Question 1

Assume that an individual spends her income on sweaters and shirts.If the price of a sweater increases,________.

Accepted Answer

A)  the opportunity cost of buying sweaters increases 
B)  the total benefit obtained from the purchase of shirts decreases 
C)  the opportunity cost of buying shirts increases 
D)  the marginal benefit obtained from the purchase of an additional unit of sweater increases 
A)  the opportunity cost of buying sweaters increases 
B)  the total benefit obtained from the purchase of shirts decreases 
C)  the opportunity cost of buying shirts increases 
D)  the marginal benefit obtained from the purchase of an additional unit of sweater increases

Question 2

The following table shows the marginal benefit that Marcus derives by consuming different quantities of hotdog and soda. The price of a hotdog is $3, and the price of a soda is $1.
  
-Refer to the table above.What is the optimal combination of Soda and Hotdog for Marcus,if his weekly budget for hotdog and soda is $10?

Accepted Answer

A)  2 sodas, and 4 hotdogs 
B)  3 sodas, and 3 hotdogs 
C)  6 sodas, and 5 hotdogs 
D)  4 sodas, and 2 hotdogs 
A)  2 sodas, and 4 hotdogs 
B)  3 sodas, and 3 hotdogs 
C)  6 sodas, and 5 hotdogs 
D)  4 sodas, and 2 hotdogs

Question 3

Scenario: Maylin is shopping at the sporting goods store for socks and running shoes. She has determined the following total benefit derived from each quantity of socks and running shoe
  
-Given your answers to Questions 1)and 2)above,sketch Maylin's demand curve for running shorts in the graph below,assuming her demand curve is linear.

Accepted Answer

A downward sloping straight li

Question 4

The following figure illustrates the market demand curve for cell phones.If the market price of cell phones is $50,what will be the market-wide consumer surplus? If the government decides to fix the price of cell phones at $80,what will be the change in consumer surplus?

Accepted Answer

Consumer surplus refers to the differenc

Question 5

When the price of margarine is $2 per pound,10 pounds of butter are demanded.When the price of margarine increases to $6 per pound,30 pounds of butter are demanded.What is the cross-price elasticity between the two goods?

Accepted Answer

A)  −1 
B)  1 
C)  2 
D)  5 
A)  −1 
B)  1 
C)  2 
D)  5

Question 6

Which of the following statements best describes an inferior good?

Accepted Answer

A)  An inferior good is a good whose quantity supplied always exceeds its quantity demanded. 
B)  An inferior good is a good whose demand decreases with an increase in consumers' income. 
C)  An inferior good is a good that is sold at a subsidized price. 
D)  An inferior good is a good that is rationed by the government. 
A)  An inferior good is a good whose quantity supplied always exceeds its quantity demanded. 
B)  An inferior good is a good whose demand decreases with an increase in consumers' income. 
C)  An inferior good is a good that is sold at a subsidized price. 
D)  An inferior good is a good that is rationed by the government.

Question 7

Define the following terms:
a)The price elasticity of demand
b)The income elasticity of demand
c)The cross-price elasticity of demand

Accepted Answer

a)The price elasticity of demand measure

Question 8

Madeline spends exactly $10 on coffee each week.The absolute value of her price elasticity of demand for coffee is likely to be ________.

Accepted Answer

A)  less than 1 
B)  more than 1 
C)  more than 1 but less than 3 
D)  equal to 1 
A)  less than 1 
B)  more than 1 
C)  more than 1 but less than 3 
D)  equal to 1

Question 9

A consumer has $100 that she can spend on tables and chairs.If her income increases to $200 and the prices of tables and chairs remains unchanged,her budget constraint will ________.

Accepted Answer

A)  pivot to the left along the vertical axis 
B)  pivot to the right along the horizontal axis 
C)  shift to the left 
D)  shift to the right 
A)  pivot to the left along the vertical axis 
B)  pivot to the right along the horizontal axis 
C)  shift to the left 
D)  shift to the right

Question 10

When a consumer spends a larger share of her income on a particular good,the price elasticity of demand for that good ________.

Accepted Answer

A)  increases 
B)  decreases 
C)  initially decreases and then increases 
D)  remains the same 
A)  increases 
B)  decreases 
C)  initially decreases and then increases 
D)  remains the same

Question 11

The ________ measures the change in the quantity demanded of a good due to a percentage change in consumers' income.

Accepted Answer

A)  substitution effect of a price change 
B)  income effect of a price change 
C)  cross-price elasticity of demand 
D)  income elasticity of demand 
A)  substitution effect of a price change 
B)  income effect of a price change 
C)  cross-price elasticity of demand 
D)  income elasticity of demand

Question 12

The following table shows the marginal benefit that Marcus derives by consuming different quantities of hotdog and soda. The price of a hotdog is $3, and the price of a soda is $1.
  
-Refer to the table above.If Marcus consumes 3 hotdogs and 0 sodas -not necessarily his optimal choice- how much consumer surplus is he enjoying?

Accepted Answer

A)  $27 
B)  $9 
C)  $6 
D)  $24 
A)  $27 
B)  $9 
C)  $6 
D)  $24

Question 13

From a firm's point of view,when the demand for a good has a price elasticity of 0.5,then,all things remaining the same,a(n)________.

Accepted Answer

A)  increase in the price of the good will decrease the firm's revenue 
B)  increase in the price of the good will increase the firm's revenue 
C)  change in the price of the good will not affect the firm's revenue 
D)  change in the price of the good will not affect the quantity demanded of the good by consumers 
A)  increase in the price of the good will decrease the firm's revenue 
B)  increase in the price of the good will increase the firm's revenue 
C)  change in the price of the good will not affect the firm's revenue 
D)  change in the price of the good will not affect the quantity demanded of the good by consumers

Question 14

A budget constraint is a straight line because ________.

Accepted Answer

A)  the tastes and preferences of a consumer change along the constraint 
B)  a consumer faces a fixed price for both goods that does not change with changes in consumption 
C)  the opportunity cost of buying each of the goods changes along the constraint 
D)  a consumer has a limited money income 
A)  the tastes and preferences of a consumer change along the constraint 
B)  a consumer faces a fixed price for both goods that does not change with changes in consumption 
C)  the opportunity cost of buying each of the goods changes along the constraint 
D)  a consumer has a limited money income

Question 15

Differentiate between the income effect and the substitution effect of a fall in the price of a good.

Accepted Answer

A fall in the price of a good makes cons

Question 16

A perfectly elastic demand curve ________.

Accepted Answer

A)  is parallel to the price axis 
B)  is parallel to the quantity axis 
C)  slopes upward 
D)  slopes downward 
A)  is parallel to the price axis 
B)  is parallel to the quantity axis 
C)  slopes upward 
D)  slopes downward

Question 17

Suppose the demand for Big Macs at McDonald's restaurants in the United States has a price elasticity of demand of 0.6.Based on simple economic theory,will the company's revenues increase if Big Mac prices were raised? Would your pricing recommendation change if you learned the cross-price elasticity of demand for large soft drinks with respect to Big Mac prices is -1.8 and the cross-price elasticity of demand for large French fries with respect to Big Mac prices is -2.4? Explain.

Accepted Answer

Simple economic theory suggests the firm

Question 18

Which of the following is the best example the income effect of a price change?

Accepted Answer

A)  When Gary's income doubles, his wine consumption doubles, the price of wine remaining unchanged. 
B)  When the price of diesel falls, consumers start purchasing more petroleum-powered vehicles. 
C)  While purchasing shirts and jeans, when the price of a pair of jeans falls, Jack purchases more of both jeans and shirts. 
D)  While purchasing pens and pencils, when the price of pens falls, Jill purchases more pens and fewer pencils. 
A)  When Gary's income doubles, his wine consumption doubles, the price of wine remaining unchanged. 
B)  When the price of diesel falls, consumers start purchasing more petroleum-powered vehicles. 
C)  While purchasing shirts and jeans, when the price of a pair of jeans falls, Jack purchases more of both jeans and shirts. 
D)  While purchasing pens and pencils, when the price of pens falls, Jill purchases more pens and fewer pencils.

Question 19

The following figure displays John's budget constraint when he spends his income on tables and chairs.
  
-Refer to the figure above.If John spends his entire income on tables,how many tables can he purchase?

Accepted Answer

A)  8 
B)  10 
C)  30 
D)  40 
A)  8 
B)  10 
C)  30 
D)  40

Question 20

The demand for a good that is a necessity is likely to be ________.

Accepted Answer

A)  unit elastic 
B)  perfectly elastic 
C)  relatively elastic, but not perfectly elastic 
D)  inelastic 
A)  unit elastic 
B)  perfectly elastic 
C)  relatively elastic, but not perfectly elastic 
D)  inelastic

Assume that an individual spends her income on sweaters and shirts.If the price of a sweater increases,________.

The following figure illustrates the market demand curve for cell phones.If the market price of cell phones is $50,what will be the market-wide consumer surplus? If the government decides to fix the price of cell phones at $80,what will be the change in consumer surplus?

When the price of margarine is $2 per pound,10 pounds of butter are demanded.When the price of margarine increases to $6 per pound,30 pounds of butter are demanded.What is the cross-price elasticity between the two goods?

Which of the following statements best describes an inferior good?

Define the following terms: a)The price elasticity of demand b)The income elasticity of demand c)The cross-price elasticity of demand

Madeline spends exactly $10 on coffee each week.The absolute value of her price elasticity of demand for coffee is likely to be ________.

A consumer has $100 that she can spend on tables and chairs.If her income increases to $200 and the prices of tables and chairs remains unchanged,her budget constraint will ________.

When a consumer spends a larger share of her income on a particular good,the price elasticity of demand for that good ________.

The ________ measures the change in the quantity demanded of a good due to a percentage change in consumers' income.

From a firm's point of view,when the demand for a good has a price elasticity of 0.5,then,all things remaining the same,a(n)________.

A budget constraint is a straight line because ________.

Differentiate between the income effect and the substitution effect of a fall in the price of a good.

A perfectly elastic demand curve ________.

Which of the following is the best example the income effect of a price change?

The following figure displays John's budget constraint when he spends his income on tables and chairs. -Refer to the figure above.If John spends his entire income on tables,how many tables can he purchase?

The demand for a good that is a necessity is likely to be ________.

The Principles and Practice of Economics

Economic Methods and Economic Questions

Optimization: Doing the Best You Can

Demand, supply, and Equilibrium

Sellers and Incentives

Perfect Competition and the Invisible Hand

Trade

Externalities and Public Goods

The Government in the Economy: Taxation and Regulation

Markets for Factors of Production

Monopoly

Game Theory and Strategic Play

Oligopoly and Monopolistic Competition

Trade-Offs Involving Time and Risk

The Economics of Information

Auctions and Bargaining

Social Economics

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Exam 5: Consumers and Incentives

Assume that an individual spends her income on sweaters and shirts.If the price of a sweater increases,________.

The following figure illustrates the market demand curve for cell phones.If the market price of cell phones is $50,what will be the market-wide consumer surplus? If the government decides to fix the price of cell phones at $80,what will be the change in consumer surplus?

When the price of margarine is $2 per pound,10 pounds of butter are demanded.When the price of margarine increases to $6 per pound,30 pounds of butter are demanded.What is the cross-price elasticity between the two goods?

Which of the following statements best describes an inferior good?

Define the following terms: a)The price elasticity of demand b)The income elasticity of demand c)The cross-price elasticity of demand

Madeline spends exactly $10 on coffee each week.The absolute value of her price elasticity of demand for coffee is likely to be ________.

A consumer has $100 that she can spend on tables and chairs.If her income increases to $200 and the prices of tables and chairs remains unchanged,her budget constraint will ________.

When a consumer spends a larger share of her income on a particular good,the price elasticity of demand for that good ________.

The ________ measures the change in the quantity demanded of a good due to a percentage change in consumers' income.

From a firm's point of view,when the demand for a good has a price elasticity of 0.5,then,all things remaining the same,a(n)________.

A budget constraint is a straight line because ________.

Differentiate between the income effect and the substitution effect of a fall in the price of a good.

A perfectly elastic demand curve ________.

Which of the following is the best example the income effect of a price change?

The following figure displays John's budget constraint when he spends his income on tables and chairs. -Refer to the figure above.If John spends his entire income on tables,how many tables can he purchase?

The demand for a good that is a necessity is likely to be ________.

The Principles and Practice of Economics

Economic Methods and Economic Questions

Optimization: Doing the Best You Can

Demand, supply, and Equilibrium

Sellers and Incentives

Perfect Competition and the Invisible Hand

Trade

Externalities and Public Goods

The Government in the Economy: Taxation and Regulation

Markets for Factors of Production

Monopoly

Game Theory and Strategic Play

Oligopoly and Monopolistic Competition

Trade-Offs Involving Time and Risk

The Economics of Information

Auctions and Bargaining

Social Economics

Filters