Microeconomics Midterm

question

The income elasticity of demand for jewelry is +2. Other things equal, a 10 percent
increase in consumer income will

answer

increase the quantity of jewelry purchased by 20 percent.

question

A negative income elasticity of demand coefficient indicates that

answer

the product is an inferior good

question

Most goods can be classified as normal goods rather than inferior goods. The
definition of a normal good suggests that

answer

the income elasticity for the good is greater than 0.

question

A 3% increase in the price of tea causes a 6% increase in the demand for coffee. The cross elasticity of demand for coffee with respect to the price of tea
is

answer

+ 2.0

question

If a 10% increase in the price of good A results in an increase of 5% in the quantity demanded of good B, then it can be concluded that goods A and B are

answer

substitute goods

question

Airlines charge business travelers more than leisure travelers because there is a more

answer

inelastic demand of business travel

question

A price increase from $43 to $49 results in an increase in quantity supplied from 220 units to 240 units. The price elasticity of supply in this price range is

answer

0.67

question

If a product has a short-run elasticity of supply equal to zero, then an increase in the demand for the product will

answer

increase price and leave quantity sold unchanged.

question

When universities announce a large tuition increase and follow it with an announcement that more financial aid will be available, they are assuming that
students who pay full tuition

answer

have inelastic demand and students who use financial aid have elastic demand.

question

Movie theaters charge lower prices to see a movie in the afternoon than in the evening because there is an

answer

elastic demand to see movies in the afternoon

question

If the government imposes an excise tax on a good, it will collect the most tax revenues from it if the demand for the good is

answer

inelastic

question

An increase in the price of tickets to a popular sporting event will increase total revenue if

answer

the buyers of the tickets are fanatic about the event.

question

The price elasticity of demand for a textbook is estimated to be 1 no matter what the
price or quantity demanded. In this case,

answer

a 10 percent increase in price will result in a 10 percent decrease in the quantity demanded.

question

A union argues that a price cut will boost the revenues of the firm, while management argues that the opposite is true. This suggests that the price elasticity of
demand is

answer

elastic from the union's perspective, inelastic from management's perspective.

question

A study of mass-transit systems in American cities revealed that in the long run,
revenues generally decline after substantial fare increases. This would suggest that

answer

the demand for mass transit is price-elastic in the long run.

question

Which product is most likely to be the most price elastic?

answer

automobiles

question

The price elasticity of demand increases with the length of the period considered
because

answer

consumers will be better able to find substitutes.

question

If 100 shirts are sold when the unit price is $10, while 75 shirts are sold when the unit price is $15, one can conclude that in this price range,

answer

demand for shirts is inelastic

question

. If the price-elasticity coefficient for a good is 1.75, the demand for that good is
described as

answer

elastic

question

The price-elasticity of demand is always negative because of

answer

the law of demand

question

The price elasticity of demand is a measure of the

answer

responsiveness of buyers of a good to changes in its price.

question

Assume that a 3% increase in income across the economy produces a 1% decline in the quantity demanded of good X. The coefficient of income
elasticity of demand for good X is

answer

negative, and therefore X is an inferior good.

question

The utility of a good or service

answer

is the satisfaction or pleasure one gets from consuming it

question

The law of diminishing marginal utility states that

answer

beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.

question

. Marginal utility is the

answer

change in total utility obtained by consuming one more unit of a good

question

The law of diminishing marginal utility explains why

answer

demand curves slope downward

question

While eating at Alex's "Pizza by the Slice" restaurant, Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed and would only receive 5 units of satisfaction from consuming a second slice, at the same price. Based on this information, we can conclude that

answer

Alex may have to lower the price to convince Kara to buy a second slice.

question

To maximize utility, a consumer should allocate money income so that the

answer

marginal utility obtained from the last dollar spent on each product is the same.

question

Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is
spending all her money income should buy

answer

more of X and/or less of Y.

question

Mrs. Arnold is spending all her money income by buying bottles of soda and bags of
pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the
marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $0.60 per
bottle and $0.40 per bag, respectively. It can be concluded that

answer

Mrs. Arnold should spend more on soda and less on pretzels

question

. A consumer who has a limited budget will maximize utility or satisfaction when the

answer

ratios of the marginal utility of each product purchased divided by its price
are equal.

question

A consumer's demand curve for a product is downsloping because

answer

marginal utility diminishes as more of a product is consume

question

. The budget line shows

answer

all possible combinations of two goods that can be purchased, given money
income and the prices of the goods.

question

. Which of the following statements is not correct?

answer

A reduction in money income will shift the budget line to the right

question

Assume initially that the price of X (the quantity of which is measured on the
horizontal axis) is $9 and the price of Y (the quantity of which is measured on the
vertical axis) is $4. If the price of X now declines to $6, the budget line will

answer

shift outward on the horizontal axis.

question

At each point on an indifference curve

answer

total utility is the same

question

The marginal rate of substitution measures the

answer

consumer's willingness to substitute one product for another so that total utility will remain constant.

question

The marginal rate of substitution measures

answer

declines as one moves southeast along an indifference curve.

question

Which situation is consistent with the law of diminishing marginal utility?

answer

The more pizza Joe eats, the less he enjoys an additional slice.

question

Which of the following best explains the difference between neoclassical economics and behavioral economics?

answer

Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic
errors.

question

Which of the following individuals received a Nobel Prize in economics for his work in behavioral economics?

answer

Daniel Kahneman

question

Which of the following statements best reflects behavioral economists' views on
self-interest versus the interests of others?

answer

People are always self-interested to a degree, but their behavior is also
affected by moral and ethical considerations

question

Balin purchases fair trade cocoa out of concern for workers' rights and environmental sustainability. He could purchase cocoa of equal quality at a lower
price. Behavioral economists would consider Balin's purchase

answer

as evidence that Balin is not acting purely in his self-interest

question

Scientists studying human behavior have found that people tend to

answer

make systematic errors in their decisions.

question

Economic cost can best be defined as

answer

the income the firm must provide to resource suppliers to attract
resources from alternative uses.

question

Which of the following is most likely to be an implicit cost for Company X?

answer

forgone rent from the building owned and used by Company X

question

Implicit and explicit costs are different in that

answer

the former refers to nonexpenditure costs and the latter to monetary payments.

question

Normal profit is

answer

the return to the entrepreneur when economic profits are zero

question

Suppose that a business incurred implicit costs of $500,000 and explicit costs of
$5 million in a specific year. If the firm sold 100,000 units of its output at $50 per
unit, its accounting

answer

profits were $0 and its economic losses were $500,000.

question

The basic characteristic of the short run is that

answer

the firm does not have sufficient time to change the size of its plan

question

. Marginal product is

answer

the change in total output attributable to the employment of one more
worker.

question

Which of the following statements concerning the relationships between total
product (TP), average product (AP), and marginal product (MP) is not correct?

answer

AP continues to rise so long as TP is rising

question

Which of the following best expresses the law of diminishing returns?

answer

As successive amounts of one resource (labor) are added to fixed amounts
of other resources (capital), beyond some point the resulting extra or
marginal output will decline.

question

Assume that in the short run a firm is producing 100 units of output, has average total
costs of $200, and has average variable costs of $150. The firm's total fixed costs are

answer

$5,000

question

In comparing the changes in TVC and TC associated with an additional unit of output,
we find that

answer

the changes in TC and TVC are equal.

question

Which of the following is correct?

answer

When MP is rising, MC is falling, and when MP is falling, MC is rising.

question

In the short run

answer

TVC will increase for a time at a diminishing rate, but then beyond some point
will increase at an increasing rate.

question

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5,
and its MC is $30. This firm's

answer

total cost is $270

question

Economies and diseconomies of scale explain

answer

why the firm's long-run average total cost curve is U-shaped

question

If a firm doubles its output in the long run and its unit costs of production decline, we
can conclude that

answer

economies of scale are being realized.

question

A natural monopoly exists when

answer

unit costs are minimized by having one firm produce an industry's entire
output.

question

. If a firm increases all of its inputs by 10 percent and its
output increases by 15 percent, then

answer

it is encountering economies of scale.

question

inelastic demand

answer

insensitive to price changes, small change in quantity demanded

question

elastic demand

answer

sensitive to price changes, large change in quantity demanded

question

an effective price ceiling on a good will likely

answer

lead to a shortage of the good in the market

question

A simultaneous decrease in supply and increase in demand would:

answer

increase the equilibrium price

question

demand curve is negatively sloped bc

answer

lower prices of a product create income and substitution effects that lead consumers to purchase more of it

question

Which of the following is correct if the government sets the price at $3.70?

answer

There will be a shortage of 7 bushels.

question

Which of the following is correct if the government sets the price at $4.30?

answer

There will be a surplus of 7 bushels.

question

A shift in supply to the right for any given product will have which one of the following effects, ceteris paribus?

answer

Quantity traded will tend to increase and price will tend to fall.

question

An effective price floor on a good will likely:

answer

create a surplus of the good on the market.

question

simultaneous increase in supply and demand would:

answer

leave the sign of change in equilibrium price indeterminate.

question

Which of the following is not a reason for a shift in the demand curve?

answer

Changes in the own price of the good.

question

All else equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls. Economists call this inverse relationship:

answer

the law of demand.

question

he rationale for establishing price ceilings on specific products is that:

answer

they purportedly enable consumers to obtain some essential good or service that they could not afford at the equilibrium price.

question

Economists use the term "demand" to refer to

answer

a schedule of various combinations of market prices and amounts/quantities
demanded.

question

. The relationship between quantity supplied and price is ______, and the relationship between quantity demanded and price is ______:

answer

direct;inverse

question

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that

answer

bicycles are normal goods.

question

If the demand curve for product B shifts to the right as the price of product A declines, then

answer

a and b are complementary goods

1 of 79

question

The income elasticity of demand for jewelry is +2. Other things equal, a 10 percent
increase in consumer income will

answer

increase the quantity of jewelry purchased by 20 percent.

question

A negative income elasticity of demand coefficient indicates that

answer

the product is an inferior good

question

Most goods can be classified as normal goods rather than inferior goods. The
definition of a normal good suggests that

answer

the income elasticity for the good is greater than 0.

question

A 3% increase in the price of tea causes a 6% increase in the demand for coffee. The cross elasticity of demand for coffee with respect to the price of tea
is

answer

+ 2.0

question

If a 10% increase in the price of good A results in an increase of 5% in the quantity demanded of good B, then it can be concluded that goods A and B are

answer

substitute goods

question

Airlines charge business travelers more than leisure travelers because there is a more

answer

inelastic demand of business travel

question

A price increase from $43 to $49 results in an increase in quantity supplied from 220 units to 240 units. The price elasticity of supply in this price range is

answer

0.67

question

If a product has a short-run elasticity of supply equal to zero, then an increase in the demand for the product will

answer

increase price and leave quantity sold unchanged.

question

When universities announce a large tuition increase and follow it with an announcement that more financial aid will be available, they are assuming that
students who pay full tuition

answer

have inelastic demand and students who use financial aid have elastic demand.

question

Movie theaters charge lower prices to see a movie in the afternoon than in the evening because there is an

answer

elastic demand to see movies in the afternoon

question

If the government imposes an excise tax on a good, it will collect the most tax revenues from it if the demand for the good is

answer

inelastic

question

An increase in the price of tickets to a popular sporting event will increase total revenue if

answer

the buyers of the tickets are fanatic about the event.

question

The price elasticity of demand for a textbook is estimated to be 1 no matter what the
price or quantity demanded. In this case,

answer

a 10 percent increase in price will result in a 10 percent decrease in the quantity demanded.

question

A union argues that a price cut will boost the revenues of the firm, while management argues that the opposite is true. This suggests that the price elasticity of
demand is

answer

elastic from the union's perspective, inelastic from management's perspective.

question

A study of mass-transit systems in American cities revealed that in the long run,
revenues generally decline after substantial fare increases. This would suggest that

answer

the demand for mass transit is price-elastic in the long run.

question

Which product is most likely to be the most price elastic?

answer

automobiles

question

The price elasticity of demand increases with the length of the period considered
because

answer

consumers will be better able to find substitutes.

question

If 100 shirts are sold when the unit price is $10, while 75 shirts are sold when the unit price is $15, one can conclude that in this price range,

answer

demand for shirts is inelastic

question

. If the price-elasticity coefficient for a good is 1.75, the demand for that good is
described as

answer

elastic

question

The price-elasticity of demand is always negative because of

answer

the law of demand

question

The price elasticity of demand is a measure of the

answer

responsiveness of buyers of a good to changes in its price.

question

Assume that a 3% increase in income across the economy produces a 1% decline in the quantity demanded of good X. The coefficient of income
elasticity of demand for good X is

answer

negative, and therefore X is an inferior good.

question

The utility of a good or service

answer

is the satisfaction or pleasure one gets from consuming it

question

The law of diminishing marginal utility states that

answer

beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.

question

. Marginal utility is the

answer

change in total utility obtained by consuming one more unit of a good

question

The law of diminishing marginal utility explains why

answer

demand curves slope downward

question

answer

Alex may have to lower the price to convince Kara to buy a second slice.

question

To maximize utility, a consumer should allocate money income so that the

answer

marginal utility obtained from the last dollar spent on each product is the same.

question

Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is
spending all her money income should buy

answer

more of X and/or less of Y.

question

answer

Mrs. Arnold should spend more on soda and less on pretzels

question

. A consumer who has a limited budget will maximize utility or satisfaction when the

answer

ratios of the marginal utility of each product purchased divided by its price
are equal.

question

A consumer's demand curve for a product is downsloping because

answer

marginal utility diminishes as more of a product is consume

question

. The budget line shows

answer

all possible combinations of two goods that can be purchased, given money
income and the prices of the goods.

question

. Which of the following statements is not correct?

answer

A reduction in money income will shift the budget line to the right

question

answer

shift outward on the horizontal axis.

question

At each point on an indifference curve

answer

total utility is the same

question

The marginal rate of substitution measures the

answer

consumer's willingness to substitute one product for another so that total utility will remain constant.

question

The marginal rate of substitution measures

answer

declines as one moves southeast along an indifference curve.

question

Which situation is consistent with the law of diminishing marginal utility?

answer

The more pizza Joe eats, the less he enjoys an additional slice.

question

Which of the following best explains the difference between neoclassical economics and behavioral economics?

answer

Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic
errors.

question

Which of the following individuals received a Nobel Prize in economics for his work in behavioral economics?

answer

Daniel Kahneman

question

Which of the following statements best reflects behavioral economists' views on
self-interest versus the interests of others?

answer

People are always self-interested to a degree, but their behavior is also
affected by moral and ethical considerations

question

answer

as evidence that Balin is not acting purely in his self-interest

question

Scientists studying human behavior have found that people tend to

answer

make systematic errors in their decisions.

question

Economic cost can best be defined as

answer

the income the firm must provide to resource suppliers to attract
resources from alternative uses.

question

Which of the following is most likely to be an implicit cost for Company X?

answer

forgone rent from the building owned and used by Company X

question

Implicit and explicit costs are different in that

answer

the former refers to nonexpenditure costs and the latter to monetary payments.

question

Normal profit is

answer

the return to the entrepreneur when economic profits are zero

question

Suppose that a business incurred implicit costs of $500,000 and explicit costs of
$5 million in a specific year. If the firm sold 100,000 units of its output at $50 per
unit, its accounting

answer

profits were $0 and its economic losses were $500,000.

question

The basic characteristic of the short run is that

answer

the firm does not have sufficient time to change the size of its plan

question

. Marginal product is

answer

the change in total output attributable to the employment of one more
worker.

question

Which of the following statements concerning the relationships between total
product (TP), average product (AP), and marginal product (MP) is not correct?

answer

AP continues to rise so long as TP is rising

question

Which of the following best expresses the law of diminishing returns?

answer

As successive amounts of one resource (labor) are added to fixed amounts
of other resources (capital), beyond some point the resulting extra or
marginal output will decline.

question

Assume that in the short run a firm is producing 100 units of output, has average total
costs of $200, and has average variable costs of $150. The firm's total fixed costs are

answer

$5,000

question

In comparing the changes in TVC and TC associated with an additional unit of output,
we find that

answer

the changes in TC and TVC are equal.

question

Which of the following is correct?

answer

When MP is rising, MC is falling, and when MP is falling, MC is rising.

question

In the short run

answer

TVC will increase for a time at a diminishing rate, but then beyond some point
will increase at an increasing rate.

question

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5,
and its MC is $30. This firm's

answer

total cost is $270

question

Economies and diseconomies of scale explain

answer

why the firm's long-run average total cost curve is U-shaped

question

If a firm doubles its output in the long run and its unit costs of production decline, we
can conclude that

answer

economies of scale are being realized.

question

A natural monopoly exists when

answer

unit costs are minimized by having one firm produce an industry's entire
output.

question

. If a firm increases all of its inputs by 10 percent and its
output increases by 15 percent, then

answer

it is encountering economies of scale.

question

inelastic demand

answer

insensitive to price changes, small change in quantity demanded

question

elastic demand

answer

sensitive to price changes, large change in quantity demanded

question

an effective price ceiling on a good will likely

answer

lead to a shortage of the good in the market

question

A simultaneous decrease in supply and increase in demand would:

answer

increase the equilibrium price

question

demand curve is negatively sloped bc

answer

lower prices of a product create income and substitution effects that lead consumers to purchase more of it

question

Which of the following is correct if the government sets the price at $3.70?

answer

There will be a shortage of 7 bushels.

question

Which of the following is correct if the government sets the price at $4.30?

answer

There will be a surplus of 7 bushels.

question

A shift in supply to the right for any given product will have which one of the following effects, ceteris paribus?

answer

Quantity traded will tend to increase and price will tend to fall.

question

An effective price floor on a good will likely:

answer

create a surplus of the good on the market.

question

simultaneous increase in supply and demand would:

answer

leave the sign of change in equilibrium price indeterminate.

question

Which of the following is not a reason for a shift in the demand curve?

answer

Changes in the own price of the good.

question

All else equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls. Economists call this inverse relationship:

answer

the law of demand.

question

he rationale for establishing price ceilings on specific products is that:

answer

they purportedly enable consumers to obtain some essential good or service that they could not afford at the equilibrium price.

question

Economists use the term "demand" to refer to

answer

a schedule of various combinations of market prices and amounts/quantities
demanded.

question

. The relationship between quantity supplied and price is ______, and the relationship between quantity demanded and price is ______:

answer

direct;inverse

question

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that

answer

bicycles are normal goods.

question

If the demand curve for product B shifts to the right as the price of product A declines, then

answer

a and b are complementary goods

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Microeconomics Midterm

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