Exam 2 Microeconomics

Luxury goods have income elasticities that are:

greater than 1

Suppose that the price elasticity of supply of wool is 0.25. If the price of wool increases by 20%, the quantity supplied will:

increase by 5%

Bright Ideas increases its production of lightbulbs by 15% after a 400% increase in the price of fluorescent bulbs. Supply is

inelastic

Economists working for the United States have determined that the elasticity of demand for gasoline is 0.5

inelastic

If the price of the textbook required for an economics class increases by 20% and the students buy 2% fewer books, demand is:

inelastic

When Bluebox, a streaming service for foreign television shows and movies, increases its prices by 51 percent, total revenue increases by 34 percent

inelastic

When there are fewer substitutes, demand tends to be

less elastic

Assume that diminishing marginal utility applies to both coffee and football tickets and that the consumer is spending all of her income. If a consumer purchases a combination of coffee and football tickets such that MUCoffee / PCoffee = 5 and MUFootball tickets / PFootball tickets = 10, to maximize utility, the consumer should buy _____ coffee and _____ football tickets.

less; more

the extra satisfaction a person obtains from consuming one more unit of a good or service

marginal utility

Demand for a luxury item tends to be

more elastic

Demand for an item that uses a large portion of your budget tends to be

more elastic

Over longer periods of time, demand tends to become

more elastic

Assume that diminishing marginal utility applies to both coffee and football tickets and that the consumer is spending all of her income. If a consumer purchases a combination of coffee and football tickets such that MUCoffee / PCoffee = 20 and MUFootball tickets / PFootball tickets = 10, to maximize utility, the consumer should buy _____ coffee and _____ football tickets.

more; fewer

Xavier notices that the marginal utility of working with a tutor seems to fall with each hour the tutor helps him study. If Xavier keeps the tutor until his grade actually begins to fall, his marginal utility for the last hour of tutoring will be:

negative

when the consumption of an additional unit of a good or service makes a person worse off

negative marginal utility

Paul owns a Tim Horton's, a famous donut and coffee franchise. He is willing to sell as many maple glazed donuts as customers want at a price of $1.00 each, but he refuses to sell any donuts for any price lower than $1.00. Supply is

perfectly elastic

If the price of the textbook required for an economics class increases from $100 to $120 and the bookstore still supplies the same number of books, supply is:

perfectly inelastic

Marcel Duchamp was a famous artist prior to his death, and was known for his Dada artwork, including works such as "Soft Toilet." All of his original sculptures and paintings go on sale. Supply is

perfectly inelastic

The price elasticity of demand is the ratio of the percent change in the _____ to the percent change in the _____.

quantity demanded; price

The utility of a consumer is a measure of how much _____ the consumer derives from consuming a good or a service.

satisfaction

Utility is most closely related to:

satisfaction

Last week, Michelle spent $30$30 on caviar. Today, Michelle still spends $30 on caviar even though its price has doubled. What is Michelle's price elasticity of demand for caviar?

-1

The price of gasoline increased by 30%, and the quantity of large SUVs demanded decreased by 45%. Using one decimal place and the negative sign if necessary, the cross-price elasticity between gasoline and large SUVs is _____.

-1.5

Nancy is consuming her optimal consumption bundle of burritos and margaritas. The marginal utility of her last burrito was 75 utils, and each burrito costs $3. Her marginal utility of her last margarita was 100 utils. What is the price of a margarita?

$4

If the price of golf clubs increases by 10% and the quantity of golf balls demanded decreases by 25%, then the cross-price elasticity, using one decimal place and the negative sign if necessary, between golf clubs and golf balls is _____.

-2.5

Blake eats two bags of generic potato chips each day. Blake's hourly wage increases from $⁢9 to $⁢15, and he decides to stop eating generic chips and instead eats a name-brand potato chip. Use the midpoint method to calculate Blake's income elasticity of demand for generic potato chips. What kind of good is this?

-4; inferior good

If the price of Product E decreasing by 2% causes its quantity demanded to increase by 14% and the quantity demanded for Product F to increase by 17%, what is the cross-price elasticity of demand? What is the relationship between these goods?

-8.5; complements

If a 5% decrease in the price of billiard tables leads to a 3% decrease in the quantity of billiard tables supplied, the elasticity of supply for billiard tables is (using one decimal place) _____.

0.6

If a 20% price increase for Product A causes a 10% decrease in its quantity demanded, but no change in the quantity demanded for Product B, what is the cross-price elasticity of these goods? What is the relationship between these goods?

0; no relationship

If Good C increases in price by 30% a pound, and this causes the quantity demanded for Good D to increase by 40%, what is the cross-price elasticity of the two goods? What is the relationship between these goods?

1.3; substitutes

If the price of gasoline increases by 20% and the quantity supplied increases by 30%, then the price elasticity of supply is:

1.5

Faruq spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and milkshakes on the vertical axis. The horizontal intercept for Faruq's budget line is _____ tacos.

10

If the elasticity of supply of umbrellas is 0.75, the price of umbrellas would need to increase by _____% (using one decimal place) in order to increase the quantity of umbrellas supplied by 15%.

20

Suppose that the cross-price elasticity between two car models is 2.0. If producer 1 increases the price of its car model by 10%, producer 2 will sell _____ of its car model.

20% more

Sylvia's annual salary increases from $100,000 to $109,500. Sylvia decides to increase the number of vacations she takes per year from three to four. Use the midpoint method to calculate her income elasticity of demand for vacations. What kind of good is this?

3.15; a normal good and income-elastic

Faruq spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and milkshakes on the vertical axis. If Faruq spends all of his income, the opportunity cost of one taco equals _____ milkshakes.

5

Amber has $12 to spend on food. Tacos cost $2 each and pizzas cost $6 each. If she spends all of her money on tacos, she can buy _____ tacos.

6

If the elasticity of supply of telescopes is 0.8, at a 7.5% increase in the price of telescopes would lead to a _____% (using one decimal place) increase in the quantity of telescopes supplied.

6

If the elasticity of supply of chalk is 1.4, a 5% increase in the price of chalk would lead to a _____% (using one decimal place) increase in the quantity of chalk supplied.

7

If the absolute value of the price elasticity of a gallon of milk is 0.3 and the price increases by 30%, the quantity demanded decreases by _____%.

9

What is the law of diminishing marginal utility?

Additional units provide less additional utility over a short time period.

Diego spends all of his income on milkshakes and french fries. At his current consumption levels the marginal utility of one milkshake and the marginal utility of one order of french fries are equal. According to the optimal consumption rule:

Diego is maximizing his utility only if one milkshake and one order of french fries have the same price.

If a computer repair company is in the elastic part of its demand curve, in order to increase total revenue it should:

decrease prices

When marginal utility is zero, total utility is:

at a maximum

If the cross-price elasticity between two goods is negative, the goods must be:

complements

The price of aspirin recently decreased by 10%. If the price elasticity of supply of aspirin is 0.4, the quantity supplied will _____ by _____%.

decrease; 4

when the consumption of an additional unit of a good or service provides the person with a smaller increase in satisfaction than previous units

diminishing marginal utility

Capital Metro decides to increase bus fare rates from $2.00 to $2.21. Consequently, the number of passengers who decide to take the bus in Austin drops from an average of 70,000 riders a day to an average of 61,000 riders a day

elastic

If the percent change in the quantity is large compared to the percent change in the price, then supply is:

elastic

The price of facial tissues rises from $2.85 per box to $3.15. As a result, P&G increases production from 15 million boxes to 25 million boxes of facial tissue. Supply is

elastic

When Ruko, a device used to stream movies at home, increases prices by 39 percent, total revenue decreases by 67 percent

elastic

Jenny believes that spending one hour studying for economics will increase her grade by 20 points. Studying for a second hour will increase her grade by 10 points. She also believes that studying for an hour for history will increase her grade by 15 points, but spending a second hour will increase her grade by only 5 points. Jenny has two hours to study. If Jenny wants to maximize her scores, what should she do?

study 1 hour for economics and 1 hour for history

If the price of corn increases by 50% and the quantity supplied increases by 10%, then the:

supply is inelastic

The optimal consumption rule for all goods requires:

the marginal utility of all goods consumed divided by the respective price to be equal.

Contain Yourself!, a plastic container company, raises the price of its signature Lunchbox container from $3.00$3.00 to $4.00$4.00. As a result, the quantity sold drops from 20,000 to 15,000

unit elastic

When Cinema Supreme decreases ticket prices by 5 percent, total revenue does not change

unit elastic

With the school semester starting for both high school and college, Papermate chooses to increase production of pens from 38 million to 42 million after global prices of writing instruments increase from $1.90 a package to $2.10 a package. Supply is

unit elastic

If the cross-price elasticity between two goods is zero, the goods must be:

unrelated

the satisfaction experienced from consuming a good or service

utility

When total utility is at a maximum, marginal utility would be:

zero