micro test 2

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Assume the total utility corresponding to the first four units of a product consumed are 8, 12, 14, and 15, respectively. The marginal utility of the third unit consumed is: a. 2. b. 14. c. 26. d. 34.

a. 2

The number of computers bought increased by 20 percent when the price of on-line services declined by 10 percent. Assuming other factors are held constant, computers and on-line services are classified as: a. complements b. unrelated goods c. substitutes d. social goods

a. complements

Consider a consumer who spends all income on only two goods: bread and wine. An extra loaf of bread would give the consumer 10 extra utils, while an extra bottle of wine would give the consumer 60 extra utils. Bread costs 50 cents per loaf, and wine costs $6 per bottle. In this situation, the consumer: a. could increase utility by buying more bread and less wine. b. could increase utility by purchasing more wine and less bread. c. has maximized utility and attained the consumer equilibrium. d. is violating the law of diminishing marginal utility.

a. could increase utility by buying more bread and less wine.

The demand curve is downward-sloping because of the law of . a. diminishing marginal utility. b. diminishing consumer equilibrium. c. consumer equilibrium. d. diminishing utility maximization.

a. diminishing marginal utility.

If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is: a. elastic b. inelastic c. perfectly inelastic d. perfectly inelastic

a. elastic

Assume the price of good X increases. As a result, your real income decreases and you decrease the quantity of good X purchased each month. This is an example of the: a. income effect. b. consumer price effect. c. revenue effect. d. substitution effect. e. All of the answers above are correct.

a. income effect.

If a decrease in the price of football tickets increases the total revenue of the athletic department, this is evidence that demand is: a. price elastic b. price inelastic, c. unit elastic with respect to price d. perfectly inelastic

a. price elastic

If the quantity of tickets to the fair sold decreases by 10 percent when the price increases by 5 percent, the price elasticity of demand over this range of the demand curve is: a. price elastic b. price inelastic c. perfectly inelastic d. unitary elastic

a. price elastic

There is no change in total revenue when the demand curve for a good is: a. unitary elastic b. perfectly inelastic, c. elastic d. inelastic e. perfectly elastic

a. unitary elastic

When the price of a good rises, one effect of this change in price is that some consumers switch to more affordable substitutes, which helps us understand the law of demand. What is this effect called? a. The marginal utility effect. b. The substitution effect. c. The price effect. d. The income effect.

b. The substitution effect.

Which of the following is true for a lower price elasticity of demand coefficient? a. The quantity demanded is less responsive b. few substitutes exist c. many substitutes exist d. all of the answers are correct

b. few substitutes exist

The Smith family buys much more macaroni when someone in the family is laid off. This means that the Smiths' ___________ is negative. a. demand curve for macaroni b. income elasticity for macaroni c. Engel's law d. income e. price elasticity of demand for macaroni

b. income elasticity for macaroni

Suppose the president of a textbook publisher argues that a 10 percent increase in the price of textbooks will raise total revenue for the publisher. It can be concluded that the company president thinks that demand for textbooks is: a. unitary elastic b. inelastic c. elastic d. perfectly inelastic

b. inelastic

The number of CDs purchased increased by 50 percent when consumer income increased by 10 percent. Assuming other factors are held constant, CDs would be classified as: a. social goods b. normal goods c. giffen goods d. inferior goods

b. normal goods

The income effect refers to a change in: a. the quantity demanded of a good because of a change in the buyer's money income. b. the quantity demanded of a good because of a change in the buyer's real income. c. income because of changes in the CPI. d. None of the answers above are correct.

b. the quantity demanded of a good because of a change in the buyer's real income.

Suppose that when price is $10, quantity supplied is 20. When price is $6, quantity supplied is 12. The price elasticity of supply is: a. 0.5. b. 0.8. c. 1.0. d. 1.5. e. 2.0.

c. 1.0.

If demand price elasticity measures 2, this implies that consumers would: a. buy twice as much of the product if the price drops 10 percent b. require a 2 percent drop in price to increase their purchases by 1 percent c. buy 2 percent more of the product in response to a 1 percent drop in price. d. require at least a $2 increase in price before showing any response to the price increase. e. buy twice as much of the product if the price drops 1 percent.

c. buy 2 percent more of the product in response to a 1 percent drop in price.

If a consumer wishes to maximize satisfaction given limited income and MUx/Px<MUy/Py then the consumer should: a. do nothing because she/he is in equilibrium. b. buy more of X and less of Y. c. buy more of Y and less of X. d. buy more of both X and Y. e. buy less of both X and Y.

c. buy more of Y and less of X.

If the government wants to raise tax revenue and shift most of the tax burden to the sellers, it would impose a tax on a good with a: a. steep (inelastic) demand curve and steep (inelastic) demand curve. b. steep (inelastic) demand curve and a flat (elastic) supply curve. c. flat (elastic) demand curve and a steep (inelastic) supply curve. d. flat (elastic) demand curve and a flat (elastic) supply curve.

c. flat (elastic) demand curve and a steep (inelastic) supply curve.

Consumer equilibrium is a condition in which total utility cannot increase by spending more of a given budget on one good and spending on another good. a. zero b. more c. less d. an infinite amount

c. less

The price of diamonds is higher than the price of water because: a. diamonds give greater total utility than water. b. diamonds are more durable than water. c. the marginal utility for diamonds is greater than the marginal utility for water. d. water is more scarce than diamonds.

c. the marginal utility for diamonds is greater than the marginal utility for water.

According to the income effect, when the price of automobiles rises, people buy fewer automobiles because: a. they substitute other forms of transportation for driving. b. the nominal amount of their paychecks is smaller. c. the purchasing power of their income is reduced. d. their demand for automobiles is very elastic.

c. the purchasing power of their income is reduced.

A condition in which total utility cannot increase by spending more of a given budget on one good and spending less on another good is called _________.

consumer equilibrium

The ratio of the percentage change in the quantity demanded of a good or service to a given percentage change in the price of another good or service is called a (an) ______________.

cross elasticity of demand

The law of diminishing marginal utility exists for the first four units of a good if they have marginal utilities of: a. 4, 8, 2, 1. b. 8, 4, 1, 2. c. 1, 2, 4, 8. d. 8, 4, 2, 1.

d. 8,4,2,1

When the price of a normal good falls, then: a. both the income and substitution effects combine to cause the quantity demanded to increase. b. the substitution effect will cause people to buy more because the good is relatively less expensive. c. the income effect will cause people to buy more because of the increased purchasing power associated with the lower price. d. All of the answers above are correct.

d. All of the answers above are correct.

If water is essential for life, while diamonds are not, then why is water cheaper than diamonds? a. Because most people would rather die with a big diamond ring than live without one. b. Because the total utility generated by diamonds is larger than the total utility generated by water. c. Because most people do not understand that they need water to live. d. Because water is abundant, the marginal utility of water is low, and price reflects marginal utility, not total utility.

d. Because water is abundant, the marginal utility of water is low, and price reflects marginal utility, not total utility.

Which of the following statements is true? a. Total utility is the extra satisfaction from the consumption of a good or service. b. Marginal utility is the amount of satisfaction received from all the units of a good or service consumed. c. The law of diminishing marginal utility states that as more of a good or service is consumed total utility decreases. d. Consumer equilibrium is a combination of goods and services consumed which maximizes total utility from a given budget.

d. Consumer equilibrium is a combination of goods and services consumed which maximizes total utility from a given budget.

When the price of a good increases, one effect of this price increases is that consumers of that good experience a decline in their purchasing power that is like a decline in income. For normal goods, this contributes to the law of demand. What is this effect called? a. The marginal utility effect. b. The substitution effect. c. The price effect. d. The income effect.

d. The income effect.

Assume a consumer purchases a combination of goods X and Y such that MUxPx = 40 units of utility per dollar and MUyPy = 20 units of utility per dollar, to maximize utility, the consumers should buy: a. more of both X and Y. b. less of both X and Y. c. neither X nor Y. d. more of X and less of Y. e. less of X and more of Y.

d. more of X and less of Y.

Consumer equilibrium exists when: a. the marginal utility of each good and service consumed is equal. b. the total utility of each good and service consumed is equal. c. the marginal utility of each good and service consumed equals its price. d. ratio of marginal utility to price for all goods and services is equal.

d. ratio of marginal utility to price for all goods and services is equal.

The consumer equilibrium condition for two goods is achieved by equating the: a. marginal utilities of both goods for the last dollar spent on each good. b. prices of both goods for the last dollar spent on each good. c. marginal utility of one to the price of the other for the last dollar spent on each good. d. ratios of marginal utility to the price of both goods for the last dollar spent on each good.

d. ratios of marginal utility to the price of both goods for the last dollar spent on each good

The cross elasticity of demand between two goods is 2.5. These goods are: a. perfect complements. b. imperfect complements. c. unrelated. d. substitutes. e. inferior.

d. substitutes.

Assume the price of Levi jeans increases. As a result, you decrease the quantity of Levi jeans purchased each month and purchase more Lee jeans. This is an example of the: a. consumption effect. b. utility effect. c. income effect. d. substitution effect.

d. substitution effect.

Total utility is measured by a mythical unit called the: a. pleasure unit. b. useful unit. c. bliss unit. d. util.

d. util

Which of the following statements is true? a. If the income elasticity of demand is less than zero, the good is an inferior good. b. Only if the demand curve is vertical will sellers raise the price by the full amount of a tax. c. Two goods are substitutes if the cross-elasticity of demand coefficient is positive. d. A price elasticity of supply coefficient equal to 1.5 means the product exhibits an elastic supply and a 10 percent increase in the price will increase the quantity supplied by 15 percent. e. All of the answers above are correct

e. All of the answers above are correct

If the price elasticity of demand for a product measures .45, a. this good has many available substitutes. b. this good must be a nonessential good. c. this good is a high-priced good. d. a decrease in price will increase total revenue. e. this good is demand price inelastic.

e. this good is demand price inelastic

______________ is a more than 1 percent change in quantity demanded in response to a 1 percent change in price.

elastic demand

Applying supply and demand analysis, other factors held constant, the steeper the supply curve (less elastic), the larger the burden of a sales tax that is borne by the sellers. T or F

false

Consumer equilibrium requires that the marginal utility per dollar spent be unequal for all goods. T or F

false

If a 10 percent price increase causes the quantity demanded for a good to decrease by 5 percent, demand is elastic. T or F

false

If a good has a price elasticity of demand coefficient greater than 1, total revenue can be increased by raising the price. T or F

false

If a supply curve has a constant slope throughout its length, it must have a constant price elasticity throughout its length. T or F

false

If demand for a good is price elastic, it must also be income elastic. T or F

false

If the demand curve for a good is elastic, consumers will spend more on that good when its price increases. T or F

false

In response to a price change for good Y, if the cross-elasticity of demand for good Y is positive, good X and good Y are complements. T or F

false

Other factors held constant, if there are few close substitutes for a good, demand is more elastic for it. T or F

false

The income effect is the concept that changes in consumption of a good result from changes in government spending. T or F

false

The substitution effect is the concept that changes in consumption of a good result from changes in the relative price of a jointly consumed good. T or F

false

The change in quantity demanded of a good or service caused by a change in real income (purchasing power) is called the ________________.

income effect

______________is the ratio of the percentage change in the quantity demanded of a good or service to a given percentage change in income.

income elasticity of demand

_____________ is a less than 1 percent change in quantity demanded in response to a 1 percent change in price.

inelastic demand

The principle that the extra satisfaction of a good or service declines as people consume more in a given period is called the___________.

law of diminishing marginal utility

____________ is the change in total utility from one additional unit of a good or service.

marginal utility

An extreme case in which the demand curve is horizontal and the elasticity coefficient equals infinity is called ______________.

perfect elastic demand

An extreme case in which the demand curve is vertical and the elasticity coefficient equals zero is called _____________.

perfectly inelastic demand

The ratio of the percentage change in quantity demanded to the percentage change in price is called _____________________.

price elasticity of demand

______________ is the ratio of the percentage change in the quantity supplied of a product to the percentage change in its price.

price elasticity of supply

_______________ is the change in quantity demanded of a good or service caused by the change in its price relative to substitutes.

substitution effect

The share of a tax ultimately paid by consumers and sellers is called _______________.

tax income

The total number of dollars a firm earns from the sale of a good or service, which is equal to its price multiplied by the quantity demanded is called ______________.

total revenue

______________ is the amount of satisfaction received from all the units of a good or service consumed.

total utility

A horizontal demand curve is perfectly elastic. T or F

true

If a 10 percent price increase causes the quantity demanded for a good to decrease by 10 percent, demand is unitary elastic. T or F

true

If a 10 percent price increase causes the quantity demanded for a good to decrease by 20 percent, demand is elastic. T or F

true

If total utility increases from 10 to 15 for the second unit of a good consumed, the marginal utility of the second unit is 5. T or F

true

Suppose an economist found that total revenues increased for the bus system when fares were raised. The conclusion is that the price elasticity demand for subway services over the range of fare increase is inelastic. T or F

true

The utility of a good measures its satisfaction rather than its usefulness. T or F

true

______________ is a 1 percent change in quantity demanded in response to a 1 percent change in price.

unitary elastic demand

____________ is the satisfaction, or pleasure, that people receive from consuming a good or service.

utility


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