FREE ECONOMICS AND STUDY GAMES ABOUT TEST 2

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FREE ECONOMICS AND STUDY GAMES ABOUT TEST 2

Actual Qs and Ans Expert-Verified Explanation

This Exam contains:

-Guarantee passing score -39 Questions and Answers -format set of multiple-choice -Expert-Verified Explanation Question 1: 10) A demand relationship in which the quantity demanded changes exactly in proportion to the change in price is

Answer:

• unit-elastic.

Question 2: 3) The price elasticity of demand is

Answer:

• always negative, but by convention, economists typically express the price elasticity of demand as an

absolute value.

Question 3: 21) Marginal utility is

Answer:

• the change in total utility due to a one-unit change in the quantity of a good consumed.

Question 4: 8) Inelastic demand implies

Answer:

• that a one percent increase in price results in a smaller than one percent decrease in quantity

demanded.

Question 5: 12) If the market price of a product falls and as a result total revenue of firms falls, we can conclude that

Answer:

• demand is inelastic in this price range.

Question 6: 5) price of eggs increases from 75 cents to $1.00 per dozen and then a typical farmer experiences a decrease in egg sales from 300 to 200 dozen per week. Using the method of average values (midpoint formula), the absolute price elasticity of demand is

Answer:

A) 1.4.

Question 7: 7) The greater is the absolute price elasticity of demand, the

Answer:

• larger is the responsiveness of quantity demanded to the price change.

Question 8: 43. If Fred is willing to pay $500 for a new suit, but is able to buy the suit for $350, Fred values the suit at ________ and his consumer surplus is________.

Answer:

• $500; $150.

Question 9: 31) For any two goods, X and Y, if MUX divided by PX equals 2.5 and MUY divided by PY equals 4.0, then with given income and prices the consumer should

Answer:

• buy more of good Y and less of good X.

Question 10: 36) Suppose a consumer is at an optimum. What happens when the price of one good she has been consuming increases?

Answer:

• The marginal utility per dollar spent on the last unit consumed of that good is now smaller than the

marginal utility per dollar spent on other goods the person consumes.Question 11: 30) Suppose Bob's ratios of marginal utility of beer to the price of beer and the marginal utility of pizza to the price of pizza are equal. If the price of beer increases

Answer:

• Bob will probably consume less beer and more pizza.

Question 12: 44. The equilibrium output in a competitive market is efficient because it is the

output where:

Answer:

• marginal benefit is equal to marginal cost and total surplus is maximized.

Question 13: 4) An absolute price elasticity of demand equal to 0.4 indicates that a

Answer:

• 10 percent decrease in price leads to a 4 percent increase in quantity demanded.

Question 14: 25) If you and a group of friends have been consuming large quantities of liquid beverages on a hot summer afternoon and you decide to refrain from any additional consumption, it can be concluded that

Answer:

• total utility has reached a maximum and the marginal utility of an additional drink would be zero.

Question 15: 32) The marginal utility of good A is 6 and the marginal utility of good B is 15. The price of good A is $2. The price of good B must be ________ if the consumer is optimizing her utility.

Answer:

• $5

Question 16: 20) Utility analysis helps economists understand

Answer:

• how people make decisions about what they buy and how much.

Question 17: 40. Outputs that generate negative externalities tend to be:

Answer:

• overproduced by private markets.

Question 18: 24) Economists assume that people make decisions regarding consumption based on comparing

Answer:

• additional units of satisfaction with additional costs.

Question 19: 6) If the absolute price elasticity of demand for a product is greater than 1, then

Answer:

• consumers are relatively sensitive to price changes.

Question 20: 2) Suppose that when the price of milk rises 20%, the quantity demanded of milk falls 10%. Based on this information, what is the approximate absolute price elasticity of demand for milk?

Answer:

C) 0.5 (10/20)

Question 21: 26) When marginal utility is positive, but decreasing, then total utility is

Answer:

• increasing at an increasing rate.

Question 22: 1) The price elasticity of demand is a measure of

Answer:

• the responsiveness of the quantity demanded of a good to a changes in the price of the good.

Question 23: 27) The principle that "as more of a good is consumed, its extra benefit declines" is known as

Answer:

• the law of diminishing marginal utility.

Question 24: 35) The price burger is $1 and the price of a movie is $6 and the consumer has $14.A consumer has purchased 2 hamburgers and 2 movies, receiving 20 units of utility for the second hamburger and 100 units of utility for the second movie. The set of goods

Answer:

• is not an optimum because the marginal utility for each good is not equal.

Question 25: 39. Positive externalities occur when:

Answer:

• private market demand curves do not reflect all benefits to society.