Question 1

Figure 7-12
  
-Refer to Figure 7-12. An increase in price from $30 to $35 would

Accepted Answer

A)  increase total revenue by $250 
B)  decrease total revenue by $250. 
C)  increase total revenue by $500. 
D)  decrease total revenue by $500. 
A)  increase total revenue by $250 
B)  decrease total revenue by $250. 
C)  increase total revenue by $500. 
D)  decrease total revenue by $500.

Question 2

If rice is an inferior good,

Accepted Answer

A)  the income elasticity of demand for rice will be positive. 
B)  an increase in income will cause the demand curve for rice to shift to the left. 
C)  an increase in income will cause consumers to buy more rice at the current market price. 
D)  a reduction in income would not affect the demand for rice, but it would increase the quantity demanded. 
A)  the income elasticity of demand for rice will be positive. 
B)  an increase in income will cause the demand curve for rice to shift to the left. 
C)  an increase in income will cause consumers to buy more rice at the current market price. 
D)  a reduction in income would not affect the demand for rice, but it would increase the quantity demanded.

Question 3

If demand is inelastic, an increase in the price of a good will cause total expenditures on the good to

Accepted Answer

A)  fall. 
B)  remain constant since the decrease in quantity sold is exactly offset by the price increase. 
C)  rise. 
D)  rise if it is a normal good and fall if it is an inferior good. 
A)  fall. 
B)  remain constant since the decrease in quantity sold is exactly offset by the price increase. 
C)  rise. 
D)  rise if it is a normal good and fall if it is an inferior good.

Question 4

If the demand for a product increases as the result of an increase in income, it can be concluded that the

Accepted Answer

A)  product is an inferior good. 
B)  demand for the product is inelastic. 
C)  price elasticity of demand for the product equals unity. 
D)  product is a normal good. 
A)  product is an inferior good. 
B)  demand for the product is inelastic. 
C)  price elasticity of demand for the product equals unity. 
D)  product is a normal good.

Question 5

A local restaurant offers an "all you can eat" ribs special. You pay $11.95, and then you can eat as many servings as you desire at no additional cost. It would follow that you will stop eating when

Accepted Answer

A)  your marginal utility (or value) derived from eating another serving is zero. 
B)  your total utility (or value) derived from all of the servings consumed just equals $11.95. 
C)  your marginal utility (or value) derived from another serving equals $11.95. 
D)  it is physically impossible for you to eat any more. 
A)  your marginal utility (or value) derived from eating another serving is zero. 
B)  your total utility (or value) derived from all of the servings consumed just equals $11.95. 
C)  your marginal utility (or value) derived from another serving equals $11.95. 
D)  it is physically impossible for you to eat any more.

Question 6

Figure 7-3
  
-Figure 7-3 depicts a demand curve with a price elasticity that is

Accepted Answer

A)  perfectly elastic, implying that consumers will purchase as much as can be supplied at the market price. 
B)  relatively inelastic, implying that a percent increase in price results in a smaller percent reduction in sales. 
C)  unitary, implying that a percent change in price leads to an equal percent change in quantity demanded. 
D)  perfectly inelastic, implying that the same amount will be purchased regardless of the price of the good. 
A)  perfectly elastic, implying that consumers will purchase as much as can be supplied at the market price. 
B)  relatively inelastic, implying that a percent increase in price results in a smaller percent reduction in sales. 
C)  unitary, implying that a percent change in price leads to an equal percent change in quantity demanded. 
D)  perfectly inelastic, implying that the same amount will be purchased regardless of the price of the good.

Question 7

Which of the following is the best example of the substitution effect?

Accepted Answer

A)  Joe buys fewer apples and more oranges as the result of an increase in the price of apples. 
B)  Joe buys more apples when his income increases. 
C)  Joe buys an apple slicer when the price of apples decreases. 
D)  Joe buys less sugar as the result of an increase in price of apples. 
A)  Joe buys fewer apples and more oranges as the result of an increase in the price of apples. 
B)  Joe buys more apples when his income increases. 
C)  Joe buys an apple slicer when the price of apples decreases. 
D)  Joe buys less sugar as the result of an increase in price of apples.

Question 8

If people spend 30 percent less on movie tickets when movie prices decline 15 percent, the price elasticity of demand for movie tickets at these prices must be

Accepted Answer

A)  -3.0. 
B)  elastic 
C)  -0.5. 
D)  inelastic. 
A)  -3.0. 
B)  elastic 
C)  -0.5. 
D)  inelastic.

Question 9

Use the figure below to answer the following question(s).
Figure 7-6
  
-Between $3 and $4, the price elasticity of the demand curve depicted in Figure 7-6 is

Accepted Answer

A)  relatively inelastic. 
B)  approximately equal to -0.33. 
C)  approximately equal to -3. 
D)  both a and b. 
A)  relatively inelastic. 
B)  approximately equal to -0.33. 
C)  approximately equal to -3. 
D)  both a and b.

Question 10

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 11

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 12

If bus travel is an inferior good, then its income elasticity of demand will be

Accepted Answer

A)  strictly greater than one. 
B)  positive. 
C)  equal to zero. 
D)  negative. 
A)  strictly greater than one. 
B)  positive. 
C)  equal to zero. 
D)  negative.

Question 13

If the price of gasoline goes up, and Dan now buys fewer candy bars because he has to spend more on gas, this would best be explained by

Accepted Answer

A)  the substitution effect. 
B)  the income effect. 
C)  the highly elastic demand for gasoline. 
D)  all of the above. 
A)  the substitution effect. 
B)  the income effect. 
C)  the highly elastic demand for gasoline. 
D)  all of the above.

Question 14

When the price elasticity of demand is greater than one, it means that demand is

Accepted Answer

A)  inelastic and the percent change in quantity is greater than the percent change in price. 
B)  inelastic and the percent change in quantity is less than the percent change in price. 
C)  elastic and the percent change in quantity is greater than the percent change in price. 
D)  elastic and the percent change in quantity is less than the percent change in price. 
A)  inelastic and the percent change in quantity is greater than the percent change in price. 
B)  inelastic and the percent change in quantity is less than the percent change in price. 
C)  elastic and the percent change in quantity is greater than the percent change in price. 
D)  elastic and the percent change in quantity is less than the percent change in price.

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

Figure 7-14
  
-Refer to Figure 7-14. Which supply curve represents perfectly inelastic supply?

Accepted Answer

A)  S₁ 
B)  S₂ 
C)  S3 
D)  It is impossible to tell without more information. 
A)  S₁ 
B)  S₂ 
C)  S3 
D)  It is impossible to tell without more information.

Question 17

Why do economists use the concept of elasticity in addition to measurement of the slope of the demand curve?

Accepted Answer

A)  Mathematical equations are favored over graphical analysis. 
B)  Elasticities are independent of the units of measure. 
C)  The concept of elasticity can be used in other areas of economics, whereas the slope of the demand curve is only useful in demand analysis. 
D)  These terms are interchangeable, but elasticity has the more professional sound. 
A)  Mathematical equations are favored over graphical analysis. 
B)  Elasticities are independent of the units of measure. 
C)  The concept of elasticity can be used in other areas of economics, whereas the slope of the demand curve is only useful in demand analysis. 
D)  These terms are interchangeable, but elasticity has the more professional sound.

Question 18

A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.91. The administration is considering a tuition increase to help balance the budget. The revenue-maximizing decision is to

Accepted Answer

A)  decrease tuition, which should boost enrollment enough to balance the budget. 
B)  decrease tuition, which would bring in more revenue. 
C)  leave tuition as is-an increase would not help balance the budget. 
D)  increase tuition, which would generate more revenue. 
A)  decrease tuition, which should boost enrollment enough to balance the budget. 
B)  decrease tuition, which would bring in more revenue. 
C)  leave tuition as is-an increase would not help balance the budget. 
D)  increase tuition, which would generate more revenue.

Question 19

The market demand for a good is

Accepted Answer

A)  the horizontal sum of all individual demand curves for the good. 
B)  generally upward sloping, unlike individual demand curves. 
C)  usually a vertical line at a quantity of one hundred. 
D)  the average amount purchased by each individual in the market. 
A)  the horizontal sum of all individual demand curves for the good. 
B)  generally upward sloping, unlike individual demand curves. 
C)  usually a vertical line at a quantity of one hundred. 
D)  the average amount purchased by each individual in the market.

Question 20

If the price of hamburger increases, the substitution effect works to

Accepted Answer

A)  decrease the quantity of hamburger supplied. 
B)  increase the number of hamburger buns demanded. 
C)  decrease the quantity of hamburger demanded. 
D)  increase the number of hamburger buns supplied. 
A)  decrease the quantity of hamburger supplied. 
B)  increase the number of hamburger buns demanded. 
C)  decrease the quantity of hamburger demanded. 
D)  increase the number of hamburger buns supplied.

Exam 20: Consumer Choice and Elasticity

Figure 7-12 -Refer to Figure 7-12. An increase in price from $30 to $35 would

If rice is an inferior good,

If demand is inelastic, an increase in the price of a good will cause total expenditures on the good to

If the demand for a product increases as the result of an increase in income, it can be concluded that the

A local restaurant offers an "all you can eat" ribs special. You pay $11.95, and then you can eat as many servings as you desire at no additional cost. It would follow that you will stop eating when

Figure 7-3 -Figure 7-3 depicts a demand curve with a price elasticity that is

Which of the following is the best example of the substitution effect?

If people spend 30 percent less on movie tickets when movie prices decline 15 percent, the price elasticity of demand for movie tickets at these prices must be

Use the figure below to answer the following question(s). Figure 7-6 -Between $3 and $4, the price elasticity of the demand curve depicted in Figure 7-6 is

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 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

If bus travel is an inferior good, then its income elasticity of demand will be

If the price of gasoline goes up, and Dan now buys fewer candy bars because he has to spend more on gas, this would best be explained by

When the price elasticity of demand is greater than one, it means that demand is

Which of the following is true about marginal benefit?

Figure 7-14 -Refer to Figure 7-14. Which supply curve represents perfectly inelastic supply?

Why do economists use the concept of elasticity in addition to measurement of the slope of the demand curve?

A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.91. The administration is considering a tuition increase to help balance the budget. The revenue-maximizing decision is to

The market demand for a good is

If the price of hamburger increases, the substitution effect works to

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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