Unit 2 Micro Econ

Units Total Marginal consumed utility utility 0 0 1 W 20 2 35 X 3 Y 10 4 40 Z Refer to the above data. The value for Z is: A) -5. B) + 5. C) -10. D) zero.

A) -5.

See graph

see graph

Units Total Marginal consumed utility utility 0 0 1 W 20 2 35 X 3 Y 10 4 40 Z Refer to the above data. The value for X is: A) 15. B) 5. C) 55 D) 10.

A) 15.

end of supply and demand

end of supply and demand

end of chap 21

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Every day Molly spends her lunch money consuming apples, at $1 each, and oranges, at $2 each. At her current level of consumption, Molly's marginal utility of apples is 12 and her marginal utility of oranges is 18. If she has already spent all of her lunch money, how should Molly change her consumption decision to maximize utility? A) She should increase her apple consumption and decrease her orange consumption until the marginal utility per dollar is equal for both. B) She should decrease her apple consumption and increase her orange consumption until the marginal utility per dollar is equal for both. C) She should increase her apple consumption and decrease her orange consumption until the marginal utility is equal for both. D) She should decrease her apple consumption and increase her orange consumption until the marginal utility is equal for both.

A) She should increase her apple consumption and decrease her orange consumption until the marginal utility per dollar is equal for both.

Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z respectively. A 1 percent decrease in price will increase total revenue in the case(s) of: A) W and Y. B) Y and Z. C) X and Z. D) Z and W.

A) W and Y.

Suppose the income elasticity of demand for toys is +2.00. This means that: A) a 10 percent increase in income will increase the purchase of toys by 20 percent. B) a 10 percent increase in income will increase the purchase of toys by 2 percent. C) a 10 percent increase in income will decrease the purchase of toys by 2 percent. D) toys are an inferior good.

A) a 10 percent increase in income will increase the purchase of toys by 20 percent.

Utility refers to the: A) satisfaction that a consumer derives from a good or service. B) rate of decline in a product demand curve. C) relative scarcity of a product. D) usefulness of a product.

A) satisfaction that a consumer derives from a good or service.

Suppose the market for roses is currently in equilibrium. If the supply of roses falls, while at the same time the demand for roses rises, what can you say about the price and quantity of roses in the market? A) Price and quantity both rise. B) Price rises, but the change in quantity is ambiguous. C) Price and quantity both fall. D) Quantity rises, but the change in price is ambiguous. E) Neither price nor quantity change as these shifts offset one another.

B) Price rises, but the change in quantity is ambiguous.

According to the law of diminishing marginal utility, which of the following is true? A) Total satisfaction decreases as more units of a good are consumed. B) The additional satisfaction received from consuming extra units of good decreases as consumption of the good increases. C) The additional satisfaction received from consuming extra units of good decreases as consumption of the good decreases. D) The additional satisfaction received from consuming extra units of good increases as consumption of the good increases.

B) The additional satisfaction received from consuming extra units of good decreases as consumption of the good increases.

Which of the following would cause the equilibrium price of good X to increase? A) Producers of good X find a new technology that reduces the cost of producing X. B) The price of an essential input in the production of good X increases C) Goods X and Y are complements, and the government imposes a tax on good Y D) Good X is a normal good, and the government increases income taxes by 3% E) Good X is an inferior good, and the government decreases income taxes by 10%

B) The price of an essential input in the production of good X increases

If the demand for good Y increases as the price of good X decreases, it can be concluded A) X and Y are substitute goods B) X and Y are complementary goods C) X is an inferior goods and Y is a superior good D) X is a superior good and Y is an inferior good

B) X and Y are complementary goods

Leather and beef are jointly produced such that an increase in the production of one results in an equal increase in the production of the other. An increase in the demand for leather will most likely cause A) a decrease in the price of leather B) a decrease in the price of beef C) a decrease in the equilibrium quantity of beef sold D) an increase in the demand for beef in the short run E) an increase in the supply of leather

B) a decrease in the price of beef

Assume that consumers consider popcorn and pretzels to be substitutes. A significant decrease in the supply of popcorn will affect the pretzel market by: A) increasing the demand for pretzels and therefore the supply of pretzels B) increasing the demand for pretzels and therefore the price of pretzels C) decreasing the demand for pretzels and therefore the price of pretzels D) increasing the supply of pretzels and therefore the price of pretzels E) decreasing the supply of pretzels and therefore the price of pretzels

B) increasing the demand for pretzels and therefore the price of pretzels

Ben is exhausting his money income consuming products A and B in such quantities that MUaIPa = 5 and MUbIPb = 8. Ben should purchase: A) more of A and less of B. B) more of B and less of A. C) more of both A and B. D) less of both A and B.

B) more of B and less of A.

Units of J, MUj Units of K, MUk 1 56 1 32 2 48 2 28 3 32 3 24 4 24 4 20 5 20 5 12 6 16 6 10 7 12 7 8 Refer to the above data. What level of total utility is realized from the equilibrium combination of J and K determined in the previous question? A) 156 utils B) 124 utils C) 276 utils D) 36 utils

C) 276 utils

Units of J, MUj Units of K, MUk 1 56 1 32 2 48 2 28 3 32 3 24 4 24 4 20 5 20 5 12 6 16 6 10 7 12 7 8 Refer to the above data. If the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing: A) 2 units of J and 7 units of K. B) 5 units of J and 5 units of K. C) 4 units of J and 5 units of K. D) 6 units of J and 3 units of K.

C) 4 units of J and 5 units of K.

Assume MUc and MUd represent the marginal utility that a consumer gets from products C and D, the respective prices of which are Pc and Pd. The consumer will increase his total utility from a specific money outlay by spending more on C and less on D if initially: A) MUd < MUc B) MUc < MUd ------ ------ Pc Pd C) MUc MUd ------ > ------ Pc Pd D) MUc > MUd

C) MUc MUd ------ > ------ Pc Pd

If a severe drought destroys a significant portion of the peanut crop and peanut farmers' revenues increase, which of the following is true over the observed range of prices? A) The demand for peanuts must be unit price elastic. B) The demand for peanuts must be price elastic. C) The demand for peanuts must be price inelastic. D) The supply of peanuts must be price inelastic.

C) The demand for peanuts must be price inelastic.

In a given time period, a person consumes more and more of a good or service and, as a result, enjoys each additional unit less and is willing to pay less for each additional unit. This behavior is consistent with the law of A) diminishing returns B) diminishing marginal product C) diminishing marginal utility D) increasing costs

C) diminishing marginal utility

The law of supply states that, other things remaining the same, A) demand increases when supply increases. B) if the price of a good increases, firms buy less of it. C) if the price of a good increases, the quantity supplied increases. D) as people's income increase, the supply of goods increases. E) if the price of a good increases, the supply increases.

C) if the price of a good increases, the quantity supplied increases.

A demand schedule: A) shows the quantity demanded at one price. B) is a graph showing a relationship between the quantity demanded and the price of a good. C) is a list of the quantities demanded at each different price when all other influences on buying plans remain the same. D) shows that demand is on schedule. E) shows how the demand changes when the supply changes.

C) is a list of the quantities demanded at each different price when all other influences on buying plans remain the same.

At her current level of consumption, a consumer is willing to pay up to $1.50 for a bottle of water and up to $1,500 for a diamond ring because the A) total utility of diamond rings is greater than the total utility of water B) total utility of water is less than the marginal utility of a diamond ring C) marginal utility of a bottle of water is less than the marginal utility of a diamond ring D) marginal utility of a bottle of water is greater than the marginal utility of a diamond ring

C) marginal utility of a bottle of water is less than the marginal utility of a diamond ring

Which of the following will occur if the government imposes a price ceiling below the equilibrium price of a good? A) the quantity sold will exceed the equilibrium quantity B) firm's total revenues will increase if the demand is price elastic C) there will be a shortage in the market D) all firms will shut down, since price is below the equilibrium price E) price will exceed the marginal cost of producing the last unit sold

C) there will be a shortage in the market

The price of an airline ticket is typically lower if a traveler buys the ticket several weeks before the flight's departure date rather than on the day of the departure. This pricing strategy is based on the assumption that A) travelers are not aware of how airline prices change across time B) travelers do not have alternative modes of transportation C) travelers demand becomes less elastic as the departure date approaches D) the marginal cost of the last few seats on an airplane is higher than that for the first few seats

C) travelers demand becomes less elastic as the departure date approaches

Promoters of a rock group know that if they charged $8 a ticket, 400 people would buy tickets for a concert, and if they charged $4 a ticket, 800 people would buy tickets. Over this price range, the demand for the concert tickets for the rock group is A) elastic B) inelastic C) unit elastic D) perfectly elastic

C) unit elastic

What do the income effect, the substitution effect, and diminishing marginal utility have in common? A) All are required to explain the utility-maximizing position of a producer. B) They are all empirically measurable. C) They all help explain the upsloping supply curve. D) They all help explain the downsloping demand curve.

D) They all help explain the downsloping demand curve.

Gasoline prices increase by 50 percent and other things remain the same. As a result, there is: A) an increase in the demand for gasoline. B) a decrease in the demand for gasoline. C) no change in the quantity of gasoline demanded. D) a decrease in the quantity of gasoline demanded. E) More information is needed to determine if the demand for gasoline increases or decreases.

D) a decrease in the quantity of gasoline demanded.

Assume that Clark spends his entire income on the purchase of two goods, X and Y. If his income and the prices of good X and Y all double, Clark will A) double the purchase of goods X and Y B) buy more of good X and less of good Y C) buy less of good X and more of good Y D) buy the same amounts of goods X and Y

D) buy the same amounts of goods X and Y

Assume that people like onions on their hamburgers. If the supply of hamburgers decreases, the demand for onions will most likely A) remain unchanged because hamburgers and onions are different goods B) increase because hamburgers and onions are substitutes C) increase because hamburgers and onions are complements D) decrease because hamburgers and onions are complements E) decrease because hamburgers and onions are substitutes

D) decrease because hamburgers and onions are complements

You are told that the cross-price elasticity between goods X and Y is +2.0. This means that A) goods X and Y are normal goods. B) goods X and Y are inferior goods. C) goods X and Y are complementary goods. D) goods X and Y are substitute goods.

D) goods X and Y are substitute goods.

Suppose that MUxIPx exceeds MUyIPy .To maximize utility the consumer who is spending all her money income should buy: A) less of X only if its price rises. B) more of Y only if its price rises. C) more of Y and less of X. D) more of X and less of Y.

D) more of X and less of Y.

An increase in the effective minimum wage will have less of an impact on employment if the demand for labor is A) a derived demand B) decreasing C) relatively elastic D) relatively inelastic

D) relatively inelastic

The larger the coefficient of price elasticity of demand for a product, the: A) larger the resulting price change if there's an increase in supply. B) more rapid the rate at which the marginal utility of that product diminishes. C) less competitive will be the industry supplying that product. D) smaller the resulting price change if there's an increase in supply.

D) smaller the resulting price change if there's an increase in supply.

The income effect indicates that: A) a rise in money income will cause consumers to buy smaller quantities of normal goods. B) when the price of a product falls, the lower price will induce the consumer to buy more of that product now that it is relatively cheaper. C) consumers should substitute among various products until the marginal utility from the last unit of each product purchased is the same. D) when the price of a product falls, a consumer will be able to buy more of it with a specific money income.

D) when the price of a product falls, a consumer will be able to buy more of it with a specific money income.

See graph

See graph

graph

graph

Studies of the minimum wage suggest that the price elasticity of demand for teenage workers is relatively inelastic. This means that: A) an increase in the minimum wage would increase the total incomes of teenage workers as a group. B) an increase in the minimum wage would decrease the total incomes of teenage workers as a group. C) the unemployment effect of an increase in the minimum wage would be relatively large. D) the cross elasticity of demand between teenage and adult workers is positive and very large.

A) an increase in the minimum wage would increase the total incomes of teenage workers as a group.

Oil refiners can refine a barrel of petroleum so that it yields either more home heating oil or more diesel fuel. If the price of diesel fuel falls, there is A) an increase in the supply of home heating oil. B) a decrease in the supply of home heating oil. C) an increase in the quantity of home heating oil supplied. D) a decrease in the quantity of home heating oil supplied. E) an increase in the demand for home heating oil.

A) an increase in the supply of home heating oil.

The price elasticity of demand coefficient measures: A) buyer responsiveness to price changes. B) the extent to which a demand curve shifts as incomes change. C) the slope of the demand curve. D) how far business executives can stretch their fixed costs.

A) buyer responsiveness to price changes.

If the market demand for a good is inelastic and the supply is elastic, which of the following is true when there is an increase in sales tax? A) consumers will bear most of the burden of the tax B) producers will bear all of the burden of the tax C) producers will bear most of the burden of the tax or risk losing sales D) both consumers and producers will share the burden of the tax equally

A) consumers will bear most of the burden of the tax

Consider the demand and supply curves for a normal good. The equilibrium price could rise if A) consumers' incomes increased B) consumers moved out of the area C) subsidies on the product increased D) the price of a complementary product increased E) costs of production were substantially decreased

A) consumers' incomes increased

If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then: A) demand is elastic. B) demand is inelastic. C) demand is of unit elasticity. D) none of the above.

A) demand is elastic.

An antidrug policy which reduces the supply of heroin might: A) increase street crime because the addict's demand for heroin is highly inelastic. B) reduce street crime because the addict's demand for heroin is highly elastic. C) reduce street crime because the addict's demand for heroin is highly inelastic. D) increase street crime because the addict's demand for heroin is highly elastic.

A) increase street crime because the addict's demand for heroin is highly inelastic.

To alleviate a financial crisis, a university increases student fees. This action will increase university revenues if the price elasticity of demand for university education is A) inelastic B) unit elastic C) elastic D) equal to the price elasticity of supply

A) inelastic

The main determinant of elasticity of supply is the: A) number of close substitutes for the product available to consumers. B) amount of time the producer has to adjust inputs in response to a price change. C) Urgency of consumer wants for the product. D)number of uses for the product.

B) amount of time the producer has to adjust inputs in response to a price change.

Which of the following increases the quantity supplied of compact discs but does NOT increase the supply of compact discs? A) a decrease in the price of a compact disc B) an increase in the price of a compact disc C) a decrease in the number of suppliers of compact discs D) an increase in the price of the resources used to produce compact discs E) new technology that lowers the cost of producing compact discs

B) an increase in the price of a compact disc

Which of the following will decrease the demand for beef? A) an increase in the price of pork, if pork and beef are substitute goods B) an increase in the price of potatoes, if potatoes and beef are complementary goods C) a decrease in the cost of transporting beef to consumers D) an increase in the income levels of most consumers, if beef is a normal goods E) research showing beef is better for you than chicken

B) an increase in the price of potatoes, if potatoes and beef are complementary goods

If a 5 percent wage increase in a particular labor market results in a 10 percent decrease in employment, the demand for labor is A) perfectly elastic B) relatively elastic C) unit elastic D) relatively inelastic

B) relatively elastic

We would expect: A) the demand for Coca-Cola to be less elastic than the demand for soft drinks in general. B) the demand for Coca-Cola to be more elastic than the demand for soft drinks in general. C) no relationship between the elasticity of demand for Coca-Cola and the elasticity of demand for soft drinks in general. D) none of the above to hold true.

B) the demand for Coca-Cola to be more elastic than the demand for soft drinks in general.

If the price of a product falls, that product becomes cheaper and people will want to purchase more of it in place of other goods. This statement best describes: A) the income effect. B) the substitution effect. C) a complementary good. D) an inferior good.

B) the substitution effect.

If the income elasticity of demand for lard is -3.00, this means that: A) lard is a substitute for butter. B) lard is a normal good. C) lard is an inferior good. D) more lard will be purchased when its price falls.

C) lard is an inferior good.

Units of J, MUj Units of K, MUk 1 56 1 32 2 48 2 28 3 32 3 24 4 24 4 20 5 20 5 12 6 16 6 10 7 12 7 8 Refer to the above data. If the consumer's money income were cut from $52 to $28, she would maximize her satisfaction by purchasing: A) 3 units of J and 3 units of K. B) 1 unit of J and 3 units of K. C) 4 units of J and 1 unit of K. D) 2 units of J and 3 units of K.

D) 2 units of J and 3 units of K.

Suppose that the equilibrium price and quantity of new houses both increase. Which of the following could be a cause of this change? A) The wage paid carpenters who build new houses might have risen. B) A technological advance in framing a new house might have occurred. C) The rent for nearby apartments might have fallen. D) More buyers might have moved into the area. E) The cost of wood framing used to build houses might have fallen.

D) More buyers might have moved into the area.

Assume a consumer finds that his total expenditure on compact disks stays the same after the price of compact disks declines, other things being equal. Which of the following is true for this price change? A) Compact disks are inferior goods to this consumer. B) The consumer's demand for compact disks increased in response to the price change. C) The consumer's demand for compact disks is perfectly price elastic. D) The consumer's demand for compact disks is unit price elastic.

D) The consumer's demand for compact disks is unit price elastic.

Which of the following is not characteristic of the demand for a commodity that is elastic? A) The relative change in quantity demanded is greater than the relative change in price. B) Buyers are relatively sensitive to price changes. C) Total revenue declines if price is increased. D) The elasticity coefficient is less than one.

D) The elasticity coefficient is less than one.