ECON 102 Micro Principles Exercise 2. Multiple Choice Questions. Choose the best answer July 24,2008

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1 1 ECON 102 Micro Principles Exercise 2 Multiple Choice Questions. Choose the best answer July 24, When marginal benefit (MB) is greater than marginal cost (MC) A) the economy produces too little (as compare to the equilibrium). B) the economy produces too much (as compare to the equilibrium). C) the economy produces the equilibrium amount. D) the quantity demanded is exactly the same as the quantity supplied. 2. Of the following, demand is likely to be the least elastic for A) Ford automobiles. B) Toyota automobiles. C) compact disc players. D) toothpastes 3. If a rise in the price of good 1 decreases the quantity of good 2 demanded, A) the cross elasticity of demand is negative. B) the cross elasticity of demand is positive. C) good 1 is an inferior good. D) good 2 is an inferior good. 4. The elasticity of supply is A) positive and more elastic in the long run. B) positive and more elastic in the short run. C) negative and more elastic in the long run. D) negative and more elastic in the short run. 5. A 10 percent decrease in the price of a Pepsi decreases the demand for a Coca-Cola by 50 percent. The cross elasticity of demand between a Pepsi and Coca-Cola is A) 50. B) 10. C) 5. D) If the long-run supply of rice is perfectly elastic, then A) as people s incomes rise, the quantity of rice supplied decreases. B) as the price of corn falls, the quantity of rice demanded decreases. C) in the long run, a large rise in the price of rice causes no change in the quantity of rice supplied. D) in the long run, an increase in the demand for rice leaves the price of rice unchanged. 7. When the demand for a good is inelastic and its price increases, the total revenue from the sale of the good will. A) increase B) decrease initially and then increase C) decrease D) not change

2 2 8. If the elasticity of supply is 4, this means that if a. the price rises by one dollar, the quantity supplied will rise by four dollars. b. the price falls by one dollar, quantity supplied will fall by four dollars c. the price rises by one percent, the quantity supplied will rise by four percent. d. the price rises by one percent, the quantity supplied will fall by four percent 9. An increase in the price of sugar from $1.00 a packet to $1.25 a packet. The quantity decreases from 100 packets a day to 80 packets a day. The price elasticity of demand of sugar is. Use the midpoint method for your calculation. A) 0.75 B) 0.5 C) 1.0 D) 1.25 E) none of the above Use the graph below for questions 10 and The figure above shows Clara s demand for CDs. The market price for a CD is $15. Which statement is true? A) When Clara buys 6 CDs, she receives $15 of consumer surplus on her 6th CD. B) When Clara buys 6 CDs, she receives a total of $15 of consumer surplus. C) When Clara buys 6 CDs, she receives a total of $30 of consumer surplus. D) When Clara buys 6 CDs, she receives a total of $45 of consumer surplus.

3 3 11. The figure above shows Clara s demand for CDs. At a price of $5 for a CD, the total value of 10 CDs for Clara is. A) $10 B) $25 C) $125 D) $175 Use the graph below for questions 12 and In the above figure, if the market price is $100 per ton, then the firms producer surplus is A) $25. B) $50. C) $75. D) $ In the above figure, the producer surplus would be zero if the price per ton of wheat was A) $25. B) $50. C) $75. D) $ If a good is a luxury (e.g. diamonds or BMWs), demand for the good would tend to be a. elastic. b. inelastic. c. unit elastic. d. vertical.

4 4 15.Which of the following represents the elasticity of a horizontal demand curve? a. zero. b. Infinite. c. 1. d. 0.5 e The demand for a good tends to be more elastic a. the greater the availability of close substitutes. b. the longer the time that has elapsed since a price change. c. the bigger the portion of spending on a good in consumer's income d. all of the above. 17. Suppose that there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is. a. 1 b. 6 c. 0. d. close to infinite 18. If the price elasticity of demand for a good is 4, then a 10 percent increase in price would result in a. a. 4 percent decrease in the quantity demanded. b. 10 percent decrease in the quantity demanded. c. 40 percent decrease in the quantity demanded. d. 1 percent decrease in the quantity demanded. 19. In the graph shown below the elasticity of demand at point "a" a. is greater than that at point b. b. is small than that at point b. c. is equal to that at point b. d. is not comparable to that at point b. 20. A perfectly inelastic demand curve implies that a. consumers are extremely sensitive to changes in prices. b. consumers are not sensitive to changes in prices at all. c. consumers will buy more when the price is low. d. consumers have very low responses to changes in prices. 21. In the graph shown below, which demand curve is (relatively) more elastic? a. D1. b. D2. c. D3. d. D1 and D The marginal seller is. a. the seller who cannot compete with the other sellers in the market b. the seller who would leave the market first if the price were any lower c. the seller who can produce at the lowest costs d. the seller who has the greatest producer surplus

5 5 23. Suppose that there is an early freeze in California that ruins the lemon crop. What happens to consumer surplus in the market for lemons? a. It increases. b. It decreases. c. It is not affected by this change in market forces. d. It increases very briefly then decreases. 24. If you pay a price exactly equal to your willingness to pay, then. a. your consumer surplus is zero. b. your willingness to pay is less than your consumer surplus c. your consumer surplus is negative d. you place a high value on the good. 25. Ray buys a new tractor for $99,000. He receives consumer surplus of $13,000 on his purchase. Ray s willingness to pay is. a. $13,000 b. $86,000 c. $99,000 d. 112, With a normal supply and demand curves, a tax on the buyers of popcorn will a. cause the price the buyer pays as well as the price the seller receives to rise. b. cause the price the buyer pays as well as the price the seller receives to fall. c. cause the price the buyer pays to rise and the price the seller receives to fall. d. cause the price the buyer pays to fall and the price the seller receives to rise. 27. Under which of the following that the entire burden of a tax will be borne (paid)by consumers? a. the demand curve would be perfectly elastic. b. the demand curve would be perfectly inelastic. c. both demand and supply curves have to be elastic. d. the supply curve will be perfectly inelastic. Use the graph given below to answer questions 28 to 30 The graph will be given in class 28. According to the graph, the price buyers will pay after the tax is imposed is. a. $8 b. $6 c. $5 d. $3.5

6 6 29. According to the graph, the price that sellers receive after the tax is imposed is. a. $8 b. $6 c. $5 d. $ According to the graph, the amount of the tax borne by sellers is. a. $1.00 b. $1.50 c. $2.50 d. $ If a change in the price of a good results in no change in total revenue a. the demand for the good must be elastic. b. the demand for the good must be inelastic. c. the demand for the good must be unit elastic. d. buyers must not respond very much to a change in price. 32. A perfectly elastic supply implies that a. consumers will bear all the tax burden. b. producers will bear all the tax burden. c. producers will not bear any tax burden. d. the tax burden will be split between consumers and producers Which of the following represents an elastic supply? a. 0.1 b c. zero d In the short run, a. firms can adjust all factors of production simultaneously. b. firms have difficulty adjusting at least one factor such as its capital stocks (such as equipments) c. firms must make profits. d. firms have perfectly elastic supply. e. the market must have shortages. 35. Suppose that UNLV is contemplating increasing tuition to increase its revenue. If UNLV believes that raising tuition would increase revenue, a. they are necessarily ignoring the law of demand. b. they are assuming that the demand for university education is elastic. c. they are assuming that the demand for university education is inelastic. d. they are assuming that the supply of university education is elastic.

7 7 36. In the long run, the quantity supplied of most goods a. can respond substantially to a change in price. b. can not respond much to a change in price c. can not respond at all to a change in price. d. will naturally increase regardless of what happens to price. 37. a vertical supply curve implies that a. a change in price will have no effect on quantity supplied. b. a change in price will change quantity supplied in the opposite direction. c. an infinite quantity will be supplied at a give price. d. the relationship between price and quantity supplied is inverse. 38. Suppose that you are in charge of pricing at a local ski rental shop. The business has some market power. You know that you may increase the shop's revenue by lowering the rental fees if a. the demand is unit elastic. b. the supply is unit elastic. c. the demand is elastic. d. the demand is inelastic. 39. When the Shaffers have a monthly income of $4000, they would eat out 5 times a month. Now that they have only income of $3000 and they eat out 3 times a month. Which of the following is correct? a. the Shaffers have a negative income elasticity. b. the Shaffers have a positive income elasticity. c. the Shaffers have a unit elastic demand. d. the Shaffers income is too low. 40. Suppose that the Las Vegas city bus is running a deficit, and that the price elasticity of demand is 2.7. Which of the following proposals will increase the city bus revenue? a. Let the city to increase bus ticket prices. b. Let the city to decrease bus ticket prices. c. Let the city to reduce bus services. d. Let the city to reduce its workers. 41. The demand for movies is unit elastic if a. a 5 percent decrease in the price leads to an infinite increase in the quantity demanded. b. a 1 percent decrease in the price leads to a 5 percent decrease in the quantity demanded. c. a 1 percent increase in the price leads to a 1 percent decrease in the quantity demanded. d. a 5 percent decrease in the price leads to a 1 percent increase in total revenue. 42) Suppose that Charlene is willing to pay $5.00 for a sandwich. If Charlene must pay for a sandwich, she. A) $4.00; does not receive consumer surplus B) $4.00; receives consumer surplus C) $6.00; receives consumer surplus D) $6.00; receives a marginal cost

8 8 Use the graph below for questions 44 and ) At the equilibrium, the consumers value (spending) on the 400 millionth pound of turkey is. A) a B) a+b+c C) a+b+c+d+e D) a+b+c+d+f+g+h 44) At the equilibrium, the consumers expenditure (spending) on the 400 millionth pound of turkey is. A) a B) a+b+c C) d+e+f+g+h D) a+b+d+f+g 45) At the equilibrium, the producers total variable costs for the 400 millionth pound of turkey is. A) b+c+d+e B) f+g+h C) g+h D) g+h+i