75)
If the market for a product is broadly defined, then
75)
A)
the good has many complements.
B)
there are few substitutes for the product and the demand for the product is relatively
inelastic.
C)
the expenditure on the good is likely to make up a large share of one’s budget.
D)
there are many substitutes for the product and the demand for the product is relatively
elastic.
76)
The substitution effect of an increase in the price of Raisin Bran refers to
76)
A)
the result that consumers will now switch to a substitute good such as Cheerios, and the
demand curve for Raisin Bran shifts to the left.
B)
the decrease in the demand for Raisin Bran when its price rises.
C)
the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, cause
consumers to buy less Raisin Bran.
D)
the fact that the higher price of Raisin Bran lowers consumer purchasing power, holding all
other factors constant.
77)
The law of diminishing marginal utility states that
77)
A)
eventually total utility falls as more of a good is consumed in a given period of time.
B)
when the additional satisfaction from consuming a good becomes negative, total utility starts
falling.
C)
the additional satisfaction from consuming a good diminishes as more of a good is consumed
in a given period of time.
D)
the extra satisfaction from consuming a good increases slowly as more of a good is consumed.
78)
Harvey Miller owns a baseball that was hit for a home run by Ted Williams. Harvey, a long–time
Boston Red Sox fan, recently refused to sell his baseball for $75,000 even though he would not have
paid someone more than $10,000 for the baseball if he did not already own it. Harvey explained his
decision not to sell the baseball by noting that: “Ted Williams was my hero. This baseball has a
great deal of sentimental value for me.” Which of the following can explain Harvey’s behavior?
78)
A)
the endowment effect
B)
the scarcity of home run baseballs hit by Ted Williams
C)
the difference between implicit and explicit costs
D)
how social influences can affect consumption choices
79)
If demand is perfectly price elastic, the absolute value of the price elasticity of demand is
79)
A)
infinity.
B)
more than one.
C)
less than one.
D)
equal to the absolute value of the slope of the demand curve.
Table 6–3
Price per pound
(Dollars)
Quantity Demanded of
cheese (pounds)
$16 3
14 4
12 5
10 6
8 7
6 8
4 9
210
80)
Refer to Table 6–3. Over what range of prices is the demand price inelastic?
80)
A)
between $8 and $16
B)
between $12 and $16
C)
over the entire range of prices
D)
between $2 and $8
81)
In 2007 Elizabeth Arden hired Mariah Carey to develop and market a line of fragrance products.
Elizabeth Arden must believe
81)
A)
Mariah Carey’s association with Elizabeth Arden will lead to an increase in the demand for
Carey’s line of fragrance products.
B)
that the demand for fragrance products is elastic.
C)
that the demand for the other fragrance products its sells – those not associated with Mariah
Carey – have experienced diminishing marginal utility.
D)
fragrance products are luxury goods.
82)
If the price of muffins, a normal good you enjoy, rises
82)
A)
the income and substitution effects offset each other but the price effect leads you to buy
fewer muffins.
B)
the substitution effect which causes you to decrease your muffin consumption outweighs the
income effect which causes you to increase your muffin consumption, resulting in fewer
muffins purchased.
C)
the income effect which causes you to decrease your muffin consumption outweighs the
substitution effect which causes you to increase your muffin consumption, resulting in fewer
muffins purchased.
D)
both the income and substitution effects lead you to buy fewer muffins.
Explanation:
83)
Jamal, Lawson and Kyle have been standing in line for almost an hour waiting to be served at
Kirala, a hip, new Japanese restaurant. It is possible that some of the people in line won’t be served
at all before the restaurant closes. Which of the following could explain why the restaurant does not
simply raise prices high enough to eliminate the lines?
a. In situations where consumption takes place publicly, demand for the product is also
influenced by how many other people are buying the product. Consequently, a popular restaurant
that increased its prices enough to eliminate lines might find that it had also eliminated its
popularity.
b. Firms may sometimes not raise their prices for fear that it violates peoples’ sense of fairness and
might alienate customers.
c. The demand for restaurant meals is relatively elastic and if the firm raise prices it will lower its
revenue.
83)
A)
a and b only
B)
a and c only
C)
a only
D)
a, b, and c
Explanation:
Explanation:
84)
If, when you consume another unit of a good, your marginal utility is zero then
84)
A)
you should consume less of this good.
B)
you want more of the good.
C)
you have maximized your total utility from consuming the good.
D)
you have not yet reached the point of diminishing marginal utility.
85)
Suppose your marginal utility from consuming a third slice of cake is zero, then your total utility
from consuming cake is
85)
A)
negative.
B)
decreasing.
C)
increasing.
D)
maximized.
86)
Studies have shown that students who earn high grades in college will have earned much more
over a 40 year period than students who receive low grades. Despite this, surveys show that many
students fail to study enough hours outside of the classroom to earn high grades. Which of the
following is the best explanation for this?
86)
A)
Students overvalue the utility they receive from activities other than studying.
B)
Some students can earn high grades by studying fewer hours than other students.
C)
The surveys used to make this observation were based on a non–random sample of students.
D)
Because of new technology developed in the 1990s, students can make more efficient use of
their study time today than students who attended college before the 1990s.
87)
Economists David Laibson and Xavier Gabaix examined the behavior of consumers when buying
products that consist of a “base good” and “add–ons.” What is meant by these terms?
87)
A)
A base good is a standardized product; an add–on is a differentiated product.
B)
A base good is a normal good; an add–on is an inferior good.
C)
A base good is a necessity; an add–on is a luxury.
D)
An add–on is a product that must be purchased (for example, an ink cartridge) in order to be
able to use the base good (for example, a printer).
88)
Suppose when Nablom’s Bakery raised the price of its breads by 10 percent, the quantity demanded
fell by 15 percent. What is the effect on sales revenue?
88)
A)
cannot be determined without information on prices
B)
Sales revenue decreased.
C)
Sales revenue increased.
D)
Sales revenue remained unchanged.
89)
Health Clubs typically experience an increase in one–year memberships in January, but many new
customers cancel their memberships before the end of the year. Which of the following is the best
explanation for this behavior?
89)
A)
Some people fail to treat their membership fees as sunk costs.
B)
Some health club members suffer minor injuries that prevent them from working out.
C)
Some members receive utility from activities they believe are popular.
D)
Some people are overly optimistic about their future behavior.
D
90)
If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility
from consuming three candy bars, the marginal utility of the second candy bar is
90)
A)
20 utility units.
B)
5 utility units.
C)
25 utility units.
D)
unknown as more information is needed to determine the answer.
D
91)
If the price of lattes, a normal good you enjoy, falls
91)
A)
the income and substitution effects offset each other but the price effect leads you to buy
more lattes.
B)
both the income and substitution effects lead you to buy more lattes.
C)
the substitution effect which causes you to increase your latte consumption outweighs the
income effect which causes you to reduce your latte consumption, resulting in more lattes
purchased.
D)
the income effect which causes you to increase your latte consumption outweighs the
substitution effect which causes you to reduce your latte consumption, resulting in more
lattes purchased.
B
B
92)
Identify the one statement that does not demonstrate how social effects influence consumer choice.
92)
A)
Some products that people consume are determined by the social popularity of the products.
B)
Companies such as Zappos.com and Netflix invite their consumers to write reviews about
their experience with their products, which are then posted on the internet for others to see.
C)
There is utility gained from consuming goods or services that others are consuming.
D)
Students in an Economics class are required to purchase a textbook assigned by the professor.
93)
If, for a given percentage increase in price, quantity demanded falls by a proportionately larger
percentage, then demand is
93)
A)
relatively inelastic.
B)
relatively elastic.
C)
unit–elastic.
D)
perfectly elastic.
B
94)
Refer to Figure 6–2. Which of the following statements is true about the price elasticity of demand?
94)
A)
The elasticity coefficient is constant along the demand curve.
B)
The inelastic portion of the demand curve corresponds to the segment above the midpoint.
C)
At the midpoint of the demand curve, the elasticity coefficient is zero.
D)
The elastic portion of the demand curve corresponds to the segment above the midpoint.
D
D
95)
Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the
game for $325 or $400. Krueger found that (a) 94 percent of those surveyed would not have paid
$3,000 for their tickets, and (b) 92 percent of those surveyed would not have sold their tickets for
$3,000. These results are an example of
95)
A)
the law of demand.
B)
the tendency for consumers to account for monetary costs but to ignore sunk costs.
C)
consumers placing a high value on a product because it makes them appear to be fashionable.
D)
the tendency of people to be unwilling to sell a good they already own even if they are offered
a price that is greater than the price they would be willing to pay if they did not already own
it.
96)
When demand is price elastic, a fall in price causes total revenue to rise because
96)
A)
the increase in quantity sold is large enough to offset the lower price.
B)
the percentage increase in quantity demanded is less than the percentage fall in price.
C)
the demand curve shifts.
D)
when price falls, quantity sold increases so total revenue automatically rises.
A
97)
Which of the following is not a common mistake made by consumers?
97)
A)
the failure to ignore sunk costs
B)
being overly optimistic about their future behavior
C)
being overly pessimistic about their future behavior
D)
the failure to take into account the implicit costs of an activity
C
98)
A demand curve that is horizontal indicates that the commodity
98)
A)
is a necessity.
B)
must be very cheap.
C)
has a large number of substitutes.
D)
has few substitutes.
C
D
99)
A Giffen good is
99)
A)
a normal good.
B)
an inferior good with an income effect that is smaller than the substitution effect.
C)
an inferior good with an income effect and a substitution effect working in the same direction.
D)
an inferior good with an income effect that is larger than the substitution effect.
100)
Facing stiff competition Hendrix College, a small liberal arts institution in Conway, Arkansas,
decided two years ago to bolster its academic offerings, promising students at least three hands–on
experiences outside the classroom, including research, internships and service projects. Although it
raised tuition and fees by 29 percent, enrollment in the freshman class rose by 37 percent.
Source: Jonathan D. Glater and Alan Finder, “In New Twist on Tuition Game, Popularity Rises With the Price,“
New York Times, December 12, 2006
Based on the information above, the demand for Hendrix College education is
100)
A)
not possible to determine from the information given.
B)
perfectly elastic.
C)
relatively inelastic.
D)
unit–elastic.
101)
Consumers maximize total utility within their budget constraint by
101)
A)
spending the same dollar amount for each good.
B)
buying the goods with the largest marginal utility per dollar spent.
C)
buying the cheapest goods they can find.
D)
buying whatever they like the best.
Table 6–2
Quantity of
Soup (cups) Total Utility Quantity of
Sandwiches Total Utility
140 145
260 275
372 3102
482 4120
588 5135
690 6145
Table 6–2 shows Keira‘s utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3.
Keira has $18 to spend on these two goods.
102)
Refer to Table 6–2. What is Keira’s marginal utility per dollar spent on the third cup of soup?
102)
A)
72 units of utility
B)
6 units of utility
C)
36 units of utility
D)
12 units of utility
103)
Business firms might raise prices if their costs increase but not when demand increases because
103)
A)
cost changes are usually permanent while demand changes are often temporary.
B)
demand changes are hard to determine while cost changes are provided by suppliers.
C)
of fear that the public may demand the government put a price ceiling on the product.
D)
of fear that buyers will consider demand–caused price increases unfair and buy elsewhere.
104)
Consider a downward–sloping demand curve. When the price of an inferior good decreases, the
income and substitution effects
104)
A)
work in the same direction to increase quantity demanded.
B)
work in the same direction to decrease quantity demanded.
C)
work in opposite directions and quantity demanded decreases.
D)
work in opposite directions and quantity demanded increases.
105)
The demand curve for canned peas is downward sloping. If the price of canned peas, an inferior
good, rises
105)
A)
both the income and substitution effects reinforce each other to decrease the quantity
demanded.
B)
the income effect which causes you to increase your purchases of canned peas is smaller than
the substitution effect which causes you to reduce your purchases, resulting in a net increase
in quantity demanded.
C)
the income effect which causes you to reduce your purchases of canned peas is smaller than
the substitution effect which causes you to increase your purchases, resulting in a net increase
in quantity demanded.
D)
the income and substitution effects offset each other but the price effect of an inferior good
leads you to buy more canned peas.
106)
If demand is perfectly price inelastic, the absolute value of the price elasticity coefficient is
106)
A)
infinity.
B)
equal to the absolute value of the slope of the demand curve.
C)
zero.
D)
more than one.
107)
The demand curve for corn is downward sloping. If the price of corn, an inferior good, falls,
107)
A)
the income effect which causes you to increase your corn purchases is larger than the
substitution effect which causes you to reduce your corn purchases, resulting in a net increase
in quantity demanded.
B)
both the income and substitution effects reinforce each other to increase the quantity
demanded.
C)
the income effect which causes you to reduce your corn purchases is smaller than the
substitution effect which causes you to increase your corn purchases, resulting in a net
increase in quantity demanded.
D)
the income and substitution effects offset each other but the price effect of an inferior good
leads you to buy less corn.
108)
Suppose you pre–ordered a non–refundable movie ticket to “Harry Potter and the Goblet of Fire.”
On the day of the movie you decide that you would rather not go to the movie. According to
economists, what is the rational thing to do?
108)
A)
Since the cost of the movie ticket is a sunk cost, it should not influence your decision. Your
decision should be based solely on whether you want to see the movie or not.
B)
Your should go to the movie to minimize your loses.
C)
You should go to the movie to maximize your utility.
D)
You should not waste resources. Since you have paid for the ticket you should watch the
movie.
109)
Costs that have already been incurred, and which cannot be recovered, are known as
109)
A)
sunk costs.
B)
short–run fixed costs.
C)
implicit costs.
D)
unavoidable costs.
110)
If your total satisfaction increases when you consume another unit, your marginal utility must be
110)
A)
increasing.
B)
negative.
C)
decreasing.
D)
positive.
Table 6–1
Quantity of
Pita Wraps Total Utility Quantity of
Bubble Tea Total Utility
160 140
2102 270
3132 391
4144 4106
5144 5112
6138 6115
7128 7115
Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea
is $3. Table 6–1 shows his total utility from different quantities of the two items.
111)
Refer to Table 6–1. If Keegan can drink all the bubble tea he wants for free, how many glasses will
he consume?
111)
A)
4 glasses
B)
5 glasses
C)
6 glasses
D)
7 glasses
112)
Marginal utility can be
112)
A)
negative but not positive.
B)
positive but not negative.
C)
measured across people.
D)
positive, negative or zero.