Name R# ECO 2301.007 - Roach Test 2 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Refer to the information provided in Figure 6.1 below to answer the questions that follow. Figure 6.1 1) Refer to Figure 6.1. Along budget constraint AC, the opportunity cost of one hamburger 1) A) is 1/4 of a hot dog. B) is 1/2 of a hot dog. C) is 2 hot dogs. D) changes as you move down along the budget constraint. 2) Refer to Figure 6.1. Along budget constraint AC, the opportunity cost of one hot dog 2) A) is 1/4 of a hamburger. B) is 1/2 of a hamburger. C) is 2 hamburgers. D) changes as you move down along the budget constraint. 3) Refer to Figure 6.1. Assume Tom's budget constraint is AC. At which point does Tom consume only hot dogs? A) A. B) B. C) E. D) D. 4) If the quantity of bagels demanded decreases by 8% when the price of croissants decreases by 16%, the cross-price elasticity of demand between bagels and croissants is A) -5. B) -2. C) 0.5. D) 2. 3) 4) 1
5) Michael can buy either pizzas or submarine sandwiches. If the prices of pizzas and submarine sandwiches double and so does Michael's money income, we can deduce that Michael's budget constraint will A) swivel in so that the slope of the budget constraint is doubled. B) shift in but remain parallel to the old one. C) remain unchanged. D) shift out but remain parallel to the old one. 5) 6) The income elasticity of demand for education is 3.5. Thus, a 4% increase in income will 6) A) increase the quantity of education demanded by 4%. B) decrease the quantity of education demanded by 14%. C) decrease the quantity of education demanded by 3.5%. D) increase the quantity of education demanded by 14%. 7) A mass transit authority charges bus fares of $1.25 during morning rush hours but only $1.00 during late morning non-rush hours. Economists explain the fare difference by the fact that the demand for bus rides during the morning rush hours is but during the late morning it is. A) more inelastic; more elastic B) more elastic; more inelastic C) perfectly elastic; perfectly inelastic D) unit elastic; relatively inelastic 8) The ABC Computer Company wants to increase the quantity of computers it sells by 5%. If the price elasticity of demand is -2.5, the company must A) increase price by 2.0%. B) decrease price by 0.5%. C) decrease price by 2.0%. D) increase price by 0.5%. 7) 8) 9) For normal goods, the substitution and income effects of a price decrease will 9) A) the substitution effect will decrease the quantity of the good demanded while the income effect will increase the quantity of the good demanded. B) both increase the quantity of the good demanded. C) the substitution effect will increase the quantity of the good demanded while the income effect will decrease the quantity of the good demanded. D) both decrease the quantity of the good demanded. 10) A firm is currently producing in the elastic portion of its demand curve. What course of action do you recommend for it assuming it wants to raise revenue? A) Increase price, because if it increases price and demand is elastic, total revenue will increase. B) Continue selling at the same price, but increase the amount it produces. C) Continue producing at the current output level, because it maximizes its total revenue by producing in the elastic portion of its demand curve. D) Reduce price, because if it reduces price and demand is elastic, total revenue will increase. 10) 2
Refer to the information provided in Table 6.1 below to answer the questions that follow. Table 6.1 Number of Hamburgers per Day Total Utility Marginal Utility 1 30 2 52 3 67 4 76 5 4 Number of Sodas per Day Total Utility Marginal Utility 1 20 2 35 3 47 4 57 5 7 11) Refer to Table 6.1. If the price of a soda is $2, the price of a hamburger is $6, and George has $14 of income, George's utility maximizing combination of sodas and hamburgers per day is A) 4 sodas and 1 hamburger. B) 3 sodas and 1.5 hamburgers. C) 1 soda and 2 hamburgers. D) indeterminate from this information. 11) 12) Refer to Table 6.1. The marginal utility of the third hamburger per day is 12) A) 5. B) 15. C) 22. D) 67. 13) The income elasticity of demand 13) A) measures the responsiveness of quantity demanded to changes in income. B) measures the responsiveness of income to changes in quantity demanded. C) measures the change in income necessary for a given change in quantity demanded. D) is the ratio of the percentage change in income to the percentage change in quantity demanded. 14) Assuming that charitable giving is a normal good, the income effect of a decrease in personal tax rates would lead to A) less giving because giving to charity would become more expensive relative to other goods. B) more giving because giving to charity would become less expensive relative to other goods. C) less giving because households would spend that money on luxury goods. D) more giving because households would have more disposable income. 14) 3
Refer to the information provided in Figure 6.13 below to answer the question that follows. Figure 6.13 15) Refer to Figure 6.13. If Arthur moves from indifference curve 1 to indifference curve 2, then Arthur's 15) A) prices of the goods increase. B) total utility increases. C) marginal utility increases. D) total income decreases. Refer to the information provided in Figure 6.9 below to answer the questions that follow. Figure 6.9 16) Refer to Figure 6.9. The marginal utility of the second video game rental is 16) A) 8. B) 10. C) 25. D) 40. 4
Refer to the information provided in Table 14.2 below to answer the question that follows. A's Strategy Table 14.2 B's Strategy Advertise Don't Advertise A's profit $100 million A's profit $200 million Advertise B's profit $100 million B's profit $50 million Don't A's profit $50 million A's profit $75 million Advertise B's profit $200 million B's profit $75 million 17) Bonus Question: Refer to Table 14.2. What is the Nash equilibrium in the game? 17) A) (Advertise, don't advertise) B) (Advertise, Advertise) C) (Don't Advertise, Advertise) D) (Don't Advertise, Don't Advertise) 18) Total revenue decreases if price and demand is. 18) A) falls; elastic B) falls; inelastic C) rises; unit elastic D) rises; inelastic 19) When the price of coffee increases 5%, quantity demanded decreases 10%. The price elasticity of demand for coffee is and total revenue from coffee sales will. A) inelastic; decrease B) elastic; increase C) elastic; decrease D) inelastic; increase 19) Refer to the information provided in Figure 5.3 below to answer the questions that follow. Figure 5.3 20) Refer to Figure 5.3. Using the midpoint formula, if the price of a gardenburger is decreased from $7 to $6, the price elasticity of demand equals and the decrease results in a(n) in total revenue. A) -1.44; increase B) -13; increase C) -.13; decrease D) -.69; increase 20) 5
21) Refer to Figure 5.3. Use the midpoint formula. If the price of a gardenburger is increased from $6 to $8, the price elasticity of demand equals and demand is. A) -0.57; inelastic B) -1.9; inelastic C) -1.75; elastic D) -2.0; elastic 22) Jon is consuming X and Y so that he is spending his entire income and MUx/Px = 8 and MUy/Py = 4. To maximize utility, he should consume A) less of both X and Y. B) more X and less Y. C) less X and more Y. D) the same amount of X and Y since he is already maximizing utility. 21) 22) Refer to the information provided in Figure 6.15 below to answer the questions that follow. Figure 6.15 23) Refer to Figure 6.15. Jason maximizes utility at point 23) A) A. B) B. C) C. D) D. 24) Refer to Figure 6.15. If the price of an ice cream cone is $2, Jason's income is 24) A) $75. B) $250. C) $300. D) indeterminate because the price of ice cream sandwiches is not given. 25) Marginal utility is the satisfaction gained by consuming of a good. 25) A) total; one more unit B) additional; one more unit C) additional; all units D) total; all units 26) When there are more substitutes for a product, the for the product is. 26) A) demand; more price elastic B) demand; less price elastic C) income elasticity; greater D) income elasticity; smaller 6
Refer to the information provided in Figure 6.3 below to answer the questions that follow. Figure 6.3 27) Refer to Figure 6.3. Molly's budget constraint is AC. It would swivel to AD if the price of 27) A) cassette tapes decreased. B) CDs increased. C) cassette tapes increased. D) CDs decreased. Refer to the information provided in Figure 5.5 below to answer the question that follows. Figure 5.5 28) Refer to Figure 5.5. As the price of good W increased, the demand for good Y shifted from D1 to D2. The cross-price elasticity of demand between W and Y is A) zero. B) negative. C) positive. D) indeterminate from this information. 29) Jane has $500 a week to spend on clothing (c) and food (f). The price of clothing is $25 and the price of food is $10. What is the equation for Jane's budget constraint? A) $25 Clothing + $10 Food = $500 B) $25 Clothing + $10 Food $500 C) ($25 Clothing) / ($10 Food) = $500 D) Clothing + Food < $500 28) 29) 7
30) The law of diminishing marginal utility refers to 30) A) a consumer's decrease in total satisfaction as she consumes more units of a good. B) a consumer's decrease in additional satisfaction as she consumes more and more units of a good. C) the idea that marginal utility is negative. D) the idea that total utility is negative. 31) For inferior goods, the substitution and income effects of a price increase will 31) A) the substitution effect will increase the quantity of the good demanded while the income effect will decrease the quantity of the good demanded. B) the substitution effect will decrease the quantity of the good demanded while the income effect will increase the quantity of the good demanded. C) both increase the quantity of the good demanded. D) both decrease the quantity of the good demanded. 8