ECON

12) Measuring the price of gasoline in dollars per quart, an economist calculates the price elasticity of demand to be 1. What would the price elasticity of demand be if the economist had chosen to measure the price in dollars per gallon? [Note: There are 4 quarts in a gallon.] A) 1 B) 4 C) .25 D) .5

A) 1

31) Refer to the graph shown that depicts a third-party payer market for prescription drugs. If the co-payment is $2 per pill, what will be the quantity demanded? A) 45 B) 30 C) 15 D) 60

A) 45

21) Which of the following would cause quantity demanded to change without changing the demand curve? A) A change in the price of the good C) A change in income B) A change in tastes and preferences D) A change in the price of a substitute good

A) A change in the price of the good

30) The following table describes the utility for consuming cans of soda. At what point does the law of diminishing marginal utility set in? A) Between three and four cans B) Between four and five cans C) Marginal utility diminished everywhere D) Marginal utility never diminishes

A) Between three and four cans

17) Which of the following is not held constant as you move along the demand curve? A) The price of that good B) The price of other goods C) The preferences of consumers for the good D) The incomes of consumers

A) The price of that good

20) Suppose a price floor is imposed on eggs above their equilibrium price. The likely result will be: A) a decrease in the quantity of eggs demanded. B) a lower equilibrium price for eggs as the demand curve for eggs shifts left. C) an increase in the quantity of eggs demanded. D) a higher equilibrium price for eggs as the supply curve for eggs shifts left.

A) a decrease in the quantity of eggs demanded.

23) The price of a McDonald's dinner is $5; the price of a Burger King dinner is $5. The marginal utility you would get from the next McDonald's dinner is 15; the marginal utility you would get from the next Burger King dinner is 20. You should: A) consume more Burger King dinners. B) C) D) realize you cannot make a rational decision. E) not consume either Burger King or McDonald's dinners. F) consume more McDonald's dinners.

A) consume more Burger King dinners.

24) Given a set amount of money, goods A and B both give the same marginal utility at current levels of consumption but good A costs twice as much as good B. You should: A) consume more of good B and less of good A. B) consume more of good A and less of good B. C) keep consuming the current amounts of both good A and good B. realize that you don't D) have enough information to answer the question.

A) consume more of good B and less of good A.

10) The more the current price exceeds the equilibrium price, the: A) greater the resulting surplus will be. C) smaller the resulting surplus will be. B) greater the resulting shortage will be. D) smaller the resulting shortage will be.

A) greater the resulting surplus will be.

19) An economist estimates the elasticity of demand for baseball tickets to be 0.23. Using this information, a club that wants to raise revenues should: A) increase ticket prices. B) raise the prices of other goods sold at games. C lower ticket prices. D) leave ticket prices unchanged, because it is maximizing revenue.

A) increase ticket prices.

8) If quantity demanded does not change when the price changes, the demand: A) is perfectly inelastic. B) has unit elasticity. C) is inelastic. D) is elastic.

A) is perfectly inelastic.

22) As long as total utility is increasing, we know that marginal utility is: A) positive. B) increasing. C) negative. D) decreasing.

A) positive.

36) Given a fixed level of spending, you will maximize utility when the: A) ratios of the marginal utilities to their prices are equal. B) ratios of the total utilities to their prices are equal. C) marginal satisfactions are maximized. D) total satisfaction from both goods is maximized regardless of cost.

A) ratios of the marginal utilities to their prices are equal.

28) In microeconomics, the term price generally refers to the: A) relative price of an item. B) dollar price of an item. C) absolute price of an item. D) choke price of an item.

A) relative price of an item.

4) Refer to the graph shown. If consumers had to pay $13 per unit for this product instead of $10 per unit, what would happen (choose the correct option)? A) the consumer surplus would decrease. B) The producer surplus would likely decrease. C The consumer surplus would increase. D) The deadweight loss would decrease.

A) the consumer surplus would decrease.

39) Jason is faced with two options: A BMW costing $40,000 gives him an additional 800 units of utility, and a laser printer costing $1,000 gives him an additional 25 units of utility. Rational choice theory would predict that he would choose: A) to purchase the laser printer. B) it is impossible to choose because the goods have different prices. C) it is impossible to choose because BMWs and laser printers are fundamentally different goods with different purposes. D) to purchase the BMW.

A) to purchase the laser printer.

40) Refer to the table shown that depicts a third-party payer market. What is the price the supplier will charge for the quantity consumers demand if a $1 co-pay is established? A $2 B) $4 C) $1 D) $7

B) $4

35) Demand and supply are initially D and S1, respectively. Which of the following best describes the effect of a $0.50 per pound tariff on Danish hams imported into the United States? A Supply shifts from S1 to So; quantity sold declines to 60 thousand pounds and price paid by consumers rises to B) Supply shifts from S1 to SO; quantity sold declines to 60 thousand pounds and price paid by consumers rises to $2.25 a pound C) Supply shifts from S1 to S2; quantity sold rises to 100 thousand pounds and price paid by consumers declines to $1.75 a pound D) Neither supply nor demand shift, but price paid by consumers declines to $1.50 a pound while quantity sold remains at 80 thousand pounds

B) Supply shifts from S1 to SO; quantity sold declines to 60 thousand pounds and price paid by consumers rises to $2.25 a pound

35) A movement along the demand curve for a good generally results from: A) changes in the prices of related goods. B) a change in the price of the good. C) a change in the population. D) both a change in the price of the good and a change in the population.

B) a change in the price of the good.

24) If pizzas and quesadillas are substitutes and the price of pizzas decreases, we would expect to see: A) an increase in the quantity demanded for quesadillas. B) a decrease in the demand for quesadillas. C) an increase in the demand for quesadillas. D) a decrease in the quantity demanded for quesadillas.

B) a decrease in the demand for quesadillas.

33) Because Cornell can type reports faster and more accurately than Alice, Cornell has a(n) _____ in typing reports. A) comparative advantage B) absolute advantage C) opportunity cost D) specialization

B) absolute advantage

37) Suppose that a haircut will give Dawn 2,000 units of utility and cost her $40, whereas a manicure costs $25 and vields 1,000 units of utility. Most likely Dawn should: A) choose the nails because she will obtain 50 units of utility per dollar compared with 40 units of utility per dollar for the haircut. B) choose the haircut because each unit of utility will cost her $0.02 compared with $0.025 for the nails. C) choose the haircut because she will receive 50 units of utility per dollar compared with 45 units of utility per dollar for the nails. D) be indifferent between the two choices.

B) choose the haircut because each unit of utility will cost her $0.02 compared with $0.025 for the nails.

29) The negative slope of the demand curve indicates that: A) more consumers are willing to buy the good as its supply falls. B) consumption increases as the price falls. C) consumption is a positive function of income. D) less consumers are willing to buy the good as the price falls.

B) consumption increases as the price falls.

32) Roommates Samara and Zendaya are hosting a Christmas party and have to make snacks for their guests and ornaments for themselves. Samara and Zendaya know that to finish both tasks as quickly as possible, each should focus on just one task, but they don't know who should do what. Samara and Zendaya should determine which roommate: A) has the absolute advantage in preparing snacks. B) has the comparative advantage in preparing snacks. C) can make the most snacks in a given amount of time. D) can make all the snacks in the least amount of time.

B) has the comparative advantage in preparing snacks.

1) If the quantity of houses supplied in an area increases 10 percent when the price goes up 25 percent; the supply: A) is perfectly elastic. B) is inelastic. C) is unit elastic. D) is elastic.

B) is inelastic.

26) The opportunity cost of producing a good: A) is the price of a good in the market. B) is what you give up to produce the good. C) increases as production decreases. D) is the amount of the good that you gain in production.

B) is what you give up to produce the good.

27) The real price of a good reflects: A) the purchasing power of consumers. B) its nominal price adjusted for the changing value of money. C) the absolute average price of goods and services. D) the total amount of money in circulation in the economy.

B) its nominal price adjusted for the changing value of money.

30) A shift in the consumer's demand for a good X cannot result from a change in the: A) price of a substitute for good X. B) price of X. C) consumer's taste. D) consumer's income.

B) price of X.

13) An elasticity of supply of 2.7 means that: A) price changes by 2.7 percent for each 1 percent change in quantity supplied. B) quantity supplied changes 2.7 percent for each 1 percent change in price. C) supply is inelastic. D) quantity supplied changes 2.7 units for each 1 percent change in price.

B) quantity supplied changes 2.7 percent for each 1 percent change in price.

18) Refer to the graph shown. A quantity restriction of QR will: A) maintain a market price of P1 C) have no effect in the market depicted. B) raise market price to Po D) lower market price to P2

B) raise market price to Po

33) If the United States imposes tariffs on steel imports the: A) supply of steel shifts to the right and lowers its market price. B) supply of the imported steel shifts to the left and raises its market price. C) demand for steel shifts to the left and raises its market price. D) demand for steel shifts to the left and lowers its market price.

B) supply of the imported steel shifts to the left and raises its market price.

14) The price of a ticket to the Billy Joel concert is set at $235. All the tickets for the concert sell out one hour after they go on sale and there are still 1,000 fans who want to buy tickets. It follows that: A) the equilibrium price of tickets to the concert is $235. B) the equilibrium price of tickets to the concert is more than $235. C) the equilibrium price of tickets to the concert is less than $235. D) the quantity of tickets demanded is equal to the quantity supplied at the $235 price.

B) the equilibrium price of tickets to the concert is more than $235.

38) Refer to the graph shown that depicts a third-party payer market for prescription drugs. If the co-payment is $2 per pill, what will be the total market expenditures on prescription drugs? A $90 B) $30 C) $270 D) $540

C) $270

34) Marius and Jennifer are going to sell cupcakes and muffins at their third annual fundraiser bake sale. In one day, Marius can make 40 cupcakes or 20 muffins, and Jennifer can make 15 cupcakes or 15 muffins. What is Marius's opportunity cost of producing one cupcake? A) 1 muffin B) 1 cupcake C) 0.5 muffin D) 0.5 cupcake

C) 0.5 muffin

5) Which of the following would not move either the supply or the demand curve in the market for housing? A) A possibility of higher construction costs B) An increase in the cost of home insurance C) An increase in real-estate prices D) An increase in the number of people who are retiring

C) An increase in real-estate prices

22) When the price of a good increases, what would we expect to see in the markets for its complements? A) Higher prices and increased sales C) Lower prices and decreased sales B) Lower prices and increased sales D) Higher prices and decreased sales

C) Lower prices and decreased sales

23) Refer to the following graph. If the price is set at Pc: A) a non-price rationing mechanism must determine which producers will be able to sell the product. B) the demand curve will shift to the left to achieve a new equilibrium. C) a non-price rationing mechanism must determine which buyers will be able to purchase the product. D) anyone willing and able to pay the asking price will be able to purchase the product.

C) a non-price rationing mechanism must determine which buyers will be able to purchase the product.

28) The U.S. imposes substantial taxes on cigarettes but not on loose tobacco. When the tax on cigarettes went into effect, the demand for home cigarette rolling machines most likely: A) decareased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to fall B) decreased, causing the price of cigarette rolling machines to fall and the quantity of machines purchased to fall. C) increased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to rise. D) increased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to fall.

C) increased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to rise.

7) When the wage rate paid to labor is above equilibrium, the: A) demand for labor decreases. B) supply of labor increases. C) number of workers seeking jobs exceeds the number of jobs available. D) number of jobs available exceeds the number of workers seeking jobs.

C) number of workers seeking jobs exceeds the number of jobs available.

2) Demand is said to be elastic when the: A) percentage change in quantity demanded is less than the percentage change in price. B) change in quantity demanded is greater than the change in price. C) percentage change in quantity demanded is greater than the percentage change in price. D) change in quantity demanded is less than the change in price.

C) percentage change in quantity demanded is greater than the percentage change in price.

16) The price elasticity of supply is the: A) percentage change in the price divided by the percentage change in the quantity supplied. B) change in the quantity supplied divided by the change in price. C) percentage change in the quantity supplied divided by the percentage change in price. D) change in the price divided by the change in the quantity supplied.

C) percentage change in the quantity supplied divided by the percentage change in price.

9) A surplus of a good could possibly be eliminated by: A) the removal of a price ceiling. B) a sufficient decrease in demand keeping price constant. C) the removal of a price floor. D) a sufficient increase in supply keeping price constant.

C) the removal of a price floor.

27) In a third-party payer system A) quantity supplied generally falls. B) quantity demanded generally falls. C) total expenditures generally rise. D) total expenditures generally fall.

C) total expenditures generally rise.

21) Refer to the table shown that depicts a third-party payer market. What is the cost of this program to the third-party if a $2 co-pay is established? A $600 B) $1,200 C) $150 D) $0

D) $0

25) Which statement is CORRECT? A) A change in demand is a movement along the demand curve, and a change in quantity demanded is a shift of the demand curve. B) A change in quantity demanded and a change in demand are movements along the demand curve. C) A change in quantity demanded and a change in demand are shifts of the demand curve. D) A change in quantity demanded is a movement along the demand curve, and a change in demand is a shift of the demand curve.

D) A change in quantity demanded is a movement along the demand curve, and a change in demand is a shift of the demand curve.

15) Which of the following is not likely to change the supply of personal computers? A) A technological breakthrough that makes it much less costly to produce computer chips B) An increase in taxes on computer chips paid by producers C) A decrease in the wage paid to electrical engineers D) An increase in consumers' incomes

D) An increase in consumers' incomes

25) Refer to the graph shown that depicts a third-party payer market for prescription drugs. What happens to expenditures by consumers in this market if a $2 co-pay is established compared to a free-market equilibrium? A) Expenditures rise by $90 B) Expenditures remain at $150 C) Expenditures fall by $120 D) Expenditures fall by $30

D) Expenditures fall by $30

29) Jack Sprat could eat no fat, his wife could eat no lean. And so betwixt them both, they licked the platter clean. Which of the following is true about Jack and his wife? A) Marginal utility of lean is rising for Jack; marginal utility of fat is rising for his wife. B) Marginal utility of fat is falling for Jack; marginal utility of lean is falling for his wife. C) Marginal utility of lean is negative for Jack; marginal utility of fat is negative for his wife. D) Marginal utility of fat is negative for Jack; marginal utility of lean is negative for his wife.

D) Marginal utility of fat is negative for Jack; marginal utility of lean is negative for his wife.

11) Which of the following statements is true about a downward-sloping demand curve that is a straight line? A) The slope remains the same, but elasticity rises as you move down the demand curve. B) The slope and the elasticity are the same at all points. C) The slope and the elasticity fall as you move down the demand curve. D) The slope remains the same, but elasticity falls as you move down the demand curve.

D) The slope remains the same, but elasticity falls as you move down the demand curve.

3) The most likely impact of an effective price floor is: A) a shortage will develop. C) the demand curve will shift to the left. B) the supply curve will shift to the right. D) a surplus will develop.

D) a surplus will develop.

34) The principle of diminishing marginal utility states that: A) you enjoy consuming more of a good if it is good. B) you don't enjoy consuming more of a good. C) as you consume more of a good, you enjoy the additional units more than you did the initial units. D) as you consume more of a good, you enjoy the additional units less than you did the previous units.

D) as you consume more of a good, you enjoy the additional units less than you did the previous units.

31) An economy is said to have a ____ in the production of a good if it can produce that good _____ A) comparative advantage; with more resources than another economy B) absolute advantage; at a higher opportunity cost than another economy C) absolute advantage; outside its production possibility frontier D) comparative advantage; at a lower opportunity cost than another economy

D) comparative advantage; at a lower opportunity cost than another economy

26) The principle of diminishing marginal utility states that marginal utility: A) is always falling. B) is negative. C) is positive. D) falls after some point.

D) falls after some point.

32 If the government imposes an excise tax on cars equal to 5,000 per automobile, the supply of automobiles will shift to the: A) right and the price of automobiles will decrease by $5,000. B) right and the price of automobiles will decrease by an unknown amount. C) left and the price of automobiles will increase by $5,000. D) left and the price of automobiles will increase by an unknown amount.

D) left and the price of automobiles will increase by an unknown amount.

11) John will eat peanut butter and jelly sandwiches only when they are made with exactly two ounces of peanut butter and one ounce of jelly. If peanut butter is on the horizontal axis (Pb. and jelly on the vertical axis (J), John's indifference curve for peanut butter and jelly is: a. L-shaped, beginning at 2PB and 1J. b. convex to the origin with a slope of -1/2. c. a parallel straight line with a slope of -2. d. concave to the origin with a slope of -2.

a. L-shaped, beginning at 2PB and 1J.

12) Suppose there are two goods, X and Y, with X measured on the horizontal axis and Y measured on the vertical axis. Which of the following statements about a budget line relating the two goods is correct? a. The budget line shows all the possible combinations of X and Y a consumer can buy given the level of income and prices. b. The budget line shows all the possible combinations of X and Y a consumer can buy given the level of income, prices, and borrowings. The budget line shows the most preferred combinations of X and Y a consumer can buy given the level of income and prices. d. The budget line shows the least-cost combinations of X and Y a consumer will buy given the level of income and prices.

a. The budget line shows all the possible combinations of X and Y a consumer can buy given the level of income and prices.

17) Figure 3-3 shows dollar outlays a composite good on the vertical axis and units of good X costing $5 a unit measured on the horizontal axis. Given the indifference curve and the budget line shown in Figure 3-3, which of the following is correct? a. The slope of the budget line is $5 b. The prices of other goods vary with income c. The slope of the budget line shows how much the consumer is willing to reduce dollar outlays on other goods to obtain one more unit of clothing d. The optimal point of consumption is at point E

a. The slope of the budget line is $5

2) The assumption of completeness of preferences states that a. a consumer can rank all possible consumption bundles b. consumers have consistent preferences c. more of a good is always better d. consumers are rational when making choices

a. a consumer can rank all possible consumption bundles

5) An indifference curve shows a. all the combinations of two products between which the consumer is indifferent b. all possible combinations of the two products available to the consumer that can be purchased with a given level of income c. the single best bundle of consumption for the consumer given two products and a particular income level d. how the total satisfaction derived from consuming alternative market baskets changes along the curve

a. all the combinations of two products between which the consumer is indifferent

14) Suppose hamburgers are on the horizontal axis and root beer on the vertical axis. Your budget allowance is $10 and the price of hamburgers is $4 each and root beer 52 each. If at your present consumption of hamburger and root beer your marginal rate of substitution of hamburger for root beer is 4, to maximize utility you should: a. consume more hamburgers and fewer root beers. b. consume fewer hamburgers and more root beers. c. continue consuming the same quantity of both hamburgers and root beers. d. continue consuming the same quantity of hamburgers but consume more root beer.

a. consume more hamburgers and fewer root beers.

15) The consumption of the composite good is measured by: a. total outlays on all goods included in the group. b. adding up the quantities of all goods included in the group. c. adding up the prices of all goods included in the group. d. the relative prices of the goods included in the group.

a. total outlays on all goods included in the group.

13) Suppose hamburgers are on the horizontal axis and root beer on the vertical axis. You have a budget allowance of $10, and the price of hamburgers is $4 and root beer is $2. The slope of your budget constraint is a. -0.5 b. -2 c. -2.5 d.-5

b. -2

20) When the income-consumption curve is backward-bending to the left, the good a. normal good b. an inferior good c. a Giffen good d. an economic bad

b. an inferior good

3) The assumption of transitivity of preferences states that a. a consumer can rank all possible consumption bundles b. consumers act rationally when choosing between consumption bundles c. more of a good is always better d. no two bundles can yield the same level of utility

b. consumers act rationally when choosing between consumption bundles

16) The composite good convention allows indifference curve analysis to analyze preferences for one good against many other goods as long as: a. all the goods belong to the same category. b. the prices of the other goods are kept constant. c. all the other goods are normal goods. d. income levels of consumers remain unchanged.

b. the prices of the other goods are kept constant.

1) The assumption of non satiation of preferences states that a. a consumer can rank all possible consumption bundles b. consumers have consistent preferences c. more of a good is always better d. consumers are indifferent between identical goods

c. more of a good is always better

10) A set of indifference curves between an economic good and an economic bad must be a.negatively sloped b. intersecting c. positively sloped d. horizontal

c. positively sloped

9) Indifference curves consistent with one good being an economic "neuter" are: a. convex. b. straight lines with a slope of -1. c. straight lines with a slope of 0. d. L-shaped.

c. straight lines with a slope of 0.

6) At any point on an indifference curve, the slope indicates: a. the relative price ratio of the two goods. b. the allocation of the consumer's income between the two goods. c. the marginal rate of substitution between the two goods. d. how the total satisfaction of the consumer changes with different market baskets.

c. the marginal rate of substitution between the two goods.

18) Which of the following will keep a consumer on the same indifference curve even if he wishes to move to a higher one? a. An increase in the consumer's income b. An increase in the relative price of one good the consumer purchases, other prices remaining unchanged c. A decrease in the relative price of one good the consumer purchases, other prices remaining unchanged d. A doubling of the consumer's income and a halving of the prices of all the goods the consumer purchases

d. A doubling of the consumer's income and a halving of the prices of all the goods the consumer purchases

7) Which one of the following assumptions about indifference curves is incorrect? a. Consumers usually prefer more to less. b. Consumers' preferences are transitive. c. The marginal rate of substitution declines along an indifference curve. d. Declining MRS implies that indifference curves are concave to the origin.

d. Declining MRS implies that indifference curves are concave to the origin.

8) The diminishing marginal rate of substitution along an indifference curve is reflected by its a. constant slope b. concavity c. positive slope d. convexity

d. convexity

4) An economic "bad" is a commodity for which a. less is preferred to more after a certain level of consumption has been reached b. more is preferred to less regardless of the level of consumption c. satisfaction does not change as more is consumed d. less is preferred to more over all possible ranges of consumption

d. less is preferred to more over all possible ranges of consumption

19) In deriving an income-consumption curve, it is assumed that: a. nominal income is constant. b. the prices of all but one good are held constant. c. the consumer's preferences may change. d. the consumer's income changes.

d. the consumer's income changes.