Microeconomics Midterm - Custom Scholars
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# Microeconomics Midterm

question
The income elasticity of demand for jewelry is +2. Other things equal, a 10 percent
increase in consumer income will
increase the quantity of jewelry purchased by 20 percent.
question
A negative income elasticity of demand coefficient indicates that
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
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
+ 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
substitute goods
question
Airlines charge business travelers more than leisure travelers because there is a more
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
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
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
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
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
inelastic
question
An increase in the price of tickets to a popular sporting event will increase total revenue if
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,
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
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
the demand for mass transit is price-elastic in the long run.
question
Which product is most likely to be the most price elastic?
automobiles
question
The price elasticity of demand increases with the length of the period considered
because
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,
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
elastic
question
The price-elasticity of demand is always negative because of
the law of demand
question
The price elasticity of demand is a measure of the
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
negative, and therefore X is an inferior good.
question
The utility of a good or service
is the satisfaction or pleasure one gets from consuming it
question
The law of diminishing marginal utility states that
beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.
question
. Marginal utility is the
change in total utility obtained by consuming one more unit of a good
question
The law of diminishing marginal utility explains why
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
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
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
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
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
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
marginal utility diminishes as more of a product is consume
question
. The budget line shows
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?
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
shift outward on the horizontal axis.
question
At each point on an indifference curve
total utility is the same
question
The marginal rate of substitution measures the
consumer's willingness to substitute one product for another so that total utility will remain constant.
question
The marginal rate of substitution measures
declines as one moves southeast along an indifference curve.
question
Which situation is consistent with the law of diminishing marginal utility?
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?
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?
Daniel Kahneman
question
Which of the following statements best reflects behavioral economists' views on
self-interest versus the interests of others?
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
as evidence that Balin is not acting purely in his self-interest
question
Scientists studying human behavior have found that people tend to
make systematic errors in their decisions.
question
Economic cost can best be defined as
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?
forgone rent from the building owned and used by Company X
question
Implicit and explicit costs are different in that
the former refers to nonexpenditure costs and the latter to monetary payments.
question
Normal profit is
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
profits were \$0 and its economic losses were \$500,000.
question
The basic characteristic of the short run is that
the firm does not have sufficient time to change the size of its plan
question
. Marginal product is
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?
AP continues to rise so long as TP is rising
question
Which of the following best expresses the law of diminishing returns?
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
\$5,000
question
In comparing the changes in TVC and TC associated with an additional unit of output,
we find that
the changes in TC and TVC are equal.
question
Which of the following is correct?
When MP is rising, MC is falling, and when MP is falling, MC is rising.
question
In the short run
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
total cost is \$270
question
Economies and diseconomies of scale explain
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
economies of scale are being realized.
question
A natural monopoly exists when
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
it is encountering economies of scale.
question
inelastic demand
insensitive to price changes, small change in quantity demanded
question
elastic demand
sensitive to price changes, large change in quantity demanded
question
an effective price ceiling on a good will likely
lead to a shortage of the good in the market
question
A simultaneous decrease in supply and increase in demand would:
increase the equilibrium price
question
demand curve is negatively sloped bc
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?
There will be a shortage of 7 bushels.
question
Which of the following is correct if the government sets the price at \$4.30?
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?
Quantity traded will tend to increase and price will tend to fall.
question
An effective price floor on a good will likely:
create a surplus of the good on the market.
question
simultaneous increase in supply and demand would:
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?
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:
the law of demand.
question
he rationale for establishing price ceilings on specific products is that:
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
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 ______:
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
bicycles are normal goods.
question
If the demand curve for product B shifts to the right as the price of product A declines, then
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
increase the quantity of jewelry purchased by 20 percent.
question
A negative income elasticity of demand coefficient indicates that
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
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
+ 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
substitute goods
question
Airlines charge business travelers more than leisure travelers because there is a more
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
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
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
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
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
inelastic
question
An increase in the price of tickets to a popular sporting event will increase total revenue if
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,
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
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
the demand for mass transit is price-elastic in the long run.
question
Which product is most likely to be the most price elastic?
automobiles
question
The price elasticity of demand increases with the length of the period considered
because
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,
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
elastic
question
The price-elasticity of demand is always negative because of
the law of demand
question
The price elasticity of demand is a measure of the
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
negative, and therefore X is an inferior good.
question
The utility of a good or service
is the satisfaction or pleasure one gets from consuming it
question
The law of diminishing marginal utility states that
beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.
question
. Marginal utility is the
change in total utility obtained by consuming one more unit of a good
question
The law of diminishing marginal utility explains why
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
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
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
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
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
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
marginal utility diminishes as more of a product is consume
question
. The budget line shows
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?
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
shift outward on the horizontal axis.
question
At each point on an indifference curve
total utility is the same
question
The marginal rate of substitution measures the
consumer's willingness to substitute one product for another so that total utility will remain constant.
question
The marginal rate of substitution measures
declines as one moves southeast along an indifference curve.
question
Which situation is consistent with the law of diminishing marginal utility?
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?
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?
Daniel Kahneman
question
Which of the following statements best reflects behavioral economists' views on
self-interest versus the interests of others?
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
as evidence that Balin is not acting purely in his self-interest
question
Scientists studying human behavior have found that people tend to
make systematic errors in their decisions.
question
Economic cost can best be defined as
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?
forgone rent from the building owned and used by Company X
question
Implicit and explicit costs are different in that
the former refers to nonexpenditure costs and the latter to monetary payments.
question
Normal profit is
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
profits were \$0 and its economic losses were \$500,000.
question
The basic characteristic of the short run is that
the firm does not have sufficient time to change the size of its plan
question
. Marginal product is
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?
AP continues to rise so long as TP is rising
question
Which of the following best expresses the law of diminishing returns?
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
\$5,000
question
In comparing the changes in TVC and TC associated with an additional unit of output,
we find that
the changes in TC and TVC are equal.
question
Which of the following is correct?
When MP is rising, MC is falling, and when MP is falling, MC is rising.
question
In the short run
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
total cost is \$270
question
Economies and diseconomies of scale explain
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
economies of scale are being realized.
question
A natural monopoly exists when
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
it is encountering economies of scale.
question
inelastic demand
insensitive to price changes, small change in quantity demanded
question
elastic demand
sensitive to price changes, large change in quantity demanded
question
an effective price ceiling on a good will likely
lead to a shortage of the good in the market
question
A simultaneous decrease in supply and increase in demand would:
increase the equilibrium price
question
demand curve is negatively sloped bc
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?
There will be a shortage of 7 bushels.
question
Which of the following is correct if the government sets the price at \$4.30?
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?
Quantity traded will tend to increase and price will tend to fall.
question
An effective price floor on a good will likely:
create a surplus of the good on the market.
question
simultaneous increase in supply and demand would:
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?
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:
the law of demand.
question
he rationale for establishing price ceilings on specific products is that:
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
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 ______:
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
bicycles are normal goods.
question
If the demand curve for product B shifts to the right as the price of product A declines, then
a and b are complementary goods

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