Question

The assumption that the rate at which a consumer is willing to give up one good, Y, in exchange for another good, X, while always remaining indifferent after the exchange, decreases as he/she gets more of one good, X, and less of the other, Y, implies that indifference curves

a.will be positively sloped.

b.will be convex.

c. will be negatively sloped.

d.will be linear.

2. The law of diminishing returns implies that as more of a variable input is used, then

a.total output continues to increase.

b.marginal product is zero.

c.total output continues to decrease.

d. marginal product becomes negative.

3.The price of a good is determined either by either demand and supply or by an enforced regulated price. A major difference between the two price-determining techniques is that

a.the government has more knowledge of the best price and can therefore allocate more evenly than can the unregulated market.

b.prices regulated at a level above the equilibrium price will induce shortages.

c.there are no shortages or surpluses with unregulated prices.

d.there are no shortages or surpluses with regulated prices.

e. regulated prices are fairer in the sense that more people can afford the good.

4. Consider a scenario where the demand is estimated to be represented by the following equation: Q_X=60-2P_X-0.2I -10P_Y, where Px is the price of X, I represents the income of the consumer, Py is the price of another related in consumption good, and Qx is the quantity demanded of X. Based on this, what can be concluded about the relationship between good X and Y?

a.They are complements in consumption.

b.There is not enough information provided to make any conclusion

c.They are unrelated in consumption.

d.They are substitutes in consumption

5. In order to reduce the number of aluminum cans disposed irresponsibly on city streets, many cities are offering 10 cents for each can turned in. The cities are essentially assuming a demand curve for aluminum cans that is

a.infinitely elastic

b. backward bending.

c.below the equilibrium price.

d.perfectly inelastic

e.upward sloping.

6.A good has a price elasticity of demand equal to zero. As the price of the good falls, the

a.quantity demanded falls to zero.

b.total revenue does not change.

c.quantity demanded does not change.

d.quantity demanded increases.

e.total revenue increases.

7. If a consumer buys only one good and none of another good, the consumer is

a. choosing a combination of goods that lies outside of the budget constraint.

b.behaving irrationally.

c.maximizing utility where the marginal rate of substitution equals the price ratio.

d. maximizing utility even though the marginal rate of substitution does not equal the price ratio.

8. If a tax on widgets raises its price from $0.90 to $1.05 and the quantity sold decreases by five percent, the price elasticity of demand for widgets is approximately

a. 3.3

b.0.5

c.0.7

d.3.0

e.0.3

9. There is an increase in the price of broccoli because of the disastrous weather that destroyed half of this year's spinach crop. Choose the statement that is correct.

a.The demand curve for broccoli shifted rightward and the cross elasticity of demand for broccoli with respect to the price of spinach is positive.

b.The demand curve for broccoli shifted rightward and the cross elasticity of demand for broccoli with respect to the price of spinach is negative.

c.The supply curve of broccoli shifted rightward and the cross elasticity of demand for broccoli with respect to the price of spinach is positive.

d.The demand curve for broccoli shifted leftward and the cross elasticity of demand for broccoli with respect to the price of spinach is negative.

e. The supply curve of broccoli shifted rightward and the cross elasticity of demand for broccoli with respect to the price of spinach is negative.

10.The demand curve for good X is given by PQ = 10 has an elasticity equal to

a.1

b. 0.5

c.2

d.2P

e. 2/P

Answer 1