1. Which of the following will most likely happen in the market for good X if the price of good X decreases?
The quantity demanded for good X will increase.
2. Assume that good X is a normal good. Which of the following helps to explain why a decrease in the price of good X increases the quantity demanded of good X?
Good X becomes relatively less expensive than its substitutes so consumers buy more of good X and fewer of the substitutes.
3. Which of the following best describes the law of demand?
When the price of a good decreases its quantity demanded increases.
4. Assume that ice cream is a normal good. If the price of ice cream decreases the substitution effect and the income effect will lead to which of the following changes in ice cream consumption?
Substitution Effect = Increase Income Effect = Increase
5. Which of the following explains why a decrease in the price of a normal good will lead to an increase in the quantity demanded of the good?
A lower price will increase consumers' purchasing power.
6. Based on the law of demand if the price of apple juice goes up which of the following will occur?
The quantity of apple juice demanded will go down.
7. Which of the following is true based on the law of diminishing marginal utility?
The additional satisfaction experienced from consuming extra units of a product goes down as more of the product is consumed.
8. What can explain why the demand curve is downward sloping for a normal good?
The substitution and income effects cause the quantity demanded to move in the same direction.
9. If the price of a normal good goes up what is true of the substitution effect?
It reinforces the income effect.
10. Which of the following will decrease the demand for soda?
An increase in the price of pizza if pizza and soda are complements
11. The fifth slice of pizza is not as satisfying as the first and as a result a person is not willing to pay as
...
much for it. What economic concept does that sound like?
Law of diminishing marginal utility
12. If the demand for good A decreases as the price of good B decreases it can be concluded that
B and A are substitute goods
13. If a bus pass is an inferior good which of the following must be true?
An increase in consumer income will decrease the demand for bus passes.
14. Which of the following events will cause the demand curve for apple juice to shift to the right?
An increase in the price of orange juice a substitute for apple juice
15. A normal good has a downward sloping demand curve for which of the following reasons?
I and II only
16. The law of demand is best represented by which of the following situations?
The price of cell phones has gone down and as a result the quantity of cell phones sold has gone up.
17. For an inferior good an increase in consumer income will cause
the demand curve to shift to the left
18. Which of the following will cause the demand curve for good X to shift to the right?
An increase in the price of good Y, a substitute for good X
19. One reason consumers typically increase the quantity of a good they purchase when the price of the good decreases is that
consumers' purchasing power increases
1. Let MUS be the marginal utility of a sandwich MUH be the marginal utility of a hot dog PS be the price of a sandwich and PH be the price of a hot dog. When the price of the goods is zero Pat eats a sandwich. When Pat has to pay she eats a hot dog. When
PS > PH
2. Consumer surplus exists because of the
willingness of some consumers to pay a price higher than the market price for some units of a good
3. Which of the following is a key assumption of consumer choice theory?
Consumers maximize their utility.
4. Oscar spent his entire income on only two goods: good X and good Y. At his current consumption of the two goods the marginal utility of X is 8 and the marginal utility of Y is 2. If the price of X is $4.00 and the price of Y is $0.50 then to maximize h
bought less X and more Y
5. The difference between what consumers are willing to pay for units of a good and the price consumers actually pay for units of the good is called
consumer surplus
6. Which of the following is true if consuming one unit of a good yields 100 utils and consuming the second unit of the good increases satisfaction by 20 utils?
The total utility of consuming two units is 120.
7. Garcia is currently spending his entire lunch budget on 3 sodas and 4 hot dogs. At his current level of consumption Garcia's marginal utility for sodas is 5 utils and his marginal utility for hot dogs is 10 utils. In order to maximize his total utility
maintain his current level of consumption if the price of a soda is $ 1 and the price of a hot dog is $2
8. If a good is available free of charge an individual will consume it until
marginal utility is zero
9. In this graph if the price goes up from P4 to P5 and quantity consumed goes down from Q4 to Q3 consumer surplus goes down by which area?
P4P5XY
10. Molly spends all her weekly allowance to buy only two goods: juice and oranges. According to the table if her preferences follow the law of diminishing marginal utility then which of the following statements is correct?
Molly can buy more oranges and less juice to maximize her utility.
11. John spends his entire income on the purchase of two goods A and B. If his income and the prices of good A and B all triple John will
buy the same amounts of goods A and B
12. At his current level of consumption a boy is willing to pay up to $1.00 for a can of soda and up to $100 for a new bike because the
marginal utility of a can of soda < marginal utility of a new bike
13. If a person were to eat one more taco what do we call the additional satisfaction experienced from consuming that taco?
Marginal utility
14. When does a consumer with a fixed budget maximize utility?
When the ratios of marginal utility per item and price are equal
15. If total utility is maximized marginal utility is
equal to 0
16. What does a person experience if they are willing to pay more for a product but actually end up paying less?
Consumer surplus
17. A consumer spends all of his money buying two goods. If his income triples and the prices of the two goods also triple what happens to the quantity of the two goods that gets purchased?
The quantity does not change
18. How is consumer surplus defined?
It's the difference between what the consumer is willing to pay and the actual price they pay
19. This table shows the total utility that Brandon receives from eating various amounts of pizza each day. Which of the following statements about Brandon's marginal utility is correct?
His marginal utility from the first slice of pizza > his marginal utility from the second slice of pizza.
20. Suppose that a person buys two goods: A and B. The marginal utility of A is MUA the total utility of A is TUA the marginal utility of B is MUB and the total utility of B is TUB. If the price of A is PA and the price of B is PB which of the following r
MUA/PA = MUB/PB
21. This question is based on the following table. Assume the marginal utility from one item is not dependent on the amount of the other item consumed. The man has $20 and spends it all on bagels and pencils. If the price of a bagel is $4 and the price of
Bagels = 4 ; Pencils = 2
22. This question is based on the following table. Assume the marginal utility from one item is not dependent on the amount of the other item consumed. If the man buys 2 bagels and 2 pencils the man's total utility will be
106 utils
23. When marginal utility is falling but positive total utility will
increase at a decreasing rate
24. Consumer surplus in a market for a good exists because
some consumers would be willing to pay more than the equilibrium price of the good
25. Assume Pat spends all of her allowance to purchase 4 apples and 4 candy bars. Pat's marginal utility of the fourth apple is 20 utils and her marginal utility of the fourth candy bar is 40 utils. If an apple costs $1.00 and a candy bar $0.50
to maximize utility Pat should,purchase fewer apples and more candy bars
1. Which of the following would shift the short-run supply curve for strawberries?
A strike by all farmworkers
2. Which of the following will cause the supply curve for shoes to shift to the right?
An increase in the number of firms producing shoes
3. In a perfectly competitive market a change in which of the following could cause a shift in the supply curve?
Technology
4. An increase in the supply of coffee could be caused by
a decrease in the cost of labor used to produce coffee
5. In the short-run a change in the supply of TV's can be caused by a change in
technology
6. Assume that chicken and pork are substitutes. Which of the following will cause the quantity supplied of chicken to go up?
The price of chicken goes up.
7. What could cause the supply curve for clocks to shift left?
Clockmakers wages go up.
8. If the variable cost of producing output goes up what happens?
a business will not produce as much.
9. If production costs of a product go down in the short-run what line shifts?
only supply shifts right
10. The supply curve for cars will shift to the left when which of the following occurs?
wages go up in the car industry
11. Which of the following would cause the supply curve for notebook computers to shift to the right?
An increase in the number of firms producing notebook computers
1. Last year 17 million tons of beans were sold for $300 per ton. This year 17 million tons of beans were sold for $285 per ton. Which of the following changes in demand and supply could have caused this outcome?
Demand = Decrease ; Supply = Increase
2. If an unusually cold summer destroyed a large portion of the bee population the equilibrium price and quantity of honey produced by bees will most likely change in which of the following ways?
Price = Increase ; Quantity = Decrease
5. The market for goldfish is perfectly competitive. From year 1 to year 2
both the price and the quantity of goldfish sold increase. This is most likely caused by,an increase in the demand
6. Given an increase in the price of material K which is an input used to produce good X and an increase in the price of good Y which is a substitute for good X which of the following will definitely occur?
The equilibrium price of good X will increase.
7. Which of the following changes in the demand for and the supply of a good would necessarily lead to a decrease in the equilibrium quantity of the good in the market in the short run?
Demand = Decrease ; Supply = Decrease
9. This table illustrates the demand data for Chad and everyone else that buys this product. It also includes the data for the market supply of this product. In this market the equilibrium price is
$13
10. If lumber is used to produce houses an increase in the price of lumber will result in which of the following changes in the market for new homes?
The supply of new homes will go down which leads to a shortage of new homes followed by upward pressure on the price of new homes
11. Let's say consumers consider hamburgers and hotdogs to be substitutes. If the supply of hamburgers goes down how will that affect the hotdog market?
The demand for hotdogs goes up which causes the price of hotdogs to go up as well.
12. What would cause the equilibrium price of apples to go down?
It is discovered that eating apples causes a terminal illness.
13. People like ketchup on their hotdogs. If the supply of hotdogs goes down the demand for ketchup will
go down because hotdogs and ketchup are complements
14. In this graph the letters represent areas not points. If the market reaches equilibrium
the total economic surplus is represented by,a + b + c + d + e + f
16. In order for both the equilibrium price and quantity of a good to go up what changes in demand and supply must to occur?
Demand = Go up ; Supply = No Change
17. If the supply of apples goes down and as a result the price of apples goes up the substitution effect will motivate people to
increase the quantity demanded of other fruits and decrease the quantity demanded of apples
18. This graph shows the market demand for good B. A movement from point X to point Z would most likely be caused by
production costs going down for good B
19. What would happen if growing strawberries becomes more profitable than growing oranges?
Price of strawberries will go down.
20. If the price is $10 in the graph above what will happen?
A surplus gets created which causes demand to go down
21. The market for avocados is in equilibrium at a price of $2 per avocado. What will happen if the demand for avocados goes down?
A surplus gets created at $2 causing price and quantity supplied to go down.
22. Mrs. Gardener devotes her time to producing flowers and vegetables. If the demand for vegetables goes up what will happen?
Her opportunity cost of producing flowers will go up.
23. Canned meat is considered and inferior good while pork tenderloin is considered to be a normal good. If consumer income goes up what will happen to the equilibrium price and quantity of each item?
Canned Meat Price = Goes down and Canned Meat Quantity = Goes down ; Pork Tenderloin Price = Goes up and Pork Tenderloin Quantity = Goes up
24. Which of the following would make the equilibrium price of good Z go up?
An increase in the costs of producing good Z.
25. This graph shows the market for corn. It is announced that eating corn once a day makes you healthier. At the same time insect infestation severely damages the corn crop. Which of the following will definitely occur as a result?
The price of corn goes up.
27. Assume that nachos and movie attendance are complements and that Nacho Jones grows corn suitable for making nacho tortilla chips. Mr. Jones will most likely sell a greater quantity of tortilla chip corn at a higher price if which of the following occu
The release of four hit movies sets records for movie attendance.
28. In a perfectly competitive market which of the following shifts in the Demand and Supply curves will definitely cause both the equilibrium price and quantity to decrease?
Demand Curve = Shifts to the left ; Supply Curve = No Shift
30. If this market reaches equilibrium what will be the area of consumer surplus?
JBG
31. If both supply and demand for wheat increase the equilibrium price and quantity of wheat will most likely change in which of the following ways?
Price = Indeterminate ; Quantity = Increase
32. Assume that the market for lemonade is perfectly competitive and currently in equilibrium. Lemons are key ingredients in lemonade. If the price of lemons decreases how will the lemonade market be affected?
Supply will shift rightward, decreasing the equilibrium price and increasing the equilibrium quantity of lemonade.
1. If the demand for insulin is price inelastic a 5 percent increase in the price of insulin will
increase the total revenue of insulin producers
2. In this graph at which of the given points is demand most elastic?
Z
3. Which of the following will tend to make the demand for a product more elastic?
New firms which produce similar products enter the industry.
4. A city transit authority increases the price of subway and bus tickets from S1.25 to S1.50. If the demand for these tickets is price inelastic the number of people riding buses and subways and the city's revenues will most likely change in which of the
Number of People Riding = Decrease ; City's Revenues = Increase
5. Moving from left to right along a downward-sloping linear demand curve price elasticity varies in which of the following ways?
First elastic, then unit elastic, and finally inelastic
6. If poor growing conditions destroy a large part of the almond crop and almond farmers' revenues go up which of the following is true over this range of prices?
The demand for almonds is price inelastic.
7. A band knows that if they charged $16 a ticket 80 fans would buy tickets for a show and if they charged $8 a ticket 160 fans would buy tickets. The demand for concert tickets over this range of prices is
unit elastic
8. A firm operating in monopolistic competition produces two different goods A and B. The demand for A is price elastic and the demand for B is price inelastic. To decrease its total revenue the firm should change the price of A and B in which of the foll
Price of A = Raise it ; Price of B = Lower it
9. Assume that there is perfectly inelastic demand for a product and that there is an upward sloping supply curve. If the cost of producing this product goes up what will happen in the market for this product?
The supply goes down and the equilibrium price goes up.
10. Assume that demand for soda is price elastic. Which would happen if the supply of soda goes up?
Price will fall and total revenue will go up.
11. The price of good A goes down from $100 to $90 per unit and that the quantity demanded of good A goes up from 250 to 300 units. In this price range
the demand for good A is,elastic
12. To help balance their budget a college increases tuition. This action will increase revenues if the price elasticity of demand for college education is
inelastic
13. The price of an airline ticket usually goes up the closer to the departure date one buys. Why do airline companies utilize this pricing strategy?
As the departure date approaches, demand becomes less elastic
14. Which of the following must be true if the revenues of taco makers go up when the price of tacos go up?
The demand for tacos is price inelastic.
15. In the elastic range of the demand curve for a firm which of the following is true?
If the firm decreases its price total revenue will go up.
16. If a 10 percent increase in the price of a good leads to a 25 percent decrease in the quantity demanded of the good demand is
relatively elastic
17. In which of the following cases would a firm's total revenue increase?
Price decreases and demand is elastic.
1. This table shows the quantity of gasoline supplied and demanded at various prices in a country. If the government sets a price floor of $2.75 on a gallon of gasoline
what is the price per gallon?,$3.25
2. If a government eliminated an effective price floor in a market all of the following would occur EXCEPT:
The supply of the good would increase.
3. This diagram depicts demand and supply curves in a city's rental housing market. If a price ceiling of $1
000 is imposed on the market which of the following will occur?,The quantity of rental housing demanded will increase.
4. If the market depicted in this diagram is initially in equilibrium which of the following will result from the government's setting a price ceiling at P3?
Market price will be unaffected.
5. If the government imposes a tariff on imports of wine how will the price and quantity of imported
Price = Go Up ; Quantity = Go Down
6. If the government imposes a price ceiling of $2 per gallon on milk which of the following will result?
A shortage of 60 gallons
7. Following a big snow storm the price of snow shovels normally increases significantly. If the government passed laws preventing price increases for snow shovels during snow storms such laws would most likely
create a shortage of snow shovels
8. Assume an upward sloping supply curve and a downward sloping demand curve in the market for a product. How will the implementation of a sales tax on this product impact the producer surplus the consumer surplus and the total surplus?
Producer Surplus = Goes Down ; Consumer Surplus = Goes Down ; Total Surplus = Goes Down
9. If a price ceiling is set at P4 what areas represent each of the following values?
Consumer Surplus = a + b + d ; Producer Surplus = f ; Deadweight Loss = c + e
10. Assume that the government increases the unit excise tax on insulin suppliers and also that people are getting diabetes at a faster rate. As a result the equilibrium price and quantity of insulin will most likely change in which of the following ways?
Price = Go up ; Quantity = Indeterminate
11. What will happen if the government implements a price floor above the equilibrium price of a good?
There will be a surplus in the market.
12. If a price floor is set at A what will happen to the value of quantity demanded?
decrease from OD to OC
13. This graph shows the supply and demand curves for milk. If the government establishes a price ceiling of $12 per gallon what will happen?
Neither a surplus nor a shortage
14. A long-run surplus of a product will occur when which of the following goes up?
The price if it was already set by law above the equilibrium price
15. If an effective rent ceiling is eliminated which of the following is most likely to occur in the rental housing market?
An increase in rents, resulting in an increase in the quantity of housing supplied
16. In this diagram if there is a price ceiling set at P1 consumer surplus will be represented by the area
P3ACP1
1. Which of the following is true of the cross-price elasticity of demand?
It is greater than zero for two goods that are substitutes.
2. The quantity of peanuts supplied increased from 40 tons per week to 60 tons per week when the price of peanuts increased from $4 per ton to $5 per ton. The price elasticity of supply for peanuts over this price range is
elastic
3. What type of elasticity measures the percentage change in the quantity demanded of good A in response to a percentage change in price of good B?
Cross-price elasticity of demand
4. After the supply of cranberries went down the price of cranberry juice increased by 40 percent. This resulted in a 10 percent increase in the quantity of guava juice consumed. Therefore the cross elasticity of demand between cranberry juice and guava j
0.25
5. If the income elasticity of demand for good A is positive and the cross-price elasticity of demand between good A and good B is positive which of the following must be true of good A?
A is a normal good and is a substitute for B.
6. If wages go up by 10 percent and as a result there is a 20 percent decrease in employment
the demand for labor is,relatively elastic
1. If the demand for a good is perfectly price inelastic in the short run and the supply curve is upward sloping imposing a sales tax on the good will
not change the after-tax revenues received by suppliers
2. Assume that under new environmental regulations tire companies have to pay taxes based on how much pollution is created when producing each tire. The price paid by consumers and the quantity of tires sold will most likely change in which of the followi
Price = Increase ; Quantity = Decrease
3. If demand is downward-sloping and supply is upward-sloping what will happen if the sales tax on a good goes up?
Quantity demanded will go down.
4. If a per-unit tax is implemented on the output of a firm with an inelastic demand curve that is downward sloping the burden of the tax will be
shared by consumers and the firm
5. This question is based on the following graph that shows the effect of a unit tax implemented on a product. What price is paid by consumers and what price is received by producers after the tax is paid?
Paid by Consumers = $7 ; Received by Producers = $5
6. This question is based on the following graph that shows the effect of a unit tax implemented on a product. Based on the graph
what is the dollar value of the unit tax?,$2
7. A $0.30 per gallon tax on milk is implemented by the government. The price of a gallon of milk went up from $2.00 to $2.20. Which of the following statements is true?
Buyers absorb most, but not all, of the tax burden.
8. The price elasticity of demand for good A is constant and equal to -0.3 and the price elasticity of demand for good B is constant and equal to -3. Assume that goods A and B have matching upward-sloping elastic supply curves. Which would be true if an e
The tax share paid by consumers of good A would be relatively higher than that paid by consumers of good B.
9. Let's say that the supply and demand for an item are relatively price elastic. If there was a per-unit excise tax implemented on the sale of the item what would happen to the equilibrium price and quantity?
Price = Goes up ; Quantity = Goes down
10. If there is inelastic demand for a good and elastic supply which of these will happen if there is an increase in sales tax for that good?
Consumers will bear a larger burden of the tax.
11. In this graph S is the original supply curve and S1 is the supply curve including an excise tax. The area representing the tax revenue to the government is
P1P3VT
12. Suppose that the demand for soft drinks is price elastic and the supply is price inelastic. If the government imposes a sales tax on soft drinks which of the following will occur in the short run?
The tax burden will fall more on producers.