity
Price ceilings set below the equilibrium price cause
shortages
The primary losers from minimum wages are
teenage and unskilled workers.
Marginal utility is
the change in total utility due to a one-unit change in the quantity of a good consumed.
Suppose Matt Damon and Cameron Diaz wear matching platinum jewelry in their new movie. After the movie is released, suppose that consumers increase their demand for the jewelry and at the same time manufacturers increase the supply of the jewelry. As a result
the equilibrium quantity will increase, and there is an indeterminate change in the equilibrium price.
Brad ate four bags of chips at the baseball game. The first bag tasted best, but he found that as he ate more chips the amount of extra satisfaction he was receiving was beginning to fall. This would demonstrate
the law of diminishing marginal utility
The price elasticity of demand shows
the proportionate amount by which the quantity demanded changes in response to a proportionate change in price.
When the price of gasoline decreases, Dennis buys more gasoline and more of all other goods. This information describes:
the real income effect of a price decrease.
The rationing function of prices refers to
the synchronization of decisions by buyers and sellers that leads to an equilibrium.
The price system has
voluntary exchange
If total utility is unchanged, then marginal utility is
zero
Given the existence of relative scarcity, resources can be rationed by
queuing, or standing in line. a system of prices. political mandate.
When the price of gadgets rises by 10%, the demand for widgets falls by 40%. The cross price elasticity of widgets and gadgets is negative (Round your answer to the nearest integer.) Based on this information, widgets and gadgets are
−4. complements
