Micro Exam 2

b) it is perfectly inelastic

Seth is a competitive body builder. He says he has to have his 12-oz package of protein powder to "feed his muscles" every day. On the basis of this information, what can you conclude about his price elasticity of demand for protein powder? a) the price elasticity coefficient is 1 b) it is perfectly inelastic c) it is perfectly elastic d) it is elastic

c) a 1% decrease in the price of Ramen noodles leads to a 0.44% increase in Ramen noodle consumption

Studies show that the income elasticity of demand for Ramen noodles is -0.44. What does this mean? a) a 1% increase in income leads to a 0.44% increase in Ramen noodle consumption b) a 1% decrease in the price of Ramen noodles leads to a 0.44% increase in Ramen noodle consumption c) a 1% increase in income leads to a 0.44% decrease in Ramen noodle consumption d) Ramen noodles are a relatively inelastic good

1,000

The figure above shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month, which reduced the number of apartments available to 200. Suppose apartment owners ignore the law and rent this quantity for the highest rent they can get. What is the highest add-on fee landlords can charge?

2,000

The figure above shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month, which reduced the number of apartments available to 200. Suppose apartment owners ignore the law and rent this quantity for the highest rent they can get. What is the highest rent they can get per month?

250,000

The figure shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month, which reduced the number of apartments available to 200. What is the value of consumer surplus after the imposition of the ceiling?

50,000

The figure shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month, which reduced the number of apartments available to 200. What is the value of producer surplus after the imposition of the ceiling?

100,000

The figure shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month, which reduced the number of apartments available to 200. What is the value of the deadweight loss after the imposition of the ceiling?

100,000

The figure shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month, which reduced the number of apartments available to 200. What is the value of the portion of producer surplus transferred to consumers as a result of the rent ceiling?

140

The figure shows the market for beer. The government plans to impose a per-unit tax in this market. How much is the excess burden?

250

The figure shows the market for beer. The government plans to impose a per-unit tax in this market. How much of the total tax revenue is borne by consumers?

100

The figure shows the market for beer. The government plans to impose a per-unit tax in this market. How much of the total tax revenue is the producers tax burden?

350

The figure shows the market for beer. The government plans to impose a per-unit tax in this market. How much revenue will the government collect?

a) demand curve for imported champagne is vertical

The government proposes a tax on imported champagne. Buyers will bear the entire burden of the tax if the a) demand curve for imported champagne is vertical b) supply curve for imported champagne is vertical c) demand curve for imported champagne is horizontal d) demand curve is downward sloping and the supply curve is upward sloping

b) the usefulness of a good is affected by how many other people use the good

A network externality occurs when a) the usefulness of a good is affected by celebrities who use the good b) the usefulness of a good is affected by how many other people use the good c) there is production cost savings from being networked with suppliers d) there is production cost savings from being networked with buyers

d) both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased.

Carolyn spends her income on popular magazines and music CDs. If the price of a CD is 4 times the price of a magazine and if Carolyn is maximizing her utility, she buys a) four times as many magazines as CDs b) both goods until the marginal utility of the last magazine purchased is 4 times the marginal utility of the last CD purchased c) four times as many CDs as magazines d) both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased

d) the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, causes consumers to buy less Raisin Bran

The substitution effect of an increase in the price of Raisin Bran refers to a) the result that consumers will now switch to a substitute good such as Cheerios, and the demand curve for Raisin Bran shifts to the left b) the decrease in the demand for Raisin Bran when its price rises c) the fact that the higher price of Raisin Bran lowers consumers' purchasing power, holding money income constant d) the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, causes consumers to buy less Raisin Bran

b) 3 cups of soup and 4 sandwiches

The table above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods. If Keira maximizes her utility, how many units of each good should she buy? a) 6 cups of soup and 2 sandwiches b) 3 cups of soup and 4 sandwiches c) 4 cups of soup and 3.5 sandwiches d) 1 cup of soup and 5 sandwiches

a) 4 cups of soup and 5 sandwiches

The table above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Suppose Keira's has $23 to spend on these goods. If Keira maximizes her utility, how many units of each good should she buy? a) 4 cups of soup and 5 sandwiches b) 6 cups of soup and 5 sandwiches c) 5 cups of soup and 4 sandwiches d) 5 cups of soup and 5 sandwiches

d) must be set below the equilibrium price

To affect the market outcome, a price ceiling a) must be set below the legal price b) must be set below the price floor c) must be set below the illicit market price d) must be set below the equilibrium price

a) cholesterol medication in general

Which of the following products comes closest to having a perfectly inelastic demand? a) cholesterol medication in general b) iPhones c) gasoline d) bus rides

c) it is elastic at the highest prices and inelastic at the lowest prices

Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true? a) it is perfectly elastic at very high prices and perfectly inelastic at very low prices b) it is inelastic at high prices and elastic at low prices c) it is elastic at the highest prices and inelastic at the lowest prices d) it is unit elastic throughout the demand curve

b) when a firm lowers its price its total revenue may either increase or decrease

Which of the following statements is true? a) total revenue will equal zero when the demand for a product is unit elastic b) when a firm lowers its price its total revenue may either increase or decrease c) whenever a firm raises its price its total revenue will increase d) whenever a firm increases its quantity sold its revenue will increase

b) refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant

The income effect of an increase in the price of salmon a) refers to the relative price effect—salmon is more expensive compared to other types of fish—which causes the consumer to buy less salmon b) refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant c) is the change in the demand for salmon when income increases d) is the change in the demand for other types of fish, say trout, that results from a decrease in purchasing power

a) endowment effect

The observation that people tend to value something more highly when they own it than when they don't is called the a) endowment effect b) endorsement effect c) path-dependent effect d) wealth effect

a) it rises

The price elasticity of demand for bread is estimated at -0.40. What happens to sales revenue if the price of bread rises? a) it rises b) it falls c) it drops to zero d) it stays the same

90,000

The price of a ticket to a JMU football game is $40. At that price JMU sells 12,000 tickets. Assume the price elasticity of demand is -0.2. How much additional revenue would JMU earn if they increased the ticket price to $50.

b) inelastic

According to an article in the Wall Street Journal, unlike airlines, even elite hotels don't have sophisticated systems that can react quickly to changes in demand. Even if they could, many hoteliers say people don't respond that much to lower rates. "We've tested this, cutting our rates by $50 [per night], and we didn't see an appreciable response in occupancy," says Jim Schultenover, a vice president for Ritz-Carlton. Source: Jesse Drucker, "In Times of Belt-Tightening, We Seek Reasonable Rates," Wall Street Journal, April 6, 2001. Based on the information above, the demand for hotel rooms is a) unit elastic b) inelastic c) perfectly elastic d) elastic

a) the tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay if they did not already own it

Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400. Krueger found that (a) 94 percent of those surveyed would not have paid $3,000 for their tickets, and (b) 92 percent of those surveyed would not have sold their tickets for $3,000. These results are an example of a) the tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay if they did not already own it b) the law of demand c) the tendency for consumers to account for monetary costs but no ignore sunk costs d) consumers placing a high value on a product because it makes them appear to be fashionable

b) network externalities

An advantage of Microsoft Windows is its compatibility with the widest range of hardware and software. The dominance of Windows is self-reinforcing: hardware and software manufacturers ensure that their products are compatible with Windows in order to have access to the large number of Windows users. Which situation best describes this scenario? a) endorsement effects b) network externalities c) endowment effects d) economics of scale

d) perfectly inelastic

At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised his price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is a) perfectly elastic b) unit elastic c) inelastic d) perfectly inelastic

a) the quantity demanded does not change but total revenue increases

Consider a demand curve that has a constant elasticity value of 0. What happens to quantity demanded and total revenue when price increases? a) the quantity demanded does not change but total revenue increases b) the quantity demanded does not change but the total revenue decreases c) the quantity demanded and total revenue remain the same d) the quantity demanded and total revenue fall to zero

c) in neither scenario because a $15 savings is never worth a 20-minute trip

Consider the following hypothetical scenarios: A: You are about to purchase a pair of jeans for $175 and a t-shirt for $45. The sales attendant at the store tells you that the pair of jeans you wish to buy is on sale for $160 at another store, located about a 20-minute drive away. B: You are about to purchase a pair of jeans for $175 and a t-shirt for $45. The sales attendant at the store tells you that the t-shirt you wish to buy is on sale for $30 at another store, located about a 20-minute drive away. Based on standard economic theory, under which scenario would you make the 20-minute trip to the other store? a) only scenario B because a $15 saving amounts to a substantial discount (about 33%) b) only scenario A because the pair of jeans is a very expensive item and $15 saving is quite substantial c) in neither scenario because a $15 savings is never worth a 20-minute trip d) in either scenario if I think a $15 savings is worth the 20-minute trip

d) whether the gains from the winners exceed the losses from the losers is not strictly an economic question

Economists are reluctant to state that price controls are desirable or undesirable because a) economists are reluctant to conduct positive analysis of price controls b) sometimes price controls result in increases in economic efficiency and sometimes they result in decreases in economic efficiency c) it is impossible to evaluate the impact on quantity demanded and quantity supplied as a result of price controls d) whether the gains from the winners exceed the losses from the losers is not strictly an economic question

b) it is more difficult for buyers to keep track of their purchases, and for the government to verify that the right of amount of tax revenue is collected

Economists have shown that the burden of a tax is the same whether the tax is collected from the buyer or the seller. Why, then, are gasoline and cigarette taxes imposed on sellers? a) the Equal Protection Clause of the US Constitution prohibits the government from imposing taxes like these on buyers b) it is more difficult for buyers to keep track of their purchases, and for the government to verify that the right of amount of tax revenue is collected c) sellers are more honest than buyers d) the demand for both gasoline and cigarettes is very elastic

a) consumers make choices that will leave them as satisfied as possible given their incomes, tastes, and the prices of goods and services available to them

Economists usually assume that people act in a rational, self-interested way. In explaining how consumers make choices this means that economists believe a) consumers make choices that will leave them as satisfied as possible given their incomes, tastes, and the prices of goods and services available to them b) consumers will spend their incomes and time on activities that benefit themselves as much as possible, without regard to the welfare of others c) consumers will always buy goods and services at the lowest possible prices d) consumers spend their incomes to order to accumulate the most goods and services

a) her total utility from eating chicken wings has fallen

If the marginal utility Ida Mae receives from eating chicken wings is negative then a) her total utility from eating chicken wings has fallen b) Ida Mae definitely does not like chicken wings c) her total utility has risen, but by less than the last chicken wing than from the next to last chicken wing d) her total utility from eating wings is negative as well

d) there are few substitutes for the product and the demand for the product is relatively inelastic

If the market for a product is broadly defined, then a) there are many substitutes for the product and the demand for the product is relatively elastic b) the good has many complements c) the expenditure on the good is likely to make up a large share of one's budget d) there are few substitutes for the product and the demand for product is relatively inelastic

c) will decrease by 45%

If the percentage increase in price is 15% and the value of the price elasticity of demand is -3, then the quantity demanded a) will decrease by 5% b) will increase by 45% c) will decrease by 45% d) will increase by 5%

b) Billy will buy 2 steak and cheese and 3 grilled chicken. He will enjoy a total utility of 142 utiils

For steak and cheese sandwiches and grilled chicken sandwiches, the table contains the values of the marginal utility (MU) and marginal utility per dollar (MU/P) for Billy. Billy has $14 to spend on steak and cheese sandwiches and grilled chicken sandwiches. Assume Billy maximizes his utility. Which of the statements is correct? a) Billy will buy 2 steak and cheese and 3 grilled chicken. He will enjoy a total utility of 48 utiils b) Billy will buy 2 steak and cheese and 3 grilled chicken. He will enjoy a total utility of 142 utiils. c) Billy will buy 4 steak and cheese and 5 grilled chicken. He will enjoy a total utility of 196 utiils d) Billy will buy 3 steak and cheese and 4 grilled chicken. He will enjoy a total utility of 178 utiils

d) Some people are overly optimistic about their future behavior

Health clubs typically experience an increase in one-year memberships in January, but many new customers cancel their memberships before the end of the year. Which of the following is the best explanation for this behavior? a) Some people fail to treat their membership fees as sunk costs b) Some members receive utility from activities they believe are popular c) Some health club members suffer minor injuries that prevent them from working out d) Some people are overly optimistic about their future behavior

49

How much consumer surplus would the student receive if the price of a cheese burger was $6?

60

How much consumer surplus would the student receive if they had to pay $25 for a ticket?

c) is maximizing total utility and does not want to change her consumption of ankle socks or bandanas

If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she a) wants to consume more bandanas and fewer ankle socks b) wants to consume more ankle socks and fewer bandanas c) is maximizing total utility and does not want to change her consumption of ankle socks or bandanas d) wants to consume less of both ankle socks and bandanas

a) unknown as more information is needed to determine the answer

If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming 3 candy bars, the marginal utility of the second candy bar is a) unknown as more information is needed to determine the answer b) 5 utils c) 20 utils d) 25 utils

a) 57 utils

If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is a) 57 utils b) unknown as more information is needed to determine the answer c) 35 utils d) 15 utils

d) elastic

In recent years, a number of cities have enacted taxes on soda and other sweetened beverages. If the policy goal of these city governments is to reduce health care costs and insurance rates for taxpayers by reducing the total amount of soda and sweetened beverages consumed, this would be most successful if the price elasticity of demand for these sweetened beverages is a) inelastic b) unit elastic c) perfectly inelastic d) elastic

b) a shortage

In the economic sense, almost everything is scarce. ________ of a good or service occurs when the quantity demanded is greater than the quantity supplied at the current market price. a) scarcity b) a shortage c) an overstock d) a surplus

c) in practice, the gains from using a superior technology exceed the losses consumers incur from switching costs

Many economists do not believe that network externalities lock consumers into the use of products that have technology inferior to other, similar products. These economists believe that a) there is no good evidence that switching costs exists b) the government will prevent products with inferior technology from being sold to consumers c) in practice, the gains from using a superior technology exceed the losses consumers incur from switching costs d) consumers are always rational

c) Marv should buy fewer boxes of cereal and more bottles of soft drink

Marv Pilson has $50 worth of groceries in a shopping cart at his local Shop 'n Save. Assume that the marginal utility per dollar of the liter bottles of soft drink in Marv's cart equals 50. The marginal utility per dollar of the boxes of cereal in Marv's cart equals 20. Marv has only $50 to spend, but has not yet paid for his groceries. How can Marv increase his total utility without spending more than $50? a) Marv should buy fewer boxes of cereal and fewer bottles of soft drink. He can then spend more on other items b) Marv should substitute his favorite soft drink or the cereal in his cart for generic brands that have lower prices c) Marv should buy fewer boxes of cereal and more bottles of soft drink d) Marv should buy more boxes of cereal and fewer bottles of soft drink

7,000

Milk producers have convinced the government to impose a price floor. Currently, milk sells for $4 per gallon. At that price 20,000 gallons of milk are bought and sold. Assume that the price elasticity of demand is -0.20 and the price elasticity of supply is +1.2. How much of a surplus will there be if the government imposes a price floor of $5?

d) inelastic

Opera Estate Girls' School is considering increasing its tuition to raise revenue. If the school believes that raising tuition will increase revenue it is assuming that the demand for attending the school is a) perfectly elastic b) elastic c) unit elastic d) inelastic

an increase in demand; shortage

Price gouging, or large increases in the prices of essential goods during an emergency, is illegal in 34 states. In the very short run when it is not possible to produce more of the good, the price increase is a result of ________ and results in a ________ of the good. a) an increase in supply; surplus b) a decrease in supply; shortage c) an increase in demand; shortage d) an increase in demand; surplus

100

Suppose Jack Browns offers a special: you can eat as many cheeseburgers as you would like for a fixed fee. What is the most amount of money a JMU student would be willing to pay?

b) 80 units of utility

Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be a) 100 units of utility b) 80 units of utility c) 2,000 units of utility d) 500 units of utility

c) quantity demanded will decrease, quantity supplied will increase and a surplus will result

Suppose a binding price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia. What will be the likely effect on the market for sparkling wine in Vinyardia? a) quantity demanded will increase, quantity supplied will decrease, and a surplus will result b) quantity demanded will decrease, quantity supplied will increase and a shortage will result c) quantity demanded will decrease, quantity supplied will increase and a surplus will result d) quantity demanded will increase, quantity supplied will decrease and a shortage will result

c) the tax will shift the demand curve down by $1,500

Suppose that in Canada the government places a $1,500 tax on buyers of new snowmobiles. After the purchase of a new snowmobile, a buyer must pay the government $1,500. How would the imposition of the tax on buyers be illustrated in a graph? a) the tax will shift the supply curve up by $1,500. b) the tax will shift the demand curve up by $1,500. c) the tax will shift the demand curve down by $1,500. d) the tax will shift both the demand and supply curves down by $1,500.

5,250

The Harrisonburg city government is considering imposing rent ceilings. Currently, one bedroom apartments rent for $1,200 per month, and there are 5,000 units rented. Assume that the price elasticity of demand is -0.20 and the price elasticity of supply is +1.2. How many apartments are demanded if the government imposes a price ceiling of $900? Keep track of your answer.

3,500

The Harrisonburg city government is considering imposing rent ceilings. Currently, one bedroom apartments rent for $1,200 per month, and there are 5,000 units rented. Assume that the price elasticity of demand is -0.20 and the price elasticity of supply is +1.2. How many apartments are supplied if the government imposes a price ceiling of $900? Keep track of your answer.

1,750

The Harrisonburg city government is considering imposing rent ceilings. Currently, one bedroom apartments rent for $1,200 per month, and there are 5,000 units rented. Assume that the price elasticity of demand is -0.20 and the price elasticity of supply is +1.2. How much of a shortage will there be if the government imposes a price ceiling of $900?

1,800

The Harrisonburg city government is considering imposing rent ceilings. Currently, one bedroom apartments rent for $2,000 per month, and there are 10,000 units rented. Assume that the price elasticity of demand is -0.40 and the price elasticity of supply is +.50. How much of a shortage will there be if the government imposes a price ceiling of $1,600?

875

Vito, the owner of Vito's Italian restaurant, asks for your advice. He currently sells 1,000 pizzas per month at a price of $12 per pizza. You estimate that the price elasticity of demand for pizza is -0.5. How many pizzas will he sell if he increases the price to $15? Keep track of your answer.

12,000

Vito, the owner of Vito's Italian restaurant, asks for your advice. He currently sells 1,000 pizzas per month at a price of $12 per pizza. You estimate that the price elasticity of demand for pizza is -0.5. How much revenue does Vito earn? Keep track of your answer.

1,125

Vito, the owner of Vito's Italian restaurant, asks for your advice. He currently sells 1,000 pizzas per month at a price of $12 per pizza. You estimate that the price elasticity of demand for pizza is -0.5. If he increases the price to $15, how much additional revenue would he earn?

13,125

Vito, the owner of Vito's Italian restaurant, asks for your advice. He currently sells 1,000 pizzas per month at a price of $12 per pizza. You estimate that the price elasticity of demand for pizza is -0.5. If he increases the price to $15, how much revenue would Vito earn?

1,500

Vito, the owner of Vito's Italian restaurant, asks for your advice. He currently sells 1,000 pizzas per month at a price of $12 per pizza. You estimate that the price elasticity of demand for pizza is -2. By how much would Vito's total revenue change if he cuts the price from $12 to $9. Make sure that you include the negative sign if total revenue falls.

a) the increase in quantity sold is large enough to offset the lower price

When demand is elastic, a fall in price causes total revenue to rise because a) the increase in quantity sold is large enough to offset the lower price b) the demand curve shifts c) the percentage increase in quantity demanded is less than the percentage fall in price d) when the price falls, the quantity sold increases so total revenue automatically rises

d) relatively inelastic

When there are few close substitutes available for a good, demand tends to be a) perfectly elastic b) perfectly inelastic c) relatively elastic d) relatively inelastic

b) differences in tastes and preferences

Which of the following does not explain why consumers buy products that many other consumers are already buying? a) network externalities b) differences in tastes and preferences c) cost-effective way to gather information about a product d) the satisfaction people derive by being viewed as "fashionable"

c) bread

Which of the following goods would have the most inelastic demand? a) luxury cars b) big screen TVs c) bread d) ski vacations

a) Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant

Which of the following is likely to occur as the result of the law of diminishing marginal utility? a) Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant b) Petra's utility from her second apple was less than her satisfaction from her first orange c) Hudson enjoyed his second slice of pizza more than his first d) Sabine's utility from her first granola bar is greater than Rachel's utility from her second granola bar

d) producers have an incentive to offer workers non-wage benefits such as health care benefits and convenient working hours rather than a higher wage

Which of the following is not a consequence of minimum wage laws? a) low-skilled workers are hurt because minimum wage reduces the number of jobs providing low-skilled workers with training b) some workers benefit when the minimum wage is increased c) employers will be reluctant to offer low-skilled workers jobs with training d) producers have an incentive to offer workers non-wage benefits such as health care benefits and convenient working hours rather than a higher wage

d) some consumer surplus is converted to producer surplus

Which of the following is not a result of imposing a rent ceiling? a) there is a reduction in the quantity of apartments supplied b) the marginal benefit of the last apartment rented is greater than the marginal cost of supplying it c) there is an increase in the quantity of apartments demanded d) some consumer surplus is converted to producer surplus

c) the burden of the tax falls almost entirely on workers

when congress passed a law that imposed a tax designed to fund its socal security and medicare programs it wanted employers and workers to share the burden of the tax equally. most economists who have studied the incidence of the tax have concluded a) the tax rate should be greater for high-income workers than for low-income workers b) the tax is not high enough to cover the future costs of social security and medicare c) the burden of tax falls almost entirely on workers d) the tax on employers is too high because it reduces the employment for low-skilled workers