Micro Exam #2

Abdul spends all of his income on food (F) and shelter (S). His budget is given by the equation 5F + 20S = 100. Which of the following consumption bundles is part of his consumption possibilities? a) 8 units of F and 3 units of S b) 14 units of F and 2 units of S c) 0 units of F and 6 units of S d) 20 units of F and 5 units of S

a

Cola has more close substitutes than do soft drinks. The price elasticity of demand for cola is __________ the price elasticity of demand for soft drinks. a) greater than b) equal to c) less than d) a lot less than

a

For most firms, economic profit is: A) less than accounting profit. B) equal to accounting profit. C) greater than accounting profit. D) negative.

a

If Vanessa buys more pomegranates and fewer bananas, the ________ of pomegranates will _______, and the ________ of bananas 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

Market demand is found by: A) adding the individual quantities demanded at each price. B) adding the individual prices at each quantity demanded. C) multiplying the individual quantities demanded at each price. D) multiplying the individual prices at each quantity demanded

a

Sarah's accountant tells her that she made a profit of $43,002 running a pottery studio in Orlando. Sarah's husband, an economist, claims Sarah lost $43,002 running her pottery studio. This means her husband is claiming that she incurred ________ in ________costs. A) $86,004; implicit B) $43,002; implicit C) $43,002; explicit D) $86,004; explicit

a

Suppose Tyrell has $50 per week to spend on good A, which has a price of $5, andgood B, which has a price $4. He buys six units of A and five of B. The marginalutility of the sixth unit of A is 25, and the marginal utility of the fifth unit of B is 20.Which of the following is true?a. He is maximizing his utility. b. We cannot tell if he is maximizing his utility unless we know his total utility. c. He is not maximizing his utility and should buy more of A. d. He is not maximizing his utility and should buy more of B. e. He is not maximizing his utility because he is not spending all of his income

a

Suppose a soccer coach has been making $25,000 per year but gives up his coaching job in order to make lace doilies. If his revenue from the sale of these doilies is $50,000, and his materials cost $20,000, then his economic profit is a) $5,000 b) $25,000 c) $30,000 d) $50,000

a

The marginal utility of coffee consumption for Steve is the change in ________generated by consuming an additional cup of coffee. A) total utility B) total consumption C) total demand D) price

a

The price elasticity of demand for DVDs is 4. If the price of a DVD increased by 2 percent, the quantity demanded for DVDs will _________________ . a) decrease by 8 percent b) decrease by 0.5 percent c) increase by 2 percent d) decrease by 2 percent

a

The price elasticity of demand for a good such as water is likely to be very low because: A) the price is a small percentage of most budgets. B) water has some good substitutes. C) water is considered a luxury. D) the share of income spent on water is large

a

The price elasticity of demand for beef is estimated to be 0.60 (in absolute value). This means that a 20 percent increase in the price of beef, ceteris paribus, will cause the quantity demanded of beef to a) Decrease by 12 percent b) Decrease by 60 percent c) Decrease by 32 percent d) Decrease by 26 percent

a

The price elasticity of demand measures the responsiveness of the change in the a) quantity demanded to a change in price. b) price to a change in the quantity demanded. c) slope of the demand curve to a change in price. d) slope of the demand curve to a change in quantity demanded.

a

When the price of tortilla chips rose by 10 percent, the quantity demanded of tortilla chips fell by 4 percent. This indicates that the demand for tortilla chips is a) Inelastic b) Elastic c) Unit elastic d) Perfectly inelastic e) Perfectly elastic

a

You have rented your first apartment, signing a lease that commits you to pay $500 each month for twelve months. You have to the opportunity to take a trip to Europe during the entire month of June and will be spending $2000 traveling. Your apartment will be vacant, but because of your lease, you must still pay rent. The relevant cost of taking the trip to Europe is: a) $2000, because the $500 for your June rent is a sunk cost. b) $2,500, because this is your total spending during the month of June. c) $1500, because the June rent is an opportunity cost of traveling that must be deducted from the explicit cost of the trip. d) $2500, because the June rent is an opportunity cost of traveling and must be added to the explicit cost of the trip.

a

Each month Jessica buys exactly 15 Big Macs regardless of the price. Jessica's price elasticity of demand for Big Macs is: A) 0. B) 1. C) greater than 1. D) less than 1 but greater than 0.

ac

Along a linear, downward sloping demand curve, as the price rises, demand becomes more a) steep b) elastic c) inelastic d) unit elastic

b

An individual gets 5 units of utility from one slice of pizza and 9 units of utility from two slices of pizza. The principle of diminishing marginal utility implies that the total utility from three slices of pizza will be: A) exactly 12 units of utility. B) less than 13 units of utility. C) less than 9 units of utility. D) more than 14 units of utility.

b

At the optimal consumption bundle: A) the marginal utility of all goods consumed is equal. B) the marginal utility per dollar spent is equal for all goods consumed. C) the price of all goods consumed is equal. D) total utility from all goods consumed is equal.

b

Benny spends all of his money buying wine and cheese. The marginal utility of the last bottle of wine he bought is 60, and the marginal utility of the last block of cheese he bought is 30. The price of wine is $3, and the price of cheese is $2. Benny: A) is buying wine and cheese in the utility-maximizing amounts. B) should buy more wine and less cheese. C) should buy more cheese and less wine. D) is spending too much money on wine and cheese

b

Freddy has eaten three corn dogs at the county fair and knows that if he eats another, he will get sick on the roller coaster. Knowing this, and ignoring any impact that price might have on his decision, we can say that the: A) total utility of the fourth corn dog is less than zero. B) marginal utility of the fourth corn dog is less than zero. C) total utility curve is still increasing at the fourth corn dog. D) marginal utility curve is still increasing at the fourth corn dog.

b

If a firm is experiencing diminishing marginal returns to labor in the short-run, which of the following must be true? a) the first workers the firm hired were better than the workers hired later on b) the positive effect of specialization in production is being offset by the negative effect of overusing the fixed input c) total product (or output) is decreasing d) the firm should buy more nonlabor resources

b

If demand is inelastic, then: a) the price effect dominates the quantity effect, and a fall in price will cause total revenue to rise b) the price effect dominates the quantity effect, and an increase in price will cause total revenue to rise c) the quantity effect dominates the price effect, and an increase in the price causes total revenue to rise d) the quantity effect dominates the price effect, and a decrease in the price causes total revenue to rise

b

If the price of a good is 0, a consumer will a. consume all units that have positive total utility b. consume all units with positive marginal utility c. consume until total utility becomes 0 d. consume the entire amount supplied

b

Marvin loves chocolate truffles. As the price of a chocolate truffle increases from $1 to $2 to $3, Marvin continues to buy a dozen chocolate truffles every week. Marvin's demand for chocolate truffles is _________________. a) elastic b) perfectly inelastic c) unit elastic d) illustrated by a horizontal demand curve

b

Suppose that in a month the price of sausage increases from $2.00 to $2.20. At the same time, the quantity demanded for sausages decreases from 100 to 90. Using the mid-point formula, the price elasticity of demand (in absolute value terms) is a) 0.9 b) 1.1 c) 50 d) 2

b

Suppose you are the city manager of a small Midwestern city. Your city-owned bus system is losing money, and you have to find a way to take in more revenue. Your staff recommends raising bus fares but bus riders argue that reducing bus fares to attract new riders would increase total revenue. You conclude that a) your staff thinks that the demand for bus service is elastic, whereas the bus riders think that demand is inelastic b) your staff thinks that the demand for bus service is inelastic, whereas the bus riders think that demand is elastic c) both your staff and the bus riders think that the demand for bus service is elastic d) both your staff and the bus riders think that the demand for bus service is inelastic

b

The Cozy Chair Company believes it can sell 200 chairs at $200 per chair or 300 chairs at $150 per chair. Using the midpoint formula, what do they think is the price elasticity of demand? A) 2.5 B) 1.4 C) 0.7 D) 0.5

b

The income effect of a price change of e-Books is the effect on consumption changes due to a change in: a) income when all prices change in the same proportion b) purchasing power caused by a change in the price of a good c) income caused by a change in the price of labor d) income sufficient to offset the effect of a price change

b

The substitution effect of a price change is described by which of the following statements? A) When the price of canning jars falls, consumers have more real income with the same nominal income and will buy more canning jars. B) When the price of canning jars falls, consumers will substitute these lower-priced canning jars for higher-priced goods. C) The substitution effect is the change in the number of canning jars purchased when the price of spatulas changes. D) The substitution effect shows how a change in income will affect the quantity of a good purchased

b

There are several close substitutes for Bayer aspirin but fewer substitutes for a complete medical examination. Therefore, you would expect the demand for: A) medical exams to be more price-elastic. B) Bayer aspirin to be more price-elastic. C) Bayer aspirin to be more price-inelastic. D) the two to be equally price-elastic.

b

Which of the following is true about marginal utility? a) Marginal utility is total utility divided by the total quantity consumed. b) Marginal utility is the change in total utility derived from a one-unit change in the consumption of a good c) Marginal utility is the total satisfaction that a consumer experiences from all the units of a good or service consumed. d) All of the above are true

b

You manage a popular nightclub and lately revenues have been disappointing. Your bouncer suggests that raising drink prices will increase revenues, but your bartender suggests that decreasing drink prices will increase revenues. You aren't sure who is right, but you do know that: a) your bouncer thinks the demand for drinks is elastic, while your bartender thinks the demand for drinks is inelastic. b) your bouncer thinks the demand for drinks is inelastic, while your bartender thinks the demand for drinks is elastic. c) both the bouncer and bartender think the demand for drinks is elastic. d) both the bouncer and bartender think the demand for drinks is inelastic

b

You own a small deli that sells sandwiches, salads, and soup to the community. Which of the following is an implicit cost of doing business? a) Wages paid to part-time employees b) The job offer you did not accept at a local catering service c) Bread, meat, and vegetables used to produce the items on your menu d) Your monthly utility bill

b

A "how much" decision is best made by comparing: a) the explicit costs of an action to the implicit costs of that action b) the accounting profit of an action to the economic profit of that action c) the marginal benefits of an action to the marginal costs of that action d) the present value of an action to the net present value of that action

c

A local restaurant has estimated that the price elasticity of demand for meals is equal to 2. If the restaurant increases menu prices by 5%, they can expect the number of customers to decrease by ________and total revenue to ________. A) 10%; increase B) 5%; stay constant C) 10%; fall D) 2.5%; fall

c

Dan sells newspapers. Dan says that a 10 percent increase in the price of a newspaper will decrease the quantity of newspapers demanded by 8 percent. According to Dan, the demand for newspapers is a) perfectly elastic b) elastic c) inelastic d) perfectly inelastic

c

For which of the following will demand be the most price elastic? a) Milk b) Happy Cow brand milk c) Happy Cow brand milk at Ralph's Grocery Store d) Each of the above will exhibit the same price elasticity of demand

c

Gas prices recently increased by 25%. In response, purchases of gasoline decreased by 5%. Based on this data, the price elasticity of demand for gas is: A) 5. B) 2. C) 0.2. D) 0.5.

c

If a university decreases the price of tickets to football games to collect more revenue, it is assuming that the demand for tickets is: A) unstable. B) price-inelastic. C) price-elastic. D) price unit-elastic

c

If the slope of a demand curve is equal to -2.0 then a) demand is inelastic b) demand is elastic c) we don't know whether demand is elastic or inelastic d) demand is unit elastic

c

In the short run: A) all inputs are fixed. B) all inputs are variable. C) some inputs are fixed and some inputs are variable. D) all costs are variable

c

Jacquelyn is a student at a major state university. Which of the following is not an example of an explicit cost of her attending college? A) tuition B) textbooks C) the salary that she could have earned working full-time D) computer lab fees

c

Marginal analysis is relevant for: A) both "either-or" and "how much" decisions. B) only "either-or" decisions. C) only "how much" decisions. D) only those situations where the time value of money is involved

c

Newspaper vending machines that allow customers access to the whole stack of newspapers illustrate that newspaper publishers believe a) the average utility of two identical papers is zero or less b) the total utility from two identical newspapers is zero or less c) the marginal utility of a second identical newspaper is zero or less d) the marginal utility of a second identical newspaper is greater than the marginal utility of the first newspaper

c

Suppose Zoe uses her income to buy beer and potato chips. Zoe's marginal utility of consuming beer is 20 utils and the marginal utility of consuming potato chips is 10 utils. The price of beer is $4 and the price of potato chips is $1. Zoe will maximize her utility by a) doing nothing b) buying more beer and less potato chips c) buying less beer and more potato chips d) buying less of both goods

c

Suppose a local floral shop has explicit costs of $200,000 per year and implicit costs of$50,000 per year. If the store earned an economic profit of $50,000 last year, this means that the store's accounting profit equaled: A) $10,000. B) $50,000. C) $100,000. D) $200,000

c

The ________ is the increase in output that is produced when hiring an additional worker. A) average product B) total product C) marginal product D) marginal cost

c

Which of the following illustrates the law of diminishing marginal utility? a) The marginal utility of Diane's second Coke is greater than the marginal utility of her third pretzel, other things constant. b) The marginal utility of Diane's second Coke is greater than the marginal utility of Ken's third pretzel, other things constant. c) The marginal utility of Diane's second Coke is greater than the marginal utility of her third Coke, other things constant. d) The total utility of one Coke is greater than the total utility of two Cokes, other things constant.

c

Which of the following is a short-run adjustment? a) Toyota builds an automobile plant in Kentucky. b) Faced with increasing enrollment, a private college builds a new School of Business building. c) People's Bank hires two new tellers to meet increased demand for customer services d) None of the above represents a short-run adjustment

c

A perfectly inelastic demand curve implies that a) the buyers decrease their purchases when the price rises b) the buyers respond substantially to an increase in price c) the buyers increase their purchases when price falls d) the buyers purchase the same amount when the price rises or falls

d

A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What are his explicit costs? a) $26,000 b) $66,000 c) $78,000 d) $52,000 e) $72,000

d

If a good is offered to you free of charge, then you a) never stop consuming it b) stop consuming it when its marginal utility begins to fall c) stop consuming it when its marginal utility begins to increase d) stop consuming it when its marginal utility equals 0 or less e) stop consuming it when its total utility equals zero

d

Sally is allocating her budget between two goods, A and B. If Sally has used up the budget on a combination of A and B for which MUA/PA exceeds MUB/PB, she can increase her total utility by buying a. more B and less A b. more A without changing consumption of B c. less B without changing her consumption of A d. more A and less B

d

Suppose Basil is maximizing his utility from consuming tea and crumpets. If the marginal utility of the last cup of tea was 24 units of utility and that of his last crumpet was 6 units of utility, which of the following is true? a) The price of tea is six times the price of crumpets b) The price of crumpets is four times the price of tea c) The price of tea and crumpets are equal d) The price of tea is four times the price of crumpets

d

Suppose that when the price per case of Bullmoose beer rises from $14 to $16, the quantity demanded falls from 300 to 200 cases per week. Using the midpoint formula, what is the price elasticity of demand (in absolute value)? a) 0.33 b) 0.032 c) 2 d) 3

d

The demand for salt is probably more price inelastic than the demand for potatoes because a) potatoes require salt but salt does not require potatoes b) salt will keep longer than potatoes before spoiling c) there is so much potential salt in the ocean d) salt is cheap relative to most users' incomes and has few good substitutes

d

The price elasticity of demand is computed as the percentage change in the: A) quantity demanded divided by the percentage change in the quantity supplied. B) price divided by the percentage change in the quantity demanded. C) quantity demanded divided by the percentage change in income. D) quantity demanded divided by the percentage change in the price

d

The price elasticity of demand is equal to the ___________ in the ____________ divided by the _____________ in the ____________. a) change; price; change; quantity demanded b) percentage change; price; percentage change; quantity demanded c) change; quantity demanded; change; price d) percentage change; quantity demanded; percentage change; price

d

The term diminishing returns refers to: A) a falling interest rate that can be expected as one's investment in a single asset increases. B) a reduction in profits caused by increasing output beyond the optimal point. C) a decrease in total output due to the firm hiring uneducated workers. D) a decrease in the extra output due to the use of an additional unit of a variable input when all other inputs are held constant

d

To derive a demand curve using utility analysis, a. change a consumer's marginal utilities and note the effect of demand curve changes on market prices b. change a consumer's marginal utilities and note the effect of supply curve changes on market prices c. change a consumer's marginal utilities and note the effect of supply and demand curve changes on market prices d. note how the consumer's utility-maximizing consumption bundle changes in response to price changes e. note how the consumer's utility-maximizing consumption bundle changes in response to demand-curve shifts

d

Which is likely to have the smallest price elasticity of demand? a) automobiles b) houses c) luxury cruises d) chewing gum

d

Which of the following goods is likely to have the largest price elasticity of demand? A) a bicycle B) a mountain bike C) a Cannondale mountain bike D) a green Cannondale mountain bike

d

Which of the following is an "either-or" decision? A) Allen must decide how many courses to take this semester. B) Sally must decide how many hours to spend studying for each of the four courses that she is taking this semester. C) Chris must decide how many hours to work each week at his part-time job. D) Dylan must decide whether to major in economics or finance.

d

If the young chef earn total revenue equal to $100,000 in the first year, his economic profit would be equal to a) $0 b) $100,000 c) $74,000 d) $48,000 e) $22,000

e

Which of the following is most likely to be a fixed resource for Paul's Country Fresh Pies, Inc? a) berries b) flour c) bakers d) eggs e) ovens

e