ECON 231 - Exam 2
The utility of a good or service
is the satisfaction or pleasure one gets from consuming it.
Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is spending all her money income should buy
more of X and/or less of Y.
We would expect
the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general.
The more time consumers have to adjust to a change in price,
the greater will be the price elasticity of demand.
If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then
the price elasticity of demand is 2.25.
The theory of consumer behavior assumes that consumers attempt to maximize
total utility.
In which of the following instances will total revenue decline?
Price rises and demand is elastic.
Which of the following is not characteristic of the demand for a commodity that is elastic?
Total revenue increases if price is increased.
Which of the following statements is correct?
Total utility is the cumulation or summation of marginal utility.
T/F: Income elasticity measures the effect of a change in income on the purchases of some good or service.
True
T/F: When total utility is at a maximum, marginal utility is zero.
True
The price elasticity of demand coefficient measures
buyer responsiveness to price changes.
A perfectly inelastic demand schedule
can be represented by a line parallel to the vertical axis.
Marginal utility is the
change in total utility obtained by consuming one more unit of a good.
The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to
decrease by approximately 12 percent.
The price elasticity of demand of a straight-line demand curve is
elastic in high-price ranges and inelastic in low-price ranges.
A consumer currently spends a given budget on two goods, X and Y, in such quantities that the marginal utility of X is 10 and the marginal utility of Y is 8. The unit price of X is $5 and the unit price of Y is $2. The utility-maximizing rule suggests that this consumer should
increase consumption of product Y and decrease consumption of product X.
T/F: If the coefficient of income elasticity of demand is positive, the product is an inferior good.
False
We would expect the cross elasticity of demand between dress shirts and ties to be
negative, indicating complementary goods.
The basic formula for the price elasticity of demand coefficient is
percentage change in quantity demanded/percentage change in price.
Suppose that a 10 percent increase in the price of normal good Y causes a 20 percent increase in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is
positive, and therefore these goods are substitutes.
Marginal utility can be
positive, negative, or zero.
Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is
relatively inelastic.
