ECO102 unit 2 test

The government wants to make medicare benefits available to more people, but to achieve this goal, it needs to make cuts in the existing medicare budget. The two areas where they are considering cuts are non-essential elective surgery and 6-12 month mental health care programs. Applying the concept of diminishing marginal utility, the budget cuts should be made for spending on: A. mental health therapy due to its higher marginal return rate. B. elective surgery due to its lower marginal return rate. C. both programs, which have the same marginal return rate. D. neither can be compared by measuring marginal utility.

B. elective surgery due to its lower marginal return rate.

How does the U.S. Bureau of Labor Statistics gather information with regard to the typical consumption choices of Americans? A. Consumer Spending Survey B. Consumer Income Budget Survey C. Consumer Expenditure Survey D. Consumer Income Survey

C. Consumer Expenditure Survey

Refer to Table 4-1. Suppose that D2 and S1 are the prevailing demand and supply curves for a product. If the demand schedule changes from D2 to D1, then: A. equilibrium price increases from $6 to $8. B. equilibrium quantity increases from 13 to 18 C. equilibrium quantity decreases from 15 to 13. D. equilibrium price decreases from $6 to $4.

C. equilibrium quantity decreases from 15 to 13.

Improvements in the productivity of labor will tend to: A. decrease wages. B. decrease the supply of labor. C. increase wages. D. increase the supply of labor.

C. increase wages.

Refer to Figure 4-1. The movement from __________ to __________ is consistent with a decrease in the price of cotton (a substitute). A. Point A; Point H B. Point A; Point D (NOT) C. Point A; Point F D. Point A; Point B

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Refer to Table 4-1. If D1 and S1 represent the demand and supply schedules in a particular market, then the equilibrium price and quantity are __________ and __________, respectively. A. $4; 11 B. $4; 16 C. $6; 13 (NOT) D. $8; 15

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Refer to Table 4-1. Suppose that D1 and S1 are the prevailing demand and supply curves for a product. If the demand schedule changes from D1 to D2, then: A. equilibrium price decreases from $6 to $4. (NOT) B. equilibrium quantity decreases from 15 to 13. C. equilibrium quantity increases from 13 to 18. D. equilibrium price increases from $6 to $8

?

When economists are sketching examples of a demand or supply curve that is close to horizontal, they refer to that demand or supply curve as ____________. A. elastic (NOT) B. inelastic C. having zero elasticity D. price inelasticity

?

The "law of supply" functions in labor markets; that is, a higher __________ for labor leads to a higher quantity of labor supplied. A. price B. demand C. supply D. quantity

A. price

If cola and iced tea are good substitutes for consumers, then it is likely that: A. their cross price elasticities are greater than zero. B. their price elasticities of demand are less than one. C. their income elasticities are less than zero. D. their price elasticities of supply are less than one .

A. their cross price elasticities are greater than zero.

The typical pattern revealed in a budget constraint model shows that as the quantity consumed rises, A. total utility rises, but marginal utility falls. B. marginal utility increases. C. total utility decreases, but marginal utility rises. D. total utility decreases.

A. total utility rises, but marginal utility falls.

The marginal utility of two goods changes ______________. A. with the quantities consumed B. for the better, if taxes are imposed C. if they are intertemporal choices D. if the mother controls the household budget

A. with the quantities consumed

Refer to the diagram. What is the significance of the point marked L1 at the bottom upward-sloping portion of the individual labor supply (2) curve? A. as wages increase over this range, the quantity of hours worked also increases. B. as wages increase over this range, the quantity of hours worked changes very little. C. as wages increase over this range, the quantity of hours worked actually decreases. D. as wages increase of this range, the quantity of hours worked is inelastic.

A. as wages increase over this range, the quantity of hours worked also increases.

When Marietta chooses to only purchase a combination of goods that lie within her budget line, she: A. is decreasing utility. B. is maximizing utility. C. likely has negative savings. D. must reduce the quantity.

B. is maximizing utility.

The term _________________ refers to the additional utility provided by one additional unit of consumption. A. utility B. marginal utility C. added utility D. Giffen utility

B. marginal utility

If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to: A. rise and the equilibrium quantity to fall. B. rise and the equilibrium quantity to stay the same. C. rise and the equilibrium quantity to rise. D. stay the same and the equilibrium quantity to fall.

B. rise and the equilibrium quantity to stay the same.

The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price. A. income effect B. substitution effect C. backward-bending supply curve D. preferences effect

B. substitution effect

Many cooks view butter and margarine to be substitutes. If the price of butter rises, then in the market for margarine: A. the equilibrium price will fall and the equilibrium quantity will fall. B. both the equilibrium price and quantity will rise. C. the equilibrium price will rise and the equilibrium quantity will decrease. D. the equilibrium price will rise, while the change to equilibrium quantity is indeterminate.

B. both the equilibrium price and quantity will rise.

A straightforward example of a _______________, often used for simplicity, is the interest rate. A. price ceiling B. financial investment C. rate of return D. price floor

C. rate of return

Whenever there is a shortage at a particular price, the quantity sold at that price will equal: A. the quantity demanded at that price. B. the quantity supplied minus the quantity demanded. C. the quantity supplied at that price. D. (quantity demanded plus quantity supplied)/2.

C. the quantity supplied at that price.

Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi's demand curve? A. 0.1 B. 0.8 C. 1.0 D. 10.0

C. 1.0

Josh's weekly budget for lunch is $24. He eats only pizza and burgers. Each pizza costs $6 and each burger costs $3. Josh knows that 2 pizzas and 4 burgers will give him a utility of 8. What is Josh's utility-maximizing point? A. 0 pizzas, 8 burgers B. 3 pizzas, 2 burgers C. 2 pizzas, 4 burgers D. 4 pizzas, 1 burger

C. 2 pizzas, 4 burgers

Refer to Table 4-1. Suppose that D1 and S2 are the demand and supply schedules for Product A. If the government imposes a price ceiling of $4, then: A. a 5 unit shortage will result. B. a 5 unit surplus will result. C. a 10 unit surplus will result. D. a 10 unit shortage will result.

D. a 10 unit shortage will result.

Taxes on goods with __________ demand curves will tend to raise more tax revenue for the government than taxes on goods with __________ demand curves. A. elastic; unit elastic B. elastic; inelastic C. inelastic; elastic D. unit elastic; inelastic

C. inelastic; elastic

Mark's annual after tax income earnings are $50,000. His $40,000, 3-year CD is maturing in the near future and he is planning to spend the interest on a 6 week holiday after that. His investments can earn a total of 10% before he starts his trip. If Mark's "present consumption" is the time he spends working and his "future consumption" is his trip, his optimal choice from the table below is to: A. spend $50,000 now and consume nothing in the future B. spend nothing now and consume $77,000 in the future. C. spend $10,000 now and consume $44,000 in the future. D. spend $20,000 now and consume $33,000 in the future

C. spend $10,000 now and consume $44,000 in the future.

As the __________ substitute for low-skill labor becomes available, the demand curve for low-skill labor will shift to the left. A. high-skill labor B. lower wage C. technology D. market

C. technology

Price elasticity of demand is defined as: A. the slope of the demand curve. B. the slope of the demand curve divided by the price. C. the percentage change in price divided by the percentage change in quantity demanded. D. the percentage change in quantity demanded divided by the percentage change in price.

D. the percentage change in quantity demanded divided by the percentage change in price.

When consumers and businesses have greater confidence that they will be able to repay in the future, _______________________. A. the quantity demanded of financial capital at any given interest rate will remain unchanged. B. the quantity demanded of financial capital at any given interest rate will shift to the left. C. the quantity demanded of financial capital at any given interest rate will shift to the right. D. the quantity demanded of financial capital at any given interest rate will achieve equilibrium.

C. the quantity demanded of financial capital at any given interest rate will shift to the right.

Substitution and income effects of a change in price of a good may be used to explain the: A. direct relationship between price and quantity purchased. B. inverse relationship between price and quantity demanded. C. direct relationship between price and quantity supplied. D. direct relationship between income and demand.

D. direct relationship between income and demand.

If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to: A. rise and the equilibrium quantity to fall. B. rise and the equilibrium quantity to stay the same. C. fall and the equilibrium quantity to fall. D. fall and the equilibrium quantity to stay the same.

D. fall and the equilibrium quantity to stay the same.