# 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