Microeconomics practice exam 2

If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then: A.the price elasticity of demand is 0.44. B.A is a complementary good. C.the price elasticity of demand is 2.25. D.A is an inferior good.

C

If the coefficient of price elasticity is less than 1 but greater than zero, demand is: A. perfectly inelastic B. perfectly elastic C. relatively inelastic D. relatively elastic

C

The substitution effect suggests that, when consumers judge product quality by price, they will substitute high-priced products for low-priced products. True False

False

When the price of a product falls, the income effect induces the consumer to purchase more of it while the substitution effect prompts her to buy less. True False

false

If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then: A. demand is elastic. B. demand is inelastic. C. demand is of unit elasticity. D. not enough information is given to make a statement about elasticity.

A

Utility refers to the: A.satisfaction that a consumer derives from a good or service. B.rate of decline in a product demand curve. C.relative scarcity of a product. D.usefulness of a product.

A

"Essential" water is cheaper than "nonessential" diamonds because: A.new industrial uses for diamonds have been discovered. B.the supply of water is great relative to demand and the supply of diamonds is small relative to demand. C.although the total utility of diamonds is greater, their marginal utility is small. D.the supply of diamonds is great relative to demand and the supply of water is small relative to demand.

B

A perfectly inelastic demand schedule: A. rises upward and to the right, but has a constant slope. B. can be represented by a line parallel to the vertical axis. C. cannot be shown on a two-dimensional graph. D. can be represented by a line parallel to the horizontal axis.

B

Marginal utility is the: A.sensitivity of consumer purchases of a good to changes in the price of that good. B.change in total utility obtained by consuming one more unit of a good. C.change in total utility obtained by consuming another unit of a good divided by the change in the price of that good. D.total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.

B

Other things the same, if a price change causes total revenue to change in the opposite direction, demand is: A. perfectly inelastic. B. relatively elastic. C. relatively inelastic. D. of unit elasticity.

B

The elasticity of demand for a product is likely to be greater: A. if the product is a necessity, rather than a luxury good. B. the greater the amount of time over which buyers adjust to a price change. C. the smaller the proportion of one's income spent on the product. D. the smaller the number of substitute products available.

B

The law of diminishing marginal utility states that: A.total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. B.beyond some point additional units of a product will yield less and less extra satisfaction to a consumer. C.price must be lowered to induce firms to supply more of a product. D.it will take larger and larger amounts of resources beyond some point to produce successive units of a product.

B

The state legislature has cut Gigantic State University's appropriations. GSU's Board of Regents decides to increase tuition and fees to compensate for the loss of revenue. The board is assuming that the: A. demand for education at GSU is elastic. B. demand for education at GSU is inelastic. C. coefficient of price elasticity of demand for education at GSU is unity. D. coefficient of price elasticity of demand for education at GSU is greater than unity.

B

Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is: A.4.00. B. 2.09. C. 1.37. D.3.94.

C

The price elasticity of demand: A. is infinitely large for a perfectly inelastic demand curve. B. tends to be inelastic in high-price ranges and elastic in low-price ranges. C. tends to be elastic in high-price ranges and inelastic in low-price ranges. D. is the same at each price-quantity combination on a stable demand curve.

C

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range: A. has declined. B. is of unit elasticity. C. is inelastic. D. is elastic.

D

(Consider This) Newspapers dispensing devices seemingly "trust" people to take only a single paper but the devices actually rely on the law of: A.supply. B.increasing opportunity costs. C. demand. D.diminishing marginal utility.

D

In which of the following instances will total revenue decline? A. price rises and supply is elastic B. price rises and demand is inelastic C. price falls and demand is elastic D. price rises and demand is elastic

D

The ability of a good or service to satisfy wants is called: A.utility maximization. B.opportunity cost. C.revenue potential. D.utility.

D

What do the income effect, the substitution effect, and diminishing marginal utility have in common? A.All are required to explain the utility-maximizing position of a consumer. B.They are all empirically measurable. C.They all help explain the upsloping supply curve. D.They all help explain the downsloping demand curve.

D

Generally speaking, the demand for luxury goods is more price elastic than is the demand for necessities. True False

True