Question 1

The limitation that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

Accepted Answer

A)  maximizing behavior. 
B)  economizing behavior. 
C)  the price constraint. 
D)  the budget constraint. 
A)  maximizing behavior. 
B)  economizing behavior. 
C)  the price constraint. 
D)  the budget constraint.

Question 2

Jaycee Jeans sold 40 pairs of jeans at a price of $40.When it lowered its price to $20,the quantity sold increased to 60 pairs.Calculate the absolute value of the price elasticity of demand.Use the midpoint formula.

Accepted Answer

A)  1.67 
B)  1.0 
C)  0.6 
D)  0.53 
A)  1.67 
B)  1.0 
C)  0.6 
D)  0.53

Question 3

Table 7-11
 $\begin{array}{|c|c|}
\hline \begin{array}{c}
\text { Hourly Rental } \
\text { Rate (dollars) }
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
\text { (hours) }
\end{array} \
\hline \$ 60 & 40 \
\hline 75 & 32 \
\hline 80 & 30 \
\hline 100 & 24 \
\hline
\end{array}$
-Refer to Table 7-11.Katie Graham owns a kayak rental service in Santa Barbara.Table 6.5 shows her estimated demand schedule for kayak rentals per week.She would like to increase her sales revenue by changing the price she charges for rentals.At present she charges $75.Based on the information in the table,Katie

Accepted Answer

A)  is not able to increase her revenue by changing her price because the demand for kayak rentals is unit elastic. 
B)  should lower her price to $60 to increase her revenue because the demand for kayak rentals is price elastic. 
C)  should raise her price to $80 to increase her revenue because the demand for kayak rentals is price inelastic. 
D)  should raise her price to earn the most revenue. 
A)  is not able to increase her revenue by changing her price because the demand for kayak rentals is unit elastic. 
B)  should lower her price to $60 to increase her revenue because the demand for kayak rentals is price elastic. 
C)  should raise her price to $80 to increase her revenue because the demand for kayak rentals is price inelastic. 
D)  should raise her price to earn the most revenue.

Question 4

Which of the following goods would have the most inelastic demand?

Accepted Answer

A)  ski vacations 
B)  bread 
C)  luxury cars 
D)  big screen TVs 
A)  ski vacations 
B)  bread 
C)  luxury cars 
D)  big screen TVs

Question 5

A Giffen good could be either a normal good or an inferior good.

Accepted Answer

A) True 
 B)False

Question 6

Marge buys 5 CDs and 7 DVDs.The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils.Can we say that this is the optimal combination of CDs and DVDs for Marge?

Accepted Answer

A)  No. We need to know her preferences for CDs and DVDs. 
B)  Yes. 
C)  No. For this to be the optimal combination, the total utility from her purchase of CDs needs to equal the total utility from her purchase of DVDs. 
D)  No. If this was the optimal combination, the marginal utility per dollar of the 5th CD and the 7th DVD would be equal. 
A)  No. We need to know her preferences for CDs and DVDs. 
B)  Yes. 
C)  No. For this to be the optimal combination, the total utility from her purchase of CDs needs to equal the total utility from her purchase of DVDs. 
D)  No. If this was the optimal combination, the marginal utility per dollar of the 5th CD and the 7th DVD would be equal.

Question 7

Behavioral economics refers to the study of situations

Accepted Answer

A)  where consumers and firms appear to make choices that are appropriate to reach their goals. 
B)  where consumers and firms appear to value fairness when they make choices. 
C)  where consumers and firms disobey the laws of demand and supply. 
D)  where consumers and firms do not appear to be making choices that are economically rational. 
A)  where consumers and firms appear to make choices that are appropriate to reach their goals. 
B)  where consumers and firms appear to value fairness when they make choices. 
C)  where consumers and firms disobey the laws of demand and supply. 
D)  where consumers and firms do not appear to be making choices that are economically rational.

Question 8

Arnold Kim began blogging about Apple products during his fourth year of medical school.Kim's Website,MacRumors.com,became so successful that he decided to give up his medical career and work full time on his Website,despite the nearly $200,000 he had invested in his education.In making his decision,the $200,000 he spent on his education

Accepted Answer

A)  should be ignored since it represents a sunk cost. 
B)  should be considered since it is money he has spent and needs to recoup. 
C)  should be ignored only if Kim can earn more than $200,000 by running his Website. 
D)  should be considered since it is money he could have used to invest in his Website. 
A)  should be ignored since it represents a sunk cost. 
B)  should be considered since it is money he has spent and needs to recoup. 
C)  should be ignored only if Kim can earn more than $200,000 by running his Website. 
D)  should be considered since it is money he could have used to invest in his Website.

Question 9

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3,then quantity demanded

Accepted Answer

A)  will increase by 45 percent. 
B)  will increase by 5 percent. 
C)  will decrease by 45 percent. 
D)  will decrease by 5 percent. 
A)  will increase by 45 percent. 
B)  will increase by 5 percent. 
C)  will decrease by 45 percent. 
D)  will decrease by 5 percent.

Question 10

One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.

Accepted Answer

A) True 
 B)False

Question 11

Table 7-9
 $\begin{array}{|c|c|}
\hline\begin{array}{c}
\text { Price per Pound } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Quantity of Cheese } \
\text { Demanded (pounds) }
\end{array} \
\hline \$ 16 & 3 \
\hline 14 & 4 \
\hline 12 & 5 \
\hline 10 & 6 \
\hline 8 & 7 \
\hline 6 & 8 \
\hline 4 & 9 \
\hline 2 & 10 \
\hline
\end{array}$
-Refer to Table 7-9.Over what range of prices is the demand elastic?

Accepted Answer

A)  over the entire range of prices 
B)  between $14 and $16 
C)  between $8 and $16 
D)  between $2 and $8 
A)  over the entire range of prices 
B)  between $14 and $16 
C)  between $8 and $16 
D)  between $2 and $8

Question 12

Table 7-6
 $\begin{array}{|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity of } \
\text { Beer (glasses) }
\end{array} & \text { Total Utility } & \begin{array}{c}
\text { Quantity of } \
\text { Pizza (slices) }
\end{array} & \text { Total Utility } \
\hline 1 & 25 & 1 & 20 \
\hline 2 & 45 & 2 & 35 \
\hline 3 & 60 & 3 & 45 \
\hline 4 & 65 & 4 & 50 \
\hline 5 & 69 & 5 & 52 \
\hline 6 & 70 & 6 & 52 \
\hline
\end{array}$ Table 7-6 shows Antonio's utility from beer and pizza.
-Refer to Table 7-6.Suppose Antonio has $10 to spend and the price of beer = $2 per glass and the price of pizza = $2 per slice.How many of each good will he consume when he maximizes his utility?

Accepted Answer

A)  2 glasses of beer, 1 slice of pizza 
B)  2 glasses of beer, 3 slices of pizza 
C)  3 glasses of beer, 2 slices of pizza 
D)  4 glasses of beer, 5 slices of pizza 
A)  2 glasses of beer, 1 slice of pizza 
B)  2 glasses of beer, 3 slices of pizza 
C)  3 glasses of beer, 2 slices of pizza 
D)  4 glasses of beer, 5 slices of pizza

Question 13

Table 7-12
 $\begin{array}{|r|c|c|}
\hline \text { Price of Book } & \begin{array}{c}
\text { Copies Sold at } \
\text { That Price }
\end{array} & \begin{array}{c}
\text { Total Revenue at } \
\text { That Price }
\end{array} \
\hline \$ 14.99 & 100,000 & \$ 1,499,000 \
\hline 9.99 & 174,000 & 1,738,00 \
\hline
\end{array}$
-Refer to Table 7-12.Based on the data in the table,between a price of $9.99 and $14.99,the demand for books is

Accepted Answer

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

Question 14

Jenna runs a small boutique in Capitola.She tells one of her suppliers that she is willing to pay $6 for a pair of wool hand warmers and not a dime more.On the basis of this information,what can you conclude about her price elasticity of demand for wool hand warmers?

Accepted Answer

A)  It is elastic. 
B)  It is perfectly elastic. 
C)  It is perfectly inelastic. 
D)  The price elasticity coefficient is 0. 
A)  It is elastic. 
B)  It is perfectly elastic. 
C)  It is perfectly inelastic. 
D)  The price elasticity coefficient is 0.

Question 15

The Mass Rapid Transit (MRT)System in Hong Kong has been running significant losses.Transport Ministry officials have argued over whether to raise fares to combat the losses.One argument against a fare increase is that it will aggravate traffic congestion on the streets during peak commuter hours.Suppose that the current fare is $4 and the government is considering raising it to $6.Officials estimate that this reduces the number of rides purchased from 10,000 to 8,000 per day.
a.Using the midpoint formula,what is the estimated elasticity of demand for MRT rides?
b.What does this elasticity of demand suggest to you about what will happen to total revenue earned by the transit system if the fare increase happens?
c.Last year,the MRT system incurred a loss of $50,000 per day.Do you think the fare increase will resolve the deficit problem as well as Ministry officials anticipate? Explain.

Accepted Answer

a. Price elasticity = -0.56.
b

Question 16

In a survey of consumers,Daniel Kahneman,Jack Knetsch and Richard Thaler asked their opinion of a hardware store's decision to

Accepted Answer

A)  go out of business because a larger hardware store opened in the same city; 82 percent of those surveyed believed it was unfair for the larger store to compete with the smaller store. 
B)  raise the price of snow shovels the day following a snowstorm; 82 percent of those surveyed believed this was unfair. 
C)  sell tickets to sporting and cultural events at prices higher than prices paid at the ticket windows for the same events; 82 percent of those surveyed believed this was unfair. 
D)  remain in business even though the store was not making an economic profit; 82 percent of those surveyed believed it would be unfair for the store to go out of business if there were no other hardware stores in the same area. 
A)  go out of business because a larger hardware store opened in the same city; 82 percent of those surveyed believed it was unfair for the larger store to compete with the smaller store. 
B)  raise the price of snow shovels the day following a snowstorm; 82 percent of those surveyed believed this was unfair. 
C)  sell tickets to sporting and cultural events at prices higher than prices paid at the ticket windows for the same events; 82 percent of those surveyed believed this was unfair. 
D)  remain in business even though the store was not making an economic profit; 82 percent of those surveyed believed it would be unfair for the store to go out of business if there were no other hardware stores in the same area.

Question 17

A construction project in Congressman Foghorn's district is unfinished.Foghorn has asked that a new appropriations bill include funds to complete the project,despite a report by an independent agency that the project is a waste of taxpayer money.Foghorn's project is a bridge that crosses a river between two cities in his district.The press has criticized Foghorn and dubbed the project "a bridge too far" since another bridge,located closer to the same two cities Foghorn's bridge will connect,already exists and can accommodate all traffic between the two cities.Foghorn argues that if the bridge project is not completed,the $50 million already spent will have been wasted.Is Foghorn's argument economically rational? Explain your answer.

Accepted Answer

Foghorn's argument is not rational.The $

Question 18

Consider the following factors:
A.culture
B.religion
C.customs
D.prices
E.income
Which of the factors above are likely to influence the choices consumers make?

Accepted Answer

A)  a, d, and e only 
B)  all the factors except b 
C)  all the factors except c 
D)  d and e only 
E)  all the factors listed 
A)  a, d, and e only 
B)  all the factors except b 
C)  all the factors except c 
D)  d and e only 
E)  all the factors listed

Question 19

Table 7-7
 $\begin{array}{|c|c|}
\hline \text { Price } & \text { Quantity } \
\hline \$ 35 & 40 \
\hline 25 & 50 \
\hline
\end{array}$
-Refer to Table 7-7.Suppose you own a bookstore.You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35.You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day.Compute the price elasticity of demand using the midpoint formula and these data.Select the correct implication from your work.

Accepted Answer

A)  The demand for the John Grisham book is inelastic. Revenue will fall if the price is lowered. 
B)  The demand for the John Grisham book is elastic. Revenue will rise if the price is lowered. 
C)  The demand for the John Grisham book is inelastic. Revenue will rise if the price is lowered. 
D)  The demand for the John Grisham book is elastic. Revenue will fall if the price is lowered. 
A)  The demand for the John Grisham book is inelastic. Revenue will fall if the price is lowered. 
B)  The demand for the John Grisham book is elastic. Revenue will rise if the price is lowered. 
C)  The demand for the John Grisham book is inelastic. Revenue will rise if the price is lowered. 
D)  The demand for the John Grisham book is elastic. Revenue will fall if the price is lowered.

Question 20

Along a downward-sloping,linear demand curve,total revenue is the greatest

Accepted Answer

A)  where demand is normal. 
B)  where demand is the most inelastic. 
C)  where demand is the most elastic. 
D)  where demand is unit elastic. 
A)  where demand is normal. 
B)  where demand is the most inelastic. 
C)  where demand is the most elastic. 
D)  where demand is unit elastic.

The limitation that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

Jaycee Jeans sold 40 pairs of jeans at a price of $40.When it lowered its price to $20,the quantity sold increased to 60 pairs.Calculate the absolute value of the price elasticity of demand.Use the midpoint formula.

Which of the following goods would have the most inelastic demand?

A Giffen good could be either a normal good or an inferior good.

Marge buys 5 CDs and 7 DVDs.The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils.Can we say that this is the optimal combination of CDs and DVDs for Marge?

Behavioral economics refers to the study of situations

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3,then quantity demanded

One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.

Table 7-9 Price per Pound (dollars) Quantity of Cheese Demanded (pounds) \ 16 3 14 4 12 5 10 6 8 7 6 8 4 9 2 10 -Refer to Table 7-9.Over what range of prices is the demand elastic?

Table 7-12 Price of Book Copies Sold at That Price Total Revenue at That Price \ 14.99 100,000 \ 1,499,000 9.99 174,000 1,738,00 -Refer to Table 7-12.Based on the data in the table,between a price of $9.99 and $14.99,the demand for books is

Jenna runs a small boutique in Capitola.She tells one of her suppliers that she is willing to pay $6 for a pair of wool hand warmers and not a dime more.On the basis of this information,what can you conclude about her price elasticity of demand for wool hand warmers?

In a survey of consumers,Daniel Kahneman,Jack Knetsch and Richard Thaler asked their opinion of a hardware store's decision to

Consider the following factors: A.culture B.religion C.customs D.prices E.income Which of the factors above are likely to influence the choices consumers make?

Along a downward-sloping,linear demand curve,total revenue is the greatest

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

The limitation that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

Jaycee Jeans sold 40 pairs of jeans at a price of $40.When it lowered its price to $20,the quantity sold increased to 60 pairs.Calculate the absolute value of the price elasticity of demand.Use the midpoint formula.

Which of the following goods would have the most inelastic demand?

A Giffen good could be either a normal good or an inferior good.

Marge buys 5 CDs and 7 DVDs.The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils.Can we say that this is the optimal combination of CDs and DVDs for Marge?

Behavioral economics refers to the study of situations

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3,then quantity demanded

One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.

Table 7-9 Price per Pound (dollars) Quantity of Cheese Demanded (pounds) \ 16 3 14 4 12 5 10 6 8 7 6 8 4 9 2 10 -Refer to Table 7-9.Over what range of prices is the demand elastic?

Table 7-12 Price of Book Copies Sold at That Price Total Revenue at That Price \ 14.99 100,000 \ 1,499,000 9.99 174,000 1,738,00 -Refer to Table 7-12.Based on the data in the table,between a price of $9.99 and $14.99,the demand for books is

Jenna runs a small boutique in Capitola.She tells one of her suppliers that she is willing to pay $6 for a pair of wool hand warmers and not a dime more.On the basis of this information,what can you conclude about her price elasticity of demand for wool hand warmers?

In a survey of consumers,Daniel Kahneman,Jack Knetsch and Richard Thaler asked their opinion of a hardware store's decision to

Consider the following factors: A.culture B.religion C.customs D.prices E.income Which of the factors above are likely to influence the choices consumers make?

Along a downward-sloping,linear demand curve,total revenue is the greatest

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