Study Questions -Chap 4

8. A consumer is willing to pay a maximum of $5 for the first pretzel, $4 for the second pretzel, $3 for the third pretzel, $2 for the fourth pretzel, $1 for the fifth pretzel and nothing for the sixth pretzel. If the price per unit of pretzel is $2, calculate the net benefit to the consumer. a. $6 b. $14 c. $5 d. $8

a. $6

5. Assume that a market demand curve is constructed from one hundred identical individual demand curves. Assume also that at a price of $4, the elasticity of individual demand is 0.6. Then the elasticity of the market demand curve derived from these individual demand curves must be: a. 0.6. b. any value more than 0.6. c. any value less than 0.6. d. 60.

a. 0.6.

2. At the price of $3, consumers A, B, C, and D demand 10 units, 12 units, 14 units, and 8 units of commodity A respectively. Calculate the market demand for commodity A at $3 assuming that A, B, C, and D are the only four consumers of this product. a. 44 units b. 12 units c. 960 units d. 36 units

a. 44 units

6. Which of the following is true of a market demand curve? a. It might slope upward if the typical consumer has an upward-sloping individual demand curve. b. It can never slope upward. c. It will slope upward if at least one consumer has an upward-sloping individual demand curve. d. It will slope upward if individual demand curves are inelastic.

a. It might slope upward if the typical consumer has an upward-sloping individual demand curve.

9. Ceteris paribus, when the price of a normal good increases, consumer surplus: a. decreases. b. increases. c. does not change. d. may increase, decrease, or remain the same.

a. decreases

20. The bandwagon effect causes the market demand to become: a. relatively more elastic. b. relatively less elastic. c. perfectly inelastic. d. unit elastic.

a. relatively more elastic.

13. A consumer is willing to pay a maximum of $5 for the first pretzel, $4 for the second pretzel, $3 for the third pretzel, $2 for the fourth pretzel, $1 for the fifth pretzel, and nothing for the sixth pretzel. If the price per unit of pretzel is $2, calculate the total benefit of the consumer. a. $6 b. $14 c. $5 d. $8

b. $14

11. Suppose the total benefit eight people enjoyed from consuming one cookie each was $8 + $6 + $6 + $5 + $4 + $3 + $3 +$1. If the price of a cookie was $1, what was the consumer surplus in this market? a. $8 b. $28 c. $36 d. $37

b. $28

18. Which of the following describes the bandwagon effect? a. Sarah bought a new diamond jewelry set to wear at her sister's wedding. b. Bob and Harris bought new running shoes from Nike after their friends at the health club started using them. c. Allen decided to quit drinking to save more money for his new car. d. Bill gifted his friend a home theater system at her wedding.

b. Bob and Harris bought new running shoes from Nike after their friends at the health club started using them.

10. Which of the following is a means of measuring consumer surplus? a. Measuring the area above the supply curve and below the demand curve b. Measuring the area above the price and below the demand curve c. Measuring the horizontal distance between indifference curves d. Measuring the area between the price and the supply curve

b. Measuring the area above the price and below the demand curve

1.Which of the following is true of a market demand curve? a. The market demand curve will always slope upward when the good in question is a normal good. b. When the individual demand curves slope downward, the market demand curve also slopes downward. c. The vertical summation of the individual demand curves gives the market demand curve. d. The market demand curve is typically unaffected by the factors that affect an individual demand curve.

b. When the individual demand curves slope downward, the market demand curve also slopes downward.

14. If the costs of production increase, consumer surplus will: a. increase. b. decrease. c. remain the same. d. increase initially, then decrease.

b. decrease.

24. Limitations of using experimentation to estimate demand elasticities include: a. difficulty in determining which product's elasticity to estimate. b. difficulty in isolating the impact of price from all other factors affecting demand. c. difficulty in getting customers to buy the product whose elasticity is being estimated. d. difficulty in being able to filter out valid facts from the information set.

b. difficulty in isolating the impact of price from all other factors affecting demand.

17. A network effect exists when an individual consumer's demand for a good is affected by other individuals': a. incomes. b. purchases. c. preferences. d. consumer surplus.

b. purchases.

19. A negative network externality is caused by the: a. bandwagon effect. b. snob effect. c. herd effect. d. fad effect.

b. snob effect.

25. To economists, survey data is not always reliable because: a. surveys are not conducted on a random sample from the population. b. there is no cost involved in providing incorrect or poorly thought out responses to survey questions. c. once gathered, the data is not in a format useful to economic analysis. d. people are never honest.

b. there is no cost involved in providing incorrect or poorly thought out responses to survey questions.

7. Which of the following statements provides the best example of consumer surplus? a. "Drinking that bottle of soda increased my happiness by $10." b. "John gave me $5 for the watermelon even though it cost me only $2." c. "I paid $20 for this shirt for which I would have paid up to $40." d. "I refuse to pay $30 for their steak dinner; it's highly overpriced."

c. "I paid $20 for this shirt for which I would have paid up to $40."

21. Which of the following is most likely to cause a snob effect? a. A jet ski b. A fax machine c. An original Van Gogh painting d. An Apple iPhone

c. An original Van Gogh painting

15. A consumer currently purchases a good at a price such that her net benefit is positive. Her preference then changes and she now values the good more than before. If the market price remains unchanged, which of the following statements about her consumer surplus would be true? a. Her consumer surplus would also remain the same. b. Her consumer surplus would decrease. c. Her consumer surplus would increase. d. Her consumer surplus could increase or decrease depending on her demand elasticity.

c. Her consumer surplus would increase.

3. Assume that the market demand curve for a good is constructed from a hundred identical individual demand curves. Using the same scale on the graph, the slope of the market demand curve will be _____ and its price elasticity _____ that of the individual demand curves. a. steeper; equal to b. steeper; more than c. flatter; equal to d. flatter; more than

c. flatter; equal to

22. Positive network effects are often viewed as a two-edged sword for firms because they: a. increase the probability of higher market share, but make it easier to raise prices. b. increase the probability of lower market share, while making it easier to raise prices. c. increase the probability of higher market share, but limit the ability to raise prices. d. decrease the probability of higher market share, but make it easier to raise prices.

c. increase the probability of higher market share, but limit the ability to raise prices.

16. Suppose the demand for lattes can be estimated using the equation QD=9 - P, if the price is $3 per latte, how much is the consumer surplus? a. $9 b. $12 c. $15 d. $18

d. $18

12. Suppose the total consumer surplus enjoyed by eight people from consuming one hamburger each was $9 + $8 + $7 + $7 + $7 + $6 + $6 + $5. If the price of hamburgers was $2 each, what was the total benefit enjoyed by these consumers? a. $39 b. $45 c. $55 d. $71

d. $71

5. Assume that a market demand curve is constructed from twenty identical individual demand curves. Assume also that at a price of $10, the elasticity of individual demand is 0.5. Then, at this price, the elasticity of the market demand curve derived from these individual demand curves must be: a. 5 b. any value more than 5.0. c. any value less than 5.0. d. 0.5.

d. 0.5.

23. Which of the following methods is not generally relied upon to estimate demand? a. Experimentation such as lowering the price of a product b. Surveys by mail, telephone, or focus groups c. Regression analysis on existing data d. Comparison with competitors' sales

d. Comparison with competitors' sales

4. A market demand curve for a commodity may be obtained by: a. dividing the total quantity demanded by all consumers by the price level. b. dividing the total price paid by the consumers by the number of consumers. c. adding the prices along individual demand curves for given quantities. d. adding the quantities along individual demand curves for given prices.

d. adding the quantities along individual demand curves for given prices.