Intermediate Micro Midterm Review Questions

A movement upward along an upward sloping Engel curve corresponds to a. upward sloping indifference curves. b. crossing indifference curves. c. a rotation in the budget constraint. d. a parallel shift in the budget constraint.

a parallel shift in the budget constraint.

A consumer attains equilibrium by a. consuming all goods to the point where the marginal utility of each are equal. b. consuming all goods to the point where the total utility of each are equal. c. allocating income such that the total amount spent on each good is equal. d. allocating income such that the marginal utility of the last dollar spent on each good is the same

allocating income such that the marginal utility of the last dollar spent on each good is the same

An increase in demand accompanied by a decrease in supply will generate a. a decrease in price and an increase in quantity. b. an increase in price and an increase in quantity. c. an increase in quantity and either an increase or decrease in price. d. an increase in price and either an increase or decrease in quantity

an increase in price and either an increase or decrease in quantity

A shift to the left of the supply curve is caused by a. an increase in the number of sellers. b. a technological improvement. c. an increase in the cost of an input. d. an increase in the number of buyers.

an increase in the cost of an input.

A decrease in the price of a good will result in: a. an increase in demand b. an increase in supply c. an increase in the quantity demanded. d. more being supplied.

an increase in the quantity demanded.

An individual may reach a higher indifference curve in all of the following circumstances except a. an increase in the consumer's income. b. an increase in the relative price of one good the consumer purchases, other prices remaining unchanged. c. a decrease in the relative price of one good the consumer purchases, other prices remaining unchanged. d. a doubling of the consumer's income and a halving of the prices of all the goods the consumer purchases.

an increase in the relative price of one good the consumer purchases, other prices remaining unchanged.

The negative slope of the demand curve indicates that a. more consumers are willing to buy the good as the price falls. b. consumption per person increases as the price falls. c. both (A) and (B) d. neither (A) nor (B)

both (A) and (B)

If the marginal utility of an extra hamburger is 8 utils, the marginal utility of a soft drink is 5 utils, the price of a hamburger is $1, and the price of a soft drink is 50 cents, then the consumer can achieve an equilibrium by a. buying more hamburgers. b. buying more soft drinks. c. increasing the price of soft drinks. d. decreasing the price of hamburgers.

buying more soft drinks.

A linear demand curve: a. has a constant price elasticity of demand b. has price elasticity of demand equal to one. c. has price elasticity of demand that is positive. d. can have both elastic and inelastic price elasticity of demand.

can have both elastic and inelastic price elasticity of demand.

Suppose the government of Coffeeland sets coffee prices at $1.00 per pound, when the market price is $10. The government action will: a. improve efficiency since the low prices will force producers to find cheaper production methods. b. result in coffee surpluses even in a coffee-rich country. c. cause coffee shortages even in a coffee—rich country. d. improve equality between rich and poor since the poor can now afford coffee.

cause coffee shortages even in a coffee—rich country.

At a corner solution a. consumers are not spending all of their income. b. the MRS is equal to the ratio of the prices. c. consumers would prefer to buy infinite amounts of one good. d. consumption of the first unit of one good is not worth its cost.

consumption of the first unit of one good is not worth its cost.

Which of the following properties is not assumed to hold for a typical consumer's preferences? a. Nonsatiation c. Transitivity b. Completeness d. rationality

rationality

It is certain that the equilibrium price will rise when a. the supply curve and the demand curve both shift to the right. b. the supply curve shifts to the right and the demand curve shifts to the left. c. supply and demand both increase d. supply decreases and demand increase.

supply decreases and demand increase.

Which of the following violates the law of demand? a. After receiving a raise of $10,000 a year, a young man buys more steak than before, even though the price of steak increased 5 percent. b. A woman purchases more diapers after having a baby, even though the price of diapers increased. c. After the price of bowling increases, a woman increases her frequency of bowling d. Despite butter being more expensive than margarine, a woman buys more butter after the price of margarine, a close substitute, increases.

After the price of bowling increases, a woman increases her frequency of bowling

Which of the following always results in an increase in price and quantity? a. An increase in supply and a decrease in demand. b. An increase in demand with no change in supply. c. An increase in supply with no change in demand d. All of the above.

An increase in demand with no change in supply.

The demand curve for videos has shifted to the right. What could have caused it? a. A fall in the price of videos. b. An increase in the price of videos. c. An increase in the supply of videos. d. An increase in the income of buyers.

An increase in the income of buyers.

The incidence of the tax depends on a. The elasticity of demand b. The elasticity of supply c. Both the elasticities of supply and the elasticity of demand d. Neither the elasticities of supply or demand.

Both the elasticities of supply and the elasticity of demand

The demand for strawberry ice cream tends to be relatively price elastic because: a. For most people, there are many close substitutes for strawberry ice cream. b. There are few substitutes for it. c. It has to be consumed very quickly d. It costs so little.

For most people, there are many close substitutes for strawberry ice cream.

To say two goods are substitutes, there cross price elasticities of demand should be a. Less than zero. b. Negative, yet almost equal to zero. c. Equal to zero. d. Greater than zero.

Greater than zero.

For which one of the following is the demand curve most elastic. a. Cigarettes b. Iams dog food c. Milk d. Automobiles

Iams dog food

If the income elasticity of demand for a good is negative, the good is said to be a(n): a. Inferior good c. Positive good b. Negative good d. Normal good.

Inferior good

Perfect complements are associated with a. U-shaped indifference curves. b. straight-line indifference curves. c. V - shaped indifference curves d. L-shaped indifference curves.

L-shaped indifference curves.

If a good is a necessity with few substitutes, then the price elasticity of demand will tend to be: a. More price elastic b. Less price elastic, c. Equal to 1 d. The same as that for a luxury good.

Less price elastic

If your income increases and your consumption of bagels increases, other thing equal, bagels are considered a(n): a. Negative good c. Inferior good. b. Positive good. d. Normal good

Normal good

Assume the supply curve shifts to the right by a given amount at each price. Price in the market will decline the most if demand is more: a. Price elastic and supply is more price elastic. b. Price inelastic and supply is more price elastic. c. Price elastic and supply is more price inelastic. d. Price inelastic and supply is more price inelastic.

Price inelastic and supply is more price inelastic.

Price elasticity of demand measure the responsiveness of the change in a. Quantity demanded to a change in price. b. Price to a change in quantity demanded. c. Slope of the demand curve to a change in price. d. Slope of the demand curve to a change in the quantity demanded.

Quantity demanded to a change in price.

If an increase in the price of a good leads to an increase in total revenue, then a. The supply curve must be price inelastic. b. The demand curve must be price inelastic. c. The supply curve is price elastic. d. None of the above is correct.

The demand curve must be price inelastic.

Increase in total output realized when individuals specialize in particular tasks and trade are known as: a. The gains from trade b. The profits obtained from sales of goods and services. c. Marginal analysis d. A trade off

The gains from trade

For a Giffen good, which of the following must be true? a. The good must be inferior and the income effect must be larger than the substitution effect. b. The good must be inferior and the substitution effect must be larger than the income effect. c. Both the income and substitution effects must lead price and quantity in the same direction. d. The substitution effect must lead quantity and price in the same direction and the substitution effect must be larger than the income effect.

The good must be inferior and the income effect must be larger than the substitution effect.

The price elasticity of a good will tend to be greater: a. The longer the relevant time period b. The fewer the number of substitute goods available. c. If it is a staple or necessity with few substitutes. d. If all of the above exist.

The longer the relevant time period

The basic concern of economics is a. To keep business firms from losing money. b. To prove that capitalism is better than socialism. c. To study the choices people make. d. To use unlimited resources to produce goods and services to satisfy limited wants

To study the choices people make.

If an individual's demand curve for apples is a downward sloping straight line, the price consumption curve will be a. downward sloping. b. horizontal. c. U - shaped d. upward sloping.

U - shaped

If the price of X increases and the demand for Y decreases, then a. X and Y are complements. b. X and Y are substitutes. c. X is a normal good and Y is a Giffen good. d. X is a normal good and Y is an inferior good.

X and Y are complements.

The primary difference between a change in demand and a change in the quantity demanded is a. a change in demand is a movement along the demand curve and a change in quantity demanded is a shift in the demand curve. b. a change in quantity demanded is a movement along the demand curve and a change in demand is a shift in the demand curve. c. both a change in quantity demanded and a change in demand are shifts in the demand curve, only in different directions. d. both a change in quantity demanded and a change in demand are movements along the demand curve, only in different directions.

a change in quantity demanded is a movement along the demand curve and a change in demand is a shift in the demand curve.

The assumption of completeness says that a. a consumer can rank all possible consumption bundles. b. consumers have consistent preferences. c. more of a good is always better. d. more of a good will decrease total utility.

a consumer can rank all possible consumption bundles.

Along a linear demand curve, the absolute value of elasticity a. increases as price falls. b. is independent of price. c. decreases as price falls. d. is constant since the slope is constant.

decreases as price falls.

If the price-consumption curve is horizontal, then demand elasticity a. may be between 0 and 0.5. b. must be between 0 and 0.5. c. is greater than 1. d. equals 1.

equals 1.

The price-consumption curve traces the optimal market baskets a. for different income levels. b. for different prices of the good. c. for different consumers. d. for different years.

for different prices of the good.

Assume that as the price of good X rises, the demand for good Z shifts outward. On the basis of this information we can conclude that a. good Z is inferior. b. goods X and Z are complements. c. goods X and Z are substitutes. d. the substitution effect for good X is larger than the substitution effect for good Z

goods X and Z are substitutes.

An increase in the quantity supplied a. shifts the supply curve to the right. b. shifts the supply curve to the left. c. indicates a movement along the supply curve. d. makes the supply curve flatter.

indicates a movement along the supply curve.

The substitution effect of a price decrease a. allows the consumer to obtain a higher level of well being. b. reflects an increase in real income. c. is a movement on the indifference curve to consume more of the lower priced good and less of the higher priced good. d. both a and b

is a movement on the indifference curve to consume more of the lower priced good and less of the higher priced good.

The income elasticity of demand a. is always positive. b. is positive for a normal good. c. is zero. d. depends on the price elasticity of demand

is zero

Inferior goods are usually a. cheap goods. b. necessities. c. narrowly defined goods facing higher-quality substitutes. d. broadly defined goods facing higher-quality substitutes.

narrowly defined goods facing higher-quality substitutes.

If the price elasticity of supply is less than 1, then supply is: a. price elastic b. price inelastic c. unit - price elastic d. is very responsive to price changes.

price inelastic

Indifference curves cannot intersect because a. it would be too complicated to draw them. b. that would violate the assumption of nonsatiation. c. each person has their own set of indifference curves. d. the numbers used to label indifference curves measure nothing

that would violate the assumption of nonsatiation.

Which one of the following is not a factor in the elasticity of demand for a good or service? a. length of time the price change is in effect b. available substitutes for the good or service c. the percentage of one's budget the item consumes d. the cost of producing the good or service

the cost of producing the good or service

The difference between an inferior good with a negatively sloped demand curve and a Giffen good is that a. the income effects move in opposite directions. b. the income effect is larger than the substitution effect for a Giffen good but is smaller than the substitution effect for the inferior good. c. the income effect is smaller than the substitution effect for a Giffen good but is larger than the substitution effect for the inferior good. d. a Giffen good is a special case of a normal good and is therefore quite different from an inferior good.

the income effect is larger than the substitution effect for a Giffen good but is smaller than the substitution effect for the inferior good.

At any point on an indifference curve, the slope indicates a. the relative price ratio of the two goods. b. the way the consumer' s budget is allocated between the two goods. c. the marginal rate of substitution between the two goods. d. how the total satisfaction of the consumer changes with different market baskets.

the marginal rate of substitution between the two goods.

An increase in supply occurs when a. there is technological advance. b. the costs of production rise. c. the price of the good increases. d. the price of the good falls.

there is technological advance.

If a higher price results in no change in total expenditure, then demand is a. elastic. b. inelastic. c. unit-elastic. d. not responsive to price changes at all.

unit-elastic

Tax incidence refers to: a. who writes the check to the government. b. who really pays the tax to the government. c. the deadweight loss from the tax. d. the total revenue that the government collects from the tax.

who really pays the tax to the government.

The substitution effect of a price change a. will always result in the consumer buying more of a good at a lower price. b. will always result in the consumer buying less of a good at a higher price. c. dominates the income effect in the inferior good case. d. is all of the above

will always result in the consumer buying less of a good at a higher price.