micro test 2

If the price of a product changes between $4.00 and $6.00, and as a result, quantity demanded of that product changes between 120 and 80, then the arc price elasticity of demand (using the rule of average) is:

$4.00 + $6.00/2 = $10/2=$5.00 120 + 80/ 2 = 200/2 = 100

33. The consumer surplus at the equilibrium price is ___________.

1/2 (B*H) 1/2(50*20) 1/2(1000) =500

7. All other things being equal, the __________ substitutes for a good, the ____________ the price elasticity of demand. a. Fewer; higher b. More; higher c. More; lower d. None of the above

A. Fewer; higher

21. The amount by which an additional unit of an activity increases total benefit is: a. Net benefit b. Marginal benefit c. Marginal cost d. Utility

B. Marginal benefit

6. The produce of X is contemplating a price change and has asked for your advice. After some empirical investigation, you conclude that the price of elasticity of demand for X is 0.75. Your advice to the producer is to a. Increase price to raise total revenue b. Decrease price to raise total revenue c. Leave price unchanged since it will not influence total revenue d. Needs more information to answer this question

A. Increase price to raise total revenue

2. Relative to the short-run demand for gasoline, the long-run demand for gasoline is a. Probably more elastic since people need time to change automobiles and driving habits. b. Probably less elastic since people need time to change automobiles and driving habits. c. Probably more elastic because people can hoard this good, d. Probably less elastic because people cannot store this good. e. Irrational f. Not interested in that good

A. Probably more elastic since people need time to change automobiles and driving habits.

19. When the government policy is to regulate the quantity of a good that can be bought and sold rather than the price at which it is transacted, it uses a a. Quota b. Price control c. Price ceiling d. Price floor

A. Quota

10. If price rises from $10 to $12, quantity demanded falls from 200 units to 150 units, the absolute value of the point price elasticity of demand is a. 1.00 b. 1.25 c. 0.66 d. 0.33 e. None of the above

B. 1.25

27. (Figure: Marginal Benefits and Marginal Costs) Look at the figure Marginal Benefits and Marginal Costs. As shown, more time spend studying economics adds points to economics scores (MB) but subtracts points from accounting scores (MC). The marginal benefit of studying economics when Claudia studies for 2 hours is ___________ points and the marginal cost is _______ points. a. 40; 0 b. 30; 10 c. 20; 20 d. 10; 30

B. 30; 10

5. If a consumer doubles her quantity of ice cream consumed when her income rises by 25%, then her income elasticity of demand for ice cream is a. 8.0 b. 4.0 c. .25 d. .08

B. 4.0

28. Suppose that the average cost of a doctor's visit is $100. If the government imposes a price ceiling of $50 on the cost of a doctor's visit, there will be: a. An excess supply of doctor's visits b. An excess demand for doctor's visits c. An increase in the equilibrium number of doctor's visits d. No change in the number of doctor's visits

B. An excess demand for doctor's visits

4. If the price of orange juice rises 10% and as a result the quantity demanded falls by 8% the price elasticity of demand for orange juice is a. 1.25 b. Inelastic c. Both A and B above d. Neither A nor B above

B. Inelastic

9. If total revenue does not change as a result of a decrease in price, it follows that demand a. Unit elastic b. Inelastic c. Elastic d. Needs more information

B. Inelastic

24. According to the optimal output rule, if the marginal benefit is: a. More than the marginal cost, an activity should be reduced b. Less than the marginal cost, an activity should be reduced c. Equal to the marginal cost, an activity should be reduced d. More than the marginal cost, net benefit is maximized

B. Less than the marginal cost, an activity should be reduced.

25. In economics, maximization of the total net benefit of an activity occurs when: a. MB = MC b. MB > MC c. MB < MC d. MB approaches MC

B. MB>MC

31. 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

B. Sally must decide how many hours to spend studying for each of the four courses that she is taking this semester

16. The United States and the European Union impose price floors on many agriculture products. These price floors lead to unwanted surpluses. To deal with a surplus: a. The U.S. government typically pays farmers to produce as much as possible b. The U.S. government, in some cases, has destroyed the surplus production c. The European Union pays farm exporters to sell products for a profit overseas. d. The U.S. government holds auctions to sell the surplus to the highest bidder.

B. The U.S. government, in some cases, has destroyed the surplus production

13. When a tenant in a rent-controlled apartment sublets the apartment to another renter at a rent higher than the price ceiling: a. It is inefficient b. We say that the transaction takes place on a black market c. There is an increase in quantity demanded d. There is a decrease in quantity demanded

B. We say that the transaction takes place on a black market

23. Paul's Pizza offers the following prices: one slice for $2, two slices for $3.50, three slices for $4.50, four slices for $5.00. The marginal cost of the third slice to Hui is: a. $4.50 b. $10 c. $1 d. $3

C. $1

30. 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. $100,000

32. The marginal benefit of the sixth unit is approximately: a. 90 b. 40 c. 13.3 d. 15 e. none of the above

C. 13.3

29. Accountants use only ________ costs in their computations of cost. a. Opportunity b. Implicit c. Explicit d. Variable

C. Explicit

22. 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. Only "how much" decisions

3. The percentage change in the quantity demanded of a good in response to a percentage change in the price of that good is known as the a. Slope of the demand curve b. Excess demand c. Price of elasticity demand d. All of the above

C. Price of elasticity demand

15. Look at the figure Rent Controls. Suppose that rent controls are imposed in the market. If the government wanted a rent control ceiling to be effective immediately, what is one possible price to set? a. Rent3 b. Rent4 c. Rent1 d. Rent2

C. Rent1

18. Which of the following is an example of a price floor? a. A rent-controlled apartment b. A maximum legal price that could be charged for gasoline during a time of war c. The minimum wage d. A government decree that capped the price of bottled water in the aftermath of a devastating hurricane.

C. The minimum wage

1. The cross price elasticity of demand for a good is the percentage change in the quantity demanded in response to a given percentage change in a. Income b. The price of that good c. The price of another good d. The quantity demanded of another good.

C. The price of another good

20. 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. The salary that she could have earned working full-time

17. All else equals, if a price ceiling that is below the equilibrium price is imposed on market, what will happen to consumer and producer surplus? a. Consumer surplus will fall and producer surplus will rise. b. Consumer surplus will fall and producer surplus will fall. c. Consumer surplus will rise and producer surplus will fall. d. Consumer surplus will rise and producer surplus will rise.

D. Consumer surplus will rise and producer surplus will rise.

11. Total profit equals a. Total revenue minus total cost b. Price minus marginal cost c. Revenue minus variable cost d. Price minus average cost e. Revenue minus fixed cost

D. Price minus average cost

12. The difference between the economic and accounting costs of a firm are: a. The accountant's fee b. The corporate taxes on profit c. The opportunity costs of the factors of production the firm owns d. The explicit costs by the firm e. None of the above

D. The explicit costs by the firm

34. The cross price elasticity of demand between two goods will be positive if the two goods are complements. false

False

35. The breakeven point is where the total cost equals the total benefit

False

36. Dead weight loss includes only loss in producer surplus

False

37. The income elasticity of demand for an "inferior" good is between 0 and 1.

False

38. Marginal cost always declines over all levels of output

False

39. A vertical demand curve for a particular good implies that consumers are sensitive to changes in the price of that good false

False

40. Income elasticity of demand is used to plan marketing strategy.

True