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I. Elasticity Questions:

A) percentage change in a variable.

B) slope of a curve.

C) change in a variable.

D) responsiveness of a variable to a change in another variable.

2) A decrease in the price of eggs from $1.50 to $1.30 per dozen resulted in an

increase in egg purchases in two cities. In Philadelphia, daily egg purchases increased

from 6000 to 8000 dozens; in nearby Dover, Delaware, daily egg purchases increased

from 300 to 400 dozens. The price elasticity of demand is therefore

A) lower in the smaller city as would be expected.

B) greater in the smaller city as would be expected.

C) certainly affected by population differences in different markets.

D) the same in Philadelphia as in Dover.

3) Suppose that the quantity of root beer demanded declines from 103,000 gallons per

week to 97,000 gallons per week as a consequence of a 10 percent increase in the

price of root beer. The price elasticity of demand is

A) 0.60.

B) 1.40.

C) 1.66.

D) 6.00.

4) The price elasticity of demand for DVDs is 2. If the price of a DVD increased by 2

percent, the quantity demanded will ________.

A) decrease by 2 percent

B) not change

C) decrease by 4 percent

D) decrease by 1 percent

5) Because of an increase in the price of leather, the price of a pair of women's dress

shoes increased 12 percent. If the price elasticity of demand for women's dress shoes

is 0.85, which of the following will happen?

A) Total expenditure on women's dress shoes decreases.

B) The number of pairs of women's dress shoes demanded decreases by 10.2 percent.

C) Total revenue from the sale of women's dress shoes decreases.

D) none of the above

6) If the quantity demanded changes by a relatively small amount for a given change

in price, then demand is

A) perfectly inelastic.

B) perfectly elastic.

C) elastic.

D) inelastic.

7) If the demand for a good is elastic, when the price increases, the

A) demand will decrease.

B) quantity demanded will increase.

C) quantity demanded will decrease by a smaller percentage than the price increased.

D) quantity demanded will decrease by a greater percentage than the price increased.

8) At a local ice cream parlor, when the price of half-gallons of chocolate ice cream

was lowered by fifty cents per half-gallon, total revenue from the sale of chocolate ice

cream decreased. This result indicates that

A) there are more people who like vanilla ice cream than there are people who like

chocolate ice cream.

B) the demand for chocolate ice cream is inelastic.

C) the demand for chocolate ice cream is elastic.

D) None of the above answers is correct.

(OPEC) raised the world price of crude oil and increased their revenue as well. Which

of the following is a true statement regarding these OPEC price hikes?

A) Their revenue increased because the demand for oil was income inelastic.

B) Their revenue increased because the demand for oil was price inelastic.

C) Their revenue would have increased regardless of income elasticity or price

elasticity because oil is an imported product for most nations.

D) Their revenue only increased because oil was already very expensive.

10) In the above figure, at which point on the demand curve is the price elasticity of

demand equal to 1?

A) a

B) b

C) c

D) It is impossible to say at which point the elasticity equals one.

11) For electricity, natural gas, or other forms of energy, it is very likely that the price

elasticity of demand

A) is zero.

B) is infinite.

C) will decrease in magnitude as more time passes after a price change.

D) will increase in magnitude as more time passes after a price change.

A) 0.

B) 1.0.

C) negative.

D) positive.

13) Peter's monthly income increases from $1,500 to $1,600. As a result, he increases

the number of DVDs he buys per month from 2 to 3. Peter's demand for DVDs is

A) price elastic.

B) price inelastic.

C) income elastic.

D) income inelastic.

14) A fall in the price of X from $12 to $8 causes an increase in the quantity of Y

demanded from 900 to 1,100 units. What is the cross elasticity of demand between X

and Y?

A) 0.5

B) -0.5

C) 2

D) -2

15) Suppose Target decided to lower the price on all shirts as part of its Back to

School promotion. The cross elasticity of demand between pants and shirts is

negative. Lowering the price on shirts will ________ the demand for pants because

shirts and pants are ________.

A) increase; substitutes

B) decrease; substitutes

C) increase; complements

D) decrease; complements

16) If at a given moment, no matter what the price, producers cannot change the

quantity supplied, the momentary supply

A) has zero elasticity.

B) has unit elasticity.

C) has infinite elasticity.

D) does not exist.

17) Which of the following leads a good to have a high elasticity of supply?

I. The good must be produced using unique resources.

II. The good is produced using commonly available resources.

A) I only

B) II only

C) I and II

D) neither I nor II

18) The figure above shows the demand curve for pizza. Using the midpoint method

and moving from point A to point B, calculate the

a) percentage change in price.

b) percentage change in quantity demanded.

c) price elasticity of demand.

(dollars) (dollars)

1.00 110

1.25 125

1.50 125

1.75 100

19) Steve sells hotdogs from a vending cart downtown. The table above shows his

total revenue per day at four different prices. Between which two prices is the demand

for hotdogs

a) elastic?

b) unit elastic?

c) inelastic?

A) it marks the boundary between what is affordable and unaffordable.

B) it represents the individual's preference for different combinations of goods.

C) it marks the boundary between what can be produced and what is unattainable

given the current state of technology and resources.

D) all consumers must consume on their budget line.

A) what is desired and what is not desired.

B) what is needed and what is not needed.

C) what is affordable and what is not affordable.

D) what is available and what is not available.

22) Jordan has two goods that he consumes this week. He can choose to go to the

arcade and play video games or he can purchase baseball cards. The price of each

video game is $.50 and each pack of baseball cards is $1. Jordan will spend all his

allowance this week on these two goods. Jordan's consumption possibilities are listed

in the table above. Which of the following combinations of video games and baseball

cards is not attainable for Jordan?

A) 10 video games and 3 sets of baseball cards

B) 8 video games and 1 set of baseball cards

C) 0 video games and 5 sets of baseball cards

D) 3 video games and 3 sets of baseball cards

23) Consider the budget line in the above figure. If the consumer's income is $120,

then the price of a book is

A) $10 per book.

B) $12 per book.

C) $6 per book.

D) More information is needed to determine the price of a book.

24) Ernie has an income of $40 which he plans to spend on cookies and milk. The

price of milk is $1 per gallon, and the price of cookies is $2 per dozen. If Ernie buys

12 gallons of milk, how many dozens of cookies will he buy if he spends all of his

income?

A) 28

B) 20

C) 14

D) 12

25) Sam buys gasoline and coffee each week. In order to draw his budget line

between gasoline and coffee, Sam would have to know

A) only how much income he has available to spend on gasoline and coffee.

B) only the prices of one gallon of gasoline and one pound of coffee.

C) only how much gasoline he wants to buy and how much coffee he wants to drink.

D) both how much income he has to spend and the prices of one gallon of gasoline

and one pound of coffee.

26) In the above figure, the budget line would rotate in the direction indicated as a

result of a

A) rise in the price of a book.

B) fall in the price of a book.

C) rise in the price of a movie.

D) decrease in income.

A) your budget line shifts rightward and its slope does not change.

B) your budget line shifts leftward and its slope does not change.

C) the slope of your budget line increases.

D) the slope of your budget line decreases.

28) In the above figure, a shift in the budget line in the direction indicated would

occur as a result of

A) a decrease in money income.

B) an increase in money income.

C) a fall in the price of a movie.

D) a rise in the price of movie.

A) the amount one is willing to pay for a good.

B) the price of a good.

C) the satisfaction from consuming a good.

D) the practical usefulness of a good.

Answer: C

30) A measure of all the satisfaction you receive from all the coffee that you consume

is your

A) marginal utility of coffee.

B) marginal utility per dollar spent on coffee.

C) total utility from coffee.

D) marginal utility per dollar spent on coffee when you are in your consumer

equilibrium.

A) his or her total utility increases.

B) his or her marginal utility increases.

C) the price of the good increases.

D) All of the above answers are correct.

32) Mark's marginal utility from reading books is the ________ when he reads

________.

A) change in his total utility; one additional book

B) total utility he gets; one more book

C) change in his total utility; more books

D) consumer surplus he gets; books

A) Ralph will enjoy his second hamburger less than the first.

B) the total utility from one hamburger exceeds the total utility from two hamburgers.

C) the price of two hamburgers is twice the price of one.

D) beyond a certain point, total utility decreases as income rises.

(pounds per week) utility

0 0

1 5

2 3

3 12

4 14

5 15

34) The above table gives the total utility that Homer obtains from consuming various

quantities of chocolate chip cookies. The marginal utility from the fifth pound of

cookies is

A) 1.

B) 2.

C) 3.

D) 15.

35) Danny has $12 to spend on two goods: pies and soda. The price of a pie is $4, and

the price of a can of soda is $2. To maximize his utility, Danny buys ________.

A) the combination that gives him equal total utility from pies and soda

B) 2 pies and 2 cans of soda

C) only sodas because they are less expensive

D) the combination that gives him the same marginal utility per dollar spent on pies as

on soda

Quantity Marginal utility Quantity Marginal utility

of DVDs from DVDs of pizza from pizza

1 150 1 200

2 120 2 180

3 100 3 150

4 90 4 120

5 60 5 100

6 40 6 60

36) Lisa spends all her income on pizzas and DVDs. The above table shows Lisa's

marginal utility for pizza and marginal utility for DVDs. If the price of a pizza is $10,

the price of a DVD is $5, and Lisa has $40 to spend on the two goods, what

combination of pizza and DVDs will maximize her utility?

A) 6 DVDs and 1 pizza

B) 4 DVDs and 2 pizzas

C) 2 DVDs and 3 pizzas

D) 5 DVDs and 4 pizzas

37) Let MUa and MUb stand for the marginal utilities of apples and bagels. Let Pa

and Pb stand for their prices. The general necessary condition for consumer

equilibrium is

A) MUa = MUb.

B) MUa = MUb and Pa = Pb.

C) MUa/Pa = MUb/Pb.

D) MUa/MUb = Pb/Pa.

38) Bobby consumes only chocolate ice cream and vanilla ice cream. He is spending

all of his income. His marginal utility of chocolate is 100 and his marginal utility of

vanilla is 200, and the price of chocolate is $1.00 per scoop and the price of vanilla is

$2.00 per scoop. To maximize his utility, Bobby should

A) buy more chocolate ice cream and less vanilla ice cream.

B) buy more vanilla ice cream and less chocolate ice cream.

C) not change his purchases between chocolate ice cream and vanilla ice cream.

D) buy no chocolate ice cream.

39) Sam spends all of his income on textbooks and hot dogs. The price of a textbook

is $40 and the price of a hot dog is $0.50. If Sam is maximizing his utility and the

marginal utility he derives from the last textbook he purchases is 400, then the

marginal utility he derives from his last hot dog purchased must be

A) 400.

B) 10.

C) 5.

D) 20.

40) Usharani consumes 35 apples a week and 14 loaves of bread. Apples cost $1 each

and bread costs $2 per loaf. Usharani is maximizing his utility and finds that the

marginal utility from his 35th apple

A) equals his marginal utility from his 14th loaf of bread.

B) is twice his marginal utility from his 14th loaf of bread.

C) is half his marginal utility from his 14th loaf of bread.

D) is such that his total utility from apples equals his total utility from bread.

Total Total

Quantity Quantity

utility utility

1 95 1 170

2 180 2 320

3 255 3 450

4 320 4 560

5 375 5 650

41) Bobby spends $100 per month on pizza and CDs. His utility from these goods is

shown in the table above. The price of a pizza is $10 and the price of a CD is $20.

Which of the following combinations of the two goods maximizes Bobby's utility?

A) 2 pizzas and 4 CDs

B) 6 pizzas and 2 CDs

C) 4 pizzas and 3 CDs

D) 8 pizzas and 1 CDs

42) Patty spends $10 a week on bagels and soda. The price of a bagel is $2 and the

price of soda is $1 a can. Patty buys 2 bagels and 6 cans of soda. Her marginal utility

from bagels is 20 units. The price of a bagel rises to $3 and the price of a can of soda

rises to $1.50. Patty now buys ________ bagels and her marginal utility from bagels

________. She buys ________ cans of soda and her marginal utility from soda

________.

A) fewer than 2; increases; fewer than 6; increases

B) 2; is 20 units; 6; is 10 units

C) fewer than 2; is 20 units; fewer than 6; is 10 units

D) fewer than 2; decreases; fewer than 6; decreases

Quantity

Marginal

(cones per Total utility

utility

week)

0 0 X

1 22 ____

2 38 ____

3 ____ 11

4 56 ____

5 ____ 4

6 62 ____

7 63 ____

43) The table above gives the utility Andy receives from different quantities of vanilla

ice cream cones. Complete the table.

0 0 0 0

1 126 1 54.0

2 243 2 103.5

3 342 3 145.5

4 414 4 177.0

5 441 5 196.5

44) The table gives the total utility Jamal derives from the consumption of eclairs and

cream puffs. Jamal has $12 to spend on these two confectionery goods. The price of

an eclair is $3 and the price of a cream puff is $1.50.

a) Jamal's budget is $12. In order for Jamal to maximize his utility, how many eclairs

and cream puffs should he buy?

b) Suppose the price of an eclair increase to $6. Jamal's income does not change and

neither does the price of a cream puff. What combination of eclairs and cream puffs

will Jamal buy now?

c) Using your answers to parts (a) and (b), derive two points on Jamal's demand

curve for eclairs.

A) which the consumer prefers equally

B) that are affordable

C) that are inside or on the budget line

D) that have the same relative price

46) The above figure shows one of Sam's indifference curves between gasoline and

coffee. Which of the following about a movement along Sam's indifference curve is

correct?

A) As he moves leftward along the curve, he likes the combinations of gasoline and

coffee better and better.

B) As he moves rightward along the curve, he likes the combinations of gasoline and

coffee better and better.

C) He likes all combinations of gasoline and coffee along the curve equally well.

D) None of the above is true.

A) less preferred to any point on the indifference curve.

B) preferred to any point on the indifference curve.

C) definitely affordable.

D) Both answers A and C are correct.

48) Given the indifference curve in the above figure, which point is preferred to point

a?

A) point b

B) point c

C) point d

D) point e

49) The indifference curves in the figure above (I1, I2, and I3) reflect Peter's

consumption preferences. If Peter consumes 24 slices of pizza and 24 chocolate bars

per month, he as satisfied as he would be consuming ________ slices of pizza and

________ chocolate bars per month.

A) 48; 12

B) 40; 20

C) 32; 8

D) 16; 16

50) The above figure shows Sam's budget line and one of his indifference curves.

What combination of coffee and gasoline will Sam select?

A) Combination a because that contains all the gasoline he needs and still has some

coffee.

B) Combination c because that contains all the coffee he needs and some gasoline.

C) Combination b because it is on his budget line and on the highest attainable

indifference curve.

D) None of the above

51) The figure illustrates Sally's budget line and her preferences. Point ________ is

Sally's best affordable point, and Sally prefers point ________ to point ________.

A) A; B; A

B) E; C; B

C) B; A; B

D) B; B; D

52) Jane spends her monthly dining-out budget of $300.00 on either steak or lobster

dinners. Using the above figure, what is the price of a steak dinner?

A) $10.00

B) $15.00

C) $20.00

D) $30.00

53) Jane spends her monthly dining-out budget of $300.00 on either steak or lobster

dinners. Using the above figure, what is the price of a lobster dinner?

A) $10.00

B) $15.00

C) $20.00

D) $30.00

54) The above figure shows Jane's budget line and two of her indifference curves.

How many steak dinners will Jane purchase each month?

A) 4 steak dinners

B) 6 steak dinners

C) 8 steak dinners

D) 10 steak dinners

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