1. T F The resources that are available to meet society s needs are scarce.

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1 1. T F The resources that are available to meet society s needs are scarce. 2. T F The marginal rate of substitution is the rate of exchange of pairs of consumption goods or services to increase utility or satisfaction. 3. T F Consumer equilibrium is consumption bundle that maximizes total utility and is feasible as defined by the budget constraint. 4. T F If Good X is the independent variable (horizontal axis) and Good Y is the dependent variable (vertical axis), the slope of a budget constraint for these two goods is -P Y /P X if the prices of Good X and Good Y are P X and P Y, respectively. 5. T F The Bell curve is the schedule that shows how many units of a good that the consumer will purchase at different income levels, all other factors constant. 6. T F The law of diminishing marginal utility says marginal utility declines as more of a good or service is consumed during a specified period of time. 7. T F The budget constraint reflects the income available for consumption and the prices that a consumer faces. 8. T F Cross-price elasticity is a measure of the response of consumption of a good or service to changes in the price of another good or service. 9. T F A graph of the locus of consumption bundles that provide a consumer given level of satisfaction is known as an indifference curve. 10. T F Microeconomics is branch of economics that focuses on the economic actions of individuals or specific groups of individuals. 11. T F Mega-economics is a branch of economics that focuses on the broad aggregates, such as the growth of gross domestic product, the money supply, the stability of prices, and the level of employment. 12. T F Opportunity cost is the economic sacrifice of not doing something else or foregoing another opportunity. 13. T F Inferior goods are those goods for which consumption falls (rises) when income increases (decreases). 15. T F A shift in the demand curve caused generally by changes in the prices of complements or substitutes, income, and tastes and preferences is known

2 as a change in demand. 16. T F Own-price elasticity is a measure of the relative response of consumption of a good or service to changes in price. 17. T F An indifference curve is derived from a utility function. 18. T F Replacing a product with another because the price of the former has declined or increased is known as the substitution effect. 19. T F Income elasticity is a relative measure of the change in demand to a change in income. 20. T F Normal goods are goods for which consumption falls (rises) when income increases (decreases). 21. T F Consumption is at equilibrium when the marginal rate of substitution is equal to the slope of the budget line 22. T F A good is said to be both normal and a necessity if the income elasticity of demand is greater than T F If the marginal utility for product A (MU A ) is 100 and the marginal utility for product B (MU B ) is 117, it is impossible to achieve an equilibrium mix of products A and B. 24. T F A good is said to be both normal and a luxury if the income elasticity of demand is greater than T F As the slope of a demand curve increases, it is a sign the demand for a good or service is becoming more sensitive to price changes.

3 MULTIPLE CHOICE 26. Which of the following is true? a. If the cross-price elasticity of demand between two goods is negative, then the two goods are complements b. If the income elasticity of demand for a good is greater than 0, then the good is labeled inferior c. The law of demand states that as the price of a commodity rises, the change in consumer surplus is negative d. The law of diminishing marginal utility states that total utility always declines as more of a good is consumed 27. The resources that are available to meet society s needs are: a. plentiful b. scarce c. man-made and natural 28. The rate of exchange of pairs of consumption goods or services to leave utility or satisfaction unchanged is: a. trading rate b. opportunity rate c. marginal rate of substitution 29. Consumer equilibrium is consumption bundle that: a. maximizes total utility b. minimizes costs c. maximizes total utility and is feasible as defined by a budget constraint 30. Schedule that shows how many units of a good that the consumer will purchase at different income levels, all other factors constant. a. bell curve b. demand curve c. indifference curve

4 31. The law of diminishing marginal utility says: a. less goods will be available to consume over time b. marginal utility declines as more of a good or service is consumed during a period of time c. total utility will eventually hit a maximum d. two of the above 32. The budget constraint reflects: a. the income available for consumption b. the prices for the goods a consumer may purchase c. the marginal rate of substitution that will result in consumer equilibrium d. all of the above 33. Cross-price elasticity is a measure of the response of consumption of a good or service to changes in: a. incomes b. the price of the good or the service c. the price of another good or service 34. A graph of the locus of consumption bundles that provide a consumer given level of satisfaction is known as a(n): a. utility curve b. indifference curve c. substitution curve 35. Branch of economics that focuses on the economic actions of individuals or specific groups of individuals. a. microeconomics b. production economics c. demand economics

5 36. Economic term for the sacrifice of not doing something else is: a. cost of doing business b. marginal cost c. opportunity cost 37. Inferior goods are those goods for which consumption falls when: a. prices of other goods rise b. incomes fall c. incomes rise 39. A shift in the demand curve is generally caused by changes in: a. the prices of substitutes and complements b. incomes c. both of the above 40. Measure of the relative response of consumption of a good or service to changes in its price. a. cross-price elasticity b. own-price elasticity c. income elasticity

6 PROBLEMS 41. Mickey s Dairy Bar sells 12,500 Scramblers per week at a price of $10 each. The own price elasticity for a Scrambler is estimated to be If the price is raised to $12.00, the number of Scramblers sold will be: a. 14,375 b. 10,625 c. 10,000 d. None of the above 42. Kipp s sells 25,000 chicken sandwiches per month at a price of $6.00 each. The own price elasticity for the sandwich is estimated to be If the price is raised by $0.50, the total revenue from the sale of chicken sandwiches will be: a. 167,000 b. 133,450 c. 152,348 d. 150, The income elasticity for rice was said to be If there is a 10 percent decrease in income, the quantity of rice demanded will: a. Rise 10 percent b. Drop 3.24 percent c. Rise 3.24 percent d. Remain unchanged unless the price of rice changes 44. The cross-price elasticity for beef with respect to chicken is The cross-price elasticity for chicken with respect to beef, however, is If the price of chicken rises 20 percent, the percentage change in the demand for beef would be: a b c d

8 45. For Graph 1, which represents a consumption problem, Curves A and B are: a. indifference curves b. production possibilities frontiers c. iso-quants d. iso-cost curves 46. For Graph 1, which represents a consumption problem, Curves C and D are: a. indifference curves b. production possibilities frontiers c. budget constraints d. iso-cost curves 47. For Graph 1, which represents a consumption problem, if $80 is the total amount that can be spent on tacos and pizza and the price of pizza is $10, the price of a taco is: a. $10 b. $5 c. $8 d. not enough information to tell 48. For Graph 1, which represents a consumption problem, what is the marginal rate of substitution at point E of Curve B if $40 is available for buying pizza and tacos? a b c d. not enough information to tell 49. For Graph 1, which represents a consumption problem, is it preferable to be at a point on: a. Curve A b. Curve B c. Indifferent between Curve A or B d. need more information

10 50. For Graph 2, which represents a demand curve, the consumer surplus at a price of 16 is: a. 32 b. 16 c. 100 d. need more information 51. For Graph 2, which represents a demand curve, a drop in the price from 16 to 10 will cause the value of total consumer surplus to increase by: a. 40 b. 68 c. 84 d. need more information 52. For Graph 2, which represents a demand curve, the own price elasticity (using the arc approach) in the price range from 10 to 16 is: a b c d. need more information 53. For Graph 2, which represents a demand curve, the total revenue corresponding to a price of 10 is: a. 128 b. 200 c. 100 d. need more information

2014 $1.75 $10.00 $ $1.50 $10.50 $ $1.65 $11.00 $ $2.00 $11.50 $150

2014 $1.75 $10.00 $ $1.50 $10.50 $ $1.65 $11.00 $ $2.00 $11.50 $150 Economics 101 Fall Homework #4 Due Tuesday, November 14, Directions: The homework will be collected in a box before the lecture. Please place your name, TA name, and section number on top of the homework