MIDTERM QUIZ PDF

1) Refer to Figure 5.1. The demand for tickets is A) perfectly price elastic. B) perfectly price inelastic. C) unit price elastic. D) perfectly income inelastic. 2. Demand determines price entirely when A) demand is downward sloping. B) demand is perfectly inelastic. C) supply is perfectly inelasti...

1) Refer to Figure 5.1. The demand for tickets is A) perfectly price elastic. B) perfectly price inelastic. C) unit price elastic. D) perfectly income inelastic. 2. Demand determines price entirely when A) demand is downward sloping. B) demand is perfectly inelastic. C) supply is perfectly inelastic. D) supply is perfectly elastic. 3) For perfectly price inelastic supply A) supply determines price solely. B) demand determines price solely. C) only a government can set the price. D) either supply or demand may set the price. 4. For perfectly price elastic supply curve will be a ________ line. A) horizontal B) vertical C) upward sloping D) downward sloping 5. A perfectly price elastic demand curve will be a ________ line. A) horizontal B) vertical C) positively sloped D) negatively sloped 6. A ________ line is a perfectly price inelastic demand curve. A) horizontal B) vertical C) positively sloped D) negatively sloped 7. When the price of radios decreases 5%, quantity demanded increases 5%. The price elasticity of demand for radios is ________ and total revenue from radio sales will ________. A) elastic; decrease B) elastic; increase C) inelastic; decrease D) unit elastic; not change 8. When the price of fresh fish increases 10%, quantity demanded decreases 5%. The price elasticity of demand for fresh fish is ________ and total revenue from fresh fish sales will ________. A) inelastic; increase B) inelastic; decrease C) elastic; decrease D) elastic; increase 9. When the price of fresh fish increases 10%, quantity demanded is unchanged. The price elasticity of demand for fresh fish is A) perfectly inelastic. B) elastic. C) inelastic. D) unitary elastic. 10. When the price of coffee increases 5%, quantity demanded decreases 10%. The price elasticity of demand for coffee is ________ and total revenue from coffee sales will ________. A) inelastic; increase B) inelastic; decrease C) elastic; increase D) elastic; decrease 11. When there are more substitutes for a product, the ________ for the product is ________. A) demand; less price elastic B) demand; more price elastic C) income elasticity; greater D) income elasticity; smaller 12. The more time that elapses, the A) less price elastic is the demand for the product. B) more price elastic is the demand for the product. C) greater the income elasticity of demand for a product. D) smaller the income elasticity of demand for the product. 13. The determinants of elasticity include A) availability of substitutes. B) price relative to income. C) time. D) all of the above 14. Assume you earn $20,000 a year and your favorite sports magazine costs you $100 a year. Your demand for the sports magazine is likely to be A) elastic. B) inelastic. C) perfectly elastic. D) perfectly inelastic. 15. Assume you earn $75,000 a year and your favorite entertainment magazine costs you $25 a year. Your demand for the entertainment magazine is likely to be A) elastic. B) inelastic. C) perfectly elastic. D) perfectly inelastic. 16. Michael can buy either pizzas or submarine sandwiches. If the prices of pizza and submarine sandwiches double and so does Michaelʹs money income, we can deduce that Michaelʹs budget constraint will A) shift in but remain parallel to the old one. B) shift out but remain parallel to the old one. C) swivel in so that the slope of the budget constraint is doubled. D) remain unchanged. 17. Michael can buy either pizzas or submarine sandwiches. If the prices of pizza and submarine sandwiches double and Michaelʹs money income triples, we can deduce that Michaelʹs budget constraint will A) shift in but remain parallel to the old one. B) shift out but remain parallel to the old one. C) swivel in so that the slope of the budget constraint is doubled. D) remain unchanged. 18. A carʹs real cost is its opportunity cost. Opportunity cost is determined by A) the price of the car. B) relative prices. C) wealth. D) the prices of the goods that are compliments to a car. 19. When the price of a good increases, the budget constraint does not change. FALSE 20. When the price of a good decreases, the budget constraint shifts out parallel to the original budget constraint. Answer: FALSE 21. Assuming a perfectly competitive market implies that households have perfect knowledge of qualities and prices of everything available in the market. Answer: TRUE 22. Price increases cause a decrease in a householdʹs choice set. Answer: TRUE 23. Marginal utility is the ________ satisfaction gained by consuming ________ of a good. A) total; all units B) total; one more C) additional; all units D) additional; one more unit 24. Kathy eats five slices of pizza on a Saturday night but admits each slice of pizza doesnʹt taste as good as the previous one. This suggests that for Kathy the A) marginal utility of a slice of pizza is positive but decrease B) marginal utility of a slice of pizza is negative. C) total utility of slices of pizza is declining. D) total utility of slices of pizza is increasing by larger and larger increments. 25. The law of diminishing marginal utility is effective when marginal utility is A) positive and increasing. B) positive and decreasing. C) initially zero and then increasing. D) initially zero and then decreasing 26. Jon is consuming X and Y so that he is spending his entire income and MUx/Px = 8 and MUy/Py = 4. To maximize utility, he should consume A) the same amount of X and Y since he is already maximizing utility. B) less of both X and Y. C) more X and less Y. D) less X and more Y. 27. Richard is consuming X and Y so that he is spending his entire income and MUx/Px = 6 and MUy/Py = 10. To maximize utility, he should A) continue to consume the same amount of X and Y since he is already maximizing utility. B) consume less of both X and Y. C) consume more X and less Y. D) consume less X and more Y 28. The marginal utility of the first cup of coffee that Tom drinks in the morning is worth $2.00. The marginal utility of the 9th cup of coffee he drinks is positive while the marginal utility of the 10th cup of coffee he drinks in the morning is worth $0. This implies that at a price of $0, Tom would drink A) zero cups of coffee per morning. B) at most 10 cups of coffee per morning. C) more than 10 cups of coffee per morning, but the actual number is indeterminate from this information. D) an infinite number of cups of coffee each morning. 29. Total utility is A) the total amount of satisfaction yielded by the consumption of a good or service. B) the additional satisfaction gained by consuming one more unit of something. C) used to compare different peopleʹs likes and dislikes. D) relatively easy to measure. 30. The law of diminishing marginal utility refers to A) a consumerʹs decrease in total satisfaction as she consumes more units of a good. B) a consumerʹs decrease in additional satisfaction as she consumes more and more units of a good. C) the idea that total utility is negative. D) the idea that marginal utility is negative. 31. The diamond/water paradox states that things with the ________ value in use frequently have ________ value in exchange. A) least; the least B) least; little or no C) greatest; little or no D) greatest; the greatest 32. The law of diminishing marginal utility implies that A) demand curves always slope downward and to the right. B) supply curves always slope upward and to the right. C) a consumer will always buy positive amounts of all goods. D) total utility will always increase by an increasing amount as consumption increases. 33. As you move up an indifference curve, the absolute value of the slope A) increases. B) decreases. C) remains constant. D) initially increases and then decreases 34. Total revenue minus total cost equals A) the rate of return. B) marginal revenue. C) profit. D) net cost. 35. The Wax Works sells 500 candles at a price of $5 per candle. The Wax Worksʹ total economic costs for producing 500 candles are $3,000. The Wax Worksʹ economic profit is A) -$3,000. B) -$500. C) $2,500. D) $3000 36. Economic costs include A) both a normal rate of return on investment and the opportunity cost of each factor of production. B) the direct costs of hiring all factors of production. C) the opportunity cost of each factor of production minus any interest charges paid on borrowed funds. D) total revenue minus accounting profit 37. The Sweet Success Bakery sells 500 cakes at a price of $10 per cake. Its total economic costs for producing 500 cakes are $500. The Sweet Success Bakeryʹs economic profits are A) $100. B) $3,500. C) $4,500. D) indeterminate from this information. 38. The Oh So Humble Bakery sells 300 muffins at a price of $1 per muffin. Its explicit costs for producing 300 muffins are $250. The Oh So Humble Bakeryʹs economic profits are A) $35. B) $50. C) $250. D) indeterminate from this information. 39. A firm ________ if it earns zero economic profit. A) earns a negative rate of return B) will leave the industry C) earns a positive but below normal rate of return D) earns exactly a normal rate of return 40. You own a building that has four possible uses: a cafe, a craft store, a hardware store, and a bookstore. The buildingʹs value in each use is $2,000; $3,000; $4,000; and $5,000, respectively. You decide to open a hardware store. The opportunity cost of using this building for a hardware store is A) $2,000, the value if the building is used as a cafe. B) $3,000, the value if the building is used as a craft store. C) $10,000, the sum of the values if the building is used for a cafe, a craft store, or a bookstore. D) $1,000, the difference in value if the building were used as a bookstore and its actual use. 41. : You own and are the only employee of a company that writes computer software that gamblers use to collect sports data. Last year your total revenue was $90,000. Your costs for equipment, rent, and supplies were $50,000. To start this business you invested an amount of your own capital that could pay you a $40,000 a year return During the year your economic costs were A) $40,000. B) $60,000. C) $90,000. D) $100,000. 42. You own and are the only employee of a company that writes computer software that gamblers use to collect sports data. Last year your total revenue was $90,000. Your costs for equipment, rent, and supplies were $50,000. To start this business you invested an amount of your own capital that could pay you a $40,000 a year return A yearly normal rate of return for your computer software firm would be A) $20,000. B) $40,000. C) $60,000. D) $100,000. 43.You own and are the only employee of a company that writes computer software that gamblers use to collect sports data. Last year your total revenue was $90,000. Your costs for equipment, rent, and supplies were $50,000. To start this business you invested an amount of your own capital that could pay you a $40,000 a year return Your accounting profit last year was A) $10,000. B) $30,000. C) $40,000. D) $60,000. 44. You own and are the only employee of a company that writes computer software that gamblers use to collect sports data. Last year your total revenue was $90,000. Your costs for equipment, rent, and supplies were $50,000. To start this business you invested an amount of your own capital that could pay you a $40,000 a year return Your economic profit last year was A) ‐$40,000. B) ‐$10,000. C) $0. D) $10,000. 45. An economist is studying the pricing behavior of Atlantaʹs 100 dog kennels. She says she will limit her analysis to a time period that allows for neither new kennels to enter the market nor existing ones to leave it. The economist is referring to the ________ time period. A) market B) industry C) long run D) short run 46. In the long run, a firm A) can shut down, but it cannot exit the industry. B) has no fixed factors of production. C) can vary all inputs, but it cannot change the mix of inputs it uses. D) must make positive economic profits. 47. In the short run, a firm A) has at least one fixed factor of production. B) cannot enter an industry where positive profits are being earned. C) can exit and industry and all of its factors of production are variable. D) both (A) and (B) are correct. 48. If Pets.com earns a rate of return less than necessary for it to continue operations, then its A) total revenue exceeds its economic costs. B) economic costs exceed its total revenue. C) normal profit is zero. D) economic profit is zero 49. The formula for the marginal product of labor is A) L/q. B) (ΔL)(Δq). C) q/L. D) Δq/ΔL. 50. One worker produces 5 rocking chairs. If diminishing returns have already set in, a firm will need to hire more than two workers to produce 10 rocking chairs. Answer: TRUE