ECON

elastic

the demand for a good is elastic with respect to price if its price elasticity of demand is greater than 1

inelastic

the demand for a good is inelastic with respect to price if its price elasticity of demand is less than 1

According to the law of demand, when the price of shoes ________ you will consume ______ shoes. a. rises, more b. falls, more c. rises, the same amount d. falls, the same amount

Answer: B

Average Total Cost (ATC)

total cost divided by total output

Average Variable Cost (AVC)

variable cost divided by total output

Subsistence levels of consumption—the amount of food, shelter, and clothing required to maintain our health—are referred to as A. needs. B. inferior good. C. wants. D. luxuries.

Answer: A

. Higher education is a ________ and assigned textbooks are ________. A. need; needs B. want; wants C. need; wants D. want; needs

Answer: B

When the price of hot dogs is $1.50 each, 500 hot dogs are sold every day. After the price falls to $1.35 each, 510 hot dogs are sold every day. At the original price, what is the price elasticity of demand for hot dogs? a. 66.67 b. 5 c. 2 d. 0.2

Answer: 0.2

All else equal, compared to small-budget items such as paper towels, the price elasticity of demand for big-ticket items such as refrigerators is a. higher b. lower c. very low. d. equal

Answer: A

All else equal, the price elasticity of demand for a good tends to be lower a. if the good has few close substitutes. b. if the good represents a large share of a consumer's budget. c. in the long run. d. if the good has many close substitutes.

Answer: A

During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4th one you became ill and lost the contest. You got ______ utility from eating the 4th pie than from eating the 2nd pie. A. less B. more C. the same amount of D. less variable

Answer: A

During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4th one you became ill and lost the contest. Your total utility _______with the first three pies you ate. A. increased B. decreased C. stayed the same D. first increased than decreased

Answer: A

Growing rice requires extensive irrigation in California. Economists consider water to be a ____ for rice farmers in California A. want B. need C. luxury D. inferior good

Answer: A

If the percentage change in the price of a good is less than the resulting percentage change in the quantity demanded of that good, then the demand for that good is a. elastic b. inelastic c. unit elastic. d. perfectly inelastic.

Answer: A

If the price elasticity of demand for pineapples is 0.75, then a 4 percent increase in the price of pineapples will lead to a a. 3 percent decrease in the quantity of pineapples demanded. b. 3 percent increase in the quantity of pineapples demanded. c. 0.75 percent decrease in the quantity of pineapples demanded. d. 0.75 percent increase in the quantity of pineapples demanded.

Answer: A

If the quantity demanded of a good is Q when the price for the good is P, the price elasticity of demand for that good at that point is a. (P/Q) × (1/slope). b. (Q/P) × (1/slope). c. (P/Q) × (slope). d. Q × P × (1/slope).

Answer: A

Refer to the accompanying graph. What is the price elasticity of demand when the price of rice is $3 per pound? a. 0.5 b. 0.67 c. 0.75 d. 2

Answer: A

Refer to the accompanying table. The marginal utility of the 5th apple is A. -5 B. 0 C. 5 D. 45

Answer: A

Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound. Casey can buy a maximum of _____ pounds of fish or a maximum of _____ pounds of shrimp. A. 30, 50 B. 50, 30 C. 15, 30 D. 30, 15

Answer: B

Demand tends to be ______ in the short run than in the long run. a. more elastic b. less elastic c. more variable d. less important

Answer: B

During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4th one you became ill and lost the contest. After the third pie, your total utility A. increased, but by less than for the first three pies. B. decreased. C. stayed the same. D. was zero.

Answer: B

During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4th one you became ill and lost the contest. You got ______ utility from eating the 1st pie than eating the 3rd pie. A. less B. more C. the same amount of D. less variable

Answer: B

If 20 percent increase in the price of a good leads to a 60 percent decrease in the quantity demanded, then what is the price elasticity of demand? a. 30 b. 3 c. 1/3 d. 1/6

Answer: B

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is a. negative. b. inelastic. c. elastic d. unit elastic.

Answer: B

Laura's total utility from consuming 8, 9, and 10 bonbons is 35, 42, and 45, respectively. Her marginal utility from the 9th bonbon is A. 77 B. 7 C. 42 D. 4.67

Answer: B

Refer to the accompanying figure. The absolute value of the slope of the demand curve D1 is ______, and the absolute value of the slope of demand curve D2 is ______. a. 1/2; 2 b. 2; 1/2 c. 5/4; 4/5 d. 4/5; 5/4

Answer: B

Refer to the accompanying table. The total utility ______ as additional apples are consumed, but the marginal utility _______ with each additional apple consumed. A. first decreases then increases; decreases B. first increases then decreases; decreases C. first decreases then increases; increases D. first increases then decreases; increases

Answer: B

The additional utility gained from consuming an additional unit of a good is called A. total utility B. marginal Utility C. utility D. a util

Answer: B

The demand for a good is elastic if the price elasticity of demand is a. equal to one. b. greater than one. c. less than one. d. equal to zero.

Answer: B

The goal of utility maximization is to allocate your ___ in order to maximize your ___. A. utility; spending B. resources; satisfaction C. time; work D. limited resource; desires

Answer: B

The tendency for marginal utility to decline as consumption increases beyond some point is called A. the law of demand. B. the law of diminishing marginal utility. C. the rational spending rule. D. utility maximization.

Answer: B

Economists have found that the price elasticity of demand for water is higher in the summer than in the winter. Why is this likely to be so? a. Winter is longer than summer, and price elasticity is lower over longer time horizons. b. Summer is longer than winter, and price elasticity is higher over longer time horizons. c. Winter water use tends to be for necessities such as cleaning and cooking, and summer water use tends to be for both necessities and non-necessities such as gardening and recreation. d. People take more vacations in the summer and so use less water at home.

Answer: C

If consumers respond to a 10% price reduction by buying twice as much of a particular good, we would conclude that a. there was excess demand at the original price. b. there was excess supply at the original price. c. the price elasticity of demand at the original price was greater than one. d. the price elasticity of demand at the original price was less than one.

Answer: C

If the absolute value of the price elasticity of demand for tickets to a football game is 2, then if the price increases by 1 percent, quantity demanded decreases by a. 0.5 percent. b. 1 percent. c. 2 percent. d. 4 percent.

Answer: C

If the demand for a good is highly elastic, that good is likely to have a. many close complements. b. few close complements. c. many close substitutes. d. few close substitutes.

Answer: C

If the percentage change in the price of a good is equal to the percentage change in the quantity demanded of that good, then the demand for that good is a. elastic b. inelastic c. unit elastic. d. perfectly elastic.

Answer: C

Refer to the accompanying figure. The marginal utility of the 6th pizza is A. 95 B. 100 C. 5 D. 17.5

Answer: C

Refer to the accompanying figure. The total utility of consuming two pizzas a week is A. 25 B. 30 C. 55 D. 75

Answer: C

Refer to the accompanying figure. What is the price elasticity of demand when the price of rice is $6 per pound? a. 0.5 b. 0.67 c. 2 d. 3

Answer: C

Refer to the accompanying table. The marginal utility of consuming apples is A. constant. B. first increasing, but decreasing after the fourth apple. C. decreasing after the first apple. D. constantly increasing.

Answer: C

Refer to the accompanying table. The marginal utility of consuming the 2nd apple is A. 35 B. 10 C. 15 D. 20

Answer: C

Suppose that the demand for electricity has been found to be price inelastic. The most likely explanation for this finding is that a. electricity is a luxury good. b. the fraction of income spent on electricity is large. c. few substitutes for electricity exist. d. electricity is sold in a monopoly market.

Answer: C

Suppose the company that owns the vending machines on your campus has doubled the price of a can of soda. If they then still sell almost the same number of sodas per day, this suggests a. students do not have good nutritional information. b. soda purchases represent a large fraction of students' budgets. c. there are few other places to purchase soda on campus. d. the price elasticity of demand for soda is equal to 1.

Answer: C

Taking a limousine to a five star restaurant in New York is a A. necessity to Richie Rich but a luxury to Joe Average. B. necessity to both Joe Average and Richie Rich. C. want to both Joe Average and Richie Rich. D. want to Richie Rich and a luxury to Joe Average.

Answer: C

The price elasticity of demand for a good measures the responsiveness of a. demand to a 1 percent change in price of that good. b. price to a 1 percent change in the demand for that good. c. quantity demanded to a 1 percent change in price of that good. d. price to a 1 percent change in the quantity demanded of that good.

Answer: C

Assume the price of gasoline doubles tonight and remains at that price for the next two years. Compared with the long-run price elasticity of demand for gasoline, the short-run price elasticity of demand for gasoline will be ______. a. higher b. more variable c. the same d. lower

Answer: D

Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $1.5 a pound and the price of shrimp is $5 a pound. Casey can buy a maximum of _____ pounds of fish or a maximum of _____ pounds of shrimp. A. 10; 30 B. 30; 50 C. 30; 100 D. 100; 30

Answer: D

If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to a. 30. b. 0.30. c. 0.333 d. 3

Answer: D

Keira's total utility after eating 99 Reese's Peanut Butter Cups was greater than his total utility after eating his 100th Reese's Peanut Butter Cups. Therefore, Keira's marginal utility for the 100th peanut butter cup was A. positive, but less than one. B. positive, but less than Pat's marginal utility for the 99th peanut butter cup. C. zero D. negative

Answer: D

Refer to the accompanying figure. For demand curve D1, what is the price elasticity of demand when P = 12? a. 12 b. 6 c. 4 d. 3

Answer: D

Refer to the accompanying figure. The marginal utility of the 7th pizza is A. 10 B. 5 C. -100 D. -5

Answer: D

Refer to the accompanying figure. The total utility of consuming 4 pizzas a week is A. 15 B. 22.5 C. 75 D. 90

Answer: D

Refer to the accompanying figure. Total utility increases with each additional pizza consumed up to the _____ and then declines, but marginal utility _______ with each additional pizza consumed. A. 7th pizza, increases B. 6th pizza, increases C. 5th pizza, stays the same D. 6th pizza, decreases

Answer: D

The reason a brand name item (e.g., Tyson chicken) has a larger price elasticity than a class of items (e.g., chicken) is that a. there are fewer substitutes for Tyson chicken than for chicken generally. b. it takes a lot of time to adjust to a substitute brand of chicken. c. the share of income spent on "chicken" is larger than spent on "Tyson Chicken". d. there are fewer substitutes for chicken generally than for Tyson chicken.

Answer: D

The tendency for consumers to purchase more of a good or service as its price falls is captured by the a. law of supply b. law of increasing cost c. low-haning fruit principle d. law of demand

Answer: D

imperfectly competitive firm (or price setter)

a firm that has at least some control over the market price of its product

price taker

a firm that has no influence over the price at which it sells its product

profit-maximizing firm

a firm whose primary goal is to maximize the difference between its total revenues and total costs

profitable firm

a firm whose total revenue exceeds its total cost

perfectly competitive market

a market in which no individual supplier has significant influence on the market price of the product

long run

a period of time of sufficient length that all the firm's factors of production are variable

short run

a period of time sufficiently short that at least some of the firm's factors of production are fixed

law of diminishing returns

a property of the relationship between the amount of a good or service produced and the amount of a variable factor required to produce it; the law says that when some factors of production are fixed, increased production of the good eventually requires ever-larger increases in the variable factor

factors of production

an input used in the production of a good or service

variable factor of production

an input whose quantity can be altered in the short run

fixed factor of production

an input whose quantity cannot be altered in the short run

perfectly elastic demand

demand is perfectly elastic with respect to price if price elasticity of demand is infinite

perfectly inelastic demand

demand is perfectly inelastic with respect to price if price elasticity of demand is zero

law of demand

people do less of what they want to do as the cost of doing it rises

Rational Spending Rule

spending should be allocated across goods so that the marginal utility per dollar is the same for each good

perfectly elastic supply

supply is perfectly elastic with respect to price if elasticity of supply is infinite

perfectly inelastic supply

supply is perfectly inelastic with respect to price if elasticity is zero

nominal price

the absolute price of a good in dollar terms

marginal utility

the additional utility gained from consuming an additional unit of a good

optimal combination of goods

the affordable combination that yields the highest total utility

producer surplus

the amount by which price exceeds the seller's reservation price

unit elastic

the demand for a good is unit elastic with respect to price if its price elasticity of demand equals 1

consumer surplus

the difference between a buyer's reservation price for a product and the price actually paid

total expenditure (or total revenue)

the dollar amount that consumers spend on a product (P × Q) is equal to the dollar amount that sellers receive

real price

the dollar price of a good relative to the average dollar price of all other goods

marginal cost

the increase in total cost that results from carrying out one additional unit of an activity

income elasticty of demand

the percentage by which a good's quantity demanded changes in response to a 1 percent change in income

cross-price elasticity of demand

the percentage by which the quantity demanded of the first good changes in response to a 1 percent change in the price of the second

price elasticity of supply

the percentage change in quantity supplied that occurs in response to a 1 percent change in price

price elasticity of demand

the percentage change in the quantity demanded of a good or service that results from a 1 percent change in its price

total cost

the sum of all payments made to the firm's fixed and variable factors of production

fixed costs

the sum of all payments made to the firm's fixed factors of production

variable cost

the sum of all payments made to the firm's variable factors of production

law of diminishing marginal utility

the tendency for the additional utility gained from consuming an additional unit of a good to diminish as consumption increases beyond some point

profit

the total revenue a firm receives from the sale of its product minus all costs—explicit and implicit—incurred in producing it