Deck 2: A Review of Markets and Rational Behavior

Question 1

In Figure 2-24, if a new process reduces the cost of manufacturing this good, what would be the expected result?

A)a shift from D₁ to D₃
B)a shift from S₁ to S₃
C)a shift from D₁ to D₂
D)a shift from S₁ to S₂

Answer 1

B

Question 2

Consumer Surplus is equal to

A)total value - total spending
B)the net benefits of a market to consumers
C)the area under the demand curve but above the price
D)all of the above

Answer 2

D

Question 3

Let P_D=100-1/2Q_D be the demand curve and P_S= 20+1/2Q_S be the supply curve.What is the equilibrium quantity?

A)Q=80
B)Q=100
C)Q=60
D)Q=100

Answer 3

A

Question 4

In Figure 2-24, if a good is inferior and income falls, which of the following will result?

A)a shift from D₁ to D₃
B)a shift from S₁ to S₃
C)a shift from D₁ to D₂
D)a shift from S₁ to S₂

Question 5

At a utility maximum

A)the budget line is tangent to the indifference curve
B)(MUx/MUy) = Px/Py
C)MUx/Px = MUy/Py
D)all of the above
E)none of the above

Question 6

If supply is P= 20+1/2Q_S and P = 50, the quantity is ___ and the producer surplus is ___

A)Q = 50, PS = 750
B)Q = 60, PS = 900
C)Q = 70, PS = 400
D)Q = 60, PS = 1800

Question 7

If an increase in the price of one good leads to a decrease in demand for another, the two goods are

A)complements
B)substitutes
C)inferior goods
D)marginal goods

Question 8

If gasoline falls from $4 per gallon to $3 and the quantity demanded rises from 3 million gallons to 4 million, what is the arc elasticity of demand?

A)0
B)¾
C)4/3
D)1

Question 9

The maximum a person is willing to pay for the first unit of a good is called

A)maximum utility
B)marginal utility
C)marginal value
D)total value

Question 10

Which of the following is not an assumption of perfect competition

A)perfect information
B)many buyers and sellers
C)each product has a unique quality
D)freedom of entry and exit

Question 11

Lynn owns a small ballet supply store.He currently spends $80,000 per year on inventory, rent, and labor, and collects $120,000 in revenue.He could still be earning $20,000 as a dancer.His economic profit is

A)$120,000
B)$40,000
C)$20,000
D)$60,000

Question 12

Let P_D=100-1/2Q_D be the demand curve and P_S= 20+1/2Q_S be the supply curve.Which of the following is the equilibrium price?

A)P=80
B)P=100
C)P=60
D)P=120

Question 13

The formula for the slope of a budget line (with Y on the vertical axis) is

A)∆x/∆y
B)-x/y
C)I/Py
D)-Px/Py

Question 14

If an increase in income leads to an increase in the demand for noodles, noodles must be

A)an inferior good
B)a normal good
C)a luxury good
D)a substitute good

Question 15

The basic assumptions for preferences used in utility functions include all of the following EXCEPT

A)preferences are variable
B)preferences are transitive
C)preferences are complete
D)marginal utilities are generally positive

Question 16

An indifference curve displays

A)a set of quantities that provide different levels of utility
B)a set of quantities that the person can afford
C)a set of quantities among which the person is indifferent
D)a set of prices that define a person's utility