Question 1

Which of the following is fully tax deductible (it is either subtracted or excluded from taxable income) under the current tax system of the United States?

Accepted Answer

A)  Out-of-pocket medical expenses. 
B)  Healthcare insurance purchased through one's employer. 
C)  Healthcare insurance purchased directly by an individual or family. 
D)  All of the above. 
A)  Out-of-pocket medical expenses. 
B)  Healthcare insurance purchased through one's employer. 
C)  Healthcare insurance purchased directly by an individual or family. 
D)  All of the above.

Question 2

If the price of gloves increases, total expenditures on gloves will decline if

Accepted Answer

A)  the demand for gloves is inelastic. 
B)  the demand for gloves is elastic. 
C)  the quantity of gloves purchased is unresponsive to changes in price. 
D)  there are few good substitutes for gloves. 
A)  the demand for gloves is inelastic. 
B)  the demand for gloves is elastic. 
C)  the quantity of gloves purchased is unresponsive to changes in price. 
D)  there are few good substitutes for gloves.

Question 3

Which of the following would increase the incentive of consumers to economize and of producers to provide medical services at economical prices?

Accepted Answer

A)  Substitution of catastrophic health insurance plans for low deductible, low co-payment plans. 
B)  More reliance on medical savings accounts rather than insurance. 
C)  Equalization of tax treatment between out-of-pocket medical expenses and employer-provided health insurance. 
D)  All of the above. 
A)  Substitution of catastrophic health insurance plans for low deductible, low co-payment plans. 
B)  More reliance on medical savings accounts rather than insurance. 
C)  Equalization of tax treatment between out-of-pocket medical expenses and employer-provided health insurance. 
D)  All of the above.

Question 4

Suppose an increase in the price of hair dryers leads to an increase in total expenditures on the hair dryers. Which of the following is true for this price change?

Accepted Answer

A)  Hair dryers are an inferior good. 
B)  The demand for hair dryers is perfectly elastic. 
C)  The demand for hair dryers is inelastic. 
D)  The demand for hair dryers is elastic. 
A)  Hair dryers are an inferior good. 
B)  The demand for hair dryers is perfectly elastic. 
C)  The demand for hair dryers is inelastic. 
D)  The demand for hair dryers is elastic.

Question 5

William likes Dr. Pepper and pork sandwiches. When the price of pork sandwiches rises, the substitution effect causes Dr. Pepper to be relatively

Accepted Answer

A)  more expensive, so William buys more Dr. Pepper. 
B)  more expensive, so William buys less Dr. Pepper. 
C)  less expensive, so William buys more Dr. Pepper. 
D)  less expensive, so William buys less Dr. Pepper. 
A)  more expensive, so William buys more Dr. Pepper. 
B)  more expensive, so William buys less Dr. Pepper. 
C)  less expensive, so William buys more Dr. Pepper. 
D)  less expensive, so William buys less Dr. Pepper.

Question 6

As the Medicare program is expanded to cover the cost of prescription drugs for the elderly, other things constant, this will lead to

Accepted Answer

A)  an increase in demand and higher prices for prescription drugs. 
B)  an increase in demand and lower prices for prescription drugs. 
C)  reduction in demand and lower prices for prescription drugs. 
D)  reduction in demand and higher prices for prescription drugs. 
A)  an increase in demand and higher prices for prescription drugs. 
B)  an increase in demand and lower prices for prescription drugs. 
C)  reduction in demand and lower prices for prescription drugs. 
D)  reduction in demand and higher prices for prescription drugs.

Question 7

The price elasticity of demand for gasoline measures the

Accepted Answer

A)  responsiveness of gasoline producers to changes in the quality of gasoline. 
B)  responsiveness of customers to changes in the price of gasoline. 
C)  responsiveness of consumer preferences to changes in the quality of gasoline. 
D)  both a and c above. 
A)  responsiveness of gasoline producers to changes in the quality of gasoline. 
B)  responsiveness of customers to changes in the price of gasoline. 
C)  responsiveness of consumer preferences to changes in the quality of gasoline. 
D)  both a and c above.

Question 8

From the standpoint of economic efficiency, which of the following is a major advantage of medical savings accounts?

Accepted Answer

A)  They encourage healthcare consumers to purchase low-deductible, low co-payment medical insurance plans. 
B)  They guarantee that no American will ever have to pay another medical bill. 
C)  They encourage healthcare consumers to economize. 
D)  They will force employers to pay a larger share of the medical expenses of their employees. 
A)  They encourage healthcare consumers to purchase low-deductible, low co-payment medical insurance plans. 
B)  They guarantee that no American will ever have to pay another medical bill. 
C)  They encourage healthcare consumers to economize. 
D)  They will force employers to pay a larger share of the medical expenses of their employees.

Question 9

Other things equal, the demand for a good tends to be more inelastic when

Accepted Answer

A)  there are fewer available substitutes. 
B)  a longer time period is considered. 
C)  the good is considered a luxury good. 
D)  the market for the good is more narrowly defined. 
A)  there are fewer available substitutes. 
B)  a longer time period is considered. 
C)  the good is considered a luxury good. 
D)  the market for the good is more narrowly defined.

Question 10

Use the figure below to answer the following question(s).
Figure 7-6  
-In the price range between $3 and $4, the price elasticity of the demand curve depicted in Figure 7-6 is

Accepted Answer

A)  highly elastic. 
B)  approximately equal to −0.33. 
C)  approximately equal to −3. 
D)  of unitary elasticity. 
A)  highly elastic. 
B)  approximately equal to −0.33. 
C)  approximately equal to −3. 
D)  of unitary elasticity.

Question 11

Figure 7-15  
-Refer to Figure 7-15. Along which of these segments of the supply curve is supply least elastic?

Accepted Answer

A)  between E and F 
B)  between C and D 
C)  between A and C 
D)  between A and B 
A)  between E and F 
B)  between C and D 
C)  between A and C 
D)  between A and B

Question 12

Have market forces failed in keeping healthcare costs under control?

Accepted Answer

A)  Yes; in most high-income countries healthcare is a socialized industry and costs have been kept low. 
B)  Yes; the government has allowed market forces to determine costs, yet healthcare spending continues to rise rapidly. 
C)  No; government regulations have undermined the operation of markets and created perverse incentives that have led to rising prices and soaring healthcare expenditures. 
D)  No; market forces have been allowed to determine costs and those costs have remained low relative to the consumer price index. 
A)  Yes; in most high-income countries healthcare is a socialized industry and costs have been kept low. 
B)  Yes; the government has allowed market forces to determine costs, yet healthcare spending continues to rise rapidly. 
C)  No; government regulations have undermined the operation of markets and created perverse incentives that have led to rising prices and soaring healthcare expenditures. 
D)  No; market forces have been allowed to determine costs and those costs have remained low relative to the consumer price index.

Question 13

If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as

Accepted Answer

A)  unstable. 
B)  relatively inelastic. 
C)  relatively elastic. 
D)  of unitary elasticity. 
A)  unstable. 
B)  relatively inelastic. 
C)  relatively elastic. 
D)  of unitary elasticity.

Question 14

If the board of regents of a major state university system plans to raise tuition in order to increase revenues, the regents must believe student demand is

Accepted Answer

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

Question 15

Figure 7-16  
-Which of the demand curves in Figure 7-16 is unit elastic?

Accepted Answer

A)  the curve in graph a 
B)  the curve in graph b 
C)  the curve in graph c 
D)  the curve in graph d 
E)  the curve in graph e 
A)  the curve in graph a 
B)  the curve in graph b 
C)  the curve in graph c 
D)  the curve in graph d 
E)  the curve in graph e

Question 16

Which of the following would be the best example of consumer surplus?

Accepted Answer

A)  Shaniqua does not get cell-phone service because she feels that it is worth less than the $30 a month fee. 
B)  Nicolas pays $8 for a haircut that is worth $10 to him. 
C)  Diego buys a house for $104,000, the maximum amount that he would be willing to pay for it. 
D)  Isabella purchases a book for $20 and uses a credit card to pay for it. 
A)  Shaniqua does not get cell-phone service because she feels that it is worth less than the $30 a month fee. 
B)  Nicolas pays $8 for a haircut that is worth $10 to him. 
C)  Diego buys a house for $104,000, the maximum amount that he would be willing to pay for it. 
D)  Isabella purchases a book for $20 and uses a credit card to pay for it.

Question 17

Marginal utility is the change in

Accepted Answer

A)  total utility when an extra unit of output is produced. 
B)  total utility when an extra unit of output is consumed. 
C)  marginal utility when an extra unit of output is produced. 
D)  average utility when an extra unit of output is consumed. 
A)  total utility when an extra unit of output is produced. 
B)  total utility when an extra unit of output is consumed. 
C)  marginal utility when an extra unit of output is produced. 
D)  average utility when an extra unit of output is consumed.

Question 18

The price elasticity of demand for a commodity is determined primarily by the

Accepted Answer

A)  size of the consumer surplus. 
B)  attractiveness of the substitutes for the good. 
C)  incomes of consumers. 
D)  availability of complementary goods. 
A)  size of the consumer surplus. 
B)  attractiveness of the substitutes for the good. 
C)  incomes of consumers. 
D)  availability of complementary goods.

Question 19

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is

Accepted Answer

A)  2.5. 
B)  0.4. 
C)  0.5. 
D)  5. 
E)  inelastic. 
A)  2.5. 
B)  0.4. 
C)  0.5. 
D)  5. 
E)  inelastic.

Question 20

Economic theory indicates that as a larger share of medical services are paid for by a third party (for example, insurance companies or the government) rather than directly by the consumer,

Accepted Answer

A)  consumers will have a stronger incentive to economize. 
B)  consumers will have a weaker incentive to economize and the prices of medical services will rise more rapidly than would otherwise be the case. 
C)  consumers will have a weaker incentive to economize, but medical service suppliers will have a stronger incentive to keep prices low. 
D)  the suppliers of medical services will have more incentive to economize. 
A)  consumers will have a stronger incentive to economize. 
B)  consumers will have a weaker incentive to economize and the prices of medical services will rise more rapidly than would otherwise be the case. 
C)  consumers will have a weaker incentive to economize, but medical service suppliers will have a stronger incentive to keep prices low. 
D)  the suppliers of medical services will have more incentive to economize.

Which of the following is fully tax deductible (it is either subtracted or excluded from taxable income) under the current tax system of the United States?

If the price of gloves increases, total expenditures on gloves will decline if

Which of the following would increase the incentive of consumers to economize and of producers to provide medical services at economical prices?

Suppose an increase in the price of hair dryers leads to an increase in total expenditures on the hair dryers. Which of the following is true for this price change?

William likes Dr. Pepper and pork sandwiches. When the price of pork sandwiches rises, the substitution effect causes Dr. Pepper to be relatively

As the Medicare program is expanded to cover the cost of prescription drugs for the elderly, other things constant, this will lead to

The price elasticity of demand for gasoline measures the

From the standpoint of economic efficiency, which of the following is a major advantage of medical savings accounts?

Other things equal, the demand for a good tends to be more inelastic when

Use the figure below to answer the following question(s). Figure 7-6 -In the price range between $3 and $4, the price elasticity of the demand curve depicted in Figure 7-6 is

Figure 7-15 -Refer to Figure 7-15. Along which of these segments of the supply curve is supply least elastic?

Have market forces failed in keeping healthcare costs under control?

If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as

If the board of regents of a major state university system plans to raise tuition in order to increase revenues, the regents must believe student demand is

Figure 7-16 -Which of the demand curves in Figure 7-16 is unit elastic?

Which of the following would be the best example of consumer surplus?

Marginal utility is the change in

The price elasticity of demand for a commodity is determined primarily by the

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is

Economic theory indicates that as a larger share of medical services are paid for by a third party (for example, insurance companies or the government) rather than directly by the consumer,

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 fully tax deductible (it is either subtracted or excluded from taxable income) under the current tax system of the United States?

If the price of gloves increases, total expenditures on gloves will decline if

Which of the following would increase the incentive of consumers to economize and of producers to provide medical services at economical prices?

Suppose an increase in the price of hair dryers leads to an increase in total expenditures on the hair dryers. Which of the following is true for this price change?

William likes Dr. Pepper and pork sandwiches. When the price of pork sandwiches rises, the substitution effect causes Dr. Pepper to be relatively

As the Medicare program is expanded to cover the cost of prescription drugs for the elderly, other things constant, this will lead to

The price elasticity of demand for gasoline measures the

From the standpoint of economic efficiency, which of the following is a major advantage of medical savings accounts?

Other things equal, the demand for a good tends to be more inelastic when

Use the figure below to answer the following question(s). Figure 7-6 -In the price range between $3 and $4, the price elasticity of the demand curve depicted in Figure 7-6 is

Figure 7-15 -Refer to Figure 7-15. Along which of these segments of the supply curve is supply least elastic?

Have market forces failed in keeping healthcare costs under control?

If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as

If the board of regents of a major state university system plans to raise tuition in order to increase revenues, the regents must believe student demand is

Figure 7-16 -Which of the demand curves in Figure 7-16 is unit elastic?

Which of the following would be the best example of consumer surplus?

Marginal utility is the change in

The price elasticity of demand for a commodity is determined primarily by the

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is

Economic theory indicates that as a larger share of medical services are paid for by a third party (for example, insurance companies or the government) rather than directly by the consumer,

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