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foundations of economics

Questions and Answers of Foundations Of Economics

A product’s utility to a buyer is measured by. ( LO1 )a) its usefulnessb) its pricec) how much the buyer is willing to pay for itd) none of the above
If a service is free, you will consume more and more of it until . ( LO2 )a) your marginal utility is zerob) your total utility is zeroc) both your marginal utility and your total utility are zerod)
If we know Olivia King’s demand schedule, we can fi nd . ( LO1 , 3 )a) her marginal utility, but not her total utilityb) her total utility, but not her marginal utilityc) both her total utility and
True or false. What is a consumer
True or false. Explain the law of diminishing marginal utility. ( LO2 )
True or false. Defi ne marginal utility. ( LO1 )
True or false. State the general utility formula. ( LO4 )
True or false. If Matthew Avischious were to purchase fi ve drinks at $1 each, he would enjoy a consumer surplus. ( LO6 )
True or false. As increasing amounts of a product are consumed, marginal utility will decline. ( LO2 )
True or false. Utility is measured by a product’s usefulness. ( LO1 )
True or false. We are maximizing our utility when the marginal utility of each good or service we purchase is equal to its price. ( LO1 , 2 )
True or false. Total utility is at a maximum when marginal utility is zero. ( LO1 , 3 )
True or false. The concept of consumer surplus was formulated by Alfred Marshall. ( LO6 )
True or false. Total utility will rise as long as marginal utility is rising. ( LO1 , 3 )
True or false. The water– diamond paradox has never been resolved. ( LO5 )
Practical Application: Miles Standish invented a 60-calorie 6-ounce milk shake, which he sold at his candy store. He noticed that each of his customers purchased at least two shakes. (a) Can you fi
Practical Application: What if you could walk into a music store and get as many CDs as you wanted for free, provided that you listened to 30 seconds of each song on each CD? Question: How many CDs
Explain the water– diamond paradox.
If the elasticity of demand is 5, and the price of a cup of coffee is $2, how much would the seller need to reduce her price in order to increase the quantity sold by 50 percent? ( LO1 )
If your income rises by 20 percent and you decide to increase your purchases of clothing by 10 percent, fi nd your income elasticity for clothing. ( LO4 )
If the price of laser eye surgery falls by 50 percent and the quantity of contact lenses demanded falls by 25 percent, fi nd the cross elasticity of demand for these two goods. ( LO4 )
In Figure 6 : (a) How much is the tax? (b) How much of this tax is borne by the buyer and how much is borne by the seller? ( LO7 ) Price ($) 4 2 16 16 $2 14 12 10 S 8 6 10 10 20 30 40 50 60 Output 70
If elasticity of demand is 0.5 and price is lowered from $20 to $19, by what percentage will quantity demanded rise? ( LO1 )
If elasticity of demand is 2 and price is raised from$10 to $11, by what percentage will quantity demanded fall? ( LO1 )
On the demand curve shown in Figure 5 , label the curve where it is very elastic, unit elastic, and very inelastic. ( LO1 ) Price ($) Quantity
Draw a perfectly elastic demand curve and state its elasticity. ( LO1 ) P Q
Draw a demand curve, D 1 . Then draw a second demand curve, D 2 , that is less elastic. ( LO1 ) P Q
If price were lowered from $50 to $43 and quantity demanded rose from 15 to 16, calculate elasticity;state whether demand is elastic, unit elastic, or inelastic; and fi nd how much total revenue was
If price were increased from $40 to $42 and quantity demanded fell from 50 to 45, calculate elasticity;state whether demand is elastic, unit elastic, or inelastic; and fi nd how much total revenue
Draw a supply curve, S 1 . Then draw a more elastic supply curve, S 2 . ( LO5 ) P 0
Draw a perfectly inelastic supply curve. ( LO5 ) P Q
Draw a perfectly elastic supply curve. ( LO5 ) P Q
The fi rm with this demand curve shown in Figure 4 would receive the highest total revenue at point. ( LO3 )a) Ab) Bc) Cd) De) E Figure 4 B C D E
Total revenue would be maximized when elasticity is . ( LO3 )a) above 10b) risingc) fallingd) 1e) 0
Movie tickets and DVD rentals are services. ( LO4 )a) inferiorb) complementaryc) substituted) highly inelastic
During a very bad recession the nation’s disposable income fell by 10 percent, while its consumption of a certain good rose by 5 percent. That good was good. ( LO4 )a) a complementaryb) a
If the price of iPods is reduced by 50 percent and the quantity of songs demanded on iTunes rises by 25 percent, then the cross elasticity of demand for iPods and iTune songs is . ( LO4 )a) 5.0b)
A fi rm seeking to maximize its total revenue would lower its price until price elasticity of demand was . ( LO3 )a) a maximumb) a minimumc) one
When the cross elasticity of demand for two services is negative, then these services are . ( LO4 )a) complementsb) substitutesc) both complements and substitutesd) neither complements nor substitutes
If our income elasticity for vacation trips is 2.8, we may conclude that vacation trips are . ( LO1 )a) a normal serviceb) an inferior servicec) both a normal service and an inferior serviced)
If your income goes down by 15 percent and you cut back on your manicures by 25 percent, then your demand for manicures is . ( LO4 )a) income elasticb) income inelasticc) income elastic and income
Which is the most accurate statement? ( LO7 , 5 )a) The demand for gasoline is very elastic.b) The demand for home heating oil is very inelastic.c) The seller of a perishable commodity has a
About how much of the tax is paid by consumers in the form of higher prices? ( LO7 )a) 10 centsd) 50 centsb) 20 centse) 65 centsc) 35 cents Price ($) 23 S S 22 21 20 19 18 Figure 2 10 20 Quantity D
When demand is relatively inelastic and supply is relatively elastic, the burden of a tax will be borne. ( LO7 )a) mainly by sellersb) mainly by buyersc) equally between sellers and buyersd) it is
The most important determinant of the degree of elasticity of demand is . ( LO2 )a) whether the item is a big-ticket itemb) whether the item is a luxuryc) how many uses the product hasd) the
Demand is elastic if . ( LO1 )a) percentage change in quantity is greater than percentage change in priceb) percentage change in price is greater than percentage change in quantityc) percentage
The advertiser wants to push her product’s demand curve . ( LO2 )a) to the right and make it more elasticb) to the right and make it less elasticc) to the left and make it more elasticd) to the
Which statement is true about the graph in Figure 1 ? ( LO1 )a) Demand is perfectly elastic.b) Demand is perfectly inelastic.c) Demand is more elastic at point X than at point Y.d) Demand is more
A 5 percent increase in the price of sugar causes the quantity demanded to fall by 15 percent. The demand for sugar is . ( LO1 )a) perfectly elasticd) inelasticb) elastice) perfectly inelasticc) unit
A perfectly elastic supply curve is . ( LO1 )a) a horizontal lineb) a vertical linec) neither a horizontal nor a vertical line Workbook for Chapter 18 Name Date
Demand is elastic when . ( LO1 )a) percentage change in price is greater than percentage change in quantityb) percentage change in quantity is greater than percentage change in pricec) the demand
Practical Application: If the elasticity of demand for cigarettes among teenagers is 0.5, how much would the price of a pack of cigarettes have to be raised from $10 to cut teenage smoking by 20
Practical Application: You live in a drafty old house that was once owned by your great grandparents. When the price of home heating oil triples, it now costs you over$2,000 a month to heat your
Draw a graph in Figure 8 illustrating a simultaneous increase in supply and decrease in demand. Label all four curves and both equilibrium points. (LO7) Figure 8 P
Draw a graph in Figure 7 illustrating a simultaneous increase in supply and demand. Label all four curves and both equilibrium points. (LO7) P Figure 7 Q
A major technological improvement leads to a large decrease in the cost of production. Using Figure 6 draw a new supply curve, S 2 , to refl ect this change. Then state the new equilibrium price and
Draw a supply curve, S 1 , in Figure 5, and a second supply curve, S 2 , that represents an increase in supply. ( LO7 ) P Q
Draw a demand curve, D 1 , in Figure 4.Then draw a second demand curve, D 2 , that illustrates a decrease in demand. ( LO7 ) Figure 4 P
Given the information in Table 2 , draw a graph of the demand and supply curves on a piece of graph paper. ( LO7 ) TABLE 2 Price Quantity Demanded Quantity Supplied $15 14 1 4 27 25 13 9 21 12 16 12
Given the information in Table 1 , draw a graph of the demand and supply curves on a piece of graph paper. ( LO7 ) TABLE 1 Price $10 9 1 10 Quantity Demanded Quantity Supplied 35 33 8 18 29 7 24 24 6
An increase in supply is shown graphically by a shift of the supply curve to the__________ . ( LO5 )
The reason many homeowners cannot sell their homes when housing prices are falling is because. (LO9)a) there are no buyers in the marketb) there are too many houses on the marketc) no one can get a
The American Cancer Society announces the results of a study of 10,000 smokers and nonsmokers. A 21-year-old smoker who continues smoking two packs a day has a life-time expectancy that is 20 years
An increase in the supply of running shoes will—assuming demand is unchanged—lead to. (LO7)a) an increase in equilibrium price and an increase in equilibrium quantityb) a decrease in equilibrium
A decrease in demand means that the quantity demanded . ( LO2 )a) does not fall at any priceb) falls only at the equilibrium pricec) falls at a few pricesd) falls at most pricese) falls at all prices
The market demand for a good will decrease. ( LO1 , 2 )a) as income decreases if the good is an inferior goodb) if the market price of a substitute good increasesc) as income decreases if the good is
If the price of cameras falls, there will be a(n). ( LO2, 3 , 5 )a) decrease in the demand for fi lmb) decrease in the quantity of cameras demandedc) decrease in the supply of camerasd) increase in
A move from O to Pa) an increase in supplyb) a decrease in supplyc) a change in the quantity supplied
A move from N to 0a) an increase in supplyb) a decrease in supplyc) a change in the quantity supplied
A move from S 1 to S 2a) an increase in supplyb) a decrease in supplyc) a change in the quantity supplied
A move from M to Na) an increase in supplyb) a decrease in supplyc) a change in the quantity supplied
A move from L to Ja) an increase in demandb) a decrease in demandc) a change in quantity demanded Figure 2 Price ($) K Quantity D D
A move from D 1 to D 2a) an increase in demandb) a decrease in demandc) a change in quantity demanded Figure 2 Price ($) K Quantity D D
A move from K to La) an increase in demandb) a decrease in demandc) a change in quantity demanded Figure 2 Price ($) K Quantity D D
A move from J to Ka) an increase in demandb) a decrease in demandc) a change in quantity demanded Figure 2 Price ($) K Quantity D D
Equilibrium quantity is . ( LO8 )a) below 13c) between 13 and 15b) 13d) above 15 Price ($) 20 60- S 16 12 8 0 2 4 6 8 10 12 14 16 18 20 Quansty D
When market price is above equilibrium price, the market price will be driven . ( LO6 )a) up by unhappy buyersb) up by unhappy sellersc) down by unhappy buyersd) down by unhappy sellers
Which statement is true? ( LO1 , 2 , 4 )a) A change in demand is the same thing as a change in the quantity demanded.b) The supply curve moves upward to the left.c) The law of demand is no longer
A decrease in supply can be brought about by. ( LO5 )a) a price increaseb) a price decreasec) a random event like a hurricane or an earthquaked) a change in consumers’ tastes or preferences
The demand for an inferior good is . ( LO1 , 2 )a) positively related to its own priceb) negatively related to incomec) unaffected by consumer tastes and preferencesd) insensitive to changes in
An increase in the demand for steak could be caused quickly by a(n) . ( LO2 )a) fall in the price of steakb) increase in the supply of steakc) expectation of a future cutback in the supply of steakd)
If the rise in the price of service A leads to a fall in the price of service B, we may conclude that,. ( LO2 )a) services A and B are substitutesb) services A and B are complementsc) services A and
An increase in the wage rate paid to construction workers will tend to . ( LO5 )a) decrease the demand for homesb) cause a movement along the supply curve for new homesc) decrease the supply of new
Suppose the price of a service falls and people buy more of that service. What has happened? ( LO 2 )a) Quantity demanded changed.b) Demand increased.c) Demand decreased.
The retail market for gasoline is . ( LO1 )a) localc) nationalb) regionald) international
Each of the following may lead to a change in the demand for product A except . ( LO2 )a) a change in the price of product Ab) a change in people’s taste for product Ac) a change in people’s
Changes in supply may be caused by changes in. ( LO5 )a) the cost of factors of productionb) the level of technologyc) the number of suppliersd) all of the abovee) none of the above
A shift in the supply curve for gasoline in the United States would result if . ( LO5 )a) people decided to travel more by automobileb) the OPEC nations decided to stop sales of crude oil to the
Change in which of the following would not quickly cause a shift in demand? ( LO2, 3 )a) Number of buyersb) Tastesc) Buyers’ perception of quality of productd) Incomee) Price
Goods for which demand is directly (positively)related to income are called . ( LO2 )a) substitute goodsb) complementary goodsc) inferior goodsd) normal goods
Practical Application: The American Medical Association announces that eating three apples a day will promote good health. How would this affect the demand for apples and the equilibrium price and
Practical Application: You’re moving into a new house one week from today. Checking the local newspaper and the phone book, you fi nd 10 movers. Each one of them gives you a quote at least $1,000
Why does the demand curve slope downward?
It has just been reported that Happy Smile toothpaste reduces your cavities by 70 percent, while whitening your teeth and freshening your breath. Using supply and demand curves, demonstrate the
Give one example from actual fi rms or industries for each of the factors that cause changes in supply. Draw a graph for each example showing what happens to price and quantity supplied.
Use examples from your own experience to illustrate (a) a change in demand; (b) a change in the quantity demanded. Draw a graph for each example showing what happened to prices.
Explain how the price of a good you buy is affected by changes in the prices of(a) substitute goods; (b) complementary goods.
Productivity has been rising by about 3 percent a year. By how much would real GDP need to rise to increase employment? ( LO2 )
If real GDP rose by 4 percent and the productivity rate rose by 2 percent, by how much would employment rise? ( LO2 )
Given the information in Table 1 , fi ll in Malthus’s predictions for the years 2025, 2050, and 2075. ( LO7 ) TABLE 1 Year Food Production 1 2000 2025 2050 2075 Population 1

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