question
Which of the following could explain why the demand for table salt is inelastic?
A. Salt is a rare commodity.
B. Salt is a luxury for high-income consumers but a necessity for low-income consumers.
C. Salt is a luxury good.
D. Households devote a very small portion of their income to salt purchases.
A. Salt is a rare commodity.
B. Salt is a luxury for high-income consumers but a necessity for low-income consumers.
C. Salt is a luxury good.
D. Households devote a very small portion of their income to salt purchases.
answer
D.
question
If the price elasticity of demand for canned soup is estimated at
minus−1.62.
What happens to sales revenue if the price of canned soup rises?
A. It falls.
B. It rises by 1.62 percent.
C. It falls by 162 percent.
D. It rises.
minus−1.62.
What happens to sales revenue if the price of canned soup rises?
A. It falls.
B. It rises by 1.62 percent.
C. It falls by 162 percent.
D. It rises.
answer
A.
question
The law of diminishing marginal utility states that
A. eventually total utility falls as more of a good is consumed, other things constant.
B. when the extra satisfaction from consuming a good becomes negative, total utility starts falling, other things constant.
C. the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant.
D. the extra satisfaction from consuming a good increases slowly as more of a good is consumed, other things constant
A. eventually total utility falls as more of a good is consumed, other things constant.
B. when the extra satisfaction from consuming a good becomes negative, total utility starts falling, other things constant.
C. the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant.
D. the extra satisfaction from consuming a good increases slowly as more of a good is consumed, other things constant
answer
C.
question
Behavioral economics refers to the study of situations
A. where consumers and firms appear to make choices that are appropriate to reach their goals.
B. where consumers and firms disobey the laws of demand and supply.
C. where consumers and firms do not appear to be making choices that are economically rational.
D. where consumers and firms appear to value fairness when they make choices
A. where consumers and firms appear to make choices that are appropriate to reach their goals.
B. where consumers and firms disobey the laws of demand and supply.
C. where consumers and firms do not appear to be making choices that are economically rational.
D. where consumers and firms appear to value fairness when they make choices
answer
C.
question
If a firm wanted to know whether the demand for its product was elastic, unit elastic, or inelastic, then the firm could
A. not do anything as there is no way to find an elasticity value.
B. talk to its customers.
C. survey competitors and ask them what they think demand elasticity for the product is.
D. change price a little bit and observe what happens to total revenue.
A. not do anything as there is no way to find an elasticity value.
B. talk to its customers.
C. survey competitors and ask them what they think demand elasticity for the product is.
D. change price a little bit and observe what happens to total revenue.
answer
D.
question
Grace Makutsi finally bought a pair of blue shoes that she had been coveting for a long time. In less than a week she discovered that the shoes were uncomfortable. Grace went back to wearing her old pair and stashed away the new pair. When asked by her boss, Mme Ramotswe, why does she not simply give away the new pair, she said: "But I paid so much for it."
Grace's behavior
A. ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should give it away or not.
B. is rational: she should not discard a valuable item.
C. is rational because the more you pay for an item the more valuable it is.
D. supports the endowment effect which states that ownership of an item makes it more valuable.
Grace's behavior
A. ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should give it away or not.
B. is rational: she should not discard a valuable item.
C. is rational because the more you pay for an item the more valuable it is.
D. supports the endowment effect which states that ownership of an item makes it more valuable.
answer
A.
question
Sunk costs
A. are costs that have already been paid and cannot be recaptured in any significant way.
B. are costs associated with repairing something you already own.
C. are important for optimal decision making.
D. are costs that firms sink into marketing
A. are costs that have already been paid and cannot be recaptured in any significant way.
B. are costs associated with repairing something you already own.
C. are important for optimal decision making.
D. are costs that firms sink into marketing
answer
A.
question
Which of the following is likely to occur as the result of the law of diminishing marginal utility?
A. Hudson enjoyed his second slice of pizza more than his first.
B. Sabines' utility from her first granola bar is greater than Rachel's utility from her second granola bar.
C. Petra's utility from her second apple was less than her satisfaction from her first orange.
D. Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant
A. Hudson enjoyed his second slice of pizza more than his first.
B. Sabines' utility from her first granola bar is greater than Rachel's utility from her second granola bar.
C. Petra's utility from her second apple was less than her satisfaction from her first orange.
D. Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant
answer
D.
question
Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3. The table to the right shows his total utility from different quantities of the two items.
What is Keegan's optimal consumption bundle?
A. 4 pita wraps and 2 bubble teas
B. 3 pita wraps and 4 bubble teas
C. 5 pita wraps and 0 bubble teas
D. 3 pita wraps and 3 bubble teas
What is Keegan's optimal consumption bundle?
A. 4 pita wraps and 2 bubble teas
B. 3 pita wraps and 4 bubble teas
C. 5 pita wraps and 0 bubble teas
D. 3 pita wraps and 3 bubble teas
answer
B.
question
Price elasticity of demand measures
A. how responsive sales are to changes in the price of a related good.
B. how responsive suppliers are to price changes.
C. how responsive sales are to a change in buyers' incomes.
D. how responsive quantity demanded is to a change in price
A. how responsive sales are to changes in the price of a related good.
B. how responsive suppliers are to price changes.
C. how responsive sales are to a change in buyers' incomes.
D. how responsive quantity demanded is to a change in price
answer
D.
question
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?
A. The price elasticity coefficient is 0.
B. It is perfectly elastic.
C. It is elastic.
D. It is perfectly inelastic.
A. The price elasticity coefficient is 0.
B. It is perfectly elastic.
C. It is elastic.
D. It is perfectly inelastic.
answer
B.
question
If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she
A. is maximizing total utility and does not want to change her consumption of ankle socks or bandanas.
B. wants to consume more ankle socks and fewer bandanas.
C. wants to consume less of both ankle sock and bandanas.
D. wants to consume more bandanas and fewer ankle socks.
A. is maximizing total utility and does not want to change her consumption of ankle socks or bandanas.
B. wants to consume more ankle socks and fewer bandanas.
C. wants to consume less of both ankle sock and bandanas.
D. wants to consume more bandanas and fewer ankle socks.
answer
B.
question
Suppose when Nablom's Bakery raised the price of its breads by 10 percent, the quantity demanded fell by 15 percent. What was the effect on sales revenue?
A. Sales revenue remained unchanged.
B. Sales revenue increased.
C. Sales revenue decreased.
D. It cannot be determined without information on prices
A. Sales revenue remained unchanged.
B. Sales revenue increased.
C. Sales revenue decreased.
D. It cannot be determined without information on prices
answer
C.
question
The table to the right 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.
What is Keira's marginal utility per dollar spent on the third cup of soup?
A. 6 units of utility
B. 12 units of utility
C. 72 units of utility
D. 36 units of utility
What is Keira's marginal utility per dollar spent on the third cup of soup?
A. 6 units of utility
B. 12 units of utility
C. 72 units of utility
D. 36 units of utility
answer
A.
question
If a firm raised its price and discovered that its total revenue fell, then the demand for its product is
A. relatively inelastic.
B. perfectly elastic.
C. perfectly inelastic.
D. relatively elastic.
A. relatively inelastic.
B. perfectly elastic.
C. perfectly inelastic.
D. relatively elastic.
answer
D.
question
If a consumer always buys goods rationally, then
A. the marginal utility per dollar spent on all goods will be equal.
B. the total utilities of the different goods consumed will be equal.
C. the average utilities of the different goods consumed will be equal.
D. the marginal utility of the different goods consumed will be equal
A. the marginal utility per dollar spent on all goods will be equal.
B. the total utilities of the different goods consumed will be equal.
C. the average utilities of the different goods consumed will be equal.
D. the marginal utility of the different goods consumed will be equal
answer
A.
question
Refer to the diagrams above. A perfectly inelastic demand curve is shown in
A. Panel A.
B. Panel B.
C. Panel C.
D. Panel D
A. Panel A.
B. Panel B.
C. Panel C.
D. Panel D
answer
A.
question
If the demand for a lifesaving drug were perfectly price inelastic and the price doubled, the quantity demanded would
A. also double.
B. remain constant.
C. be cut in half.
D. decrease by 50%.
A. also double.
B. remain constant.
C. be cut in half.
D. decrease by 50%.
answer
B.
question
Which of the following is the best explanation for the results of the experiment?
A. The net benefit derived from watching the play is lower in Scenario A where the effective cost is$20 compared to the net benefit in Scenario B.
B. The endowment effect applies in Scenario A since people already own the ticket and therefore it is more valuable but this is not so in Scenario B.
C. In Scenario B, people had not anticipated spending an additional $10 so in effect the price of the ticket is $20 and not $10 whereas in Scenario A, the price of the ticket is still $10.
D. In Scenario A, people make an immediate connection between the lost ticket and the play and feel poorer by incorrectly assigning a greater value to the value of the ticket whereas in Scenario B, they do not make the connection between the lost $10 bill and the play.
A. The net benefit derived from watching the play is lower in Scenario A where the effective cost is$20 compared to the net benefit in Scenario B.
B. The endowment effect applies in Scenario A since people already own the ticket and therefore it is more valuable but this is not so in Scenario B.
C. In Scenario B, people had not anticipated spending an additional $10 so in effect the price of the ticket is $20 and not $10 whereas in Scenario A, the price of the ticket is still $10.
D. In Scenario A, people make an immediate connection between the lost ticket and the play and feel poorer by incorrectly assigning a greater value to the value of the ticket whereas in Scenario B, they do not make the connection between the lost $10 bill and the play.
answer
D.
question
What is the endowment effect?
A. the phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increases efficiency
B. the tendency of firms to use celebrities endowed with good looks to promote their products
C. the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if theydidn't already own it
D. the tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services
A. the phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increases efficiency
B. the tendency of firms to use celebrities endowed with good looks to promote their products
C. the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if theydidn't already own it
D. the tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services
answer
C.
question
Economists usually assume that people act in a rational, self−interested way. In explaining how consumers make choices this means that economists believe
A. consumers spend their incomes to order to accumulate the most goods and services.
B. consumers make choices that will leave them as satisfied as possible given their incomes, tastes, and the prices of goods and services available to them.
C. consumers will spend their incomes and time on activities that benefit themselves as much aspossible, without regard to the welfare of others.
D. consumers will always buy goods and services at the lowest possible prices.
A. consumers spend their incomes to order to accumulate the most goods and services.
B. consumers make choices that will leave them as satisfied as possible given their incomes, tastes, and the prices of goods and services available to them.
C. consumers will spend their incomes and time on activities that benefit themselves as much aspossible, without regard to the welfare of others.
D. consumers will always buy goods and services at the lowest possible prices.
answer
B.
question
Total revenue equals
A. price per unit times quantity sold.
B. price per unit times quantity supplied.
C. change in price per unit times quantity sold.
D. price per unit times change in quantity sold.
A. price per unit times quantity sold.
B. price per unit times quantity supplied.
C. change in price per unit times quantity sold.
D. price per unit times change in quantity sold.
answer
A.
question
If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.
A. 0.17
B. 0.62
C. 1.62
D. 5
A. 0.17
B. 0.62
C. 1.62
D. 5
answer
C.
question
Harvey Miller owns a baseball that was hit for a home run by Ted Williams. Harvey, a long−time Boston Red Sox fan, recently refused to sell his baseball for $75,000 even though he would not have paid someone more than $10,000 for the baseball if he did not already own it. Harvey explained his decision not to sell the baseball by noting that: "Ted Williams was my hero. This baseball has a great deal of sentimental value for me." Which of the following can explain Harvey's behavior?
A. the difference between implicit and explicit costs
B. the endowment effect
C. how social influences can affect consumption choices
D. the scarcity of home run baseballs hit by Ted Williams
A. the difference between implicit and explicit costs
B. the endowment effect
C. how social influences can affect consumption choices
D. the scarcity of home run baseballs hit by Ted Williams
answer
B.
question
Refer to the diagrams above. A perfectly elastic demand curve is shown in
A. Panel A.
B. Panel B.
C. Panel C.
D. Panel D.
A. Panel A.
B. Panel B.
C. Panel C.
D. Panel D.
answer
B.
question
Marginal utility is the
A. extra satisfaction received from consuming one more unit of a product.
B. average satisfaction received from consuming a product.
C. satisfaction achieved when a consumer has had enough of a product.
D. total satisfaction received from consuming a given number of units of a product.
A. extra satisfaction received from consuming one more unit of a product.
B. average satisfaction received from consuming a product.
C. satisfaction achieved when a consumer has had enough of a product.
D. total satisfaction received from consuming a given number of units of a product.
answer
A.
question
Suppose the value of the price elasticity of demand is −3.
What does this mean?
A. A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent.
B. A $1 increase in price caused quantity demanded to fall by 3 units.
C. A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent.
D. A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent
What does this mean?
A. A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent.
B. A $1 increase in price caused quantity demanded to fall by 3 units.
C. A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent.
D. A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent
answer
D.
question
The demand for all carbonated beverages is likely to be ________ the demand for Dr. Pepper.
A. more elastic than
B. less elastic than
C. perfectly elastic compared to
D. perfectly inelastic compared to
A. more elastic than
B. less elastic than
C. perfectly elastic compared to
D. perfectly inelastic compared to
answer
B.
question
If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is
A. perfectly elastic.
B. relatively elastic.
C. relatively inelastic.
D. unit elastic.
A. perfectly elastic.
B. relatively elastic.
C. relatively inelastic.
D. unit elastic.
answer
C.
question
When there few close substitutes available for a good, demand tends to be
A. relatively inelastic.
B. relatively elastic.
C. perfectly elastic.
D. perfectly inelastic.
A. relatively inelastic.
B. relatively elastic.
C. perfectly elastic.
D. perfectly inelastic.
answer
A.
question
If Callum is consuming his utility maximizing bundle and the price of one goodrises, what happens to the marginal utility per dollar spent on this good (MU/P) and what should Callum do?
A. MU/P has increased and Callum should buy more of this good.
B. MU/P has decreased and Callum should buy less of this good.
C. MU/P has increased and Callum should buy less of this good.
D. MU/P has decreased and Callum should buy more of this good.
A. MU/P has increased and Callum should buy more of this good.
B. MU/P has decreased and Callum should buy less of this good.
C. MU/P has increased and Callum should buy less of this good.
D. MU/P has decreased and Callum should buy more of this good.
answer
B.
question
When demand is price elastic, a fall in price causes total revenue to rise because
A. percentage increase in quantity demanded is less than the percentage fall in price.
B. the demand curve shifts.
C. when price falls, quantity sold increases so total revenue automatically rises.
D. the increase in quantity sold is large enough to offset the lower price.
A. percentage increase in quantity demanded is less than the percentage fall in price.
B. the demand curve shifts.
C. when price falls, quantity sold increases so total revenue automatically rises.
D. the increase in quantity sold is large enough to offset the lower price.
answer
D.
question
If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is
A. relatively elastic.
B. relatively inelastic.
C. unit elastic.
D. perfectly elastic.
A. relatively elastic.
B. relatively inelastic.
C. unit elastic.
D. perfectly elastic.
answer
A.
question
Refer to the diagram to the right. Which of the following statements is true?
A. 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 theconsumer's budget or the price of other goods.
B. Points a and b are derived independently of the utility−maximizing model.
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 the utility−maximizing quantities of ice−cream cones at two different prices of ice−cream.
A. 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 theconsumer's budget or the price of other goods.
B. Points a and b are derived independently of the utility−maximizing model.
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 the utility−maximizing quantities of ice−cream cones at two different prices of ice−cream.
answer
D.
question
Standard economic theory asserts that sunk costs are irrelevant in making economic decisions yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions. Which of the following could explain this observation?
A. Even though sunk costs cannot be recovered, it has been incurred and therefore should be treated as part of the product's value.
B. If consumers maximize their utility, it makes sense to consider the full purchase price of a product in their consumption decisions.
C. People measure the value of a good in terms of its purchase price.
D. Sunk costs have a higher opportunity cost than costs that can be recovered.
A. Even though sunk costs cannot be recovered, it has been incurred and therefore should be treated as part of the product's value.
B. If consumers maximize their utility, it makes sense to consider the full purchase price of a product in their consumption decisions.
C. People measure the value of a good in terms of its purchase price.
D. Sunk costs have a higher opportunity cost than costs that can be recovered.
answer
C.
question
If the percentage increase in price is 15 percent and the value of the price elasticity of demand is −3, then quantity demanded
A. will increase by 5 percent.
B. will decrease by 45 percent.
C. will increase by 45 percent.
D. will decrease by 5 percent.
A. will increase by 5 percent.
B. will decrease by 45 percent.
C. will increase by 45 percent.
D. will decrease by 5 percent.
answer
B.
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