Quiz 2 (ch. 3, 4, 5)

The demand for Post Raisin Bran is more elastic than the demand for raisin bran in general because _____ it is consumed in the short run rather than in the long run. Post Raisin Bran is a luxury. Post Raisin Bran is a broadly defined good. there are many substitutes for raisin bran cereal in general. Post Raisin Bran has no substitutes

there are many substitutes for raisin bran cereal in general

Which of the following is most likely to be an inferior good? used clothing soft drinks a subscription to the Wall Street Journal airline travel restaurant meals

used clothing (The demand for an inferior good decreases as money income increases)

Q P old 20 40 new 10 60 Refer to Table 5.2, which shows the change in the quantity demanded for a product as a result of a change in the price of the product. Use the information to calculate the value of the price elasticity of demand. 0 −1/3 −3/5 −5/3 -2/3

−5/3

Public goods are both rival and nonexclusive. False True

False (A public good is nonrival and nonexclusive; once produced it is available for all to consume, regardless of who pays and who does not)

Which of the following situations indicates a shortage of a product in the market to suppliers? The quantity demanded exceeds the quantity supplied at a particular price. The price of the product declines to an all-time low. The quantity demanded decreases substantially. The quantity supplied exceeds the quantity demanded at a particular price. The stock of inventories of most suppliers increases

The quantity demanded exceeds the quantity supplied at a particular price

Which of the following describes a situation in which demand must be inelastic? Total revenue decreases by $10 when the price of spats rises by $10. Total revenue decreases by more than $10 when the price of spats rises by $10. Total revenue decreases by 10 percent when the price of spats rises by 10 percent. Total revenue decreases by less than 10 percent when the price of spats rises by 10 percent. Total revenue increases by more than 10 percent when the price of spats rises by 10 percent.

Total revenue increases by more than 10 percent when the price of spats rises by 10 percent (If demand is inelastic, total revenue falls with a decrease in the price of a product)

A new cattle feed has been found to increase the amount of milk each cow produces. Which of the following is likely to be the impact on the market for milk if this cattle feed is used by most dairies? an increase in the price of milk a decrease in the quantity demanded of milk an increase in the demand for milk a rightward shift of the supply curve of milk a leftward shift of the supply curve of mil

a rightward shift of the supply curve of milk (The introduction of the new cattle feed increases the supply of milk and shifts the supply curve to the right)

Gross domestic product is the market value of: all exchanges made during the course of a year all intermediate goods sold during the course of a year all monetary transactions during the course of a year all the goods produced during the course of a year over and above what is required to maintain the population and the stock of capital all final goods produced during the course of a year

all final goods produced during the course of a year (The U.S. gross domestic product, GDP, is the total market value of all final goods and services produced in the United States)

Which of the following is likely to shift the current demand curve for a normal good to the right? a decrease in income if the good is a normal good an expectation of a shortage in the future an expectation of a surplus in the future a decrease in the good's price if the good is a normal good an increase in the price of a complementary good

an expectation of a shortage in the future

You are more likely to repair a leaky drainpipe yourself than hire a plumber if: the tax rate on your earned income dramatically decreases. you need to purchase the specialized tools required to complete the repair work. you possess less knowledge and experience in plumbing repair work. doing the job yourself reduces the transaction costs. the opportunity cost of your time increases.

doing the job yourself reduces the transaction costs

If demand is unit elastic, a price reduction will _____ reduce total cost. reduce revenues. increase profits. have no effect on revenues. increase revenues.

have no effect on revenues

What gets produced in a market economy is determined by: households. technology. government. central planning. firms.

households (Households act as demanders in the product market when they spend their income on durable goods, nondurable goods, and services)

Suppose the market for a good is initially in equilibrium. For a given upward-sloping supply curve, all other things remaining unchanged, an increase in demand will typically _____ increase the equilibrium price but leave the equilibrium quantity unchanged. increase the equilibrium quantity but change the equilibrium price in either direction. increase both the equilibrium quantity and price. increase the equilibrium price but the change the equilibrium quantity in either direction. decrease both the equilibrium quantity and price.

increase both the equilibrium quantity and price

Wheat farmers in Kansas would benefit from a devastating crop failure in North Dakota (another major wheat-producing state) if the U.S. demand for wheat is _____ unit elastic. perfectly elastic. downward sloping. inelastic. elastic.

inelastic (Total revenue decreases as a result of a rise in price if the demand is elastic. Total revenue increases as a result of a rise in price when the demand is inelastic)

The largest portion of U.S. personal income in 2012 was spent on: savings. services. nondurable goods durable goods. taxes.

services (More than half of all personal income is spent on services, the fastest growing sector, because many services are shifting from at-home production to market purchases)

As shown in the Exhibit given below, when the government sets rent at $750 per month, the result is a(n) _____ increase in the supply of rented apartments. decrease in the demand for rented apartments. shortage of rented apartments. equilibrium in the market for rented apartments. economic profit for the owners of rented apartments.

shortage of rented apartments

The table given below shows the quantity supplied and the quantity demanded of a good at different prices. If the price of the good described in the table given below is $1.60, then there is a _____ surplus of 10 units. shortage of 20 units. shortage of 30 units. surplus of 30 units.

surplus of 30 units

Suppose consumers spent $42 million on Christmas trees last year, when the average tree cost was $30. This year they spend $42 million, when the average tree costs $25. Assume that everything else remains constant. This data suggests that _____ the demand for trees is inelastic. consumers bought the same number of Christmas trees this year as last year. the price of the Christmas trees stayed the same. total revenue to tree producers rose this year. the demand for trees is unit elastic.

the demand for trees is unit elastic

Two events occur simultaneously in the market for automobiles: (1) an improvement in assembly line technology and (2) a recession in the economy that decreases consumers' income. Which of the following can be predicted about this market with certainty? the equilibrium quantity will fall the equilibrium price will remain the same the equilibrium quantity will rise the equilibrium price will rise the equilibrium price will fall

the equilibrium price will fall (An improvement in assembly line technology is likely to increase the supply of automobiles, while the recession is likely to decrease demand. Therefore, we can predict with certainty that the equilibrium price of automobiles will fall. However, the change in the equilibrium quantity is indeterminate)

The relationship between the price of a six-pack and the quantity of Pepsi demanded is called demand. supply. the law of supply. the fact that consumers like Pepsi. the law of demand.

the law of demand (The law of demand states that the quantity of a good that consumers are willing and able to buy per period relates inversely, or negatively, to the price, other things constant) See 4-1

Which of the following is assumed to be constant while calculating the price elasticity of demand? the prices of all other products the price of the product itself the cost of production the quantity demanded of the product total revenue received from the sale of the product

the prices of all other products