Question 1

Which of the following is true about health care?

Accepted Answer

A)  The growth of third-party payments during the last several decades has helped control inflation in the health-care sector. 
B)  Public policy encourages Americans to purchase low deductible/low co-payment health insurance coverage through their employers. 
C)  Low deductible health insurance coverage encourages health-care consumers to search for the best prices. 
D)  The 2.9 percent Medicare payroll tax is sufficient to cover the cost of the promised future health-care services to senior citizens. 
A)  The growth of third-party payments during the last several decades has helped control inflation in the health-care sector. 
B)  Public policy encourages Americans to purchase low deductible/low co-payment health insurance coverage through their employers. 
C)  Low deductible health insurance coverage encourages health-care consumers to search for the best prices. 
D)  The 2.9 percent Medicare payroll tax is sufficient to cover the cost of the promised future health-care services to senior citizens.

Question 2

The phase out of the subsidies for the purchase of health insurance will increase the implicit marginal tax rate on earnings for which of the following groups?

Accepted Answer

A)  The elderly. 
B)  Individuals and families with incomes between 133 percent and 400 percent of the poverty level. 
C)  Individuals and families with incomes of more than 400 percent of the poverty level. 
D)  All workers employed by firms with fewer than 50 full-time employees. 
A)  The elderly. 
B)  Individuals and families with incomes between 133 percent and 400 percent of the poverty level. 
C)  Individuals and families with incomes of more than 400 percent of the poverty level. 
D)  All workers employed by firms with fewer than 50 full-time employees.

Question 3

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

Accepted Answer

A)  The relevant time horizon is short. 
B)  The good is a necessity. 
C)  The market for the good is broadly defined. 
D)  There are many close substitutes for this good. 
A)  The relevant time horizon is short. 
B)  The good is a necessity. 
C)  The market for the good is broadly defined. 
D)  There are many close substitutes for this good.

Question 4

If the elasticity of demand for cigarettes is 0.4, then an increase in the price of a pack of cigarettes from $1.00 to $1.30 would reduce quantities demanded by about

Accepted Answer

A)  27 percent. 
B)  40 percent. 
C)  12 percent. 
D)  95 percent. 
A)  27 percent. 
B)  40 percent. 
C)  12 percent. 
D)  95 percent.

Question 5

Figure 7-17  
-Consider Figure 7-17. Between the prices of $5 and $6, which supply curve is most elastic and which is least elastic?

Accepted Answer

A)  S1 is most elastic; S2 is least elastic. 
B)  S1 is most elastic; S3 is least elastic. 
C)  S3 is most elastic; S1 is least elastic. 
D)  S3 is most elastic; S2 is least elastic. 
E)  S2 is most elastic; S3 is least elastic. 
A)  S1 is most elastic; S2 is least elastic. 
B)  S1 is most elastic; S3 is least elastic. 
C)  S3 is most elastic; S1 is least elastic. 
D)  S3 is most elastic; S2 is least elastic. 
E)  S2 is most elastic; S3 is least elastic.

Question 6

When a good is more narrowly defined (for example, airline travel versus Delta Airlines travel),

Accepted Answer

A)  it will have fewer available substitutes so demand will be more elastic. 
B)  it will have fewer available substitutes so demand will be less elastic. 
C)  it will have more available substitutes so demand will be more elastic. 
D)  it will have more available substitutes so demand will be less elastic. 
A)  it will have fewer available substitutes so demand will be more elastic. 
B)  it will have fewer available substitutes so demand will be less elastic. 
C)  it will have more available substitutes so demand will be more elastic. 
D)  it will have more available substitutes so demand will be less elastic.

Question 7

Which of the following would help control the future growth of healthcare prices and expenditures?

Accepted Answer

A)  An increase in the share of healthcare costs paid for either directly or from personal medical savings accounts. 
B)  The substitution of catastrophic (high deductibility) health insurance for low co-payment plans. 
C)  More reliance on expansion in the supply of medical services rather than stimulation of demand. 
D)  All of the above. 
A)  An increase in the share of healthcare costs paid for either directly or from personal medical savings accounts. 
B)  The substitution of catastrophic (high deductibility) health insurance for low co-payment plans. 
C)  More reliance on expansion in the supply of medical services rather than stimulation of demand. 
D)  All of the above.

Question 8

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles,

Accepted Answer

A)  yours would be negative and your roommate's would be positive. 
B)  yours would be positive and your roommate's would be negative. 
C)  yours would be zero and your roommate's would approach infinity. 
D)  yours would approach infinity and your roommate's would be zero. 
A)  yours would be negative and your roommate's would be positive. 
B)  yours would be positive and your roommate's would be negative. 
C)  yours would be zero and your roommate's would approach infinity. 
D)  yours would approach infinity and your roommate's would be zero.

Question 9

After downing three glasses of lemonade on a hot summer afternoon, Todd says, "You would have to pay me to drink another glass!" This statement best illustrates

Accepted Answer

A)  the law of demand. 
B)  the substitutability among goods. 
C)  the law of diminishing marginal utility. 
D)  that chocolate candy bars are an inferior good. 
A)  the law of demand. 
B)  the substitutability among goods. 
C)  the law of diminishing marginal utility. 
D)  that chocolate candy bars are an inferior good.

Question 10

If the price of tickets to Disney World increases 10 percent, and as a result, attendance falls by 15 percent, the demand for the tickets is

Accepted Answer

A)  elastic. 
B)  inelastic. 
C)  of unitary elasticity. 
D)  indeterminate. 
A)  elastic. 
B)  inelastic. 
C)  of unitary elasticity. 
D)  indeterminate.

Question 11

If the demand for a good is elastic, then total revenue

Accepted Answer

A)  increases as price increases. 
B)  remains constant as quantity demanded increases. 
C)  increases as price decreases. 
D)  decreases as quantity demanded increases. 
E)  decreases as price decreases. 
A)  increases as price increases. 
B)  remains constant as quantity demanded increases. 
C)  increases as price decreases. 
D)  decreases as quantity demanded increases. 
E)  decreases as price decreases.

Question 12

Which of the following is a predictable impact of the Patient Protection and Affordable Care Act ?

Accepted Answer

A)  A reduction in the prices of health care services. 
B)  A reduction in total expenditures on health care. 
C)  An increase in the number of part-time employees relative to full-time workers. 
D)  A lower overall rate of unemployment. 
A)  A reduction in the prices of health care services. 
B)  A reduction in total expenditures on health care. 
C)  An increase in the number of part-time employees relative to full-time workers. 
D)  A lower overall rate of unemployment.

Question 13

Nicole's income elasticity of demand for hats is 1.5. All else equal, this means that if her income increases by 20 percent, she will buy

Accepted Answer

A)  150 percent more hats. 
B)  50 percent more hats. 
C)  30 percent more hats. 
D)  20 percent more hats. 
A)  150 percent more hats. 
B)  50 percent more hats. 
C)  30 percent more hats. 
D)  20 percent more hats.

Question 14

Figure 7-11  
-Refer to Figure 7-11. As price falls from PA to PB, we could use the three demand curves to calculate three different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity?

Accepted Answer

A)  D1 
B)  D2 
C)  D3 
D)  All of the above are equally elastic. 
A)  D1 
B)  D2 
C)  D3 
D)  All of the above are equally elastic.

Question 15

"When a third party (for example, an insurance company or the government) pays all or most of the cost of a good or service, the incentive of consumers to shop for the best value per dollar spent and of producers to offer the item at an economical price is substantially reduced." This statement is

Accepted Answer

A)  essentially true. 
B)  false; consumers will still have a strong incentive to search for the most economical price even if someone else is paying the bill. 
C)  false; producers will still have a strong incentive to keep prices low even if consumers are non-responsive to price differences among suppliers. 
D)  false; the party paying for the good will not influence the incentive of either consumers or producers to economize. 
A)  essentially true. 
B)  false; consumers will still have a strong incentive to search for the most economical price even if someone else is paying the bill. 
C)  false; producers will still have a strong incentive to keep prices low even if consumers are non-responsive to price differences among suppliers. 
D)  false; the party paying for the good will not influence the incentive of either consumers or producers to economize.

Question 16

A perfectly inelastic demand curve indicates that

Accepted Answer

A)  a producer can sell as many units as desired at the market price but no units above the market price. 
B)  for a given percent change in price, the quantity demanded rises by the same percentage. 
C)  price has no effect on the quantity demanded. 
D)  the percent change in price is less than the percent change in quantity demanded. 
A)  a producer can sell as many units as desired at the market price but no units above the market price. 
B)  for a given percent change in price, the quantity demanded rises by the same percentage. 
C)  price has no effect on the quantity demanded. 
D)  the percent change in price is less than the percent change in quantity demanded.

Question 17

Economic analysis indicates that the increasing government expenditures and growth of third-party payments accompanying the Medicare and Medicaid programs

Accepted Answer

A)  reduced the demand for healthcare services. 
B)  reduced the incentive of consumers to economize on their use of healthcare. 
C)  increased the incentive of consumers to economize on their use of healthcare. 
D)  placed downward pressure on the prices of healthcare services. 
A)  reduced the demand for healthcare services. 
B)  reduced the incentive of consumers to economize on their use of healthcare. 
C)  increased the incentive of consumers to economize on their use of healthcare. 
D)  placed downward pressure on the prices of healthcare services.

Question 18

If the demand for a product increases as the result of a decline in income, it can be concluded that the

Accepted Answer

A)  product is an inferior good. 
B)  demand for the product is inelastic. 
C)  price elasticity of demand for the product equals unity. 
D)  demand for the product is elastic. 
A)  product is an inferior good. 
B)  demand for the product is inelastic. 
C)  price elasticity of demand for the product equals unity. 
D)  demand for the product is elastic.

Question 19

Growth in the share of health-care expenditures covered by third parties (for example, insurance or government programs) will

Accepted Answer

A)  place downward pressure on the prices of health-care services. 
B)  reduce the incentive of suppliers to provide consumers with health-care services at a low cost. 
C)  make consumers more sensitive to the price of health-care services. 
D)  make it easier to control the growth of health-care expenditures. 
A)  place downward pressure on the prices of health-care services. 
B)  reduce the incentive of suppliers to provide consumers with health-care services at a low cost. 
C)  make consumers more sensitive to the price of health-care services. 
D)  make it easier to control the growth of health-care expenditures.

Question 20

During the last four decades, the share of health-care expenditures paid for by third parties (either the government or insurance companies)

Accepted Answer

A)  has remained relatively constant. 
B)  fell from approximately 60 percent in 1960 to 75 percent in recent years. 
C)  increased from approximately 45 percent in 1960 to over 85 percent in recent years. 
D)  declined during the 15 years following the passage of Medicare but has been increasing since 1980. 
A)  has remained relatively constant. 
B)  fell from approximately 60 percent in 1960 to 75 percent in recent years. 
C)  increased from approximately 45 percent in 1960 to over 85 percent in recent years. 
D)  declined during the 15 years following the passage of Medicare but has been increasing since 1980.

Which of the following is true about health care?

The phase out of the subsidies for the purchase of health insurance will increase the implicit marginal tax rate on earnings for which of the following groups?

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

If the elasticity of demand for cigarettes is 0.4, then an increase in the price of a pack of cigarettes from $1.00 to $1.30 would reduce quantities demanded by about

Figure 7-17 -Consider Figure 7-17. Between the prices of $5 and $6, which supply curve is most elastic and which is least elastic?

When a good is more narrowly defined (for example, airline travel versus Delta Airlines travel),

Which of the following would help control the future growth of healthcare prices and expenditures?

After downing three glasses of lemonade on a hot summer afternoon, Todd says, "You would have to pay me to drink another glass!" This statement best illustrates

If the price of tickets to Disney World increases 10 percent, and as a result, attendance falls by 15 percent, the demand for the tickets is

If the demand for a good is elastic, then total revenue

Which of the following is a predictable impact of the Patient Protection and Affordable Care Act ?

Nicole's income elasticity of demand for hats is 1.5. All else equal, this means that if her income increases by 20 percent, she will buy

Figure 7-11 -Refer to Figure 7-11. As price falls from P_A to P_B, we could use the three demand curves to calculate three different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity?

"When a third party (for example, an insurance company or the government) pays all or most of the cost of a good or service, the incentive of consumers to shop for the best value per dollar spent and of producers to offer the item at an economical price is substantially reduced." This statement is

A perfectly inelastic demand curve indicates that

Economic analysis indicates that the increasing government expenditures and growth of third-party payments accompanying the Medicare and Medicaid programs

If the demand for a product increases as the result of a decline in income, it can be concluded that the

Growth in the share of health-care expenditures covered by third parties (for example, insurance or government programs) will

During the last four decades, the share of health-care expenditures paid for by third parties (either the government or insurance companies)

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Gaining From International Trade

Filters

Exam 7: Consumer Choice and Elasticity

Which of the following is true about health care?

The phase out of the subsidies for the purchase of health insurance will increase the implicit marginal tax rate on earnings for which of the following groups?

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

If the elasticity of demand for cigarettes is 0.4, then an increase in the price of a pack of cigarettes from $1.00 to $1.30 would reduce quantities demanded by about

Figure 7-17 -Consider Figure 7-17. Between the prices of $5 and $6, which supply curve is most elastic and which is least elastic?

When a good is more narrowly defined (for example, airline travel versus Delta Airlines travel),

Which of the following would help control the future growth of healthcare prices and expenditures?

After downing three glasses of lemonade on a hot summer afternoon, Todd says, "You would have to pay me to drink another glass!" This statement best illustrates

If the price of tickets to Disney World increases 10 percent, and as a result, attendance falls by 15 percent, the demand for the tickets is

If the demand for a good is elastic, then total revenue

Which of the following is a predictable impact of the Patient Protection and Affordable Care Act ?

Nicole's income elasticity of demand for hats is 1.5. All else equal, this means that if her income increases by 20 percent, she will buy

Figure 7-11 -Refer to Figure 7-11. As price falls from PA to PB, we could use the three demand curves to calculate three different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity?

"When a third party (for example, an insurance company or the government) pays all or most of the cost of a good or service, the incentive of consumers to shop for the best value per dollar spent and of producers to offer the item at an economical price is substantially reduced." This statement is

A perfectly inelastic demand curve indicates that

Economic analysis indicates that the increasing government expenditures and growth of third-party payments accompanying the Medicare and Medicaid programs

If the demand for a product increases as the result of a decline in income, it can be concluded that the

Growth in the share of health-care expenditures covered by third parties (for example, insurance or government programs) will

During the last four decades, the share of health-care expenditures paid for by third parties (either the government or insurance companies)

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Gaining From International Trade

Filters

Figure 7-11 -Refer to Figure 7-11. As price falls from P_A to P_B, we could use the three demand curves to calculate three different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity?