Microeconomics test 1
David buys pizza from the campus pizzeria. He calculates his total utility from pizza as follows: Slices of Pizza 0 1 2 3 4 Total Utility 0 12 17 20 22 All of the following statements regarding David's utility from pizza are true except
David experiences increasing marginal utility since his total utility is rising.
There are simultaneous changes in the demand for and supply of tablet devices, with the consequences being an unambiguous decrease in the equilibrium quantity of these devices but no change in the market clearing price. What changes in the demand for and supply of tablet devices could have generated these outcomes?
Demand decreases and supply decreases
There are simultaneous changes in the demand for and supply of tablet devices, with the consequences being an unambiguous increase in the equilibrium quantity of these devices but no change in the market clearing price. What changes in the demand for and supply of tablet devices could have generated these outcomes?
Demand increases and supply increases.
What if the increase in demand were smaller than the increase in supply?
Equilibrium price falls and quantity rises.
The economic system in which a government establishes ownership of resources and issues rules for how to manage the production of products is best described as
a command and control system.
Consider in the graph to the right the demand curve for bananas. The movement from point A to point B could have been caused by
a decrease in the price of bananas
Dynamic tax analysis shows that a likely response to an increase in a tax rate is
a decrease in the tax base.
There is normally a direct relationship between price and quantity of a good supplied, other things held constant. The supply curve normally shows a direct relationship between price and quantity supplied. The market supply curve is obtained by horizontally adding individual supply curves in the market.
a direct supply market supply
Which factor would cause a movement along the demand curve for pizza?
a drop in the price of pizza
The effect of a quantity restriction is
a higher price.
To remain in consumer optimum
a price decrease requires an increase in consumption
The minimum wage is an example of
a price floor.
The demand curve is downward sloping because
a reduction in the price of a good causes individuals to increase their purchase of that good.
Which of the following does NOT cause a rightward shift in the supply curve?
a reduction in the price of the good
In the figure at right, what would result if the price was $10?
a shortage
Which of the following will cause the demand curve for beer to shift right?
a successful advertising campaign linking beer consumption to lower cholesterol
A specified interval of income to which a specific and unique marginal tax rate is applied is called
a tax bracket.
All of the following will decrease the supply of airline flights except
a technological change that makes airplanes safer and more fuel-efficient.
All of the following will decrease the supply of train trips except
a technological change that makes trains safer and more fuel-efficient.
Imposing a unit excise tax on the final sale of a good or service can be displayed graphically as
a vertical shift upward of the supply curve.
Scarcity implies that
a way of rationing supplies of goods must be found.
The relative price of any commodity is its price in terms of
another commodity.
Advocates of behavioral economics
argue that utility theory is explained by applying the assumption of bounded rationality.
The law of supply states that
as price increases, quantity supplied increases, all other things equal.
Sales taxes are
assessed on the prices paid on a large set of goods and services.
Total revenues are maximized
at the point of unit-elasticity on the demand curve.
Observations of real-world situations that appear to violate a consumer optimum could be offered as evidence favoring
bounded rationality.
Most of the benefits from agricultural price supports have gone to small, family-owned farms.
false
The minimum wage is an example of a price ceiling.
false
The smaller the share of a person's total budget that is spent on a commodity, the greater that person's price elasticity of demand is for that commodity.
false
Buyers and sellers receive information about what should be bought and what should be produced
from prices in a market system.
Compared to the short-run price elasticity of demand, the long-run price elasticity of demand is
greater
According to the diamond-water paradox, the total uitlity of water is ________ the total utility derived from diamonds, and the marginal utility of the last unit of water consumed is ________ the marginal utility of the last diamond consumed.
greater than; less than
The use of utility-based consumer choice theory
has allowed economists to make a wide array of predictions about how consumers respond to changes in prices, incomes, and other factors.
Utility analysis helps economists understand
how people make decisions about what they buy and how much.
A major criticism of static tax analysis is that it
ignores the incentive effects created by higher tax rates.
if doughnuts are an inferior good, we can conclude that the
income elasticity of demand is negative
When a government assesses a unit excise tax, the market price of the good or service typically rises by an amount less than the per-unit tax. Hence, consumers pay a portion of the tax, and firms pay the remainder.
less than
Suppose that Norma is disappointed in the revenue her custom dress shop is bringing in. She is thinking of raising the price of each dress, but she asks you for advice. You decide she should
lower the price if demand is elastic.
Voluntary exchange
makes both parties to a trade better off.
The market price people are willing to pay for a unit of a particular commodity is determined by
marginal utility.
Income elasticity of demand
measures the responsiveness of quantity demanded to a change in income and refers to the horizontal shift of the demand curve.
The absolute value of the short-run elasticity of demand for bread has been estimated to be 0.15. Its long-run elasticity of demand is
more than 0.15.
When supply increases and the (downward-sloping) demand curve remains in the same position,
price falls and equilibrium quantity rises.
Refer to the figure at right. A price control has been set which has led to a surplus. This means that a
price floor has been set at p1
The way we know what commodities are relatively scarce or abundant is through
prices.
Suppose the federal government replaced the current income tax system with a system that taxed all income at 20%, but the first $20 comma 000 of income was tax exempt. Such a system would be a ________________ tax system.
progressive
Suppose the federal government replaced the current income tax system with a system that taxed all income at 40%, but the first $35 comma 000 of income was tax exempt. Such a system would be a ________________ tax system.
progressive
Suppose the price of apples falls relative to other similar goods, and as a result the quantity of apples demanded increases. This is caused by
substitution effect.
a decrease in the number of pizza producers or an increase in the cost of mozzarella cheese used to make pizza will shift the
supply curve for pizza inward
An increase in the number of pizza producers or a decrease in the cost of mozzarella cheese used to make pizza will shift the
supply curve for pizza outward.
If we wanted to analyze the effects of a $2 unit tax graphically, we would shift the
supply curve upward by $2.
Suppose the market price of corn is $5 a bushel but the government sets a price of $7. As a result,
the government must purchase the surplus to maintain the price
When two goods are unrelated,
their cross price elasticity of demand will be 0.
Consider the figure to the right. At a price of $2,
there is a tendency for price to rise
Refer to the figure at right. If a price ceiling of $3 was set,
there would be a shortage of 20 units.
Some economists argue that corporate income taxes are typically not paid by the firm, but by
the stockholders, employees, and customers.
Black markets usually arise when there are
price ceilings.
Rational economic agents would resist consuming any good where
Both A and C.
An excise tax of $0.40 is levied on a product. As a result of the tax, the market price of the product goes from $2.00 to $2.30. How much of the tax does the consumer pay?
$0.30.
Refer to the figure at right. When the price increases from $2 to $10, the absolute price elasticity of demand is
0.25.
Sandy's Sandwich Sitdown priced its lunch treats at $2.00, they sold 250 per week. When the price was $3.00, they sold 200 per week. Based on this information, the absolute value of the price elasticity of demand for lunch treats is..... Based on the above calculation, demand for lunch treats is considered to be ...... .
0.56 inelastic
If the price of pineapples increases from $3 to $5, and in response the quantity of pineapples purchased decreases from 28 to 20, the price elasticity of demand for pineapples during this period is
0.67
When the price of cell phones increased from $14 to $16, production increased from 1 comma 800 to 2 comma 000 units per month. The price elasticity of supply is
0.85
Carl's marginal utility for consuming beer and hotdogs with $8.00 in income is given in the table at right. In the table, Carl experiences diminishing marginal utility after consuming how many hotdogs?
1
A student organization finds that when it prices logo emblazoned shirts at $12, the organization sells 200 per day. When the price is reduced to $10, the organization sells 250 per day. Based on this information, use the average-values formula to find the price elasticity of demand for logo emblazoned shirts. Provide the absolute value of the price elasticity of demand.
1.22
Remembering that the price elasticity of demand is evaluated in terms of absolute values, which of the following is an example of an elastic demand?
1.5
We observe a 15 percent decrease in units purchased and a(n) 10 percent increase in price. The price elasticity of demand in terms of absolute values is
1.5
When the price of cell phones decreased from $14 to $10, production decreased from 2 comma 000 to 1 comma 200 units per month. The price elasticity of supply is
1.52
Suppose that the price of a pair of shoes is $15 and the price of a jar of jelly is $9. What is the relative price of a pair of shoes? What is the relative price of a jar of jelly?
1.667 0.006
Kalia receives 40 utils from her first slice of pizza, 20 utils from her second slice of pizza, and 10 utils from her third slice of pizza. Kalia's marginal utility from her third slice of pizza is
10
The following table indicates the demand schedules for four types of consumers: A, B, C, and D and the number of consumers in each group (top row). The quantity demanded by each type of consumer (QA, QB, QC, and QD) is shown for market prices ranging from $10 down to $4. What is the combined quantity demanded at a market price of $4? Number of Consumers A = 200 B = 300 C = 300 D = 200 Market Price QA QB QC QD $10 0 0 1 1 9 0 1 2 3 8 1 3 3 5 7 2 5 4 8 6 3 7 5 11 5 4 9 6 15 4 5 11 7 20
10,400
Corporate income taxes account for
11.5 percent of all federal taxes collected and make up about 2 percent of all state and local taxes collected.
At a consumer optimum involving goods X and Y, the marginal utility of good X equals 2 utils. The price of good Y is six times the price of good X. What is the marginal utility of good Y?
12
Jeanne receives 50 utils from her first hamburger, 25 utils from her second hamburger, and 13 utils from her third hamburger. Jeanne's marginal utility from her third hamburger is
13
A senior citizen gets a part-time job at a fast-food restaurant. She earns $9 per hour for each hour she works, and she works exactly 29 hours per week. Thus, her total pretax weekly income is $261. Her total income tax assessment each week is $40, but she has determined that she is assessed $3 in taxes for the final hour she works each week. This person's average tax rate each week is percent. (Round your answer to one decimal place he marginal tax rate for the last hour she works each week is percent.
15.3 33.3
Suppose a government has access to the following sources of funding currently as well as over the long run: Source Dollar Amount Taxes $1 , 500 User charges $ 200 Borrowed funds $ 500 In the current time period, this government's spending on goods and services and transfer payments is limited to Over the long run, this government's fundamental revenues are equal to
2,200 1,700
When the Gizmo Company could sell a gizmo for $10, it produced 2,500 per month. More recently, the price of a gizmo has fallen to $9 and so Gizmo is only producing 2,000 units per month. What is the price elasticity of supply for gizmos?
2.11
Refer to the table at right. What is the absolute price elasticity of demand when a price rises from $9 to $9.50?
2.85
At a consumer optimum involving goods X and Y, the marginal utility of good X equals 4 utils. The price of good Y is five times the price of good X. What is the marginal utility of good Y?
20
The following table shows the marginal tax rate under tax systems A and B. Income Range Tax System A Marginal Tax Rate Tax System B Marginal Tax Rate 0 -$20,000 0% 5% $20,001 -$40,000 20% 15% $40,001 -$80,000 28% 30% $80,001 -$200,000 35% 50% > $200,000 35% 80% Under tax system A, the average tax rate for an income level of $100,000 is
22.2%
Quantity of Hamburgers/Wk 1 2 3 4 5 6 Total Utility Hamburgers 40 60 76 86 91 93 Marginal Utility Hamburgers 40 20 16 10 5 2 Quantity of Movies/Wk 1 2 3 4 5 6 Total Utility Movies 400 700 850 950 1000 1025 Marginal Utility Movies 400 300 150 100 50 25 Refer to the table above. Suppose the price of a movie is $5 and the consumer's income is $29. What are the quantities demanded of hamburgers at prices of $2 and $1 respectively?
2; 4
Between 2017 and 2018, a small businessperson's income increased from $200,000 to $220,000. The annual state income taxes that she paid increased from $6 , 000 to $6 , 600. What was her average state income tax rate in each year? This small businessperson's average state income tax rate in 2017 was ... percent. (Enter your response rounded to one decimal place.) Her average state income tax rate in 2018 was ... percent. (Enter your response rounded to one decimal place.)
3.0 3.0
When the price of cell phones decreased from $16 to $14, production decreased from 2 comma 800 to 1 comma 800 units per month. The price elasticity of supply is
3.31
Refer to the above table. The marginal utility of the 6th movie for Michael is
30 units of utility.
When Jennifer consumes one apple, her total utility is 6 utils. When she consumes two apples, her total utility increases to 10 utils. What is Jennifer's marginal utility from consuming the second apple?
4 utils
We observe a 10 percent increase in units purchased and a(n) 2 percent decrease in price. The price elasticity of demand in terms of absolute values is
5.0
Refer to the above table. The marginal utility of the 5th movie for Rosie is
60 units of utility.
Using the figure at right, which of the lines in the above diagram represents a progressive tax?
A
Refer to the figure at right. Demand will be unit-elastic when quantity is between
A and B.
Which of the following would cause a decrease in the demand for beef?
A decrease in the price of fish, a substitute for beef.
Which of the following is consistent with the law of demand?
A doubling of the price of salt led to a 5 percent drop in the quantity of salt purchased.
Which of the following is consistent with the law of demand?
A reduction of the price of salt led to a 5 percent increase in the quantity of salt purchased.
What has been the market outcome of government-enforced price floors for agricultural products?
A surplus of agricultural products has resulted.
Which of the following will cause an outward (rightward) shift in supply?
A technological improvement.
Consider the figure 4B-2. If the price is $20, find the area that represents producer surplus.
A+B+C
Which of the following is not a determinant of the degree of price elasticity of demand for an item?
All of the above are determinants of the degree of price elasticity of demand for an item.
A change in which of the following will result in a shift of the supply curve?
All of the above.
Given the existence of relative scarcity, resources can be rationed by
All of the above.
Price ceilings, such as rent controls
All of the above.
Total utility
All of the above.
What is the economic effect of price ceilings?
An effective price ceiling will lead to a shortage.
Which of the following is consistent with the law of supply?
An increase in the market price of oranges causes an increase the production of oranges
Which of the following would cause an increase in the demand for fish?
An increase in the price of chicken, a substitute for fish.
Which of the following would cause a decrease in the supply of chicken?
An increase in the price of inputs to chicken production.
Which of the following will cause a movement along the demand curve for shoes?
An increase in the price of shoes
Which of the following is consistent with dynamic tax analysis?
An increase in the tax rate will likely cause a decrease in the tax base.
Which of the following statements best explains how utility usually changes with the quantity of a good consumed?
As the quantity consumed increases, total utility increases but marginal utility decreases.
What will happen when there is a rightward shift in the demand curve?
A new, higher price is not instantaneously achieved, but the price will rise over time.
Carly is maximizing her utility buying bagels and bread. This week, the price of bagels has decreased. Carly considers these goods to be close substitutes. Which of the following best describes what Carly would be expected to do?
Carly will buy more bagels and less bread.
Because of the doubts expressed by proponents of behavioral economics, most economists no longer apply the assumption that people behave as if they act rationally with an aim to maximize utility.
False
Demand tends to be more inelastic at higher prices and more elastic at lower prices.
False
Elasticity of demand is greater in the short run than in the long run.
False
Governments that wish to maximize their tax revenues need to assess a high tax rate.
False
Governments that wish to maximize their tax revenues should always assess a high tax rate.
False
If the number of firms in an industry decreases, the supply curve will shift to the right.
False
In general, the less organized the market, the lower the transaction costs.
False
Javier spends all his income on peanuts and chewing gum. The last dollar spent on peanuts yeilds 14 utils and the last dollar spent on chewing gum yields 6 utils. To increase total utility, Javier should spend less on peanuts and more on chewing gum.
False
Markets which are temporarily out of equilibrium will always return to equilibrium immediately.
False
Static tax analysis assumes that tax rates do not change.
False
The concept of self interest assumes that individuals can only further their goals at the expense of other individuals.
False
When price increases along the inelastic range of market demand, total revenues will go down.
False
Assume the cost of aluminum used by soft-drink companies increases. Which of the following correctly describes the resulting effects in the market for canned soft drinks? I. The demand for soft drinks decreases. II. The quantity of soft drinks demanded decreases. III. The supply of soft drinks decreases. IV. The quantity of soft drinks supplied decreases.
II and III
What is the relationship between tax rates and tax revenues?
Increasing tax rates will initially increase tax revenues. Eventually an increase in the tax rate will erode the tax base and revenues will decrease.
Which of the following is NOT true of the federal unemployment insurance tax?
It is paid by employers and employees.
Which of the following statements about a supply curve is FALSE?
It typically slopes downward to the right.
People earn $100 million in Year 1 and pay a flat tax rate of 20%. Each person earns between $20,000 and $60,000 a year (pre-tax), with an average of $40,000 per person. To make the income tax more progressive in Year 2, the government makes the tax rate 0% for the first $20,000 of income and 40% for the next $40,000 of income. Jacob earns $35,000 a year (pre-tax) before the change in the tax rate. Rachel earns $45,000 a year (pre-tax) before the change in the tax rate. Which of the following is true?
Jacob pays less tax in Year 2; Rachel pays more tax in Year 2.
Suppose a market consists of 10 buyers, each of whom is assumed to have the identical demand schedule given by: Price ($ per unit) Quantity Demanded $5 5 $4 10 $3 15 $2 20 $1 25 On the graph to the right: Using the multipoint curve drawing tool, draw the market demand curve. Properly label this line. Carefully follow the instructions above, and only draw the required object.
Labeled D Market
The campus bookstore sells a CD for $12. When you buy a second CD, however, its price is only $8. How does this relate to marginal utility?
Marginal utility is the additional satisfaction from additional units of the good.
The campus pizzeria sells a large pizza for $14. When you buy a second large pizza, however, its price is only $10. How does this relate to marginal utility?
Marginal utility is the additional satisfaction from additional units of the good.
Until 2008, the people of the fictitious nation of Dor relied mainly on private car companies to determine how many automobiles to produce. After 2008, the people of Dor have been relying on the Dor government to determine how many automobiles to produce. This represents a shift in the economic system of Dor from
Market System to Central Planning.
Which of the following is not a true statement about U.S. government support programs for agriculture?
Most farm support goes to small farmers, because there are many more small farmers than large farmers.
Which of the following statement is false?
Only the price system can be used to ration goods.
A product has unit elasticity of demand when the price elasticity of demand is
equal to 1
Diamonds, which are unnecessary, command very high prices, while water, which is essential to life, has a very low price. Which of the following statements best explains the diamond-water paradox?
Prices depend on marginal utility, not total utility, and the marginal utility of water is low because much is consumed.
Which of the following is an implication of the law of supply?
Producers will offer more units at a higher price and fewer units at a lower price.
Price elasticity of supply is calculated by dividing the percentage change in ... by the percentage change in ... . Usually, price elasticities of supply are ... long dashhigher prices yield ... quantities supplied. Long-run supply curves are ..... elastic than short-run supply curves because the .... the time allowed, the more resources can flow into or out of an industry when price changes.
Quantity supplied price positive greater more longer
To enhance their prestige, some country clubs like to point to the fact that they have a waiting list for new members. Even at clubs with high initiation fees, it is common that prospective members have to wait three or more years before there is room for them on the membership rolls. How do these country clubs set the price of membership to ensure that they have a waiting list?
Set the membership price below the market clearing price.
The campus bookstore sells a campus mug for $10. When you buy a second campus mug, however, its price is only $6. How does this relate to marginal utility?
Since marginal utility falls as additional units of the good are consumed, consumers are only willing to purchase more as the price falls.
Employers match employees' contributions for
Social Security taxes.
Staci is maximizing her utility buying hamburger and steak. This week, the price of hamburger has increased. Staci considers these goods to be close substitutes. Which of the following best describes what Staci would be expected to do?
Staci will buy less hamburger and more steak.
Suppose that a state government implements a tax on mechanics' labor time at all state auto repair shops in order to enhance its tax revenues. One year later the government is disappointed to find that not only is the amount of tax collected small, but that in-state auto repair work significantly declined. This state government apparently utilized which type of tax analysis?
Static tax analysis.
Stella is currently spending all of her weekly income purchasing the two goods that she likes cookies and milk. She is currently purchasing 10 cookies and 5 cartons of milk. She receives 30 utils from her 10th cookie and 15 utils from her 5th carton of milk. The price of cookies is $12, and the price of milk is $4. Is Stella maximizing her utility, and if not, what should she do?
Stella should buy fewer cookies and more milk.
Which of the following is not a source of funding available to governments?
Stock sales.
What is the economic effect of price floors?
Surpluses
Which one of the following statements is true?
The U.S. Social Security tax is regressive.
What is the structure of the U.S. income tax system?
The U.S. income tax system is a progressive tax system where the marginal tax rate exceeds the average tax rate.
An excise tax of 60 cents is levied on a product. As a result of the tax, the price of the product goes from $1 to $1.40. Which of the following is true?
The consumer pays the majority of the tax but not the entire tax.
Suppose that you are investigating the market for aluminum. The price of steel, a substitute good, has decreased. Which of the following would best describe the market reaction to this event?
The demand for aluminum decreases, which creates a surplus of aluminum, causing the price of aluminum to decrease.
Suppose that the cross price elasticity of demand between ski lift tickets and ski rentals is negative 0.20. What would you expect to happen to the sales of ski rentals if the price of ski lift tickets rises by 15 percent?
The demand for ski rentals would fall . The demand for ski rentals would fall by 3.0 percent.
Refer to the figure at right. A unit tax of $2 has been placed on the good. Which of the following statements is true about the vertical distance between s1 and s2
The distance is $2.
Which of the following is not an example of a transaction cost?
The enjoyment of using the good.
What if the increase in demand were larger than the increase in supply?
The equilibrium price and quantity increase.
How do the taxes that are levied on goods and services affect market prices and quantities?
The equilibrium quantity will decrease and the market price will increase by less than the amount of the tax.
Which of the following is the most important source of revenue for the federal budget?
The federal personal income tax.
In a market system, how are the terms of exchange established?
The forces underlying supply and demand interact to set a price.
Which of the following statements is true?
The larger the share of a person's total budget that is spent on a commodity, the greater that person's price elasticity of demand is for that commodity.
which of the statements is true
The larger the share of a person's total budget that is spent on a commodity, the greater that person's price elasticity of demand is for that commodity.
The price of milk increases. Which of the following is not part of the likely chain of events that follows from this price change
The manufacturers of milking machines lay off some workers
The price of orange juice increases. Which of the following is not part of the likely chain of events that follows from this price change?
The manufacturers of orange minus picking machines lay off some workers.
The concept of consumer surplus is best described by the following situation.
The maximum price that Jackie was willing to pay for an iphone was $400, but she bought it for $250 on black Friday.
Suppose that at first the price of a pair of shoes is $15 and the price of a t minus shirt is $9. Then, the price of a pair of shoes changes to $30 and the price of a t minus shirt changes to $21. What has happened the money prices and relative prices of these two goods?
The money price of a pair of shoes and a t minus shirt have risen and the relative price of a pair of shoes has fallen while relative price of a t minus shirt has risen.
Suppose that at first the price of a pair of shoes is $5 and the price of a t minus shirt is $3. Then, the price of a pair of shoes changes to $10 and the price of a t minus shirt changes to $7. What has happened the money prices and relative prices of these two goods?
The money price of a pair of shoes and a t minus shirt have risen and the relative price of a pair of shoes has fallen while relative price of a t minus shirt has risen.
Money Prices 2003 2004 Hospital Room (1 day) $200 $225 Hotel Suite (1 night) $300 $325 Based on the table above, which of the following is true?
The money prices of both goods increased, the relative price of hospital rooms increased, and the relative price of hotel suites decreased.
The market for corn is initially in equilibrium. Suppose the production of biofuels, which use corn as an input, increases, and at the same time, increases in the price of oil cause farm production costs to rise. Which of the following explains the effect on equilibrium price and quantity in the corn market?
The price of corn will rise, but the effect on equilibrium quantity cannot be determined without more information.
In advance of the recent increase in the U.S. minimum wage rate, the government of the state of Arizona decided to boost its own minimum wage by $1.60 per hour. This pushed the wage rate earned by Arizona teenagers above the equilibrium wage rate in the teen labor market. What is the predicted effect of this action by Arizona's government on each of the following?
The quantity of labor supplied by Arizona teenagers will increase . The quantity of labor demanded by employers of Arizona teenagers will decrease . The number of unemployed Arizona teenagers in this city will increase .
Suppose that a country band called Only Here has released its first CD with Wanted Records at an intended list price of $14.99. Music stores have discovered that they can markup the price to $17.99 with continued strong sales. What information does this higher price convey to the recording label?
The recording label should expand the production and distribution of Only Here's first CD.
Suppose that a rap group called RG 2 has released its first CD with Live Records at an intended list price of $14.99. Music stores have discovered that they can markup the price to $17.99 with continued strong sales. What information does this higher price convey to the recording label?
The recording label should expand the production and distribution of RG 2's first CD.
Last year, the price of chicken was $6 per pound and the price of fish was $7 per pound. This year, the price of chicken is $10 per pound and the price of fish is $11 per pound. All other things equal, and assuming that Brian purchased both items before, what would you expect to happen to his purchases of chicken (relative to fish) this year?
The relative price of chicken has increased, so Brian would be expected to purchase less.
What does the price elasticity of demand measure?
The responsiveness of quantity demanded to a change in the price of a good.
Consider the market for laptop computers. Click on the graph to the right to determine how the following event will impact this market. Do this by illustrating the event on the graph and then assess its impact on the equilibrium quantity and the market price. Event: The number of manufacturers of laptop computers increases.
The supply increases, causing the equilibrium quantity to rise and the market price to fall.
Consider the market for laptop computers. Click on the graph to the right to determine how the following event will impact this market. Do this by illustrating the event on the graph and then assess its impact on the equilibrium quantity and the market price. Event: The price of machinery used to produce laptop computers decreases.
The supply increases, causing the equilibrium quantity to rise and the market price to fall.
Which one of the following statements is FALSE?
There is an inverse (negative) relationship between product price and quantity supplied.
In a market-based economy, what is the role of a system of prices?
To address the problem of scarcity.
What is the difference between total utility and marginal utility?
Total utility is the total amount of satisfaction derived from consuming a certain amount of a good while marginal utility is the additional satisfaction gained from consuming an additional unit of the good.
A black market is a market in which a price-controlled good is sold at an illegally high price.
True
A consumer maximizes personal satisfaction when allocating money income in such a way that the last dollars spent on each good or service yields equal amounts of marginal utility.
True
A market supply curve is derived by summing the individual producers' supply curves.
True
A positive difference between the purchase price and the sale price of an asset is called a capital gain.
True
Behavioral economists suggest that consumers do not behave as if they are rational, and if the rationality assumption does not apply to actual behavior, they argue, it follows that utility-based consumer choice theory cannot, either.
True
Consumer surplus is the difference between the total amount that consumers would have been willing to pay for an item and the total amount that they actually pay.
True
Cross price elasticity of demand measures the responsiveness of the amount of an item demanded to the prices of related goods.
True
Middlemen specialize in lowering transaction costs.
True
Rationing by the price system leads to the most efficient use of available resources.
True
The economic system in which individuals and families own all of the scarce resources used in production, decide how and what to produce, and how many products to produce, is best described as a price system.
True
Which of the following statements is true concerning the consequences of rent controls?
Upper income earners are big winners due to the fact that they can better exploit nonprice rationing devices.
Which of the following is NOT true of utility?
Utility can be measured objectively.
Which of the following describes an inferior good?
When consumer income increases, the demand for eggs decreases.
Which of the following examples are used as evidence favoring the bounded rationality assumption?
When purchasing electric appliances such as refrigerators, people sometimes buy the lowest-priced, energy-inefficient models even though the price savings often fail to compensate for higher future energy costs.
Which of the following is not one of the three fundamental questions of economics?
Where will items be produced?
The common element of the nation's answers to those key economic questions has been:
a centralized authority assuming responsibility for addressing them.
Which of the following will cause the demand curve to shift?
a change in consumer income
All of the following determine the price elasticity of demand except
a change in the price of resources used to produce the good.
Based on only the information provided, characterize the demand for the following goods as being more elastic or more inelastic.
a. A 45-cent box of salt that you buy once a year: more inelastic . b. A type of high-powered ski boat that you can rent from any one of a number of rental agencies: more elastic . c. A specific brand of bottled water: more elastic . d. Automobile insurance in a state that requires autos to be insured but has few insurance companies: more inelastic . e. A 75-cent guitar pick for the lead guitarist of a major rock band: more inelastic .
A rightward shift in the supply curve for a good may be caused by any of the following except
an increase in average consumer income
As long as a price floor is ________ the market clearing price, imposing a price floor creates a ________.
above surplus
Economists assume that when there is a change in demand and/or supply, that prices reach a new equilibrium
after an adjustment period that varies.
In the United States, government-imposed price supports are most often associated with
agricultural products.
When personal income in the country rises, so do alcohol consumption and traffic fatalities. It can be said that
alcohol is a normal good and has a positive income elasticity of demand.
Static tax analysis assumes that
an increase in a tax rate will leave the tax base unchanged.
Ryan is deciding between attending Western State University and Eastern State University. He cannot attend both universities simultaneously. Both are fine universities, but the reputation of Western is slightly higher, as is the tuition. Let MU Subscript Upper E and MU Subscript Upper W be Ryan's marginal utilities from attending Eastern and Western State Universities respectively and Upper P Subscript Upper E and Upper P Subscript Upper W be the prices of attending Eastern and Western State Universities. Using the rule of consumer optimum, Ryan will decide to
attend Eastern State University, if StartFraction MU Subscript Upper E Over Upper P Subscript Upper E EndFraction exceeds StartFraction MU Subscript Upper W Over Upper P Subscript Upper W EndFraction .
The price elasticity of demand for a particular commodity depends upon all of the following except
availability of complementary goods.
The tax rate is the total tax payment divided by total income, and the tax rate is the change in the tax payment divided by the change in income.
average marginal
An above-equilibrium minimum wage will result in ________ in the quantity of labor demanded and ________ in the quantity of labor supplied.
a decrease; an increase
A price ceiling is
a government-imposed maximum price that may be charged for a good or service, which can lead to shortages.
As long as a price ceiling is ________ the market clearing price, imposing a price ceiling creates a ________.
below; shortage
In the figure at right, the range of unit elasticity occurs
between point c and point d.
Suppose that paper is necessary to produce books. If the price of paper rises, the supply curve of
books shifts to the left
Identify which of the following would generate an increase in the market demand for tablet devices, which are a normal good. I. A decrease in the incomes of consumers of tablet devices. II. An increase in the price of ultrathin computers, which are substitutes. III. An increase in the price of online apps, which are complements. IV. An increase in the number of consumers in the market for tablet devices. A. Only I. B. Both II and IV. This is the correct answer.C. Both II and III. Your answer is not correct.D. Only II.
both II and IV
The price of a video is $5 and the price of a dinner is $25. From this we know that a consumer who is maximizing utility will
buy enough of the two goods such that the marginal utility from the last dinner consumed is five times greater than the marginal utility from the last video.
The price of a video is $4 and the price of a dinner is $16. From this we know that a consumer who is maximizing utility will
buy enough of the two goods such that the marginal utility from the last dinner consumed is four times greater than the marginal utility from the last video.
The publication Car and Driver reduces transactions costs for high-performance car buyers
by providing reliable information so that car buyers do not have to spend as much time doing their own research.
If the demand and supply curves increase (shift outward) by identical proportions then
equilibrium price stays the same and quantity rises.
There are simultaneous changes in the demand for and supply of global-positioning-system (GPS) devices, with the consequences being an unambiguous decrease in the market clearing price of these devices but no change in the equilibrium quantity. What changes in the demand for and supply of GPS devices could have generated these outcomes?
demand decreases and supply increases
A leftward shift in the supply curve for a good may be caused by any of the following except
consumer expectation of an increase in their future income
If fitness trackers and potato chips are unrelated goods, we can conclude that the
cross price elasticity is zero
If one wanted to know the impact of the falling price of using the Internet on the demand for library services, one would need to compute the
cross price elasticity of demand for library services and price of using the Internet.
The percentage change in the demand for one good divided by the percentage change in the price of a related good is the
cross price elasticity of demand.
A product has perfectly inelastic demand when the price elasticity of demand is
equal to 0.
Consider the chewing gum market shown in the graph at right. Upper A decrease in the demand for chewing gum will ________ the equilibrium price and _________ the equilibrium quantity.
decrease decrease
Consider the coffee market shown in the graph at right. An increase in the supply of coffee will ________ the equilibrium price and _________ the equilibrium quantity.
decrease, increase
If a firm increases the price of their product in the elastic portion of the demand curve, total revenues will
decrease.
According to the law of diminishing marginal utility, as more of any good or service is consumed, the satisfaction received from the consumption of those extra units
decreases.
When there is an inferior good, an increase in consumer income will result in the
demand curve shifting to the left
When there is a normal good, an increase in consumer income will result in the
demand curve shifting to the right
During her years of college, Dominique discovered that her three favorite subjects were astronomy, chemistry, and political science. She chose to major in astronomy because she had seen data indicating that science majors earn higher-than-average wages and because she liked astronomy better than both chemistry and political science. Upon graduation, however, she learned that average wages in chemistry fields were 20 percent higher than average wages earned by astronomers. Did Dominique's behavior violate the rationality assumption? Dominique's decision to major in astronomy
did not violate the rationality assumption because she preferred astronomy, and because, at the time she made her decision, data showed science majors earn higher-than-average wages.
According to the law of supply, the quantity supplied of any commodity is ________ related to its price, other things being equal.
directly
According to the text, firms encounter rising costs when they attempt to produce more in the same time period. As a consequence, they must be offered a higher price to be willing to incur these higher costs. The resulting relationship between price and quantity supplied is
direct (or positive) and is called the law of supply.
Government-enforced prices such as price ceilings
disrupt the rationing function performed by prices in a market system.
If an analyst has concluded that tax revenues may eventually decline if the tax rate is raised sufficiently, this analyst is using
dynamic tax analysis.
A society's institutional mechanism for determining the way in which scarce resources are used to satisfy human desires refers to its
economic system.
The price elasticity of demand for gizmos is known to be 5.0 (in absolute value). Therefore, the demand for gizmos can be described as
elastic
When the price of cell phones decreased from $16 to $14, production decreased from 2 comma 000 to 1 comma 200 per month. You can conclude that the supply of cell phones is price ...... .
elastic
If a 1 percent increase in price elicits a greater than 1 percent increase in the quantity supplied, we say that at the particular price in question on the supply schedule, supply is
elastic.
If total revenue falls when the market price increases, demand is
elastic.
Other things remaining equal, a decrease in the world oil supply like those that occurred in 1973-74 and 1979 would
increase the price of airline travel and decrease its equilibrium quantity.
Consider the coffee market shown in the graph at right. Upper A decrease in the supply of coffee will ________ the equilibrium price and _________ the equilibrium quantity.
increase, decrease
Opponents of minimum wage legislation argue that higher minimum wages serve to
increase unemployment, particularly among unskilled minority teenagers.
The concept of marginality is important in economics because
individuals make decisions at the margin.
When total revenue and price are directly related, demand is
inelastic
A firm sells 2 million units of a good when price is $4.00 and 1.8 million units when price is $4.50. The price elasticity of demand is
inelastic.
In the figure at right, over the price range Upper P 5 Upper P 6, demand is
inelastic.
When total revenue and price are directly related, demand is
inelastic.
The supply curve is drawn with other things held constant. If these ceteris paribus conditions of supply change, the supply curve will shift. The major ceteris paribus conditions are (1) input prices , (2) technology and productivity , (3) taxes and subsidies , (4) expectations of future relative prices , and (5) the number of firms in the industry .
input prices technology and productivity taxes and subsidies expectations of future relative prices the number of firms in the industry
According to the law of demand, the quantity demanded of any commodity is ________ related to its price, other things being equal.
inversely
The first slice of pizza yields Jeffrey 12 units of utility and the second slice yields him an additional 8 units of utility. His total utility from three slices of pizza is 24 units of utility. The marginal utility of the third slice of pizza
is 4 units of utility.
The first slice of pizza yields Jeffrey 18 units of utility and the second slice yields him an additional 12 units of utility. His total utility from three slices of pizza is 36 units of utility. The marginal utility of the third slice of pizza
is 6 units of utility.
The price of a piece of pizza is $1 and the price of a movie is $4 and the consumer has $10. A consumer has purchased 2 pieces of pizza and 2 movies, receiving 25 units of utility for the second pizza and 100 units of utility for the second movie. The set of goods
is an optimum since the entire income is spent and the marginal utility per dollar spent is the same for the last unit of each good.
The price of one piece of pizza is $2 and the price of movies is $4. The consumer has $14 of income. The consumer is purchasing 3 pieces of pizza and receiving 20 utils for the last piece. He is also purchasing 2 movies and receiving 40 utils for the last movie. This set of goods
is an optimum since the entire income is spent and the marginal utility per dollar spent is the same for the last unit of each good.
Based on the recommendation of a friend, you buy a ticket and attend a movie with high expectations. After seeing the movie, you think that it is the worst film ever made and that it was a complete waste of money. This situation
is consistent with rational behavior because you had thought that you were going to like the movie.
The price of a piece of pizza is $1 and the price of a movie is $6 and the consumer has $14. A consumer has purchased 2 pieces of pizza and 2 movies, receiving 20 units of utility for the second piece of pizza and 100 units of utility for the second movie. When the consumer spends all her income, the set of goods
is not an optimum because the marginal utility per dollar spent is greater for pizza than for movies.
The price of a hotdog is $1, the price of a movie ticket is $5, and the consumer has $13. A consumer has purchased 3 hotdogs and two movie tickets, receiving 10 units of utility for the last hotdog and 10 units of utility for the last movie. The set of goods
is not an optimum because the marginal utility per dollar spent is greater for the hotdog than for the movie.
If demand increases while supply simultaneously decreases, then the equilibrium quantity
none of the above
Tania spends her income on donuts and coffee. If Tania is at her consumer optimum and the price of donuts decreases, she will spend ________ on donuts, which will cause the marginal utility from consuming donuts to ________.
more; fall
If the price changes, we move along a curvelong dashthere is a change in quantity demanded or supplied. If some other determinant changes, we shift a curvelong dashthere is a change in demand or supply.
move along shift
The law of supply then implies that a the supply curve occurs due to a change in market price.
movement along
A fundamental principle in demand analysis is that a change in price leads to
movement along the demand curve.
One would expect that the cross price elasticity of ski poles and skis would be
negative since they are complements.
If milk and cookies are complements, then their cross price elasticity of demand will be
negative.
A price ceiling set above the equilibrium price will cause which of the following?
no effect on either the price or quantity
A price floor set below the equilibrium price will cause which of the following?
none of the above
If a government wants to obtain the maximum tax revenue it should
not assess the highest possible tax rate.
A consumer has spent all of his income on pizza and movies. The price of a pizza is $1 and the price of a movie is $6. The marginal utility of the last pizza is 5 and the marginal utility of the last movie is 24. The consumer has
not maximized utility. He should cut back on movies and buy more pizza.
A consumer has spent all of his funds on hamburgers and movies. The price of a hamburger is $1 and the price of a movie is $5. The marginal utility of the last hamburger is 5 and the marginal utility of the last movie is 40. This consumer has
not maximized utility. To maximize utility, he should cut back on movies and buy more hamburgers.
An individual's demand curve slopes down because
of the law of diminishing marginal utility and the rule of equal marginal utilities per dollar.
Because the behavioral economics approach suggests many alternative behaviors that people might exhibit if they fail to behave as if they are rational, this approach
often fails to provide clearly testable behavioral predictions.
Refer to the figure at right. A unit tax has been placed on the good. The consumer pays what amount of the tax?
p2-p1
A good's price elasticity of demand can be calculated by using the formula of
percentage change in quantity demanded divided by percentage change in price.
Price elasticity of demand is defined as the
percentage change in quantity demanded divided by the percentage change in price.
The price elasticity of demand is the
percentage change in quantity demanded divided by the percentage change in price.
Tickets for the Super Bowl are an example of supply that is
perfectly inelastic.
The most important tax in the U.S. economy is the
personal income tax, which accounts for 49 percent of all federal revenues.
We should expect the cross price elasticity of butter and margarine to be
positive since they are substitutes.
For most items, we find the price elasticity of supply will be
positive.
When two goods are substitutes, the cross price elasticity of demand will be
positive.
For purposes of assessing income taxes, there are three official income levels for workers in a small country: high, medium, and low. The table to the right gives the marginal tax rate for the last hour on the job during a 40-hour workweek for each of these three worker types. Based only on this information, this nation's income tax system appears to be . Worker type Marginal tax rate Low-income worker 15 percent Medium-income worker 20 percent High-income worker 25 percent Worker type Marginal tax rate Low-income worker 25 percent Medium-income worker 20 percent High-income worker 15 percent
progressive regressive
A tax system in which, as income increases, a higher percentage of the income is paid as taxes is known as
progressive taxation
Tax systems can be , depending on whether the marginal tax rate is the same as, greater than, or less than the average tax rate as income rises, respectively.
proportional progressive regressive
Some Internet companies like Amazon reduce the transaction costs of many purchases by
providing information about products and firms that supply those products.
A decrease in the price of a good causes
purchasing power of a person's income to increase.
At the market equilibrium price,
quantity demanded equals quantity supplied.
An increase in supply, all other factors held constant, will cause which of the following to occur?
quantity demanded to increase.
The law of demand states that
quantity demanded will fall as price rises, other things being equal
Suppose that Norma is disappointed in the revenue her custom dress shop is bringing in. She is thinking of raising the price of each dress, but she asks you for advice. you decide she should
raise the price if demand is inelastic
Governments collect taxes by applying a tax to a tax , which refers to the value of goods, services, wealth, or incomes.
rate base
People often complain about price gouging after a natural disaster. Suppose the government imposed limitations on price increases in the aftermath of a disaster. One would expect
reconstruction to take longer because the quantity supplied of new materials would increase more slowly.
Imposing a tax on sales of an item reduces the equilibrium quantity produced and consumed and raises the market price.
reduces raises
The "incidence of a tax"
refers to those who bear the final burden of taxation.
The Social Security tax is considered to be a
regressive tax.
The supply curve shown on the right is
relatively elastic
For Kelly comma there is no substitute for Diet Coke. It is the only thing that she likes to drink. Based only on this information, Kelly's demand for diet coke would be expected to be
relatively inelastic
The corporate income tax in the United States
results in individuals' being doubly taxed on corporate earnings.
When the amount supplied is greater at each price, there is a(n)
rightward shift in the supply curve.
State and local governments receive most of their revenue from
sales and excise taxes, revenue from the federal government, and property taxes.
Key taxes at the federal level do not include:
sales taxes
In a price system, changes in prices
signal to everyone in the system what goods are relatively more or less scarce.
For most goods, the real-income effect of a price change is
small because the good accounts for a small part of the consumer's budget.
Other things remaining equal, the law of demand says that higher prices will lead to a
smaller quantity demanded and lower prices to a larger quantity demanded.
Key taxes at the state and local level do not include:
social security tax
Key taxes at the state and local level do not include:
social security taxes
The rationality assumption as used in economics
states that people respond to incentives.
The federal corporate income tax structure results in double taxation because
stockholders pay taxes on dividends that were already taxed as profits of the corporation.
Consider the following cases. a. If the price of bacon rises, and as a result the demand for sausage increases, this implies that these two goods are substitutes . b. If the price of tennis racquets falls, and as a result the demand for tennis balls increases , this implies that these two goods are complements c. If the price of coffee rises, and as a result the demand for sugar falls, this implies that these two goods are complements . d. If the price of automobiles falls , and as a result the demand for motorbikes falls, this implies that these two goods are substitutes
substitutes increases compliments falls
Regarding the figure at right, at a price of four cents, a(n) ________ of bubble gum will exist in the market.
surplus
A proportional tax, or flat-rate tax
takes the same percentage of a person's taxable income in tax regardless of their level of income.
The marginal income tax rate is equal to
the change in the tax payment divided by the change in income.
Determinants of the price elasticity of demand include all of the following except
the cost to produce the product.
The fundamental limitation on public expenditures during a specific time interval is expressed by
the government budget constraint.
Under progressive taxation, as a person's taxable income increases,
the marginal tax rate is always above the average tax rate.
Consider the figure to the right. At a price of $5
the market has reached equilibrium price
Price elasticity of demand is defined as
the percentage change in quantity demanded divided by the percentage change in price.
Total revenue will remain the same when
the price elasticity of demand equals 1.00 and price rises
A consumer was at an optimum. She then discovers that the marginal utility per dollar spent on food is more than the marginal utility per dollar spent on movies. She knows then that
the price of movies must have increased or the price of food must have decreased.
The only variable considered when we move along the demand curve is
the price of the good itself.
All of the following are methods of rationing goods EXCEPT
the profit motive.
The law of demand states that
the quantity demanded is inversely related to price.
According to the accompanying graph, when the government imposes a price ceiling of $25 A. the quantity of goods that will be traded is 100. This is the correct answer.B. the quantity of goods that will be traded is 0. C. the quantity of goods that will be traded is 200. Your answer is not correct.D. the quantity of goods that will be traded is 150.
the quantity of goods that will be traded is 100.
When the price of gasoline decreases, Michael buys more gasoline and more of all other goods. This information describes
the real income effect of a price decrease.
When the price of gasoline increases, Jonathan buys less gasoline and less of all other goods. This information describes
the real income effect of a price increase.
The change in people's purchasing power that occurs when the price of a good they purchase changes, assuming all else is held constant is known as
the real income effect.
Other things being equal, demand is less elastic
the smaller the percentage of a total budget that a family spends on a good.
According to the static tax analysis approach to evaluating how changes in tax rates affect government tax collections,
the tax rate will have no effect on the tax base.
The average tax rate is the
total tax paid divided by total income.
At equilibrium, there is neither excess quantity supplied nor excess quantity demanded.
true
The limit on government spending and transfers imposed by the fact that every dollar the government spends, transfers, or uses to repay borrowed funds must ultimately be provided by the user charges and taxes it collects is known as the government budget constraint.
true
The price elasticity of demand for gizmos is known to be 1.0 (in absolute value). Therefore, the demand for gizmos can be described as
unitary
The analysis of consumer decision making based on utility maximization is known as
utility analysis.
A demand schedule shows
various quantities of a good or service demanded at various prices.
When the government levies a tax on sales of a particular product, firms must receive a higher price to continue supplying the same quantity as before, so the supply curve shifts vertically . If the tax is a unit excise tax, the supply curve shifts vertically by the amount of the tax.
vertically vertically
Centralized command and control prevails throughout a certain nation's economy. What three key economic questions have been addressed in this nation, and what has been the common element of the nation's answers to those questions?
what and how many items to produce, how scarce resources are used in producing the items, and who can obtain the items produced.
To reach consumer optimum, a consumer's income should be allocated so that the last dollar spent on each good purchased ________ when all income is spent.
yields the same amount of marginal utility
The Social Security tax is imposed on earnings up to roughly
$120,000 at a rate of 6.2 percent on employers and 6.2 percent on employees.
In the figure at right, a surplus exists in the gasoline market when the price is
$4 per gallon.
Consider Figure 4B-3, that represents the market for long-stemmed roses. If the market clearing price is $15, what is the total value of gains from trade?
$400.
The maximum sales tax rates for selected states, including county and municipal taxes, occur in
Arkansas, Louisiana, and Arizona.
Which of the following would have the most elastic demand?
Coca-Cola.
Identify which of the following would generate a decrease in the market demand for e-book readers, which are a normal good. I. An increase in the price of downloadable apps utilized to enhance the e-book reading experience, which are complements. II. An increase in the number of consumers in the market for e-book readers. III. A decrease in the price of tablet devices, which are substitutes. IV. A reduction in the income of consumers of e-book readers. A. Both III and IV. .B. I, III and IV. .C. Only IV. D. Both I and IV.
I, III and IV.
One of your classmates, Sally, is a hardworking student, serious about her classes, and conscientious about her grades. Sally is also involved, however, in volunteer activities and an extracurricular sport. Is Sally displaying rational
Yes, she is using her time allocated among school, studying, sports and volunteer work in a manner she deems best.
A supply schedule gives a schedule of ________ quantities supplied per time dimension at ________.
alternative; different possible prices
Suppose that when the price of root beer rises 1%, the quantity of pizza demanded falls 0.5%. This would mean that pizza and root beer are
complements, with a cross price elasticity of -.5
A surplus occurs when quantity supplied is ________ than quantity demanded at a price ________ the market clearing price.
greater; above
The imposition of an excise tax on a product will ________ the market price of the product and ________ the equilibrium quantity.
increase; decrease
Price ceilings tend to ________ gains from trade, and price floors tend to ________ gains from trade.
reduce; reduce
The imposition of an excise tax on a product will shift that product's ________ curve vertically by the exact amount of the tax. This represents ________.
supply; a decrease in supply
Evidence indicates that a system of rent controls primarily benefits
upper-income professionals.