Fundamentals of Managerial Economics Online Quiz

The relationship between marginal revenue and the price elasticity of demand is A. MR = P(1 + 1/ η). B. P = MR(1+ 1/ η). C. P = MR(1 - η). D. MR = P(1 - η). E. None of the given choices are correct.

A. MR = P(1 + 1/ η).

If the price of asparagus falls considerably and the government freezes the price of broccoli at the level prevailing before the fall in the price of asparagus, the result is likely to be: A. a surplus of broccoli. B. a shortage of broccoli. C. a shift to the left in the market supply curve for broccoli. D. a shift to the right in the market supply curve for broccoli. E. None of the given choices are correct.

A. a surplus of broccoli.

An increase in the consumer's income (other things remaining constant) will: A. shift the budget line outward from the origin but not affect its slope. B. shift the budget line outward from the origin and increase its slope. C. shift the budget line outward from the origin and decrease its slope. D. not shift the budget line. E. None of the given choices are correct.

A. shift the budget line outward from the origin but not affect its slope.

Suppose that the market demand curve and the market supply curve for broccoli are as shown in the following graph (not shown). If the government sets a price greater than the equilibrium price, the result will be: A. a reduction in the quantity of broccoli supplied. B. an excess supply of broccoli. C. a shift to the right of the market supply curve for broccoli. D. All of the given choices are correct. E. None of the given choices are correct.

B. an excess supply of broccoli.

The president of a leading producer of tantalum says that an increase in the price of tantalum would have no effect on the total amount spent on tantalum. If this is true, the price elasticity of demand for tantalum is A. greater than zero. B. minus one. C. minus two. D. less than minus one. E. None of the given choices are correct.

B. minus one.

The marginal rate of substitution is: A. the slope of the consumer's indifference curve. B. the slope of the consumer's indifference curve multiplied by minus one. C. always equal to the price ratio. D. never equal to the price ratio. E. None of the given choices are correct.

B. the slope of the consumer's indifference curve multiplied by minus one.

A demand curve with unitary elasticity at all points is A. a straight line. B. a parabola. C. a hyperbola. D. All of the given choices are correct. E. None of the given choices are correct.

C. a hyperbola.

If the price of asparagus falls considerably, the result is likely to be: A. a shift to the right in the market demand curve for broccoli. B. a shift to the left in the market supply curve for broccoli. C. a shift to the left in the market demand curve for broccoli. D. an increase in the equilibrium price of broccoli. E. None of the given choices are correct.

C. a shift to the left in the market demand curve for broccoli.

In the previous question, if a university report indicates that broccoli contains important, hitherto unrecognized ingredients that can help stave off cancer (as in fact was indicated in 1992) the result is likely to be: A. a shift to the right in the market supply curve for broccoli. B. a shift to the left in the market supply curve for broccoli. C. a shift to the right in the market demand curve for broccoli. D. All of the given choices are correct. E. None of the given choices are correct.

C. a shift to the right in the market demand curve for broccoli.

The demand for a good is price inelastic if: A. the price elasticity is minus one. B. the price elasticity is less than minus one. C. the price elasticity is greater than minus one. D. All of the given choices are correct. E. None of the given choices are correct.

C. the price elasticity is greater than minus one.

If the government reduces the subsidies to broccoli production, the equilibrium price of broccoli will: A. fall. B. increase by $10. C. increase by $2. D. increase. E. be unaffected.

D. increase.

In equilibrium, the rate at which the consumer is willing to substitute one commodity for another (holding satisfaction constant) must equal: A. the consumer's income. B. the price of the good on the horizontal axis. C. the price of the good on the vertical axis. D. the rate at which the consumer is able to substitute one good for the other. E. None of the given choices are correct.

D. the rate at which the consumer is able to substitute one good for the other.

If the expected return from an investment is plotted along the vertical axis and the riskiness of the investment is plotted along the horizontal axis, the indifference curve of the investor will be positively sloped if: A. the investor does not care what rate of return he or she receives. B. the investor does not care how risky an investment is. C. the investor prefers a more risky to a less risky investment, when the expected rate of return is held constant. D. All of the given choices are correct. E. None of the given choices are correct.

E. None of the given choices are correct.

Indifference curves can intersect if: A. the consumer is poorly educated. B. the two goods are high priced. C. the consumer's income is very low. D. All of the given choices are correct. E. None of the given choices are correct.

E. None of the given choices are correct.

T or F? A shift to the right of the market supply curve, ceteris paribus, tends to increase the equilibrium price.

False

T or F? An action that increases today's profits will increase the firm's value.

False

T or F? Firms' managers will always work to maximize profits.

False

T or F? If a good's income elasticity exceeds one, a decrease in the price of the good will increase the total amount spent on it.

False

T or F? If actual price exceeds equilibrium price, there is a tendency for the actual price to rise.

False

T or F? If the consumer's tastes were transitive, the consumer would have inconsistent or contradictory preferences.

False

T or F? In any market, the seller alone determines the price of the product that is bought and sold. Since the seller has the product, while the buyer does not have it, the buyer must pay what the seller asks.

False

T or F? In general, demand is likely to be more inelastic in the long run than in the short run (for nondurable goods).

False

T or F? It is always true that ηxy=ηyx.

False

T or F? Marginal revenue is the ratio of the value of sales to the amount sold.

False

T or F? Market baskets on higher indifference curves must have lower utilities than market baskets on lower indifference curves.

False

T or F? The best way to allocate the military budget is to spend it all on the highest priority item of each service.

False

T or F? The demand for salt and pepper is likely to be price elastic.

False

T or F? The direct approach of simply asking people how much they would buy of a particular commodity is the best way to estimate the demand curve.

False

T or F? The higher the consumer's money income, the lower is the budget line.

False

T or F? The income elasticity of demand for food is very high.

False

T or F? The income elasticity of demand will always have the same sign regardless of the level of income at which it is measured.

False

T or F? Two consumers buy two goods: U and V. The first consumer is located in a region where the price of U is higher than in the region where the second consumer is located. The price of V is the same in both regions. Nonetheless, if the first consumer's income is higher than the second consumer's, it is possible for the two consumers' budget lines to be parallel.

False

T or F? Under a linear demand function, as price increases, the price elasticity of demand becomes less elastic.

False

T or F? A consumer buys two goods: U and V. If the price of a unit of U is equal to the price of a unit of V, the slope of the consumer's budget line is minus one.

True

T or F? A utility is a number that represents the level of satisfaction the consumer derives from a particular market basket.

True

T or F? According to the theory of consumer behavior, the consumer's equilibrium market basket is the one that yields maximum utility, given the constraints imposed on the consumer by his or her income and by prices.

True

T or F? If a firm is on a portion of its demand curve that is price inelastic, it cannot be maximizing profits.

True

T or F? Indifference curves cannot intersect.

True

T or F? The consumer's budget line shows the market baskets that can be purchased, given the consumer's income and prevailing commodity prices.

True

T or F? The demand for open-heart surgery is likely to be less price elastic than the demand for aspirin.

True

T or F? When the demand curve is linear, the slope of the marginal revenue curve is twice (in absolute value) the slope of the demand curve.

True