Question 1

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

Accepted Answer

A)  The price of pens rises by 10 cents, and quantity of pens demanded falls by 50. 
B)  The price of pens rises by 10 cents, and total revenue rises. 
C)  A 20 percent increase in the price of pens leads to a 20 percent decrease in the quantity of pens demanded. 
D)  Total revenue does not change when the price of pens rises. 
E)  Total revenue decreases when the price of pens rises. 
A)  The price of pens rises by 10 cents, and quantity of pens demanded falls by 50. 
B)  The price of pens rises by 10 cents, and total revenue rises. 
C)  A 20 percent increase in the price of pens leads to a 20 percent decrease in the quantity of pens demanded. 
D)  Total revenue does not change when the price of pens rises. 
E)  Total revenue decreases when the price of pens rises. E

Question 2

Figure 7-5
  
-Which of the following is true for the demand curve depicted in Figure 7-5?

Accepted Answer

A)  In the $3 to $4 range, the price elasticity of the demand curve equals 1. 
B)  At a price of $3, the price elasticity of the demand curve equals approximately -3.3. 
C)  In the $3 to $4 range, the demand curve is inelastic. 
D)  In the $3 to $4 range, the demand curve is elastic. 
A)  In the $3 to $4 range, the price elasticity of the demand curve equals 1. 
B)  At a price of $3, the price elasticity of the demand curve equals approximately -3.3. 
C)  In the $3 to $4 range, the demand curve is inelastic. 
D)  In the $3 to $4 range, the demand curve is elastic. C

Question 3

The demand curve for a good is very unlikely to be perfectly vertical because

Accepted Answer

A)  scarcity and limited income restrict the ability of consumers to afford goods as they become very expensive. 
B)  as the price of a good rises to high enough levels, the incentive for other suppliers to invent new substitutes for the good increases. 
C)  consumers generally do not care about the price of the goods they consume. 
D)  both a and b are true. 
A)  scarcity and limited income restrict the ability of consumers to afford goods as they become very expensive. 
B)  as the price of a good rises to high enough levels, the incentive for other suppliers to invent new substitutes for the good increases. 
C)  consumers generally do not care about the price of the goods they consume. 
D)  both a and b are true. D

Question 4

Which of the following is not a fundamental that underlies consumer behavior?

Accepted Answer

A)  Goods can be substituted for one another. 
B)  Consumers make decisions purposefully based upon past experience and knowledge. 
C)  The law of diminishing marginal utility applies to all goods. 
D)  Consumers always make choices with perfect information. 
A)  Goods can be substituted for one another. 
B)  Consumers make decisions purposefully based upon past experience and knowledge. 
C)  The law of diminishing marginal utility applies to all goods. 
D)  Consumers always make choices with perfect information.

Question 5

As people have more time to adjust to a price change,

Accepted Answer

A)  demand becomes more elastic, and supply becomes less elastic. 
B)  demand becomes less elastic, and supply becomes more elastic. 
C)  both supply and demand become less elastic. 
D)  both supply and demand become more elastic. 
E)  elasticity of both demand and supply tends toward unity. 
A)  demand becomes more elastic, and supply becomes less elastic. 
B)  demand becomes less elastic, and supply becomes more elastic. 
C)  both supply and demand become less elastic. 
D)  both supply and demand become more elastic. 
E)  elasticity of both demand and supply tends toward unity.

Question 6

If Jane's marginal benefit as a consumer in the jeans market is larger than the price of a pair of jeans,

Accepted Answer

A)  Jane will not purchase any more jeans. 
B)  Jane can benefit by purchasing more jeans. 
C)  the opportunity cost of a pair of jeans is lower than the price. 
D)  Jane will decrease her total utility by purchasing more jeans. 
A)  Jane will not purchase any more jeans. 
B)  Jane can benefit by purchasing more jeans. 
C)  the opportunity cost of a pair of jeans is lower than the price. 
D)  Jane will decrease her total utility by purchasing more jeans.

Question 7

Marginal utility is the change in

Accepted Answer

A)  total utility when an extra unit of output is produced. 
B)  total utility when an extra unit of output is consumed. 
C)  marginal utility when an extra unit of output is produced. 
D)  average utility when an extra unit of output is consumed. 
A)  total utility when an extra unit of output is produced. 
B)  total utility when an extra unit of output is consumed. 
C)  marginal utility when an extra unit of output is produced. 
D)  average utility when an extra unit of output is consumed.

Question 8

If the price of apples increases, total expenditures on apples will decline if

Accepted Answer

A)  the demand for apples is inelastic. 
B)  the demand for apples is elastic. 
C)  the quantity of apples purchased is unresponsive to changes in price. 
D)  there are few good substitutes for apples. 
A)  the demand for apples is inelastic. 
B)  the demand for apples is elastic. 
C)  the quantity of apples purchased is unresponsive to changes in price. 
D)  there are few good substitutes for apples.

Question 9

If the elasticity of demand for cigarettes is 0.4, then an increase in the price of a pack of cigarettes from $1.00 to $1.30 would reduce quantities demanded by about

Accepted Answer

A)  27 percent. 
B)  40 percent. 
C)  12 percent. 
D)  95 percent. 
A)  27 percent. 
B)  40 percent. 
C)  12 percent. 
D)  95 percent.

Question 10

The price elasticity of demand for a product tends to be large (more elastic) when

Accepted Answer

A)  people spend a large share of their income on the product. 
B)  the population in the market area is small. 
C)  few good substitutes for the product are available. 
D)  many complementary products are available. 
A)  people spend a large share of their income on the product. 
B)  the population in the market area is small. 
C)  few good substitutes for the product are available. 
D)  many complementary products are available.

Question 11

If the demand for cigarettes is highly inelastic, this indicates that

Accepted Answer

A)  higher cigarette prices will increase the demand for cigarettes. 
B)  the price elasticity coefficient of cigarettes exceeds 1. 
C)  the price elasticity coefficient of cigarettes equals 1. 
D)  the quantity of cigarettes purchased by consumers is not very responsive to a change in the price of cigarettes. 
A)  higher cigarette prices will increase the demand for cigarettes. 
B)  the price elasticity coefficient of cigarettes exceeds 1. 
C)  the price elasticity coefficient of cigarettes equals 1. 
D)  the quantity of cigarettes purchased by consumers is not very responsive to a change in the price of cigarettes.

Question 12

When the price of a good falls, consumers buy more of the good because it is cheaper relative to competing goods. This statement describes the

Accepted Answer

A)  consumer equilibrium effect. 
B)  price effect. 
C)  income effect. 
D)  substitution effect. 
A)  consumer equilibrium effect. 
B)  price effect. 
C)  income effect. 
D)  substitution effect.

Question 13

Assuming that bus travel is an inferior good, a decrease in consumer income, other things being equal, will cause

Accepted Answer

A)  a downward movement along the demand curve for bus travel. 
B)  no change in the demand curve for bus travel. 
C)  an upward movement along the demand curve for air travel. 
D)  a rightward shift in the demand curve for bus travel. 
A)  a downward movement along the demand curve for bus travel. 
B)  no change in the demand curve for bus travel. 
C)  an upward movement along the demand curve for air travel. 
D)  a rightward shift in the demand curve for bus travel.

Question 14

The demand for a product is likely to be more elastic when

Accepted Answer

A)  the share of the total budget spent on the product is small. 
B)  more complementary products are available. 
C)  the consumer has a short time to adjust to price changes. 
D)  more good substitutes for the product are available. 
A)  the share of the total budget spent on the product is small. 
B)  more complementary products are available. 
C)  the consumer has a short time to adjust to price changes. 
D)  more good substitutes for the product are available.

Question 15

If John's marginal benefit derived from the consumption of another candy bar is greater than the price of the candy bar,

Accepted Answer

A)  John will not purchase any more candy bars. 
B)  John will increase his total satisfaction by purchasing the candy bar. 
C)  the opportunity cost of the candy bar is lower than the price. 
D)  John will decrease his total utility if he purchases the candy bar. 
A)  John will not purchase any more candy bars. 
B)  John will increase his total satisfaction by purchasing the candy bar. 
C)  the opportunity cost of the candy bar is lower than the price. 
D)  John will decrease his total utility if he purchases the candy bar.

Question 16

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is

Accepted Answer

A)  2.5. 
B)  0.4. 
C)  0.5. 
D)  5. 
E)  inelastic. 
A)  2.5. 
B)  0.4. 
C)  0.5. 
D)  5. 
E)  inelastic.

Question 17

If the quantity of oranges purchased decreases by 30 percent as the result of a 15 percent increase in the price of oranges, the price elasticity of demand for oranges is

Accepted Answer

A)  -0.25. 
B)  -0.50. 
C)  -1.25. 
D)  -2. 
A)  -0.25. 
B)  -0.50. 
C)  -1.25. 
D)  -2.

Question 18

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 amount 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 amount on sugar. 
D)  consume more goods like coffee and tea that are complements of sugar.

Question 19

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.

Question 20

Bob goes out to dinner three times per week, usually either to the local steak house or a Chinese restaurant in town. If the steak house were to raise its prices, Bob would probably (1) be less inclined to eat at the steak house and more inclined to eat at the Chinese restaurant when he did go out and (2) eat out fewer times per week because at the higher prices he cannot afford to eat out as much.

Accepted Answer

A)  Part 1 is an example of the substitution effect, part 2 of the income effect. 
B)  Part 1 is an example of the income effect, part 2 of the substitution effect. 
C)  Part 1 is an example of the law of diminishing marginal utility, part 2 of the substitution effect. 
D)  Part 1 is an example of the proportions hypothesis, part 2 of the income effect. 
A)  Part 1 is an example of the substitution effect, part 2 of the income effect. 
B)  Part 1 is an example of the income effect, part 2 of the substitution effect. 
C)  Part 1 is an example of the law of diminishing marginal utility, part 2 of the substitution effect. 
D)  Part 1 is an example of the proportions hypothesis, part 2 of the income effect.

Exam 20: Consumer Choice and Elasticity

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

Figure 7-5 -Which of the following is true for the demand curve depicted in Figure 7-5?

The demand curve for a good is very unlikely to be perfectly vertical because

Which of the following is not a fundamental that underlies consumer behavior?

As people have more time to adjust to a price change,

If Jane's marginal benefit as a consumer in the jeans market is larger than the price of a pair of jeans,

Marginal utility is the change in

If the price of apples increases, total expenditures on apples will decline if

If the elasticity of demand for cigarettes is 0.4, then an increase in the price of a pack of cigarettes from $1.00 to $1.30 would reduce quantities demanded by about

The price elasticity of demand for a product tends to be large (more elastic) when

If the demand for cigarettes is highly inelastic, this indicates that

When the price of a good falls, consumers buy more of the good because it is cheaper relative to competing goods. This statement describes the

Assuming that bus travel is an inferior good, a decrease in consumer income, other things being equal, will cause

The demand for a product is likely to be more elastic when

If John's marginal benefit derived from the consumption of another candy bar is greater than the price of the candy bar,

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is

If the quantity of oranges purchased decreases by 30 percent as the result of a 15 percent increase in the price of oranges, the price elasticity of demand for oranges is

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

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

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 : Taking the Nations Economic Pulse

B : Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

A : an Introduction to Basic Macroeconomic Markets

B : an Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, Incentives, and Secondary Effects

A : Money and the Banking System

B : Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

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

Special Topic 1 : Government Spending and Taxation

Special Topic 2 : The Economics of Social Security

Special Topic 3 : The Stock Market: Its Function, Performance, and Potential as an Investment Opportunity

Special Topic 4 : Great Debates in Economics: Keynes Versus Hayek

Special Topic 5 : The Crisis of 2008: Causes and Lessons for the Future

Special Topic 6 : Lessons from the Great Depression

Special Topic 7 : Lessons from Japan and Canada

Special Topic 8 : The Federal Budget and the National Debt

Special Topic 9 : The Economics of Healthcare

Special Topic 10 : Education: Problems and Performance

Special Topic 11 : Earnings Differences Between Men and Women

Special Topic 12 : Do Labor Unions Increase the Wages of Workers?

Special Topic 13 : The Question of Resource Exhaustion

Special Topic 14 : Difficult Environmental Cases and the Role of Government

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