Economics Exam 3

At her current level of consumption, Jess gets half as much marginal utility from an additional bagel as from an additional muffin. If the price of muffin is $2 each, then Jess is maximizing her utility if the price of a bagel is: a. $1.00 b. $1.50 c. $2.00 d. $4.00

a. $1.00

Refer to the accompanying figure. At the equilibrium price, total consumer surplus is: a. $7.50 per day b. $10 per day c. $15 per day d. $40 per day.

a. $7.50 per day

If the quantity demanded of a good is Q when the price for the good is P, the price elasticity of demand for that good at that point is: a. (P/Q) × (1/slope) b. (Q/P) × (1/slope) c. (P/Q) × (slope) d. Q × P × (1/slope)

a. (P/Q) × (1/slope)

What are the respective price elasticities of supply at A and B on the supply curve shown in the figure below? Instruction: Enter your responses as ratios. a. Elasticity of supply at point A: ?/? b. Elasticity of supply at point B: ?/?

a. 2/3 b. 3/4

Refer to the accompanying table. If the price of Good A is $5 and the price of Good B is $4, then the rational spending rule is satisfied when the consumer purchases ______ units of Good A and ______ units of Good B. Units - Marginal Utility of Good A - Marginal Utility of Good B 1 - 30 - 40 2 - 27 - 33 3 - 15 - 24 4 - 8 - 14 a. 3; 3 b. 1; 3 c. 4; 2 d. 3; 2

b. 1; 3

Refer to the accompanying table. It is clear that diminishing returns sets in after ______ workers per day. Number of Workers Per Day - Output Per Day 0 - 0 1 - 3 2 - 8 3 - 1 5 - 4 2 - 4 5 - 3 2 - 6 3 - 9 a. 3 b. 4 c. 5 d. 6

b. 4

Refer to the accompanying figures. If Mallory and Rick are the only two consumers in this market and the price of soda is $0.75 per can, then what will be the market demand for soda each month? a. 70 b. 50 c. 30 d. 20

b. 50

Refer to the accompanying table. The law of diminishing marginal returns becomes evident after ______ units of output are produced. Output Per Day - Number of Employees Per Day 0 - 0 33 - 1 66 - 2 99 - 4 132 - 7 165 - 11 a. 33 b. 66 c. 99 d. 132

b. 66

The long run is best defined as: a. one year or more. b. a period of time sufficiently long that all factors of production are variable. c. the period of time between annual accounting reports. d. a period of time sufficiently long that at least one factor of production is fixed.

b. a period of time sufficiently long that all factors of production are variable.

For two goods, coffee and scones, suppose that MU(coffee)/P(coffee) = 4 and MU(scones)/P(scones) = 3. To maximize your total utility from these two goods, you should purchase: a. less coffee and more scones. b. more coffee and fewer scones. c. less coffee and fewer scones. d. more coffee and more scones.

b. more coffee and fewer scones.

Suppose one observes that when the price of peanut butter increases, the demand for jelly increases. One should conclude that: a. peanut butter and jelly are complements. b. peanut butter and jelly are substitutes. c. peanut butter and jelly are normal goods. d. peanut butter and jelly are inferior goods.

b. peanut butter and jelly are substitutes.

If the demand for electricity is inelastic, and the local utility wants to increase its total revenue, it should _______ its price. a. lower b. raise c. not change d. frequently change

b. raise

The goal of utility maximization is to allocate your ______ in order to maximize your ______. a. utility; spending b. resources; satisfaction c. time; work d. resources; desires

b. resources; satisfaction

Refer to the accompanying figure. If Laura and Chris are the only two consumers in this market, then at a price of $2.00 per pound, the market demand for hamburger is: a. 2 pounds per week b. 4 pounds per week c. 6 pounds per week d. 8 pounds per week.

c. 6 pounds per week

Fran runs a doughnut shop in a tiny 3-person town. The accompanying table shows the quantity demand by the three townspeople at various prices. Price Per Doughnut - Quantity Demanded by Al - Quantity Demanded by Betty - Quantity Demanded by Carol 10 cents - 10 - 4 - 6 25 cents - 9 - 2 - 5 35 cents - 7 - 1 - 5 50 cents - 5 - 0 - 4 When the price of a doughnut is 50 cents, what is the market demand for doughnuts? a. 31 doughnuts b. 20 doughnuts c. 9 doughnuts d. 5 doughnuts

c. 9 doughnuts

Which of the following is a defining characteristic of all perfectly competitive markets? a. Each firm in the market faces a perfectly inelastic demand curve. b. The market demand curve is perfectly elastic. c. All firms sell the same standardized product. d. Consumers display strong brand loyalty.

c. All firms sell the same standardized product.

Which of the following is NOT true of a perfectly competitive firm? a. It faces a perfectly elastic demand curve. b. It is unable to influence the price of the good it sells. c. It seeks to maximize revenue. d. It sells only a small fraction of the total quantity exchanged in the market.

c. It seeks to maximize revenue.

The accompanying figure shows the demand curve for a product that can be sold only in whole-number amounts. At a price of $15 per unit, what would be the total consumer surplus in this market each day? a. $0 b. $6 c. $15 d. $75

d. $75

Refer to the accompanying figure. The marginal utility of the 7th pizza is a. 100 b. 5 c. -100 d. -5

d. -5

Taylor's marginal utility from watching movies and from eating out (in utils) is shown in the accompanying table. Taylor spends exactly $100 every month on these two forms of entertainment; the price of each movie is $10 and the price of each dinner is $20. Movies Per Month - Marginal Utility Per Movie - Dinners Out Per Month - Marginal Utility Per Dinner 1 - 60 - 1 - 150 2 - 50 - 2 - 140 3 - 20 - 3 - 120 4 - 5 - 4 - 100 Taylor's optimal combination of movies and eating out is: a. 3 movies and 3 dinners b. 4 movies and 3 dinners c. 3 movies and 4 dinners d. 2 movies and 4 dinners

d. 2 movies and 4 dinners

The accompanying graph depicts demand. The slope of the demand curve (ignoring the negative sign) is: a. 2 b. 1.5 c. 1.0 d. 5

d. 5

Refer to the accompanying figure. Total utility increases with each additional pizza up to the ______ and then declines, but marginal utility ______ with each additional pizza consumed. a. 7th pizza; increases b. 6th pizza; increases c. 5th pizza; stays the same d. 6th pizza; decreases

d. 6th pizza; decreases

Which of the following is NOT a determinant of the demand for gasoline? a. Consumers' incomes b. The price of diesel c. The price of automobiles d. The supply of gasoline

d. The supply of gasoline

The short run is best defined as: a. one year or less. b. a period of time sufficiently short that all factors of production are variable. c. the period of time between quarterly accounting reports. d. a period of time sufficiently short that at least one factor of production is fixed.

d. a period of time sufficiently short that at least one factor of production is fixed.

Refer to the accompanying figure. At a price of $9, there will be: a. an excess demand of 5 units. b. an excess supply of 6 units. c. an excess demand of 1 unit. d. an excess supply of 5 units.

d. an excess supply of 5 units.

The responsiveness of the quantity demanded of one good to a change in the price of a different good is measured by the: a. price elasticity of demand. b. income elasticity of demand. c. price elasticity of supply. d. cross-price elasticity of demand.

d. cross-price elasticity of demand.

When the price of a good rises, marginal utility per dollar spent on that good ______, leading consumers to purchase ______ of that good. a. rises; more b. falls; more c. rises; less d. falls; less

d. falls; less

The dollar price of a good relative to the average dollar price of all other goods is the good's: a. market price b. equilibrium price c. nominal price d. real price.

d. real price

Suppose one knows two facts: first, the market for prescription drugs experiences chronic shortages and second, the government sets the price for prescription drugs. One can conclude that the government has: a. set the price too high. b. set the price above the equilibrium price. c. encouraged buyers to hoard prescription drugs. d. set the price below the equilibrium price.

d. set the price below the equilibrium price.

A 2 percent increase in the price of milk causes a 4 percent reduction in the quantity demanded of chocolate syrup. What is the cross-price elasticity of demand for chocolate syrup with respect to the price of milk? Instructions: Enter your response as a whole number. If you are entering a negative number, be sure to include a negative sign (-). a. Cross-price elasticity of demand: ? b. Are the two goods complements or substitutes?

a. -2 b. Complements

Which of the following best explains why you are more likely to see a poor person than a wealthy person picking up aluminum cans to sell? a. Wealthy people do not care about the environment. b. The opportunity cost of picking up cans is higher for wealthy people than for poor people. c. Wealthy people are more concerned about their public image than are poor people. d. Wealthy people are more aware of diseases transmitted through litter than are poor people.

b. The opportunity cost of picking up cans is higher for wealthy people than for poor people.

For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. If the market consists of 50 identical sellers, each with the same opportunity cost as the seller depicted in the figure, then how many units would be supplied in the market at a price of $14 per unit? a. 350 b. 1,750 c. 17,500 d. 175,000

c. 17,500

Marginal cost is calculated as: a. total revenue minus total costs. b. the change in output divided by the change in total costs. c. the percentage change in total costs divided by the percentage change in output. d. the change in total cost divided by the change in output.

d. the change in total cost divided by the change in output.

When a market is in equilibrium: a. there is either excess demand or excess supply. b. both excess demand and excess supply are positive. c. both excess demand and excess supply are positive and equal to each other. d. there is neither excess demand nor excess supply.

d. there is neither excess demand nor excess supply.

Individual supply curves generally slope ______ because ______. a. downward; sellers become more efficient with practice. b. upward; profits increase with quantity. c. downward; inputs are cheaper when purchased in high volume. d. upward; of increasing opportunity costs.

d. upward; of increasing opportunity costs.

Refer to the accompanying table. The marginal utility of the 3rd dinner is: Number of Dinners Out Per Week - Total Utility - Marginal Utility 1 - 100 - 0 2 - 0 - 75 3 - 235 - 0 4 - 250 - 0 a. 60. b. 75 c. 135 d. 160

a. 60

For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. As the market price of this good increases, the quantity produced by this seller will ______. a. increase b. decrease c. stay the same d. stay the same until the price rises above $6 per unit, and then it will increase

a. increase

During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. You got ______ utility from eating the fourth pie than from eating the second pie. a. less b. more c. the same amount of d. less variable

a. less

The rational spending rule is derived from the consumer's desire to: a. maximize utility b. minimize expenditures c. obtain the lowest possible price d. maximize the number of goods purchased.

a. maximize utility

If pencils and paper are complements for most consumers, then if the price of paper increases, you would expect: a. the equilibrium price and quantity of pencils to fall. b. the equilibrium price and quantity of pencils to rise. c. the equilibrium price of pencils to fall and the equilibrium quantity of pencils to rise. d. the equilibrium price of pencils to rise and the equilibrium quantity of pencils to fall.

a. the equilibrium price and quantity of pencils to fall.

The term marginal utility denotes the amount by which ______ changes when consumption changes by ______ unit(s). a. total utility; 1 b. demand; 10 c. demand; 1 d. total utility; 10

a. total utility; 1

According to the law of diminishing marginal utility: a. as you consume less of something, your total utility will decrease. b. as you consume less of something, your marginal utility from consuming that good will increase. c. you should never consume more of something if your marginal utility is decreasing. d. if your total utility is increasing as you consume more of something, then your marginal utility must be increasing as well.

b. as you consume less of something, your marginal utility from consuming that good will increase.

When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer that Moe's reservation price for a slice of pizza is: a. less than $1.75. b. at least $1.75 but less than $2. c. exactly $1.75. d. exactly $2.00.

b. at least $1.75 but less than $2.

The price elasticity of demand equals 1: a. whenever the slope of a straight-line demand curve is greater than 1 in absolute value. b. at the midpoint of a straight-line demand curve. c. whenever the slope of a straight-line demand curve is less than 1 in absolute value. d. whenever the slope of a straight-line demand curve equals zero.

b. at the midpoint of a straight-line demand curve.

During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. After the third pie, your total utility: a. increased, but by less than for the first three pies b. decreased c. stayed the same d. was zero

b. decreased

Refer to the accompanying figure. For Jeff, the consumption of movies reflects the law of: a. demand b. diminishing marginal utility c. total utility maximization d. marginal utility maximization.

b. diminishing marginal utility

To produce 150 units of output, a firm must use 3 employees per day. To produce 300 units of output, the firm must use 8 employees per day. Apparently, the firm is: a. producing in the long run. b. experiencing diminishing returns. c. not using any fixed factors of production. d. experiencing negative returns.

b. experiencing diminishing returns.

Refer to the accompanying table. Total utility ______ as additional apples are consumed, but marginal utility ______ with each additional apple consumed. Number of Apples - Total Utility 1 - 20 2 - 35 3 - 45 4 - 50 5 - 45 a. first decreases then increases; decreases b. first increases then decreases; decreases c. first decreases then increases; increases d. first increases then decreases; increases

b. first increases then decreases; decreases

The demand for a good is elastic if the price elasticity of demand is: a. equal to one. b. greater than one. c. less than one. d. equal to zero.

b. greater than one.

The primary objective of most private firms is to: a. maximize revenue b. maximize profit c. minimize cost d. maximize output.

b. maximize profit

Suppose that Cathy spends all of her income on 20 units of good X and 25 units of good Y. Cathy's marginal utility from the 20th unit of good X is 9 utils, and her marginal utility from the 25th unit of good Y is 19 utils. If the price of good X is $0.50 per unit and the price of good Y is $1.00 per unit, then to comply with the rational spending rule, Cathy should: a. purchase more than 20 units of good X and less than 25 units of Y. b. purchase less than 20 units of good X and more than 25 units of good Y. c. purchase more than 20 units of good X and more than 25 units of good Y. d. continue to purchase 20 units of good X and 25 units of good Y.

b. purchase less than 20 units of good X and more than 25 units of good Y.

If fast food is an inferior good then: a. the demand for fast food will fall as income falls. b. the demand for fast food will fall as income rises. c. the quantity of fast food demanded will rise as the price of fast food rises. d. the demand for fast food will fall as the price of fast food rises.

b. the demand for the fast food will fall as income rises.

Last year, Casey grew fresh vegetables, which she sold at her local farmers market, but this year, Casey did not plant any vegetables and went to work at a bank instead. If Casey's decision to change careers did not affect the price of vegetables at the farmers market, then this suggests that: a. the demand for vegetables did not change. b. the market for vegetables is perfectly competitive. c. the demand for vegetables increased this year. d. the market demand for vegetables is perfectly inelastic.

b. the market for vegetables is perfectly competitive.

A price ceiling that is set above the equilibrium price: a. will lead to a black market. b. will have no effect on the market. c. will lead to excess supply in the market. d. will lead to excess demand in the market.

b. will have no effect on the market.

Refer to the accompanying figure. At the equilibrium price, total consumer surplus in this market is: a. $4,000 per day b. $8,000 per day c. $12,000 per day d. $24,000 per day

c. $12,000 per day

Refer to the accompanying figure. The marginal utility of the 6th pizza is: a. 95 b. 100 c. 5 d. 17.5

c. 5

Assume the demand for sugar decreases and the supply of sugar increases. Which of the following outcomes is certain to occur? a. The equilibrium price of sugar will rise. b. The equilibrium quantity of sugar will rise. c. The equilibrium price of sugar will fall. d. The equilibrium quantity of sugar will fall.

c. The equilibrium price of sugar will fall.

Refer to the accompanying figure. If the government imposed a price ceiling of $40, what would happen in this market? a. There would be excess supply. b. There would be excess demand. c. The price ceiling would have no effect. d. The equilibrium quantity would fall.

c. The price ceiling would have no effect.

If a firm shuts down in the short run, then its: a. total revenue and total cost will fall to zero. b. profit will equal zero. c. economic loss will equal its fixed costs. d. economic loss will equal its variable costs.

c. economic loss will equal its fixed costs.

One implication of the shape of the demand curve facing a perfectly competitive firm is that: a. if the firm increases its price above the market price, it will earn higher revenue. b. if the firm decreases its price below the market price, it will earn higher revenue. c. if the firm increases its price above the market price, it will earn zero revenue. d. the market would be unable to reach a new equilibrium if demand changed.

c. if the firm increases its price above the market price, it will earn zero revenue.

If the San Diego Opera decreases the price of their opera tickets and their total revenue falls, then this suggests that, at the original price, the demand for tickets to the San Diego Opera was: a. unit elastic b. elastic c. inelastic d. either elastic or inelastic.

c. inelastic

A variable factor of production: a. is fixed in the long run but variable in the short run. b. plays no role in the law of diminishing marginal returns. c. is variable in both the short run and the long run. d. is variable only in the short run.

c. is variable in both the short run and the long run.

Refer to the accompanying figure. Suppose the solid line represents the current supply of Star Wars action figures. If the price of the plastic used to make action figures rises, current supply will: a. shift to S(B). b. not change because a change in the price of plastic will not affect the demand for action figures. c. shift to S(A). d. not change; only the quantity supplied will change.

c. shift to S(A).

The accompanying figure shows a single consumer's demand for ice cream at the student union. An increase in the number of students on this campus would cause: a. the demand curve shown above to shift to the right. b. the demand curve shown above to shift to the left. c. the market demand curve for ice cream from the student union to shift to the right. d. no change in the market demand curve for ice cream from the student union.

c. the market demand curve for ice cream from the student union to shift to the right.