Econ Test 2

Refer to Exhibit 6-3. With reference to Graph B, at a price of $5, total revenue equals:

$200

Refer to Exhibit 6-3. With reference to Graph A, at a price of $10, total revenue equals:

$400

Which of the following is most likely to cause variation in American household spending patterns?

-Differing levels of family Income -Geographic location of households -each household's personal preferences

The price of a new electronic toy increases from $16 to $24 and the quantity demanded decreases from 1,000 to 900 per month as a result. Based on this information, the price elasticity of demand is estimated to be equal to:

.26

If the supply curve for a product is vertical, then the elasticity of supply is

0 (perfectly inelastic)

Fantastic Cuts Hair Salon knows that a 15% increase in the price of their haircuts will result in a 5% decrease in the number of haircuts sold. What is the elasticity of demand facing Fantastic Cuts?

0.33%

Kim has $24 per week in her entertainment budget. She splits her time between going to the movies and yoga classes. Each movie costs $8 while each yoga class costs$3. The total utility from each of these activities is set out in the table below. What is Kim's total utility maximizing point?

1 movie, 5 yoga classes

Molly attends college and works part-time job as a telemarketer. She can work up to 40 hours each week at her job, which pays $8 per hour. The table below shows her utility from different levels of leisure and income. Molly is currently working 20 hours per week. If she decides to work 30 hours instead, then her marginal utility loss from having less leisure is:

22

Bailey's Barber Shop knows that a 5% increase in the price of their haircuts results in a 15% decrease in the number of haircuts purchased. What is the elasticity of demand facing Bailey's Barber Shop?

3.0

Todd is a cattle rancher. In June and July he spent his clothing budget on jeans and cowboy hats. Each pair of jeans cost $50 and each hat cost $100. At Todd's optimal choice, his marginal utility from the last pair of jeans purchased is 200. This means that his marginal utility from the last cowboy hat purchased is:

400

A bond can be:

A debt obligation of a company or government

In terms of microeconomic analysis, what is the function of "utils"?

A measurement of utility

When demand and income move in the same direction, a good is said to be:

A normal good

Small companies typically prefer ____ to borrowing from a bank because it is a source of funding where the company is not obligated to.

An IPO, Issue bonds

The term ____ refers to the ______ that a bond is expected to pay at the time of purchase

Bond rate, rate of return

Which of the following would be the least likely method for firms to raise the financial capital they need to pay for new equipment?

Borrowing from households

Elasticity of demand will __________ as the availability of substitutes __________.

Both will increase or decrease with each other. (more substitutes the greater elasticity)

A financial gain earned by purchasing stock in a publicly traded company and subsequently selling the investment at a higher price is commonly referred to as a ____

Capital Gain

The most common pattern for marginal utility is ______

Diminishing marginal utility

Substitution and income effects of a change in price of a good may be used to explain the

Direct relationship between income and demand

A ___ is a direct payment from a firm to it's shareholders

Dividend

Supply is said to be __________ when the quantity supplied is very responsive to changes in price

Elastic

demand is said to be ______ when the quantity demanded is very responsive to changes in price

Elastic

If the supply curve for a product is horizontal, then the elasticity of supply is:

Equal to infinity (perfectly elastic)

A bond is a form of ____ through which a corporation agrees to repay the amount that was borrowed together with _______ over a period of time in the future.

Financial Contract, a rate of interest

A ______ operates directly between a saver with financial assets to invest and an entity who will receive those assets in exchange for paying _____.

Financial Intermediary, Rate of return

______ find ways to take the inflow of funds from many separate ______ of financial capital and transform it into the funds desired by ___ of financial capital.

Financial capital markets, Suppliers, Demanders

When economists attempt to predict the spending patterns of U.S. households, they will typically view the _______ as a primary determining factor that influences the individual consumption choices that each will make.

Income level of each household

The stock of a business firm is divided into:

Individual Shares

The marginal utility of two goods changes ______

Individuals choose based on their preferences

Refer to Exhibit 6-3. Graph B represents a demand curve that is relatively __________. Total revenue __________ as the price decreases from $10 to $5.

Inelastic, Decreases

If the curve is perfectly elastic, the elasticity coefficient is ____ and the demand curve is ______

Infinity, horizontal

Venture capitalists typically create wealth by investing in a start up firm when its stock is less valuable, and then subsequently selling that stock for a higher price during the firm's ,

Initial public offering

The City of Washington needs to upgrade its levies and its water drainage systems. The cost will exceed the amount of tax revenue the City expects to receive over the next 10 years. How will the City be able to raise the funds needed to finance this upgrade?

Issue municipal bonds

How would a sustained increase in the market price of its shares directly benefit a publically traded company?

It could sell any shares it owns in itself at the higher valuation

A ______ is a firm that has sold its stock by making it available to be bought and sold by outside investors.

Public company

In the loanable funds market which of the following is true?

Savers represent supply and borrowers represent demand

A share of common stock represents a(n)

Share of ownership of the company

During a severe recession, the government issued food stamps that could only be used to acquire food to a greater number of families. The budget line graph shows food on the horizontal axis and everything else on the vertical axis. The government expects that issuing the food stamps will cause each family's budget constraint line to:

Shift to the right

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.

Substitution effect

Which of the following occurs simultaneously with an income effect?

Substitution effect

Which of the following is considered to be a tell-tale signal that the point with the highest total utility has been found?

The marginal utility per dollar is the same for both goods

Treasury bonds are issued by the federal government through the

U.S. Department of the Treasury

A jeweler cut prices in his store by 20% and the dollar value of his sales fell by 20%. This is indicative of:

Unit elastic demand

The ownership in a company is represented by ____ and those who are legally recognized a having ownership in a company are called ______

Ownership of shares with voting rights, shareholders

When demand is elastic

When price elasticity is greater than 1, consumers are responsive to changes in price, the percentage change in quantity demanded resulting from a price change is greater than the percentage change in price

Refer to the diagram above. What is the significance of the point at the top of the backward bending of the supply curve marked L3?

as wages increase over this range, the quantity of hours worked actually decreases

Which of the following would legally qualify you to be registered as a shareholder of Microsoft Corporation?

buying the stock on the New York Stock Exchange

Demand is said to be _____ when the quantity demanded changes the same proportion as the price

inelastic

A decrease in consumer preference for a product, other things being equal, will cause:

market demand to shift to the left

Why do business firms need financial capital?

to make real physical capital investments

Jay and Jen are married with two children. They are preparing a household budget for the coming year. Based on statistical information for American households, approximately what portion of this family's annual consumption will most likely be budgeted for food and vehicle expenses?

one-third

Which of the following will provide an investor with a legally valid claim of partial ownership of a firm?

ownership of stock

Which of the following is considered to be a method that firms can use to raise the financial capital that they need to pay for modernizing their production plants?

reinvesting profits

The price elasticity of demand measures the:

responsiveness of quantity demanded to a change in price.

The nation's largest cable TV company tested the effect of a price reduction for premium movie channels. It lowered prices from $12 to $9.95 and found that the number of customers rose by almost 50%. This means:

the demand for premium movie channels is elastic in this price range

Price Elasticity of demand is defined as

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

Refer to Exhibit 6-2. The graph that best illustrates a relatively elastic (but not perfectly elastic) demand curve is:

Graph A (Small slope)

Refer to Exhibit 6-2. The graph that best illustrates a perfectly elastic demand curve is

Graph B (a horizontal line)

Refer to Exhibit 6-2. The graph that best illustrates a relatively inelastic (but not perfectly inelastic) demand curve is:

Graph C (Big Slope)

Refer to Exhibit 6-2. The graph that best illustrates a perfectly inelastic demand curve is:

Graph D (Vertical Line)

Which of the following is true regarding bonds?

Greater security, limited compared to stocks, legal obligation to pay, high market rates are a risk

Each year banks typically offer a wide range of ____ compromised of ____ from a variety of different companies

Mutual funds, a range of stocks or bonds

As a general rule, utility-maximizing choices between consumption goods occur where the:

Price ratio and marginal utilities ratio of two goods is equal

A 25% decrease in the price of breakfast cereal leads to a 20% increase in the quantity of cereal demanded. As a result:

Total revenue will decrease

The typical pattern revealed in a budget constraint model shows that as the quantity consumed rises,

Total utility rises, but marginal utility falls

The price of a new toy increases from $4 to $6 and the quantity demanded decreases from 10,000 to 6,000 per month as a result. Based on this information, the price elasticity of demand is estimated to be equal to:

1.25, indicating relatively elastic demand

When the Blue Ocean Surfboard Company lowered the price of surfboards by 20%, it sold 10% more surfboards. The price elasticity coefficient for surfboards is:

1/2

Approximately what portion of annual consumption is typically spent by American households on shelter?

1/3

An inferior good is a product:

For which demand decreases as income increases

Good A has an income elasticity equal to 0.4 and a cross price elasticity with respect to Good B of 1.2. Then:

Good A is a normal good and Goods A and B are compliments

Good A has an income elasticity equal to 1.0 and a cross price elasticity with respect to Good B of -0.6. Then

Good A is a normal good, Goods A and B re substitutes

______ are a form of _______ bonds that offer relatively high interest rates to compensate for their relatively high chance of default.

Junk Bonds, Corporate

In order to be classified as a ____ , a firm must be owned by the people who run it on a day-to-day basis.

Private company