Ag Econ 1041
Quiz 4, 30 points
September 30, 2010
Name _________KEY_______________________
11 a.m. Section
The following questions are valued at five points each
1. When considering revenue curves:
a) MR = 0 when TR is at _a maximum_______________
b) MR > 0 when demand is _elastic________________
c) AR = __demand____________________
d) MR is the change in __TR_______________
e) P x Q = ___TR_______________
2. Gasoline prices increased recently as we drove less. Graph the situation described. Be
complete.
S1
S0
P1
P0
D
Q1
Q0
3. What do we know if:
a) % change in quantity is less than % change in price __inelastic (demand)__________
b) Income increased and Ey < 0 ___inferior good_______________
c) Price falls for an inelastic good _____TR ↓____________
d) Price rises for an elastic good __TR ↓________________
e) Price falls for a substitute ___D ↓_____________
4. Draw a demand curve and mark with an X a point where the MU/MC of this good is less than
the MU/MC of another choice.
P
X
0
D
Q
True/False – one point each
__T___ 5. Choosing an alternative with the lowest opportunity cost is equivalent to choosing
the alternative where marginal utility is greatest per dollar.
__F___ 6. Marginal benefit (utility) always increases as more of good is consumed.
__T___ 7. A firm’s production possibilities curve shows maximum combinations of goods that
can be produced with given resources and technology of that firm.
__T___ 8. A change in demand is illustrated by a new demand curve.
__T___ 9. When the relative price of yo-yos falls because of technological advances in yo-yo
production, we would expect people to buy more yo-yos.
__T___ 10. When both the supply and demand curves shift in the same direction, the direction
of quantity will be in the same direction as the shifting curves.
__T___ 11. Increasing opportunity cost occurs because some productive resources cannot be
easily adapted from production of one good or service, like steel manufacturing, to
another, like entertainment.
__T___ 12. The law of diminishing marginal utility is consistent with the consumer behavior
that produces a negatively sloped demand curve.
__T___ 13. Elasticity is a measure of the relative responsiveness of change in the quantity
demanded to a change in price.
__T___ 14. A price cut will increase the revenue a firm receives if the demand for its product is
elastic.