ECON-2302 Unit 2: Practice Exam
For lunch, Wendy eats only salads or fruit & yogurt smoothies. Her weekly food budget is $48. Each salad costs $6 and each smoothie costs $3. When deciding how much of each good to buy, Wendy knows that 2 salads and 4 smoothies will give her a utility of 8. What is Wendy's utility-maximizing point?
4 salads; 8 smoothies
Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve?
4.25
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
The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, then one would expect sales to equal:
5
In economics, a firm that faces no competitors is referred to as _________________.
a monopoly
In the U.S., the amount in savings contributed to IRAs rose from $239 billion in 1992 to $3,667 billion by 2005, while overall savings actually dropped from low to lower. Evidence suggests that, in the economy as a whole, increased savings in these retirement accounts:
are being offset by negative savings or less savings in other kinds of accounts.
In order to determine ____________, the firm's total costs must be divided by the quantity of its output.
average cost
The _____________________ curve will always lie below the curve for average cost because average cost includes _____________ in the numerator of the calculation.
average variable cost; fixed costs
In order to reduce the harmful affects of recession and carbon emissions, the government provided tax incentives for manufacturing firm's to ___________________ that provide alternative, more efficient methods of combining inputs to produce output.
acquire energy efficient production technologies
Substitution and income effects of a change in price of a good may be used to explain the:
direct relationship between income and demand
Demand is said to be ___________ when the quantity demanded is very responsive to changes in price.
elastic
Youth smoking seems to be more __________ than adult smoking-that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price.
elastic
If the supply curve for a product is horizontal, then the elasticity of supply is:
equal to infinity
A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.
fixed costs; do not change
an inferior good is a product:
for which demand decreases as income increases.
The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed.
income effect; higher price
If the demand curve is perfectly elastic, then an increase in supply will:
increase the quantity exchanged but result in no change in the price.
In microeconomics, the term _____________________ is synonymous with economies of scale.
increasing returns to scale
When economists are sketching examples of demand and supply, it is common to sketch a demand or supply curve that is close to vertical, and then to refer to that curve as _________.
inelastic
Taxes on goods with __________ demand curves will tend to raise more tax revenue for the government than taxes on goods with __________ demand curves.
inelastic; elastic
Saving money is a(n) ____________________, because it involves less consumption in the present, but the ability to consume more in the future.
intertemporal choice
The term _____________ is used to describe the additional cost of producing one more unit
marginal cost
A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result:
total revenue will decrease
If the supply curve for aspirin is perfectly elastic, then a reduction in demand will cause the equilibrium price to:
stay the same and the equilibrium quantity to fall
The typical pattern revealed in a budget constraint model shows that as the quantity consumed rises,
total utility rises, but marginal utility falls
As a general rule, utility-maximizing choices between consumption goods occur where the:
price ratio and marginal utilities ratio of two goods is equal
Why would labor be treated as a variable cost?
producing larger quantities of a good or service generally requires more workers
The price elasticity of demand measures the:
responsiveness of quantity demanded to a change in price
In order to determine the average variable cost, the firm's variable costs are divided by _______________________.
the quantity of output
____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.
diminishing marginal returns