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Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
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.
1)
Refer to Table 6-1. What is Keegan's optimal consumption bundle?
1)
A)
4 pita wraps and 2 bubble teas
B)
3 pita wraps and 4 bubble teas
C)
5 pita wraps and 0 bubble teas
D)
3 pita wraps and 3 bubble teas
2)
If at a price of $10, Yesenia sells 5 packages of her homemade Mediterranean flat bread per day.
When she raised her price to $15, she still sold 5 packages per day. Based on this information the
demand for her flat bread is
2)
A)
perfectly elastic.
B)
unit-elastic.
C)
perfectly inelastic.
D)
inelastic.
Figure 6-1
3)
Refer to Figure 6-1. When the price of hoagies increased from $5.00 to $5.75, quantity demanded
decreased from Q1 to Q0. This change in quantity demanded is due to
3)
A)
the fact that marginal willingness to pay falls.
B)
the law of diminishing marginal utility.
C)
the price and output effects.
D)
the income and substitution effects.
4)
If, as a person consumes more and more of a good, each additional unit adds less satisfaction than
the previous unit consumed we are seeing the workings of
4)
A)
the law of increasing marginal opportunity cost.
B)
the law of supply.
C)
the law of demand.
D)
the law of diminishing marginal utility.
5)
One reason that consumers and businesses might not act rationally is
5)
A)
they do not always value fairness when they make choices.
B)
they may not realize their actions are inconsistent with their goals.
C)
consumer tastes change constantly.
D)
it is difficult to obtain enough information about the elasticities of demand and supply.
6)
Which of the following is an experiment which tests whether fairness is important in consumer
decision making?
6)
A)
the behavioral experiment
B)
the ultimatum game
C)
the fair trade principle
D)
preferential treatment
7)
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 third candy bar is
7)
A)
20 utility units.
B)
5 utility units.
C)
25 utility units.
D)
unknown as more information is needed to determine the answer.
8)
Price elasticity of demand measures
8)
A)
how responsive quantity demanded is to a change in price.
B)
how responsive suppliers are to price changes.
C)
how responsive sales are to changes in the price of a related good.
D)
how responsive sales are to a change in buyers' incomes.
9)
Avner is maximizing total utility by buying sports magazines and protein supplements. For him to
buy more sports magazines,
9)
A)
the price of sports magazines has to fall.
B)
the price of protein supplements has to fall.
C)
the price of sports magazines has to rise.
D)
sports magazines would have to be inferior goods.
10)
If a firm lowered the price of the product it sells and found that total revenue did not change, then
the demand for its product is
10)
A)
relatively elastic.
B)
unit-elastic.
C)
perfectly elastic.
D)
perfectly inelastic.
11)
If Callum is consuming his utility maximizing combination of two goods and the price of one good
rises, what happens to the marginal utility per dollar spent on this good (MU/P), and what should
Callum do?
11)
A)
MU/P has decreased and Callum should buy more of this good.
B)
MU/P has decreased and Callum should buy less of this good.
C)
MU/P has increased and Callum should buy more of this good.
D)
MU/P has increased and Callum should buy less of this good.
12)
If Marlowe obtains 9 units of utility per dollar spent on apples and 6 units of utility per dollar spent
on oranges, then Marlowe
12)
A)
should buy more apples and fewer oranges to maximize his utility.
B)
should buy more oranges and fewer apples to maximize his utility.
C)
should buy fewer oranges and fewer apples to maximize his utility.
D)
is maximizing his utility.
13)
A significant downside to network externalities is that
13)
A)
there may be large switching costs to firms changing technologies.
B)
firms may network with unethical suppliers or distributors.
C)
the costs of hiring celebrity endorsements may be very high.
D)
there may be large switching costs to consumers from changing products so that consumers
end up using products with inferior technologies.
14)
Refer to Figure 6-2. The inelastic segment of the demand curve
14)
A)
lies below the midpoint of the curve.
B)
is coincident with the vertical axis.
C)
lies above the midpoint of the curve.
D)
is coincident with the horizontal axis.
15)
At a price of $100, Beachside Canoe Rentals rented 11 canoes. When it increased its rental price to
$125, 9 canoes were rented. Calculate the absolute value of the price elasticity of demand for canoe
rentals, using the midpoint formula.
15)
A)
1.25
B)
0.9
C)
0.75
D)
2
16)
Along a downward sloping, linear demand curve, total revenue is the greatest
16)
A)
where demand is normal.
B)
where demand is the most inelastic.
C)
where demand is unit-elastic.
D)
where demand is the most elastic.
17)
A network externality occurs when
17)
A)
there is production cost savings from being networked with suppliers.
B)
the usefulness of a good is affected by how many others use the good.
C)
there is production cost savings from being networked with buyers.
D)
the usefulness of a good is affected by celebrities who use the good.
18)
Most film processing companies have a policy of printing every picture on a roll of film and
allowing customers to request a refund for pictures that were not clearly developed. The companies
do this knowing that most customers do not ask for refunds. This is an example of consumers
18)
A)
not taking nonmonetary opportunity costs into account.
B)
being overly optimistic about their future behavior.
C)
failing to ignore sunk costs.
D)
not making themselves aware of the policy regarding refunds.
19)
According to a study of the price elasticities of products sold in supermarkets, the price elasticity of
demand for toothpaste is estimated at - 0.45. Which of the following could explain why the price
elasticity of demand for toothpaste is so low?
19)
A)
There are few close substitutes for toothpaste.
B)
The toothpaste industry is highly competitive.
C)
Toothpaste is heavily endorsed by dentists.
D)
Toothpaste is a necessity.
20)
If a consumer always buys goods rationally, then
20)
A)
the total utilities of the different goods consumed will be equal.
B)
the average utilities of the different goods consumed will be equal.
C)
the marginal utility of the different goods consumed will be equal.
D)
the marginal utility per dollar spent on each good will be equal.
21)
Suppose Adam Einberg pays $100 for a ticket to a new Broadway play and $100 was the maximum
price he was willing to pay. On the day of the performance of the play Adam refuses to sell the
ticket for $150. How would behavioral economists explain Adam's refusal to sell his ticket?
21)
A)
Adam's income probably increased between the time he bought the ticket and the day of the
play's performance.
B)
The endowment effect explains Adam's actions. People like Adam seem to value things that
they have more than the things they do not have.
C)
When Adam bought the ticket he was being unrealistic about his future behavior.
D)
Adam's tastes had changed from the time he bought the ticket to the time of the performance
of the play.
22)
Suppose the value of the price elasticity of demand is -3. What does this mean?
22)
A)
A 3 percent increase in the price of the good causes quantity demanded to decrease by 1
percent.
B)
A 1 percent increase in the price of the good causes quantity demanded to increase by 3
percent.
C)
A 1 percent increase in the price of the good causes quantity demanded to decrease by 3
percent.
D)
A $1 increase in price causes quantity demanded to fall by 3 units.
23)
Consider the following factors:
a. culture
b. religion
c. customs
d. prices
e. income
Which of the factors above are likely to influence the choices consumers make?
23)
A)
all the factors except b
B)
all the factors except c
C)
a, d, and e only
D)
d and e only
E)
all the factors listed
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
24)
Refer to Table 6-3. Over what range of prices is the demand price elastic?
24)
A)
over the entire range of prices
B)
between $2 and $8
C)
between $8 and $16
D)
between $12 and $16
25)
Suppose the absolute value of the price elasticity of demand for meals at Fortune Buffet House is .
What happens to sales revenue if the restaurant increases its price by 5 percent?
25)
A)
Sales revenue remains unchanged.
B)
Sales revenue falls by less than 5 percent.
C)
Sales revenue cannot be determined without information on prices.
D)
Sales revenue falls to zero.
26)
Suppose a decrease in the supply of wheat resulted in an increase in revenue. This indicates that
26)
A)
the decrease in quantity sold is proportionately larger than the resulting change in price.
B)
he demand curve for wheat must be vertical.
C)
the resulting increase in price is proportionately greater than decrease in quantity sold.
D)
the demand curve for wheat must be horizontal.
27)
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 evidence of
27)
A)
consumers being overly optimistic about their future behavior.
B)
the failure of consumers to ignore sunk costs.
C)
the high value fans place on watching the Super Bowl in person, rather than on television.
D)
the failure of consumers to take into account nonmonetary opportunity costs.
28)
If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20 units from
consuming the second, and 15 from the third, the total utility of consuming the three units is
28)
A)
15 utility units.
B)
57 utility units.
C)
35 utility units.
D)
unknown as more information is needed to determine the answer.
29)
Which of the following is likely to occur as the result of the law of diminishing marginal utility?
29)
A)
Wesley enjoyed his second bottle of iced tea less than his first bottle.
B)
Wilma's utility from her first granola bar is greater than Rachel's utility from her second
granola bar.
C)
Petra's utility from her second apple was less than her satisfaction from her first orange.
D)
Hudson enjoyed his second slice of pizza more than his first.
30)
What is the common feature displayed by the following items?
a. eating in a newly opened "fusion" cuisine restaurant
b. attending a Red Sox game in Fenway Park
c. wearing Lucky Brand designer jeans
30)
A)
They are all highly inelastic goods.
B)
They tend to be consumed by better educated people.
C)
The consumption of these goods takes place publicly.
D)
The consumption of these goods takes place privately.
31)
With the increased usage of cell-phone services, what has happened to the price elasticity of
demand for land-line telephone services?
31)
A)
It has become more inelastic.
B)
It has become more a luxury.
C)
It has become unit-elastic.
D)
It has become more elastic.
32)
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
32)
A)
the endowment effect.
B)
rational consumer behavior.
C)
the fallacy of composition.
D)
the failure to ignore sunk costs.
33)
Which of the following would result in a lower absolute value of the price elasticity of demand for
a product?
33)
A)
The market for the good is broadly defined.
B)
The good is a luxury.
C)
The expenditure on the good is large relative to the consumer's budget.
D)
A wide variety of substitutes are available for the good.
34)
If Valerie buys ankle socks at $5 and gets 25 units of marginal utility from the last pair, and she
buys bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she
34)
A)
should consume more ankle socks and fewer bandanas to maximize her utility.
B)
wants to consume less of both ankle sock and bandanas to maximize her utility.
C)
should consume more of bandanas and fewer ankle socks to maximize her utility.
D)
is maximizing total utility and does not want to change their consumption of ankle socks or
bandanas.
35)
Marginal utility is the
35)
A)
total satisfaction received from consuming a given number of units of a product.
B)
extra satisfaction received from consuming one more unit of a product.
C)
satisfaction achieved when a consumer has had enough of a product.
D)
average satisfaction received from consuming a product.
36)
Suppose at the current price, the demand for copper is estimated at- 3.14. What happens to sales
revenue if the government imposes a price ceiling below the free market equilibrium price in the
copper market?
36)
A)
Sales revenue cannot be determined without information on prices.
B)
Sales revenue falls.
C)
Sales revenue remains unchanged because copper is a necessity for most industries.
D)
Sales revenue rises.
37)
All of the following products are likely to have significant network externalities except
37)
A)
popular board games.
B)
fax machines.
C)
cell phones.
D)
cat food.
38)
Barnes & Noble bookstores have a special membership program that gives customers a 20 percent
discount on most hardcover books. But on Harry Potter and the Deathly Hallows, the bookstore
offered a 40 percent discount with the hope of selling a very large quantity. The bookstore must
believe that the demand for this book is
38)
A)
perfectly elastic.
B)
elastic.
C)
inelastic.
D)
perfectly inelastic.
39)
Which of the following does not affect the price elasticity of demand for a product?
39)
A)
expenditures on the product relative to buyers' incomes
B)
how long buyers have to respond to any price change
C)
how much demand shifts when buyers' incomes change
D)
the number of close substitutes available for the product
40)
As a consumer consumes more and more of a product in a particular time period, eventually
marginal utility
40)
A)
fluctuates.
B)
is constant.
C)
declines.
D)
rises.
41)
A new area of economics studies situations in which people appear to be making choices that do
not appear to be economically rational. This area is called
41)
A)
new wave economics.
B)
irrational economics.
C)
social economics.
D)
behavioral economics.
42)
When the price of summer tank tops falls and you buy more them because they are relatively less
expensive, this is called
42)
A)
the deadweight loss effect.
B)
the elasticity effect.
C)
the substitution effect.
D)
the income effect.
43)
For a demand curve to be upward sloping, the good would have to be
43)
A)
an inferior good for which the income effect of a price change is larger than the substitution
effect.
B)
a luxury good for which the income effect of a price change is larger than the substitution
effect.
C)
an inferior good for which the substitution effect of a price change is larger than the income
effect.
D)
a luxury good for which the substitution effect of a price change is larger than the income
effect.
44)
If a firm raised its price and discovered that its total revenue fell, then the demand for its product is
44)
A)
relatively elastic.
B)
perfectly elastic.
C)
relatively inelastic.
D)
perfectly inelastic.
45)
Along a downward-sloping linear demand curve,
45)
A)
the marginal utility from the consumption of each unit of the good and the total utility from
consuming larger quantities remain constant.
B)
the marginal utility from the consumption of each unit of the good falls and the total utility
from consuming larger quantities increases.
C)
the marginal utility from the consumption of each unit of the good and the total utility from
consuming larger quantities increase.
D)
the marginal utility from the consumption of each unit of the good rises and the total utility
from consuming larger quantities remain constant.
46)
The highest-valued alternative that must be given up to engage in an activity is the definition of
46)
A)
economic sacrifice.
B)
opportunity cost.
C)
implicit cost.
D)
utility.
47)
The demand for broccoli is likely to be ________ the demand for green vegetables in general.
47)
A)
perfectly elastic compared to
B)
less elastic than
C)
perfectly inelastic compared to
D)
more elastic than
48)
Carolyn spends her income on popular magazines and music CDs. If the price of a CD is four
times the price of a magazine, then if Carolyn is maximizing her utility she buys
48)
A)
four times as many CDs as magazines.
B)
both goods until the marginal utility of the last magazine purchased is four times the
marginal utility of the last CD purchased.
C)
both goods until the marginal utility of the last CD purchased is four times the marginal
utility of the last magazine purchased.
D)
four times as many magazines as CDs.
49)
Assume that you had a ticket for a basketball playoff game that you bought for $50, the maximum
price you were willing to pay. If a friend of yours offers to buy the ticket for $100 and but you
decide not to sell it, how can your decision be explained?
49)
A)
You expect to receive greater utility from attending the playoff game than you received from
buying the ticket.
B)
The income effect from the increase in the price of the ticket from $50 to $100 was greater than
the substitution effect.
C)
by the endowment effect
D)
by the law of diminishing marginal utility
50)
The demand curve for a Giffen good is
50)
A)
non-linear but downward-sloping.
B)
vertical.
C)
horizontal.
D)
upward-sloping.
51)
In order to derive an individual's demand curve for a product, we would observe what happens to
the utility-maximizing bundle when we change
51)
A)
tastes and preferences and hold everything else constant.
B)
income and hold everything else constant.
C)
the price of the product and hold everything else constant.
D)
the price of a close substitute and hold everything else constant.
52)
If a 20 percent decrease in the price of yoga pants leads to an 8 percent increase in quantity
demanded, then the demand for yoga pants is
52)
A)
relatively inelastic.
B)
relatively elastic.
C)
perfectly elastic.
D)
unit-elastic.
53)
Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of
jeans he buys is $25 and it yields 100 units of extra satisfaction, and the price of the last shirt
purchased is $20 then, using the rule of equal marginal utility per dollar spent, the extra satisfaction
received from the last shirt must be
53)
A)
500 units of utility.
B)
2000 units of utility.
C)
100 units of utility.
D)
80 units of utility.
54)
If total utility increases at a decreasing rate as a consumer consumes more of a product, then
marginal utility must be
54)
A)
decreasing.
B)
constant.
C)
negative.
D)
increasing.
55)
A good is path dependent when
55)
A)
it can only be used in one way.
B)
consumers get utility from consuming goods that others are consuming.
C)
the first technology that is adopted has an advantage over a better technology that is sold
later.
D)
people who move location follow the path of people who moved before them.
56)
The elasticity of demand is always a negative value because
56)
A)
it depends on whether or not demand shifts when price changes.
B)
of the law of demand.
C)
of the law of supply.
D)
it depends on percentages.
57)
A sunk cost is
57)
A)
a cost that has already been paid and cannot be recovered.
B)
another term that means opportunity cost.
C)
the highest valued alternative that must be given up to engage in an activity.
D)
a term used to describe the cost of capital that the owners of a firm sink into their business.
58)
Wilbur Rickhiser, a financial advisor, recently told one of his clients: "The biggest mistake you can
make is to hold onto a stock for too long in order to avoid a loss. Let's say you bought a stock for
$50 per share but that six months later the price fell to $40 after a poor earnings report. Many of my
clients in this situation will hold the stock, hoping the price will later rise above $50. In most cases
like this the price does not rise and may even fall. You must know when to cut your losses." Which
of the following is the best explanation for Rickhiser's advice?
58)
A)
People often fail to ignore the sunk costs of their decisions. The cost of the stock bought at $50
per share is a sunk cost.
B)
People sometimes make mistakes when they buy stocks because of the endowment effect.
C)
People sometimes buy stocks because other people are buying them or they want to appear to
be fashionable.
D)
People sometimes make mistakes when they buy stocks or when they buy goods and services:
they ignore the monetary opportunity costs of their choices.
59)
Suppose favorable weather increased the supply of tomatoes so that the price of tomatoes fell from
$45 a ton to $35 a ton and quantity sold increased from 300 tons to 420 tons. What is the absolute
value of the price elasticity of demand?
59)
A)
0.08
B)
1.33
C)
0.75
D)
More information is needed to answer question.
60)
Which of the following is a common mistake consumers commit when they make decisions?
60)
A)
They fail to ignore sunk costs.
B)
They are overly pessimistic about their future behavior.
C)
They take into account nonmonetary opportunity costs but ignore monetary costs.
D)
They sometimes value fairness too much.
61)
Suppose the demand for milk is relatively inelastic. What happens to sales revenue if the
government imposes a price floor above the free market equilibrium price in the market for milk?
61)
A)
Sales revenue cannot be determined without information on prices.
B)
Sales revenue falls.
C)
Sales revenue rises.
D)
Sales revenue remains unchanged.
62)
An item has utility for a consumer if it
62)
A)
is something everyone else wants.
B)
is scarce.
C)
generates enjoyment or satisfaction.
D)
has a high price.
63)
Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is
likely to be true about the price elasticity of demand for meals at the Mexican restaurant?
63)
A)
Demand is likely to be relatively inelastic.
B)
Demand is likely to be perfectly inelastic.
C)
Demand is likely to be perfectly elastic.
D)
Demand is likely to be relatively elastic.
64)
If at a price of $15, Kelly sells 20 boxes of her special organic soap and at $20 she sells 10 boxes,
then, the demand for her organic soaps is
64)
A)
perfectly elastic.
B)
inelastic.
C)
unit-elastic.
D)
elastic.
65)
Total utility
65)
A)
is negative when marginal utility is declining.
B)
is equal to the sum of the marginal utilities of all units consumed.
C)
cannot decrease as a person consumes more and more of a good.
D)
has a constant rate of increase as a person consumes more and more of a good.
66)
In the ultimatum game, allocators usually offer recipients at least a 40 percent share of an amount of
money and recipients almost always reject offers of less than a 10 percent share. Which of the
following does not explain why allocators offer recipients a relatively generous share and why
recipients reject meager offers?
66)
A)
People can and often reject offers that offend their sense of fairness even if doing so means
taking a monetary loss.
B)
Allocators can count on recipients to ignore all considerations except financial benefit.
C)
Fear of arousing outrage and abhorrence could influence economic decisions.
D)
Some people are careful not to engage in economic behavior that might offend and alienate
others.
67)
The demand for gasoline in the short run is
67)
A)
unit-elastic because people tend to consume a stable amount of gasoline per period.
B)
inelastic because there are no good substitutes for gasoline.
C)
perfectly inelastic because people have no choice but to buy gasoline.
D)
elastic because people can easily switch to public transportation.
68)
Total revenue equals
68)
A)
price per unit times change in quantity sold.
B)
price per unit times quantity sold.
C)
change in price per unit times quantity sold.
D)
price per unit times quantity supplied.
69)
Over the years, Coca-Cola has used celebrities to advertise its products. Most
recently, it hired rapper Shawn "Jay-Z" Carter to appear in television commercials as part of the
marketing campaign to re-launch Cherry Coke. What is the rationale for using "expensive"
celebrities?
69)
A)
Celebrities provide useful information about the product.
B)
By using celebrities, Coca Cola conveys crucial information about the product's quality.
C)
By linking the product to a famous person, Coca Cola hopes to create a positive image of the
product in the consumer's mind.
D)
People learn more about their own preferences by watching celebrities.
70)
Consumers have to make tradeoffs in deciding what to consume because
70)
A)
the prices of goods vary.
B)
there are not enough of all goods produced.
C)
not all goods give them the same amount of satisfaction.
D)
they are limited by a budget constraint.
71)
Consider a downward-sloping demand curve. When the price of a normal good increases, the
income and substitution effects
71)
A)
work in opposite directions and quantity demanded decreases.
B)
work in opposite directions and quantity demanded increases.
C)
work in the same direction to decrease quantity demanded.
D)
work in the same direction to increase quantity demanded.
72)
If the percentage increase in the price of a good is 20 percent and the value of the price elasticity of
demand is -5, then quantity demanded
72)
A)
will increase by 5 percent.
B)
will increase by 100 percent.
C)
will decrease by 100 percent.
D)
cannot be determined without additional information.
73)
Utility is
73)
A)
the consumption of a quasi-public good like electricity or natural gas.
B)
the production of a quasi-public good like electricity or natural gas.
C)
subjective and is difficult to measure.
D)
easily measured in units called utils.
74)
When a firm changes its price, the change in total revenue
74)
A)
is zero.
B)
is negative.
C)
is positive.
D)
depends on the value of the price elasticity of demand and the direction of the price change.
