micro Ch 5: Consumers and Incentives
If the cross-price elasticity of demand between two products is -3.0, then the two products are:
complements
The current price of wheat is $1.00 per bushel, and the price elasticity of demand for wheat is known to be 0.50. A bad harvest causes the supply of wheat to decrease and as a result the price of wheat rises by 20%. What will be the percentage change in quantity demanded for wheat and will farm revenues rise or fall?
10%, rise
According to the inequality, the marginal utility per dollar spent on good X is less than the marginal utility per dollar spent on good Y. what can a consumer do to increase total utility for a given budget from consumption of goods X and Y?
A consumer can increase total utility for a given budget by consuming more good Y and less good X.
Suppose you have a fixed amount of income and spend equal amounts on two goods, X and Y. The price of good X is Px = $10, and the price of good Y is Py = $5. The marginal utility of X is MUx = 60 utils, and the marginal utility of Y is MUy = 15 utils. How should the consumption of X and Y change, if at all, to increase utility?
Consumption of good X should increase, and consumption of good Y should decrease.
If increasing your consumption of pizza from 3 to 4 slices increases your utility, which of the following must be true?
The marginal utility of the fourth slice of pizza must be positive.
What is the cross-price elasticity of demand for two goods that are unrelated?
Zero
An increase in the price of a substitute for iPads will lead to __________ in the quantity demanded of iPads so the cross-price elasticity of demand will be __________.
an increase, positive
The difference between the highest price a consumer is willing to pay and the amount a consumer actually pays for a good or service is known as:
consumer surplus
The demand curve for an inferior good is __________ sloping while the demand curve for a Giffen good is __________ sloping
downward, upward
If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in quantity demanded of 25 percent, we say the demand for Red Bull is __________ in this range
elastic
The marginal utility from consuming the second ice cream cone is the:
extra satisfaction you get from consuming the second ice cream cone
The more substitutes that exist for a particular product, the __________ the price elasticity of demand.
greater
Along a linear demand curve, the slope __________ while the price elasticity of demand __________.
is constant, changes from one point to another
When you compute a price elasticity of demand the answer is always:
negative
Economists avoid confusion over units in the computation of elasticity by using:
percentage changes
If the total utility increases with additional consumption of a good, then the marginal utility is:
positive
The __________ is a measure of responsiveness of the change in quantity demanded of a good to the change in its price.
price elasticity of demand
The budget line shows:
the affordable combinations of goods and services you can buy with your income
The total utility of consuming two slices of pizza is the:
total satisfaction you get from consuming the two slices of pizza
If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, the price elasticity of demand is:
-25/20 = -1.25 the answer is -1.25
The optimal combination of pizza and coke is the one where the:
marginal utility per dollar spent on pizza equals the marginal utility per dollar spent on coke
