Micro Exam 2

When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. If the price is $1.10, total revenue is _____, and if the price is $0.95, total revenue is _____. Select one: a. $209; $204.25 b. $209; $236.50 c. $236.50; $209 d. $180.50; $209

a. $209; $204.25

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____. Select one: a. 0.2; inelastic b. 5; inelastic c. 0.2; elastic d. 5; elastic

a. 0.2; inelastic

Suppose at $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand between $10 and $8, by the midpoint method, is approximately: Select one: a. 1.17. b. 1.50. c. 0.85. d. 1.00.

a. 1.17.

If the estimated price elasticity of demand for foreign travel is 4: Select one: a. a 20% decrease in the price of foreign travel will increase quantity demanded by 80%. b. the demand for foreign travel is inelastic. c. a 10% increase in the price of foreign travel will increase quantity demanded by 40%. d. a 20% increase in the price of foreign travel will increase quantity demanded by 80%.

a. a 20% decrease in the price of foreign travel will increase quantity demanded by 80%.

Use of the midpoint method to calculate the price elasticity of demand eliminates the problem of computing: Select one: a. different elasticities, depending on whether price decreases or increases. b. different elasticities, because price and quantity are inversely related on the demand curve. c. total revenue when price falls and demand is inelastic. d. total revenue when price falls and demand is elastic.

a. different elasticities, depending on whether price decreases or increases.

Xavier notices that the marginal utility of working with a tutor seems to fall with each hour the tutor helps him study. If Xavier keeps the tutor until his grade actually begins to fall, his marginal utility for the last hour of tutoring will be: Select one: a. negative. b. positive, but rising more slowly. c. zero. d. immeasurable.

a. negative.

An excise tax that the government collects from the producers of a good: Select one: a. shifts the supply curve upward. b. reduces revenue for the government. c. has an effect similar to that of a tax subsidy. d. shifts the supply curve downward.

a. shifts the supply curve upward.

Jenny believes that spending one hour studying for economics will increase her grade by 20 points. Studying for a second hour will increase her grade by 10 points. She also believes that studying for an hour for history will increase her grade by 15 points, but spending a second hour will increase her grade by only 5 points. Jenny has two hours to study. If Jenny wants to maximize her scores, what should she do? Select one: a. study 1 hour for economics and 1 hour for history b. study 2 hours for economics and not study for history c. not study for economics and study 2 hours for history d. study 1 hour for economics and not study for history

a. study 1 hour for economics and 1 hour for history

Faruq spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and milkshakes on the vertical axis. The horizontal intercept for Faruq's budget line is _____ tacos. Select one: a. 50 b. 10 c. 5 d. 100

b. 10

Diego spends all of his income on milkshakes and french fries. At his current consumption levels the marginal utility of one milkshake and the marginal utility of one order of french fries are equal. According to the optimal consumption rule: Select one: a. Diego is maximizing his utility. b. Diego is maximizing his utility only if one milkshake and one order of french fries have the same price. c. Diego should buy more milkshakes and fewer fries if a milkshake costs more than an order of fries. d. Diego will maximize his utility by specializing in consumption and buying either milkshakes or fries but not both.

b. Diego is maximizing his utility only if one milkshake and one order of french fries have the same price.

The price elasticity of demand for gasoline in the short run has been estimated to be 0.4. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total revenue from gasoline in the short run, all other things unchanged? Select one: a. Quantity demanded will stay the same; total revenue will fall. b. Quantity demanded will decrease; total revenue will rise. c. Total revenue will remain unchanged. d. Quantity demanded will not change; total revenue will rise.

b. Quantity demanded will decrease; total revenue will rise.

Which of the following statements is TRUE? Select one: a. A budget constraint limits what a poor consumer can spend, but there is no similar constraint on rich people. b. Utility maximization requires seeking the most utility from a given budget. c. In consumer choice theory, we assume all goods and services are inferior. d. The slope of the budget constraint depends on how much of each good is consumed.

b. Utility maximization requires seeking the most utility from a given budget.

If a good is a necessity with few substitutes, then demand will tend to: Select one: a. be more price-elastic. b. be more price-inelastic. c. have price elasticity equal to 1. d. be the same as that of a luxury good.

b. be more price-inelastic.

A men's tie store sold an average of 30 ties per day at $5 per tie but sold 50 of the same ties per day at $3 per tie. The price elasticity of demand, by the midpoint method, is: Select one: a. greater than zero but less than 1. b. equal to 1. c. greater than 1 but less than 3. d. greater than 3.

b. equal to 1.

The income elasticity of demand for eggs has been estimated to be 0.57. If income grows by 5% in a period, all other things unchanged, demand will: Select one: a. increase by more than 5.7%. b. increase by about 2.9%. c. decrease by more than 5.7%. d. decrease by less than 5.7%.

b. increase by about 2.9%.

Excise taxes that raise the most revenue and cause the least deadweight loss are likely to be levied on goods for which demand is _____ and supply is _____. Select one: a. inelastic; elastic b. inelastic; inelastic c. elastic; inelastic d. elastic; elastic

b. inelastic; inelastic

Utility is most closely related to: Select one: a. usefulness. b. satisfaction. c. requirement. d. necessity.

b. satisfaction.

Total revenue is: Select one: a. total sales less total cost. b. the price of a good times the quantity of the good that is sold. c. the price effect times the quantity effect. d. the price of a good divided by the amount of the good sold.

b. the price of a good times the quantity of the good that is sold.

Tax incidence refers to: Select one: a. who writes the check to the government. b. who really pays the tax. c. the deadweight loss from the tax. d. the total revenue that the government collects from the tax.

b. who really pays the tax.

Faruq spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and milkshakes on the vertical axis. If Faruq spends all of his income, the opportunity cost of one taco equals _____ milkshakes. Select one: a. 2 b. 10 c. 5 d. 1/5

c. 5

Suppose the government levies a $4 per month excise tax on cable TV. If the demand for cable TV is relatively (but not perfectly) inelastic and the supply curve is relatively (but not perfectly) elastic, then the price of cable TV will: Select one: a. increase by more than $4. b. increase by exactly $4. c. increase by less than $4. d. remain constant.

c. increase by less than $4.

Tom is trying to decide how to allocate his $50 budget for music downloads and online movie streaming when the price of a music download is $1 and the price of a movie is $5. Reference: Ref 10-6 (Scenario: Tom's Budget Constraint) Read the scenario Tom's Budget Constraint. The combination _____ music downloads and _____ movies lies INSIDE Tom's budget line. (Tom can afford this combination, but he will not be spending the entire $50.) Select one: a. 50; 10 b. 50; no c. no; 5 d. 100; 5

c. no; 5

If the government imposes a $5 excise tax on leather shoes and the price of leather shoes increases by $2: Select one: a. the government will receive less tax revenue than anticipated. b. consumers are paying more of the tax than the producers. c. producers are paying more of the tax than are the consumers. d. the quantity of shoes sold will increase.

c. producers are paying more of the tax than are the consumers.

If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when the price of shirts increases from $8 to $12, for you, shoes and shirts are considered: Select one: a. inferior goods. b. luxury goods. c. substitute goods. d. complementary goods.

c. substitute goods.

The optimal consumption rule for all goods requires: Select one: a. the marginal utility of all goods consumed divided by the price to be equal to the budget constraint. b. the marginal utility of all goods consumed to exceed the total utility of all goods. c. the marginal utility of all goods consumed divided by the respective price to be equal. d. the prices of all goods to be equal.

c. the marginal utility of all goods consumed divided by the respective price to be equal.

Nancy is consuming her optimal consumption bundle of burritos and margaritas. The marginal utility of her last burrito was 75 utils, and each burrito costs $3. Her marginal utility of her last margarita was 100 utils. What is the price of a margarita? Select one: a. $1 b. $2 c. $3 d. $4

d. $4

A linear demand curve has: Select one: a. a constant price elasticity of demand. b. a price elasticity of demand equal to one at all prices. c. a calculated price elasticity of demand that is positive. d. both elastic and inelastic price elasticities of demand.

d. both elastic and inelastic price elasticities of demand.

The percentage change in quantity demanded of one good or service divided by the percentage change in the price of a related good or service is the _____ of demand. Select one: a. price elasticity b. quantity elasticity c. income elasticity d. cross-price elasticity

d. cross-price elasticity

If the price of chocolate-covered peanuts decreases from $1.15 to $1.05 and the quantity demanded increases from 190 bags to 220 bags, then the price elasticity of demand (by the midpoint method) is: Select one: a. 0.5. b. 1. c. 2. d. greater than 1.

d. greater than 1.

If demand is elastic, the _____ effect dominates the _____ effect, and aNo _____ in price will cause total revenue to rise. Select one: a. price; quantity; decrease b. price; quantity; increase c. quantity; price; increase. d. quantity; price; decrease

d. quantity; price; decrease

The deadweight loss from an excise tax comes about because: Select one: a. the number of transactions in the market is smaller than the no-tax equilibrium. b. some mutually beneficial transactions do not take place. c. a quota rent exists. d. the number of transactions in the market is reduced and some mutually beneficial transactions do not take place.

d. the number of transactions in the market is reduced and some mutually beneficial transactions do not take place.

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures: Select one: a. how much the price goes down. b. how much the equilibrium price goes up. c. the responsiveness of the price change to an income change. d. the responsiveness of the quantity change to the price change.

d. the responsiveness of the quantity change to the price change.

A perfectly price-inelastic demand curve is: Select one: a. horizontal. b. downward-sloping. c. upward-sloping. d. vertical.

d. vertical.