ECON 202 Learning Module 3

3.4) *REFER TO LEARNING MODULES- GRAPHS & TABLES* The following table shows the demand schedules of three consumers of wine. Assume that these three buyers constitute the entire market. Refer to the table above. If the market price of wine is $8/bottle, and the market demand for wine is 19 bottles, David's consumption of wine is: A. 7 bottles. B. 4 bottles. C. 12 bottles. D. 9 bottles.

A. 7 bottles

3.3) Which of the following best describes the difference between a demand curve and a demand schedule? A. A demand curve is a graphical representation of the relationship between the quantity of a good and its price, whereas a demand schedule is a tabular representation. B. A demand curve can be derived from a demand schedule, but a demand schedule cannot be derived from a demand curve. C. A demand curve shows different quantities of a good demanded at different prices, whereas a demand schedule shows different quantities of a good demanded at different incomes. D. A demand curve shows different quantities of a good demanded at different incomes, whereas a demand schedule shows different quantities of a good demanded at different prices.

A. A demand curve is a graphical representation of the relationship between the quantity of a good and its price, whereas a demand schedule is a tabular representation.

3.1) Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil? A. A twofold increase in the price of pens and a threefold increase in the price of pencils B. An increase in the consumer's income C.A twofold increase in the prices of both pens and pencils D. A decrease in the consumer's income

A. A twofold increase in the price of pens and a threefold increase in the price of pencils

3.4) ________ is the difference between the willingness to pay and the price paid for a good. A. Consumer surplus B. Seller's profit C. Producer surplus D. Revenue

A. Consumer Surplus

3.9)Which of the following statements is true? A. If the price of a good is raised and total revenue increases, demand is inelastic. B. If the price of a good is raised and total revenue does not change, demand is perfectly elastic. C. If the price of a good is lowered and total revenue decreases, demand is elastic. D. If the price of a good is lowered and total revenue increases, demand is inelastic.

A. If the price of a good is raised and total revenue increases, demand is inelastic.

3.3) Which of the following describes the substitution effect of a price change? A. The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. B. The change in quantity demanded of a good that results from the change in the price of a substitute for the good. C. The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant. D. None of the above.

A. The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

3.5) An increase in the demand for a good is represented by: A. a right shift to a new demand curve. B. a left shift to a new demand curve. C. a leftward movement along the demand curve. D. a rightward movement along the demand curve.

A. a right shift to a new demand curve.

3.2) If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely. A. budget constraint B. demand schedule C. demand function D. indifference curve

A. budget constraint

3.3) The demand curve for most goods is normally: A. downward sloping. B. parallel to the vertical axis. C. parallel to the horizontal axis. D. upward sloping.

A. downward sloping.

3.7) If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is: A. elastic. B. inelastic. C. perfectly elastic. D. unit elastic.

A. elastic.

3.3) The French Bakery ran a special which decreased the price of its croissants from $1.50 to $1.00. Although her money income had not changed, Toni decided to buy 2 croissants instead of her usual 1 bagel and 1 croissant. Toni's actions are explained by which of the following? A. income and substitution effects B. price effect C. income effect only or substitution effect only but not both effects D. consumption effect

A. income and substitution effects

3.8)The demand for all carbonated beverages is likely to be ________ the demand for Dr. Pepper. A. less elastic than B. perfectly elastic compared to C. more elastic than D. perfectly inelastic compared to

A. less elastic than

3.7) If demand is inelastic, the absolute value of the price elasticity of demand is: A. less than one. B. greater than one. C. one. D. greater than the absolute value of the slope of the demand curve.

A. less than one

3.6) Higher price elasticity of demand means that a consumer's demand is: A. more responsive to price changes. B. less responsive to price changes. C. more responsive to income changes. D. less responsive to income changes.

A. more responsive to price changes.

3.2) A decrease in the price of either one or the other good will cause a consumer's budget constraint to: A. pivot rightward (pivot out). B. shift rightward. C. pivot leftward (pivot in). D. shift leftward.

A. pivot rightward (pivot out).

3.2) If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint: A. pivots leftward (pivot in) without a change in the intercept on the horizontal axis. B. pivots rightward (pivot out) without a change in the intercept on the horizontal axis. C. shifts to the right. D. shifts to the left.

A. pivots leftward (pivot in) without a change in the intercept on the horizontal axis.

3.9)Total revenue equals: A. price per unit times quantity sold. B. price per unit times change in quantity sold. C. price per unit times quantity supplied. D. change in price per unit times quantity sold.

A. price per unit times quantity sold.

3.6) If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is: A. relatively inelastic. B. unit elastic. C. perfectly elastic. D. relatively elastic.

A. relatively inelastic.

3.4) If the price of a good increases, ________. A. the consumer surplus decreases B. the consumer surplus increases C. the budget constraint shifts to the right D. the budget constraint shifts to the left

A. the consumer surplus decreases

3.1) The slope of a budget constraint represents: A. the opportunity cost of one good in terms of another. B. the price of the good measured along the vertical axis. C. the price of the good measured along the horizontal axis. D. the money income of the consumer.

A. the opportunity cost of one good in terms of another.

3.3) The Law of Demand states that: A. the quantity demanded of a commodity varies inversely with the price of the commodity. B. the demand for a commodity always equals the supply of the commodity. C. the quantity demanded of a commodity is the same for all consumers in a perfectly competitive market. D. the demand for a commodity is mostly influenced by consumers' income.

A. the quantity demanded of a commodity varies inversely with the price of the commodity.

3.6) Elasticity is: A. the ratio of the percentage change in two variables. B. the product of the percentage change in two variables. C. the difference of the percentage change in two variables. D. the sum of the percentage change in two variables.

A. the ratio of the percentage change in two variables.

3.7) Elasticity is: A. the ratio of the percentage change in two variables. B. the difference of the percentage change in two variables. C. the product of the percentage change in two variables. D. the sum of the percentage change in two variables.

A. the ratio of the percentage change in two variables.

3.8) As a consumer spends a larger share of his income on a particular good, the price elasticity of demand for that good: A. remains the same. B. increases. C. decreases. D. initially decreases then increases.

B. increases.

3.4) John is ready to pay $5 for an extra loaf of bread. Due to an ongoing discount in the store, he gets a loaf for $2. John's consumer surplus from the purchase is ________. A. $2 B. $3 C. $10 D. $2.50

B. $3

3.5) Which of the following factors is likely to lead to an increase in the quantity demanded of pens? A. A fall in the incomes of all consumers B. A fall in the price of pens C. A fall in the price of paper D. A rise in the incomes of all consumers

B. A fall in the price of pens

3.5) Which of the following factors is expected to cause the demand curve for coffee to shift to the right? A. A fall in the manufacturing cost of coffee B. A higher tax on the sale of tea, a substitute for coffee C. An increase in the supply of coffee due to better weather D. A higher personal tax on the income of all consumers

B. A higher tax on the sale of tea, a substitute for coffee

3.5) The income effect of a price change refers to the change in the quantity demanded of a good that results from a change in the price of a complementary product. A. True B. False

B. False

3.9) When Audrina raised the price of her homemade cookies, her total revenue increased. This suggests that the demand for Audrina's cookies is elastic. A. True B. False

B. False

3.8) With the increased usage of cell phone services, what has happened to the price elasticity of demand for land-line telephone services? A. The absolute value of the price elasticity coefficient has probably gone down. B. It has become more price elastic. C. It has become more income elastic. D. It has become more price inelastic.

B. It has become more price elastic.

3.5) Which of the following pairs of goods are likely to be considered complements? A. Nokia and Samsung cell phones B. Pens and writing pads C. Motorcycles and typewriters D. Laptops and electric heaters

B. Pens and writing pads

3.9) Suppose when Nablom's Bakery raised the price of its breads by 10 percent, the quantity demanded fell by 15 percent. What was the effect on sales revenue? A. Sales revenue increased. B. Sales revenue decreased. C. Sales revenue remained unchanged. D. It cannot be determined without information on prices.

B. Sales revenue decreased.

3.5) In June, buyers of titanium expect that the price of titanium will fall in July. What happens in the titanium market in June, holding everything else constant? A. The demand curve shifts to the right. B. The demand curve shifts to the left. C. The quantity demanded increases. D. The quantity demanded decreases.

B. The demand curve shifts to the left.

3.5) In January, buyers of gold expect that the price of gold will rise in February. What happens in the gold market in January, holding all else constant? A. The quantity demanded increases. B. The demand curve shifts to the right. C. The demand curve shifts to the left. D. The supply curve shifts to the right.

B. The demand curve shifts to the right.

3.3) Which of the following examples best describes the Law of Demand? A. When the price of Nokia phones increased, the demand for Samsung phones increased. B. When the price of tea increased, the quantity demanded of tea decreased. C.When Alex received a pay hike, his consumption of all goods increased. D. When the price of gasoline increased, the demand for cars fell.

B. When the price of tea increased, the quantity demanded of tea decreased.

3.1) A budget constraint is a straight line because: A. the tastes and preferences of the consumer change along the constraint. B. a consumer faces a fixed price of both goods that do not change with changes in consumption. C. a consumer has a limited money income. D. the opportunity cost of buying each of the goods changes along the constraint.

B. a consumer faces a fixed price of both goods that do not change with changes in consumption.

3.2) A budget constraint is a straight line because: A. a consumer has a limited money income. B. a consumer faces a fixed price of both goods that do not change with changes in consumption. C. the opportunity cost of buying each of the goods changes along the constraint. D. the tastes and preferences of the consumer change along the constraint.

B. a consumer faces a fixed price of both goods that do not change with changes in consumption.

3.1) If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely. A. demand function B. budget constraint C. indifference curve D. demand schedule

B. budget constraint

3.4) We can derive the market demand curve for gold earrings: A. by adding the prices each gold earring consumer is willing to pay for each quantity. B. by adding horizontally the individual demand curves of each gold earring consumer. C. by adding vertically the quantity demanded of each gold earring consumed at each price. D. only if the tastes of all gold earring consumers are similar.

B. by adding horizontally the individual demand curves of each gold earring consumer.

3.7) Price elasticity of demand measures: A. how responsive sales are to a change in buyers' incomes. B. how responsive quantity demanded is to a change in price. C. how responsive sales are to changes in the price of a related good. D. how responsive suppliers are to price changes.

B. how responsive quantity demanded is to a change in price.

3.6) If a good has a price elasticity of demand of -3, it implies that: A. if the income of the consumer increases by 1%, the quantity demanded of that good will increase by 3%. B. if the price of the good increases by 1%, the quantity demanded of the good will decrease by 3%. C. if the income of the consumer increases by 3%, the quantity demanded of that good will increase by 1%. D. if the price of the good increases by 3%, the quantity demanded of the good will increase by 1%.

B. if the price of the good increases by 1%, the quantity demanded of the good will decrease by 3%.

3.6) When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent. This indicates that the demand for tortilla chips is A. unit elastic. B. inelastic. C. perfectly inelastic. D. elastic.

B. inelastic.

3.9)Opera Estate Girls' School is considering increasing its tuition to raise revenue. If the school believes that raising tuition will increase revenue it is assuming that the demand for attending the school is: A. unit elastic. B. inelastic. C. perfectly elastic. D. elastic.

B. inelastic.

3.6) If demand is inelastic, the absolute value of the price elasticity of demand is A. greater than one. B. less than one. C. one. D. greater than the absolute value of the slope of the demand curve.

B. less than one.

3.2) If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to: A. pivot rightward (pivot out) along the horizontal axis. B. pivot leftward (pivot in) along the vertical axis. C. pivot leftward (pivot in) along the horizontal axis. D. pivot rightward (pivot out) along the vertical axis.

B. pivot leftward (pivot in) along the vertical axis.

3.3) As the ________ increases, ________. A. quantity demanded of a good; its price increases B. price of a good; its quantity demanded decreases C. quantity demanded of a good; its price decreases D. price of a good; its quantity demanded increases

B. price of a good; its quantity demanded decreases

3.9)If a firm raised its price and discovered that its total revenue fell, then the demand for its product is: A. perfectly elastic. B. relatively elastic. C. perfectly inelastic. D. relatively inelastic.

B. relatively elastic.

3.3) The income effect of an increase in the price of peaches is A. the change in the quantity of other fruit demanded that results from the impact of the price change on purchasing power, holding all other factors constant. B. the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant. C. the change in the quantity of peaches demanded that results from the price increase, making peaches more expensive than other fruit, holding constant the effect of the price change on consumer purchasing power. D. None of the above.

B. the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant.

3.9) When demand is elastic, a fall in price causes total revenue to rise because: A. when price falls, quantity sold increases so total revenue automatically rises. B. the increase in quantity sold is large enough to offset the lower price. C. the percentage increase in quantity demanded is less than the percentage fall in price. D. the demand curve shifts.

B. the increase in quantity sold is large enough to offset the lower price.

3.5) A change in all of the following variables will change the market demand for a product except: A. tastes. B. the price of the product. C. income. D. population and demographics.

B. the price of the product.

3.6) If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded A. will increase by 45 percent. B. will decrease by 45 percent. C. will increase by 5 percent. D. will decrease by 5 percent.

B. will decrease by 45 percent.

3.6) The price elasticity of demand for Stork ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought about this change in quantity demanded? A. 40 percent B. 25 percent C. 2.5 percent D. 0.4 percent

C. 2.5 percent

3.6) Suppose the value of the price elasticity of demand is -3. What does this mean? A. A $1 increase in price causes quantity demanded to fall by 3 units. B. A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent. C. A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent. D. A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent.

C. A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

3.2) Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil? A. A decrease in the consumer's income B. An increase in the consumer's income C. A twofold increase in the price of pens and a threefold increase in the price of pencils D. A twofold increase in the prices of both pens and pencils

C. A twofold increase in the price of pens and a threefold increase in the price of pencils

3.5) Which of the following is likely to shift the market demand curve for school textbooks to the right? A. A fall in the total income of all consumers B. An increase in school tuition fees C. An increase in the enrollment rates in high schools A fall in the price of school textbooks

C. An increase in the enrollment rates in high schools

3.8) Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant? A. Demand is likely to be relatively elastic. B. Demand is likely to be perfectly elastic. C. Demand is likely to be relatively inelastic. D. Demand is likely to be perfectly inelastic.

C. Demand is likely to be relatively inelastic.

3.8)Which of the following could explain why the demand for table salt is inelastic? A. Salt is a luxury good. B. Salt is a rare commodity. C. Households devote a very small portion of their income to salt purchases. D. Salt is a luxury for high-income consumers but a necessity for low-income consumers.

C. Households devote a very small portion of their income to salt purchases.

3.7) Which of the following goods is likely to have the lowest price elasticity of demand? A. Decorative flowers B. Potato chips C. Life-saving drugs D. Chocolates

C. Life-saving drugs

3.5) If a decrease in income leads to an increase in the demand for sardines, then sardines are: A. a necessity. B. a normal good. C. an inferior good. D. a neutral good.

C. an inferior good.

3.8)Income elasticity measures how a good's quantity demanded responds to: A. change in the goods price. B. change in the price of another good. C. change in buyers' incomes. D. producers' incomes.

C. change in buyers' incomes.

3.3) The buyers of a good will want to purchase it as long as their willingness to pay for the good is: A. greater than zero. B. less than the price. C. greater than or equal to the price. D. equal to zero.

C. greater than or equal to the price.

3.9)If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, demand for using the toll road must be: A. unit elastic. B. perfectly elastic. C. inelastic. D. elastic.

C. inelastic.

3.8) A perfectly elastic demand curve: A. is parallel to the price axis. B. slopes downward. C. is parallel to the quantity axis. D. slopes upward.

C. is parallel to the quantity axis.

3.1) If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to: A. pivot leftward (pivot in) along the horizontal axis. B. pivot rightward (pivot out) along the horizontal axis. C. pivot leftward (pivot in) along the vertical axis. D. pivot rightward (pivot out) along the vertical axis.

C. pivot leftward (pivot in) along the vertical axis.

3.1) A budget constraint: A. reflects the desire by consumers to increase their income. B. shows the prices that a consumer chooses to pay for products he consumes. C. refers to the limited amount of income available to consumers to spend on goods and services. D. represents the bundles of consumption that make a consumer equally happy.

C. refers to the limited amount of income available to consumers to spend on goods and services.

3.7) If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is: A. unit elastic. B. relatively elastic. C. relatively inelastic. D. perfectly elastic.

C. relatively inelastic.

3.1) The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as: A. economizing behavior. B. the price constraint. C. the budget constraint. D. maximizing behavior.

C. the budget constraint.

3.7) If the absolute value of the price elasticity of demand for aspirin equals 0.8 then: A. the demand for aspirin is elastic. B. aspirin is a normal good. C. the demand for aspirin is inelastic. D. aspirin has few substitutes.

C. the demand for aspirin is inelastic.

3.2) Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases: A. There is no change in the opportunity cost of consuming either good. B. the opportunity cost of buying shirts increases. C. the opportunity cost of buying sweaters increases. D. the opportunity cost of buying sweaters decreases.

C. the opportunity cost of buying sweaters increases.

3.8) Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result, CineArts Videos experienced a 16 percent decline in its movie club membership. What is the value of the cross-price elasticity between the two movie club memberships? A. -1.6 B. -0.625 C. 0.625 D. 1.6

D. 1.6

3.8) Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean? A. If the price of grapefruit juice rises by $1, 6 more cartons of orange juice will be purchased. B. A 6 percent decrease in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption. C. The demand for orange juice is 6 times greater than the demand for grapefruit juice. D. A 1 percent increase in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption.

D. A 1 percent increase in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption.

3.8)Which of the following statements is true? A. The more time that passes the more inelastic the demand for a product becomes. B. In general, if a product has few substitutes it will have an elastic demand. C. The demand curve for a necessity is more elastic than the demand curve for a luxury. D. The more narrowly we define a market, the more elastic the demand for a product will be.

D. The more narrowly we define a market, the more elastic the demand for a product will be.

3.9)Which of the following statements is true? A. Whenever a firm raises its price its total revenue will increase. B. Total revenue will equal zero when the demand for a product is unit elastic. C. Whenever a firm increases its quantity sold its revenue will increase. D. When a firm lowers its price its total revenue may either increase or decrease.

D. When a firm lowers its price its total revenue may either increase or decrease.

3.1)A change in the slope of a budget constraint indicates: A. a change in the consumer's income. B. a change in the price of either good without a change in the opportunity cost. C. a change in the consumer's tastes and preferences. D. a change in the price of either good that causes a change in the opportunity cost.

D. a change in the price of either good that causes a change in the opportunity cost.

3.2) A change in the slope of a budget constraint indicates: A. a change in the price of either good without a change in the opportunity cost. B. a change in the consumer's tastes and preferences. C. a change in the consumer's income. D. a change in the price of either good that causes a change in the opportunity cost.

D. a change in the price of either good that causes a change in the opportunity cost.

3.3) The ________ plots the relationship between prices and the quantity that buyers are willing to purchase. A. willingness to accept curve B. market curve C. supply curve D. demand curve

D. demand curve

3.9)A service station owner in Staten Island, New York, was worried that raising the price of gasoline would cause the quantity demanded to fall by so much that he would be in a worse situation than if he did not raise the price. If raising the price of gasoline would cause the owner to receive less total revenue from the sale of gasoline, the demand for gasoline is: A. unit elastic. B. perfectly inelastic. C. inelastic. D. elastic.

D. elastic.

3.6) Economists use the concept of ________ to measure how one economic variable, such as quantity, responds to a change in another economic variable, such as price. A. efficiency B. slope C. relativity D. elasticity

D. elasticity

3.7) When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent. This indicates that the demand for tortilla chips is A. elastic. B. unit elastic. C. perfectly inelastic. D. inelastic.

D. inelastic.

3.2) If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to: A. pivot rightward (pivot out) along the vertical axis. B. shift to the right. C. shift to the left. D. pivot rightward (pivot out) along the horizontal axis.

D. pivot rightward (pivot out) along the horizontal axis.

3.1) If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint: A. shifts to the left. B. pivots rightward (pivot out) without a change in the intercept on the horizontal axis. C. shifts to the right. D. pivots leftward (pivot in) without a change in the intercept on the horizontal axis.

D. pivots leftward (pivot in) without a change in the intercept on the horizontal axis.

3.2) A budget constraint: A. reflects the desire by consumers to increase their income. B. shows the prices that a consumer chooses to pay for products he consumes. C. represents the bundles of consumption that make a consumer equally happy. D. refers to the limited amount of income available to consumers to spend on goods and services.

D. refers to the limited amount of income available to consumers to spend on goods and services.

3.7) The slope of a demand curve is not used to measure the price elasticity of demand because A. the slope of the demand curve does not tell us how much quantity changes as price changes. B. the slope of a line cannot have a negative value. C. the slope of a linear demand curve is not constant. D. the measurement of slope is sensitive to the units chosen for price and quantity.

D. the measurement of slope is sensitive to the units chosen for price and quantity.

3.1) Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases: A.the opportunity cost of buying sweaters decreases. B. the opportunity cost of buying shirts increases. C. There is no change in the opportunity cost of consuming either good. D. the opportunity cost of buying sweaters increases.

D. the opportunity cost of buying sweaters increases.

3.7) If the demand for a steak is unit elastic, then: A. the percentage change in quantity demanded is 100 percent greater than the percentage change in price (in absolute value). B. quantity demanded does not respond to changes in price. C. the percentage change in quantity demanded is 1 percent greater than the percentage change in price. D. the percentage change in quantity demanded is equal to the percentage change in price.

D. the percentage change in quantity demanded is equal to the percentage change in price.