Econ 201 Exam 2
A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result: A. total revenue will decrease. B. total revenue will increase. C. total revenue will remain constant. D. the elasticity of demand will increase.
Answer: A
Demand is said to be ___________ when the quantity demanded is very responsive to changes in price. A. elastic B. unit elastic C. inelastic D. independent
Answer: A
If cola and iced tea are good substitutes for consumers, then it is likely that: A. their cross price elasticities are greater than zero. B. their price elasticities of demand are less than one. C. their income elasticities are less than zero. D. their price elasticities of supply are less than one .
Answer: A
The marginal utility of two goods changes ______________. a. with the quantities consumed b. for the better, if taxes are imposed c. if they are intertemporal choices d. if the mother controls the household budget
Answer: A
The most common pattern for marginal utility is ____________________. a. diminishing marginal utility b. a budget constraint model c. a long-term perspective theoretical model d. substitute consumption
Answer: A
The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise: A. increasing the price of game tickets because demand is inelastic. B. not changing the price of game tickets because demand is unit elastic. C. increasing the price of game tickets because demand is elastic. D. decreasing the price of game tickets because demand is elastic.
Answer: A
The term ___________________ is used to describe the common pattern whereby each marginal unit of a consumed good provides less of an addition to utility than the previous unit. A. diminishing marginal utility B. marginal utility pattern C. marginal income utility D. decreasing marginal utility
Answer: A
The typical pattern revealed in a budget constraint model shows that as the quantity consumed rises, a. total utility rises, but marginal utility falls. b. marginal utility increases. c. total utility decreases, but marginal utility rises. d. total utility decreases.
Answer: A
When economists are sketching examples of demand and supply, it is common to sketch a demand or supply curve that is close to vertical, and then to refer to that curve as _________. A. inelastic B. elastic C. unitary elasticity D. income elasticity
Answer: A
Which of the following is considered to be a tell-tale signal that the point with the highest total utility has been found? a. the marginal utility per dollar is the same for both goods b. the marginal utility per dollar is controlled by trade-offs c. the quantities demanded change so total utility rises d. the demand curves are flatter reducing quantity
Answer: A
__________ is the change in what is on the horizontal axis (quantity) divided by the change in what is on the vertical axis (price). A. Elasticity B. Demand C. Supply D. Revenue
Answer: A
f the supply curve for a product is horizontal, then the elasticity of supply is: A. equal to infinity. B. greater than 1 but less than infinity. C. equal to 1. D. equal to zero.
Answer: A
A decrease in consumer preference for a product, other things being equal, will cause: a. a decrease in supply. b. market demand to shift to the left. c. market demand to shift to the right. d. quantity demanded is not a price function.
Answer: B
As a general rule, utility-maximizing choices between consumption goods occur where the: a. rise in income has created the greatest utility. b. price ratio and marginal utilities ratio of two goods is equal. c. higher-income households have the greatest satisfaction. d. constraints on budget expenditures has fallen substantially.
Answer: B
Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop? A. 0.15 B. 3.0 C. 0.10 D. 0.05
Answer: B
Demand is said to be __________ when the quantity demanded changes at the same proportion as the price. A. elastic B. unit elastic C. inelastic D. independen
Answer: B
Demand is said to be _____________ when the quantity demanded is not very responsive to changes in price. A. independent B. inelastic C. unit elastic D. elastic
Answer: B
Economic theory offers ____________________ about the full range of possible events and responses, which can prevent __________________ about how households will respond to changes in prices or incomes. A. one budget constraint theory; unrealistic possibilities B. a systematic way of thinking; misguided conclusions C. two budget constraint theories; misguided possibilities D. systematic consumption choices; unrealistic conclusions
Answer: B
If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to: A. rise and the equilibrium quantity to fall. B. rise and the equilibrium quantity to stay the same. C. rise and the equilibrium quantity to rise. D. stay the same and the equilibrium quantity to fall.
Answer: B
If the demand curve is perfectly elastic, then an increase in supply will: A. decrease the price but result in no change in the quantity exchanged. B. increase the quantity exchanged but result in no change in the price. C. increase the price but result in no change in the quantity exchanged. D. increase both the price and the quantity exchanged.
Answer: B
In microeconomic terms, the ability of a good or a service to satisfy wants is called: A. opportunity cost. B. utility. C. utility maximization. D. profit potential.
Answer: B
Jay and Jen are married with two children. They are preparing a household budget for the coming year. Based on statistical information for American households, approximately what portion of this family's annual consumption will most likely be budgeted for food and vehicle expenses? a. one-fourth b. one-third c. one-quarter d. two-thirds
Answer: B
Saving money is a(n) ____________________, because it involves less consumption in the present, but the ability to consume more in the future. a. budget constraint b. intertemporal choice c. risk premium d. opportunity cost
Answer: B
The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price. A. income effect B. substitution effect C. backward-bending supply curve D. preferences effect
Answer: B
The government wants to make medicare benefits available to more people, but to achieve this goal, it needs to make cuts in the existing medicare budget. The two areas where they are considering cuts are non-essential elective surgery and 6-12 month mental health care programs. Applying the concept of diminishing marginal utility, the budget cuts should be made for spending on: a. mental health therapy due to its higher marginal return rate. b. elective surgery due to its lower marginal return rate. c. both programs, which have the same marginal return rate. d. neither can be compared by measuring marginal utility.
Answer: B
The step-by-step process of finding the choice with highest total utility involves a comparison of the: a. budget constraint and low-income housing expenses. b. marginal utility gained and lost from different choices along the budget constraint. c. household consumption choice budget and the labor-leisure budget using an utilimometer. d. various categories of economic proverbial wisdom.
Answer: B
The term _________________ refers to the additional utility provided by one additional unit of consumption. A. utility B. marginal utility C. added utility D. Giffen utilit
Answer: B
When Marietta chooses to only purchase a combination of goods that lie within her budget line, she: a. is decreasing utility. b. is maximizing utility. c. likely has negative savings. d. must reduce the quantity.
Answer: B
When demand is inelastic: A. price elasticity of demand is greater than 1. B. consumers are not very responsive to changes in price. C. the percentage change in quantity demanded resulting from a price change is greater than the percentage change in price. D. demand curves appear to be fairly flat.
Answer: B
A 10 percent increase in income leads to a 15% decrease in the quantity of macaroni and cheese demanded but no change in the price of macaroni and cheese. From this information, we can assume: A. macaroni is a normal good and price elasticity of demand is greater than 1. B. macaroni is an inferior good and price elasticity of supply is equal to zero. C. macaroni is an inferior good and price elasticity of supply is infinite. D. macaroni is an inferior good and price elasticity of demand is less than 1.
Answer: C
A perfectly elastic supply curve is: A. upward sloping to the right. B. downward sloping to the left. C. horizontal. D. vertical.
Answer: C
An inferior good is a product: a. for which demand increases as income increases. b. for which there is no demand. c. for which demand decreases as income increases. d. that has an upward sloping demand curve.
Answer: C
In terms of microeconomic analysis, what is the function of "utils"? a. a form of budget constraint b. applies to changes in income c. a measurement of utility d. relates to a consumers original choice
Answer: C
Josh's weekly budget for lunch is $24. He eats only pizza and burgers. Each pizza costs $6 and each burger costs $3. Josh knows that 2 pizzas and 4 burgers will give him a utility of 8. What is Josh's utility-maximizing point? a. 0 pizzas, 8 burgers b. 3 pizzas, 2 burgers c. 2 pizzas, 4 burgers d. 4 pizzas, 1 burger
Answer: C
Marginal utility can: A. be positive or negative, but not zero B. decrease, but not become negative C. be positive, negative, or zero D. increase positively, but not negatively
Answer: C
Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve? A. 0.235 B. 2.00 C. 4.25 D. 6.3
Answer: C
Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi's demand curve? A. 0.1 B. 0.8 C. 1.0 D. 10.0
Answer: C
Taxes on goods with __________ demand curves will tend to raise more tax revenue for the government than taxes on goods with __________ demand curves. A. elastic; unit elastic B. elastic; inelastic C. inelastic; elastic D. unit elastic; inelastic
Answer: C
The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, then one would expect sales to equal: A. 20 units. B. 10 units. C. 5 units. D. 0 units.
Answer: C
The elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in __________. A. quantity supplied B. the slope of the demand curve C. price D. the slope in the supply curve
Answer: C
The key assumption that accompanies the use of numbers for measuring utility is that: a. utility cannot be measured by an outside party. b. utility can be perfectly measured. c. individuals choose based on their preferences. d. people make consumption decisions.
Answer: C
The longer the time period considered, the more the elasticity of supply tends to: A. decrease B. remain constant C. increase D. converge to zero
Answer: C
The price elasticity of demand measures the: A. responsiveness of quantity demanded to a change in quantity supplied. B. responsiveness of price to a change in quantity demanded. C. responsiveness of quantity demanded to a change in price. D. responsiveness of quantity demanded to a change in income.
Answer: C
The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed. A. substitution effect; lower price B. intertemporal budget; higher price C. income effect; higher price D. intertemporal budget; lower price
Answer: C
Youth smoking seems to be more __________ than adult smoking—that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price. A. unitary elastic B. inelastic C. elastic D. cross-price elastic
Answer: C
A price cut will increase the total revenue a firm receives if the demand for its product is: A. unit inelastic. B. unit elastic. C. inelastic. D. elastic.
Answer: D
Approximately what portion of annual consumption is typically spent by American households on shelter? a. one-fourth b. one-half c. one-quarter d. one-third
Answer: D
During a severe recession, the government issued food stamps that could only be used to acquire food to a greater number of families. The budget line graph shows food on the horizontal axis and everything else on the vertical axis. The government expects that issuing the food stamps will cause each family's budget constraint line to: a. pivot out along the horizontal axis. b. pivot out along the vertical axis. c. shift to the left. d. shift to the right.
Answer: D
Economists are able to determine total utility by: A. multiplying the marginal utility of the first unit consumed by the number of units consumed. B. multiplying the marginal utility of the last unit consumed by the number of units consumed. C. multiplying the marginal utility of the last unit consumed by the unit price. D. summing up the marginal utilities of each unit consumed.
Answer: D
For lunch, Wendy eats only salads or fruit & yogurt smoothies. Her weekly food budget is $48. Each salad costs $6 and each smoothie costs $3. When deciding how much of each good to buy, Wendy knows that 2 salads and 4 smoothies will give her a utility of 8. What is Wendy's utility-maximizing point? a. 1 salad, 14 smoothies b. 6 salads, 4 smoothies c. 5 salads, 6 smoothies d. 4 salads, 8 smoothies
Answer: D
If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to: A. rise and the equilibrium quantity to fall. B. rise and the equilibrium quantity to stay the same. C. fall and the equilibrium quantity to fall. D. fall and the equilibrium quantity to stay the same.
Answer: D
Price elasticity of demand is defined as: A. the slope of the demand curve. B. the slope of the demand curve divided by the price. C. the percentage change in price divided by the percentage change in quantity demanded. D. the percentage change in quantity demanded divided by the percentage change in price.
Answer: D
Supply is said to be ____________ when the quantity supplied is very responsive to changes in price. A. independent B. inelastic C. unit elastic D. elastic
Answer: D
The elasticity of supply is defined as the ________ change in quantity supplied divided by the _______ change in price. A. total; percentage B. percentage; marginal C. marginal; percentage D. percentage; percentage
Answer: D
Todd is a cattle rancher. In June and July he spent his clothing budget on jeans and cowboy hats. Each pair of jeans cost $50 and each hat cost $100. At Todd's optimal choice, his marginal utility from the last pair of jeans purchased is 200. This means that his marginal utility from the last cowboy hat purchased is: a. 550 b. 500 c. 450 d. 400
Answer: D
Which of the following is most likely to cause variation in American household spending patterns? a. differing levels of family income b. geographical location of households c. each household's personal preferences d. each of the above will cause a variation
Answer: D