AP Econ Unit 3 Exam
The concept of price elasticity of demand measures
the sensitivity of consumer purchases to price changes
Graphically, consumer surplus is measured as the triangle
under the demand curve and above the actual price
The ability of a good or service to satisfy wants is called
utility
When the total utility is at a maximum, marginal utility is
zero
Suppose the price elasticity of demand for bread is 0.20. If the price of bread falls by 10 percent, the quantity demanded will increase by
2 percent and total expenditures on bread will rise
The demand for a product is inelastic with respect to price if
consumers are largely unresponsive to a per unit price change
The price elasticity of supply measures how
responsive the quantity supplied of X is to changes in the price of X
The marginal utility of the last unit of A consumed is 12 and the marginal utility of the last unit of B consumed is 8. What set of prices for A and B respectively would be consistent with the consumer equilibrium?
$4 and $6
The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from 3 Pepsis is 38 units of utility. The marginal utility of the 3rd Pepsi is
8 units of utility
Refer to the above diagram. Between prices $5.70 and $6.30
D2 is more elastic than D1
Which of the following is correct?
If marginal utility is diminishing and is a positive amount, total utility will increase
Which of the following is NOT a characteristic of the demand for a commodity that is elastic?
The elasticity coefficient is less than one
A supply curve that is parallel to the horizontal axis suggests that
a change in demand will change the equilibrium quantity but not price
Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences:
a consumer surplus of $10 and Tony experiences a produce surplus of $190
Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences
a consumer surplus of $9 and Nathan experiences a producer surplus of $3
Graphically, producer surplus is measured as the triangle
above the supply curve and below the actual price
The price elasticity of demand coefficient measures
buyer responsiveness to price changes
Marginal utility
diminishes as more of a product is consumed
If the supply of product X is perfectly elastic, an increase in the demand for it will increase
equilibrium quantity but equilibrium price will be unchanged
If the demand for a product is elastic, the value of the price elasticity coefficient is
greater than 1
Refer to the above diagram and assume a single good. If the price of the good decreases from $6.30 to $5.70 consumer spending would
increase if demand were either D1 or D2
Assume there is an increase in the demand for hand calculators. The subsequent
increase in price will be greater the greater the inelasticity of supply
If the price of the product X rises, then the resulting decline in amount purchased will
increase the marginal utility of this good
An efficiency loss (or deadweight loss)
is measured as the combined loss of the consumer surplus and producer surplus
Consumer surplus
is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price
Producer surplus
is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price
A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the
more elastic the demand for the product
Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa=5 and MUa/Pb=8. Ben should purchase
more of B and less of A
Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending as her money income should buy
more of X and less than Y
Brenda says, "You would have to pay me $50 to attend that pro wrestling event". For Brenda, the marginal utility of the event is
negative
Suppose the price of the product rises and the total revenue of sellers increases
no conclusion can be reached with respect to the elasticity of supply
The basic formula for the price elasticity of demand coefficient is
percentage change in the quantity demanded/percentage change in price
A demand curve which is parallel to the horizontal axis is
perfectly elastic
A demand curve is parallel to the vertical axis is
perfectly inelastic
If total utility is increasing, marginal utility is
positive, but may be either increasing or decreasing
If the coefficient of price elasticity is less than 1 but greater than zero, demand is
relatively inelastic
The larger the coefficient of price elasticity of demand for a product, the:
smaller the resulting price change for an increase in supply
Total utility is determined by
summing the marginal utilities of each unit consumed
Allocative efficiency occurs only at that output where
the combined amounts of consumer surplus and producer surplus are maximized
An increase in demand will increase equilibrium price to a greater extent
the less elastic the supply curve