Economics

As consumption of a good decreases, marginal utility _________ and total utility ________. a. increases; decreases b. increases; increases c. decreases; increases d. decreases; decreases

a. increases; decreases

If the supply curve of a good is horizontal then the elasticity of supply of the good is a. infinitely large. b. zero. c. negative. d. equal to one.

a. infinitely large.

A decrease in the price of a good will have a _________ real income effect for the consumer. a. positive b. negative c. neutral d. variable

a. positive

When price changes people will but the cheaper good rather than the more expensive alternative good. This describes the ___________ effect of the price change. a. substitution b. real income c. wealth d. rationing

a. substitution

Marginal utility can be determined by a. taking the slope of the total utility curve. b. dividing total utility by quantity consumed at every level of output. c. subtracting price from total utility. d. taking the ratio of the change in quantity consumed to the change in total utility.

a. taking the slope of the total utility curve.

If a seller wishes to maximize her total revenue, she will price her product . to maximize price elasticity of demand. b. to minimize price elasticity of demand. c. where elasticity of demand is equal to one. d. where elasticity of demand is negative.

where elasticity of demand is equal to one.

The elasticity of demand for a life-saving drug like insulin is most likely a. zero. b. infinitely large. c. constant. d. equal to one.

zero

Which of the following is most likely to be perfectly inelastic in supply? :a. Tickets for the Superbowl. b. Corn. c. Gasoline. d. Apple I-Phones.

Tickets for the Superbowl

Price elasticity of demand is calculated as a. the absolute change in quantity demanded divided by the absolute change in price. b. the proportionate change in quantity demanded divided by the proportionate change in price. c. the absolute change in price divided by the absolute change in quantity demanded. d. the proportionate change in price divided by the proportionate change in quantity demanded.

. b. the proportionate change in quantity demanded divided by the proportionate change in price.

If two goods are substitutes for one another then a. income elasticity is negative for each good. b. cross-price elasticity for the goods is positive. c. income elasticity is positive for each good. d. cross-price elasticity for the goods is negative.

. cross-price elasticity for the goods is positive.

Suppose the price of gas increases from $2.30 to $2.80 per gallon the amount purchased falls from 20 to 17 gallons per week. Calculate the arc elasticity of demand for gas. a. .67. b. .83. c. 1.20. d. None of these answers is correct.

.83

When the price of flour increases from $3 to $3.50 unit, the demand for sugar increases from 2.5 to 3 units. This tells us that the cross-price elasticity of demand for these goods is ______ and that the goods are ________. a. .73; substitutes b. -.73; complements. c. 1.36; substitutes. d. -1.36; complements.

1.36; substitutes.

A luxury good is one that has a :a. small income elasticity of demand. b. large price elasticity of demand. c. large income elasticity of demand. d. small price elasticity of demand.

Answer:c. large income elasticity of demand.

Demand elasticity is larger when a. the good is a luxury. b. there exists many substitutes for the good. c. the good takes a large portion of the budget. d. Each of these answers is correct.

Each of these answers is correct

Suppose a good has a perfectly inelastic supply. If incomes increase, what will be the impact on equilibrium price and quantity in the market for this good Equilibrium price will increase but quantity will decrease. b. Equilibrium quantity will increase but price will decrease. c. Equilibrium price will increase but quantity will stay the same. d. Equilibrium quantity will increase but price will stay the same.

Equilibrium price will increase but quantity will stay the same

Price elasticity of demand is defined as the sensitivity of :a. price to a change in quantity demanded of a good. b. demand for a good to a change in income. c. demand for a good to a change in the price of a complement. d. None of these answers is correct.

None of these answers is correct.

Who pays the sales tax when the elasticity of demand for a good is infinitely large? a. The seller. b. The buyer. c. Both seller and buyer pay the tax. d. It is not possible to impose sales tax on such a good.

The seller.

A good is perfectly elastic in demand with respect to price changes. This must mean that the good a. is a necessity good. b. has a large number of available substitutes. c. takes up a small portion of the consumers budget. d. None of these answers is correct.

b. has a large number of available substitutes.

If marginal utility is zero, then total utility is a. zero. b. maximized. c. negative. d. minimized.

b. maximized.

The concept of utility is best understand as a. need. b. satisfaction. c. desire. d. demand.

b. satisfaction.

Market demand for a good can be obtained by a. summing vertically all individual demands for the good. b. summing horizontally all individual demands for the good. c. summing sequentially all individual demands for the good. d. None of these answers is correct.

b. summing horizontally all individual demands for the good.

Assuming the law of diminishing marginal utility holds, the more units of a good that are consumed a. the less is total utility. b. the less is marginal utility. c. the less satisfied is the consumer. d. Each of these answers is correct.

b. the less is marginal utility.

According to the water-diamond paradox a. water has high use value and high exchange value. b. water has high use value and low exchange value. c. diamonds have high use value and low exchange value. d. diamonds have high exchange value and high use value.

b. water has high use value and low exchange value.

The theory of value preferred by Karl Marx was the _______ theory of value. a. utility b. market c. labor d. communist

c. labor

When consumption of a good is low total utility is ______ and marginal utility is ________. a. high; low b. high; high c. low; high d. low; low

c. low; high

Suppose a consumer of two goods A and B is in equilibrium. Assume no change in money income and a decrease in the price of good B. If the substitution effect of the price change dominates the income effect we can say___________________ in the new equilibirum. a. less of good B will be consumed b. more of good A will be consumed c. more of good B will be consumed d. None of the above.

c. more of good B will be consumed

If marginal utility is negative, then total utility is a. also negative. b. positive and increasing. c. positive and decreasing. d. maximized.

c. positive and decreasing.

According to the labor theory of value, the value of labor is determined by a. the market wage. b. the mandated minimum wage. c. the subsistence wage. d. labor's opportunity cost.

c. the subsistence wage.

Which of the following is a purpose of a theory of consumer choice? a. To explain how people allocate their scarce incomes. b. To show how people react to changes in income, tastes, prices and other variables. c. To derive the demand curve for a good. d. Each of these answers is correct.

d. Each of these answers is correct.

The last apple consumed yields 40 extra utils of utility while the last orange yields 50 extra utils. The price of apples is $3 and the price of oranges is $4. is the consumer in equilibirum? a. Yes, because marginal utility for each good is maxmized. b. No, the consumer should purchase and consume more organges. c. Yes, because total utility is maximized. d. No, the consumer should purchase and consume more apples.

d. No, the consumer should purchase and consume more apples.

Suppose you get twice as much total utility from good A as you do from good B. To be in equilibrium it must be the case that a. the price of good B must be twice as large as the price of good A. b. the price of good A must be twice as large as the price of good B. c. the price of good B must be one-half as large as the price of good A. d. None of these answers is necessarily correct.

d. None of these answers is necessarily correct.

Adam Smith believed that commodities contained a. use value. b. exchange value. c. scarcity value. d. a. and b. e. a., b., and c.

d. a. and b.

The total utility curve is drawn as a(n) _________ and _________ function of _________, assuming diminishing marginal utility. a. decreasing; non-linear; quantity consumed. b. decreasing; linear; price. c. increasing; linear; quantity consumed. d. increasing; non-linear; quantity consumed

d. increasing; non-linear; quantity consumed

A consumer who is in equilibrium is said to a. maximize marginal utility. b. maximize total utility. c. minimize marginal utility. d. maximize both total and marginal utility.

d. maximize both total and marginal utility.

The arc, or midpoints, concept of elasticity is preferred when one wishes to know elasticity when price moves in a particular direction. b. elasticity over a range of the demand for a good. c. when price increases. d. when price decreases.

elasticity over a range of the demand for a good.

The smaller the elasticity, the ______ the slope of the demand curve. :a. greater b. smaller c. more non-linear. d. convex.

greater

A normal good is defined as one whose _______ elasticity is _______ a. price elasticity; greater than zero. b. price elasticity; greater than one. c. income elasticity; is greater than zero. d. income elasticity; is greater than one.

income elasticity; is greater than zero.

A seller knows that demand for his product has elasticity greater than one. He then knows that if he reduces price his total sales receipts will increase. decrease. remain unchanged. None of these answers is correct.

increase

If government wants to raise tax revenue it will impose a sales tax on a good that has a. high price elasticity of demand. b. high income elasticity of demand. c. low price elasticity of demand. d. low income elasticity of demand.

low price elasticity of demand.

If a good is inferior then its income elasticity of demand is a positive fraction. b. greater than one but less than 2. c. negative. d. greater than 2.

negative