Econ 101 Exam 2 TopHat
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 ____.
$1
If the price of a hot dog is $2 and your willingness to pay is $3, then your consumer surplus is _____.
$1
Using the graph, if the price increases from $1 to $1.50, consumer surplus will decrease by _____.
$3.50
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?
$30
If Bill spends all his money on apples that cost $3 per pound and Bill has $31 to spend, how many pounds can he buy (whole pounds)?
10
What is the consumer surplus at a price of $10, assuming the demand relationship is linear?$______________
100
What is the marginal utility of the 2nd pound of apples?
15
If apples cost $3 per pound and bananas cost $5 per pound, how many pounds of apples should Bill buy if he wants to maximize his utility and he has $31 to spend?
2
Using the graph, if the price of an ice cream cone is $2.00, consumer surplus will equal ______.
2
What is the consumer surplus at a price of $5? $______________
225
If apples cost $3 per pound, how much utility per dollar is Bill getting with the 4th pound of apples?
3
What is the marginal utility of the 4th pound of bananas?
30
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?
4%
If apples cost $3 per pound and bananas cost $5 per pound, how many pounds of bananas should Bill buy if he wants to maximize his utility and he has $31 to spend?
5
If Bill spends all his money on bananas that cost $5 per pound and Bill has $31 to spend, how many pounds can he buy (whole pounds)?
6
Using the graph, if the price of an ice cream cone is $1, consumer surplus will equal ______.
8
When the federal government subsidizes higher education in the form of direct subsidies to universities, it results in:
an increase in the supply of higher education
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?
I do not know because I cannot tell how much costs would change in relationship to revenues
A utility-maximizing consumer will consume a good or service until the point at which:
MU/price of the good is on par with MU/price of other goods
Which of the following statements about the effects of a government setting maximum prices is true?
a maximum price will cause a shortage of a good to be produced only if the maximum price is below the equilibrium price
Which of the following statements about the effects of rent control is true?
a maximum price will cause a shortage of a good to be produced only if the maximum price is below the equilibrium price
Many major U.S. cities have adopted rent controls for some housing. An effective rent control is what kind of price control?
a price ceiling with a maximum price below equilibrium price
If the government imposes an effective price ceiling in a market, what will be the result?
a shortage
Rank the following in order from the least elastic demand to most elastic:
allergy medicine that is prescribed by a physician, any over-the-counter allergy medicine, Sudafed Cold and Allergy Medicine
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?
an increase in demand, but no change in quantity supplied
When the federal government subsudizes higher education in the form of Pell grants to students, it results in
an increase in the demand for higher education
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?
buy fewer pizzas and more video games
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?
consume less soda and more popcorn
A government may impose a price ceiling if which of the following is true?
consumers can persuade legislators that lower prices are needed
A business should ____ (increase/decrease) the price of a good with an elastic demand if it wants to increase revenues.
decrease
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 maximize her utility, what should Anna do?
decrease her consumption of movies and increase her consumption of books
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 _________.
decrease, but the marginal utility of good X will increase.
Suppose Frank chooses to buy hot dogs at their current price. When the price of hot dogs increases, Frank's consumer surplus ________.
decreases
Rank the following from least elastic to most elastic
demand for food, dessert, cookies, Oreos
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?
demand will increase by 3.2%
Assume that the elasticity of demand is 1.6. Is demand elastic or inelastic?
elastic
In class, we motivated how "risk aversion" (the dislike of risk) is the same as diminishing marginal utility of wealth. The basic idea is that
from a utility standpoint, the pain of losing $100 is greater than the happiness of winning $100
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?
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.
When Jane's income doubles, she increases her consumption. For all normal goods that Jane consumes, what is true?
her marginal utility per dollar will decrease
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?
his total utility will likely increase
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?
if the price of peanuts is equal to the price of chips, then the marginal utilities must also be equal.
A business should ____ (increase/decrease) the price of a good with an inelastic demand if it wants to increase revenues.
increase
The total amount spent on a service with an inelastic demand will ____ if supply decreases.
increase
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?
increase fares
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 __________.
increase, because the consumer will decrease her consumption of the good.
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 ____.
increase; decrease
A utility-maximizing consumer of coffee also enjoys consuming tea. Coffee prices rise, while tea prices do not change. This consumer consumes only these two foods and all else remains the same. For this consumer, consumption of tea will _____, and marginal utility of coffee will _____.
increase; increase
Prices should be ____ in the winter and ____ in the summer.
increased; decreased
If the price of a normal good decreases, the substitution effect ______________ the quantity demanded of that good.
increases
If orange prices increase, consumers maximizing satisfaction will change their consumption patterns in such a way that the marginal utility of oranges ____ and the marginal utility of all other goods ____.
increases; decreases
If the income elasticity of a good is 0.8, what do we know about the good?
it is a normal good
A change in demand will cause the equilibrium price to change by ____ and the equilibrium quantity to change by ____ with an elastic supply then if supply were inelastic.
less; more
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.
low; less than
If the government taxes car producers, what will happen in the market for cars?
the supply curve will shift to the left
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?
lower price
Which of the following statements about utility is most accurate? As one consumes more of a good:
marginal utility is likely to decrease; total utility is likely to increase
If David buys more coffee and less ice cream, the ______________ of coffee will ______________ , and the ___ of ice cream will ______________.
marginal utility; fall; marginal utility; rise
When will a minimum wage be an effective price control? When it is a ____.
minimum "price" that is above equilibrium price
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?
more
Situation A: When a $10 per unit tax is imposed on the producer of Bippies (a candy), the equilibrium price increased b y $4. Situation B: When a $10 price per unit tax is imposed on the producer of Bippies, the equilibrium price increases by $2. Based on the the two situations above, Bippies in Situation A has a ____ elastic supply or faces a ____ elastic demand then exists that Situation B.
more; less
Assume that as your income increases, your consumption of burgers decreases. We can assume that your income elasticity of demand for burgers is what?
negative
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?
no, she should increase the consumption of baseball games and decrease the consumption of movies.
If the government mandates that a price cannot be set above some specified level, then
none of the above
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?
price floor
A consumer faces the following situation. Her marginal utility of a luxury good with a price of $100 is 100 utils. An alternative good has a marginal utility of 75 utils and a price of $50. What should she do if she wishes to increase her total utility?
purchase fewer of the luxury goods and more of the alternative goods
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?
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
Who is likely to be in favor of a price ceiling on a good?
the consumers of the good who can still purchase it after the ceiling is imposed
Suppose that a 10 cent tax per apple is imposed on apple growers (producers). Then
the effective supply curve will shift upwards by 10 cents
If diminishing marginal utility exists and a person decreases consumption of a good, then (all else equal) it must be true that
the person's marginal utility will rise
If the price of a good changes, why does an income effect exist?
the price change causes a change in real income
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?
the price of automobiles will increase to $25,000 and fewer will be sold.
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?
the price will stay the same and the amount produced will decrease.
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 for
there are luxury goods, so income elasticity would be greater than 1
