E. The student’s demand for books is unit price elastic.

Use the following to answer question 11:

11. Consider the diagram above. The student changes his optimal consumption bundle from point A on indifference curve U1 to point B on indifference curve U2. The best explanation for the change is:

A. As the price of FOOD decreased, the consumer consumed more FOOD;

B. As the price of BOOKS increased, the consumer purchased relatively more of them;

C. As the consumer’s nominal income increased, he or she purchased more of both goods;

D. As the price of BOOKS decreased, the consumer purchased more of them and still had sufficient income left over to increase the purchase of FOOD as well;

E. No true answer.

12. The slope of an indifference curve at any point is equal to:

A. The slope of the budget constraint

B. The ratio of the marginal utility of the good on the horizontal axis to that of the good on the vertical axis;

C. The total value placed on the two goods listed on the axes;

D. The marginal opportunity cost of obtaining an additional unit of either of the goods listed on the axes;

E. The ratio of the marginal utility of the good on the vertical axis to that of the good on the horizontal axis.

13. The substitution effect for a good involves:

A. As income decreases, people shift toward decrease in consumption of this good;

B. As price increases, people adjust their consumption to consume more of the other goods;

C. As price increases, people consume more of this good;

D. As income decreases, people shift toward cheaper goods;

E. As price decreases, people adjust their consumption to consume more of the good, but only if it is normal.

14. Define Marginal utility as:

A. The addition utility a consumer gets from consuming an additional unit of a good;

B. The utility a consumer gets from the first unit of a good consumed;

C. The change in total utility resulting from a one unit change in quantity consumed;

D. All of above;

E. (A) and (C);

15. Suppose that a per unit tax is imposed on the suppliers of a good and its supply curve is upward sloping. If the price elasticity of demand for the good is zero, the tax will:

A. Increase the equilibrium price of the good;

B. Reduce the equilibrium price of the good;

C. Reduce the equilibrium quantity of the good;

D. Increase the equilibrium quantity of the good;

E. Both (A) and (C).

16. It is known that the price elasticity of demand for good X in the market equilibrium is - 0,5, while the price elasticity of supply is 1. A per unit subsidy of $1 is introduced in this market. Then:

A. Producers’ price will increase by 50 cents and consumers’ price will decrease by 50 cents;

B. Producers will get 2/3 of the subsidy, consumers will get 1/3 of it;

C. Producers will get 1/3 of the subsidy, consumers will get 2/3 of it;

D. Both producers and consumers will get half of the subsidy;

E. (A) and (D) are true.

17. Suppose that market demand for firm A’s product is described by the following schedule:

Price Quantity demanded

$5.00 20

$4.00 40

$3.00 60

$2.00 90

$1.00 100

Judging by the information above, changing the price from $5.00 to $4.00 would make total revenue…

A. Increase by $160

B. Increase by $100

C. Increase by $60

D. Decrease by $700

E. Decrease by $300

18. If an increase in the price of spicks increases the demand for spacks, then these two goods are:

A. Inferior goods

B. Substitutes

C. Normal goods

D. Complements

E. Independent goods

19. The shape of a typical downward-sloping demand curve could be theoretically explained by:

A. Substitution effect – the cheaper the good, the more other goods are replaced by it.

B. Income effect – the lower the price of a good, the bigger the real income – which is spent on all goods, including this one.

C. Diminishing marginal utility – the more of a good we consume, the lower the marginal utility of its last unit.

D. Diminishing MRS – the more of a good we consume, the lower the amount of money (and other goods) we are ready to sacrifice for another unit of it.

Date: 2015-12-17; view: 627