Exam 2

When the use of a communally owned resource has no price, then people will

use too much of this resource.

The satisfaction or happiness one gets from consuming a good or service is called

utility.

Use the following table to answer the question below. Units Consumed Total Utility Marginal Utility 0 0 - 1 W 20 2 35 X 3 Y 10 4 40 Z The value for Y is

45

If the price elasticity of demand for a product is equal to -0.5, then a 10 percent decrease in price will increase quantity demanded by

5%

If a price ceiling in this market is set at P1, then deadweight loss equals area

d.

For a linear demand curve

demand is elastic at high prices

What is the amount of government revenue after the government imposes the excise tax on the market?

$40

What is the amount of consumer surplus after the government imposes the excise tax on the market?

$486

Using the regular percentage change formula, what is the price elasticity of demand when price increases from $6 to $7?

-0.856

The price elasticity of demand (based on the midpoint formula) when price increases from $18 to $20 is

-3.29

Using the midpoint formula, what is the price elasticity of supply when price increases from $5 to $10?

1

Suppose you earn $50 a week at your job. You like to go to movies and have dinner with friends. Movies cost $15 each and dinner is $20 each time you eat out. Which of the following combinations is attainable given your weekly budget?

2 movies and 1 dinner

Suppose the price elasticity of supply for crude oil is 2.5. How much would price have to rise to increase the quantity supplied by 20%?

8%

Demand is said to be inelastic when

A reduction in price results in a decrease in total revenue

If actual production and consumption occur at Q1 and the price is P1

consumer surplus equals area a + b.

The intention of a price ceiling is to help consumers by forcing a price that is below the equilibrium price. What is one unintended consequence of this policy?

Consumers face a shortage of the good.

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is called

consumer surplus

For which graph is the supply perfectly inelastic?

Graph 3

Which of the following shows the combination of two products that have the same utility or satisfaction?

Indifference curve

Sam uses Craig's Netflix account to watch movies and shows but does not actually pay for the service himself. This is an example of

The free-rider problem

Which situation is consistent with the law of diminishing marginal utility?

The more pizza Joe eats, the less he enjoys an additional slice.

Why do private companies rarely provide public goods?

There is no way to force people to pay for the public good which increases free riders

Which of the following indifference curves is the most preferred?

U3

The governor has proposed to clean up all trash on the side of the highway. The project is estimated to cost the tax payers and additional $15,000. The city will benefit by having a clean highway which will entice tourists to stop along their routes. The project is estimated to bring in $18,000 of revenue from the highway being cleaned. Should the governor continue with the project?

Yes, the project will bring in $3,000 more in MB than MC.

The supply of product X is elastic if

a 5% increase in price generates a 7% increase in quantity supplied.

Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences

a consumer surplus of $9 and Nathan experiences a producer surplus of $3.

If a price floor in this market is set at P2, then producer surplus equals area

b.

The equilibrium point in the market is the point at which the S and D curves intersect. At equilibrium, the producer surplus would be represented by the area

b.

Among the following examples, the one that best illustrates a public good is a(n)

bike path around a city or town.

Marginal utility is equal to

change in total utility divided by change in quantity consumed.

Total revenue decreases as the price of a good increases, if the demand for the good is

elastic

Which of the following is an example of a negative externality (additional social cost)?

falling property values in a neighborhood where a disreputable nightclub is operating

In deciding what to buy to maximize utility, the consumer should choose the good with the

highest marginal utility per dollar spent.

Assume that product Alpha is $2 per unit and product Beta is priced at $1 per unit and that Ellie has $20 to spend on Alpha and Beta. She buys 4 units of Alpha and 12 units of Beta. The marginal utilities of the last unit of Alpha and Beta that she purchases are 40 utils and 20 utils, respectively. This indicates that

in order to maximize utility, Ellie should buy more Beta and less Alpha.

If the absolute value of the price elasticity of demand for a good is .75, the demand for that good is described as

inelastic.

A negative income elasticity of demand indicates that the product

is an inferior good.

Deadweight losses occur when the quantity of an output produced is

less than or greater than the competitive equilibrium quantity.

When producers do not have to pay the full cost of producing a product, they tend to

overproduce the product because of a negative externality

The basic formula for the price elasticity of demand is

percentage change in quantity demanded/percentage change in price.

In which instance will total revenues decline?

price increases and Ed equals -2.47

If actual production and consumption occur at Q1 and the price is P2

producer surplus equals area c + b.

The amount of revenues that sellers actually receive over and above the minimum acceptable amount that they are willing to receive for selling a product is called

producer surplus.

The demand for a luxury good whose purchase would exhaust a big portion of one's income is

relatively elastic.

The table below shows the utility schedule for a consumer of candy bars. Candy Bars Consumed Total Utility 0 0 1 5 2 9 3 12 4 14 5 15 6 15 7 13 Marginal utility becomes negative with the consumption of the

seventh candy bar

The cross-price elasticity of demand between product X and product Y is 2. It can be inferred that X and Y are

substitutes.

The elasticity of demand for a product is likely to be greater

the greater the amount of time over which buyers adjust to a price change.