7th April, 2019
1. Stereo headphones vs hearing aids
Stereo headphones, since they tend to be less of a necessity good than hearing aids. For each of the following goods, identify whether you would expect demand to be more(own-price) elastic in the short run or the long run.
2. If a rise in the price of good 1 decreases the quantity of good 2 demanded
A. the cross elasticity of demand is negative
3. Frank spends $75 on 10 magazines and 25 newspapers. The magazines cost $5 each and the newspapers cost $2.50 each. Suppose that his MU from the final magazine is 10 utils while his MU from the final newspaper is also 10 utils. According to the utility-maximizing rule, Frank should:
A. Reallocate spending from magazines to newspapers.
7. The ultimate purpose of indifference curve analysis is to illustrate that:
A. the individual is very much like a calculator, constantly conducting economic cost/benefit analysis before making a decision
8. You are the sales manager for a pizza company and have been informed that the price elasticity of demand for your most popular pizza is greater than 1. To increase total revenues, you should
A. decrease the price of the pizza
9. What will happen to the price elasticity of demand for Ford sport-utility vehicles (SUVs) when the government bans importation of SUV's from Japan?
A. The price elasticity of demand for Ford SUVs will decrease because other cars are viewed as less of a substitute.
10. An indifference curve shows all alternative combinations of two consumption goods that:
B. yield the same level of utility
11. the price of a bus ride decrease, but the total revenue of the bus company does not change. This means the demand for the bus rides must be approximately
A. unit elastic
12. Jermaine spends his money on cucumbers and lettuce. If the price of cucumbers falls, the MU per dollar of cucumbers will and Jermaine will cucumbers for lettuce.
B. Rise; substitute
13. If, when the price of a product rises from $1.50 to $2, the quantity demanded of the product decreases from 1,000 to 900, the price elasticity of demand coefficient, using the midpoint formula, i
14. Demand is inelastic when
1. The quantity demanded is very responsive to changes in price
15. A consumer
B. is equally satisfied with any indifference curve
16. The marginal rate of substitution in a move down the indifference curve.
17. According to indifference curves (IC) approach, at the point of equilibrium:
C. slope of IC = slope of budget line
18. Which of the following is not a property of an indifference curve.
C. Indifference curves are none intersecting
19. Suppose that Jessica’s MU/P is 8 for swimming lessons, 12 for voice lessons, and 4 for piano lessons. In order for Jessica to maximize total utility, she should definitely
A. takes more swimming lessons
20. Consider the three combinations of leisure and income represented by points A, B, and C. Which of the following is a correct statement?
D. Larry prefers C to A
21. Disney is considering a 10% decrease in ticket prices for its theme parks in summer. If the price elasticity of demand for the theme parks is inelastic during the summer
C. Disney's revenue from the theme parks will remain constant
22. if a consumer moves from combination A to combination B, calculate the consumer's MRS of the consumption good for leisure.
23. Of the following, demand is likely to be the least elastic for A) Toyota automobiles. B) compact disc players. C) Ford automobiles. D) tooth picks.
24. The table below shows the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4 and the price of product Y is $2. The income of the consumer is $ 20. The optimal combination of the two goods is the first 3 units of X and the first 4 units of Y. At this combination what is the total utility the consumer will receive? .
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