Micro - Exam 2

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 price of chocolate-covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. If the price is $1.10, total revenue is _____, and if the price is $0.95, total revenue is _____.

$209; $204.25

Rather than put the $100,000 that his grandmother left him in a mutual fund that earns 5% each year, Tommy Wang quit his job, which paid $60,000 per year, and started Wang's Wicker Furniture Store. He rented a showroom for $20,000 for the year, purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. Instead of using the capital for his own business, he could rent it to a rival firm and earn $5,000 a year. In his first year, his revenue was $150,000.

$30,000.

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

Rather than put the $100,000 that his grandmother left him in a mutual fund that earns 5% each year, Tommy Wang quit his job, which paid $60,000 per year, and started Wang's Wicker Furniture Store. He rented a showroom for $20,000 for the year, purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. Instead of using the capital for his own business, he could rent it to a rival firm and earn $5,000 a year. In his first year, his revenue was $150,000.

$5,000

Tom is trying to decide how to allocate his $50 budget for music downloads and online movie streaming when the price of a music download is $1 and the price of a movie is $5. (Scenario: Tom's Budget Constraint) Read the scenario Tom's Budget Constraint. The combination _____ music downloads and _____ movies lies INSIDE Tom's budget line. (Tom can afford this combination, but he will not be spending the entire $50.)

$50; no

After earning your BA, you have to decide whether to take a job that will pay you $45,000 per year or spend an additional two years earning an MBA. If you decide to pursue the graduate degree, your annual expenses for tuition, books, board, and lodging will be $32,000. You have been offered a scholarship for $10,000 per year, but to pay the remaining $22,000 per year, you would have to cash in savings bonds from your grandparents that have been earning $500 in interest per year. The annual oppor

$67,500.

Blake eats two bags of generic potato chips each day. Blake's hourly wage increases from $7 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.

-2.75

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____.

0.2; inelastic

If the price of a good increases by 20% and the quantity demanded changes by 15%, then the price elasticity of demand is equal to:

0.75

Suppose at $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand between $10 and $8, by the midpoint method, is approximately:

1.17

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

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

If demand is elastic, the _____ effect dominates the _____ effect, and a(n) _____ in price will cause total revenue to rise.

D4quantity; price; decrease

Which of the following is an "either-or" decision?

Dylan must decide whether to major in economics or finance.

The price elasticity of demand for gasoline in the short run has been estimated to be 0.4. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total revenue from gasoline in the short run, all other things unchanged?

Quantity demanded will decrease; total revenue will rise.

Which of the following is a "how much" decision?

Tim is trying to decide the amount of money to save each month to buy a new car next year.

If the estimated price elasticity of demand for foreign travel is 4:

a 20% decrease in the price of foreign travel will increase quantity demanded by 80%.

A men's tie store sold an average of 30 ties per day at $5 per tie but sold 50 of the same ties per day at $3 per tie. The price elasticity of demand, by the midpoint method, is:

equal to 1.

Use of the midpoint method to calculate the price elasticity of demand eliminates the problem of computing:

different elasticities, depending on whether price decreases or increases.

If a good is a necessity with few substitutes, then demand will tend to:

be more price-inelastic.

A linear demand curve has:

both elastic and inelastic price elasticities of demand.

The percentage change in quantity demanded of one good or service divided by the percentage change in the price of a related good or service is the _____ of demand.

cross-price elasticity

If the price of chocolate-covered peanuts decreases from $1.15 to $1.05 and the quantity demanded increases from 190 bags to 220 bags, then the price elasticity of demand (by the midpoint method) is:

greater than 1.

The city government is losing millions of dollars on its buses and subways. The government proposes to increase the fare by 20% to raise revenue and has asked your advice. You know that the price elasticity of demand for mass transit in the city is approximately equal to 0.75. Which of the following statement is correct?

he ridership (quantity demanded) will decrease by 15%

To maximize her grade in economics, Stacey should study until:

her marginal benefit of studying equals her marginal cost of studying.

The income elasticity of demand for eggs has been estimated to be 0.57. If income grows by 5% in a period, all other things unchanged, demand will:

increase by about 2.9%.

Suppose the government levies a $4 per month excise tax on cable TV. If the demand for cable TV is relatively (but not perfectly) inelastic and the supply curve is relatively (but not perfectly) elastic, then the price of cable TV will:

increases by less than $4

Excise taxes that raise the most revenue and cause the least deadweight loss are likely to be levied on goods for which demand is _____ and supply is _____.

inelastic; inelastic

Economic profit is:

less than accounting profit if implicit costs exist.

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

If the government imposes a $5 excise tax on leather shoes and the price of leather shoes increases by $2:

producers are paying more of the tax than are the consumers.

Utility is most closely related to:

satisfaction.

An excise tax that the government collects from the producers of a good:

shifts the supply curve upward.

If the marginal benefit received from consuming a good is less than the marginal cost of production:

society's well-being can be improved if production decreases.

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 your purchases of shoes increase from 9 pairs per year to 11 pairs per year when the price of shirts increases from $8 to $12, for you, shoes and shirts are considered:

substitute goods.

The optimal consumption rule for all goods requires:

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

The deadweight loss from an excise tax comes about because:

the number of transactions in the market is reduced and some mutually beneficial transactions do not take place.

The implicit cost of capital is:

the opportunity cost of capital used by a business.

Total revenue is:

the price of a good times the quantity of the good that is sold.

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures:

the responsiveness of the quantity change to the price change.

Jacquelyn is a student at a major state university. Which of the following is NOT an explicit cost of her attending college?

the salary that she could have earned working full-time

Profit is the difference between _____ and _____.

total revenues; total costs

A perfectly price-inelastic demand curve is:

vertical

Tax incidence refers to:

who really pays the tax.