question
The demand curve facing a perfectly competitive firm
a. is horizontal.
b. is downward sloping
c. is vertical
d. is upward sloping
a. is horizontal.
b. is downward sloping
c. is vertical
d. is upward sloping
answer
a. is horizontal
question
The market demand curve in a perfectly competitive market is
a. vertcial
b. downward sloping
c. horizontal
d. upward sloping
a. vertcial
b. downward sloping
c. horizontal
d. upward sloping
answer
b. downward sloping
question
The price at which a perfectly competitive firm sells its product is determined by
a. the government, because there are so many buyers and sellers of the product that together they cannot agree on the price.
b. the buyers of the product, because there are so many sellers that they cannot agree on a price.
c. all sellers and buyers of the product.
d. the individual seller based on his costs of production and his profit margin.
a. the government, because there are so many buyers and sellers of the product that together they cannot agree on the price.
b. the buyers of the product, because there are so many sellers that they cannot agree on a price.
c. all sellers and buyers of the product.
d. the individual seller based on his costs of production and his profit margin.
answer
c. all sellers and buyers of the product.
question
The perfectly competitive firm will seek to produce the level of output for which
a. average total cost is at a minimum.
b. marginal cost equals marginal revenue.
c. average fixed cost is at a minimum.
d. average variable cost is at a minimum.
a. average total cost is at a minimum.
b. marginal cost equals marginal revenue.
c. average fixed cost is at a minimum.
d. average variable cost is at a minimum.
answer
b. marginal cost equals marginal revenue.
question
A perfectly competitive firm should increase its level of production as long as
a. the total revenue curve is rising.
b. marginal revenue is greater than marginal cost.
c. the marginal revenue curve is rising.
d. total revenue is less than total cost.
a. the total revenue curve is rising.
b. marginal revenue is greater than marginal cost.
c. the marginal revenue curve is rising.
d. total revenue is less than total cost.
answer
b. marginal revenue is greater than marginal cost.
question
If MR > MC, then
a. profits are being maximized.
b. the firm is producing too much of the good to be maximizing profits.
c. the firm must be incurring losses.
d. the firm can increase its profits (or minimize its losses) by increasing output
a. profits are being maximized.
b. the firm is producing too much of the good to be maximizing profits.
c. the firm must be incurring losses.
d. the firm can increase its profits (or minimize its losses) by increasing output
answer
d. the firm can increase its profits (or minimize its losses) by increasing output
question
Refer to the Table above. What quantity of output should the profit-maximizing firm produce?
a. 41 units
b. 42 units
c. 44 units
d. 45 units
a. 41 units
b. 42 units
c. 44 units
d. 45 units
answer
c. 44 units
question
Refer to the Table above. What is the increase in profit that would result from producing 43 units of the product rather than producing 40 units?
a. $48
b. $60
c. $28
d. $10
a. $48
b. $60
c. $28
d. $10
answer
d. $10
question
Consider the following data: equilibrium price = $15, quantity of output produced = 10,000 units, average total cost = $12, and average variable cost $7. Given this data, total revenue is __________, total cost is __________, and total fixed cost is __________.
a. $15,000; $12,000; $7,000
b. $150,000; $120,000; $70,000
c. $15,000; $12,000; $5,000
d. $150,000; $120,000; $50,000
a. $15,000; $12,000; $7,000
b. $150,000; $120,000; $70,000
c. $15,000; $12,000; $5,000
d. $150,000; $120,000; $50,000
answer
d. $150,000; $120,000; $50,000
question
Why must profits be zero in long-run competitive equilibrium?
a. If profits are not zero, firms will produce higher-quality goods.
b. If profits are not zero, marginal cost will rise.
c. If profits are not zero, marginal revenue will rise.
d. If profits are not zero, firms will enter or exit the industry.
a. If profits are not zero, firms will produce higher-quality goods.
b. If profits are not zero, marginal cost will rise.
c. If profits are not zero, marginal revenue will rise.
d. If profits are not zero, firms will enter or exit the industry.
answer
d. If profits are not zero, firms will enter or exit the industry.
question
If an industry is in long-run competitive equilibrium and experiences a decrease in demand, then as a result the equilibrium price will __________, which will cause the representative firm's __________ curve to shift downward and some firms will __________ the industry.
a. rise; marginal revenue; enter
b. fall; demand; exit
c. rise; marginal cost; enter
d. fall; marginal cost; enter
a. rise; marginal revenue; enter
b. fall; demand; exit
c. rise; marginal cost; enter
d. fall; marginal cost; enter
answer
b. fall; demand; exit
question
As firms exit an industry, the industry supply curve shifts __________ and the equilibrium price __________ until long-run competitive equilibrium is established and the surviving firms are earning __________ economic profits.
a. leftward; rises; positive
b. rightward; falls; negative
c. leftward; falls; zero
d. leftward; rises; zero
a. leftward; rises; positive
b. rightward; falls; negative
c. leftward; falls; zero
d. leftward; rises; zero
answer
d. leftward; rises; zero
question
Which of the following is not a characteristic of perfect competition?
a. there are no barriers to entry or exit
b. buyers and sellers have access to all relevant information
c. sellers produce and sell a heterogeneous product
d. buyers and sellers having no influence on price
a. there are no barriers to entry or exit
b. buyers and sellers have access to all relevant information
c. sellers produce and sell a heterogeneous product
d. buyers and sellers having no influence on price
answer
c. sellers produce and sell a heterogeneous product
question
If, for a perfectly competitive firm, marginal cost is greater than marginal revenue for the 100th unit, then it follows that
a. producing the 100th unit adds more to total cost than it does to total revenue.
b. the firm is maximizing profit, if it produces the 100th unit.
c. producing the 100th unit adds more to total revenue than it does to total cost.
d. marginal cost equals marginal revenue for the 99th unit.
a. producing the 100th unit adds more to total cost than it does to total revenue.
b. the firm is maximizing profit, if it produces the 100th unit.
c. producing the 100th unit adds more to total revenue than it does to total cost.
d. marginal cost equals marginal revenue for the 99th unit.
answer
a. producing the 100th unit adds more to total cost than it does to total revenue.
question
For a price taker, market equilibrium price is $50. At 1,000 units, MR = MC, ATC = $45, and AVC = $30. This price taker will
a. earn $5,000 profits if it produces 1,000 units.
b. maximize its profits if it produces fewer than 1,000 units.
c. shut down its operation, and by doing this minimize its losses.
d. earn $50,000 profits if it produces 1,000 units of the good.
a. earn $5,000 profits if it produces 1,000 units.
b. maximize its profits if it produces fewer than 1,000 units.
c. shut down its operation, and by doing this minimize its losses.
d. earn $50,000 profits if it produces 1,000 units of the good.
answer
a. earn $5,000 profits if it produces 1,000 units.
question
A cost that is incurred when an actual monetary payment is made is a(n) __________ cost.
a. expressed
b. implicit
c. positive
d. explicit
a. expressed
b. implicit
c. positive
d. explicit
answer
d. explicit
question
Five months ago Wilson opened up a health club. Which of the following is an implicit cost related to the health club?
a. Wilson previously worked as an accountant, earning $3,000 a month.
b. Wilson usually eats four hamburgers a day, priced at $3 each.
c. Wilson paid $120 for an outside laundry service to clean the towels used at the club.
d. Wilson paid $100 for the pest control exterminator to spray the health club.
a. Wilson previously worked as an accountant, earning $3,000 a month.
b. Wilson usually eats four hamburgers a day, priced at $3 each.
c. Wilson paid $120 for an outside laundry service to clean the towels used at the club.
d. Wilson paid $100 for the pest control exterminator to spray the health club.
answer
a. Wilson previously worked as an accountant, earning $3,000 a month.
question
Economic profit is the difference between total revenue and
a. the sum of explicit and implicit costs.
b. sunk costs.
c. implicit costs.
d. explicit costs.
a. the sum of explicit and implicit costs.
b. sunk costs.
c. implicit costs.
d. explicit costs.
answer
a. the sum of explicit and implicit costs.
question
Consider the following information about a business Diane opened last year: price = $20, quantity sold = 25,000; implicit cost = $255,000; explicit cost = $360,000. Assuming that all relevant costs and revenue are noted, what was Diane's economic profit?
a. $220,000
b. -$140,000
c. -$115,000
d. $140,000
a. $220,000
b. -$140,000
c. -$115,000
d. $140,000
answer
c. -$115,000
question
If a firm earns normal profit, then it has generated revenues
a. sufficient to cover explicit costs, but not implicit costs.
b. greater than total opportunity costs.
c. equal to the sum of implicit and explicit costs.
d. sufficient to cover implicit costs, but not explicit costs.
a. sufficient to cover explicit costs, but not implicit costs.
b. greater than total opportunity costs.
c. equal to the sum of implicit and explicit costs.
d. sufficient to cover implicit costs, but not explicit costs.
answer
c. equal to the sum of implicit and explicit costs.
question
An unrecoverable cost that should be disregarded in any current or future decision is also called a(n) __________ cost.
a. explicit
b. variable
c. sunk
d. implicit
a. explicit
b. variable
c. sunk
d. implicit
answer
c. sunk
question
Cy recently went into the business of producing and selling cardboard boxes. For this business, which of the following is most likely to be a fixed cost?
a. labor costs
b. adhesive costs
c. fire insurance
d. paper costs
a. labor costs
b. adhesive costs
c. fire insurance
d. paper costs
answer
c. fire insurance
question
The change in total cost that results from a change in output is __________ cost.
a. average fixed
b. average total
c. average variable
d. marginal
a. average fixed
b. average total
c. average variable
d. marginal
answer
d. marginal
question
"As additional units of a variable input are added to a fixed input, eventually the marginal physical product of the variable input will decline." This is a statement of the
a. law of diminishing marginal returns.
b. law of supply.
c. average-marginal rule.
d. law of diminishing marginal utility.
a. law of diminishing marginal returns.
b. law of supply.
c. average-marginal rule.
d. law of diminishing marginal utility.
answer
a. law of diminishing marginal returns.
question
A rising marginal cost curve is a reflection of a
a. falling average fixed cost curve.
b. rising marginal physical product curve.
c. falling marginal physical product curve.
d. rising average variable cost curve.
a. falling average fixed cost curve.
b. rising marginal physical product curve.
c. falling marginal physical product curve.
d. rising average variable cost curve.
answer
c. falling marginal physical product curve.
question
There are 30 students in a class. The average grade for the first 29 students is 87. The grade of the remaining student is 84. Given this student's grade, the average grade of the 30-student class will be
a. lower than 87.
b. 87
c. 84
d. higher than 87.
a. lower than 87.
b. 87
c. 84
d. higher than 87.
answer
a. lower than 87.
question
Which of the following cost curves is never U-shaped?
a. the average variable cost curve
b. the marginal cost curve
c. the average total cost curve
d. the average fixed cost curve
a. the average variable cost curve
b. the marginal cost curve
c. the average total cost curve
d. the average fixed cost curve
answer
d. the average fixed cost curve
question
Economies of scale are said to exist when inputs are increased by some percentage and output increases by a(n) __________ percentage, causing unit costs to __________.
a. smaller; rise
b. greater; fall
c. greater; rise
d. smaller; fall
a. smaller; rise
b. greater; fall
c. greater; rise
d. smaller; fall
answer
b. greater; fall
question
Refer to the table above. The dollar amounts that go in blanks (A) and (B), respectively, are
a. $3.33 and $2.50.
b. $1.00 and $0.75.
c. $10.00 and $10.00.
d. $30.00 and $40.00.
a. $3.33 and $2.50.
b. $1.00 and $0.75.
c. $10.00 and $10.00.
d. $30.00 and $40.00.
answer
b. $1.00 and $0.75.
question
Refer to the table above. Diminishing marginal returns set in with the addition of which unit of the variable input?
a. the third
b. the fourth
c. the second
d. the first
a. the third
b. the fourth
c. the second
d. the first
answer
b. the fourth
question
Refer to the table above. What is the average total cost of producing 140 units of output?
a. $1.79
b. $4.23
c. $10.00
d. $7.33
a. $1.79
b. $4.23
c. $10.00
d. $7.33
answer
a. $1.79
question
In the long run, if inputs are increased by 10 percent and output increases by 20 percent, then __________ are said to exist.
a. diminishing marginal returns
b. constant returns to scale
c. diseconomies of scale
d. economies of scale
a. diminishing marginal returns
b. constant returns to scale
c. diseconomies of scale
d. economies of scale
answer
d. economies of scale
question
The main difference between the short run and the long run is that
a. the long run always refers to a time period of one year or longer.
b. firms earn losses in the long run, but not in the short run.
c. in the short run, one or more inputs are fixed.
d. in the long run, only one input can be fixed.
a. the long run always refers to a time period of one year or longer.
b. firms earn losses in the long run, but not in the short run.
c. in the short run, one or more inputs are fixed.
d. in the long run, only one input can be fixed.
answer
c. in the short run, one or more inputs are fixed.
question
Which of the following is an implicit cost?
a. Smith, who could work for someone else, works for himself.
b. Jones buys $100 worth of supplies from Smith.
c. Williamson pays his income taxes on April 15.
d. Brown pays the bill he received in the mail.
a. Smith, who could work for someone else, works for himself.
b. Jones buys $100 worth of supplies from Smith.
c. Williamson pays his income taxes on April 15.
d. Brown pays the bill he received in the mail.
answer
a. Smith, who could work for someone else, works for himself.
question
If AFC is $8 at a quantity of output of 1,000 units, and TC is $12,000 at the same level of output, it follows that
a. total cost is $4,000.
b. marginal cost is $10.
c. marginal cost is $1,000.
d. AVC is $4.
a. total cost is $4,000.
b. marginal cost is $10.
c. marginal cost is $1,000.
d. AVC is $4.
answer
d. AVC is $4.
question
Marginal utility is defined as the
a. change in marginal utility a person derives from the consumption of a good.
b. change in total utility a person derives from the consumption of a good divided by the change in the quantity of the good consumed.
c. change in total utility a person derives from the consumption of a good divided by the price of that good.
d. change in total utility a person derives from the consumption of a good divided by the value in use of that good.
a. change in marginal utility a person derives from the consumption of a good.
b. change in total utility a person derives from the consumption of a good divided by the change in the quantity of the good consumed.
c. change in total utility a person derives from the consumption of a good divided by the price of that good.
d. change in total utility a person derives from the consumption of a good divided by the value in use of that good.
answer
b. change in total utility a person derives from the consumption of a good divided by the change in the quantity of the good consumed.
question
Suppose you are eating buffalo wings at a local happy hour. The total utility from doing so after the fourth, fifth, sixth, and seventh wings are 80, 116, 136, 150, respectively. The marginal utility of the sixth wing is __________ .
a. 20
b. 14
c. 22.7
d. 136
a. 20
b. 14
c. 22.7
d. 136
answer
a. 20
question
Which of the following is true?
a. As marginal utility falls, total utility always falls.
b. As marginal utility rises, total utility may fall.
c. Marginal utility is the same as total utility.
d. It is possible for total utility to rise as marginal utility falls.
a. As marginal utility falls, total utility always falls.
b. As marginal utility rises, total utility may fall.
c. Marginal utility is the same as total utility.
d. It is possible for total utility to rise as marginal utility falls.
answer
d. It is possible for total utility to rise as marginal utility falls.
question
Suppose you just finished your third plateful of Thanksgiving dinner and it yielded zero units of additional satisfaction. Should you go back for more?
a. Yes or no. It won't make any difference because your total utility is at its peak.
b. Yes. If you received zero units of satisfaction from the third, then obviously the law of diminishing marginal utility is not working in this case.
c. Why not? Since the third plateful gave you zero units, the fourth can't give you any less than zero.
d. No way. You could get negative utility from the fourth plateful.
a. Yes or no. It won't make any difference because your total utility is at its peak.
b. Yes. If you received zero units of satisfaction from the third, then obviously the law of diminishing marginal utility is not working in this case.
c. Why not? Since the third plateful gave you zero units, the fourth can't give you any less than zero.
d. No way. You could get negative utility from the fourth plateful.
answer
d. No way. You could get negative utility from the fourth plateful.
question
Suppose the marginal utility (MU) of a paperback books is 60 and each book costs $10, while the MU of a hamburger is 50 and each costs $7.50. If you consume one book and buy one hamburger per week, are you attaining consumer equilibrium?
a. There is not enough information to answer the question.
b. No. You need to buy more books and fewer hamburgers to move toward consumer equilibrium.
c. No. You need to buy more hamburgers and fewer books to move toward consumer equilibrium.
d. Yes, so there is no need to change.
a. There is not enough information to answer the question.
b. No. You need to buy more books and fewer hamburgers to move toward consumer equilibrium.
c. No. You need to buy more hamburgers and fewer books to move toward consumer equilibrium.
d. Yes, so there is no need to change.
answer
c. No. You need to buy more hamburgers and fewer books to move toward consumer equilibrium.
question
Ari is currently consuming 10 hot dogs and 8 hamburgers per week. The last hot dog she consumed yielded 20 utils while the last hamburger she ate gave her 25 utils. If hot dogs cost $2 and hamburgers cost $2.50, is Ari consuming the correct quantities of these two goods to be in consumer equilibrium?
a. No, she should consume more hot dogs and fewer hamburgers.
b. There is not enough information to answer the question.
c. Yes, so there is no need to change her consumption.
d. No, she should consume more hamburgers and fewer hot dogs.
a. No, she should consume more hot dogs and fewer hamburgers.
b. There is not enough information to answer the question.
c. Yes, so there is no need to change her consumption.
d. No, she should consume more hamburgers and fewer hot dogs.
answer
c. Yes, so there is no need to change her consumption.
question
Suppose a consumer is purchasing Coke and pretzels in quantities such that she is achieving consumer equilibrium. Then the price of Coke decreases. The consumer will likely __________ her consumption of Coke and the marginal utility of Coke will __________ while the total utility from Coke will __________.
a. increase; increase; increase
b. increase; decrease; increase
c. increase; decrease; decrease
d. decrease; increase; increase
a. increase; increase; increase
b. increase; decrease; increase
c. increase; decrease; decrease
d. decrease; increase; increase
answer
b. increase; decrease; increase
question
Suppose Valerie is consuming lipstick (L) and eye shadow (E) and nothing else. MUL = 40 and MUE = 36. The price of eye shadow is $9, and the price of lipstick is $15. What should Valerie do?
a. Consume more lipstick and less eye shadow.
b. Consume more of both.
c. Consume more eye shadow and less lipstick.
d. Consume less of both.
a. Consume more lipstick and less eye shadow.
b. Consume more of both.
c. Consume more eye shadow and less lipstick.
d. Consume less of both.
answer
c. Consume more eye shadow and less lipstick.
question
If the marginal utility of a good is negative, then
a. consumers should buy less of it.
b. consumers will consume it only if it is free.
c. consumers should buy more of it to make its marginal utility positive.
d. the law of diminishing marginal utility is being violated.
a. consumers should buy less of it.
b. consumers will consume it only if it is free.
c. consumers should buy more of it to make its marginal utility positive.
d. the law of diminishing marginal utility is being violated.
answer
a. consumers should buy less of it.
question
Suppose that a consumer purchases a combination of X and Y such that MUX/PX = 15 utils per dollar and MUY /PY = 10 utils per dollar. To maximize utility, the consumer should buy
a. more of X and less of Y.
b. less of both X and Y.
c. more of both X and Y.
d. less of X and more of Y.
a. more of X and less of Y.
b. less of both X and Y.
c. more of both X and Y.
d. less of X and more of Y.
answer
a. more of X and less of Y.
question
The marginal utility of the third plum is
a. 3
b. 17
c. 8
d. 10
a. 3
b. 17
c. 8
d. 10
answer
d. 10
question
In this example, marginal utility
a. constantly increases.
b. constantly diminishes.
c. increases then diminishes.
d. diminishes then increases.
a. constantly increases.
b. constantly diminishes.
c. increases then diminishes.
d. diminishes then increases.
answer
b. constantly diminishes.
question
Total utility for the first two oranges is
a. 20
b. cannot be determined
c. 36
d. 40
a. 20
b. cannot be determined
c. 36
d. 40
answer
c. 36
question
Total utility for the first four oranges is
a. 60
b. 40
c. 11
d. 52
a. 60
b. 40
c. 11
d. 52
answer
a. 60
question
Don receives 100 utils from consuming two oranges. The utility he derives from consuming the second orange equals 30 utils. The information provided
a. is consistent with the law of diminishing marginal utility.
b. lends support to the inferiority of oranges as consumer goods.
c. is inconsistent with the law of diminishing marginal utility.
d. is sufficient to determine the quantity of oranges Don will consume.
a. is consistent with the law of diminishing marginal utility.
b. lends support to the inferiority of oranges as consumer goods.
c. is inconsistent with the law of diminishing marginal utility.
d. is sufficient to determine the quantity of oranges Don will consume.
answer
a. is consistent with the law of diminishing marginal utility.
question
Linda spends $5 a week on apples and oranges. If the price of both goods is $1 per unit, how many apples and oranges, respectively, does she purchase per week if she wants to maximize her utility?
a. 1 and 4
b. 2 and 3
c. 3 and 2
d. 0 and 5
a. 1 and 4
b. 2 and 3
c. 3 and 2
d. 0 and 5
answer
a. 1 and 4
question
Linda spends $5 a week on apples and oranges. If the price of both goods is $1 per unit, what is Linda's total utility from consuming the optimal bundle of goods?
a. 85
b. 86
c. 209
d. 88
a. 85
b. 86
c. 209
d. 88
answer
d. 88
question
Assume that the price of oranges increases to $2, while the price of apples remains at $1, and Linda allocates $5 of the weekly food budget to purchasing apples and oranges. If Linda wants to maximize her utility, her new consumption bundle will consist of
a. none of the above
b. 1 apple and 2 oranges.
c. 3 apples and 1 orange.
d. 5 apples and no oranges.
a. none of the above
b. 1 apple and 2 oranges.
c. 3 apples and 1 orange.
d. 5 apples and no oranges.
answer
c. 3 apples and 1 orange.
question
If, as a person consumes additional units of a good, total utility rises by a constant amount, it follows that
a. marginal utility is falling.
b. marginal utility is rising.
c. marginal utility is negative.
d. marginal utility is constant.
a. marginal utility is falling.
b. marginal utility is rising.
c. marginal utility is negative.
d. marginal utility is constant.
answer
d. marginal utility is constant.
question
If a person's income falls, his or her budget constraint moves
a. outward away from the origin, and its slope remains the same.
b. inward toward the origin, and its slope changes.
c. inward toward the origin, and its slope remains the same.
d. outward away from the origin, and its slope changes.
a. outward away from the origin, and its slope remains the same.
b. inward toward the origin, and its slope changes.
c. inward toward the origin, and its slope remains the same.
d. outward away from the origin, and its slope changes.
answer
c. inward toward the origin, and its slope remains the same.
question
If the price of good X rises and the demand for good X is elastic, then the percentage __________ in quantity demanded is __________ the percentage rise in price, and total revenue __________.
a. rise; greater than; falls
b. fall; greater than; falls
c. fall; greater than; rises
d. fall; less than; falls
a. rise; greater than; falls
b. fall; greater than; falls
c. fall; greater than; rises
d. fall; less than; falls
answer
b. fall; greater than; falls
question
Suppose that when the price of a good rises from $12 to $14, the quantity demanded of that good falls from 220 units to 180 units. What is the approximate price elasticity of demand between these two prices?
1.73
0.77
0.27
d. 1.3
1.73
0.77
0.27
d. 1.3
answer
d. 1.3
question
If the percentage change in quantity demanded is less than the percentage change in price for good Y, then the demand for good Y is
a. unit elastic
b. inelastic
c. elastic
d. perfectly elastic
a. unit elastic
b. inelastic
c. elastic
d. perfectly elastic
answer
b. inelastic
question
The fewer substitutes for a good,
a. the lower its price elasticity of demand.
b. the higher its price elasticity of demand.
c. the lower its income elasticity of demand.
d. the higher its income elasticity of demand.
a. the lower its price elasticity of demand.
b. the higher its price elasticity of demand.
c. the lower its income elasticity of demand.
d. the higher its income elasticity of demand.
answer
a. the lower its price elasticity of demand.
question
Which of the following statements is false?
a. Peaches have a higher price elasticity of demand than fruit.
b. Carrots have a higher price elasticity of demand than vegetables.
c. Ham has a higher price elasticity of demand than meat.
d. Soap has a higher price elasticity of demand than Ivory brand soap.
a. Peaches have a higher price elasticity of demand than fruit.
b. Carrots have a higher price elasticity of demand than vegetables.
c. Ham has a higher price elasticity of demand than meat.
d. Soap has a higher price elasticity of demand than Ivory brand soap.
answer
d. Soap has a higher price elasticity of demand than Ivory brand soap.
question
The shorter the period of time consumers have to adjust to price changes, the __________ the __________ elasticity of demand.
a. higher; income
b. higher; price
c. lower; price
d. lower; income
a. higher; income
b. higher; price
c. lower; price
d. lower; income
answer
c. lower; price
question
Cross elasticity of demand measures the responsiveness of changes in the quantity __________ of one good to changes in __________.
a. demanded; income
b. supplied; the price of the same good
c. demanded; the price of the same good
d. demanded; the price of another good
a. demanded; income
b. supplied; the price of the same good
c. demanded; the price of the same good
d. demanded; the price of another good
answer
d. demanded; the price of another good
question
If the cross elasticity of demand for two goods is negative,
a. the goods are complements.
b.both goods are normal goods.
c. one of the goods is necessarily a normal good, and the other good is necessarily an inferior good.
d. the goods are substitutes.
a. the goods are complements.
b.both goods are normal goods.
c. one of the goods is necessarily a normal good, and the other good is necessarily an inferior good.
d. the goods are substitutes.
answer
a. the goods are complements.
question
If the cross elasticity of demand for good A with respect to good B is 2.7, then good A is
a. a normal good.
b. a substitute for good B.
c. an inferior good.
d. a complement to good B.
a. a normal good.
b. a substitute for good B.
c. an inferior good.
d. a complement to good B.
answer
b. a substitute for good B.
question
If Jack bought 12 DVDs last year when his income was $40,000 and he buys 14 DVDs this year when his income is $43,000, then his income elasticity of demand is ______________ which means that DVDs are a(n) ______________ good for Jack.
a. +0.41; normal
b. -2.13; inferior
c. -0.47; inferior
d. +2.13; normal
a. +0.41; normal
b. -2.13; inferior
c. -0.47; inferior
d. +2.13; normal
answer
d. +2.13; normal
question
If Casey bought 16 cotton t-shirts last year when her income was $40,000 and she buys 14 cotton t-shirts this year when her income is $45,000, then for Casey cotton t-shirts are
a. a complementary good.
b. an inferior good.
c. a substitute good.
d. a normal good.
a. a complementary good.
b. an inferior good.
c. a substitute good.
d. a normal good.
answer
b. an inferior good.
question
An inferior good is
a. a good for which the demand rises as income falls.
b. any good that consumers think is of low quality.
c. a good for which the demand rises as income rises.
d. a good for which the quantity demanded increases as its price decreases.
a. a good for which the demand rises as income falls.
b. any good that consumers think is of low quality.
c. a good for which the demand rises as income rises.
d. a good for which the quantity demanded increases as its price decreases.
answer
a. a good for which the demand rises as income falls.
question
Suppose a producer decides that if the price of his or her product is $10, the quantity supplied will be 1,000 units, and if the price is $11, the quantity supplied will be 1,100. The supply of the good is
a. unit elastic.
b. elastic
c. perfectly elastic
d. inelastic
a. unit elastic.
b. elastic
c. perfectly elastic
d. inelastic
answer
a. unit elastic.
question
Suppose the demand for a particular good is perfectly inelastic and the government decides to impose a tax on the production of this good. Who will pay the greater share of such a tax?
a. The buyers and the sellers will pay equal shares.
b. The buyers will pay the entire share.
c. The sellers will pay the entire share.
d. The sellers will bear the greater share of the tax.
a. The buyers and the sellers will pay equal shares.
b. The buyers will pay the entire share.
c. The sellers will pay the entire share.
d. The sellers will bear the greater share of the tax.
answer
b. The buyers will pay the entire share.
question
The market for good X is initially in equilibrium at $5. The government then places a tax on the producers of good X, taxing them on each unit of good X they sell. As a result, the supply curve
a. shifts (up and) leftward from S1 to S2.
b. shifts (down and) rightward from S2 to S1.
c. does not shift from S1.
d. There is not enough information to answer the question.
a. shifts (up and) leftward from S1 to S2.
b. shifts (down and) rightward from S2 to S1.
c. does not shift from S1.
d. There is not enough information to answer the question.
answer
a. shifts (up and) leftward from S1 to S2.
question
The market for good X is initially in equilibrium at $5. The government then places a per-unit tax on good X, as shown by the shift of S1 to S2. As a result, the equilibrium price
a. rises from $5.00 to $6.25
b. remains constant at $5.00
c. falls from $5.00 to $4.00
d. none of the above
a. rises from $5.00 to $6.25
b. remains constant at $5.00
c. falls from $5.00 to $4.00
d. none of the above
answer
a. rises from $5.00 to $6.25
question
The market for good X is initially in equilibrium at $5. The government then places a per-unit tax on good X, as shown by the shift of S1 to S2. As a result,
a. consumers end up paying $5.00 per unit, and producers end up receiving and keeping $5.00 per unit.
b. consumers end up paying $6.25 per unit, and producers end up receiving $6.25 per unit, but keeping only $4.00 per unit.
c. consumers end up paying $6.25 per unit, and producers end up receiving $5.00 per unit, but keeping only $4.00 per unit.
d. consumers end up paying $6.25 per unit, and producers end up receiving and keeping $4.00 per unit.
a. consumers end up paying $5.00 per unit, and producers end up receiving and keeping $5.00 per unit.
b. consumers end up paying $6.25 per unit, and producers end up receiving $6.25 per unit, but keeping only $4.00 per unit.
c. consumers end up paying $6.25 per unit, and producers end up receiving $5.00 per unit, but keeping only $4.00 per unit.
d. consumers end up paying $6.25 per unit, and producers end up receiving and keeping $4.00 per unit.
answer
b. consumers end up paying $6.25 per unit, and producers end up receiving $6.25 per unit, but keeping only $4.00 per unit.
question
The market for good X is initially in equilibrium at $5. The government then places a per-unit tax on good X, as shown by the shift of S1 to S2. What is the per-unit tax equal to?
a. $1.00
b. $2.25
c. 4.00
d. $0.25
a. $1.00
b. $2.25
c. 4.00
d. $0.25
answer
b. $2.25
question
The market for good X is initially in equilibrium at $5. The government then places a per-unit tax on good X, as shown by the shift of S1 to S2. Approximately what percentage of the tax do consumers end up paying?
a. 63 percent
b. 70 percent
c. 55 percent
d. 45 percent
a. 63 percent
b. 70 percent
c. 55 percent
d. 45 percent
answer
c. 55 percent
question
The market for good X is initially in equilibrium at $5. The government then places a per-unit tax on good X, as shown by the shift of S1 to S2. Approximately what percentage of the tax do producers end up paying?
a. 55 percent
b. 70 percent
c. 45 percent
d. 63 percent
a. 55 percent
b. 70 percent
c. 45 percent
d. 63 percent
answer
c. 45 percent
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