Question 1

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 2

According to the text, the price elasticity of demand for oranges has been estimated to be -0.62.This implies that a doubling of the price of oranges would cause the quantity demanded of oranges to:

Accepted Answer

A) increase by 6.2 percent. 
B) decrease by 6.2 percent. 
C) increase by 62 percent. 
D) decrease by 62 percent. 
A) increase by 6.2 percent. 
B) decrease by 6.2 percent. 
C) increase by 62 percent. 
D) decrease by 62 percent.

Question 3

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 4

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 5

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 6

Assume the demand for a good is price inelastic, i.e., ed < 1 (in absolute value).This means that if price decreases by 50 percent, quantity demanded will:

Accepted Answer

A) increase by more than 50 percent. 
B) decrease by more than 50 percent. 
C) increase by less than 50 percent. 
D) decrease by less than 50 percent. 
A) increase by more than 50 percent. 
B) decrease by more than 50 percent. 
C) increase by less than 50 percent. 
D) decrease by less than 50 percent.

Question 7

Which of the following is not a basic assumption underlying the theory of consumer behavior?

Accepted Answer

A) Consumers prefer more to less. 
B) Consumer preferences depend on the amounts of goods they consume as well as the amounts being consumed by other consumers. 
C) Goods are continuously divisible, that is, consumers can always purchase one more or one less unit of a good. 
D) Consumers have well-behaved preferences, that is, preference orderings are complete. 
A) Consumers prefer more to less. 
B) Consumer preferences depend on the amounts of goods they consume as well as the amounts being consumed by other consumers. 
C) Goods are continuously divisible, that is, consumers can always purchase one more or one less unit of a good. 
D) Consumers have well-behaved preferences, that is, preference orderings are complete.

Question 8

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 9

If the cross-price elasticity of demand between two goods is positive, we can assume that the two goods in question are:

Accepted Answer

A) complements. 
B) substitutes. 
C) inferior goods. 
D) totally unrelated to one another. 
A) complements. 
B) substitutes. 
C) inferior goods. 
D) totally unrelated to one another.

Question 10

Explain why the price elasticity of demand varies along a demand curve, even if the demand curve is linear.

Accepted Answer

As we move down a demand curve, the perc

Question 11

Which of the following statements is correct?

Accepted Answer

A) In the case of a linear demand curve, the slope and the price elasticity of demand are equal at each point on the demand curve. 
B) The slope of the demand curve is some constant value, but the value of the price elasticity coefficient decreases as we move down the demand curve. 
C) The slope of the demand curve is some constant value, but the value of the price elasticity coefficient increases as we move down the demand curve. 
D) There is no connection between the slope of the demand curve and the value of the price elasticity coefficient. 
A) In the case of a linear demand curve, the slope and the price elasticity of demand are equal at each point on the demand curve. 
B) The slope of the demand curve is some constant value, but the value of the price elasticity coefficient decreases as we move down the demand curve. 
C) The slope of the demand curve is some constant value, but the value of the price elasticity coefficient increases as we move down the demand curve. 
D) There is no connection between the slope of the demand curve and the value of the price elasticity coefficient.

Question 12

Assume that when the price of good Z is increased from $5 to $6, the total revenue earned increases from $600 to $690.Based on this information, we can conclude that over this range, demand for Z is:

Accepted Answer

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

The slope of the budget constraint:

According to the text, the price elasticity of demand for oranges has been estimated to be -0.62.This implies that a doubling of the price of oranges would cause the quantity demanded of oranges to:

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

An indifference curve is negatively-sloped because:

Assume the demand for a good is price inelastic, i.e., ed < 1 (in absolute value).This means that if price decreases by 50 percent, quantity demanded will:

Which of the following is not a basic assumption underlying the theory of consumer behavior?

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.

If the cross-price elasticity of demand between two goods is positive, we can assume that the two goods in question are:

Explain why the price elasticity of demand varies along a demand curve, even if the demand curve is linear.

Which of the following statements is correct?

Assume that when the price of good Z is increased from $5 to $6, the total revenue earned increases from $600 to $690.Based on this information, we can conclude that over this range, demand for Z 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

The slope of the budget constraint:

According to the text, the price elasticity of demand for oranges has been estimated to be -0.62.This implies that a doubling of the price of oranges would cause the quantity demanded of oranges to:

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

An indifference curve is negatively-sloped because:

Assume the demand for a good is price inelastic, i.e., ed < 1 (in absolute value).This means that if price decreases by 50 percent, quantity demanded will:

Which of the following is not a basic assumption underlying the theory of consumer behavior?

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.

If the cross-price elasticity of demand between two goods is positive, we can assume that the two goods in question are:

Explain why the price elasticity of demand varies along a demand curve, even if the demand curve is linear.

Which of the following statements is correct?

Assume that when the price of good Z is increased from $5 to $6, the total revenue earned increases from $600 to $690.Based on this information, we can conclude that over this range, demand for Z 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

Filters