MICRO QUIZ 7

Elaine values the utility of her first cup of coffee at $1; a second cup, $.75; and a third cup, $.50. If Elaine drinks three cups of coffee for breakfast, her marginal utility is equal to

$.50, the value of her last cup of coffee.

John's demand schedule for pizza is indicated below. If the current price of pizza is $1.10 per slice, what is John's consumer surplus if he buys five slices of pizza?

$1.00

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of the price elasticity of demand for Starbucks coffee is

1.25.

When the price of Nike tennis shoes goes from $100 to $80, the quantity demanded increases from 20 to 30 million. Over this price range, the absolute value of the price elasticity of demand is

1.80.

If the elasticity of demand for cigarettes is 0.4, then an increase in the price of a pack of cigarettes from $1.00 to $1.30 would reduce quantities demanded by about

12 percent.

Refer to Table 7-1. When the price of the good is $1.00, the quantity demanded in this market would be

31 units.

Which of the following is true about marginal benefit?

All of the above are true.

In which of the following cases will the total spending on a good decrease?

Demand is elastic, and price increases.

JoAnn considers cola and plain sparkling water to be good substitutes. Suppose the price of sugar, a key ingredient used to produce cola, falls. Refer to Scenario 7-1. According to the substitution effect, which of the following is most likely to occur?

JoAnn will purchase more cola and less sparkling water.

JoAnn considers cola and plain sparkling water to be good substitutes. Suppose the price of sugar, a key ingredient used to produce cola, falls. Refer to Scenario 7-1. According to the income effect, which of the following is most likely to occur?

JoAnn will purchase more of most goods due to her higher real income.

Consider Figure 7-17. Between the prices of $5 and $6, which supply curve is most elastic and which is least elastic?

S1 is most elastic; S3 is least elastic.

Which of the following describes a situation in which demand must be elastic?

Total revenue does not change when the price of pens rises. WRONGGGG The price of pens rises by 10 cents, and total revenue rises. WONGGG The price of pens rises by 10 cents, and quantity of pens demanded falls by 50.

A good that takes up a very large percentage of the consumer's budget will tend to have

an elastic demand.

Goods that consumers regard as luxuries generally have

an income elasticity greater than 1.

In the price range between $3 and $4, the price elasticity of the demand curve depicted in Figure 7-7 is

approximately equal to -3.

As people have more time to adjust to a price change,

both supply and demand become more elastic.

If Mr. McLean thinks the last dollar spent on bowling yields more satisfaction than the last dollar spent on hamburgers, and McLean is a utility-maximizing consumer, he should

bowl more and spend less on hamburgers.

If demand price elasticity measures 2, this implies that consumers would

buy 2 percent more of the product in response to a 1 percent drop in price.

The price of an airline ticket rises as the amount of time between purchase and flight departure gets smaller. The airlines base the policy on the assumption that

consumer demand becomes more inelastic as departure time approaches.

Suppose the athletic department wanted to increase revenues by decreasing ticket prices to football games. This would make sense only if the price elasticity of demand for football games was (in absolute value)

greater than 1.

If Francis experiences a decrease in his income, we would expect that Francis's demand for

normal goods will decrease.

The number of CDs purchased increased by 5 percent when consumer income increased by 10 percent. Assuming other factors are held constant, CDs would be classified as

normal goods.

If a large percentage increase in the price of a good results in a small percentage reduction in the quantity demanded of the good, demand is said to be

relatively inelastic.

Which one of the following goods would likely have the most inelastic demand?

salt

A 20 percent increase in the price of sugar reduces sugar consumption by about 10 percent. Such a price increase causes households to

spend more on sugar.

When the price of a good falls, consumers buy more of the good because it is cheaper relative to competing goods. This statement describes the

substitution effect.

Which demand curve in Figure 7-16 is perfectly elastic?

the curve in graph b

If the price of apples increases, total expenditures on apples will decline if

the demand for apples is elastic.

The principle of diminishing marginal utility says that

the marginal utility of additional units consumed will decline.

The fact that a gallon of gasoline commands a higher market price than a gallon of water indicates that

the marginal utility of gasoline is greater than the marginal utility of a gallon of water.