Question 1

Suppose the price elasticity of demand for methamphetamine is -0.35.If decriminalization caused the price of methamphetamine to fall by 75 percent,what will be the percentage increase in the quantity of methamphetamine demanded? If the price elasticity is -3.5,what will be the percentage increase in quantity demanded?

Accepted Answer

The answer of Suppose the price elasticity of demand for...

Question 2

Which of the following explains why a firm would be interested in knowing the price elasticity of demand for a good it sells?

Accepted Answer

A)  The price elasticity of demand can be used to determine the impact of changes in income on quantity sold. 
B)  Knowing the price elasticity of demand allows the firm to determine how the cost of producing additional units of the good will change. 
C)  Knowing the price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total profit. 
D)  The price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total revenue.

Question 3

The Wong family consumes 3 pounds of fish and 5 pounds of chicken per month.The price of fish is $8 per pound and chicken is $4 per pound.
a.What is the amount of income allocated to fish and chicken consumption?
b.What is the price ratio (the price of fish relative to the price of chicken)?
c.Explain the meaning of the price ratio you computed.
d.If the Wongs maximize utility,what must the ratio of the marginal utility of fish to the marginal utility of chicken be equal to?
e.If the price of chicken rises,will the Wong family consume more chicken,less chicken,or the same amount of chicken? Explain your answer using the rule of equal marginal utility per dollar.

Accepted Answer

The answer of The Wong family consumes 3 pounds of...

Question 4

The law of diminishing marginal utility states that

Accepted Answer

A)  eventually total utility falls as more of a good is consumed, other things constant. 
B)  the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant. 
C)  the extra satisfaction from consuming a good increases slowly as more of a good is consumed, other things constant. 
D)  when the extra satisfaction from consuming a good becomes negative, total utility starts falling, other things constant.

Question 5

If a consumer receives 22 units of marginal utility for consuming the first can of soda,20 units from consuming the second,and 15 from the third,the total utility of consuming the three units is

Accepted Answer

A)  57 utils 
B)  35 utils. 
C)  15 utils. 
D)  unknown as more information is needed to determine the answer.

Question 6

Which of the following statements is true?

Accepted Answer

A)  Whenever a firm raises its price its total revenue will increase. 
B)  When a firm lowers its price its total revenue may either increase or decrease. 
C)  Whenever a firm increases its quantity sold its revenue will increase. 
D)  Total revenue will equal zero when the demand for a product is unit elastic.

Question 7

If demand is inelastic,the absolute value of the price elasticity of demand is

Accepted Answer

A)  one. 
B)  less than one. 
C)  greater than one. 
D)  greater than the absolute value of the slope of the demand curve.

Question 8

Optimal decisions are made

Accepted Answer

A)  in the marketplace. 
B)  if information about prices and marginal utilities is known. 
C)  when marginal utility is minimized. 
D)  at the margin.

Question 9

List three reasons why the demand for a product will often increase if the product is endorsed by a celebrity.

Accepted Answer

The answer of List three reasons why the demand for...

Question 10

Total utility is maximized in the consumption of two goods by

Accepted Answer

A)  equating the marginal utility for each good consumed. 
B)  equating the marginal utility per dollar spent for each good consumed. 
C)  equating the total utility of each good divided by its price. 
D)  maximizing expenditure on each good.

Question 11

Giffen goods

Accepted Answer

A)  are theoretical and have never been discovered in the real world. 
B)  have not existed since prior to the Industrial Revolution. 
C)  were proven to exist in the 1890s by Sir Robert Giffen. 
D)  were not shown to actually exist until 2006.

Question 12

What is the common feature displayed by the following items?
A.eating at a newly opened "fusion" cuisine restaurant
B.attending a Red Sox game in Fenway Park
C.wearing Lucky Brand designer jeans

Accepted Answer

A)  They are all highly inelastic goods. 
B)  The consumption of these goods takes place privately. 
C)  The consumption of these goods takes place publicly. 
D)  They tend to be consumed by better educated people.

Question 13

If the price of steel increases drastically,the quantity of steel demanded by the building industry will fall significantly over the long run because

Accepted Answer

A)  buyers of steel are more sensitive to a price change if they have more time to adjust to the price change. 
B)  buyers of steel are less sensitive to a price change if they have more time to adjust to the price change. 
C)  sales revenue in the building industry will fall sharply. 
D)  profits will fall by a greater amount in the long run than in the short run.

Question 14

Which of the following statements about price elasticity of demand is false?

Accepted Answer

A)  The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope. 
B)  If quantity demanded changes by a larger percentage than the percentage change in price, demand is elastic. 
C)  The value of the price elasticity of demand along a downward-sloping demand curve is always negative. 
D)  A linear downward-sloping demand curve has a varying price elasticity coefficient.

Question 15

The slope of a demand curve is not used to measure the price elasticity of demand because

Accepted Answer

A)  the slope of a linear demand curve is not constant. 
B)  the slope of a line cannot have a negative value. 
C)  the measurement of slope is sensitive to the units chosen for price and quantity. 
D)  the slope of the demand curve does not tell us how much quantity changes as price changes.

Question 16

Economists have used the ultimatum game and the dictator game in experiments designed to determine

Accepted Answer

A)  whether consumers care about fairness when they make decisions. 
B)  whether consumers believe it is fair for producers to raise the price of a product for which there is excess demand. 
C)  whether consumers understand the difference between implicit costs and explicit costs. 
D)  whether consumers understand the rule of equal marginal utility per dollar spent.

Question 17

Holding everything else constant,the demand for a good tends to be more elastic

Accepted Answer

A)  the more substitutes there are for the good. 
B)  the shorter the time period involved. 
C)  the more consumers perceive the good to be a necessity. 
D)  the less important the product is in consumers' budgets.

Question 18

In making decisions about what to consume,a person's goal is to

Accepted Answer

A)  allocate her limited income among all the products she wishes to buy so that she receives the highest total utility. 
B)  buy low-priced goods rather than high-priced goods. 
C)  maximize her marginal utility from the goods and services she wishes to buy using her limited income. 
D)  consume as many necessities as possible and then, if there is money left over, to buy luxuries.

Question 19

Health clubs typically experience an increase in one-year memberships in January,but many new customers cancel their memberships before the end of the year.Which of the following is the best explanation for this behavior?

Accepted Answer

A)  Some health club members suffer minor injuries that prevent them from working out. 
B)  Some people are overly optimistic about their future behavior. 
C)  Some people fail to treat their membership fees as sunk costs. 
D)  Some members receive utility from activities they believe are popular.

Question 20

In general,a "big ticket item" such as a house or new car will

Accepted Answer

A)  tend to have a more elastic demand than a lower-priced good. 
B)  tend to have an inelastic demand because spending on the item takes up a large share of the average consumer's budget. 
C)  tend to have an inelastic demand because it has many substitutes. 
D)  tend to have a more inelastic demand the more time that passes.

Exam 7: Consumer Choice and Elasticity