question
If the demand for product X is inelastic, a 4 percent decrease in the price of X will
answer
increase the quantity of X demanded by less than 4 percent.
question
Most demand curves are relatively elastic in the upper-left portion because the original price
answer
from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.
question
The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a
answer
20 percent reduction in price.
question
The price elasticity of demand of a straight-line demand curve is
answer
elastic in high-price ranges and inelastic in low-price ranges.
question
A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the
answer
more inelastic the demand for the product.
question
If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will
answer
increase the amount demanded by more than 10 percent.
question
The diagram shows two product demand curves. On the basis of this diagram, we can say that
answer
over range P1P2, price elasticity of demand is greater for D1 than for D2.
question
Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded
answer
decreased by 7 percent.
question
If quantity demanded is completely unresponsive to price changes, demand is
answer
perfectly inelastic.
question
Answer the question on the basis of the following demand schedule.
Price: $6, $5, $4, $3, $2, $1
Quantity Demanded: 1 2. 3. 4. 5. 6
Which of the following is correct?
Price: $6, $5, $4, $3, $2, $1
Quantity Demanded: 1 2. 3. 4. 5. 6
Which of the following is correct?
answer
Although the slope of the demand curve is constant, price elasticity declines as we move from high to low price ranges.
question
When the percentage change in price is greater than the resulting percentage change in quantity demanded,
answer
an increase in price will increase total revenue.
question
Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z, respectively. A 1 percent decrease in price will increase total revenue in the cases of
answer
W and Y.
question
Which of the following statements is not correct?
answer
In the range of prices in which demand is elastic, total revenue will diminish as price decreases.
question
In which of the following instances will total revenue decline?
answer
Price rises and demand is elastic.
question
The Illinois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter rates by 20 percent. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike. It can be concluded that
answer
the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic.
question
If the demand for farm products is price inelastic, a good harvest will cause farm revenues to
answer
decrease.
question
In which of the following cases will total revenue increase?
answer
Price rises and demand is inelastic.
question
The total-revenue test for elasticity
answer
does not apply to supply, because price and total revenue have a positive correlation.
question
Which of the following is correct?
If demand is elastic, an increase in price will increase total revenue.
If demand is elastic, a decrease in price will decrease total revenue.
If demand is elastic, a decrease in price will increase total revenue.
If demand is inelastic, an increase in price will decrease total revenue.
If demand is elastic, an increase in price will increase total revenue.
If demand is elastic, a decrease in price will decrease total revenue.
If demand is elastic, a decrease in price will increase total revenue.
If demand is inelastic, an increase in price will decrease total revenue.
answer
If demand is elastic, a decrease in price will increase total revenue.
question
If the income elasticity of demand for store brand macaroni and cheese is −3.00, this means that
answer
store brand macaroni and cheese is an inferior good.
question
We would expect the cross elasticity of demand between Pepsi and Coke to be
answer
positive, indicating substitute goods.
question
We would expect the cross elasticity of demand between dress shirts and ties to be
answer
negative, indicating complementary goods.
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Assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is
answer
positive, and therefore X is a normal good.
question
Look on Practice exam question 24
answer
45.
question
The law of diminishing marginal utility states that
answer
beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.
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If the price of product X rises, then the resulting decline in the amount purchased will
answer
increase the marginal utility of the last unit consumed of this good.
question
Total utility may be determined by
answer
summing the marginal utilities of each unit consumed.
question
Where total utility is at a maximum, marginal utility is
answer
zero.
question
The law of diminishing marginal utility explains why
answer
demand curves slope downward.
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To maximize utility, a consumer should allocate money income so that the
answer
marginal utility obtained from the last dollar spent on each product is the same.
question
Look on Practice exam question 31
answer
276 utils
question
The marginal utility of the last unit of apples consumed is 12, and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium?
answer
$6 and $4
question
Look on exam question 33
answer
2 of L and 3 of M
question
Susie buys two goods: rounds of golf and massages. Suppose that the price of a round of golf is $20 and the price of a massage is $30. In a typical week, Susie will play two rounds of golf, getting 20 utils of satisfaction from the second round. She normally buys three massages each week, with the third giving her 30 utils of satisfaction. If she were to buy a fourth massage in a week, it would give her 20 utils of satisfaction. If the price of massages is reduced to $15, which of the following outcomes might we expect to occur?
answer
Susie would buy more massages and fewer rounds of golf, as predicted by the substitution effect.
question
Dorothy likes to invest in gold as part of her overall financial investment portfolio, as her gut tells her it will increase dramatically in value. Her favorite and generally only source of investment advice is Wizard's Gold Hour on the OZ cable channel. As a result of this advice, Dorothy's portfolio mix is suboptimal, as it is too heavily weighted in gold. Behavioral economists would say that Dorothy suffers from
answer
confirmation bias.
question
Which of the following cognitive biases refers to people's tendency to attribute their successes to personal ability and effort, and failures to forces outside their control?
answer
self-serving bias
question
In anonymous surveys, on average people rate themselves as "above average" with regard to characteristics such as intelligence, perceptiveness, and driving ability. According to behavioral economics, this contradictory result would most likely be caused by the
answer
overconfidence effect.
question
According to the "endowment effect,"
answer
people assign higher values to things they own than things they don't.
question
According to prospect theory, people tend to favor default options. This is known as the
answer
status quo bias.
question
According to behavioral economists, someone suffering from myopia is most likely to
answer
spend too much on present consumption and not save enough for the future.
question
Production costs to an economist
answer
reflect opportunity costs.
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Normal profit is
answer
the return to the entrepreneur when economic profits are zero.
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To economists, the main difference between the short run and the long run is that
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in the long run all resources are variable, while in the short run at least one resource is fixed.
question
The basic difference between the short run and the long run is that
answer
at least one resource is fixed in the short run, while all resources are variable in the long run.
question
Marginal product is
answer
the change in total output attributable to the employment of one more worker.
question
The law of diminishing returns indicates that
answer
as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.
question
Look on exam Question 47
answer
third worker.
question
If in the short run a firm's total product is increasing, then its
answer
marginal product could be either increasing or decreasing.
question
Which of the following is not correct?
answer
Where total product is at a maximum, average product is also at a maximum.
question
Look on Exam question 50
answer
Q3 units of labor.
question
Look on exam question 51
answer
9.
question
When total product is increasing at a decreasing rate, marginal product is
answer
positive and decreasing.
question
Fixed cost is
answer
any cost that does not change when the firm changes its output.
question
Marginal cost is the
answer
change in total cost that results from producing one more unit of output.
question
Average fixed cost
answer
declines continually as output increases.
question
Look on exam question 56
answer
BCDE.
question
Look on exam question 57
answer
$37.
question
Fixed costs are associated with
answer
the short run only.
question
Which of the following is correct?
answer
When MP is rising, MC is falling, and when MP is falling, MC is rising.
question
Average fixed costs for a given level of output can be determined graphically by
answer
the vertical distance between ATC and AVC.
question
In the short run,
answer
TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.
question
In the short run, the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs
answer
are $1,250.
question
Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This firm's
answer
total cost is $270.
question
Look on Exam question 64
answer
$78.
question
Look on Exam question 65
answer
4 units of output.
question
Look on Exam question 66
answer
$15.
question
In the long run
answer
all costs are variable costs.
question
Loon on Exam question 68
answer
increasing returns, followed by diminishing returns.
question
When diseconomies of scale occur,
answer
the long-run average total cost curve rises.
question
The minimum efficient scale of a firm
answer
is the smallest level of output at which long-run average total cost is minimized.
question
Which of the following is an example of a sunk cost, as it relates to a firm?
answer
an expenditure on a nonrefundable, nontransferable airline ticket
question
Variable costs are costs that change directly with output.
answer
True
question
If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes
answer
the law of diminishing returns.
question
Which of the following is correct?
answer
If the demand for a product is inelastic, a change in price will cause total revenue to change in the same direction.
question
Look on Exam question 75
answer
$8.
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