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Test 2

Microeconomics TH9:30am

QuestionAnswer
1) The price elasticity of demand is a measure of A) the responsiveness of the quantity demanded of a good to a changes in the price of the good.
2) Suppose that when the price of milk rises 20%, the quantity demanded of milk falls 10%. Based on this information, what is the approximate absolute price elasticity of demand for milk? C) 0.5 (10/20)
3) The price elasticity of demand is B) always negative, but by convention, economists typically express the price elasticity of demand as an absolute value.
4) An absolute price elasticity of demand equal to 0.4 indicates that a D) 10 percent decrease in price leads to a 4 percent increase in quantity demanded.
5) price of eggs increases from 75 cents to $1.00 per dozen and then a typical farmer experiences a decrease in egg sales from 300 to 200 dozen per week. Using the method of average values (midpoint formula), the absolute price elasticity of demand is A) 1.4.
6) If the absolute price elasticity of demand for a product is greater than 1, then B) consumers are relatively sensitive to price changes.
7) The greater is the absolute price elasticity of demand, the A) larger is the responsiveness of quantity demanded to the price change.
8) Inelastic demand implies A) that a one percent increase in price results in a smaller than one percent decrease in quantity demanded.
9) If there is no response in quantity demanded to a change in price, demand is A) perfectly inelastic.
10) A demand relationship in which the quantity demanded changes exactly in proportion to the change in price is B) unit-elastic.
11) Moving down a straight-line demand curve, the absolute price elasticity of demand C) decreases.
12) If the market price of a product falls and as a result total revenue of firms falls, we can conclude that C) demand is inelastic in this price range.
15) One of the most important determinants of a good's price elasticity of demand is C) the ease with which consumers can substitute other goods for that product.
16) Which of the following would NOT affect a good's price elasticity of demand? B) The cost of producing the good
17) Suppose that the cross price elasticity of demand between goods A and B equals 1.5. Which of the following is TRUE? D) A and B are substitutes because the cross price elasticity is positive.
18) The most important determinant of the elasticity of supply is C) the time period firms have to adjust to the new price.
19) Economists use what term to describe the want-satisfying power of a good? B) Utility
20) Utility analysis helps economists understand A) how people make decisions about what they buy and how much.
21) Marginal utility is B) the change in total utility due to a one-unit change in the quantity of a good consumed.
22) Karen has decided that she would enjoy eating another cookie. Which of the following statements is consistent with Karen's decision? D) Karen's total utility has increased but it is unclear what has happened to her marginal utility.
23) The total utility of consuming 6 units of a good is 255. The marginal utility of the 6th unit is 45 and the marginal utility of the 5th unit is 60. The total utility of consuming 5 units of the good is C) 210.
24) Economists assume that people make decisions regarding consumption based on comparing A) additional units of satisfaction with additional costs.
25) If you and a group of friends have been consuming large quantities of liquid beverages on a hot summer afternoon and you decide to refrain from any additional consumption, it can be concluded that C) total utility has reached a maximum and the marginal utility of an additional drink would be zero.
26) When marginal utility is positive, but decreasing, then total utility is D) increasing at an increasing rate.
27) The principle that "as more of a good is consumed, its extra benefit declines" is known as C) the law of diminishing marginal utility.
29) For good A and good B, the consumer maximizes personal satisfaction when C) MUA/PA = MUB/PB.
30) Suppose Bob's ratios of marginal utility of beer to the price of beer and the marginal utility of pizza to the price of pizza are equal. If the price of beer increases C) Bob will probably consume less beer and more pizza.
31) For any two goods, X and Y, if MUX divided by PX equals 2.5 and MUY divided by PY equals 4.0, then with given income and prices the consumer should B) buy more of good Y and less of good X.
32) The marginal utility of good A is 6 and the marginal utility of good B is 15. The price of good A is $2. The price of good B must be ________ if the consumer is optimizing her utility. C) $5
35) The price burger is $1 and the price of a movie is $6 and the consumer has $14. A consumer has purchased 2 hamburgers and 2 movies, receiving 20 units of utility for the second hamburger and 100 units of utility for the second movie. The set of goods D) is not an optimum because the marginal utility for each good is not equal.
36) Suppose a consumer is at an optimum. What happens when the price of one good she has been consuming increases? D) The marginal utility per dollar spent on the last unit consumed of that good is now smaller than the marginal utility per dollar spent on other goods the person consumes.
37. Goods that are both rival and non-excludable are: A. common resources.
38. The “free-rider” problem occurs when: c. the benefits associated with public goods cannot be denied to those who do not pay for them.
39. Positive externalities occur when: c. private market demand curves do not reflect all benefits to society.
40. Outputs that generate negative externalities tend to be: d. overproduced by private markets.
41. According to the Coase Theorem, private negotiation to correct for negative externalities is likely to produce an efficient outcome only if: . property rights are clearly defined.
42. Which of the following is not an example of government response to a market failure? c. The Sierra Club using private donations to preserve a wilderness area
43. If Fred is willing to pay $500 for a new suit, but is able to buy the suit for $350, Fred values the suit at ________ and his consumer surplus is________. b. $500; $150.
44. The equilibrium output in a competitive market is efficient because it is the output where: a. marginal benefit is equal to marginal cost and total surplus is maximized.
Created by: 815520058592308
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