Ebadi Econ 105 Chapter 5
A change in slope of a budget constraint indicates:
A) A change in price of either good causes a change in opportunity cost
In a perfectly competitive market, all consumers
A) are price takers
While making a purchase decision using marginal thinking, a buyer should buy the good that yields the:
A) highest marginal benefit per dollar spent
As a consumer spends a larger share of his income on a particular good, the price elasticity of demand for that good:
A) increases
Which of the following goods is likely to have the lowest price elasticity of demand?
A) life saving drugs
Higher price elasticity of demand means that a consumer's demand
A) more responsive to price changes
Which of the following pairs of goods has a negative cross-price elasticity?
A) pens and notebook paper
If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to:
A) pivot leftward along the vertical axis
Negative values of the price elasticity of demand of a good can be attributed to:
A) the law of demand
Assume that someone spends his income on sweaters and shirts. If the price of a sweater increases:
A) the opportunity cost of buying sweaters increases
A budget constraint is a straight line because....
B) A consumer faces a fixed price of both goods that did not change with the changes in consumption
Which of the following statements best describes an inferior good?
B) An inferior good is a good whose demand decreases with an increase in consumers' income
If a consumer purchases any combination of goods or services on his _______, he will exhaust his income completely
B) Budget constraint
___________ is the measure of the sensitivity of one variable to a change in another
B) Elasticity
Which of the following correctly describes incentives?
B) Incentives are rewards or consequences that motivate people to behave in a certain way
Which of the following is true? (5.2 Q3)
B) Tastes and preferences of a consumer determine the satisfaction received from consumption
An optimizing consumer makes her purchase decision based on:
B) benefits per dollar spent at the margin
________ is the difference between the willingness to pay and the price paid for a good
B) consumer surplus
From a firm's point of view, when the demand for a good has a price elasicity of .5, then, all things remaining the same, a(n)
B) increase in the price of the good will increase the firm's revenue
A perfectly elastic demand curve:
B) is parallel to the quantity axis
Willingness to pay:
B) is the highest price that a buyer is willing and able to pay for a unit of a good
A decrease in the price of either good will cause the consumers' budget constraint to:
B) pivot rightward
If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to:
B) pivot rightward toward the horizontal axis
If the price of a good measured along the vertical axis increases without a change in price of the good measured along the horizontal axis, the consumers' budget constraint:
B) pivots leftward without a change in the intercept on the horizontal axis
The percentage change in quantity demanded of a good due to a percentage change in its price is referred to as the :
B) price elasticity of demanded
Which of the following pairs of goods is most likely to have a positive cross-price elasticity?
B) privately owned cars and public transportation
John is ready to pay $5 for an extra loaf of bread. Due to an ongoing discount in the store, he gets the loaf for $2. John's consumer surplus from the purchase is:
C) $3
Which of the following is the formula to calculate arc elasticity of demand?
C) Arc elasticity of demand = [(q2-q1)/(q2/2)]/[p2-p1)/(p2+p1)/2]
Which of the following statements correctly differentiates between consumer surplus and net benefits?
C) Consumer surplus measures the difference between willingness to pay for a good and its price, whereas net benefits measure the overall satisfaction gained from consumptions of a good
Which of the following is NOT a direct determining factor of consumers' purchase decisions?
C) Cost of factor inputs
Which of the following goods is likely to have an income elasticity of demand greater than one?
C) Diamond jewelry
Which of the following is true of incentives?
C) Incentives are designed to change behavior
A consumer budget refers to the:
C) The amount of money a consumer spends on goods or services
Which of the following statements correctly identifies the difference between the cross-price elasticity of demand and the income elasticity of demand?
C) The income elasticity of demand for a good is independent of the price changes of related goods, whereas the cross-price elasticity of demand for a good is independent of the income changes of the consumer
Which of the following statements is true about the income elasticity of demand?
C) The income elasticity of demand for normal goods is always positive
Which of the following statements is true about price elasticity of demand?
C) The price elasticity of demand for a good is generally higher in the long run than in the short run
Suppose the the government enacts a tax on Good X. In order to estimate the effect of the tax on the quantity demanded of a related good, Good Y, we can use the concept of the:
C) cross-price elasticity of demand
If a 1% in the price of a good causes a 1% change in the quantity demanded, the good has an elasticity of demand:
C) equal to 1
The set of all possible bundles of goods and services that can be purchased with a consumer's income is referred to as:
C) the budget set
The slope of a budget constraint represents..
C) the opportunity cost of one good compared to another
The Law of Demand is reason behind:
C) the price elasticity of demand having a negative
The general rule for welfare maximization suggests that in personal equilibrium
C) the ratio of marginal benefits to price should be identical across all goods
Which of the following is true? (5.2 Q5)
D) A consumer in a perfectly competitive market buys only a tiny fraction of the total amount produced
Which of the following best describes a normal good?
D) A normal good is a good whose demand increases with an increase in consumers' income
Which of the following examples best describes the Law of Demand?
D) When the price of tea increase, the quantity demanded of tea decreased
Which of the following will lead to a change in the opportunity cost of buying and a pencil?
D) a twofold increase in the price of pens a threefold increase in the price of pencils
Luxury goods have income elasticity:
D) greater than 1
The ______________ measures the change in the demand of a good due to a percentage change in the consumer's income
D) income elasticity of demand
As the number of available substitutes increases, the price elasticity of demand for a good:
D) increases
The price elasticity of demand for a good that is a necessity is likely to be:
D) inelastic
The cross-price elasticity of demand for a good is the:
D) percentage change in the quantity demanded for a good due to a percentage change in the price of related goods
Which of the following goods is likely to have the highest price elasticity of demand?
D) potato chips
As the __________ increases, _________________:
D) price of a good; its quantity demanded decreases
if the price of good increases, ___________
D) the consumer surplus decreases
Suppose the prices of a pair of jeans, a shirt, and a tie are $30, $20, $10; which statement is true in context?
D) the opportunity cost of buying a shirt is 2 ties
If a good has a price elasticity of demand equal to 0, __________
D) the quantity demanded for the good will be greater than the percentage change in its price
Elasticity is:
D) the ratio of the percentage change in two variables
A buyer is said to be a price taker if they:
can purchase any amount of a good at a fixed price, provided she has the money to pay for it
