At a price of $8 in the above figure, there is
A. A surplus of 200 units.
B. A shortage of 200 units.
C. A surplus of 400 units.
D. A shortage of 400 units.
At a price of $2 in the above figure, there is
A. A surplus of 400 units.
B. A shortage of 500 units.
C. A surplus of 500 units.
D. A shortage of 400 units.
If a 10 percent increase in the price of a book will decrease the quantity of book
demanded by 20 percent, the demand for book is ________.
A. Inelastic
B. elastic
C. unit elastic
D. perfectly elastic
If the demand for a good is perfectly elastic, the price elasticity of demand is
________ and the demand curve is ________.
A. infinite; horizontal
B. zero; vertical
C. zero; horizontal
D. infinite; vertical
Consumer equilibrium occurs when a consumer has allocated all available income
in such a way that, given the prices of goods and services,
A. total utility is maximized.
B. total utility per dollar is maximized.
C. marginal utility is maximized.
D. marginal utility per dollar is maximized.
Total utility is maximized when a consumer has spent all of his or her income and
A. spent equal amounts on all goods.
B. marginal utility is maximized.
C. the total utility per dollar from all goods is equal.
D. the marginal utility per dollar from all goods is equal.
Total utility describes
A. The benefit gained from all consumption.
B. An increase in consumption multiplied by the gain in utility.
C. Total consumption multiplied by marginal utility.
D. Total consumption divided by marginal utility.
Marginal utility measures the
A. Total utility from consumption.
B. Additional utility from an additional unit of consumption.
C. Average utility from an additional unit of consumption.
D. Additional cost of an additional unit of consumption.
Cookies
Homer's total
(pounds per week)
utility
0
0
1
5
2
8
3
12
4
14
5
15
The above table gives the total utility that Homer obtains from consuming various
quantities of chocolate cookies. The marginal utility from the fifth pound of cookies
is:
A. 1.
B. 2.
C. 3.
D. 15.
Quantity of
gasoline
1
2
3
4
5
6
Marginal
utility from
gasoline
35
25
16
10
5
4
Quantity of
hamburgers
1
2
3
4
5
6
Marginal
utility from
hamburgers
20
18
17
10
8
7
Given the data in the above table, a price of $1 for a gallon of gasoline and $2 for a
hamburger, what is the marginal utility per dollar spent on gasoline when the
consumer is in quantity 3?
A. 20 units
B. 10 units
C. 5units
D. 16 units
Because toothpaste and toothbrushes are complements, the ____________ elasticity
of demand is ______________.
A. income; positive
B. cross; negative
C. cross; positive
D. income; negative
In the above figure, which demand curve illustrates perfectly inelastic demand?
A. G
B. H
C. I
D. J
The automobile market faces a situation where the demand of new vehicles is 5
million per annum. The companies are produced 10 million cars a year. This type of
market is considered to be:
A. at Surplus
B. at Equilibrium
C. at Shortage
D. about to produce new cars
The price elasticity of demand measures
a. how often the price of a good changes
b. how often the quantity of a good changes
c. the responsiveness of the quantity demanded to changes in price
d. None of the above.
The calculated price elasticity of demand sign is:
a. Always = 0
b. Always = +
c. Always = –
d. Always = + or –
The calculated price elasticity of supply sign is:
e. Always = 0
f. Always = +
g. Always = –
Always = + or –
In the above figure, which demand curve illustrates perfectly elastic demand?
a. G
b. H
c. I
d. J
Total revenue for a good is at a maximum when the price elasticity of demand is
a. Between 0 and 1.
b. 1.
c. Greater than 1.
d. 0.
Total revenue for a good will be increased when the price of the good increase if the
demand of that good is
a. elastic.
b. inelastic.
c. unit elastic.
d. perfectly elastic
The price elasticity of demand depends on the
a. Proportion of consumers' budgets spent on the good.
b. Number of available substitutes.
c. The time elapsed since a price change.
d. all of the above
The price elasticity of demand for Al-Baik is 4. If the price of a box of Al-Baik increased
by 2%, the quantity demanded will ___________________.
a. decrease by 8%
b. decrease by 0.5%
c. increase by 8%
d. decrease by 2%
If the cross elasticity of demand between goods X and Y is positive and between goods
X and Z is negative, then X and Y are ______________ and X and Z are
________________.
a. price inelastic; complements
b. price inelastic; income elastic
c. substitutes; complements
d. complements; substitutes
Ricky is in consumer equilibrium. Given the prices of goods, Ricky has allocated all his
income such that his marginal utility per dollar spent is ___________for _______ goods.
a. maximized; essential
b. equal; all
c. equal; normal
d. maximized, all
Blue pens and black pens are close substitutes. The cross elasticity of demand for black
pens with respect to the price of blue pens is ________________.
a. equal to 1
b. zero
c. positive
d. negative
Let MUa and MUb stand for the marginal utilities of apples and banana. Let Pa and Pb
stand for their prices. The general necessary condition for consumer equilibrium is
a) MUa = MUb.
b) MUa = MUb and Pa = Pb.
c) MUa/Pa = MUb/Pb.
d) MUa/MUb = Pb/Pa.
People buy more of goods when the income decrease. The goods are
a) Complements.
b) Substitutes.
c) Normal goods.
d) Inferior goods.
When a market is in equilibrium,
a) there is shortage
b) there is no shortage and no surplus at the equilibrium price.
c) the number of buyers is exactly equal to the number of sellers.
d) there is surplus
Answer the Following with True or False and Correct the Underlined Part in
if it is False:
The satisfaction that a person receives from consuming a good or service is called utility.
(True/False)
When both the demand for a good increases and the supply of the good increases, the equilibrium
quantity definitely increases. (True/False)
The less the substitutes for a good or service, the more elastic are the demand for it. (True/False)
(correction: less elastic)
In the market for chocolate, if the demand decreases while the supply increases, the price definitely
falls but the quantity indeterminate. (True/False)
On a straight vertical demand curve, we can say that the Price Elasticity of Demand is perfectly
elastic. (True/False) (correction: perfectly inelastic)
If the change in price is greater than the change in quantity demanded, then the price elasticity of
demand is less than one and the good has elastic demand. (True/False) (correction: inelastic)
The total revenue does not change for the Unit elastic demand. (True/False)
The price elasticity of demand measures the responsiveness of the quantity demanded to changes in
income. (True/False) (correction: price)
Demand tends to be elastic at higher prices and inelastic at lower prices. (True/False)
A price below the equilibrium price results in a shortage. (True/False)
The principle of diminishing marginal utility means a decrease in marginal utility as the
quantity of the good consumed increases. (True/False)
If total revenue decrease with the decrease in price when demand is elastic. (True/False)
(correction: increase)
The cross elasticity of demand for a substitute is negative and for a complement is positive.
(True/False) (correction: positive, negative)
Problem Solving
The quantity demanded for Pepsi has been increased from 100 units to 150 units due to increase
your family income from SR5000 to SR 6000. Calculate income elasticity of demand.
%Qd
Answer: Income elasticity of demand = -----------------------------% I
150 - 100
Here %Qd = --------------------- X 100 = 40
(150+100)/2
6000 - 5000
Here % I = --------------------- X 100 = 18.18
(6000+5000)/2
40
So Income elasticity of demand = --------------- = 2.2
18.18
Quantity of
Al-Baik
1
2
3
4
5
6
Marginal
utility from
Al-Baik
(MU)
35
25
16
10
5
4
Total utility
from Al-Baik
(TU)
35
60
76
86
95
Given the data in the above table, a price of $10.00 for a box of Al-Baik, Calculate the marginal
utility per dollar spent on the 4th Al-baik.
Answer:
Marginal utility per dollar spent on the
4th
MUAl-Baik
10
Al-baik = ---------------- = ------------- = 1
PAl-Baik
10
Given the data in the above table, Calculate the total utility from 5 boxes of Al-baik.
Answer: Total utility from 5 boxes of Al-baik = MU1 + MU2 + MU3 + MU4 + MU5
= 35 + 25 + 16 + 10 + 5 = 91
Quantity of
Al-Baik
1
2
3
4
5
6
Marginal
utility from
Al-Baik
(MU)
35
25
10
5
4
Total utility
from Al-Baik
(TU)
35
60
76
86
95
Given the data in the above table, Calculate the Marginal utility from 3rd box of Al-baik.
Answer: Marginal utility from 3rd box of Al-baik = TU (from 3 boxes) – TU (from 2 boxes)
= 76 - 60 = 16