Question 1

Which of the following most directly reflects the law of diminishing marginal utility?

Accepted Answer

A)  After watching two football games, Terry decides to watch a third game. 
B)  A sports fan enjoys watching Monday night football rather than going to the theater. 
C)  After listening to three compact discs, Kim decides to go bowling rather than listen to a fourth disc. 
D)  A musician receives the biggest ovation of the evening after playing the final number of a recital. 
A)  After watching two football games, Terry decides to watch a third game. 
B)  A sports fan enjoys watching Monday night football rather than going to the theater. 
C)  After listening to three compact discs, Kim decides to go bowling rather than listen to a fourth disc. 
D)  A musician receives the biggest ovation of the evening after playing the final number of a recital.

Question 2

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 3

Figure 7-13  
Refer to Figure 7-13. If price increases from $10 to $15, total revenue will

Accepted Answer

A)  increase by $20, so demand must be inelastic in this price range. 
B)  increase by $5, so demand must be inelastic in this price range. 
C)  decrease by $20, so demand must be elastic in this price range. 
D)  decrease by $10, so demand must be elastic in this price range. 
A)  increase by $20, so demand must be inelastic in this price range. 
B)  increase by $5, so demand must be inelastic in this price range. 
C)  decrease by $20, so demand must be elastic in this price range. 
D)  decrease by $10, so demand must be elastic in this price range.

Question 4

If a demand curve for a good were completely vertical, it would be considered

Accepted Answer

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

Question 5

Figure 7-7  
In the price range between $3 and $4, the price elasticity of the demand curve depicted in Figure 7-7 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 6

Figure 7-10  
Figure 7-10 depicts a demand curve with a price elasticity that is

Accepted Answer

A)  unitary, implying that a percent change in price leads to an equal percent change in quantity demanded. 
B)  perfectly inelastic, implying that the same amount will be purchased regardless of the price of the good. 
C)  equal to zero. 
D)  both b and c. 
A)  unitary, implying that a percent change in price leads to an equal percent change in quantity demanded. 
B)  perfectly inelastic, implying that the same amount will be purchased regardless of the price of the good. 
C)  equal to zero. 
D)  both b and c.

Question 7

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles,

Accepted Answer

A)  yours would be negative and your roommate's would be positive. 
B)  yours would be positive and your roommate's would be negative. 
C)  yours would be zero and your roommate's would approach infinity. 
D)  yours would approach infinity and your roommate's would be zero. 
A)  yours would be negative and your roommate's would be positive. 
B)  yours would be positive and your roommate's would be negative. 
C)  yours would be zero and your roommate's would approach infinity. 
D)  yours would approach infinity and your roommate's would be zero.

Question 8

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 9

Which of the following describes a situation in which demand must be elastic?

Accepted Answer

A)  Total revenue increases by 15 percent when the price of corndogs rises by 15 percent. 
B)  Total revenue increases by less than 15 percent when the price of corndogs rises by 15 percent. 
C)  Total revenue decreases by more than 15 percent when the price of corndogs rises by 15 percent. 
D)  Total revenue increases by $15 when the price of corndogs rises by $15. 
E)  Total revenue increases by more than $15 when the price of corndogs rises by $15. 
A)  Total revenue increases by 15 percent when the price of corndogs rises by 15 percent. 
B)  Total revenue increases by less than 15 percent when the price of corndogs rises by 15 percent. 
C)  Total revenue decreases by more than 15 percent when the price of corndogs rises by 15 percent. 
D)  Total revenue increases by $15 when the price of corndogs rises by $15. 
E)  Total revenue increases by more than $15 when the price of corndogs rises by $15.

Question 10

A local Krispy Kreme doughnut shop reduced its prices by 10 percent, and as a result, the quantity of doughnuts sold increased by 25 percent. Over this range, the absolute value of the price elasticity of demand was

Accepted Answer

A)  0.4. 
B)  1. 
C)  2. 
D)  2.5 
A)  0.4. 
B)  1. 
C)  2. 
D)  2.5

Question 11

Goods that consumers regard as luxuries generally have

Accepted Answer

A)  an income elasticity equal to 1. 
B)  an income elasticity less than 1. 
C)  an income elasticity greater than 1. 
D)  a negative income elasticity. 
A)  an income elasticity equal to 1. 
B)  an income elasticity less than 1. 
C)  an income elasticity greater than 1. 
D)  a negative income elasticity.

Question 12

The price of product X increases from $35 to $40, and as a result, the quantity demanded decreases from 250 to 200. Over this price range,

Accepted Answer

A)  demand is elastic. 
B)  demand is inelastic. 
C)  demand is of unitary elasticity. 
D)  there is insufficient information to determine the price elasticity of demand. 
A)  demand is elastic. 
B)  demand is inelastic. 
C)  demand is of unitary elasticity. 
D)  there is insufficient information to determine the price elasticity of demand.

Question 13

If a Krispy Kreme doughnut shop near campus increases its prices by 5 percent, but revenues from its sales are unchanged, the price elasticity of demand for the services offered by the doughnut shop must be

Accepted Answer

A)  elastic. 
B)  of unitary elasticity. 
C)  inelastic. 
D)  equal to 0.5. 
A)  elastic. 
B)  of unitary elasticity. 
C)  inelastic. 
D)  equal to 0.5.

Question 14

Coach Ballford: "To increase our revenue from football games, we need to lower ticket prices." University President Smith: "Coach, that would be counterproductive; a reduction in ticket prices would reduce our revenue, not increase it." Which of the following best explains this disagreement?

Accepted Answer

A)  The coach thinks that demand is elastic, whereas the university president thinks that demand is inelastic. 
B)  The coach thinks that demand is inelastic, whereas the university president thinks that demand is elastic. 
C)  The coach believes that lower ticket prices will increase attendance, but the university president must not believe attendance will increase when prices are lowered. 
D)  Although both the coach and the president believe demand is of unitary elasticity, they disagree about how much attendance will rise. 
A)  The coach thinks that demand is elastic, whereas the university president thinks that demand is inelastic. 
B)  The coach thinks that demand is inelastic, whereas the university president thinks that demand is elastic. 
C)  The coach believes that lower ticket prices will increase attendance, but the university president must not believe attendance will increase when prices are lowered. 
D)  Although both the coach and the president believe demand is of unitary elasticity, they disagree about how much attendance will rise.

Question 15

"I like ice cream, but after eating homemade ice cream last night, I want to have something else for dessert today." This statement most clearly reflects

Accepted Answer

A)  the budget constraint. 
B)  consumer irrationality. 
C)  the second law of demand: Price elasticity increases with time. 
D)  the law of diminishing marginal utility. 
A)  the budget constraint. 
B)  consumer irrationality. 
C)  the second law of demand: Price elasticity increases with time. 
D)  the law of diminishing marginal utility.

Question 16

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of the price elasticity of demand for Starbucks coffee is

Accepted Answer

A)  0.40. 
B)  0.80. 
C)  1.25. 
D)  2.50. 
E)  4. 
A)  0.40. 
B)  0.80. 
C)  1.25. 
D)  2.50. 
E)  4.

Question 17

Mark complains: "I can't believe they raised the price of comic books, and because of this, I'm going to reduce my demand for comic books." Is Mark stating the concept of demand correctly?

Accepted Answer

Mark has confused the concept of demand

Question 18

Assume that a college student purchases only coffee and Snickers. The substitution effect associated with a decrease in the price of a Snickers will result in

Accepted Answer

A)  an increase in the consumption of coffee only. 
B)  a decrease in the consumption of coffee only. 
C)  an increase in the consumption of Snickers and a decrease in the consumption of coffee. 
D)  a decrease in the consumption of Snickers and an increase in the consumption of coffee. 
A)  an increase in the consumption of coffee only. 
B)  a decrease in the consumption of coffee only. 
C)  an increase in the consumption of Snickers and a decrease in the consumption of coffee. 
D)  a decrease in the consumption of Snickers and an increase in the consumption of coffee.

Question 19

Figure 7-2  
Figure 7-2 depicts a demand curve with a price elasticity that is

Accepted Answer

A)  perfectly elastic, implying that as much as can be supplied will be purchased at the market price. 
B)  relatively inelastic, implying that a percent increase in price results in a smaller percent reduction in sales. 
C)  unitary, implying that a percent change in price leads to an equal percent change in quantity demanded. 
D)  perfectly inelastic, implying that the same amount will be purchased regardless of the price of the good. 
A)  perfectly elastic, implying that as much as can be supplied will be purchased at the market price. 
B)  relatively inelastic, implying that a percent increase in price results in a smaller percent reduction in sales. 
C)  unitary, implying that a percent change in price leads to an equal percent change in quantity demanded. 
D)  perfectly inelastic, implying that the same amount will be purchased regardless of the price of the good.

Question 20

Mr. Jones always buys gasoline at the corner station with his credit card. Now a new station (that does not accept credit cards) is built on the other corner and offers the same quality of gasoline for $.05 less per gallon. Is Jones irrational if he continues to buy gasoline at the old station?

Accepted Answer

A)  Yes; such action would clearly violate the law of demand. If the price is lower across the street, Jones should go there. 
B)  Not necessarily; he may think the ease and convenience of using the credit card is worth the extra cost. 
C)  Yes; his actions imply that the law of diminishing returns does not apply to gasoline. 
D)  Not enough information is given to determine if his actions are rational. 
A)  Yes; such action would clearly violate the law of demand. If the price is lower across the street, Jones should go there. 
B)  Not necessarily; he may think the ease and convenience of using the credit card is worth the extra cost. 
C)  Yes; his actions imply that the law of diminishing returns does not apply to gasoline. 
D)  Not enough information is given to determine if his actions are rational.

Which of the following most directly reflects the law of diminishing marginal utility?

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

Figure 7-13 Refer to Figure 7-13. If price increases from $10 to $15, total revenue will

If a demand curve for a good were completely vertical, it would be considered

Figure 7-7 In the price range between $3 and $4, the price elasticity of the demand curve depicted in Figure 7-7 is

Figure 7-10 Figure 7-10 depicts a demand curve with a price elasticity that is

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

Which of the following describes a situation in which demand must be elastic?

A local Krispy Kreme doughnut shop reduced its prices by 10 percent, and as a result, the quantity of doughnuts sold increased by 25 percent. Over this range, the absolute value of the price elasticity of demand was

Goods that consumers regard as luxuries generally have

The price of product X increases from $35 to $40, and as a result, the quantity demanded decreases from 250 to 200. Over this price range,

If a Krispy Kreme doughnut shop near campus increases its prices by 5 percent, but revenues from its sales are unchanged, the price elasticity of demand for the services offered by the doughnut shop must be

Coach Ballford: "To increase our revenue from football games, we need to lower ticket prices." University President Smith: "Coach, that would be counterproductive; a reduction in ticket prices would reduce our revenue, not increase it." Which of the following best explains this disagreement?

"I like ice cream, but after eating homemade ice cream last night, I want to have something else for dessert today." This statement most clearly reflects

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of the price elasticity of demand for Starbucks coffee is

Mark complains: "I can't believe they raised the price of comic books, and because of this, I'm going to reduce my demand for comic books." Is Mark stating the concept of demand correctly?

Assume that a college student purchases only coffee and Snickers. The substitution effect associated with a decrease in the price of a Snickers will result in

Figure 7-2 Figure 7-2 depicts a demand curve with a price elasticity that is

Mr. Jones always buys gasoline at the corner station with his credit card. Now a new station (that does not accept credit cards) is built on the other corner and offers the same quality of gasoline for $.05 less per gallon. Is Jones irrational if he continues to buy gasoline at the old station?

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

Applying the Basics: Special Topics in Economics

Filters

Exam 7: Consumer Choice and Elasticity

Which of the following most directly reflects the law of diminishing marginal utility?

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

Figure 7-13 Refer to Figure 7-13. If price increases from $10 to $15, total revenue will

If a demand curve for a good were completely vertical, it would be considered

Figure 7-7 In the price range between $3 and $4, the price elasticity of the demand curve depicted in Figure 7-7 is

Figure 7-10 Figure 7-10 depicts a demand curve with a price elasticity that is

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

Which of the following describes a situation in which demand must be elastic?

A local Krispy Kreme doughnut shop reduced its prices by 10 percent, and as a result, the quantity of doughnuts sold increased by 25 percent. Over this range, the absolute value of the price elasticity of demand was

Goods that consumers regard as luxuries generally have

The price of product X increases from $35 to $40, and as a result, the quantity demanded decreases from 250 to 200. Over this price range,

If a Krispy Kreme doughnut shop near campus increases its prices by 5 percent, but revenues from its sales are unchanged, the price elasticity of demand for the services offered by the doughnut shop must be

Coach Ballford: "To increase our revenue from football games, we need to lower ticket prices." University President Smith: "Coach, that would be counterproductive; a reduction in ticket prices would reduce our revenue, not increase it." Which of the following best explains this disagreement?

"I like ice cream, but after eating homemade ice cream last night, I want to have something else for dessert today." This statement most clearly reflects

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of the price elasticity of demand for Starbucks coffee is

Mark complains: "I can't believe they raised the price of comic books, and because of this, I'm going to reduce my demand for comic books." Is Mark stating the concept of demand correctly?

Assume that a college student purchases only coffee and Snickers. The substitution effect associated with a decrease in the price of a Snickers will result in

Figure 7-2 Figure 7-2 depicts a demand curve with a price elasticity that is

Mr. Jones always buys gasoline at the corner station with his credit card. Now a new station (that does not accept credit cards) is built on the other corner and offers the same quality of gasoline for $.05 less per gallon. Is Jones irrational if he continues to buy gasoline at the old station?

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

Applying the Basics: Special Topics in Economics

Filters