Question 1

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

Accepted Answer

A) Total revenue decreases by 10 percent when the price of jeans rises by 10 percent. 
B) Total revenue decreases by less than 10 percent when the price of jeans rises by 10 percent. 
C) Total revenue increases by more than 10 percent when the price of jeans rises by 10 percent. 
D) Total revenue decreases by $10 when the price of jeans rises by $10. 
E) Total revenue decreases by more than $10 when the price of jeans rises by $10. 
A) Total revenue decreases by 10 percent when the price of jeans rises by 10 percent. 
B) Total revenue decreases by less than 10 percent when the price of jeans rises by 10 percent. 
C) Total revenue increases by more than 10 percent when the price of jeans rises by 10 percent. 
D) Total revenue decreases by $10 when the price of jeans rises by $10. 
E) Total revenue decreases by more than $10 when the price of jeans rises by $10.

Question 2

Elaine values the utility of her first cup of coffee at $1; a second cup, $.75; and a third cup, $.50. If Elaine drinks three cups of coffee for breakfast, her marginal utility is equal to

Accepted Answer

A) $.50, the value of her last cup of coffee. 
B) $1.00, the value of her first cup of coffee. 
C) $2.25. 
D) $1.50. 
A) $.50, the value of her last cup of coffee. 
B) $1.00, the value of her first cup of coffee. 
C) $2.25. 
D) $1.50.

Question 3

A 10 percent increase in the price of sugar reduces sugar consumption by about 5 percent. The increase causes households to

Accepted Answer

A) spend more on sugar. 
B) spend less on sugar. 
C) spend the same on sugar. 
D) consume more goods like coffee and tea that are complements of sugar. 
A) spend more on sugar. 
B) spend less on sugar. 
C) spend the same on sugar. 
D) consume more goods like coffee and tea that are complements of sugar.

Question 4

Suppose Microsoft announces it is cutting the prices of some of its software titles (mainly games) by 25 percent. Assuming that Microsoft is seeking to increase revenues, it must believe that the elasticity of demand for these products is

Accepted Answer

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

Question 5

When the price of Nike tennis shoes goes from $100 to $80, the quantity demanded increases from 20 to 30 million. Over this price range, the absolute value of the price elasticity of demand is

Accepted Answer

A) 0.55. 
B) 1. 
C) 1.25. 
D) 1.80. 
E) 2.50. 
A) 0.55. 
B) 1. 
C) 1.25. 
D) 1.80. 
E) 2.50.

Question 6

"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 7

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 8

Suppose the athletic department wanted to increase revenues by decreasing ticket prices to football games. This would make sense only if the price elasticity of demand for football games was (in absolute value)

Accepted Answer

A) greater than 1. 
B) equal to 1. 
C) less than 1. 
D) perfectly inelastic. 
A) greater than 1. 
B) equal to 1. 
C) less than 1. 
D) perfectly inelastic.

Question 9

If Mr. McLean thinks the last dollar spent on bowling yields more satisfaction than the last dollar spent on hamburgers, and McLean is a utility-maximizing consumer, he should

Accepted Answer

A) bowl less, so the marginal satisfaction from expenditures in this area will increase. 
B) spend more on hamburgers, so total satisfaction from that activity will increase. 
C) eliminate spending on hamburgers. 
D) bowl more and spend less on hamburgers. 
A) bowl less, so the marginal satisfaction from expenditures in this area will increase. 
B) spend more on hamburgers, so total satisfaction from that activity will increase. 
C) eliminate spending on hamburgers. 
D) bowl more and spend less on hamburgers.

Question 10

"I'm tired of eating cold pizza for breakfast. Today I'm going to the make some oatmeal instead." This statement most clearly reflects the

Accepted Answer

A) law of increasing returns to scale. 
B) second law of demand. 
C) law of diminishing marginal utility. 
D) law of comparative advantage. 
A) law of increasing returns to scale. 
B) second law of demand. 
C) law of diminishing marginal utility. 
D) law of comparative advantage.

Question 11

In economic theory, the word "demand" refers to

Accepted Answer

A) the amount people are willing to purchase at various prices. 
B) those wants or needs that are urgent or pressing. 
C) wants that are economic in character rather than social, cultural, or spiritual. 
D) the desire of persons for a good, regardless of whether they're willing to purchase the good. 
A) the amount people are willing to purchase at various prices. 
B) those wants or needs that are urgent or pressing. 
C) wants that are economic in character rather than social, cultural, or spiritual. 
D) the desire of persons for a good, regardless of whether they're willing to purchase the good.

Question 12

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 13

The price elasticity of demand for gasoline measures the

Accepted Answer

A) responsiveness of gasoline producers to changes in the quality of gasoline. 
B) responsiveness of customers to changes in the price of gasoline. 
C) responsiveness of consumer preferences to changes in the quality of gasoline. 
D) both a and c above. 
A) responsiveness of gasoline producers to changes in the quality of gasoline. 
B) responsiveness of customers to changes in the price of gasoline. 
C) responsiveness of consumer preferences to changes in the quality of gasoline. 
D) both a and c above.

Question 14

A 20 percent increase in the price of sugar reduces sugar consumption by about 10 percent. Such a price increase causes households to

Accepted Answer

A) spend less on sugar. 
B) spend more on sugar. 
C) spend the same amount on sugar as before. 
D) consume more goods like coffee and tea, which are sugar complements. 
A) spend less on sugar. 
B) spend more on sugar. 
C) spend the same amount on sugar as before. 
D) consume more goods like coffee and tea, which are sugar complements.

Question 15

Which of the following is true about marginal benefit?

Accepted Answer

A) A consumer's marginal benefit is equal to the height of her demand curve. 
B) Consumers will continue to purchase up until the point where marginal benefit equals price. 
C) Marginal benefit declines as consumption increases because of the law of diminishing marginal utility. 
D) All of the above are true. 
A) A consumer's marginal benefit is equal to the height of her demand curve. 
B) Consumers will continue to purchase up until the point where marginal benefit equals price. 
C) Marginal benefit declines as consumption increases because of the law of diminishing marginal utility. 
D) All of the above are true.

Question 16

If the demand for a good is elastic, then total revenue

Accepted Answer

A) increases as price increases. 
B) remains constant as quantity demanded increases. 
C) increases as price decreases. 
D) decreases as quantity demanded increases. 
E) decreases as price decreases. 
A) increases as price increases. 
B) remains constant as quantity demanded increases. 
C) increases as price decreases. 
D) decreases as quantity demanded increases. 
E) decreases as price decreases.

Question 17

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 18

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 19

Elaine, a small grocer, is planning to cut certain prices to increase her sales revenues. What will be the likely result of a price decrease for matches, a good for which the demand is inelastic, and a price decrease for fresh green tomatoes, an item for which consumer demand is elastic?

Accepted Answer

A) The total revenue derived from both will go up. 
B) The total revenue derived from matches will increase, but total revenue derived from tomatoes will decline. 
C) The total revenue derived from matches will decline, but total revenues derived from tomatoes will increase. 
D) The total revenues derived from both will decline. 
A) The total revenue derived from both will go up. 
B) The total revenue derived from matches will increase, but total revenue derived from tomatoes will decline. 
C) The total revenue derived from matches will decline, but total revenues derived from tomatoes will increase. 
D) The total revenues derived from both will decline.

Question 20

If Mr. Smith thinks the last dollar spent on shirts yields more satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should

Accepted Answer

A) decrease his spending on cola. 
B) decrease his spending on cola and increase his spending on shirts. 
C) increase his spending on shirts. 
D) increase his spending on cola and decrease his spending on shirts. 
A) decrease his spending on cola. 
B) decrease his spending on cola and increase his spending on shirts. 
C) increase his spending on shirts. 
D) increase his spending on cola and decrease his spending on shirts.

Exam 7: Consumer Choice and Elasticity

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

Elaine values the utility of her first cup of coffee at $1; a second cup, $.75; and a third cup, $.50. If Elaine drinks three cups of coffee for breakfast, her marginal utility is equal to

A 10 percent increase in the price of sugar reduces sugar consumption by about 5 percent. The increase causes households to

Suppose Microsoft announces it is cutting the prices of some of its software titles (mainly games) by 25 percent. Assuming that Microsoft is seeking to increase revenues, it must believe that the elasticity of demand for these products is

When the price of Nike tennis shoes goes from $100 to $80, the quantity demanded increases from 20 to 30 million. Over this price range, the absolute value of the price elasticity of demand is

"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

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

Suppose the athletic department wanted to increase revenues by decreasing ticket prices to football games. This would make sense only if the price elasticity of demand for football games was (in absolute value)

If Mr. McLean thinks the last dollar spent on bowling yields more satisfaction than the last dollar spent on hamburgers, and McLean is a utility-maximizing consumer, he should

"I'm tired of eating cold pizza for breakfast. Today I'm going to the make some oatmeal instead." This statement most clearly reflects the

In economic theory, the word "demand" refers to

Goods that consumers regard as luxuries generally have

The price elasticity of demand for gasoline measures the

A 20 percent increase in the price of sugar reduces sugar consumption by about 10 percent. Such a price increase causes households to

Which of the following is true about marginal benefit?

If the demand for a good is elastic, then total revenue

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

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

Elaine, a small grocer, is planning to cut certain prices to increase her sales revenues. What will be the likely result of a price decrease for matches, a good for which the demand is inelastic, and a price decrease for fresh green tomatoes, an item for which consumer demand is elastic?

If Mr. Smith thinks the last dollar spent on shirts yields more satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should

The Economic Approach

A: Some Tools of the Economist

B: Some Tools of the Economist

A: Supply, Demand, and the Market Process

B: Supply, Demand, and the Market Process

A: Supply and Demand: Applications and Extensions

B: Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

A: Costs and the Supply of Goods

B: Costs and the Supply of Goods

A: Price Takers and the Competitive Process

B: Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A: Price-Searcher Markets With High Entry Barriers

B: 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

Appendix: Government Spending and Taxation

Appendix: the Economics of Social Security

Appendix: the Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Appendix: Great Debates in Economics: Keynes Versus Hayek

Appendix: the Crisis of 2008: Causes and Lessons for the Future

Appendix: Lessons From the Great Depression

Appendix: the Economics of Healthcare

Appendix:education: Problems and Performance

Appendix: Earnings Differences Between Men and Women

Appendix: the Question of Resource Exhaustion

Appendix: Do Labor Unions Increase the Wages of Workers

Appendix: Difficult Environmental Cases and the Role of Government

Filters