Econ 2314 exam 2

13) When there few close substitutes available for a good, demand tends to be

C) relatively inelastic.

38) Refer to Figure 9-2. The tariff causes domestic consumption of rice

B) to fall by 11 million pounds.

45) If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is

A) 57 utility units.

19) Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.

B) 0.5

34) Refer to Figure 9-2. With the tariff in place, the United States produces

B) 15 million pounds of rice.

49) Refer to Table 10-1. What is Keegan's optimal consumption bundle?

B) 3 pita wraps and 4 bubble teas

4) Suppose the value of the price elasticity of demand is -3. What does this mean?

B) A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

42) Refer to Figure 9-3. What is the area of domestic producer surplus after the imposition of a quota?

B) B + C

30) Refer to Figure 9-2. The tariff revenue collected by the government equals the area

B) E.

22) If the cross-price elasticity of demand for computers and software is negative, this means the two goods are

B) complements.

7) If demand is inelastic, the absolute value of the price elasticity of demand is

B) less than one.

44) Economists assume that the goal of consumers is to

B) make themselves as well off as possible.

11) If the absolute value of the price elasticity of demand for aspirin equals 0.8 then

B) the demand for aspirin is inelastic.

53) If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she

B) wants to consume more ankle socks and fewer bandanas.

3) If the slope of a demand curve is equal to -0.1 then

B) we don't know whether the demand is elastic or inelastic.

40) Refer to Figure 9-2. If the tariff was replaced by a quota which limited rice imports to 16 million pounds, the amount of revenue received by rice importers would equal

C) $16 million.

26) Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product.

C) 0.5; The product is inelastic.

10) If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.

C) 1.62

6) The price elasticity of demand for Stork ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought

C) 2.5 percent

9) Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand?

C) 2.69

33) Refer to Figure 9-2. With the tariff in place, the United States consumes

C) 31 million pounds of rice.

46) If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is

C) 5 utility units.

52) Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because

C) the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars.

2) The slope of a demand curve is not used to measure the price elasticity of demand because

C) the measurement of slope is sensitive to the units chosen for price and quantity.

56) A network externality occurs when

C) the usefulness of a good is affected by how many other people use the good.

8) Perfectly inelastic demand is represented by a demand curve which is ________, and relatively inelastic demand is represented by a demand curve which is ________.

C) vertical; downward sloping

5) If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded

C) will decrease by 45 percent.

31) Refer to Figure 9-2. Without the tariff in place, the United States consumes

D) 42 million pounds of rice.

36) Refer to Figure 9-2. As a result of the tariff, domestic producers increase their quantity supplied by

D) 6 million pounds of rice.

15) Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?

D) Demand is likely to be relatively inelastic.

43) Refer to Figure 9-3. What is the area that represents the deadweight loss as a result of the quota?

D) E + M

14) A demand curve that is horizontal indicates that the commodity

D) has a large number of substitutes.

Price elasticity of demand measures

change in price.

41) Refer to Figure 9-3. What is the area of consumer surplus after the imposition of the quota?

A) A + G + H

32) Refer to Figure 9-2. Without the tariff in place, the United States produces

A) 9 million pounds of rice.

24) Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean?

A) A 1 percent increase in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption.

37) Refer to Figure 9-2. The increase in domestic producer surplus as a result of the tariff is equal to the area

A) C.

54) Refer to Figure 10-2. Which of the following statements is true?

A) Points a and b are the utility-maximizing quantities of ice cream cones at two different prices of ice cream.

57) All of the following products are likely to have significant network externalities except

A) cat food.

35) Refer to Figure 9-2. With the tariff in place, the United States

A) imports 16 million pounds of rice.

18) Opera Estate Girls' School is considering increasing its tuition to raise revenue. If the school believes that raising tuition will increase revenue it is assuming that the demand for attending the school is

A) inelastic.

28) When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of

A) moral hazard.

20) Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and Sefton purchased 80 pounds of

A) negative, so Sefton considers potatoes to be an inferior good.

58) Which of the following is used to explain why a consumer's willingness to buy Microsoft Office increases as the number of other people who use Microsoft Office increases?

A) network externalities

29) One reason why adverse selection problems arise in health insurance markets is that

A) sick people are more likely to want health insurance than healthy people.

59) A significant downside to network externalities is that

A) there may be large switching costs to consumers of changing products so that consumers end up using products with inferior technologies.

21) Cross-price elasticity of demand is calculated as the

B) percentage change in quantity demanded of one good divided by percentage change in price of a different good.

55) Refer to Figure 10-2. When the price of ice cream cones increases from $2 to $3, quantity demanded decreases from 4 ice cream cones to 3 ice cream cones. This change in quantity demanded is due to

B) the income and substitution effects.

16) When demand is elastic, a fall in price causes total revenue to rise because

B) the increase in quantity sold is large enough to offset the lower price.

51) Avner is maximizing total utility by buying sports magazines and protein supplements. For him to buy more sports magazines

B) the price of sports magazines has to fall.

50) Refer to Table 10-1. If Keegan can drink all the bubble tea he wants for free, how many glasses will he consume?

C) 6 glasses

25) Suppose the value of the price elasticity of supply is 4. What does this mean?

C) A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.

39) Refer to Figure 9-2. The loss in domestic consumer surplus as a result of the tariff is equal to the area

C) C + D + E + F.

27) A key difficulty facing insurance companies is that people know more about their health than do insurance companies, and that those people who are seriously ill are the most likely to want to obtain health insurance. What is this phenomenon called?

C) asymmetric information

17) If a firm wanted to know whether the demand for its product was elastic, unit elastic, or inelastic, then the firm could

C) change price a little bit and observe what happens to total revenue.

23) Consider the following pairs of items: Which of the pairs listed will have cross-price elasticity of zero? a. shampoo and conditioner b. iPhones and earbuds c. a laptop computer and a desktop computer d. beef and pork e. air-travel and weed killer

C) e only

48) Marginal utility can be

D) positive, negative, or zero.

12) If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is

D) relatively elastic.

47) If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of

D) the law of diminishing marginal utility.