Econ Ch 5

If increasing your consumption of pizza from 3 to 4 slices increases your benefit, which of the following must be true?

The marginal benefit of the fourth slice of pizza must be positive.

What is the cross-price elasticity of demand for two goods that are unrelated?

Zero

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in quantity demanded of 25 percent, we say the demand for Red Bull is __________ in this range.

-1.25

The current price of wheat is $1.00 per bushel, and the price elasticity of demand for wheat is known to be 0.50. A bad harvest causes the supply of wheat to decrease and as a result the price of wheat rises by 20%. What will be the percentage change in quantity demanded for wheat and will farm revenues rise or fall?

10%, rise

Suppose you have a fixed amount of income and spend equal amounts on two goods, X and Y. The price of good X is Px = $10, and the price of good Y is Py = $5. The marginal benefit of X is MBx = 60 units of benefit, and the marginal benefit of Y is MBy = 15 units of benefit. How should the consumption of X and Y change, if at all, to increase benefit?

Consumption of good X should increase, and consumption of good Y should decrease.

An increase in the price of a substitute for iPads will lead to __________ in the quantity demanded of iPads so the cross-price elasticity of demand will be __________.

an increase, positive

If the cross-price elasticity of demand between two products is -3.0, then the two products are:

complements

The difference between the highest price a consumer is willing to pay and the amount a consumer actually pays for a good or service is known as:

consumer surplus

The demand curve for an inferior good is __________ sloping while the demand curve for a Giffen good is __________ sloping.

downward, upward

The more substitutes that exist for a particular product, the __________ the price elasticity of demand.

greater

Along a linear demand curve, the slope __________ while the price elasticity of demand __________.

is constant, changes from one point to another

The optimal combination of pizza and coke is the one where the

marginal benefit per dollar spent on pizza equals the marginal benefit per dollar spent on coke

Consumer optimizing requires that the consumer:

maximize total benefit, subject to an income constraint

Considering the Law of Demand, when you compute a price elasticity of demand the answer is always:

negative

If the price of Good A rises, other things being constant, then the marginal benefit:

per dollar's worth of Good A falls

Economists avoid confusion over units in the computation of elasticity by using:

percentage changes

If the total benefit increases with additional consumption of a good, then the marginal benefit is:

positive

The __________ is a measure of responsiveness of the change in quantity demanded of a good to the change in its price.

price elasticity of demand

The budget line shows:

the affordable combinations of goods and services you can buy with your income

Diamonds have a higher price than water because:

the price reflects marginal, not total, benefit

The total benefit of consuming two slices of pizza is the

total satisfaction you get fro consuming two slices