Exam 3

If quantity demanded for sneakers falls by 10% when price increases 25% we know that the absolute value of the own-price elasticity of sneakers is

-0.4

A fall in the price of a good from $10.50 to $9.50 results in an increase in the quantity demanded from 18 800 to 21 200 units. The price elasticity of demand is

1.2

A consumer maximizes his utility by purchasing 2 units of good X at $5 per unit and 3 units of good Y at $7 per unit. What is the ratio of the marginal utility from X to the marginal utility from Y?

5/7

You are the manager of a popular shoe company. You know that the Advertising Elasticity of demand for your product is 0.15. How much will you have to increase advertising in order to increase demand by 10%?

66.7%

The substitution effect is the effect of

A change in price on the quantity bought when the consumer hypothetically remains on the same indifference curve

If the price of the good measured on the vertical axis increases, the budget line

Becomes flatter

Marginal revenue

Both A and C (is the change in total revenue when output increases by one unit AND measures the slope of the total revenue curve)

You are the manager of a supermarket, and know that the Income Elasticity of peanut butter is exactly -0.7. Due to the recession, you expect incomes to drop by 15% next year How should you adjust your purchase of peanut butter?

Buy 10.5% more peanut butter

The elasticity which shows the responsiveness of the demand for a good due to changes in the price of a related good is the

Cross-price elasticity

Assume that the price elasticity of demand is -2 for a certain firm's product. If the firm raises price, the firm's managers can expect total revenue to:

Decrease

When marginal revenue is positive

Demand is elastic

If the cross price-elasticity between ketchup and hamburgers is -1.2, a 4% increase in the price of hamburgers will lead to a 4.8%

Drop in quantity demanded of ketchup

When Jim is at his best affordable point, the budget line

Is tangent to the highest attainable indifference curve

The own-price elasticity of demand for apples is -1.2. If the price of apples falls by 5%, what will happen to the quantity of apples demanded?

It will increase 6%

Karen consumes chocolate and candles. When Karen is at her best affordable point, she is...

On her budget line, on her highest attainable indifference curve, and has a marginal rate of substitution between chocolate and candles that is equal to the relative price of chocolate and candles

Suppose the government of Nova Scotia wants to reduce the consumption of electricity by 5%. The price elasticity of demand for electricity is -0.40. Advise the Nova Scotia government to

Raise the price of electricity by 12.5 percent

Lemonade, a good with many close substitutes, should have an own-price elasticity that is

Relatively elastic

If income increases, the budget line

Shifts rightward and parallel to the original budget line

Ms. Birnbaum is buying bottles of beer and bags of pretzels on a weekly income of $150. The marginal utility of the last bottle of beer is 60 and the marginal utility of the last bag of pretzels is 30. The price of beer is $0.30 per bottle and the price of pretzels is $0.20 per bag. Ms. Birnham

Should buy more beer and fewer pretzels

If the cross-price elasticity between good A & B is positive, we know the goods are

Substitutes

Utility is

The benefit or satisfaction from consuming goods and services

Suppose all prices double and income also doubles. Which statement is true?

The budget line does not change

Which of the following will NOT affect the elasticity of demand for a product?

The cost of producing the product

Which of the following is not a characteristic of a typical indifference curve

The curve will shift out if income increases

If the price of a good rises, then in the new consumer equilibrium all of the following are true except

The marginal utility from the good equals its new higher price

The rate at which a consumer is ABLE to substitute one good for another is determined by

The ratio of the prices of the goods

MUx, marginal utility equals

The slope of the total utility curve

A price elasticity of zero corresponds to a demand curve that is

Vertical