Econ Test #2

Question 1

The lower the consumer’s income, the higher his or her budget line.

Answer 1

False

Question 2

The elasticity of demand:

Answer 2

tends to be elastic in high-price ranges and inelastic in low-price ranges

Question 3

Refer to the above diagram. In the P1P2 price range demand is:

Answer 3

relatively elastic

Question 4

After eating four slices of pizza, you are offered a fifth slice. You turn down the slice. Your refusal indicates that the:

Answer 4

marginal utility is positive for the fourth slice and negative for the fifth slice

Question 5

Indifference curves are linear and budget lines are convex to the origin.

Answer 5

False

Question 6

A consumer can either drive to work or take the bus. She has determined that, on average, either method of commuting costs the same, but considers driving her car a
normal good. Recently, however, bus fares decreased. Now the:

Answer 6

substitution effect implies that she will take the bus to work more often.

Question 7

What do the income effect, the substitution effect, and diminishing marginal utility have in common?

Answer 7

They all help explain the downsloping demand curve

Question 8

The basic formula for the price elasticity of demand coefficient is:

Answer 8

percentage change in quantity demanded/percentage change in price

Question 9

If the demand for Kellogg’s Frosted Flakes is relatively elastic

Answer 9

Frosted Flakes has many close substitutes

Question 10

The marginal rate of substitution measures the:

Answer 10

consumer’s willingness to substitute one product for another so that total utility will remain constant.

Question 11

A state government seeking to increase its excise-tax revenues is more likely to increase the tax rate on fine China than on telephone service.

Answer 11

False

Question 12

The price elasticity of demand is:

Answer 12

negative, but the minus sign is ignored

Question 13

Which of the following defines marginal utility?

Answer 13

the additional satisfaction received from consuming one more unit of a product

Question 14

The theory of consumer behavior assumes that:

Answer 14

consumers behave rationally, maximizing their satisfactions.

Question 15

If a demand for a product is elastic, the value of the price elasticity coefficient is:

Answer 15

greater than one

Question 16

An indifference curve:

Answer 16

is downsloping and convex to the origin.

Question 17

The shift of the budget line from cd to ab in the above figure is consistent with:

Answer 17

a decrease in money income.

Question 18

Antiques tend to have highly inelastic supply curves.

Answer 18

True

Question 19

The budget line shows:

Answer 19

all possible combinations of two goods that can be purchased, given money income and the prices of the goods.

Question 20

A demand curve which is parallel to the vertical axis is:

Answer 20

perfectly inelastic

Question 21

If price changes and total revenue changes in the opposite direction, demand is relatively elastic.

Answer 21

True

Question 22

Pepsi vendors who raise their prices at professional sporting events increase total revenue because the price elasticity of demand is _________. When they raise their
prices at gas station, they decrease total revenue because the price elasticity of demand
is _________.

Answer 22

inelastic; elastic

Question 23

Which of the following is correct?

Answer 23

If the demand for a product is inelastic, a change in price will cause total revenue to change in the same direction.

Question 24

Product demand is more elastic the longer the time period under consideration.

Answer 24

True

Question 25

Which of the following is not characteristic of indifference curves?

Answer 25

Curves closer to the origin reflect higher levels of total utility

Question 26

It is possible for a consumer's indifference curves to intersect.

Answer 26

False

Question 27

The supply of known Monet paintings is:

Answer 27

perfectly inelastic

Question 28

Newspapers dispensing devices seemingly "trust" people to take only a single paper, but the devices actually rely on the law of:

Answer 28

diminishing marginal utility

Question 29

Utility:

Answer 29

is want-satisfying power

Question 30

The demand for a luxury good whose purchase would exhaust a significant portion of one's income is:

Answer 30

relatively elastic

Question 31

The total-revenue test for elasticity:

Answer 31

does not apply to supply because price and quantity are directly related.

Question 32

Price elasticity of demand is generally:

Answer 32

greater in the long run than in the short run.

Question 33

The price elasticity of demand will increase with the length of the period to which the demand curve pertains because:

Answer 33

consumers will be better able to find substitutes.

Question 34

Refer to the above diagram where xy is the relevant budget line and I1, I2, and I3 are indifference curves. The equilibrium position for the consumer is at:

Answer 34

point K

Question 35

Refer to the above diagram where xy is the relevant budget line and I1, I2, and I3 are indifference curves. Point M:

Answer 35

is unobtainable

Question 36

A rational consumer will try to achieve the highest indifference curve that his or her income will allow.

Answer 36

True

Question 37

Brenda says, "You would have to pay me $50 to attend that pro wrestling event." For Brenda, the marginal utility of the event is:

Answer 37

negative

Question 38

If the coefficient of income elasticity of demand is positive, the product is an inferior good.

Answer 38

False

Question 39

Luxuries are distinguished from necessities by the:

Answer 39

high income elasticity of demand for luxuries and the low-income elasticity of demand for necessities.

Question 40

If the budget line can be stated as QxPx+ QyPy = I, then the slope of the line is equal

Answer 40

-Px/Py