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2. Each month Jessica buys exactly 4 Big Macs regardless of the price. Jessica's price elasticity of demand for Big Macs is: a) 0. b) 1. c) greater than 1, but less than 4. d) less than 1, but greater than 0. e) greater than 4.

a) 0.

1. If the price of a good is increased by 20% and the quantity 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) Zero.

a) 0.75.

5. Suppose the government levies a tax of $.50 per pack on the buyers of cigarettes. Suppose aksie that the price elasticity of demand for cigarettes is 1.2 and the price elasticity of supply is .7. Because the tax is levied on the sale of a specific good, it is a) An excise tax b) A progressive tax c) A regressive tax d) A proportional tax e) A lump-sum tax

a) An excise tax

14. Which of the following events will cause the demand curve for hamburgers to shift to the right? a) An increase in the price of pizza, a substitute for hamburgers b) An increase in the price of a french fries, a complement to hamburgers c) An increase in the price of hamburgers d) A decrease in the price of hamburgers e) A decrease in the cost of producing hamburgers

a) An increase in the price of pizza, a substitute for hamburgers Since people buy less pizza, they will buy more hamburgers because it is cheaper than pizza.

12. Which of the following statements describes an economy confronting scarcity? a) If more of one good is produced, less of another good must be produced. b) An economy can produce a limitless amount of all goods. c) All individuals are able to satisfy their consumption desires. d) Scarcity is eliminated by government provision of goods. e) Scarcity only exists as a problem when there is more than one good to produce.

a) If more of one good is produced, less of another good must be produced.

10. To alleviate a financial crisis, a university increased student fees. This action will increase university revenues if the price elasticity of demand for university education is a) Inelastic b) unit elastic c) Elastic d) equal to the price elasticity of supply e) equal to one

a) Inelastic Because demand is inelastic, students still pay the increased fees, increasing the revenue.

18. If a store raises its prices by 20 percent and its total revenue increases by 10 percent, the demand it faces in this price range must be a) Inelastic b) Elastic c) unit elastic d) perfectly elastic e) perfectly inelastic

a) Inelastic While the revenue increases with price increases, it is not exactly a 20% increase in revenue so it is not perfectly inelastic.

2. A change in which of the following will cause a change in the supply of personal computers (PC's) in the short run? a) Technology b) Demand for PC's c) Price of disks, which are a complement to PC's d) Price of PC's e) Consumers' incomes

a) Technology If technology changes, then the supply of PC's increases because there is better technology.

11. Assume a 10 percent increase in price increased the market quantity supplied by 20 percent. Which of the following is true? a) The value of the price elasticity of supply is 2. b) The value of the price elasticity of supply is 0.5. c) Supply is price inelastic. d) Demand is price elastic. e) This price-quantity combination violates the law of supply.

a) The value of the price elasticity of supply is 2.

3. April wants to bake more cookies at her bakery because the market price of cookies has risen. However, she cannot purchase any additional flour, a key ingredient in her cookies, until the next delivery next week. Right now, the supply curve of her cookies is a) Vertical b) upward sloping but quite flat c) downward sloping d) upward sloping but quite steep e) Horizontal

a) Vertical

8. For a normal good, the income effect of a price change refers to the change in the consumption of the good that occurs because of the change in a) consumers' purchasing power b) the demand for a substitute good c) the supply of the good d) relative price e) marginal utility

a) consumers' purchasing power

9. Which of the following will decrease the demand for beef? a) An increase in the price of pork, if pork and beef are substitute goods b) An increase in the price of potatoes, if potatoes and beef are complementary goods c) A decrease in the cost of transporting beef to consumers d) An increase in the income levels of most consumers, if beef is a normal good e) Research showing beef is better for your health than chicken

b) An increase in the price of potatoes, if potatoes and beef are complementary goods If the price of potatoes ↑, demand for potatoes ↓. Since now people will buy less potatoes, and beef is a complementary good, the demand for beef ↓.

4. Suppose Ms. Halleran buys apples weekly. If the price of apples were to drop, Ms. Halleran would experience ___________ in _______________. a) A decrease; total revenue b) An increase; consumer surplus a) A decrease; her budget constraint d) An increase; marginal utility e) A decrease; willingness to pay

b) An increase; consumer surplus

4. Brianna and Jess live in Taxland, which only has one tax, an income tax. Both Brianna and Jess pay $1,000 in taxes each year but Brianna earns $20,000 and Jess earns $10,000. From this information, you can infer that the tax system is: a) Progressive. b) Regressive. c) Proportional. d) Equitable. e) Efficient.

b) Regressive.

8. Assume that the market demand for a good is perfectly inelastic, the market supply for the good is perfectly elastic, and the market is in equilibrium. If there is a decrease in the price of a key input used in the production of the good, which of the following will occur? a) There will be a decrease in the equilibrium quantity. b) There will be no change in the producer surplus. c) There will be a decrease in the producer surplus. d) There will be a decrease in the consumer surplus. e) There will be an increase in the equilibrium price.

b) There will be no change in the producer surplus.

4. The following questions refer to the graph below. The market is currently in equilibrium In a competition equilibrium consumer surplus is the area of a) UVZ b) WYZ c) RVUT d) XVZY e) 0YZS

b) WYZ ½ (b)(h) and WTP-P

19. If the demand for good Y increases as the price of good X decreases, it can be concluded that a) X and Y are substitute goods b) X and Y are complementary goods c) X is an inferior good and Y is a superior good d) X is a superior good and Y is an inferior good e) both X and Y are inferior goods

b) X and Y are complementary goods Because the price of good X ↓, its demand ↑ and since so does the demand for good Y, they are complementary goods.

7. The supply curve for automobiles will shift to the left in response to a) an increase in the efficiency of robot technology b) an increase in wages in the automobile industry c) decrease in the number of consumers purchasing automobiles d) decrease in the interest rates for automobile loans e) decrease in consumers' income

b) an increase in wages in the automobile industry An increase in input prices will cause the supply curve to shift left.

1. Suppose the government imposes a $4 excise tax on Good Y. If the demand for Good Y is perfectly inelastic and the supply curve is elastic, then the price consumers pay for Good Y will: a) increase by more than $4. b) increase by exactly $4. c) increase, but by less than $4. d) remain constant. e) decrease, but by less than $4.

b) increase by exactly $4.

13. If a 5 percent wage increase in a particular labor market results in a 10 percent decrease in employment, the demand for labor is a) perfectly elastic b) relatively elastic c) unit elastic d) relatively inelastic e) perfectly inelastic

b) relatively elastic 10/5 = 2; relatively elastic

2. If the government wants to minimize the deadweight loss from taxes, it should impose taxes on goods for which: a) the price elasticity of demand is high. b) the price elasticity of demand is low. c) the price elasticity of supply is high. d) the demand is high. e) the equilibrium price is high.

b) the price elasticity of demand is low.

12. Which of the following is true in the elastic range of a firm's demand curve? a) The firm should expand output to increase economic profits. b) An increase in price will also lead to an increase in total cost. c) A decrease in price will likely lead to an increase in total revenue. d) Marginal revenue is negative. e) The firm is maximizing total revenue.

c) A decrease in price will likely lead to an increase in total revenue. When more product is supplied, people will buy them more, increasing profits.

11. Assume that the demand for a certain good is perfectly inelastic and the supply curve of the good is upward sloping. Which of the following occurs in the market for the good if the price of an input used to produce the good increases? a) A decrease in both the quantity supplied and the equilibrium amount consumed b) A decrease in the quantity supplied and an increase in the equilibrium price c) A decrease in the supply and an increase in the equilibrium price d) A decrease in both the demand and the equilibrium amount consumed e) A decrease in both the quantity demanded and the equilibrium price

c) A decrease in the supply and an increase in the equilibrium price Since the input price ↑, less products are made, shifting the supply curve left. A decrease in the supply is followed by an increase in the price.

3. Which of the following situations best illustrates the law of demand? a) As real incomes of United States citizens have decreased over the past year, the demand for housing has also decreased. b) Recent decreases in the price of imported wine have led to an increase in the consumption of domestic wine. c) In the past several months, as the price of compact disc players has decreased, the quantity of compact disc players sold has increased d) The increase in the price of quality health foods has increased the revenues of firms producing these goods. e) As the demand for computers has increased, the number of workers in the computer industry has increased.

c) In the past several months, as the price of compact disc players has decreased, the quantity of compact disc players sold has increased Demand is downward sloping indicating an inverse relationship between price and quantity.

7. In the absence of market failures, a perfectly competitive market equilibrium is efficient for which of the following reasons? a) Consumer surplus is maximized and consumers are better off relative to producers. b) Producer surplus is maximized and producers are better off relative to consumers. c) Total economic surplus is maximized and all mutually beneficial transactions are exhausted. d) Total economic surplus is distributed equally between producers and consumers. e) The quantity of output is produced at a constant cost so that every consumer pays the same price.

c) Total economic surplus is maximized and all mutually beneficial transactions are exhausted.

9. The absolute value of the price elasticity of demand for a good increases when a) the good has fewer substitutes b) the good becomes a necessity c) consumers spend greater portion of their budget on the good d) the price of an input used to produce the good increases e) the good must be purchased immediately

c) consumers spend greater portion of their budget on the good

10. In a perfectly competitive market for a good with a downward sloping demand curve and an upward sloping supply curve, the marginal social benefit is greater than the marginal social cost at the market equilibrium quantity. The government imposition of a new per-unit tax on the production of the good would a) have no effect on the price of the good b) increase consumer surplus c) increase the deadweight loss d) increase producer surplus e) increase the quantity sold of the good

c) increase the deadweight loss

5. In the short run, a decrease in production costs of a product will shift a) both the demand curve and the supply curve to the right b) the demand curve to the left and the supply curve to the right c) only the supply curve to the right d) only the supply curve to the left e) only the demand curve to the left

c) only the supply curve to the right When production costs less, more production can occur because input prices go down. Inputs are now cheaper which means we can make more stuff!

8. If bologna is an inferior good, which of the following must be true? a) The demand curve for bologna is vertical. b) The demand curve for bologna is horizontal. c) An increase in the price of bologna will decrease the supply of bologna. d) An increase in consumer income will decrease the demand of bologna. e) A decrease in consumer income will decrease the supply of bologna.

d) An increase in consumer income will decrease the demand of bologna. If consumers have more money, they would rather spend it on a better good.

6. Which of the following statements about the price elasticity of demand is true? a) When demand is price inelastic, total revenue will decrease as price increases. b) When demand is price elastic, an increase in price will increase total revenue. c) Demand tends to be more elastic in the short run compared to the long run. d) As more close substitutes become available, demand tends to be more price elastic. e) As a good becomes viewed as a necessity, demand becomes more price elastic.

d) As more close substitutes become available, demand tends to be more price elastic.

1. The demand curve for a normal good slopes down for which of the following reasons? i. An increase in the price of the good induces consumers to purchase substitute products. ii. An increase in the price of the goods reduces consumers' purchasing power. iii. An increase in the price of the good increases consumers' utility from consuming that good. a) I only b) II only c) III only d) I and II only e) I and III only

d) I and II only When the price of a normal good increases, people will buy other stuff because the good is not a luxury good.

10. Assume that the price of orange juice increases by 40 percent following a crop failure. If the quantity demanded falls by 10 percent, which of the following is true? a) The demand for orange juice is elastic. b) The price of grapefruit juice, a substitute good, will fall. c) The absolute value of the price elasticity of demand for orange juice is 4. d) The absolute value of the price elasticity of demand for orange juice is 0.25. e) The absolute value of the price elasticity of demand for orange juice is 10.

d) The absolute value of the price elasticity of demand for orange juice is 0.25.

9. The price elasticity of demand for a product is 0.5. If the price of the product increases by 20 percent, which of the following will occur? a) The quantity demanded of the good will increase by 10% b) The quantity demanded of the good will increase by 20%. c) The quantity demanded of the good will increase by 40%. d) The quantity demanded of the good will decrease by 10%. e) The quantity demanded of the good will decrease by 40%.

d) The quantity demanded of the good will decrease by 10%.

20. If the government imposes a tax on the production of cars, which of the following will occur in the market for cars? a) There will be a movement to the right along the supply curve. b) There will be a movement to the right along the demand curve. c) The supply curve will shift to the right. d) The supply curve will shift to the left. e) The demand curve will shift to the right.

d) The supply curve will shift to the left. It is now more expensive to make cars, shifting the supply curve to the left.

3. Based on the graph below, the consumer surplus at the market equilibrium price and quantity is shown by which area? a) GMK b) GMN c) GZN d) ZMN e) MNK

d) ZMN

15. If the demand for potatoes increases whenever a person's income increases, then potatoes are an example of a) an inferior good b) a free good c) a Giffen good d) a normal good e) a public good

d) a normal good If it is a normal good and people want to buy more of it than inferior goods when they have more income to spend, they buy more normal goods.

6. To determine whether two goods are complements, one would calculate the a) price elasticity of demand b) price elasticity of supply c) income elasticity of demand d) cross-price elasticity of demand e) input-price elasticity of supply

d) cross-price elasticity of demand

7. Assume that the supply of corn is relatively price inelastic, while the demand for corn is relatively price elastic. If the government imposes a per-unit excise tax on the production of corn, the incidence of the tax will fall a) entirely on buyers b) more on buyers than on sellers c) entirely on sellers d) more on sellers than on buyers e) equally on both buyers and sellers

d) more on sellers than on buyers

5. The cross-price elasticity of demand between goods J and K is −3. A 20 percent decrease in the price of good K will result in a a) 3% decrease in the quantity demanded of good K b) 15% decrease in the quantity demanded of good K c) 6% increase in the quantity demanded of good J d) 12% increase in the quantity demanded of good J e) 60% increase in the quantity demanded of good J

e) 60% increase in the quantity demanded of good J

16. Assume a consumer finds that his total expenditure on compact discs stays the same after the price of compact discs declines. Which of the following is true for this price change? a) Compact discs are inferior goods to this consumer. b) The consumer's demand for compact discs increased in response to the price change. c) The consumer's demand for compact discs is perfectly price elastic. d) The consumer's demand for compact discs is perfectly price inelastic. e) The consumer's demand for compact discs is unit price elastic

e) The consumer's demand for compact discs is unit price elastic The consumer spends the same amount because as the price decreased, he bought more.

17. Which of the following must be true if the revenues of wheat farmers increase when the price of wheat increases? a) The supply of wheat is price elastic. b) The supply of wheat is income elastic. c) The supply of wheat is income inelastic. d) The demand for wheat is price elastic. e) The demand for wheat is price inelastic.

e) The demand for wheat is price inelastic. The demand for wheat is price inelastic because as the price increased, consumers still bought the goods.

6. If the increase in the price of one good decreases the demand for another, then the two goods are a) inferior goods b) luxury goods c) normal goods d) substitute goods e) complementary goods

e) complementary goods Because the increase in price causes a decrease in the demand of that good, the demand of the good that goes along with it also decreases.