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1. The basic formula for the price elasticity of demand coefficient is:
B. percentage change in quantity demanded/percentage change in price.

2. Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is: 

C. 1.37.

3. Most demand curves are relatively elastic in the upper-left portion because the original price: 

C. from which the percentage price change is calculated is small and the original quantity from which the percentage change in quantity is calculated is large.

4. If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will: 

B. increase the amount demanded by more than 10 percent.

5. The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range: 

D. is elastic.
6. Refer to the above diagram. Between prices of $5.70 and $6.30: 

A. D1 is more elastic than D2.

7. A perfectly inelastic demand curve: 

C. graphs as a line parallel to the vertical axis.

8. When the percentage change in price is greater than the resulting percentage change in quantity demanded: 

C. an increase in price will increase total revenue.

9. In which of the following instances will total revenue decline? 

D. price rises and demand is elastic
10. If a firm's demand for labor is elastic, a union-negotiated wage increase will: 

C. cause the firm's total payroll to decline.

11. Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is: 

D. relatively inelastic.
12. Other things the same, if a price change causes total revenue to change in the opposite direction, demand is: 

B. relatively elastic.

13. If the price elasticity of demand for a product is unity, a decrease in price will: 

D. increase the quantity demanded, but total revenue will be unchanged.
14. If a price reduction reduces a firm's total revenue: 

A. the demand for the product is inelastic in this price range.

15. In which of the following cases will total revenue increase? 

C. price rises and demand is inelastic

16. The elasticity of demand for a product is likely to be greater: 

B. the greater the amount of time over which buyers adjust to a price change.

17. Which of the following statements is correct

C. Demand is more elastic when a large number of substitute goods are available.

18. The more time consumers have to adjust to a change in price: 

B. the greater will be the price elasticity of demand.

19. Which of the following generalizations is not correct? 

B. The price elasticity of demand is greater for necessities than it is for luxuries.

20. The demand for a necessity whose cost is a small component of one's total income is: 

C. relatively inelastic.

21. A demand curve which is parallel to the horizontal axis is: 

B. perfectly elastic.

22. The main determinant of elasticity of supply is the: 

B. amount of time the producer has to adjust inputs in response to a price change.

23. An antidrug policy which reduces the supply of heroin might: 

A. increase street crime because the addict's demand for heroin is highly inelastic.

24. Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in: 

A. the price of some other product.

25. The larger the positive cross elasticity coefficient of demand between products X and Y, the: 

B. greater their substitutability.

26. Which type of goods is most adversely affected by recessions? 

B. Goods for which the income elasticity coefficient is relatively high and positive.

27. Which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession? 

D. Plasma screen and LCD TVs (+4.2)
28. Which of the following goods will least likely suffer a decline in demand during a recession? 

C. Toothpaste

29. Producer surplus: 

C. is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price.

30. Graphically, consumer surplus is measured as the triangle: 

B. under the demand curve and above the actual price.

1. Utility: 

B. is want-satisfying power.

2. The law of diminishing marginal utility states that: 

B. beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.

3. The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is: 

C. 8 units of utility.

4. Marginal utility is the: 

B. change in total utility obtained by consuming one more unit of a good.

5. Which of the following statements is correct

D. A product may yield utility, but not be functionally useful.
6. The law of diminishing marginal utility explains why: 

B. demand curves slope downward.

7. The theory of consumer behavior assumes that: 

A. consumers behave rationally, attempting to maximize their satisfaction.

8. To maximize utility a consumer should allocate money income so that the: 

B. marginal utility obtained from the last dollar spent on each product is the same.

9. A consumer is maximizing her utility with a particular money income when: 

B. MUa/Pa = MUb/Pb = MUc/Pc = ... = MUn/Pn.

10. The theory of consumer behavior assumes that consumers attempt to maximize: 

B. total utility.

11. If the prices of X and Y are $2 and $4 per unit, respectively, and this consumer has $10 in income to spend, to maximize total utility this consumer should buy: 

NO ANSWER
12. The diamond-water paradox occurs because: 

B. the price of a product is related to its marginal utility, not its total utility.

13. The fact that most medical care purchases are financed through insurance: 

D. increases the amount of health care consumed.
14. Most economists contend that: 

B. noncash transfers are less efficient than cash transfers.

15. According to economists, gift registries, returning gifts for cash refunds, and "recycling gifts": 

D. increase the efficiency of gift-giving because they allow the recipient to consume goods that provide greater utility and transfer away those goods that are less satisfying.

1. Costs to an economist: 

B. may or may not involve monetary outlays.

2. To the economist, total cost includes: 

A. explicit and implicit costs, including a normal profit.

4. Accounting profits are typically: 

D. greater than economic profits because the former do not take implicit costs into account.
5. Economic profits are calculated by subtracting: 

D. explicit and implicit costs from total revenue.

6. The basic characteristic of the short run is that: 

B. the firm does not have sufficient time to change the size of its plant.
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