Econ Chapters 3-5 Homework and Practice Exam TTU

Suppose that Tom bought a bike from Helen for $195. If Helen's reservation price was $185, and Tom's reservation price was $215, the seller's surplus from this transaction was:

$10

Refer to the accompanying figure. Suppose the dairy lobby convinces the government to impose price controls in this market. If the government requires cheese to be sold for a price of $8 per pound, total consumer surplus in the market would equal:

$20 per day.

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then the price elasticity of demand is equal to:

0.5

Refer to the accompanying figures. If Mallory and Rick are the only two consumers in this market and the price of soda is $0.25 per can, then what will be the market demand for soda per month?

130 cans

The accompanying figure shows the demand curve for a product that can be sold only in whole-number amounts. What is the maximum price that any buyer would be willing to pay for the first unit?

40

If the absolute value of slope of the demand curve is 2.5, price is $6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is:

A. 0.3.

If the price elasticity of demand for pineapples is 0.75, then a 4 percent increase in the price of pineapples will lead to a:

A. 3 percent decrease in the quantity of pineapples demanded.

Toby's current marginal utility from consuming peanuts is 100 utils per ounce and his marginal utility from consuming cashews is 200 utils per ounce. If peanuts cost 10 cents per ounce and cashews cost 25 cents per ounce, is Toby maximizing his total utility from the kinds of nuts?

At current levels of peanut consumption, Toby receives: 1000 units per dollar. At current levels of cashew consumption, Toby receives: 800 units per dollar. Therefore, Toby is not maximizing his total utility because MUp/Pp is not equal to MUc/Pc.

Martha's current marginal utility from consuming orange juice is 75 utils per ounce and her marginal utility from consuming coffee is 50 utils per ounce. If orange juice costs 25 cents per ounce and coffee costs 20 cents per ounce, is Martha maximizing her total utility from the two beverages?

At her current level of consumption, Martha is receiving: 300 utils per dollar spent on orange juice. At her current level of consumption, Martha is receiving: 250utils per dollar spent on coffee. Therefore, Martha is not maximizing her total utility because MUoj/Poj is not equal to MUc/Pc.

Martha's current marginal utility from consuming orange juice is 75 utils per ounce and her marginal utility from consuming coffee is 50 utils per ounce. If orange juice costs $0.25 per ounce and coffee costs $0.20 per ounce, is Martha maximizing her total utility from the two beverages?

At her current level of consumption, Martha receives: 300 units per dollar spent on orange juice. At her current level of consumption, Martha receives: 250 units per dollar spent on coffee. Therefore, Martha is not maximizing her total utility because MUoj/Poj is not equal to MUc/Pc.

Toby's current marginal utility from consuming peanuts is 100 utils per ounce and his marginal utility from consuming cashews is 100 utils per ounce. If peanuts cost $0.10 per ounce and cashews cost $0.25 per ounce, is Toby maximizing his total utility from the kinds of nuts?

At the current level of peanut consumption, Toby receives: 1,000 utils per dollar. At the current level of cashew consumption, Toby receives: 400 utils per dollar. Therefore, Toby is not maximizing his total utility because MUp/Pp is not equal to MUc/Pc.

If the price elasticity of demand for cigarettes is 0.55, and the price of cigarettes increases by 10 percent, then the quantity of cigarettes demanded will fall by:

B. 5.5 percent.

Suppose that, in an attempt to entice citizens to conserve energy, the government enacted regulations requiring that all air conditioners be more efficient in their use of electricity. After this regulation was implemented, government officials were then surprised to discover that people used even more electricity than before. Using the concept of price elasticity, which of the following statements best explains how this increase might have occurred?

Because the regulation effectively reduced the price of cool air, consumers with sufficiently elastic demand might have bought substantially more of it.

If the absolute value of the price elasticity of demand for cell phone service is 3, then if the price of cell phone service increases by 1 percent, quantity demanded would:

D. decrease by 3 percent.

Suppose, while rummaging through your uncle's closet, you found the original painting of Dogs Playing Poker, a valuable piece of art. You decide to set up a display in your uncle's garage. The demand curve to see this valuable piece of art is as shown in the diagram below.

What price should you charge if your goal is to maximize your revenues from tickets sold? $ 6 per visit

Suppose we observe a decrease in the equilibrium price of tuna and an increase in the equilibrium quantity of tuna. This is best explained by:

a decrease in the cost of fuel used by tuna fishing boats

A decrease in both the equilibrium price and the equilibrium quantity of rice is best explained by:

a decrease in the demand for rice.

Tom has a weekly allowance of $24, all of which he spends on pizza and movie rentals, whose prices are $6 per slice and $3 per rental, respectively. We can assume that pizza slices and movie rentals are available only in whole-number amounts.

a. For the given levels of pizza consumption, calculate how many rentals Tom can afford with his remaining income. Pizza: Rentals: 0 8 1 6 2 4 3 2 4 0 Pizza slices to be consumed per week: 3 Movie rentals to be consumed per week: 2

State whether the following pairs of goods are complements or substitutes.

a. Tennis courts and squash courts: Subsititutes b. Squash racquets and squash courts: Complements c. Ice cream and ice cream cones: Complements d. Bathing suits and towels: Complements

Indicate how you think each of the following would shift demand in the indicated market:

a. The income of buyers in the market for Adirondack vacations increase. The demand curve would shift to the right .b. Buyers in the market for pizza read a study linking pepperoni consumption to heart disease. The demand curve would shift to the left c. Buyers in the market for gas-powered cars learn of an increase in the price of electric cars (a substitute for gas-powered cars). The demand curve would shift to the right d. Buyers in the market for electric cars learn of an increase in the price of electric cars. The demand curve would remain unchanged

Suppose an 18 percent drop in the price of strawberries leads to a 24 percent increase in the quantity demanded of strawberries and a 12 percent decrease in the quantity demanded of plums.

a. What is the price elasticity of demand for strawberries: 1.33± 0.01 b. At the current price level, the demand for strawberries is elastic because the price elasticity of demand for strawberries is greater than. c. What is the cross-price elasticity of demand between strawberries and plums: 0.67± 0.01 d. Strawberries and plums are substitutes because the cross-price elasticity of demand is positive.

The schedule below shows the number of packs of bagels bought in Davis, California, each day at a variety of prices. Price($/pack)Quantity(packs/day) 6 0 5 3,000 4 6,000 3 9,000 2 12,000 1 15,000 0 18,000

b. Calculate the price elasticity of demand at the point on the demand curve at which the price of bagels is $4 per pack: 2.0 ± 0.1 c. If all bagel shops increased the price of bagels from $4 per pack to $5 per pack, what would happen to total revenue? Total revenue would fall from $ 24,000 to $ 15,000 d. Calculate the price elasticity of demand at a point on the demand curve where the price of bagels is $1 per pack: 0.2 ± .1 e. If bagel shops increased the price of bagels from $1 per pack to $2 per pack, what would happen to total revenue? Total revenue would rise from $ 15,000 to $ 24,000

Suppose the daily demand for soda is given by P = 4 - (2/3)Q and the daily supply of soda is given by P = 1 + (1/3)Q, where P is the dollar price of a can of soda and Q is the number of cans of soda (in thousands).

b. How many cans of soda are bought and sold each day? What is the equilibrium price of soda? Equilibrium quantity: 3,000 cans Equilibrium price: $ 2 per can c. What is the price elasticity of demand for soda at the equilibrium price: 1 d. What is the price elasticity of supply for soda at the equilibrium price: 2 e. If the price of one of the inputs used to make soda increases, then what will happen to consumers' total expenditure on soda: It will decrease

Is the demand for a particular brand of car, like a Chevrolet, likely to be more or less price-elastic than the demand for all cars?

it's likely to more price-elastic because of the availability of substitutes

If supply and demand both increase, the new equilibrium price will be ______ and the new equilibrium quantity will be ______.

uncertain; higher

The accompanying figure shows the annual demand for haircuts for one person in the town of Beaumont. There are a total of 300 residents in Beaumont, each with this same demand curve.

$20.

Refer to the accompanying figure. If Laura and Chris are the only two consumers in this market, then the market demand for hamburger will be 9 pounds per week when the price of hamburger is:

$1.00 per pound.

Refer to the accompanying figure. What is the equilibrium price of bananas in this market?

$5/pound

Suppose the price of a Snickers candy bar is $2.00 at both the airport and the grocery store. The price elasticity of demand for a Snickers candy bar at an airport is likely to be ______ the price elasticity of demand for a Snickers candy bar at the grocery store.

A. less than

A 2 percent increase in the price of milk causes a 4 percent reduction in the quantity demanded of chocolate syrup. What is the cross-price elasticity of demand for chocolate syrup with respect to the price of milk?

Cross-price elasticity of demand: -2 Complements

A perfectly elastic demand curve has a slope of ______ while a perfectly inelastic demand curve has a slope of ______.

D. 0; infinity

Assume the price of gasoline doubles tonight and remains at that price for the next two years. Compared with the long-run price elasticity of demand for gasoline, the short-run price elasticity of demand for gasoline will be ______.

D. Lower

What are the respective price elasticities of supply at A and B on the supply curve shown in the figure below?

Elasticity of supply at point A: 2 / 3 . Elasticity of supply at point B: 3 / 4 .

What will happen to the equilibrium price and quantity of beef if the price of cattle feed increases?

Equilibrium price will increase and equilibrium quantity will decrease.

The price elasticity of supply for basmati rice (an aromatic strain of rice) is likely to be which of the following?

Higher in the long run than the short run, because farmers cannot easily change their decisions about how much basmati rice to plant once the current crop has been planted.

Suppose that each week Fiona buys 16 peaches and 4 apples at her local farmer's market. Both kinds of fruit cost $1 each. From this we can infer that:

If Fiona is maximizing her utility, then her marginal utility from the 16th peach she buys must be equal to her marginal utility from the 4th apple she buys.

Suppose that the ingredients required to bring a slice of pizza to market and their respective costs are as listed in the table: Paper plate - 2 cents Flour- 8 cents Tomato sauce-20 cents Cheese- 30 cents Labor (3 minutes @ $12/hour)- 60 cents

If these proportions remain the same no matter how many slices are made, and the inputs can be purchased in any quantities at the stated prices, then the supply of slices is perfectly elastic and the price elasticity of supply is infinite.

You are having lunch at an all-you-can-eat buffet. If you are rational, what should be your marginal utility from the last morsel of food you swallow?

Marginal utility from the last morsel of food you swallow should be zero.

Calculate the price elasticity of demand (in absolute value) at points A, B, C, D, and E on the demand curve below.

Point. Elasticity A Infinity B 3 C 1 D 1/3 or 0.33 E 0

Suppose wildfires in California destroy a number of major wineries. At the same time, suppose consumers' incomes fall. If wine is a normal good, then how will both of these factors (the destruction of the wineries and the decrease in consumers' incomes) affect the equilibrium price and quantity of wine?

The equilibrium price of wine could either increase or decrease , and the equilibrium quantity of wine will decrease

Among the following groups—senior executives, junior executives, and students—which is likely to have the most and which is likely to have the least price elastic demand for membership in the Association of Business Professionals?

The group with the most price elastic demand: Students The group with the least price elastic demand: Senior Executives

At point A on the demand curve shown below, how will a 1 percent increase in the price of the product affect total expenditure on the product?

Total expenditure will fall by about 1 %

Refer to the accompanying figure. Assume the market is originally at point W. Movement to point X is the result of:

an increase in demand and an increase in quantity supplied.

The schedule below shows the number of packs of bagels bought in Davis, California, each day at a variety of prices. Price($/pack)Quantity(packs/day) 6 0 5 3,000 4 6,000 3 9,000 2 12,000 1 15,000 0 18,000

b. Calculate the price elasticity of demand at the point on the demand curve at which the price of bagels is $4 per pack: 2.0 c. If all bagel shops decreased the price of bagels from $4 per pack to $3 per pack, what would happen to total revenue? Total revenue would increase from $ 24,000 to $ 27,000

Refer to the accompanying figure. Assume demand remains unchanged at D1. If supply shifts from S1 to S2, then the equilibrium price will ______ and the equilibrium quantity will ______.

fall; rise

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is:

inelastic.

The price elasticity of demand is typically expressed as a positive number because:

it's convenient to use absolute values.

When calculating price elasticity of demand, if the percentage change in price is negative, then the percentage change in quantity demanded is typically:

positive.

The percentage change in quantity demanded that results from a 1 percent change in price is known as the:

price elasticity of demand

Suppose rice is a normal good. If consumers' incomes fall, and a new technology is introduced that lowers the marginal cost of producing rice, then the equilibrium:

price of rice will fall, but we cannot say for sure what will happen to the equilibrium quantity.

A market equilibrium might not maximize total economic surplus because:

sometimes goods entail costs and benefits that do not fall on buyers and sellers.

If the equilibrium quantity of a good is also the socially optimal quantity, then:

total economic surplus has been maximized.