Review Questions 2
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Producer surplus is
A) the difference between willingness to sell and full costs of productions for the firm.
B) the difference between the maximum a person is willing to pay and current market price.
C) the difference between current market price and full costs of production for the firm.
D) current market price.
1)
2) Consumer surplus is
A) the difference between the maximum a person is willing to pay and current market price.
B) the difference between current market price and full costs of production for the firm.
C) current market price.
D) the difference between the maximum a person is willing to pay and full costs of productions
for the firm.
2)
Refer to the information provided in Figure 4.6 below to answer the questions that follow.
Equilibrium in this market occurs at the intersection of curves S and D.
Figure 4.6
3) In figure 4.6 at equilibrium, consumer surplus is area
A) G.
B) A.
C) A+B+C.
D) E+F+G.
4) In figure 4.6 at equilibrium, consumer surplus is area
A) G.
B) A.
C) A+B+C.
D) E+F+G.
5) In figure 4.6 at equilibrium, producer surplus is area
A) A.
B) E+F+G.
C) G.
D) A+B+C.
6) In figure 4.6 if price is P1, producer surplus is area
A) A+B+E.
B) A.
D) G.
C) B++E+G.
7) In figure 4.6 if price is P1, the deadweight loss due to under production is area
A) A+C.
B) E+G.
C) C+F
D) F+G.
1
3)
4)
5)
6)
7)
8) In figure 4.6 if price goes from equilibrium to P1, producer surplus changes by the area
A) B-F.
B) E+F.
C) E-C.
D) C+E
8)
9) A perfectly price inelastic demand curve will be a ________ line.
A) positively sloped
B) horizontal
C) negatively sloped
D) vertical
9)
10) When the price of radios increases 15%, quantity demanded decreases 15%. The price elasticity of
demand for radios is ________, and total revenue from radio sales will ________.
A) unit elastic; not change
B) inelastic; decrease
C) elastic; decrease
D) elastic; increase
10)
11) When the price of tea increases 7%, quantity demanded decreases 12%. The price elasticity of
demand for tea is ________, and total revenue from tea sales will ________.
A) inelastic; increase
B) elastic; decrease
C) elastic; increase
D) inelastic; decrease
11)
12) The price elasticity of demand for bottled water in New York is -3, and the price elasticity of
demand for bottled water in Florida is -0.6. In other words, demand in New York is ________, and
demand in Florida is ________.
A) elastic; inelastic
B) elastic; unit elastic
C) inelastic; unit inelastic
D) inelastic; elastic
12)
Refer to the information provided in Figure 5.2 below to answer the questions that follow.
Figure 5.2
13) Refer to Figure 5.2. If the price of a hamburger decreases from $10 to $8, the price elasticity of
demand equals ________. Use the midpoint formula.
A) -0.33
B) -3.0
C) -30.
D) -300
13)
14) Refer to Figure 5.2. At Point C the price elasticity of demand is -1. Along line segment ________ of
the demand curve, the demand is elastic.
A) BE
B) AC
C) CF
D) AF
14)
2
15) Price and total revenue are inversely related when demand is
A) price inelastic.
B) perfectly price inelastic.
C) unit price elastic.
D) price elastic.
15)
16) Total revenue increases if price ________ and demand is ________.
A) falls; inelastic
B) rises; elastic
C) rises; inelastic
D) falls; unit elastic
16)
17) The determinants of elasticity include
A) availability of substitutes.
C) price relative to income.
17)
B) time.
D) all of the above
18) If income decreases by 20% and, in response, the quantity of housing demanded decreases by 14%,
then the income elasticity of demand for housing is
A) 0.7.
B) 1.43.
C) -0.7.
D) -1.
18)
19) The cross-price elasticity of demand between good X and good Y is -2.4. Given this information,
which of the following statements is true?
A) Goods X and Y are substitutes.
B) The demand for goods X and Y is elastic.
C) Goods X and Y are complements.
D) The demand for goods X and Y is income elastic.
19)
20) Hector has $1,000 a month to spend on clothing and food. The price of clothing is $50 and the price
of food is $20. Hector spends his entire income when he purchases ________ units of clothing and
________ units of food.
A) 25; 5
B) 12; 20
C) 16; 8
D) 10; 10
20)
Refer to the information provided in Figure 6.1 below to answer the questions that follow.
Figure 6.1
21) Refer to Figure 6.1. Assume Tom is on budget constraint AC and the price of a hamburger is $5.00.
Tom's monthly income is
A) $4.
B) $60.
C) $80.
D) $100.
3
21)
22) Refer to Figure 6.1. Assume Tom's budget constraint is AC. Given his current monthly income he
will not have enough income to purchase the bundle represented by point
A) A.
B) B.
C) E.
D) D.
22)
23) Refer to Figure 6.1. Along budget constraint AC, the opportunity cost of one hot dog
A) is 1/4 of a hamburger.
B) is 1/2 of a hamburger.
C) is 2 hamburgers.
D) changes as you move down along the budget constraint.
23)
Refer to the information provided in Table 6.2 below to answer the questions that follow.
Table 6.2
Number of
Donuts per Day
1
2
3
4
5
Number of
Burritos per Day
1
2
3
4
5
Total Utility
Marginal Utility
80
150
200
230
Total Utility
10
Marginal Utility
60
108
144
168
24) Refer to Table 6.2. The marginal utility of the second donut per day is
A) 20.
B) 30.
C) 70.
12
D) 110.
24)
25) Refer to Table 6.2. Diminishing marginal utility sets in after the ________ donut per day.
A) first
B) second
C) third
D) fourth
25)
26) Refer to Table 6.2. The total utility of five donuts per day is
A) 230.
B) 240.
C) 260.
D) indeterminate from this information.
26)
27) Refer to Table 6.2. If the price of a donut is $2, the price of a burrito is $4, and Luigi has $12 of
income, Luigi's utility maximizing combination of donuts and burritos per day is
A) 2 donuts and 1.5 burritos.
B) 1 donut and 2 burritos.
C) 4 donuts and 1 burrito.
D) indeterminate from this information.
27)
28) Daisy is consuming X and Y so that she is spending her entire income and MUx/Px = 12 and
MUy/Py = 10. To maximize utility, she should
A) consume less X and more Y.
B) consume less of both X and Y.
C) consume more X and less Y.
D) continue to consume the same amount of X and Y since she is already maximizing utility.
28)
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Answer Key
Testname: REVIEW QUESTION 2
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C
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C
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