ECON exam 2
38. The theory of consumer behavior assumes that: A. consumers behave rationally, attempting to maximize their satisfaction. B. consumers have unlimited money incomes. C. consumers do not know how much marginal utility they obtain from successive units of various products. D. marginal utility is constant.
a
60. To the economist, total cost includes: A. explicit and implicit costs, including a normal profit. B. neither implicit nor explicit costs. C. implicit, but not explicit, costs. D. explicit, but not implicit, costs.
a
61. Accounting profits equal total revenue minus: A. total explicit costs. B. total implicit costs. C. total economic costs. D. economic profits.
a
12. Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is: A. decreasing. B. relatively elastic. C. perfectly elastic. D. relatively inelastic.
d
15. Refer to the above diagram. If price falls from $10 to $2, total revenue: A. rises from A + B to A + B + D + C and demand is elastic. B. falls from A + D to B + C and demand is inelastic. C. rises from C + D to B + A and demand is elastic. D. falls from A + B to B + C and demand is inelastic.
d
17. The demand for a luxury good whose purchase would exhaust a big portion of one's income is: A. perfectly price inelastic. B. perfectly price elastic. C. relatively price inelastic. D. relatively price elastic.
d
3. Which of the following is not characteristic of the demand for a commodity that is elastic? A. The relative change in quantity demanded is greater than the relative change in price. B. Buyers are relatively sensitive to price changes. C. Total revenue declines if price is increased. D. The elasticity coefficient is less than one.
d
39. Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending all her money income should buy: A. less of X only if its price rises. B. more of Y only if its price rises. C. more of Y and less of X. D. more of X and less of Y.
d
42. Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4 respectively. The marginal utility of the last units of A and B are 16 and 24 respectively. These data suggest that Ms. Thomson: A. has preferences that are at odds with the principle of diminishing marginal utility. B. considers A and B to be complementary goods. C. should buy less A and more B. D. should buy less B and more A.
d
44. Refer to the above data. How many units of the two products will the rational consumer purchase? A. 3 of L and none of M B. 4 of L and 2 of M C. 3 of L and 5 of M D. 2 of L and 3 of M
d
23. The supply curve of antique reproductions is: A. relatively elastic. B. relatively inelastic. C. perfectly inelastic. D. unit elastic.
a
24. Suppose the income elasticity of demand for toys is +2.00. This means that: A. a 10 percent increase in income will increase the purchase of toys by 20 percent. B. a 10 percent increase in income will increase the purchase of toys by 2 percent. C. a 10 percent increase in income will decrease the purchase of toys by 2 percent. D. toys are an inferior good.
a
26. Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in: A. the price of some other product. B. the price of that same product. C. income. D. the general price level
a
28. Refer to the above diagrams. The case of a normal good is represented by figure: A. A. B. B. C. C. D. D
a
69. Refer to the above data. Diminishing marginal returns become evident with the addition of the: A. sixth worker. B. fourth worker. C. third worker. D. second worker.
c
72. Refer to the above data. Diminishing returns begin to occur with the hiring of the _________ unit of labor. A. first B. second C. third D. seventh
c
76. Refer to the above data. The total variable cost of producing 5 units is: A. $61. B. $48. C. $37. D. $24.
c
74. Refer to the above diagram. At output level Q total variable cost is: A. 0BEQ. B. BCDE. C. 0CDQ. D. 0AFQ.
a
77. Refer to the above information. Average total cost is:
d
29. Refer to the above diagrams. The case of complementary goods is represented by figure: A. A. B. B. C. C. D. D.
c
1. The price elasticity of demand coefficient measures: A. buyer responsiveness to price changes. B. the extent to which a demand curve shifts as incomes change. C. the slope of the demand curve. D. how far business executives can stretch their fixed costs.
a
16. Price elasticity of demand is generally: A. greater in the long run than in the short run. B. greater in the short run than in the long run. C. the same in both the short run and the long run. D. greater for "necessities" than it is for "luxuries."
a
21. An antidrug policy which reduces the supply of heroin might: A. increase street crime because the addict's demand for heroin is highly inelastic. B. reduce street crime because the addict's demand for heroin is highly elastic. C. reduce street crime because the addict's demand for heroin is highly inelastic. D. increase street crime because the addict's demand for heroin is highly elastic.
a
37. While eating at Alex's "Pizza by the Slice" restaurant, Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed, and would only receive 5 units of satisfaction from consuming a second slice. Based on this information we can conclude that: A. Alex may have to lower the price to convince Kara to buy a second slice. B. Kara will not eat a second slice, even if it is given to her at no charge. C. Kara will definitely want to buy a second slice of pizza. D. even if Kara buys a second slice, she will not buy a third slice.
a
67. The law of diminishing returns indicates that: A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point. B. because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will be U-shaped. C. the demand for goods produced by purely competitive industries is downsloping. D. beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.
a
68. Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct? A. AP continues to rise so long as TP is rising. B. AP reaches a maximum before TP reaches a maximum. C. TP reaches a maximum when the MP of the variable input becomes zero. D. MP cuts AP at the maximum AP.
a
75. Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are: A. $5,000. B. $500. C. $0.50. D. $50.
a
9. Suppose that the above total revenue curve is derived from a particular linear demand curve. That demand curve must be: A. inelastic for price declines that increase quantity demanded from 6 units to 7 units. B. elastic for price declines that increase quantity demanded from 6 units to 7 units. C. inelastic for price increases that reduce quantity demanded from 4 units to 3 units. D. elastic for price increases that reduce quantity demanded from 8 units to 7 units.
a
13. If the demand for farm products is price inelastic, a good harvest will cause farm revenues to: A. increase. B. decrease. C. be unchanged. D. either increase or decrease, depending on what happens to supply.
b
19. The main determinant of elasticity of supply is the: A. number of close substitutes for the product available to consumers. B. amount of time the producer has to adjust inputs in response to a price change. C. urgency of consumer wants for the product. D. number of uses for the product.
b
2. The basic formula for the price elasticity of demand coefficient is: A. absolute decline in quantity demanded/absolute increase in price. B. percentage change in quantity demanded/percentage change in price. C. absolute decline in price/absolute increase in quantity demanded. D. percentage change in price/percentage change in quantity demanded.
b
31. The utility of a good or service: A. is synonymous with usefulness. B. is the satisfaction or pleasure one gets from consuming it. C. is easy to quantify. D. rarely varies from person to person.
b
34. The law of diminishing marginal utility states that: A. total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. B. beyond some point additional units of a product will yield less and less extra satisfaction to a consumer. C. price must be lowered to induce firms to supply more of a product. D. it will take larger and larger amounts of resources beyond some point to produce successive units of a product.
b
35. Marginal utility is the: A. sensitivity of consumer purchases of a good to changes in the price of that good. B. change in total utility obtained by consuming one more unit of a good. C. change in total utility obtained by consuming another unit of a good divided by the change in the price of that good. D. total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.
b
36. Total utility may be determined by: A. multiplying the marginal utility of the last unit consumed by the number of units consumed. B. summing the marginal utilities of each unit consumed. C. multiplying the marginal utility of the last unit consumed by product price. D. multiplying the marginal utility of the first unit consumed by the number of units consumed.
b
4. If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will: A. decrease the amount demanded by more than 10 percent. B. increase the amount demanded by more than 10 percent. C. decrease the amount demanded by less than 10 percent. D. increase the amount demanded by less than 10 percent.
b
43. If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products b and c in consumer equilibrium: A. cannot be determined from the information given. B. are $105 and $140 respectively. C. are $105 and $175 respectively. D. are $100 and $200 respectively.
b
46. The theory of consumer behavior assumes that consumers attempt to maximize: A. the difference between total and marginal utility. B. total utility. C. average utility. D. marginal utility.
b
48. How did Apple overcome consumers' diminishing marginal utility for iPods? A. Apple lowered the price of iPods so that previous buyers would purchase another unit. B. Apple introduced new features to entice previous buyers to purchase new models. C. Apple ignored the problem and focused solely on attracting new buyers. D. Apple was unable to overcome the problem and has faced steadily declining sales.
b
49. The diamond-water paradox occurs because: A. the price of a product is related to its total utility, not its marginal utility. B. the price of a product is related to its marginal utility, not its total utility. C. water is, in fact, very scarce in certain regions of the world. D. diamonds are more useful than water.
b
51. The budget line shows: A. the amount of product A that a consumer is willing to give up to obtain one more unit of product B. B. all possible combinations of two goods that can be purchased, given money income and the prices of the goods. C. all equilibrium points on an indifference map. D. all possible combinations of two goods that yield the same level of utility to the consumer.
b
52. Increases in product prices shift the consumer's: A. budget line to the right. B. budget line to the left. C. indifference curves to the left. D. indifference curves to the right.
b
53. The slope of a budget line reflects the: A. elasticity of demand for the two products. B. price ratio of the two products. C. amount of the consumer's income. D. utility ratio of the two products.
b
54. Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line: A. is 5. B. is 1/5. C. is 4. D. is 20.
b
56. An indifference curve: A. may be either upsloping or downsloping, depending on whether the two products are complements or substitutes. B. is downsloping and convex to the origin. C. is upsloping and has a constant slope. D. is downsloping and concave to the origin.
b
59. Refer to the above diagram. Suppose the budget line shifts so that the consumer's equilibrium changes from point A to point B. This means that the: A. price of Y has increased. B. price of Y has decreased. C. price of X has increased. D. consumer's money income has increased.
b
6. The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to: A. increase by approximately 12 percent. B. decrease by approximately 12 percent. C. decrease by approximately 32 percent. D. decrease by approximately 26 percent.
b
64. Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were: A. $100,000 and its economic profits were zero. B. $200,000 and its economic profits were zero. C. $100,000 and its economic profits were $100,000. D. zero and its economic loss was $200,000.
b
65. To economists, the main difference between the short run and the long run is that: A. the law of diminishing returns applies in the long run, but not in the short run. B. in the long run all resources are variable, while in the short run at least one resource is fixed. C. fixed costs are more important to decision making in the long run than they are in the short run. D. in the short run all resources are fixed, while in the long run all resources are variable.
b
66. The basic characteristic of the short run is that: A. barriers to entry prevent new firms from entering the industry. B. the firm does not have sufficient time to change the size of its plant. C. the firm does not have sufficient time to cut its rate of output to zero. D. a firm does not have sufficient time to change the amounts of any of the resources it employs.
b
71. Refer to the above data. When two workers are employed: A. total product is 20. B. total product is 18. C. average product is 10. D. total product cannot be determined from the information given.
b
73. Which of the following is correct as it relates to cost curves? A. Average variable cost intersects marginal cost at the latter's minimum point. B. Marginal cost intersects average total cost at the latter's minimum point. C. Average fixed cost intersects marginal cost at the latter's minimum point. D. Marginal cost intersects average fixed cost at the latter's minimum point.
b
82. Economies and diseconomies of scale explain: A. the profit-maximizing level of production. B. why the firm's long-run average total cost curve is U-shaped. C. why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its minimum point. D. the distinction between fixed and variable costs.
b
85. Diseconomies of scale arise primarily because: A. the short-run average total cost curve rises when marginal product is increasing. B. of the difficulties involved in managing and coordinating a large business enterprise. C. firms must be large both absolutely and relative to the market to employ the most efficient productive techniques available. D. beyond some point marginal product declines as additional units of a variable resource (labor) are added to a fixed resource (capital).
b
90. When a firm does more of something, it gets better at it. This learning-by-doing is: A. a source of diseconomies of scale. B. a source of economies of scale. C. called the principle of natural progression.
b
14. The total-revenue test for elasticity: A. is equally applicable to both demand and supply. B. does not apply to demand because price and quantity are inversely related. C. does not apply to supply because price and quantity are directly related. D. applies to the short-run supply curve, but not to the long-run supply curve.
c
18. The demand for a necessity whose cost is a small portion of one's total income is: A. perfectly price inelastic. B. perfectly price elastic. C. relatively price inelastic. D. relatively price elastic.
c
20. A supply curve that is a vertical straight line indicates that: A. production costs for this product cannot be calculated. B. the relationship between price and quantity supplied is inverse. C. a change in price will have no effect on the quantity supplied. D. an unlimited amount of the product will be supplied at a constant price.
c
22. Farmers often find that large bumper crops are associated with declines in their gross incomes. This suggests that: A. farm products are normal goods. B. farm products are inferior goods. C. the price elasticity of demand for farm products is less than 1. D. the price elasticity of demand for farm products is greater than 1.
c
25. The formula for cross elasticity of demand is percentage change in: A. quantity demanded of X/percentage change in price of X. B. quantity demanded of X/percentage change in income. C. quantity demanded of X/percentage change in price of Y. D. price of X/percentage change in quantity demanded of Y.
c
27. We would expect the cross elasticity of demand between Pepsi and Coke to be: A. positive, indicating normal goods. B. positive, indicating inferior goods. C. positive, indicating substitute goods. D. negative, indicating substitute goods.
c
30. (Last Word) Based on the concept of price elasticity of demand, which of the following cases is most likely to occur? A. Golf courses charging higher prices for golf during the week than on weekends. B. Movie theatres charging higher prices for senior citizens. C. Colleges charging lower tuition for low-income students. D. Airlines charging lower fares for business travelers.
c
32. Marginal utility can be: A. positive, but not negative. B. positive or negative, but not zero. C. positive, negative, or zero. D. decreasing, but not negative.
c
40. Refer to the above data. If the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing: A. 2 units of J and 7 units of K. B. 5 units of J and 5 units of K. C. 4 units of J and 5 units of K. D. 6 units of J and 3 units of K.
c
41. Refer to the above data. What level of total utility is realized from the equilibrium combination of J and K, if the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively? A. 156 utils B. 124 utils C. 276 utils D. 36 utils
c
45. Refer to the above data. What level of total utility does the rational consumer realize in equilibrium? A. 87 utils B. 104 utils C. 51 utils D. 58 utils
c
47. If the prices of X and Y are $2 and $4 per unit, respectively, and this consumer has $10 in income to spend, to maximize total utility this consumer should buy: A. 1 units of X and 1 units of Y. B. 2 units of X and 2 units of Y. C. 1 units of X and 2 units of Y. D. 5 units of X and no units of Y.
c
50. Why do credit card companies typically require small minimum payment amounts on their customers' monthly credit card statements? A. Credit card companies are concerned that their customers will be put in financial distress if required to make higher payments. B. Credit card companies want to promote faster repayment, and customers will be encouraged to pay more each month if they're able to pay well beyond the minimum. C. Credit card companies want to increase profits by promoting slower repayment, and actual customer payments will be anchored by the smaller payment requirements. D. Credit card companies actually charge the highest minimum payment they are allowed by law to charge.
c
55. At each point on an indifference curve: A. money income is the same. B. the prices of the two products are the same. C. total utility is the same. D. marginal utility is the same.
c
58. Assume a diagram in which a budget line is imposed on an indifference map. A consumer will maximize her utility: A. at any point where the budget line and an indifference curve intersect. B. at either point where the budget line intersects the horizontal and vertical axes. C. where the budget line is tangent to an indifference curve. D. where the ratio of the two product prices equals the reciprocal of the consumer's income.
c
63. Normal profit is: A. determined by subtracting implicit costs from total revenue. B. determined by subtracting explicit costs from total revenue. C. the return to the entrepreneur when economic profits are zero. D. the average profitability of an industry over the preceding 10 years.
c
81. If marginal cost is: A. falling, then average total cost must also be falling. B. rising, then average total cost must also be rising. C. rising, then average total cost could be either falling or rising. D. falling, then average total cost could be either falling or rising.
c
83. When diseconomies of scale occur: A. the long-run average total cost curve falls. B. marginal cost intersects average total cost. C. the long-run average total cost curve rises. D. average fixed costs will rise.
c
10. Suppose the above total revenue curve is derived from a particular linear demand curve. That demand curve must be: A. inelastic for price declines that increase quantity demanded from 2 units to 3 units. B. elastic for price declines that increase quantity demanded from 5 units to 6 units. C. inelastic for price increases that reduce quantity demanded from 4 units to 3 units. D. elastic for price increases that reduce quantity demanded from 4 units to 3 units.
d
11. In which of the following instances will total revenue decline? A. price rises and supply is elastic B. price falls and demand is elastic C. price rises and demand is inelastic D. price rises and demand is elastic
d
33. Refer to the above data. The value for Y is: A. 25. B. 30. C. 40. D. 45.
d
5. The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range: A. has declined. B. is of unit elasticity. C. is inelastic. D. is elastic.
d
57. An indifference map implies that: A. money income is constant, but the prices of the two products vary directly with the quantities purchased. B. the two products under consideration are perfectly substitutable for one another. C. a consumer is better off to be at some point high on a given curve as opposed to a point low on the same curve. D. curves farther from the origin yield higher levels of total utility.
d
62. Economic profits are calculated by subtracting: A. explicit costs from total revenue. B. implicit costs from total revenue. C. implicit costs from normal profits. D. explicit and implicit costs from total revenue.
d
7. The concept of price elasticity of demand measures: A. the slope of the demand curve. B. the number of buyers in a market. C. the extent to which the demand curve shifts as the result of a price decline. D. the sensitivity of consumer purchases to price changes.
d
70. Which of the following is correct? A. When total product is rising, both average product and marginal product must also be rising. B. When marginal product is falling, total product must be falling. C. When marginal product is falling, average product must also be falling. D. Marginal product rises faster than average product and also falls faster than average product.
d
84. Which of the following is not a source of economies of scale? A. learning-by-doing. B. labor specialization. C. use of larger machines. D. inelastic resource supply curves
d
88. (Last Word) A cost that cannot be partly or fully recovered through any subsequent action is known as a: A. variable cost. B. fixed cost. C. marginal cost. D. sunk cost.
d
89. The minimum efficient scale of a firm: A. is realized somewhere in the range of diseconomies of scale. B. occurs where marginal product becomes zero. C. is in the middle of the range of constant returns to scale. D. is the smallest level of output at which long-run average total cost is minimized.
d