Econ Quiz 2

The income elasticity of demand for pears has been estimated as 2.46. If income grows by 12%, all other things equal, demand will: a. rise. b. fall. c. remain unchanged. d. The information is insufficient to answer the question.

A. Rise

A large amount of harvested grain used to make flour grows mold due to flooding. How will this affect the supply of flour in the market? a. The supply of flour will increase in the market. b. The supply of flour will decrease in the market. c. The supply of flour will remain unchanged in the market. d. Suppliers of flour will switch to supplying grain.

B. The supply of flour will decrease in the market.

The cross-price elasticity of demand between Fanta and Dr. Pepper has been estimated at 0.61. If the price of Dr. Pepper falls by 10%, the quantity demanded of Fanta will: a. decrease by less than 6.1%. b. decrease by 6.1%. c. not change because many people prefer Fanta to Dr. Pepper. d. increase.

B. decrease by 6.1%.

The economic surplus in a market is the: a. excess demand due to a price below the equilibrium price. b. surplus that accrues when a good is not scarce, defined as the total amount (if any) by which quantity demanded exceeds quantity supplied at a zero price. c. marginal benefit less the marginal cost of a good. d. sum of consumer surplus and producer surplus.

D. sum of consumer surplus and producer surplus.

If the price of strawberries increases by 20%, and the quantity of strawberries demanded decreases by 15%,then the price elasticity of demand is equal to: a. 0.75. b. approximately 0.33. c. approximately 1.33. d. 1.

a. 0.75.

Choose the wrong statement. Income effect of a normal good a. Goes in the opposite direction of the substitution effect. b. Goes in the same direction as the substitution effect.

a. Goes in the opposite direction of the substitution effect.

Which statement makes use of positive analysis? a. The rate of inflation is 4%. b. A high rate of growth in our economy will solve many of the economic woes we face. c. Health care is a right for all citizens. d. Professional athletes should not be paid more than world leaders.

a. The rate of inflation is 4%.

It is very easy for Evelyn to find inexpensive inputs for her business. Evelyn's supply is therefore likely to be: a. elastic. b. inelastic. c. unit-elastic. d. perfectly elastic.

a. elastic.

Suppose Ben has a part-time business mowing lawns. He has mowed nine lawns on a given day; the price he will receive to mow the tenth lawn is $20, and the marginal cost is $12. Bob should: a. mow the tenth lawn. b. not mow the tenth lawn. c. increase his marginal benefit. d. There is not enough information to decide.

a. mow the tenth lawn.

Suppose that in the market for new furniture, sales are allocated to the sellers who are willing and able to produce the good at the lowest cost. The market would thereby maximize: a. producer surplus. b. consumer surplus. c. total surplus. d. deadweight loss.

a. producer surplus.

Diminishing marginal product occurs when: a. each additional unit of an input adds more to total output than the previous unit. b. each additional unit of an input adds less to total output than the previous unit. c. the marginal product of an input is increasing at a decreasing rate. d. the total product decreases.

b. each additional unit of an input adds less to total output than the previous unit.

The _____ of a good or service is the additional benefit derived from producing one more unit of that good or service. a. net benefit b. marginal benefit c. marginal cost d. utility

b. marginal benefit

Consumer surplus equals: a. total benefit minus total expenditure. b. marginal benefit minus price. c. marginal revenue minus price. d. total revenue minus consumer expenditure.

b. marginal benefit minus price.

Suppose the price of real estate increases by 37.11% in New York City next year. If the quantity of new homes supplied does not change, the price elasticity of _____ will be perfectly _____ in New York City next year. a. demand; elastic b. supply; inelastic c. demand; inelastic d. supply; elastic

b. supply; inelastic

The price of chicken breast rises from $3.30 per pound to $3.63 per pound. In response to this price change, the quantity demanded for chicken breast falls by 40%. The absolute value of the price elasticity of demand for chicken breast is _____, and the price elasticity of demand is _____. a. 0.25; elastic b. 0.25; inelastic c. 4; elastic d. 4; inelastic

c. 4; elastic

On a market graph, producer surplus is the area that is: a. above the demand curve. b. below the demand curve. c. above the demand curve and below the supply curve. d. above the supply curve and below the price.

c. above the demand curve and below the supply curve.

The total producer surplus for a good can be calculated as the: a. sum of the individual consumer surpluses of all sellers of the good. b. area below the supply curve for the good out to the quantity of the good sold. c. area above the supply curve and below the price that sellers receive for the good being sold. d. sum, for all sellers of the good, of the difference between what each seller receives and the maximum amount he or she is willing to accept for selling the good.

c. area above the supply curve and below the price that sellers receive for the good being sold.

When the absolute value of the price elasticity of demand is infinite, demand is: a. elastic b. inelastic c. perfectly elastic d. perfectly inelastic.

c. perfectly elastic

A market's deadweight loss is calculated as: a. the economic loss that a firm has when it is not producing its profit-maximizing output. b. the loss to consumers when a product malfunctions or fails to meet expectations. c. the economic surplus at the efficient quantity minus the economic surplus at the actual quantity. d. the price at equilibrium minus the price at actual quantity.

c. the economic surplus at the efficient quantity minus the economic surplus at the actual quantity.

Substitution effect tells me to do what? a. Consume more of the good that is relatively expensive and move away from your original indifference curve b. Consume more of the good that is relatively cheaper and move away from your original indifference curve c. Consume more of the good that is relatively expensive and stay on your original indifference curve d. Consume more of the good that is relatively cheaper and stay on your original indifference curve

d. Consume more of the good that is relatively cheaper and stay on your original indifference curve

Suppose the market demand curve for all-natural cosmetics is 200-10P. Also assume that the market supply curve for all-natural cosmetics is 100+10P. What should be the equilibrium price and equilibrium quantity a. P = 5, Q = 100 b. P = 5, Q = 110 c. P = 5, Q = 120 d. P = 5, Q = 150

d. P = 5, Q = 150

At quantities less than equilibrium in a market, _____ exceeds _____. a. demand; supply b. quantity demanded; quantity supplied c. selling price; buying price d. marginal benefit; marginal cost

d. marginal benefit; marginal cost