Review exercises on Ch 1_80 (1)

Review exercises on Ch 1_80 (1) - Some Exercises on Ch 1 to...

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Some Exercises on Ch 1 to 8. (Solutions at the end) 1. Michelle eats tortilla chips with salsa. If the price of tortilla chips falls, other things equal, what happens to Michelle’s demand for salsa? a. Michelle’s demand for salsa decreases b. Michelle’s demand for salsa increases c. Michelle’s demand remains the same d. Michelle’s demand could increase or decrease, depending on the price change 2. Suppose that due to terrorist attacks, there is more police activity increasing the costs of illegal drug trafficking. Also, suppose that people want to enjoy their lives faster and the demand for illegal drugs increases. As a result, on the illegal drug market equilibrium price ________ and quantity _________. (Please stick to the facts given in question and do not use any insider information.) a. increases, increases b. decreases, decreases c. price increases but change in quantity is ambiguous d. price decreases but change in quantity is ambiguous 3. Good A and good B are substitutes in production . The demand for good A decreases, which lowers the price of good A. The decrease in the price of good A a. decreases the supply of good B. b. increases the supply of good B. c. decreases the demand for good B. d. increases the demand for good B. 1. Mary sells used Dell computers in Rome. Mary believes that the demand curve is linear. The estimated own price elasticity for Dell’s used Pentium III desktop is -2.5. The current quantity demanded is 50 used Dell Pentium III desktops (per month) at a price of Euro 100 each. The monthly demand she infers from the above information is a. Q D =130-5P b. Q D =130+5P c. Q D =175+1.25P d. Q D =175-1.25P 2. Suppose the price of A is $2, the price of B is $3, and the consumer’s income is $50. Which of the following baskets is NOT on the consumer’s budget line? a. A=10, B=10 b. A=4, B=14 c. A=4, B=5 d. A=39/2, B=11/3 1
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6. Suppose AAA Airlines is suffering from low revenues and profits. The company wants to increase ticket revenue. The price elasticity of demand is -0.75. The company should: a. increase the price of tickets b. decrease the price of tickets c. keep the price unchanged because if the price is either increased or decreased total revenues will fall d. stop advertising. The only option the company has to raise total revenues is to stop advertising 7. Suppose that the marginal utility of good x is MU x =y and the marginal utility of good y is MU y =x. Further suppose that the consumer’s budget constraint can be expressed as 10x+40y=400. For this consumer, the optimal amount of good x to buy would be a. 5. b. 10 c. 20 d. 40. 8Consider the utility function U=min {2x,y}. To increase satisfaction the consumer must consume a. 2 extra units of x for each extra unit of y b. 2 extra units of y for each extra unit of x c. one extra unit of y for each extra unit of x d. at least 2 units of y 9. If x is an inferior good and the price of x falls a. the substitution effect will induce the consumer to purchase more x and
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This note was uploaded on 10/04/2011 for the course ECONOMICS 281 taught by Professor Vg during the Spring '09 term at University of Alberta.

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Review exercises on Ch 1_80 (1) - Some Exercises on Ch 1 to...

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