Microeconomics Final Exam Part 2

Front 1

i. a measure of the sensitivity of a variable to a change in another variable

ii. invariant (or insensitive) to the units in which variables are measured

iv. defined as the ratio of the percentage change in the affected variable to the percentage change in the affecting variable

Back 1

In economic research elasticities are a commonly used metric. An elasticity is:

Front 2

percentage change in quantity demanded divided by the percentage change in price

Back 2

The price elasticity of demand is defined as the:

Front 3

i. the price elasticity is not sensitive to the units in which price and quantity demanded are measured

iii. the price elasticity provides a better means for making cross-product comparisons (e.g., between goods X and Y) when the prices of the products differ

Back 3

To evaluate the sensitivity of changes in quantity demanded (or purchases) to changes in price, a researcher could evaluate the slope of the market demand curve or the price elasticity of demand. The price elasticity of demand may be favored over the slope because:

Front 4

ii. percentage change in price will result in a greater percentage change in quantity demanded

iv. change in price will cause revenues (or consumer expenditures) to change in the opposite direction

Back 4

If the demand for a good is elastic with respect to its price, then a:

Front 5

demand is elastic

Back 5

If a good's price falls from $50 to $40 and as a result the per-period quantity demanded increases from 30 to 40 units, then it may be concluded that:

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i. the price elasticity is greater than one

ii. buyers are said to be relatively insensitive to changes in price

iii. total revenue will increase if price increases

iv. a percentage change in price will result in a smaller percentage change in quantity demanded

Back 6

If the demand for a good is price elastic at the current market price then:

Front 7

increase initially and then decrease

Back 7

If the demand for a good is given by the linear equation Q = 200 - 2P, then as price is lowered from the choke price to zero the total expenditures on the good:

Front 8

the smaller the number of substitutes that exist and the smaller the price elasticity of demand

Back 8

The more broadly a good is defined (for example, gasoline in general versus Wawa brand gasoline):

Front 9

i. if a percentage change in price results in a greater percentage change in quantity demanded, then demand is elastic

iii. along a linear demand curve, demand is elastic above the mid-point and inelastic below the mid-point

iv. total revenue will not change as a result of a change in price if demand is unit elastic

Back 9

Which of the following statements is correct?

Front 10

TR = 120Q - 2Q^2

Back 10

Suppose the market demand for a good is described by the demand function P = 120 - 2Q. It follows that the total revenue function relating the total revenues (TR) to the quantity sold (Q) is:

Front 11

A and C

Back 11

If the price elasticity of demand is 0.36, 2.58, 0.92, and 1.44 for products A, B, C, and D respectively, then a one percent increase in price will increase total revenue (TR) in which of the following:

Front 12

negative and the goods are complements

Back 12

Suppose that a 6 percent decrease in the price of good X causes an 7 percent increase in the quantity demanded of good Y. The cross-price elasticity of demand is therefore:

Front 13

the good is normal and the income elasticity of demand is positive

Back 13

If purchases of a good increase as a result of an increase in household income, then:

Front 14

percentage change in quantity supplied divided by the percentage change in price

Back 14

The price elasticity of supply is defined as the:

Front 15

the supply curve for nuts over a long period (e.g., ten years) is more elastic than the supply curve for nuts over a short period (e.g., one year)

Back 15

The demand for nuts, such as almonds, walnuts, and cashews, has increased sizably in recent years, however, it takes a considerable amount of time to increase their production. It follows that:

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iii. satisfaction derived from consumption of a good or service

Back 16

In microeconomics the term utility references the:

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i. the utility derived from all bundles of goods and services

ii. the bundles of goods and services that yield the same level of utility

Back 17

The consumer choice models describes how an individual allocate his/her income over goods and services in order to maximize utility. One component of the consumer choice model is the individuals utility function. From the utility function alone, which of the following can be determined?

Front 18

Elaine knows that utility is subjective and therefore it is not meaningful to make inter-personal utility comparisons

Back 18

Punk-rocker Pete is feeling insecure about his long-term relationship with economist Elaine. At the conclusion of a recent date, he tells Elaine, "I feel that I derive much more utility from this relationship than you." Elaine tells him that his claim is ridiculous because:

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change in total utility from consuming each additional unit of a good

Back 19

Marginal utility is the:

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if marginal utility is diminishing but positive as consumption increases, then total utility will increase

Back 20

Which of the following is statements is correct?

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as more and more units of a good are consumed, marginal utility will decline beyond a point

Back 21

The law of diminishing marginal utility states that:

Front 22

total utility is increasing at a decreasing rate and marginal utility is decreasing

Back 22

Fran likes fruit. If she consumes 1 piece of fruit, she obtains 6 units of utility, if she consumes 2 pieces she obtains 10 units of utility, and if he consumes 3 pieces he obtains 12 units of utility. It follows that:

Front 23

Bundle A, Bundle C, Bundle B

Back 23

Suppose an individuals preferences are described by the Cobb-Douglass utility function U = X0.5Y0.5 and consider the following three combinations (or bundles) of X and Y: Bundle A (6,1); Bundle B (3,4); Bundle C (5,2). Given the individuals preferences, the bundles ranked from least-preferred to most-preferred are:

Front 24

Y = 16/X

Back 24

Suppose a consumers utility function is U = X0.5Y0.5. It follows that the indifference function associated with the bundle X = 2 and Y = 8 or (2, 8) is:

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i. both X and Y are goods

ii. both X and Y are bads

Back 25

If an indifference curve relating X and Y slopes downward, then it may be concluded that:

Front 26

X = 6

Back 26

Consider an individual whose preferences are described by the utility function is U = X0.5Y0.5. If she consumes 3 units of X and 4 units of Y, then some level of utility will be experienced. If the individual instead consumes 2 units of Y, how much of good X must she consume in order to attain the level of utility associated with 3 units of X and 4 units of Y?

Front 27

iii. is unobtainable, given the consumer's income

Back 27

Any bundle of goods located outside (versus inside) of a consumers budget constraint:

Front 28

Y = 50 - 0.5X

Back 28

If a consumers income is $200, the price of good X is PX = $2, and the price of good Y is PY = $4, then the algebraic expression for the consumers budget constraint is:

Front 29

3X and 6Y

Back 29

Suppose a consumer has an income of $15 that is spent on two goods: X and Y. The price of good X is $3.00 and the price of good Y is $1.00. Which of the following combinations (or bundles) of X and Y lie on the individuals budget constraint?

Front 30

marginal utility per dollar is equal over the goods and services purchased

Back 30

If the consumer is a utility maximizer in allocating income over goods and services, then income will be allocated such that:

Front 31

2.5 percent decrease in quantity demanded

Back 31

Consider the market demand for a given good. If ED = -2.5 at the current market price, then a 1 percent increase in price will result in a:

Front 32

iii. is inelastic

Back 32

If the price of a good rises from $10 to $20 and as a result the per-period quantity demanded decreases from 50 to 40 units, then it may be concluded that demand in this price range:

Front 33

the larger the number of substitutes that exist and the larger the price elasticity of demand

Back 33

The more narrowly a good is defined (for example, Coca Cola or Pepsi versus soft drinks in general):

Front 34

the price elasticity of demand is greater for necessities than luxuries

Back 34

Which of the following generalizations is not correct?

Front 35

ED < 1 within the range over which the price of gasoline has varied (e.g., between $3 and $2 per gallon)

Back 35

The U.S. Department of Energy reported that it estimates that the average household can expect to spend about $750 less on gasoline in 2015 compared to 2014 as a result of the decline in the price of crude oil. Given this information, it may be concluded that for the average household:

Front 36

iii. the demand for the good is inelastic in the $5-$6 price range

Back 36

If a firm finds that it can generate $10,000 of revenue when the price of the good its sells is $6 per unit and $8,000 of revenue when the price of the good it sells is $5 per unit, then:

Front 37

total revenue declines if price is increased

Back 37

Which of the following is not characteristic of the demand for a commodity that is price inelastic?

Front 38

elastic

Back 38

A local theme park has estimated that in order to increase revenues generated from ticket sales it must reduce ticket prices. It follows that the theme park has estimated the demand for visits to the park to be:

Front 39

C and D

Back 39

Suppose that at the current prices the price elasticity of demand is 0.56, 0.92, 1.75, and 2.42 for products A, B, C, and D respectively. A one percent decrease in price will increase total revenue (TR) in which of the following:

Front 40

increase initially and then decrease

Back 40

An individuals total expenditures on a good per-period are equal to the price of the good times the number of units of the good purchased. If an individuals demand function for a good is given by the linear equation Q = 20 - 0.5P, then as price decreases from the choke price to zero his/her total expenditures:

Front 41

6

Back 41

Suppose good A and good B are substitutes for one another and both are normal goods. The quantity of each good demanded (or purchased) is a function of its price (e.g, PA), the price of the substitute (e.g. PB ), and consumer income (I). Given this information, how many total demand elasticities can be calculated for goods A and B?

Front 42

TR = 200Q - 0.5Q2

Back 42

Suppose the market demand for a good is described by the demand function P = 200 - 0.5Q. It follows that the total revenue function relating the total revenues (TR) to the quantity sold (Q) is:

Front 43

ES = 1.5 and ED = 1

Back 43

Consider a perfectly competitive market described by the supply function P = 10 + 0.2Q and demand function P = 60 - 0.3Q. Using the standard formula (versus the mid-point formula) for calculating elasticities, it may be concluded that at the equilibrium price and quantity:

Front 44

positive and the goods are substitutes

Back 44

Suppose that a 5 percent decrease in the price of good X causes an 8 percent decrease in the quantity demanded of good Y. The cross-price elasticity of demand is therefore:

Front 45

how responsive consumers are to changes in income

Back 45

The income elasticity of demand is a measure of:

Front 46

the good is inferior and the income elasticity of demand is negative

Back 46

If purchases of a good increase as a result of a decrease in household income, then:

Front 47

smaller than the income elasticity of demand for foreign vacation travel

Back 47

The income elasticity of demand for food (e.g., measured by daily calories consumed) can reasonably be expected to be:

Front 48

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

Back 48

The primary determinant of the price elasticity of supply is the:

Front 49

the long-run supply of housing is more price elastic than the short-run supply of housing

Back 49

It takes a considerable amount of time to increase the supply of housing within a local housing market (e.g., Orlando) as a result of an increase in the demand for housing. Defining the short-run as a period of time less than six months and the long-run as a period of time greater than six months, it follows that:

Front 50

iii. satisfaction that a consumer derives from a good or service

Back 50

In economics the term utility refers to the:

Front 51

ii. the utility derived from all combinations of goods and services

iii. the bundles that yield a given level of (or the same amount of) utility

Back 51

From a utility function, which of the following may be determined?

Front 52

a good may yield utility but not be functionally useful

Back 52

Which of the following statements is correct?

Front 53

if marginal utility is diminishing but positive as consumption increases, then total utility will increase

Back 53

Which of the following is statements is correct?

Front 54

total utility is increasing at an increasing rate and marginal utility is increasing

Back 54

Suppose that if an individual consumes 1 unit of good X she obtains 4 units of utility, if she consumes 2 units of good X she obtains 10 units of utility, and if she consumes 3 units of good X she obtains 18 units of utility. It follows that:

Front 55

is positive, but it may be either increasing or decreasing

Back 55

Suppose that total utility increases as consumption of a good increases. It follows that the marginal utility from each successive unit of the good consumed:

Front 56

total utility is constant

Back 56

A critical component of the consumer choice model are indifference curves. In moving upward or downward along a given indifference curve:

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iii. X is a bad and Y is a good or X is a good and Y is a bad

Back 57

If an indifference curve relating X and Y slopes upward, then it may be concluded that:

Front 58

Y = 8/X

Back 58

Consider an individual whose utility function is utility function U = X0.5Y0.5. Given this information, the indifference function associated with the bundle X = 4 and Y = 2 or (4, 2):

Front 59

X = 2

Back 59

Consider an individual whose utility function is U = X0.5Y0.5. If the individual consumes 1 unit of X and 4 units of Y, then she will experience some level of utility. If the individual instead consumes 2 units of Y, how much of good X must she consume in order to attain the level of utility associated with 1 unit of X and 4 units of Y?

Front 60

iii. consumer income is constantiv. the prices of the goods are constant

Back 60

Assuming there are no quantity discounts or penalties, in moving downward or upward along a budget constraint:

Front 61

ii. the utility maximizing bundle of goods and services a consumer will purchaseiii. how the prices of the goods and services were determined

Back 61

Which of the following does the budget constraint alone not indicate?

Front 62

8X and 4Y

Back 62

Suppose a consumer has an income of $20 that is spent on two goods: X and Y. The price of good X is $1.00 and the price of good Y is $3.00. Which of the following combinations (or bundles) of X and Y lie on the individuals budget constraint?

Front 63

ii. implies the consumer is not spending all of her income on goods and services

Back 63

Any bundle of goods located inside (versus outside) of a consumers budget constraint:

Front 64

Y = 25 - 0.5X

Back 64

Suppose an individual exhausts her income on goods X and Y. If her income is $150, the price of good X is PX = $3, and the price of good Y is PY = $6, then the algebraic expression for her budget constraint is:

Front 65

20 units

Back 65

Suppose a quantity discount applies on purchases of a good. Specifically, the pricing arrangement is such that a consumer can purchase the first 10 units of the good for $6 each and all additional units (i.e., the 11th, 12th, etc.) can be purchased for $4 each. If the consumer has an income of $100, what is the maximum number of units of the good that the consumer can purchase?

Front 66

marginal utility per dollar (i.e., marginal utility divided by price) is equal over the goods

Back 66

If a consumer is maximizing utility then income is allocated over goods such that:

Front 67

more of Y and less of X

Back 67

Suppose an individual is allocating income over goods X and Y such that MUx/Px < MUY/PY . The consumer can increase total utility by purchasing:

Front 68

the budget constraint will shift outward, the consumer will move to a new equilibrium along a higher indifference curve, and the level of total utility will increase

Back 68

Consider a consumer who maximizes utility subject to a budget constraint. If her income increases, then:

Front 69

buyers are said to be relatively insensitive to changes in price

otal revenue will increase if price increases

Back 69

if the demand for a good is inelastic at the market price, then:

Front 70

the good is inferior and the income elasticity of demand is negative

Back 70

If purchases of a good increase as a result of a decrease in household income, then:

Front 71

4 percent decrease in quantity supplied

Back 71

Suppose the price elasticity of supply for a good at the current price is ES = 2. It follows that a 2 percent decrease in price will result in a:

Front 72

the short-run supply of housing is less price elastic than the long-run supply of housing

an increase in the demand for housing will have a larger affect on housing prices in the short-run compared to the long-run

Back 72

The supply of housing in a city often takes a considerable amount of time to increase following an increase in the demand for housing. Defining the short-run as a period of time less than six months and the long-run as a period of time greater than six months, it follows that: