ECON 200 Exam #2

Refer to Panel (c). Given the shift in supply from S1 to S2, which of the following statements is (are) true?

Consumers cut back on their consumption of apples.

The price elasticity of supply for a good is 3 if:

a 1 percent decrease in price leads to a 3 percent decrease in quantity supplied.

A linear demand curve will have which of the following properties?

a slope that is constant and price elasticity that varies

The price elasticity of demand can be found by:

examining the relative percentage change in quantity demanded to the relative percentage change in price.

To say that two goods are substitutes, their cross price elasticities of demand should be:

greater than zero.

If the University of Michigan increases the price of football tickets, it will result in increasing revenues if the price elasticity of demand is

price inelastic.

The efficiency condition requires:

prices in the marketplace confront decision makers with the marginal benefits and marginal costs of their decisions.

How does a competitive market guide the maximizing choices made by consumers and firms?

to continue is to compete you have to stay at what is the current value

The income elasticity of demand for eggs has been estimated to be 0.57. If income grows by 15 percent in a period, how will that affect total expenditures on eggs in that period, all other things unchanged?

total expenditures will rise

A relationship between output and the quantity of a variable factor of production used in a period, given the levels of all other factors of production is a(n):

total product curve.

To be effective in facilitating exchange, property rights must be:

transferable.

Utility maximization _______ the law of demand.

underlies

Economists identify the satisfaction a person derives from the consumption of goods and services as:

utility.

The ability of a good to satisfy a want refers to its:

utility.

What is the price elasticity of demand between $1.75 and $1.50?

-1.86

If the price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and you have $10 to spend on both goods, the maximum quantity of peanuts that you can purchase is _______ bags. 5

40

Increasing marginal returns for the first four units of a variable input is exhibited by the total product sequence:

50, 110, 180, 260.

If changes in price and total revenue move in the same direction, demand is price elastic in that portion of the demand curve.

False

If total utility increases from 10 to 15 for the second unit of a good consumed, the marginal utility of the second unit is 15.

False

The slope of a line is another method of measuring elasticity.

False

Total cost is equal to the quantity of output multiplied by the sum of fixed cost and variable cost.

False

If a consumer derives more utility by spending an additional $1 on good X rather than on good Y, then:

MUx/Px > MUy/Py.

Which of the following is (are) true?

The goal of a consumer is to maximize utility.

An external cost is imposed when an action imposes costs on others outside the context of market exchange.

True

Given the consumer's income, a decrease in the prices of both commodities X and Y will shift the budget line for those goods to the right.

True

If marginal product is less than average product, average product must be falling.

True

If the percentage change in quantity is less than the percentage change in price, demand is said to be price inelastic.

True

In the long run all costs are variable.

True

In the short run, at least one input is variable and one input is fixed.

True

Marginal cost must cross average variable cost at its minimum.

True

Marginal utility is zero at the quantity at which total utility reaches its maximum.

True

The marginal cost is the amount by which an additional unit of activity increases total cost.

True

The Case in Point on Saving the Elephant suggests that:

all of the above are true.

An imaginary adjustment of a consumer's income at the same instant a price changes, so the consumer has just enough to buy the same goods and services at the new price is:

an income-compensated price change.

If the price of a good is increased by 15 percent and the quantity demanded changes by 20 percent, then the price elasticity of demand is equal to:

approximately -1.33.

The long-run average cost curve is tangent to an infinite number of:

average total cost curves.

The second of the three ranges of production is characterized by _______ marginal returns.

diminishing

The law stating that if the quantity of a variable factor of production is increased, with the quantities of all other factors given, the marginal product of the variable factor will eventually decline is the law of:

diminishing marginal returns.

An allocation of resources that achieves the maximum net benefit from all activities is:

efficient.

The price elasticity of demand between points A and B is:

elastic, since total revenue increases when price falls from $8 to $6.

Refer to Panel (c). Suppose the costs to apple producers rise. This will:

increase the marginal cost of producing apples.

If a tax is imposed on sellers, the equilibrium price will _______ and the equilibrium quantity will _______ .

increase; decrease

From the graph it can be seen that, along a given segment of the demand curve, if price falls and total revenue _________, then demand is price elastic.

increases

Given a constant level of all other factors, if the marginal product of a factor is rising as more of it is used, then the firm is experiencing:

increasing marginal returns.

Combinations of two goods that yield equal levels of utility are shown on a(n) _______ curve.

indifference

A curve that represents combinations of two goods that yield equal levels of satisfaction is a(n):

indifference curve.

If a firm reduces the ratio of capital to labor, it becomes more:

labor intensive.

If a consumer purchases a combination of commodities x and y such that MUx/Px = 30 and MUy/Py = 40, to maximize utility, the consumers should buy.

less of x and more of y.

The maximum amount of one good a consumer would be willing to give up in order to obtain an additional unit of another is called the:

marginal rate of substitution.

When price signals reflect _______ benefits and _______ costs of choices, we expect that the allocation of resources will be _______ .

marginal; marginal; efficient

Marginal product is _______ , and marginal utility is _______ .

measurable; not measurable

According to the study by Douglas Brown cited in the text, which of the following groups had a negative price elasticity of supply of labor?

medical specialists

In our society, a good for which exclusion is possible is:

municipal swimming pools.

The law of diminishing marginal utility indicates that the slope of the marginal utility curve eventually becomes:

negative.

The cross price elasticity of demand for substitutes goods is:

positive.

Following an income-compensated price change, you decide to increase the quantity of pizza purchased each month when the price decreases and therefore purchase fewer hamburgers. This is an indication of the:

substitution effect.

In the long run:

the firm considers all factors as variable.

It is clear that dry-cleaning establishments are a major source of air pollution. What can you conclude about the price and output of dry-cleaning services? Why does excess pollution occur and what can be done about it?

the marginal benefit is higher than the marginal cost, produce less dry

Based on the type of analysis described in the Case in Point on Preventing Oil Spills, an economist might reasonably argue that too few people die in airplane crashes if:

the marginal benefit of preventing airplane crashes was less than the marginal cost of preventing them.

In the first of the three ranges of production:

the marginal product curve has a positive slope.