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The correct answer is (a), which corresponds to the best alternative foregone. Note that the definition of opportunity costs does not yet embrace individual rationality.

 

 

6. Vasya Pupkin studies microeconomics. He makes three statements:

 

I. A good is defined to be inferior if price and quantity demanded of the good move in the same direction.

II. Higher consumer incomes always benefit producers.

III. An inferior good is less durable[1] than a luxury good

 

Which statements are correct?

 

(a) I only

(b) II only

(c) III only

(d) II and III only

(e) All statements are wrong

 

The correct answer is (e). (I) is wrong because that is definition of Giffen good. (II) is wrong when the good is inferior. (III) is wrong because less durability doesn’t necessarily imply inferiority.

 

7. If the absolute value of income elasticity for a good is greater than 1, it must be:

(a) A Giffen good

(b) An inferior good

(c) A luxury good

(d) A normal good

(e) No true answer

 

The correct answer is (e). The income elasticity of the good in question can be both <-1 or >1, since we are talking about the absolute value, and none of these goods match this description. However, since luxury goods satisfy this partially by having income elasticity >1, this answer will also be accepted.

 

8. The competitive market for gasoline is currently in equilibrium. Which of the following would most likely increase the price of gasoline?

(a) A decrease in household income

(b) Improvement in gasoline production technology

(c) A decrease in the price of subway tickets and other public transportation

(d) An increase in the price of crude oil

(e) An increase in the price of car insurance

 

The correct answer is (d), since crude oil is an input is gasoline production.

 

9. A consequence of a binding price floor is:

(a) A persistent shortage of the good

(b) An increase in total welfare

(c) A persistent surplus of the good

(d) Elimination of deadweight loss

(e) An increase in quantity demanded and a decrease in quantity supplied

 

The correct answer is (c), since producers would want to supply more of the good than the buyers would be willing to purchase at the price that is above the equilibrium price.

 

10. Suppose good X is inferior (but not Giffen). If consumers’ incomes rise, and technology for producing good X improves, then, given the usual shape of the supply and demand curves:

(a) Price of good X will increase

(b) Price of good X will decrease

(c) Equilibrium quantity of good X will increase

(d) Equilibrium quantity of good X will decrease

(e) Nothing can be said for sure

 

The correct answer is (b), the equilibrium price will decline in response to lower demand and higher supply.

 

11. When the price of popsicles rose from $10 to $11, consumer expenditures on them dropped by 10%, indicating that:

(a) Demand for popsicles had a price elasticity of -1

(b) Demand for popsicles was price-elastic

(c) Popsicles are a normal good



(d) Popsicles are an inferior good

(e) More than one answer is correct

 

The correct answer is (b). The price elasticity is greater than 1 (in absolute value) because the expenditures (price*quantity) drop by the same percentage amount as the percentage increase in price. For that too be the case, the quantity demanded should decrease by more than 10%.

 

12. At a price of $10, Jane would buy 8 CDs. At a price of $12, Jane would buy 6 CDs. Her price elasticity of demand would then be:

(a) -1/2

(b) -11/7

(c) -5/4

(d) -5/8

(e) -4/5

 


Date: 2015-12-17; view: 734


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The correct answer is (e), by construction. | The correct answer is (b), by definition.
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