Question 1

Figure 7-2
   Figure 7-2 represents the demand for ice cream cones.
-Refer to Figure 7-2.Which of the following statements is true?

Accepted Answer

A)  Points a and b are the utility-maximizing quantities of ice cream cones at two different prices of ice cream. 
B)  Points a and b may not necessarily be the utility-maximizing quantities of ice cream cones at two different prices because we have no information on the consumer's budget or the price of other goods. 
C)  Point a could be a utility-maximizing choice if the price is $3 but point b may not be because we have no information on the marginal utility per dollar when price changes. 
D)  Points a and b are derived independently of the utility-maximizing model. 
A)  Points a and b are the utility-maximizing quantities of ice cream cones at two different prices of ice cream. 
B)  Points a and b may not necessarily be the utility-maximizing quantities of ice cream cones at two different prices because we have no information on the consumer's budget or the price of other goods. 
C)  Point a could be a utility-maximizing choice if the price is $3 but point b may not be because we have no information on the marginal utility per dollar when price changes. 
D)  Points a and b are derived independently of the utility-maximizing model.

Question 2

Of the following,which is the best example of good with a perfectly inelastic demand?

Accepted Answer

A)  the demand for tickets in New York City when the Mets or Yankees are in the World Series 
B)  the demand for gasoline 
C)  a diabetic's demand for insulin 
D)  the demand for a college education by a student who has a full scholarship to an Ivy League school 
A)  the demand for tickets in New York City when the Mets or Yankees are in the World Series 
B)  the demand for gasoline 
C)  a diabetic's demand for insulin 
D)  the demand for a college education by a student who has a full scholarship to an Ivy League school

Question 3

Which of the following would result in a higher absolute value of the price elasticity of demand for a product?

Accepted Answer

A)  A wide variety of substitutes are available for the good. 
B)  The time period under consideration is short. 
C)  The good is a necessity. 
D)  The expenditure on the good is small relative to one's budget. 
A)  A wide variety of substitutes are available for the good. 
B)  The time period under consideration is short. 
C)  The good is a necessity. 
D)  The expenditure on the good is small relative to one's budget.

Question 4

Total utility

Accepted Answer

A)  cannot decrease as a person consumes more and more of a good. 
B)  has a constant rate of increase as a person consumes more and more of a good. 
C)  is equal to the sum of the marginal utilities of all units consumed. 
D)  is negative when marginal utility is declining. 
A)  cannot decrease as a person consumes more and more of a good. 
B)  has a constant rate of increase as a person consumes more and more of a good. 
C)  is equal to the sum of the marginal utilities of all units consumed. 
D)  is negative when marginal utility is declining.

Question 5

Carolyn spends her income on popular magazines and music CDs.If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility,she buys

Accepted Answer

A)  both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased. 
B)  both goods until the marginal utility of the last magazine purchased is four times the marginal utility of the last CD purchased. 
C)  four times as many magazines as CDs. 
D)  four times as many CDs as magazines. 
A)  both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased. 
B)  both goods until the marginal utility of the last magazine purchased is four times the marginal utility of the last CD purchased. 
C)  four times as many magazines as CDs. 
D)  four times as many CDs as magazines.

Question 6

If the demand for a product is perfectly inelastic,a decrease in the price of the product

Accepted Answer

A)  will increase total revenue. 
B)  will decrease total revenue. 
C)  will not change total revenue. 
D)  any of the above are possible. 
A)  will increase total revenue. 
B)  will decrease total revenue. 
C)  will not change total revenue. 
D)  any of the above are possible.

Question 7

We should never assume that an inelastic demand curve is a perfectly inelastic demand curve because

Accepted Answer

A)  there has never been evidence of a perfectly inelastic demand curve. 
B)  an inelastic demand curve may be perfectly inelastic at some times but not others. 
C)  perfectly inelastic demand curves are rare. 
D)  an inelastic demand curve may be elastic at low prices. 
A)  there has never been evidence of a perfectly inelastic demand curve. 
B)  an inelastic demand curve may be perfectly inelastic at some times but not others. 
C)  perfectly inelastic demand curves are rare. 
D)  an inelastic demand curve may be elastic at low prices.

Question 8

The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears.To maximize his utility,what should Harold do?

Accepted Answer

A)  He should acquire more income so that he can afford to buy more oranges and pears. 
B)  He should reduce his consumption of both oranges and pears so that he can buy a greater variety of goods. 
C)  He should buy fewer pears and more oranges. 
D)  He should buy fewer oranges and more pears. 
A)  He should acquire more income so that he can afford to buy more oranges and pears. 
B)  He should reduce his consumption of both oranges and pears so that he can buy a greater variety of goods. 
C)  He should buy fewer pears and more oranges. 
D)  He should buy fewer oranges and more pears.

Question 9

A perfectly elastic demand curve is

Accepted Answer

A)  vertical. 
B)  horizontal. 
C)  curvilinear. 
D)  upward sloping. 
A)  vertical. 
B)  horizontal. 
C)  curvilinear. 
D)  upward sloping.

Question 10

Behavioral economics is the study of situations in which people make rational choices.

Accepted Answer

A) True 
 B)False

Question 11

Table 7-2
 $\begin{array}{|c|c|c|c|}
\hline\begin{array}{c}
\text { Quantity of } \
\text { Soup (cups) }
\end{array} & \text { Total Utility } & \begin{array}{c}
\text { Quantity of } \
\text { Sandwiches }
\end{array} & \text { Total Utility } \
\hline 1 & 40 & 1 & 45 \
\hline 2 & 60 & 2 & 75 \
\hline 3 & 72 & 3 & 102 \
\hline 4 & 82 & 4 & 120 \
\hline 5 & 88 & 5 & 135 \
\hline 6 & 90 & 6 & 145 \
\hline
\end{array}$ Table 7-2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods.
-Refer to Table 7-2.If Keira maximizes her utility,how many units of each good should she buy?

Accepted Answer

A)  1 cup of soup and 5 sandwiches 
B)  3 cups of soup and 4 sandwiches 
C)  6 cups of soup and 2 sandwiches 
D)  4 cups of soup and 3.5 sandwiches 
A)  1 cup of soup and 5 sandwiches 
B)  3 cups of soup and 4 sandwiches 
C)  6 cups of soup and 2 sandwiches 
D)  4 cups of soup and 3.5 sandwiches

Question 12

Wilbur Rickhiser,a financial advisor,recently told one of his clients: "The biggest mistake you can make is to hold onto a stock for too long in order to avoid a loss.Let's say you bought a stock for $50 per share but that six months later the price fell to $40 after a poor earnings report.Many of my clients in this situation will hold the stock,hoping the price will later rise above $50.In most cases like this the price does not rise and may even fall.You must know when to cut your losses." Which of the following is the best explanation for Rickhiser's advice?

Accepted Answer

A)  People sometimes buy stocks because other people are buying them or they want to appear to be fashionable. 
B)  People sometimes make mistakes when they buy stocks because of the endowment effect. 
C)  People sometimes make mistakes when they buy stocks or when they buy goods and services: they ignore the monetary opportunity costs of their choices. 
D)  People often fail to ignore the sunk costs of their decisions. The cost of the stock bought at $50 per share is a sunk cost. 
A)  People sometimes buy stocks because other people are buying them or they want to appear to be fashionable. 
B)  People sometimes make mistakes when they buy stocks because of the endowment effect. 
C)  People sometimes make mistakes when they buy stocks or when they buy goods and services: they ignore the monetary opportunity costs of their choices. 
D)  People often fail to ignore the sunk costs of their decisions. The cost of the stock bought at $50 per share is a sunk cost.

Question 13

If the slope of a demand curve is equal to -0.1 then

Accepted Answer

A)  demand is inelastic. 
B)  we don't know whether the demand is elastic or inelastic. 
C)  the demand is elastic at low prices and inelastic at high prices. 
D)  as price increases by 10 percent quantity demanded decreases by 1 percent. 
A)  demand is inelastic. 
B)  we don't know whether the demand is elastic or inelastic. 
C)  the demand is elastic at low prices and inelastic at high prices. 
D)  as price increases by 10 percent quantity demanded decreases by 1 percent.

Question 14

Which of the following refers to the increase in the usefulness of a product as the number of consumers who use it increases?

Accepted Answer

A)  positive externalities 
B)  network externalities 
C)  external marginal utility 
D)  the impact of celebrity endorsements 
A)  positive externalities 
B)  network externalities 
C)  external marginal utility 
D)  the impact of celebrity endorsements

Question 15

Utility is

Accepted Answer

A)  easily measured in units called utils. 
B)  subjective and difficult to measure. 
C)  the consumption of a quasi-public good like electricity or natural gas. 
D)  the production of a quasi-public good like electricity or natural gas. 
A)  easily measured in units called utils. 
B)  subjective and difficult to measure. 
C)  the consumption of a quasi-public good like electricity or natural gas. 
D)  the production of a quasi-public good like electricity or natural gas.

Question 16

Economists have used ________ and ________ in experiments designed to determine whether consumers care about fairness when they make decisions.

Accepted Answer

A)  Giffen goods; luxury goods 
B)  the income effect; the substitution effect 
C)  the ultimatum game; the dictator game 
D)  network externalities; the endowment effect 
A)  Giffen goods; luxury goods 
B)  the income effect; the substitution effect 
C)  the ultimatum game; the dictator game 
D)  network externalities; the endowment effect

Question 17

The larger the share of a good in a consumer's budget,holding everything else constant,the

Accepted Answer

A)  more price elastic is a consumer's demand. 
B)  more vertical is a consumer's demand curve. 
C)  more price inelastic is a consumer's demand. 
D)  more unit elastic is a consumer's demand. 
A)  more price elastic is a consumer's demand. 
B)  more vertical is a consumer's demand curve. 
C)  more price inelastic is a consumer's demand. 
D)  more unit elastic is a consumer's demand.

Question 18

If marginal utility of apples is diminishing and is a positive amount,consuming one more apple will cause

Accepted Answer

A)  total utility to decrease. 
B)  a consumer to get no satisfaction from consuming apples. 
C)  a consumer's total utility to increase. 
D)  a consumer to go beyond her optimal consumption of apples. 
A)  total utility to decrease. 
B)  a consumer to get no satisfaction from consuming apples. 
C)  a consumer's total utility to increase. 
D)  a consumer to go beyond her optimal consumption of apples.

Question 19

Suppose the price elasticity of demand for cigarettes is -0.4.The FDA decides to regulate tobacco production,which increases the price of cigarettes and causes the quantity of cigarettes demanded to decrease by 25 percent.What is the percentage increase in price which would lead to the 25 percent decrease in quantity demanded? If the price elasticity was -4,what would be the percentage increase in price?

Accepted Answer

If price elasticity of demand is -0.4,a

Question 20

Which of the following is used to explain why a consumer's willingness to buy a cell phone increases as the number of other people who own and use cell phones increases?

Accepted Answer

A)  network externalities 
B)  market failure 
C)  diminishing marginal utility 
D)  the income effect of a price change 
A)  network externalities 
B)  market failure 
C)  diminishing marginal utility 
D)  the income effect of a price change

Figure 7-2 Figure 7-2 represents the demand for ice cream cones. -Refer to Figure 7-2.Which of the following statements is true?

Of the following,which is the best example of good with a perfectly inelastic demand?

Which of the following would result in a higher absolute value of the price elasticity of demand for a product?

Total utility

Carolyn spends her income on popular magazines and music CDs.If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility,she buys

If the demand for a product is perfectly inelastic,a decrease in the price of the product

We should never assume that an inelastic demand curve is a perfectly inelastic demand curve because

The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears.To maximize his utility,what should Harold do?

A perfectly elastic demand curve is

Behavioral economics is the study of situations in which people make rational choices.

If the slope of a demand curve is equal to -0.1 then

Which of the following refers to the increase in the usefulness of a product as the number of consumers who use it increases?

Utility is

Economists have used and in experiments designed to determine whether consumers care about fairness when they make decisions.

The larger the share of a good in a consumer's budget,holding everything else constant,the

If marginal utility of apples is diminishing and is a positive amount,consuming one more apple will cause

Which of the following is used to explain why a consumer's willingness to buy a cell phone increases as the number of other people who own and use cell phones increases?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, The Stock Market, and Corporate Governance

Technology,Production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, International Trade, and Exchange Rates

Filters

Exam 7: Consumer Choice and Elasticity

Figure 7-2 Figure 7-2 represents the demand for ice cream cones. -Refer to Figure 7-2.Which of the following statements is true?

Of the following,which is the best example of good with a perfectly inelastic demand?

Which of the following would result in a higher absolute value of the price elasticity of demand for a product?

Total utility

Carolyn spends her income on popular magazines and music CDs.If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility,she buys

If the demand for a product is perfectly inelastic,a decrease in the price of the product

We should never assume that an inelastic demand curve is a perfectly inelastic demand curve because

The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears.To maximize his utility,what should Harold do?

A perfectly elastic demand curve is

Behavioral economics is the study of situations in which people make rational choices.

If the slope of a demand curve is equal to -0.1 then

Which of the following refers to the increase in the usefulness of a product as the number of consumers who use it increases?

Utility is

Economists have used ________ and ________ in experiments designed to determine whether consumers care about fairness when they make decisions.

The larger the share of a good in a consumer's budget,holding everything else constant,the

If marginal utility of apples is diminishing and is a positive amount,consuming one more apple will cause

Which of the following is used to explain why a consumer's willingness to buy a cell phone increases as the number of other people who own and use cell phones increases?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, The Stock Market, and Corporate Governance

Technology,Production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, International Trade, and Exchange Rates

Filters

Economists have used and in experiments designed to determine whether consumers care about fairness when they make decisions.