An important determinant of the price elasticity of demand is the (Points : 2)
price of inputs.
level of technology.
availability of substitutes.
quantity of the good supplied
2. The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%.
The price elasticity of demand is equal to ________ and demand is described
as (Points : 2)
0.2; inelastic
5; inelastic
0.2; elastic
5; elastic
3. If the income elasticity of demand for a good is negative, the good is said to
be: (Points : 2)
an inferior good
a substitute good.
a normal good.
a positive good.
4. The cross-price elasticity of electricity with respect to the price of natural gas has
been estimated as being equal to 0.2. This implies that:(Points : 2)
natural gas and electricity are both normal goods
electricity and natural gas are complements
electricity and natural gas are substitutes
one of the two goods is inferior and the other is normal, but we need
additional information to determine which of them is normal.
5. A newspaper typically consumes a smaller fraction of a consumer's budget than a
home entertainment system. Therefore, you would expect the demand for (Points : 2)
a home entertainment system to be more price-elastic.
a home entertainment system to be more price-inelastic.
newspapers to be more price-elastic.
the two to be equally price-elastic.
6. Paolo owns a pizza shop. The price of pizza recently increased from $3 to $5 a
slice. Paolo responded by increasing the quantity of slices he supplied from 100 to
150 slices per day. Using the midpoint method, calculate Paolo's price elasticity of
supply. (Points : 2)
5/4
4/5
3/4
5/2
7. We know that when the price of gasoline goes up, consumers reduce quantity
demanded depending on the time given for adjustment. This quantity adjustment
is: (Points : 2)
greater in the long run than in the short run.
greater in the short run than in the long run
the same in both the short run and the long run.
undetermined, all A, B and C previous answers are possible.
8. When a public transit system (such as a subway or bus line) raises its fares, it
may experience an increase in total revenue. This suggests that demand is: (Points :
2)
unstable.
price-inelastic
price-elastic
price unit-elastic
9. After eating six chocolate candy bars in ten minutes, Jody says, "You would have
to pay me to eat another chocolate candy bar!" This statement best
illustrates (Points : 2)
the law of demand.
the substitutability among goods.
the law of diminishing marginal utility.
that chocolate candy bars are an inferior good.
10. Which of the following is an implicit cost of the business? (Points : 2)
wages paid to part-time employees
the job offer you did not accept at a local catering service
bread, meat, and vegetables used to produce the items on your menu
your monthly utility bill.
11. To maximize her grade in Physics, Stacey should study until (Points : 2)
her marginal cost of studying begins to increase
her marginal benefit of studying begins to decrease
her marginal benefit of studying equals her marginal cost of studying
her marginal cost of studying reaches zero.
12. Accountants use only ________ costs in their computations of short-run total
cost. (Points : 2)
opportunity
implicit
explicit
variable
13. Table: Marginal Analysis of Sweatshirt Production:
Quantity of shirts
Total Benefit (in dollars)
Total Cost (in dollars)
0
$0
$0
1
16
9
2
32
20
3
48
33
4
64
48
5
80
65
Given the information above, the optimal quantity of sweatshirts that will be
produced is. [Hint: Find out the MB and MC.] (Points : 2)
2
3
4
5
14. Sunk costs (Points : 2)
affect economic profit.
are the losses associated with failed business ventures.
are an important component of marginal analysis.
are the same as fixed costs.
15. The relationship between an individual's consumption bundle and utility is called
a: (Points : 2)
demand function.
production function.
consumption function.
utility function
16. If Vanessa consumes more pomegranates and fewer bananas, the ________ of
pomegranates will _______, and the ________ of bananas will ________. (Points :
2)
marginal utility; fall; marginal utility; rise
marginal utility; rise; marginal utility; fall
total utility; fall; marginal utility; rise
marginal utility; rise; total utility; rise
17. Marginal Utility per dollar of M&Ms
Quantity (bags) of
M&M
0
1
2
3
4
5
Total Utility in
Utils
0
6
10
13
15
16
Andy's total utility from eating snack-size bags of M&Ms is given in the table
above. The price of M&Ms is $2 per bag. Andy's marginal utility per dollar of the
second bag of M&Ms is: (Points : 2)
16 units of satisfaction per dollar
10
units of satisfaction per dollar
5
units of satisfaction per dollar
2
units of satisfaction per dollar
18. While eating pizza, you discover that the marginal benefit of eating one more
slice is greater than the marginal cost of that slice. You then conclude: (Points : 2)
you will be better off if you eat one more slice
you will be no better off and no worse off from eating one more slice
you will be worse off if you eat one more slice
the total cost of eating the pizza will be more than the total benefit of eating
the pizza
19. The production function provides information about: (Points : 2)
a firm's profit level.
the transformation of inputs into output.
the location of the firm's production.
a firm's market structure.
20. You own a small deli that produces sandwiches, soups, and other items for
customers in your town. Which of the following is a fixed input for the production
function at your deli? (Points : 2)
the dining room where customers eat their meals.
the loaves of bread used to make sandwiches.
the cans of tomato sauce used to make soups.
the employees hired to help make the food.
21. Use the table below to answer the following questions.
Units
of Output
1
2
3
4
Total Fixed Cost
(dollars)
150
150
150
150
Total Variable
Cost (dollars)
25
48
70
100
a) What is the total cost of producing 3 units? Include calculations and explain your
answer.
b) What is the average cost of 3 units? Include your calculations and explain your
answer.
c) What is the marginal cost of producing the third unit of output? Include
calculations and explain your answer.
(Points : 6)
22. Table: Production of Cabinets:
Quantity of Labor
(workers)
Quantity of
cabinets per day,
Q
0
1
2
3
4
5
6
7
8
0
5
11
16
20
23
25
26
25
Marginal Product
of Labor
(Cabinets per
worker per day)
5
6
5
4
3
2
1
-1
Look at the table The Production of Cabinets.
a) If each cabinet-maker could be hired at no cost, how many workers would your
firm employ? Include your calculations and explain your answer.
b) After which worker does the firm begin to experience diminishing returns to labor?
Include your calculations and explain your answer.
c) If each cabinet is sold at $10 and workers are paid $36 per day, how many
workers would be hired per day?
(Points : 9)