Question 1

Which of the following statements is true?

Accepted Answer

A) If the price of a good is lowered and total revenue decreases, demand is elastic. 
B) If the price of a good is raised and total revenue does not change, demand is perfectly elastic. 
C) If the price of a good is raised and total revenue increases, demand is inelastic. 
D) If the price of a good is lowered and total revenue increases, demand is inelastic. 
A) If the price of a good is lowered and total revenue decreases, demand is elastic. 
B) If the price of a good is raised and total revenue does not change, demand is perfectly elastic. 
C) If the price of a good is raised and total revenue increases, demand is inelastic. 
D) If the price of a good is lowered and total revenue increases, demand is inelastic.

Question 2

Optimal decisions are made

Accepted Answer

A) in the marketplace. 
B) if information about prices and marginal utilities is known. 
C) when marginal utility is minimized. 
D) at the margin. 
A) in the marketplace. 
B) if information about prices and marginal utilities is known. 
C) when marginal utility is minimized. 
D) at the margin.

Question 3

If the price elasticity of demand for insulin is equal to zero then the demand curve for insulin is

Accepted Answer

A) horizontal. 
B) downward sloping. 
C) curvilinear. 
D) vertical. 
A) horizontal. 
B) downward sloping. 
C) curvilinear. 
D) vertical.

Question 4

The ultimatum game and the dictator game are used in economic experiments to test whether fairness is an important influence on consumer decision-making.

Accepted Answer

A) True 
 B)False

Question 5

Economists usually assume that people act in a rational,self-interested way.In explaining how consumers make choices this means that economists believe

Accepted Answer

A) consumers will always buy goods and services at the lowest possible prices. 
B) consumers spend their incomes to order to accumulate the most goods and services. 
C) consumers make choices that will leave them as satisfied as possible given their incomes, tastes and the prices of goods and services available to them. 
D) consumers will spend their incomes and time on activities that benefit themselves as much as possible, without regard to the welfare of others. 
A) consumers will always buy goods and services at the lowest possible prices. 
B) consumers spend their incomes to order to accumulate the most goods and services. 
C) consumers make choices that will leave them as satisfied as possible given their incomes, tastes and the prices of goods and services available to them. 
D) consumers will spend their incomes and time on activities that benefit themselves as much as possible, without regard to the welfare of others.

Question 6

What does price elasticity of demand measure? When is demand elastic? Inelastic? Unit elastic?

Accepted Answer

Price elasticity of demand measures the

Question 7

If the absolute value of the price elasticity of demand for aspirin equals 0.8 then

Accepted Answer

A) aspirin is a normal good. 
B) the demand for aspirin is inelastic. 
C) aspirin has few substitutes. 
D) the demand for aspirin is elastic. 
A) aspirin is a normal good. 
B) the demand for aspirin is inelastic. 
C) aspirin has few substitutes. 
D) the demand for aspirin is elastic.

Question 8

The iPod is a product without any significant network externalities.

Accepted Answer

A) True 
 B)False

Question 9

The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears.To maximize his utility,what should Harold do?

Accepted Answer

A) He should acquire more income so that he can afford to buy more oranges and pears. 
B) He should reduce his consumption of both oranges and pears so that he can buy a greater variety of goods. 
C) He should buy fewer pears and more oranges. 
D) He should buy fewer oranges and more pears. 
A) He should acquire more income so that he can afford to buy more oranges and pears. 
B) He should reduce his consumption of both oranges and pears so that he can buy a greater variety of goods. 
C) He should buy fewer pears and more oranges. 
D) He should buy fewer oranges and more pears.

Question 10

When demand is elastic,a fall in price causes total revenue to rise because

Accepted Answer

A) when price falls, quantity sold increases so total revenue automatically rises. 
B) the increase in quantity sold is large enough to offset the lower price. 
C) the percentage increase in quantity demanded is less than the percentage fall in price. 
D) the demand curve shifts. 
A) when price falls, quantity sold increases so total revenue automatically rises. 
B) the increase in quantity sold is large enough to offset the lower price. 
C) the percentage increase in quantity demanded is less than the percentage fall in price. 
D) the demand curve shifts.

Question 11

Lilly Davis has $5 per week to spend on any combination of ice cream and candy.The price of an ice cream cone is $2 and the price of a candy bar is $1.The table below shows Lilly's utility values.Use the table to answer the questions that follow the table.
 $\begin{array}{|c|c|c|c|c|c|c|}
\hline\begin{array}{c}
\text { Quantity } \
\text { of Ice } \
\text { Cream } \
\text { Cones }
\end{array} & \text { Total } & \begin{array}{c}
\text { Utility } \
\text { Utility }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Utility per } \
\text { Dollar }
\end{array} & \begin{array}{c}
\text { Quantity } \
\text { of Candy }
\end{array} & \begin{array}{c}
\text { Total } \
\text { Utility }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Utility }
\end{array} \
\hline 1 & 20 &  &  & 1 & 20 & \
\hline 2 & 38 &   &   & 2 & 38 & \
\hline 3 & 52 & & & 3 & 48 &  \
\hline 4 & 62 & && 4 & 54 & \
\hline
\end{array}$ 
a.Complete the table by filling in the blank spaces.
b.Suppose Lilly purchases 2 ice cream cones and 1 candy bar.Is she consuming the optimal consumption bundle? If so,explain why.If not,what combination should she buy and why?

Accepted Answer

a.
   b. If Lilly purchases 2 ice cream

Question 12

Traditionally,economists have considered culture,customs,and religion as

Accepted Answer

A) very important influences on the choices consumers make. 
B) relatively unimportant factors in explaining the choices consumers make. 
C) important influences in explaining consumer choices in command economies but less important in market economies. 
D) subject to normative economic analysis rather than positive economic analysis. 
A) very important influences on the choices consumers make. 
B) relatively unimportant factors in explaining the choices consumers make. 
C) important influences in explaining consumer choices in command economies but less important in market economies. 
D) subject to normative economic analysis rather than positive economic analysis.

Question 13

The demand for gasoline is perfectly inelastic because most people need gasoline to drive their cars.

Accepted Answer

A) True 
 B)False

Question 14

If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots,then

Accepted Answer

A) the price elasticity of demand for teapots is greater than 1 in absolute value. 
B) the demand for teapots is unit-elastic. 
C) the price elasticity of demand for teapots is equal to zero. 
D) the price elasticity of demand for teapots is less than 1 in absolute value. 
A) the price elasticity of demand for teapots is greater than 1 in absolute value. 
B) the demand for teapots is unit-elastic. 
C) the price elasticity of demand for teapots is equal to zero. 
D) the price elasticity of demand for teapots is less than 1 in absolute value.

Question 15

Economists have used ________ and ________ in experiments designed to determine whether consumers care about fairness when they make decisions.

Accepted Answer

A) Giffen goods; luxury goods 
B) the income effect; the substitution effect 
C) the ultimatum game; the dictator game 
D) network externalities; the endowment effect 
A) Giffen goods; luxury goods 
B) the income effect; the substitution effect 
C) the ultimatum game; the dictator game 
D) network externalities; the endowment effect

Question 16

Figure 7-8
  
-Refer to Figure 7-8.As price falls from PA to PB,the quantity demanded increases most along D₁; therefore,

Accepted Answer

A) D₁ is unit elastic. 
B) D₁ is more inelastic than D₂ or D₃. 
C) D₁ is more elastic than D₂ or D₃ 
D) D₁ is elastic at PA but inelastic at PB. 
A) D₁ is unit elastic. 
B) D₁ is more inelastic than D₂ or D₃. 
C) D₁ is more elastic than D₂ or D₃ 
D) D₁ is elastic at PA but inelastic at PB.

Question 17

If marginal utility of apples is diminishing and is a positive amount,consuming one more apple will cause

Accepted Answer

A) total utility to decrease. 
B) a consumer to get no satisfaction from consuming apples. 
C) a consumer's total utility to increase. 
D) a consumer to go beyond her optimal consumption of apples. 
A) total utility to decrease. 
B) a consumer to get no satisfaction from consuming apples. 
C) a consumer's total utility to increase. 
D) a consumer to go beyond her optimal consumption of apples.

Question 18

Table 7-2
 $$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity of } \
\text { Soup (cups) }
\end{array} & \text { Total Utility } & \begin{array} { c } 
\text { Quantity of } \
\text { Sandwiches }
\end{array} & \text { Total Utility } \
\hline 1 & 40 & 1 & 45 \
\hline 2 & 60 & 2 & 75 \
\hline 3 & 72 & 3 & 102 \
\hline 4 & 82 & 4 & 120 \
\hline 5 & 88 & 5 & 135 \
\hline 6 & 90 & 6 & 145 \
\hline
\end{array}$$ 
Table 7-2 above shows Keira's utility from soup and sandwiches.The price of soup is $2 per cup and the price of a sandwich is $3.Keira has $18 to spend on these two goods.
-Refer to Table 7-2.Holding prices constant,when Keira's income changed from $18 to $23,what happens to her total utility and to the marginal utilities of the last cup of soup and the last sandwich purchased?

Accepted Answer

A) Her total utility increases but the marginal utilities of the last cup of soup and the last sandwich consumed decrease. 
B) Her total utility, the marginal utility of the last cup of soup consumed and the marginal utility of the last sandwich consumed, all increase. 
C) Her total utility decreases but the marginal utilities of the last cup of soup and the last sandwich consumed increase. 
D) Her total utility and the marginal utility of the last cup of soup consumed increase but marginal utility of the last sandwich consumed decreases. 
E) Her total utility and the marginal utility of the last sandwich consumed increase but marginal utility of the last cup of soup consumed decreases. 
A) Her total utility increases but the marginal utilities of the last cup of soup and the last sandwich consumed decrease. 
B) Her total utility, the marginal utility of the last cup of soup consumed and the marginal utility of the last sandwich consumed, all increase. 
C) Her total utility decreases but the marginal utilities of the last cup of soup and the last sandwich consumed increase. 
D) Her total utility and the marginal utility of the last cup of soup consumed increase but marginal utility of the last sandwich consumed decreases. 
E) Her total utility and the marginal utility of the last sandwich consumed increase but marginal utility of the last cup of soup consumed decreases.

Question 19

Figure 7-2
   
Figure 7-2 represents the demand for ice cream cones.
-Refer to Figure 7-2.Which of the following statements is true?

Accepted Answer

A) Points a and b are the utility-maximizing quantities of ice-cream cones at two different prices of ice-cream. 
B) Points a and b may not necessarily be the utility-maximizing quantities of ice-cream cones at two different prices because we have no information on the consumer's budget or the price of other goods. 
C) Point a could be a utility-maximizing choice if the price is $3 but point b may not be because we have no information on the marginal utility per dollar when price changes. 
D) Points a and b are derived independently of the utility-maximizing model. 
A) Points a and b are the utility-maximizing quantities of ice-cream cones at two different prices of ice-cream. 
B) Points a and b may not necessarily be the utility-maximizing quantities of ice-cream cones at two different prices because we have no information on the consumer's budget or the price of other goods. 
C) Point a could be a utility-maximizing choice if the price is $3 but point b may not be because we have no information on the marginal utility per dollar when price changes. 
D) Points a and b are derived independently of the utility-maximizing model.

Question 20

Table 7-2
 $$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity of } \
\text { Soup (cups) }
\end{array} & \text { Total Utility } & \begin{array} { c } 
\text { Quantity of } \
\text { Sandwiches }
\end{array} & \text { Total Utility } \
\hline 1 & 40 & 1 & 45 \
\hline 2 & 60 & 2 & 75 \
\hline 3 & 72 & 3 & 102 \
\hline 4 & 82 & 4 & 120 \
\hline 5 & 88 & 5 & 135 \
\hline 6 & 90 & 6 & 145 \
\hline
\end{array}$$ 
Table 7-2 above shows Keira's utility from soup and sandwiches.The price of soup is $2 per cup and the price of a sandwich is $3.Keira has $18 to spend on these two goods.
-Refer to Table 7-2.What is Keira's marginal utility per dollar spent on the third cup of soup?

Accepted Answer

A) 72 units of utility 
B) 36 units of utility 
C) 12 units of utility 
D) 6 units of utility 
A) 72 units of utility 
B) 36 units of utility 
C) 12 units of utility 
D) 6 units of utility

Which of the following statements is true?

Optimal decisions are made

If the price elasticity of demand for insulin is equal to zero then the demand curve for insulin is

The ultimatum game and the dictator game are used in economic experiments to test whether fairness is an important influence on consumer decision-making.

Economists usually assume that people act in a rational,self-interested way.In explaining how consumers make choices this means that economists believe

What does price elasticity of demand measure? When is demand elastic? Inelastic? Unit elastic?

If the absolute value of the price elasticity of demand for aspirin equals 0.8 then

The iPod is a product without any significant network externalities.

The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears.To maximize his utility,what should Harold do?

When demand is elastic,a fall in price causes total revenue to rise because

Traditionally,economists have considered culture,customs,and religion as

The demand for gasoline is perfectly inelastic because most people need gasoline to drive their cars.

If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots,then

Economists have used and in experiments designed to determine whether consumers care about fairness when they make decisions.

Figure 7-8 -Refer to Figure 7-8.As price falls from PA to PB,the quantity demanded increases most along D₁; therefore,

If marginal utility of apples is diminishing and is a positive amount,consuming one more apple will cause

Figure 7-2 Figure 7-2 represents the demand for ice cream cones. -Refer to Figure 7-2.Which of the following statements is true?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Exam 7: Consumer Choice and Elasticity

Which of the following statements is true?

Optimal decisions are made

If the price elasticity of demand for insulin is equal to zero then the demand curve for insulin is

The ultimatum game and the dictator game are used in economic experiments to test whether fairness is an important influence on consumer decision-making.

Economists usually assume that people act in a rational,self-interested way.In explaining how consumers make choices this means that economists believe

What does price elasticity of demand measure? When is demand elastic? Inelastic? Unit elastic?

If the absolute value of the price elasticity of demand for aspirin equals 0.8 then

The iPod is a product without any significant network externalities.

The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears.To maximize his utility,what should Harold do?

When demand is elastic,a fall in price causes total revenue to rise because

Traditionally,economists have considered culture,customs,and religion as

The demand for gasoline is perfectly inelastic because most people need gasoline to drive their cars.

If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots,then

Economists have used ________ and ________ in experiments designed to determine whether consumers care about fairness when they make decisions.

Figure 7-8 -Refer to Figure 7-8.As price falls from PA to PB,the quantity demanded increases most along D₁; therefore,

If marginal utility of apples is diminishing and is a positive amount,consuming one more apple will cause

Figure 7-2 Figure 7-2 represents the demand for ice cream cones. -Refer to Figure 7-2.Which of the following statements is true?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Economists have used and in experiments designed to determine whether consumers care about fairness when they make decisions.