MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

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1 Midterm II ECO Spring2014 Name R# MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Hector has $1,000 a month to spend on clothing and food. The price of clothing is $50 and the price of food is $20. The clothing and food pairs in Hector's choice set include units of clothing and units of food. A) 20; 50 B) 8; 30 C) 15; 25 D) 50; 50 1) Refer to the information provided in Figure 6.2 below to answer the questions that follow. Figure 6.2 2) Refer to Figure 6.2. Assume Mr. Lingle is on budget constraint AC. If the price of a gardenburger is $5, Mr. Lingle's monthly income is A) $8. B) $150. C) $200. D) $240. 2) 3) Refer to Figure 6.2. Assume Mr. Lingle's budget is AC. At which point does Mr. Lingle spend exactly his income? A) A. B) B. C) C. D) All of the above are correct. 3) 4) Refer to Figure 6.2. Assume Mr. Lingle's budget constraint is AC. He will have leftover income if he purchases the bundle represented by point A) A. B) B. C) E. D) D. 4) 5) Refer to Figure 6.2. Along budget constraint AC, the opportunity cost of one gardenburger is 5) A) 1/4 of a beer. B) 1 beer. C) 2 beers. D) changing as Mr. Lingle moves down his budget constraint. 1

2 Refer to the information provided in Figure 4.6 below to answer the questions that follow. Equilibrium in this market occurs at the intersection of curves S and D. Figure 4.6 6) In figure 4.6, consumer surplus changes by the area [E - C] if price goes from equilibrium to 6) A) P1. B) P3. C) < P1. D) > P3. 7) In figure 4.6, producer surplus changes by the area [E + F] if price goes from equilibrium to 7) A) P1. B) P3. C) < P1. D) > P3. 8) In figure 4.6, consumer surplus is area [A + B + E] if price is 8) A) P1. B) P2. C) P3. D) above P3. 9) When the price of radios increases 15%, quantity demanded decreases 15%. The price elasticity of demand for radios is, and total revenue from radio sales will. A) inelastic; decrease B) unit elastic; not change C) elastic; increase D) elastic; decrease 9) 10) When the price of tea increases 7%, quantity demanded decreases 12%. The price elasticity of demand for tea is, and total revenue from tea sales will. A) inelastic; decrease B) elastic; decrease C) elastic; increase D) inelastic; increase 10) 11) At a price of $8, quantity supplied is 200; and at a price of $12, quantity supplied is 240. Using the midpoint formula, the price elasticity of supply is and supply is. A) 0.1; inelastic B) 0.45; inelastic C) 10; elastic D) 2.2; elastic 11) 12) The All Smiles Greeting Card Company wants to increase the quantity of greeting cards it sells by 10%. If the price elasticity of demand is -2.5, the company must A) increase price by 0.25%. B) decrease price by 0.25%. C) decrease price by 4.0%. D) increase price by 4.0%. 12) 2

3 Refer to the information provided in Figure 4.4 below to answer the questions that follow. Figure ) Refer to Figure 4.4. The United States will import 2 million barrels of oil per day if a per barrel tax is levied on imported oil. A) $25 B) $50 C) $100 D) $150 13) 14) Refer to Figure 4.4. At the world price of per barrel of oil, the United States imports 6 million barrels of oil per day. A) $100 B) $125 C) $150 D) >$150 14) 15) A firm is currently producing in the elastic portion of its demand curve. What course of action do you recommend for it, assuming it wants to raise revenue? A) Continue selling at the same price, but increase the amount it produces. B) Continue producing at the current output level, because it maximizes its total revenue by producing in the elastic portion of its demand curve. C) Reduce price, because if it reduces price and demand is elastic, total revenue will increase. D) Increase price, because if it increases price and demand is elastic, total revenue will increase. 15) 16) An example of an effective price ceiling would be the government setting the price of wheat at per bushel when the market price is at $4.25 per bushel. A) $3.75 B) $5.00 C) $7.75 D) $ ) 17) When there are fewer substitutes for a product, the for the product is. 17) A) demand; more price elastic B) income elasticity; greater C) income elasticity; smaller D) demand; less price elastic 18) A government-imposed maximum price will have no economic impact if 18) A) it is at or below the equilibrium price. B) there is a fixed supply of the good. C) it is above the equilibrium price. D) it is below the equilibrium price. 19) The price elasticity of demand for bottled water in New York is -3, and the price elasticity of demand for bottled water in Florida is In other words, demand in New York is, and demand in Florida is. A) inelastic; elastic B) elastic; inelastic C) elastic; unit elastic D) inelastic; unit inelastic 19) 3

4 Refer to the information provided in Figure 5.3 below to answer the questions that follow. Figure ) Refer to Figure 5.3. Use the midpoint formula. If the price of a gardenburger decreases from $10 to $8, the price elasticity of demand equals and demand is. A) -4.5; elastic B) -9.0; inelastic C) 4.5; elastic D) -0.5; inelastic 20) 21) Refer to Figure 5.3. Use the midpoint formula. If the price of a gardenburger decreases from $8 to $6, the price elasticity of demand equals, and demand is. A) -2.0; elastic B) -1.9; inelastic C) -0.57; inelastic D) -1.75; elastic 21) Refer to the information provided in Figure 5.4 below to answer the questions that follow. Figure ) Refer to Figure 5.4. The demand for milkshakes is unit elastic at Point C. If the milkshake price rises from P2 to P1, total revenue will A) decrease. B) increase. C) remain constant. D) either increase or decrease. 22) 4

5 23) The income elasticity of demand for low-quality beef is -2. Thus, an 5% decrease in the quantity of low-quality beef demanded A) is the result of an increase in income of 10%. B) is the result of a decrease in income of 2.5%. C) is the result of an increase in income of 2.5%. D) is unrelated to any change in income. 23) Refer to the information provided in Figure 3.12 below to answer the questions that follow. Figure ) Refer to Figure 3.12 The market is initially in equilibrium at Point A. If demand shifts from D1 to D2, the equilibrium price will change from and the equilibrium quantity will change from. A) $3.00 to $4.00; 250 to 350 B) $4.00 to $3.00; 350 to 250 C) $4.00 to $3.00; 250 to 350 D) $3.00 to $4.00; 350 to ) 25) Refer to Figure The market is initially in equilibrium at Point A. If demand shifts from D1 to D2 and there is an excess demand of 150 million pounds of burritos, the price of burritos would be A) $1.50. B) $3.00. C) $4.00. D) $ ) 26) Which of the following will definitely occur when there is a simultaneous increase in demand and an increase in supply? A) an increase in equilibrium price B) a decrease in equilibrium quantity C) a decrease in equilibrium price D) an increase in equilibrium quantity 26) 27) Demand determines entirely when is perfectly inelastic. 27) A) price and quantity; demand B) price; supply C) quantity; supply D) price and quantity; supply 28) The owner of a local pretzel cart has estimated that if he lowers the price of pretzels from $4.00 to $3.00, he will increase sales from 800 to 1,000 pretzels per day. Using the midpoint formula, the demand for pretzels is A) inelastic. B) elastic. C) unit elastic. D) perfectly elastic. 28) 5

6 Refer to the information provided in Figure 5.6 below to answer the question that follows. Figure ) Refer to Figure 5.6. The market is initially in equilibrium at Point A and supply shifts from S1 to S2. Which of the following statements is true? A) Price will still serve as a rationing device causing quantity demanded to fall from 12 to 10 pizzas. B) Price will still serve as a rationing device causing quantity supplied to exceed 12 pizzas. C) There is no need for price to serve as a rationing device in this case because the new equilibrium quantity exceeds the original equilibrium quantity. D) The market cannot move to a new equilibrium until there is also a change in supply. 29) Refer to the information provided in Figure 6.3 below to answer the questions that follow. Figure ) Refer to Figure 6.3. Molly's budget constraint is AB. It would swivel to AD if the price of 30) A) CDs decreased. B) cassette tapes increased. C) CDs increased. D) cassette tapes decreased. 6

7 31) Refer to Figure 6.3. Molly's budget constraint is AB. Molly can purchase 31) A) none of the points along AC. B) none of the points along AD. C) all of the points along AC. D) none of the above. Refer to the information provided in Figure 4.2 below to answer the questions that follow. Figure ) Refer to Figure 4.2. The market is initially in equilibrium at the intersection of S2 and D, and supply shifts from S2 to S1. Which of the following statements is true? A) There is no need for price to serve as a rationing device in this case because the new equilibrium quantity is lower than the original equilibrium quantity. B) The market cannot move to a new equilibrium until there is also a change in supply. C) Price will still serve as a rationing device causing quantity demanded to rise from 8 to 11 soft pretzels. D) Price will still serve as a rationing device causing quantity supplied to fall from 8 to 4 soft pretzels. 32) 33) Ricardo eats 20 pieces of sushi on a Friday night but admits each piece of sushi doesn't taste as good as the previous one. This suggests that for Ricardo, the A) total utility of pieces of sushi is declining. B) total utility of pieces of sushi is increasing by larger and larger increments. C) marginal utility of a piece of sushi is negative. D) marginal utility of a piece of sushi is positive but decreasing. 33) 34) Daisy is consuming X and Y so that she is spending her entire income and MUx/Px = 12 and MUy/Py = 10. To maximize utility, she should A) consume less of both X and Y. B) consume less X and more Y. C) consume more X and less Y. D) continue to consume the same amount of X and Y since she is already maximizing utility. 34) 35) Geneva is spending her entire income on goods X and Y. Her marginal utility from the last units of X and Y that she consumes is 36. Geneva's utility is only maximized if A) the prices of X and Y are the same. B) the price of good Y is twice that of good X. C) the price of good X is twice that of good Y. D) We cannot determine whether Geneva is maximizing her utility. 35) 7

8 Refer to the information provided in Table 6.1 below to answer the questions that follow. Dozens of Oysters per Day Table 6.1 Total Utility Marginal Utility Number of Beers per Day Total Utility Marginal Utility ) Refer to Table 6.1. The marginal utility of the second dozen oysters per day is 36) A) 20. B) 30. C) 44. D) ) Refer to Table 6.1. The total utility of five dozen oysters per day is 37) A) 152. B) 160. C) 192. D) indeterminate from this information. 38) Refer to Table 6.1. If the price of a beer is $4, the price of a dozen oysters is $12, and Tyler has $28 of income, Tyler's utility maximizing combination of beers and oysters per day is A) 1 beer and 2 dozen oysters. B) 3 beers and 1.5 dozen oysters. C) 4 beers and 1 dozen oysters. D) indeterminate from this information. 38) Refer to the information provided in Table 3.1 below to answer the questions that follow. Price per Pizza Table 3.1 Quantity Demanded (Pizzas per Month) Quantity Supplied (Pizzas per Month) $3 1, , ,000 39) Refer to Table 3.1. This market will be in equilibrium if the quantity of pizzas supplied per month is 39) A) 700. B) 750. C) 800. D) ) Refer to Table 3.1. If the price per pizza is $6, there is a(n) 40) A) excess supply of 700 units. B) excess demand of 200 units. C) excess demand of 300 units. D) excess supply of 1,000 units. 8

9 Answer Key Testname: UNTITLED1 1) B 2) C 3) D 4) C 5) B 6) A 7) A 8) A 9) B 10) B 11) B 12) C 13) A 14) B 15) C 16) A 17) D 18) C 19) B 20) A 21) D 22) A 23) C 24) A 25) B 26) D 27) B 28) A 29) A 30) D 31) D 32) C 33) D 34) C 35) A 36) C 37) B 38) C 39) C 40) C 9

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