Test 1 -- Chapters 3, 4, 6, 19, 20

What is the substitution effect of a price change on the quantity demanded of a good or service?

A price change induces people to substitute among goods

Which of the following is consistent with the law of demand?

A reduction of the price of salt led to a 5 percent increase in the quantity of salt purchased

If the current price of a good is greater than the equilibrium price, there will be

A surplus of the good and its price will decrease

The income elasticity of a normal good is

positive

The law of demand states that

quantity demanded will fall as price rises, other things being equal as price increases, quantity demanded decreases, all other things equal

The price elasticity of demand is equal to the percentage change in __________ divided by the percentage change in ________. Price elasticity of demand is calculated in terms of ___________ changes in quantity demanded and in price. Thus, it is epressed as a unitless, dimensionless number that is ________ units of measurement. The price elasticity of demand is always _________, because an increase in price will lead to ___________ in quantity demanded and a decrease in price will lead to ________ in quantity demanded. One extreme elasticity occurs when a demand curve is vertical. It has ______ price elasticity of demand. It is completely ________. Another extreme elasticity occurs when a demand curve is horizontal. It has completely ________ demand. Its price elasticity of demand is _______.

quantity demanded; price; percentage; independent of; negative; a decrease; an increase; zero; inelastic; elastic; infinite

George spends more than half of his monthly income on rent. Based only on this information, George's demand for rental housing would be expected to be

relatively elastic

Economists assume that an individual acts AS IF motivated by

self-interest

Economic growth can be pictured by

shifting the PPC upward and outward

The existence of scarcity requires

that people must make choices and face trade-offs in using their resources

The price elasticity of demand for gizmos is known to be 5.0 (abs.). Therefore, the demand for gizmos can be described as

Elastic

Javier spends all his income on peanuts and chewing gum. The last dollar spent on peanuts yields 14 utils and the last dollar spent on chewing gum yields 6 utils. To increase total​ utility, Javier should spend less on peanuts and more on chewing gum.

False

When price increases along the inelastic range of market demand, total revenues will go down

False

If DVD rentals are an inferior good, we can conclude that the

Income elasticiy of demand is negative

A firm changes the price of its product and its sales revenues​ don't change. The absolute value of the price elasticity of demand for its product must be

1.0

Increasing consumption to 5 apps from 4 apps leaves total utility unchanged at _____ utils in the upper figure. Hence, the marginal utility between these two quantities of apps equals _______, which is the value of the _______ axis in the lower figure. Thus, the marginal utility curve crosses the _____ axis of the lower figure between units 4 and 5.

20 Zero Horizontal Horizontal

Which of the following will cause the demand curve to shift?

A change in consumer income

All of the following determine the price elasticity demand EXCEPT

A change in the price of resources used to produce the good

All of the following determine the price elasticity of demand EXCEPT

A change in the price of resources used to produce the good

A production possibilities curve represents

All possible combinations of output that could be produced assuming fixed productive resources and their efficient use

Which of the following is consistent with the law of supply?

An increase in the market price of MP3 players causes an increase in the production of MP3 players

Which of the following would generate a decrease in the market demand for e-book readers, which are a normal good.

An increase in the price of downloadable apps utilized to enhance the experience A decrease in the price of tablet devices, which are substitutes A reduction in the income of consumers of e-book readers

Which of the following wouold cause an increase in the demand pork?

An increase in the price of sausages, a substitute for pork

Which of the following statements best explains how utility usually changes with the quantity of a good consumed?

As the quantity consumed increases, total utility increases but marginal utility decreases

Economics

Assumes individuals are rational and respond to different incentives

Ryan is decided between attending Western State and Eastern State

Attend Eastern State if (MUe/Pe) exceeds (MUw/Pw)

The price elasticity of demand for a particular commodity depends upon all of the following EXCEPT

Availability of complementary goods

Which of the following would have the most elastic demand?

Coca-Cola

The productivity gains achieved by specialization are due to

Comparative advantage

All of the following statements regarding David's utility from pizza are true EXCEPT

David experiences increasing marginal utility since his total utility is rising

When there is a normal good, a decrease in comsumer income will result in the

Demand curve shifting to the left

The indifference curve slopes _______ indicating that more of one activity will compensate, such that the consumer ______ these combinations.

Downward Is indifferent between

If total revenue falls when the market price increases, demand is

Elastic

Kalia is currently spending all of her weekly income purchasing the two goods that she likes hamburgers and fries. She is currently purchasing 10 hamburgers and 5 large fries. She receives 40 utils from her 10th hamburger and 20 utils from her 5th large fry. The price of hamgburgers is $6, and the price of fries is $2. Is kalia maximizing her utility, and if not, what should she do?

Kalia should buy fewer hamburgers and more fries

Factors of production include

Land, labor, physical capital, human capital, and entrepreneurship

The quantity demanded is _______ responsive in the short run to the immediate price change and _______ responsive in the long run after the passage of time. This is because as more and more time is is available for _________, buyers can more readily find ________ for this particular good or service.

Less More Adjustment to the price increase Substitutes

Suppose that Norma is disappointed in the revenue her custon dress shop is bringing in. She is thinking of raising the prices of her dresses and asks you for help. You decide she should

Lower the price if demand is elastic Raise the price if demand is inelastic

The impact of the national debt on the economy's unemployment is an example of

Macroeconomic analysis

The campus pizzeria sells a large pizza for $14. When you buy a second large pizza, however, the pizza costs $10. How does this related to marginal utility?

Marginal utility is the additional satisfaction from additional units of the good

What is the difference between microeconomics and macroeconomics?

Microeconomics is the study of decision making undertaken by individuals while macroeconomics looks at the behavior of the economy as a whole

Tania spends her income on donuts and coffee. If Tania is at her consumer optimum and the price of donuts decreases, she will spend ______________ on donuts, which will cause the marginal utility from consuming donuts to _________

More, fall

One would expect that the cross price elasticity ski poles and skis would be

Negative since they are complements

The CETERIS PARIBUS assumption means

Other things equal

If total utility is increasing at a decreasing rate, marginal utility is

Positive and decreasing

A PPC that is bowed outward (from the origin) represents the concept that

Production of additional units of one good requires that increasing quantities of the other good be given up

A point inside the PPC means that

Resources are not being fully utilized due to unemployment or inefficiency

Scarcity

Results from unlimited wants coupled with limited resources

Price elasticity is demand related to total __________ When demand is ELASTIC, a change in price elicits a change in total revenues in the _______ direction from the price change When demand is UNIT-ELASTIC, a change in price elicits _______ change in total revenues (or in total consumer expenditures) When demand is INELASTIC, a change in price elicits a change in total revenues in the _________ directionas the price change

Revenues Opposite Zero Same

As the price of granola bars rises to $1.25, and more ice pops and less granola bars are consumed, the marginal utility of granola bars _____ and the marginal utility of ice pops _____.

Rises, falls

As the price of granola bars rises to $1.25, and the consumption bundle changes, the ration of the marginal utility of granola bars to the price of granola bars _______ and the ratio of the marginal utility of ice pops ______.

Rises, falls

The campus bookstore sells a CD for $12. When you buy a second CD, however, its price is only $8. How does this relate to marginal utility?

Since marginal utility falls as additional units of the good are consumed, costumers are only willing to pay

A decrease in the number of pizza producers or an increase in the cost of mozzarella cheese used to make pizza will shift the

Supply curve for pizza inward

Other things remaining equal, as the relative price of a good falls, people consume more of that good because

That particular good now has a higher marginal utility per dollar than other goods

Which of the following statements is true?

The larger the share of a person's total budget that is spent on a commodity, the greater that person's price elasticity of demand is

Which of the following is NOT a determinant of the degree of price elasticity of demand for an item?

The length of time allowed for adjustment to changes in the price of an item The existence, number, and closeness of substitutes The share of a consumer's budget spent on the item (all)

Which of the following is a determinant of the price of elasticity of supply?

The length of time allowed for the adjustment to changes in the price of the product

Rational economic agents would resist consuming any good where

The marginal utility of that good was negative since this would make you worse off The total utility of that good was falling since this would make you worse off

Suppose that at first the price of a jar of peanut butter is $10 and the price of a jar of jelly is $6. Then, the price of a jar of peanut butter changes to $20 and the price of a jar of jelly changes to $14. What has happened to the money prices and relative prices of these two goods?

The money price of a jar of peanut butter and a jar of jelly have risen and the relative price of a jar of peanut butter has fallen while the relative price of a jar of jelly has risen.

When the price of gasoline decreases, Brad buys more gasoline and more of all other goods. This information describes

The real income effect of a price decrease

Economics is

The study of how limited resources are allocated to satisfy unlimited wants

The price of memory chips used in laptop computers declines

The supply increases, causing the equilibrium quantity to rise and the market price to fall

The law of diminishing marginal utility insures that

The total utility curve will eventually increase at a decreasing rate

At equilibrium, there is neither excess quantity supplied nor excess quantity demanded

True

Behavioral economists suggest that consumers do not behave as if they are rational , and if the rationality assumption does not apply to the actual behavior, they argue, it follows that utility-based consumer choice theory cannot, either.

True

Every choice involves giving up an opportunity to produce or consume something else

True

The closer the substitutes for a particular commodity and the more substitutes there are, the greater will be its price elasticity of demand.

True

The points where budget lines are tangent to indifference curves are used to derive the demand curve

True

Question regarding ice pops and granola bars, granola bars increase price to $1.25 from $1.00.

Will consume more ice pops and less granola bars

Economic growth implies

You can now have more of all goods

All of the following will decrease the supply of airline flights EXCEPT

a technological change that makes airplanes safer and more fuel-efficient

A rightward shift in the supply curve for a good may be caused by any of the following EXCEPT

an increase in price

The relative price of any commodity is its price in terms of

another commodity

Most economists

apply the assumption that people behave as if they act rationally with an aim to maximize utility.

Total revenues are maximized

at the point of unit-elasticity on the demand curve

Microeconomics focuses on

decisions made by individual households and firms.

According to the law of diminishing marginal utility, as more of any good or service is consumed, the satisfaction

decreases

A product has perfectly inelastic demand when the price elasticity of demand is

equal to 0

Total utility

falls as long as marginal utility is negative rises as long as marginal utility is positive is at a maximum when marginal utility is zero (all)

An increase in the demand for chewing gum will ____________ the equilibrium price and __________ the equilibrium quantity

increase, increase

Opportunity cost

is the value of the next best alternative as a result of choosing some given alternative

An individual's demand curve is negatively sloped because

of the law of diminishing marginal utility and the rule of equal marginal utilities per dollar spent

Opportunity cost is defined as

the highest-valued, next best alternative that must be given up to obtain something

As people consume more and more of a particular good or​ service, we can predict that

the marginal utility of each additional good consumed will fall and total utility will increase, but more slowly before

In consumer theory, utility is

the want-satisfying power of a good or service

The ultimate purpose of economics is

to study how individuals make choices