Micro Chapters 4,6,7,9 Assessment Answers
The table below shows the utility schedule for a consumer of candy bars. Marginal utility becomes negative with the consumption of the A) seventh candy bar B) fifth candy bar C) sixth candy bar D) Negative marginal utility is not shown in the table; marginal utility remains positive throughout
A) seventh candy bar
Demand is said to be inelastic when A) an increase in price results in a reduction in total revenue B) the elasticity coefficient exceeds one C) a reduction in price results in a decrease in total revenue D) a reduction in price results in an increase in total revenue.
C) a reduction in price results in a decrease in total revenue
Refer to the data. The value for W is A) 25 B) 30 C) 20 D) 15
C) 20
Answer the question based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4, and the price of product Y is $3. The income of the consumer is $32. If the consumer buys both product X and product Y, how much will the consumer buy of each in order to maximize utility? A) 5X and 3Y B) 4X and 5Y C) 8X and 0Y D) 5X and 4Y
D) 5X and 4Y
Other things the same, if a price change causes total revenue to change in the opposite direction, demand is A) relatively inelastic B) relatively elastic C) of unit elasticity D) perfectly inelastic
B) relatively elastic
A positive externality or spillover benefit occurs when A) the benefits associated with a product exceed those accruing to people who consume it B) firms earn positive economic profits C) product differentiation increases the variety of products available to consumers D) a firm does not bear all of the costs of producing a good or service
A) the benefits associated with a product exceed those accruing to people who consume it
implicit and explicit costs are different in that A) the former refer to nonexpenditure costs and the latter to monetary payments B) implicit costs are opportunity costs; explicit costs are not C) explicit costs are opportunity costs; implicit costs are not D) the latter refer to nonexpenditure costs and the former to monetary payments
A) the former refer to nonexpenditure costs and the latter to monetary payments
When the Defense Department ordered 132 new airplanes, the cost per plane was estimated to be $580 million. A cut in the order to 75 planes increased the per plane cost to $800 million. This change in per unit cost can be explained by A) the loss of economies of scale B) a move to minimum efficient scale C) an increase in total fixed cost D) the law of diminishing returns
A) the loss of economies of scale
Most goods can be classified as normal goods rather than inferiorgoods. The definition of a normal good suggests that A) the cross elasticity of demand for the good is positive B) the income elasticity for the good is greater than 0 C) the income elasticity of demand for the good is negative D) the price elasticity of demand for the good is negative
B) the income elasticity for the good is greater than 0
Refer to the provided graph. Suppose that it shows the market for an insurance product. If something happens to worsen the adverse selection problem faced by sellers in this market, then A) the demand curve will shift to the left B) the supply curve will shift to the left C) the supply curve will shift to the right D) the supply curve will not be affected
B) the supply curve will shift to the left
"Essential" water is cheaper than "nonessential" diamonds because A) although the total utility of diamonds is greater, their marginal utility is smalL B) the supply of water is great relative to demand and the supply of diamonds is small relative to demand C) new industrial uses for diamonds have been discovered D) the supply of diamonds is great relative to demand and the supply of water is small relative to demand
B) the supply of water is great relative to demand and the supply of diamonds is small relative to demand
If the demand for a product increases proportionately faster than the increase in consumers' incomes, then the income elasticity of demand for the product is A) equal to 1 B) zero C) greater than zero D) less than zero
C) greater than zero
The main difference between the short run and the long run is that A) firms earn zero profits in the long run B) the long run always refers to a time period of one year or longer C) in the short run, some inputs are fixed and some are variable D) in the long run, all inputs are fixed
C) in the short run, some inputs are fixed and some are variable
The MC curves in the diagram slope upward because of the law of A) diminishing marginal utility B) demand C) conservation of matter and energy D) diminishing returns
D) diminishing returns
To economists, the main differences between "the short run" and "the long run" are that A) in the short run all resources are fixed, while in the long run all resources are variable B) the law of diminishing returns applies in the long run, but not in the short run C) fixed inputs are more important to decision making in the long run than they are in the short run D) In the long run all resources are variable, while in the short run at least one resource is fixed
D) In the long run all resources are variable, while in the short run at least one resource is fixed
Refer to the diagram. If actual production and consumption occur at Q2, A) an efficiency loss (or deadweight loss) of a + coccurs B) an efficiency loss (or deadweight loss) of a + b + c + doccurs C) an efficiency loss (or deadweight loss) of e + f occurs D) efficiency is achieved
D) efficiency is achieved
The short run is characterized by A) plenty of time for firms to either enter or leave the industry B) zero fixed costs C) increasing but not diminishing returns D) fixed plant capacity
D) fixed plant capacity
Refer to data. Marginal utility becomes negative beginning with the A) second unit B) first unit C) third unit D) fourth unit
D) fourth unit
Refer to the above table. Which product is a normal good but least responsive to a change in income? A) product Y B) product Z C) product W D) product X
D) product X
A consumer is in equilibrium and is spending income in such a way that the marginal utility of product X is 24 units and that of Y is 30 units. If the unit price of X is $8, then the price of Y must be A) $10 per unit B) $3 per unit C) $8 per unit D) $6 per unit
A) $10 per unit
Answer the question on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are $10. The marginal cost of the fourth unit of output is A) $37 B) $16 C) $2 D) $12
A) $37
The following cost data are for a firm in the short run. What is the firm's average variable cost at an output of 5 units? A) $60 B) $30 C) $120 D) $140
A) $60
Answer the question based on the following data. What is the price elasticity of demand over the range of $8 to $10? A) 0.47 B) 1.93 C) 0.11 D) 1.43
A) 0.47
At a price of $8 per unit, Gadgets Incorporated is willing to supply 19,000 gadgets, while United Gadgets is willing to supply 16,000 gadgets. If the price were to rise to $10 per unit, their respective quantities supplied would rise to 28,000 and 22,000. If these are the only two firms supplying gadgets, what is the elasticity of supply in the market for gadgets? A) 1.59 B) 1.4 C) 2.22 D) 0.63
A) 1.59
The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises by A) 7 percent and quantity supplied rises by 5 percent B) 8 percent and quantity supplied rises by 8 percent C) 5 percent and quantity supplied rises by 7 percent D) 10 percent and quantity supplied remains the same.
A) 7 percent and quantity supplied rises by 5 percent
(Consider This) Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel finds the music annoying. A Coase theorem solution for this problem would be for A) Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music B) the director of housing to impose a fine on Darcy whenever she plays her music too loud C) the dorm government to set a payment schedule by which Rachel would compensate Darcy for making her play her music at a lower volume D) the college to ban the playing of music in dorms
A) Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music
In the diagram, the range of diminishing marginal returns is A) Q1Q3 B) Q1Q2 C) 0Q3 D) 0Q2
A) Q1Q3
Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. Average variable cost will be at a minimum when the firm is hiring A) Q2 workers B) Q1 workers C) more than Q3 workers D) Q3 workers
A) Q2 workers
Which of the following statements is not correct? A) The law of diminishing returns explains the fact that the long-run average total cost curve is U-shaped B) Average fixed costs diminish so long as output increases C) Diseconomies of scale arise primarily from the difficulties in managing and coordinating a large-scale business enterprise D) The real cost of producing X is the quantity of products, R, S, or T etc., which could have been produced with the resources devoted to X
A) The law of diminishing returns explains the fact that the long-run average total cost curve is U-shaped
Which product is most likely to be the most price elastic? A) automobiles B) clothing C) housing D) milk
A) automobiles
The MB curves in the diagram slope downward because of the law of A) diminishing marginal utility B) conservation of matter and energy C) increasing cost D) diminishing returns
A) diminishing marginal utility
Refer to the above graphs. For which graph is the supply perfectly inelastic? A) graph C B) graph A C) graph D D) graph B
A) graph C
The fact that most medical care purchases are financed through insurance A) increases the amount of health care consumed by reducing the price of additional units of care B) reduces the amount of health care consumed by raising the price of additional units of care C) has no effect on health care consumption because aggregate costs are the same regardless of payment method D) has decreased health care costs and therefore reduced aggregate health care expenditures
A) increases the amount of health care consumed by reducing the price of additional units of care
Consumer surplus A) is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price B) rises as equilibrium price rises C) is the difference between the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept D) is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price
A) is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price
Plant sizes get larger as you move from ATC-1 to ATC-4. In the long run, the firm should use plant size ATC-1 for what level of output? A) less than 3,000 B) 3,000 to 3,500 C) 4,000 to 4,500 D) 5,000 to 5,500
A) less than 3,000
In introducing the opportunity cost of time into the theory of consumer behavior, we find that, all else equal, A) one should consume less of time-intensive goods B) one should consume more of time-intensive goods C) the marginal utility derived from each product must be multiplied by consumption time in determining equilibrium D) the consumer's equilibrium position is not altered
A) one should consume less of time-intensive goods
The franchising of fast-food restaurants would be an example of how a private business A) overcomes product information problems B) corrects the problem of externalities C) expands the limits of the Coase theorem D) solves the moral hazard problem in insurance
A) overcomes product information problems
When the marginal benefit of an output exceeds the marginal cost, A) production of that output should be increased, in order to achieve efficiency B) reducing the production of that output would reduce efficiency losses C) increasing the production of that output would increase the deadweight loss D) production of that output should be decreased, in order to achieve efficiency
A) production of that output should be increased, in order to achieve efficiency
Refer to the provided supply and demand graph. S1 and D1 represent the current market supply and demand, respectively. S2 and D2 represent the socially optimal supply and demand. One way that the government could shift supply to its socially optimal level is to A) provide the product B) tax the sellers C) regulate the production of the good D) subsidize the buyers
A) provide the product
(Last Word) From the viewpoint of potential criminals, the probability of being fined or imprisoned A) raises the marginal cost or "price" of criminal behavior B) lowers the marginal utility of criminal behavior C) raises the marginal utility of criminal behavior D) lowers the marginal cost or "price" of criminal behavior
A) raises the marginal cost or "price" of criminal behavior
The fact that an ounce of gold is priced higher than an ounce of chocolate suggests that A) the marginal utility of the last unit of gold consumed or purchased is greater than the marginal utility of the last unit of chocolate consumed B) gold is a normal good, while chocolate is an inferior good C) there are many substitutes for chocolate but few for gold D) the total utility of gold purchased is greater than the total utility of chocolate consumed
A) the marginal utility of the last unit of gold consumed or purchased is greater than the marginal utility of the last unit of chocolate consumed
A negative externality or spillover cost occurs when A) the total cost of producing a good exceeds the costs borne by the producer B) firms fail to achieve allocative efficiency C) firms fail to achieve productive efficiency D) the price of a good exceeds the marginal cost of producing it
A) the total cost of producing a good exceeds the costs borne by the producer
The demand for Cheerios cereal is more price-elastic than the demand for cereals as a whole. This is best explained by the fact that A) there are more substitutes for Cheerios than for cereals as a whole B) Cheerios are a luxury C) Cereals are a necessity D) consumption of cereals as a whole is greater than consumption of Cheerios
A) there are more substitutes for Cheerios than for cereals as a whole
Buyers will opt out of markets in which A) there is inadequate information about sellers and their products B) there are significant negative externalities C) there are only foreign sellers D) standardized products are being produced
A) there is inadequate information about sellers and their products
Blossom, Inc., sells 500 bottles of perfume a month when the price is $7. A huge increase in resource costs forces Blossom to raise the price to $9, and the firm only manages to sell 460 bottles of perfume. Using the midpoint formula, the price elasticity of demand coefficient is A) 3 and inelastic B) 0.33 and inelastic C) 3 and elastic D) 0.33 and elastic
B) 0.33 and inelastic
Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K. What level of total utility is realized from the equilibrium combination of J and K, if the consumer has a money income of $28 and the prices of J and K are $8 and $4, respectively? A) 168 utils B) 188 utils C) 172 utils D) 72 utils
B) 188 utils
The following schedule gives the cost data for a firm. Diseconomies of scale start between A) 0 and 10 units of output B) 40 and 50 units of output C) 30 and 40 units of output D) 20 and 30 units of output
B) 40 and 50 units of output
Refer to the diagrams. In which case would the coefficient of cross elasticity of demand be positive? A) C B) D C) A D) B
B) D
Which of the following statements is true? A) Diminishing marginal returns means that total output decreases as more of the variable inputs are employed B) Diminishing marginal returns means that in order to increase output at a constant rate, the firm must add larger and larger quantities of the variable inputs C) Diminishing marginal returns implies that there will never be increasing returns to scale D) Diminishing marginal returns implies that the firm's profits will be shrinking as it produces more of its product
B) Diminishing marginal returns means that in order to increase output at a constant rate, the firm must add larger and larger quantities of the variable inputs
In the diagram, curves 1, 2, and 3 represent A) marginal product, average variable cost, and average total cost respectively B) total fixed cost, total variable cost, and total cost respectively C) average fixed cost, average variable cost, and average total cost respectively D) total variable cost, total fixed cost, and total cost respectively
B) total fixed cost, total variable cost, and total cost respectively
Susie buys two goods: rounds of golf and massages. Suppose that the price of a round of golf is $20 and the price of a massage is $30. In a typical week, Susie will play two rounds of golf, getting 20 utils of satisfaction from the second round. She normally buys three massages each week, with the third giving her 30 utils of satisfaction. If she were to buy a fourth massage in a week, it would give her 20 utils of satisfaction. If the price of massages is reduced to $15, which of the following outcomes might we expect to occur? A) Susie would leave her consumption choices unchanged because of diminishing marginal utility in the consumption of massages B) Susie would buy more massages and fewer rounds of golf, as predicted by the substitution effect C) Susie would buy more massages and more rounds of golf, as predicted by the substitution effect D) Susie would buy more massages and fewer rounds of golf, as predicted by the income effect
B) Susie would buy more massages and fewer rounds of golf, as predicted by the substitution effecT
Which of the following statements is correct? A) When marginal utility is decreasing, an increase in the quantity consumed will decrease total utility B) When marginal utility is positive, an increase in the quantity consumed will increase total utility C) When marginal utility is positive, an increase in the quantity consumed will decrease total utility D) When marginal utility is zero, an increase in the quantity consumed will make total utility zero
B) When marginal utility is positive, an increase in the quantity consumed will increase total utility
Refer to the diagram. The profit-maximizing level of output for this firm A) is at point a B) cannot be determined from the information given C) is at point c D) is at point b
B) cannot be determined from the information given
(Consider This) All of these are solutions for traffic congestion except to A) use paid toll roads B) charge a fee for each passenger in the car C) use paid express lanes D) place a fee on people who use the roadway
B) charge a fee for each passenger in the car
Suppose we find that the price elasticity of demand for a product is 0.8 when its price is increased by 10 percent. We can conclude that quantity demanded A) increased by 0.08 percent B) decreased by 8 percent C) decreased by 1.2 percent D) decreased by 0.08 percent
B) decreased by 8 percent
The law of diminishing returns implies that A) the more hours you spend studying per day, the more you will learn with each added hour B) eventually, the more hours you spend studying per day, the less you will learn with each added hour C) the more hours you spend studying, the less you will know D) your understanding will be increased by decreasing your marginal study time
B) eventually, the more hours you spend studying per day, the less you will learn with each added hour
(Last Word) 3-D printers can reduce the cost of producing items because they A) eliminate massive factory costs B) exploit huge economies of scale in production C) make use of low-cost materials and low-energy requirements D) reduce transportation costs significantly
B) exploit huge economies of scale in production
Refer to the diagram. Which one of the following might shift the marginal cost curve from MC1 to MC2? A) an increase in the price of recycled goods B) improved technology for reducing pollution C) a change in consumer tastes from services to manufactured goods D) major new studies strongly linking cancer to pollution
B) improved technology for reducing pollution
Refer to the diagram. Total utility A) is maximized at 2 units B) increases at a diminishing rate, reaches a maximum, and then declines C) becomes negative at 4 units D) increases so long as additional units of Y are purchased
B) increases at a diminishing rate, reaches a maximum, and then declines
The utility of a good or service A) is synonymous with usefulness B) is the satisfaction or pleasure one gets from consuming it C) rarely varies from person to person D) is easy to quantify
B) is the satisfaction or pleasure one gets from consuming it
A consumer's demand curve for a product is downsloping because A) the income and substitution effects precisely offset each other B) marginal utility diminishes as more of a product is consumed C) total utility falls below marginal utility as more of a product is consumed D) time becomes less valuable as more of a product is consumed.
B) marginal utility diminishes as more of a product is consumed
Where there is asymmetric information between buyers and sellers, A) product surpluses will occur at the equilibrium price B) markets can produce inefficient outcomes C) markets will fail due to the over-allocation of resources D) product shortages will occur at the equilibrium price
B) markets can produce inefficient outcomes
A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the A) larger the elasticity of demand coefficient B) more inelastic the demand for the product C) more elastic the demand for the product D) more elastic the supply curve
B) more inelastic the demand for the product
Most economists contend that A) government can assess consumer preferences better than consumers can themselves B) noncash gifts are less efficient than cash gifts C) noncash gifts are more efficient than cash gifts D) noncash and cash gifts are equally efficient
B) noncash gifts are less efficient than cash gifts
Diseconomies of scale occur mainly because A) firms in an industry must be relatively large in order to use the most efficient production techniques B) of the inherent difficulties involved in managing and coordinating a large business enterprise C) the short-run average total cost curve rises when marginal product is greater than average total cost D) of the law of diminishing returns
B) of the inherent difficulties involved in managing and coordinating a large business enterprise
The substitution effect A) for an increase in the relative price of a good is sometimes positive but sometimes negative B) refers to the change in the quantity demanded of a good due to a change in its relative price C) is generally so weak that its effect cannot be predicted D) measures the change in the quantity of a good demanded brought about by a change in real income associated with a change in the price of the good
B) refers to the change in the quantity demanded of a good due to a change in its relative price
Harvey quit his job at State University, where he earned $58,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $8,000 a year. To start the business, he cashed in $60,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 15,000 units of software at $60 for each unit. Of the $60 per unit, $50 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The implicit costs of Harvey's firm in the first year were A) $150,000 B) 900,000 C) $72,000 D) $78,000
C) $72,000
Which of the following best expresses the law of diminishing returns? A) Population growth automatically adjusts to that level at which the average product per worker will be at a maximum B) Because large-scale production allows the realization of economies of scale, the real costs of production vary directly with the level of output C) As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline D) Proportionate increases in the inputs of all resources will result in a less-than-proportionate increase in total output
C) As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline
Which of the following does not illustrate the asymmetric information problem? A) Ordinary car buyers do not know the actual quality of the various cars in the dealer's lot B) Ordinary customers do not know how sanitarily the food is prepared in a restaurant C) Ordinary stock buyers do not know what will happen to the stock's price next week D) Ordinary financial investors do not know the motivations of financial advisers
C) Ordinary stock buyers do not know what will happen to the stock's price next week
In which of the following cases will total revenue increase? A) Price falls and supply is elastic B) Price rises and demand is elastic C) Price rises and demand is inelastic D) Price falls and demand is inelastic
C) Price rises and demand is inelastic
Refer to the diagram. With MB1 and MC1, society's optimal amount of pollution abatement is A) Q3 B) Q2 C) Q1 D) Q4
C) Q1
Suppose a firm offers its workers a cafeteria plan in which it allows workers to allocate a set amount of fringe benefit money toward specific insurance. Mary, who has five kids needing braces, selects the family dental coverage. This is an example of the A) free-rider problem B) moral hazard problem C) adverse selection problem D) principal-agent problem
C) adverse selection problem
Refer to the provided graph of a competitive market. If the output level is Q2, then there will be A) maximum consumer surplus B) greater marginal benefits than marginal costs of the product C) allocative efficiency D) maximum deadweight losses
C) allocative efficiency
If marginal cost is below average variable cost, A) average variable cost is less than average fixed cost B) both average total cost and average variable cost are increasing C) both average total cost and average variable cost are decreasing D) average total cost is increasing but average variable cost is decreasing
C) both average total cost and average variable cost are decreasing
If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that A) technology precludes both economies and diseconomies of scale B) the industry will comprise a very large number of small firms C) both relatively small and relatively large firms can be viable in the industry D) the industry will be a natural monopoly
C) both relatively small and relatively large firms can be viable in the industry
Answer the question on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are $10. The profit-maximizing level of output for this firm A) is 5 B) is 3 C) cannot be determined from the information given D) is 4
C) cannot be determined from the information given
(Last Word) All of the following would reduce property crime by increasing its "price," except A) enhancing the legitimate earnings of potential criminals B) using more sophisticated security systems C) cutting out the middlemen ("fences") by selling stolen goods via Internet auction sites D) imposing greater penalties for those who are caught and convicted
C) cutting out the middlemen ("fences") by selling stolen goods via Internet auction sites
Diminishing marginal utility explains why A) the income effect exceeds the substitution effect B) supply curves are upsloping C) demand curves are downsloping D) the substitution effect exceeds the income effect
C) demand curves are downsloping
Economic profits are calculated by subtracting A) implicit costs from total revenue B) explicit costs from total revenue C) explicit and implicit costs from total revenue D) implicit costs from normal profits
C) explicit and implicit costs from total revenue
Which of the following types of firms are least likely to have their MC, AVC, and ATC curves affected by fluctuations in gasoline prices? A) firms like UPS that use a fleet of gasoline-powered vehicles B) taxi cab companies and Uber drivers C) firms like iTunes that distribute their products over the Internet D) companies that operate bus tours to popular vacation destinations
C) firms like iTunes that distribute their products over the Internet
If the government tightens up on drug dealers and raises the costs of dealing illegal drugs, then the drug addicts' dollar expenditures to feed their addiction will tend to A) decrease because their demand is price-Inelastic B) decrease because their demand is price-elastic C) increase because their demand is price-Inelastic D) increase because their demand is price-elastic
C) increase because their demand is price-Inelastic
Suppose that the total-revenue curve is derived from a particular linear demand curve. That demand curve must be A) inelastic for price increases that reduce quantity demanded from 4 units to 3 units B) elastic for price increases that reduce quantity demanded from 8 units to 7 units C) inelastic for price declines that increase quantity demanded from 6 units to 7 units D) elastic for price declines that increase quantity demanded from 6 units to 7 units
C) inelastic for price declines that increase quantity demanded from 6 units to 7 units
Refer to the information and assume the stadium capacity is 5,000. The supply of seats for the game A) varies inversely with ticket prices B) varies directly with ticket prices C) is perfectly inelastic D) is perfectly elastic
C) is perfectly inelastic
(Last Word) Which of the following is a predicted result of the increased use of additive manufacturing (using 3-D printers)? A) significant increases in the fixed costs of producing manufactured goods B) Economies of scale in manufacturing will be eliminated, driving up production costs and prices C) lower prices of manufactured goods through the elimination of large fixed costs and transportation costs D) monopolization of manufactured goods industries, as few individuals can afford additive manufacturing technology
C) lower prices of manufactured goods through the elimination of large fixed costs and transportation costs
An efficiency loss (or deadweight loss) declines in size when a unit of output is produced for which A) consumer surplus exceeds producer surplus B) marginal cost exceeds marginal benefit C) maximum willingness to pay exceeds minimum acceptable price D) producer surplus exceeds consumer surplus
C) maximum willingness to pay exceeds minimum acceptable price
An increase in the price of product X causes a decrease in the quantity demanded for product X. One basic explanation for this is A) the price-elasticity effect B) the law of supply C) the law of diminishing marginal utility D) the law of increasing opportunity cost
C) the law of diminishing marginal utility
Suppose you have a limited money income and you are purchasing products A and B, whose prices happen to be the same. To maximize your utility, you should purchase A and B in such amounts that A) their total utilities are the same B) the income and substitution effects associated with each are equal C) their marginal utilities are the same D) their marginal and total utilities are proportionate
C) their marginal utilities are the same
External benefits in consumption refer to benefits accruing to A) those who are selling the product to the consumers B) those who are consuming the product abroad C) those other than the ones who consumed the product D) those who bought and consumed the product
C) those other than the ones who consumed the product
Assume that A and B are both priced at $1 per unit and that Mary has $10 to spend on A and B. She buys 6 units of A and 4 units of B. The marginal utility of the final unit of A bought is 12, and that of B is 8. This indicates that A) given another dollar, Mary should buy an additional unit of B B) Mary's consumption is in equilibrium C) to maximize utility, Mary should buy more of A and less of B D) to maximize utility, Mary should buy more of B and less of A
C) to maximize utility, Mary should buy more of A and less of B
The table shows the marginal-utility schedules for goods A and B for a hypothetical consumer. The price of good A is $1, and the price of good B is $2. The income of the consumer is $8. If the price of A decreases, while the price of B and the consumer's income stay the same, we would expect A) MU/P of A to decrease, and the consumer will thus buy less of B B) MU/P of A to increase, and the consumer will thus buy less of A C) MU/P of A to decrease, and the consumer will thus buy less of A D) MU/P of A to increase, and the consumer will thus buy less of B
D) MU/P of A to increase, and the consumer will thus buy less of B
(Consider This) Which of the following statements is true about the history of Southwest Airlines entering new markets? A) Southwest's highly inelastic supply made it difficult for them to take advantage of demand in the market B) Southwest's entry into new markets had little impact on either the markets or airlines already serving those markets C) Southwest's entry caused the demand for each carrier to become more inelastic as customers increased their loyalty to particular airlines D) Southwest's low price strategy tapped into existing elastic demand in the market, increasing the airline's revenue
D) Southwest's low price strategy tapped into existing elastic demand in the market, increasing the airline's revenue
Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero. This is because completely eliminating the externality would involve A) having surpluses in the market B) a much greater marginal benefit than marginal cost C) having shortages in the market D) a much greater marginal cost than marginal benefit
D) a much greater marginal cost than marginal benefit
The demand for a product is inelastic with respect to price if A) a drop in price is accompanied by an increase in the quantity demanded B) the elasticity coefficient is greater than 1 C) a drop in price is accompanied by a decrease in the quantity demanded D) consumers are largely unresponsive to a per unit price change
D) consumers are largely unresponsive to a per unit price change
If price and total revenue vary in opposite directions, demand is A) relatively inelastic B) perfectly inelastic C) perfectly elastic D) relatively elastic
D) relatively elastic
Sony is considering a 10 percent price reduction on its HD televisions. If the price-elasticity coefficient for the sets in this price range is 0.75, then the price cut will cause A) sales quantity to decrease and revenues to also decrease B) sales quantity to decrease but revenues to increase C) sales quantity to increase and revenues to also increase. D) sales quantity to increase but revenues to decrease
D) sales quantity to increase but revenues to decrease
Refer to the provided supply and demand graph of Product X. What would happen if the government taxed the producers of this product because it has negative externalities in production? A) supply would increase B) demand would decrease C) price would decrease D) supply would decrease
D) supply would decrease
The difference between the actual price that a producer receives and the minimum acceptable price the producer is willing to take is called the producer A) revenues B) utility C) costs D) surplus
D) surplus
A negative income elasticity of demand coefficient indicates that A) the product is a substitute good B) the product follows the law of demand C) the product is a complementary good D) the product is an inferior good
D) the product is an inferior good
