Micro-Exam 2 Questions

Refer to Figure 4.3. An example of an effective price ceiling would be government setting the price of pencils at a.) $0.40 b.) $0.45 c.) $0.50 d.) $0.55

a.) $0.40

If the quantity demanded of tea increases by 2% when the price of coffee increases by 6%, the cross-price elasticity of demand between tea and coffee is a.) 0.33 b.) 3 c.) 12 d.) -3

a.) 0.33

Refer to Figure 4.2. The market is initially an equilibrium at Point A and supply shifts from S1 to S2. Which of the following statements is TRUE? a.) Price will still serve as a rationing device causing quantity demanded to fall from 11 to 8 soft pretzels b.) There is no need for price to serve as a rationing device in this case because the new equilibrium quantity is higher than the original equilibrium quantity c.) The market cannot move to a new equilibrium until there is also a change in supply d.) Price will still serve as a rationing device causing quantity supplied to rise from 8 to 15 soft pretzels

a.) Price will still serve as a rationing device causing quantity demanded to fall from 11 to 8 soft pretzels

Refer to Figure 3.19. When the economy moves from Point A to Point B, there has been a.) an increase in demand and an increase in quantity supplied b.) an increase in quantity demanded and an increase in quantity supplied c.) an increase in demand and an increase in supply d.) an increase in quantity demanded and an increase in supply

a.) an increase in demand and an increase in quantity supplied

Refer to Figure 3.7. If pizza and hamburgers are substitutes, an increase in the price of hamburgers will cause a movement from Point B on demand curve D2 to a.) demand curve D3 b.) Point A on demand curve D2 c.) demand curve D1 d.) Point C on demand curve D2

a.) demand curve D3

When there is an excess supply of a product in an unregulated market, the tendency is for a.) price to decrease b.) quantity demanded to decrease c.) price to rise d.) quantity supplied to increase

a.) price to decrease

A government wants to reduce electricity consumption by 10%. The price elasticity of demand for electricity is -5. The government must _______ the price of electricity by _______. a.) raise; 2.0% b.) raise; 1.25% c.) raise; 0.5% d.) lower; 0.5%

a.) raise; 2.0%

Refer to Figure 6.1. Assume Tom is on budget constraint AC and the price of a hamburger is $4.00. Tom's monthly income is a.) $20 b.) $80 c.) $60 d.) $100

b.) $80

In figure 4.6 at equilibrium consumer surplus is area a.) A b.) A+B+C c.) E+F+G d.) G

b.) A+B+C

When the price of fresh fish increases 10%, quantity demanded decreases 5%. The price elasticity of demand for fresh fish is _______ and total revenue from fresh fish sales will _______. a.) elastic; increase b.) inelastic; increase c.) elastic; decrease d.) inelastic; decrease

b.) inelastic; increase

Jon is consuming X and Y so that he is spending his entire income and MUx/Px=8 and MUy/Py=4. To maximize utility, he should consume a.) less of both X and Y b.) more x and less Y c.) less X and more Y d.) the same amount of X and Y since he is already maximizing utility

b.) more X and less Y

Refer to Figure 3.12. The market is initially in equilibrium at Point A. If demand shifts from D1 to D2, the new equilibrium price will be ________ and the new equilibrium quantity will be _______. a.) $3.00; 250 b.) $4.00; 150 c.) $4.00; 350 d.) $6.00; 250

c.) $4.00; 350

A firm currently producing in the inelastic portion of its demand curve. What course of action do you recommend for it assuming it wants to raise revenue? a.) Reduce price, because if it reduces price and demand is inelastic, total revenue will increase b.) Continue producing at the current output level, because it maximizes its total revenue by producing in the inelastic portion of its demand curve c.) Increase price, because if it increases price and demand is inelastic, total revenue will increase d.) Continue selling at the same price, but increase the amount it produces

c.) Increase price, because if it increases price and demand is inelastic, total revenue will increase

The law of diminishing marginal utility refers to a.) a consumer's decrease in total satisfaction as she consumes more units of a good b.) the idea that marginal utility is negative c.) a consumer's decrease in additional satisfaction as she consumes more and more units of a good d.) the idea that total utility is negative

c.) a consumer's decrease in additional satisfaction as she consumes more and more units of a good

Refer to Figure 3.16. The supply curve for hula hoops shifts from S0 to S1. This could be caused by a.) a decrease in the demand for hula hoops b.) a decrease in the price of hula hoops c.) a decrease in the number of firms selling hula hoops d.) either B or C

c.) a decrease in the number of firms selling hula hoops

Rental DVDs and movies shown in theaters are substitutes. Rented DVDs and plasma TVs are complements. Plasma TVs and movies shown in theaters are normal goods. People watch rented DVDs more often in the winter than in the summer. You observe that the rental price for DVDs is higher in the winter than in the summer. This would be explained by the fact that a.) consumer income tends to fall in the winter and increase in the summer b.) there are more DVDs released into the rental market in the winter than in the summer c.) demand for rented DVDs is higher in the winter than in the summer d.) the quantity demanded of rented DVDs is higher in the winter than in the summer

c.) demand for rented DVDs is higher in the winter than in the summer

When there are more substitutes for a product, the _______ for the product is _______. a.) income elasticity; smaller b.) demand; less price elastic c.) demand; more price elastic d.) income elasticity; greater

c.) demand; more price elastic

Refer to Figure 4.3. At an effective price ceiling for pencils, a.) quantity demanded is equal to quantity supplied b.) quantity demanded is less that quantity supplied c.) quantity demanded is greater than quantity supplied d.) price is above equilibrium

c.) quantity demanded is greater than quantity supplied

An insect that is resistant to currently used pesticides has infested the cotton crop, and this year's crop is only half of what was produced last year. You accurately predict that this a.) will shift the supply curve of cotton to the right, the equilibrium price of cotton will increase, and the demand for cotton will fall b.) will shift the supply curve of cotton to the left, the equilibrium price of cotton will increase, and the demand for cotton will fall c.) will shift the supply curve of cotton to the left, the equilibrium price of cotton will increase, and the quantity demanded of cotton will decrease d.) will shift the supply curve of cotton to the right, the equilibrium price of cotton will increase, and the quantity demanded of cotton will decrease

c.) will shift the supply curve of cotton to the left, the equilibrium price of cotton will increase, and the quantity demanded of cotton will decrease

The market price of a basketball is $35 and the full cost of producing it is $20, then a basketball producing firm gets producer surplus of a.) 1 basketball b.) $35 c.) $20 d.) $15

d.) $15

Refer to Figure 5.2. If the price of a hamburger is increased from $8 to $10, the price elasticity of demand equals _______. Use the midpoint formula. a.) -30 b.) -0.33 c.) -300 d.) -3.0

d.) -3.0

In figure 4.6 if price is P1, consumer surplus is area a.) A+B+C+E+F+G b.) A c.) G d.) A+B+E

d.) A+B+E

Refer to Figure 6.1. Along budget constraint AC, the opportunity cost of one hamburger a.) changes as you move down along the budget constraint b.) is 1/4 of a hot dog c.) is 1/2 of a hot dog d.) is 2 hot dogs

d.) is 2 hot dogs