Question 1

An indifference curve is negatively-sloped because:

Accepted Answer

A) utility is a subjective concept. 
B) as the consumer obtains additional units of one good, the consumer is willing to sacrifice increasing amounts of the other good. 
C) in order to remain at the same level of utility, if an individual gets more of one good, he must sacrifice some of the other good. 
D) marginal utility is constant along an indifference curve, and increases in the consumption of one good cause the price of that good to fall. 
A) utility is a subjective concept. 
B) as the consumer obtains additional units of one good, the consumer is willing to sacrifice increasing amounts of the other good. 
C) in order to remain at the same level of utility, if an individual gets more of one good, he must sacrifice some of the other good. 
D) marginal utility is constant along an indifference curve, and increases in the consumption of one good cause the price of that good to fall.

Question 2

Which of the following pairs of goods would be expected to have a positive cross-price elasticity of demand?

Accepted Answer

A) coffee and tea. 
B) gasoline and large SUVs. 
C) tennis racquets and tennis balls. 
D) hot dogs and hot dog buns. 
A) coffee and tea. 
B) gasoline and large SUVs. 
C) tennis racquets and tennis balls. 
D) hot dogs and hot dog buns.

Question 3

We would expect the cross price elasticity of demand between digital cameras and film cameras to be positive.

Accepted Answer

A) True 
 B)False

Question 4

When the percentage change in price is greater than the corresponding change in quantity demanded,demand is inelastic.

Accepted Answer

A) True 
 B)False

Question 5

Knowledge about the price elasticity of demand is especially useful to managers because it allows them to predict how a change in price would affect a firm's total profit.

Accepted Answer

A) True 
 B)False

Question 6

At a price of $5,consumers buy 200 units of good X.When the price falls to $4,quantity demanded increases to 250 units.We can conclude that over this range,demand is:

Accepted Answer

A) elastic. 
B) unit elastic. 
C) inelastic. 
D) perfectly inelastic. 
A) elastic. 
B) unit elastic. 
C) inelastic. 
D) perfectly inelastic.

Question 7

A consumer is in equilibrium,that is,a consumer is maximizing her utility when marginal utility and price are equal for each of the goods the consumer purchases.

Accepted Answer

A) True 
 B)False

Question 8

Assume a consumer is currently purchasing a combination of goods,X and Y,that maximizes her utility given her budget constraint,i.e.,MRSX,Y = PX/PY.Now assume that there is a decrease in the price of Y.In this case,to once again maximize her utility,the consumer will want to adjust her purchases of X and Y such that:

Accepted Answer

A) the marginal rate of substitution of X for Y, i.e., MRSX,Y, decreases. 
B) the marginal rate of substitution of X for Y, i.e., MRSX,Y, stays the same. 
C) the marginal rate of substitution of X for Y, i.e., MRSX,Y, increases. 
D) none of the above. The consumer will continue to maximize her utility after the price change by continuing to consume the same combination of X and Y. 
A) the marginal rate of substitution of X for Y, i.e., MRSX,Y, decreases. 
B) the marginal rate of substitution of X for Y, i.e., MRSX,Y, stays the same. 
C) the marginal rate of substitution of X for Y, i.e., MRSX,Y, increases. 
D) none of the above. The consumer will continue to maximize her utility after the price change by continuing to consume the same combination of X and Y.

Question 9

A demand elasticity coefficient is a measure of the sensitivity of quantity demanded to a change in one of the determinants of demand.

Accepted Answer

A) True 
 B)False

Question 10

Consider two goods,X and Y,where X is measured on the horizontal axis and Y is measured on the vertical axis.All else constant,a decrease in the price of X will cause the consumer's budget constraint to:

Accepted Answer

A) rotate in along the X axis 
B) rotate out along the X axis. 
C) shift out parallel to the original budget constraint. 
D) shift in parallel to the original budget constraint. 
A) rotate in along the X axis 
B) rotate out along the X axis. 
C) shift out parallel to the original budget constraint. 
D) shift in parallel to the original budget constraint.

Question 11

Assume the income elasticity for a particular good has been estimated to be -0.68.Based on this information,we can infer that the good is inferior and a necessity.

Accepted Answer

A) True 
 B)False

Question 12

The slope of the budget constraint:

Accepted Answer

A) changes as the marginal rate of substitution changes. 
B) is the ratio of the prices of the two goods. 
C) is the ratio of the budget to total utility. 
D) equals one, since the consumer can purchase any combination along the budget constraint. 
A) changes as the marginal rate of substitution changes. 
B) is the ratio of the prices of the two goods. 
C) is the ratio of the budget to total utility. 
D) equals one, since the consumer can purchase any combination along the budget constraint.

Question 13

Assume a consumer purchases two goods: X and Y.All else constant,an increase in the price of X would cause the total utility the consumer can obtain with her available income to decrease.

Accepted Answer

A) True 
 B)False

Question 14

Suppose the demand for meals at a medium-priced restaurant is elastic.If the management of the restaurant is considering raising prices,it can expect a relatively:

Accepted Answer

A) large decrease in quantity demanded. 
B) large decrease in demand. 
C) small decrease in quantity demanded. 
D) small decrease in demand. 
A) large decrease in quantity demanded. 
B) large decrease in demand. 
C) small decrease in quantity demanded. 
D) small decrease in demand.

Question 15

Assuming we are considering a normal good,the calculated price elasticity of demand is:

Accepted Answer

A) always positive. 
B) always negative. 
C) positive if demand is elastic and negative if demand is inelastic. 
D) positive if demand is inelastic and negative if demand is elastic. 
A) always positive. 
B) always negative. 
C) positive if demand is elastic and negative if demand is inelastic. 
D) positive if demand is inelastic and negative if demand is elastic.

Question 16

If an increase in price causes total revenue to decrease,we can conclude that demand is price elastic.

Accepted Answer

A) True 
 B)False

Question 17

Summarize the relationship between elasticity,price changes,and changes in total revenue.

Accepted Answer

When demand is inelastic,total revenue m

Question 18

Assuming demand is inelastic,if a firm wants to increase its total revenue,it should raise price.

Accepted Answer

A) True 
 B)False

Question 19

Assume the cross price elasticity of demand between peanut butter and grape jelly is negative.
a.Does the cross price elasticity coefficient indicate that peanut butter and grape jelly are substitutes or complements? Why?
b.Describe the effect associated with an increase in the price of peanut butter on the the demand for both peanut butter and grape jelly.

Accepted Answer

a.A negative price elasticity coefficien

Question 20

If the percentage change in quantity demanded is less than the percentage change in price,we would say that over this range,demand is:

Accepted Answer

A) elastic. 
B) unit elastic. 
C) inelastic. 
D) perfectly elastic. 
A) elastic. 
B) unit elastic. 
C) inelastic. 
D) perfectly elastic.

An indifference curve is negatively-sloped because:

Which of the following pairs of goods would be expected to have a positive cross-price elasticity of demand?

We would expect the cross price elasticity of demand between digital cameras and film cameras to be positive.

When the percentage change in price is greater than the corresponding change in quantity demanded,demand is inelastic.

Knowledge about the price elasticity of demand is especially useful to managers because it allows them to predict how a change in price would affect a firm's total profit.

At a price of $5,consumers buy 200 units of good X.When the price falls to $4,quantity demanded increases to 250 units.We can conclude that over this range,demand is:

A consumer is in equilibrium,that is,a consumer is maximizing her utility when marginal utility and price are equal for each of the goods the consumer purchases.

A demand elasticity coefficient is a measure of the sensitivity of quantity demanded to a change in one of the determinants of demand.

Consider two goods,X and Y,where X is measured on the horizontal axis and Y is measured on the vertical axis.All else constant,a decrease in the price of X will cause the consumer's budget constraint to:

Assume the income elasticity for a particular good has been estimated to be -0.68.Based on this information,we can infer that the good is inferior and a necessity.

The slope of the budget constraint:

Assume a consumer purchases two goods: X and Y.All else constant,an increase in the price of X would cause the total utility the consumer can obtain with her available income to decrease.

Suppose the demand for meals at a medium-priced restaurant is elastic.If the management of the restaurant is considering raising prices,it can expect a relatively:

Assuming we are considering a normal good,the calculated price elasticity of demand is:

If an increase in price causes total revenue to decrease,we can conclude that demand is price elastic.

Summarize the relationship between elasticity,price changes,and changes in total revenue.

Assuming demand is inelastic,if a firm wants to increase its total revenue,it should raise price.

If the percentage change in quantity demanded is less than the percentage change in price,we would say that over this range,demand is:

Managers and Economics

Demand, supply, and Equilibrium Prices

Techniques for Understanding Consumer Demand and Behavior

Production and Cost Analysis in the Short Run

Production and Cost Analysis in the Long Run

Market Structure: Perfect Competition

Market Structure: Monopoly and Monopolistic Competition

Market Structure: Oligopoly

Pricing Strategies for the Firm

Measuring Macroeconomic Activity

Spending by Individuals, firms, and Governments on Real Goods and Services

The Role of Money in the Macro Economy

The Aggregate Model of the Macro Economy

International and Balance of Payments Issues in the Macro Economy

Combining Micro and Macro Analysis for Managerial Decision Making

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Exam 3: Demand Elasticities

An indifference curve is negatively-sloped because:

Which of the following pairs of goods would be expected to have a positive cross-price elasticity of demand?

We would expect the cross price elasticity of demand between digital cameras and film cameras to be positive.

When the percentage change in price is greater than the corresponding change in quantity demanded,demand is inelastic.

Knowledge about the price elasticity of demand is especially useful to managers because it allows them to predict how a change in price would affect a firm's total profit.

At a price of $5,consumers buy 200 units of good X.When the price falls to $4,quantity demanded increases to 250 units.We can conclude that over this range,demand is:

A consumer is in equilibrium,that is,a consumer is maximizing her utility when marginal utility and price are equal for each of the goods the consumer purchases.

A demand elasticity coefficient is a measure of the sensitivity of quantity demanded to a change in one of the determinants of demand.

Consider two goods,X and Y,where X is measured on the horizontal axis and Y is measured on the vertical axis.All else constant,a decrease in the price of X will cause the consumer's budget constraint to:

Assume the income elasticity for a particular good has been estimated to be -0.68.Based on this information,we can infer that the good is inferior and a necessity.

The slope of the budget constraint:

Assume a consumer purchases two goods: X and Y.All else constant,an increase in the price of X would cause the total utility the consumer can obtain with her available income to decrease.

Suppose the demand for meals at a medium-priced restaurant is elastic.If the management of the restaurant is considering raising prices,it can expect a relatively:

Assuming we are considering a normal good,the calculated price elasticity of demand is:

If an increase in price causes total revenue to decrease,we can conclude that demand is price elastic.

Summarize the relationship between elasticity,price changes,and changes in total revenue.

Assuming demand is inelastic,if a firm wants to increase its total revenue,it should raise price.

If the percentage change in quantity demanded is less than the percentage change in price,we would say that over this range,demand is:

Managers and Economics

Demand, supply, and Equilibrium Prices

Techniques for Understanding Consumer Demand and Behavior

Production and Cost Analysis in the Short Run

Production and Cost Analysis in the Long Run

Market Structure: Perfect Competition

Market Structure: Monopoly and Monopolistic Competition

Market Structure: Oligopoly

Pricing Strategies for the Firm

Measuring Macroeconomic Activity

Spending by Individuals, firms, and Governments on Real Goods and Services

The Role of Money in the Macro Economy

The Aggregate Model of the Macro Economy

International and Balance of Payments Issues in the Macro Economy

Combining Micro and Macro Analysis for Managerial Decision Making

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