Test 2 practice MCQ
(Answers are at the end)
1. / If the demand for product X is inelastic, a 4 percent increase in the price of X will:A. / decrease the quantity of X demanded by more than 4 percent.
B. / decrease the quantity of X demanded by less than 4 percent.
C. / increase the quantity of X demanded by more than 4 percent.
D. / increase the quantity of X demanded by less than 4 percent.
2. / Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week:
A. / demand will become more price elastic.
B. / price elasticity of demand will not change as price is lowered.
C. / demand will become less price elastic.
D. / the elasticity of supply will increase.
3. / Refer to the above diagram and assume a single good. If the price of the good increased from $5.70 to $6.30 along D1, the price elasticity of demand along this portion of the demand curve would be:
A. / 0.8.
B. / 1.0.
C. / 1.2.
D. / 2.0.
4. / The elasticity of supply of product X is unitary if the price of X rises by:
A. / 5 percent and quantity supplied rises by 7 percent.
B. / 8 percent and quantity supplied rises by 8 percent.
C. / 10 percent and quantity supplied stays the same.
D. / 7 percent and quantity supplied rises by 5 percent.
5. / It takes a considerable amount of time to increase the production of pork. This implies that:
A. / a change in the demand for pork will not affect its price in the short run.
B. / the short-run supply curve for pork is less elastic than the long-run supply curve for pork.
C. / an increase in the demand for pork will elicit a larger supply response in the short run than in the long run.
D. / the long-run supply curve for pork is less elastic than the short-run supply curve for pork.
6. / The supply curve of a one-of-a-kind original painting is:
A. / relatively elastic.
B. / relatively inelastic.
C. / perfectly inelastic.
D. / perfectly elastic.
7. / We would expect the cross elasticity of demand between dress shirts and ties to be:
A. / positive, indicating normal goods.
B. / positive, indicating complementary goods.
C. / negative, indicating substitute goods.
D. / negative, indicating complementary goods.
8. / Suppose that a 10 percent increase in the price of normal good Y causes a 20 percent increase in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is:
A. / negative and therefore these goods are substitutes.
B. / negative and therefore these goods are complements.
C. / positive and therefore these goods are substitutes.
D. / positive and therefore these goods are complements.
9. / Which of the following goods will least likely suffer a decline in demand during a recession?
A. / Dinner at a nice restaurant
B. / iPods
C. / Toothpaste
D. / Plasma screen and LCD TVs
10. / Generally speaking, the demand for luxury goods is more price elastic than is the demand for necessities.
TrueFalse
11. / When the percentage change in price is greater than the resulting percentage change in quantity demanded:
A. / a decrease in price will increase total revenue.
B. / demand may be either elastic or inelastic.
C. / an increase in price will increase total revenue.
D. / demand is elastic.
12. / If a firm finds that it can sell $13,000 worth of a product when its price is $5 per unit and $11,000 worth of it when its price is $6, then:
A. / the demand for the product is elastic in the $6-$5 price range.
B. / the demand for the product must have increased.
C. / elasticity of demand is 0.74.
D. / the demand for the product is inelastic in the $6-$5 price range.
13. / Which of the following generalizations is not correct?
A. / The larger an item is in one's budget, the greater the price elasticity of demand.
B. / The price elasticity of demand is greater for necessities than it is for luxuries.
C. / The larger the number of close substitutes available, the greater will be the price elasticity of demand for a particular product.
D. / The price elasticity of demand is greater the longer the time period under consideration.
14. / Marginal utility can be:
A. / positive, but not negative.
B. / positive or negative, but not zero.
C. / positive, negative, or zero.
D. / decreasing, but not negative.
15. / Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending all her money income should buy:
A. / less of X only if its price rises.
B. / more of Y only if its price rises.
C. / more of Y and less of X.
D. / more of X and less of Y.
16. / When a consumer shifts purchases from product X to product Y the marginal utility of:
A. / X falls and the marginal utility of Y rises.
B. / X rises and the marginal utility of Y falls.
C. / both X and Y rises.
D. / both X and Y falls.
17. / Diminishing marginal utility explains why:
A. / the income effect exceeds the substitution effect.
B. / the substitution effect exceeds the income effect.
C. / supply curves are upsloping.
D. / demand curves are downsloping.
18. / According to prospect theory, firms are more likely to shrink packages than raise prices because:
A. / consumers feel the loss of a price increase more than they feel the loss of buying a smaller package for their money.
B. / they don't understand that consumers recognize price increases easily, regardless of what form they take.
C. / consumers associate smaller packages with higher quality luxury goods.
D. / consumers are generally trying to downsize their purchases and lead simpler lives.
19. / Prospect theory and the work of behavioral economists confirm that consumers are economically rational.
TrueFalse
20. / If the price of A is $12 and the price of B is $3, the budget line tells us that a consumer in effect can trade:
A. / 12 units of A for 3 of B.
B. / 1 unit of A for 4 of B.
C. / 1 unit of A for 3 of B.
D. / 1 unit of B for 4 of A.
21. / AA is Al's indifference curve and BB is Betty's. Al and Betty have the same budget line, LL. This information implies that:
A. / Al's demand for X is greater than Betty's.
B. / Al's demand for Y is greater than Betty's.
C. / Al and Betty have the same demand for both products.
D. / Al will buy some of X, but Betty will not.
22. / In the above diagram:
A. / the consumer is indifferent between points A and B, but neither point maximizes his utility.
B. / the consumer is indifferent between points A and B and either point will maximize his utility.
C. / any combination of X and Y entailing more of Y and less of X than shown at B would be preferred.
D. / any combination of X and Y entailing more of X and less of Y than shown at A would be preferred.
23. / "Essential" water is cheaper than "nonessential" diamonds because:
A. / new industrial uses for diamonds have been discovered.
B. / the supply of water is great relative to demand and the supply of diamonds is small relative to demand.
C. / although the total utility of diamonds is greater, their marginal utility is small.
D. / the supply of diamonds is great relative to demand and the supply of water is small relative to demand.
24. / Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately?
A. / Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero.
B. / MU/P is greater at all-you-can-eat restaurants.
C. / People who eat at all-you-can-eat restaurants do not experience diminishing marginal utility.
D. / Food at all-you-can-eat restaurants tends to have fewer calories, so consumers feel the need to consume a greater volume of food.
25. / Refer to the above diagram. The budget line shift that moves the consumer's equilibrium from point A to point B suggests:
A. / an increase in the demand for product X.
B. / a decrease in the demand for product X.
C. / no change in the demand for product X.
D. / that X is an inferior good.
test 2 practice Key
1.B
2.C
3.C
4.B
5.B
6.C
7.D
8.C
9.C
10.TRUE
11.C
12.A
13.B
14.C
15.D
16.B
17.D
18.A
19.FALSE
20.B
21.B
22.A
23.B
24.A
25.B