Suppose Bill gets a pay raise of 10%, and he decides he from now on, he will purchase 5% less canned tuna. What can we say about Bill and his preference for canned tuna?
A) Canned tuna is an inferior good for Bill
B) Canned tuna is a necessity good for Bill
C) Canned tuna is a luxury good for Bill
D) Canned tuna is an elastic demand good for Bill
E) Canned tuna is an inelastic demand good for Bill
Suppose the price of a filet mignon at Texas Roadhouse is $20. When Michael’s income was $5,000 per month, his monthly demand for filets was Q = 15 – 0.25P. When Michael got a pay raise and began to earn $6,000 per month, his demand shifted outward to Q = 20 – 0.25P. Given this information, find Michael’s income elasticity (EI) for filets.
Suppose there is an increase in supply (rightward shift in supply). Consider two graphs. In Graph [X], demand is relatively inelastic. In Graph [Y], demand is relatively elastic. Which of the following is true? Drawing graphs will help.
A) The change in Q* will be relatively smaller in Graph [X] compared to Graph [Y]
B) The change in Q* will be relatively larger in Graph [X] compared to Graph [Y]
C) The change in P* will be relatively smaller in Graph [X] compared to Graph [Y]
D) The change in P* will be relatively larger in Graph [X] compared to Graph [Y]
E) both answers [A] and [D] are true
F) both answers [B] and [C] are true
For the next four questions, drawing a graph will be very helpful. Suppose you have a demand function given by: Q = 100 ‒ 2P. What is the price elasticity of demand when the price is P = $20? You will have to use the point elasticity formula.
A) ‒ 0.1666
B) ‒ 0.333
C) ‒ 0.666
D) ‒ 1.5
E) ‒ 3
Suppose you have a demand function given by: Q = 800 ‒ 4P. What is the price elasticity of demand when the price is P = $120? You will have to use the point elasticity formula.
A) ‒ 0.25
B) ‒ 0.666
C) ‒ 1
D) ‒ 1.5
E) ‒ 4
Suppose you have a demand function given by: Q = 1600 ‒ 4P. What is the price at which demand elasticity is unit elastic? Hint: You can just find the midpoint!
A) P = $2
B) P = $4
C) P = $1600
D) P = $200
E) P = $800
Suppose an industry is monopolized, and the demand for the product sold by the firm is given by: Q = 200 ‒ 4P. At what price range should the monopoly firm raise the price in order to increase revenues?
A) at prices greater than $20
B) at prices greater than $4
C) at prices less than $25
D) at prices less than $200
I have posted some articles in the Current Assignments folder along with this homework. Look at the article “Are Wal-Mart Goods Normal?” During the year 2008, we see that Wal-Mart stock price increased during the year 2008, which was the year that the recent recession began. What specifically does this particular situation tell us about consumer behavior?
A) People tend people purchase more inferior goods when the prices of normal goods increase
B) People tend to buy more inferior goods when income is lower or uncertain
C) People generally buy less normal goods when incomes are higher
D) People generally feel that inferior goods and normal goods are substitutes for each other
E) People are generally stock-market savvy and invested in Wal-Mart before the recession
Look at the article “Saved by Sin Taxes” to answer this question. According to the article, a study by Saffer and Chaloupka estimated that the price elasticity of demand for alcohol is:
A) ‒ 0.43
B) ‒ 0.43%
C) + 0.43
D) ‒ 2.33
E) ‒ 2.33%
Look at the article “Saved by Sin Taxes” to answer this question. According to the article, a study by Saffer and Chaloupka found that alcohol and marijuana are _____________ goods.
Look at the article “Saved by Sin Taxes” to answer this question. According to the article, a study by Saffer and Pacula, what is true about elasticity with regards to smoking?
A) White men are relatively more elastic than black men when it comes to cigarette price increases.
B) Black men are relatively more elastic than white men when it comes to cigarette price increases.
C) Women of both races are more elastic than men when it comes to cigarette price increases.
D) both B and C are correct
The term marginal means
The utility that people experience from the consumption of a good depends on
A) their income level.
B) their tastes and preferences.
C) total sales of the good.
D) how much shopping time they spent obtaining the good.
A rational consumer will NEVER purchase a product when
A) marginal utility is negative.
B) total utility is increasing at a decreasing rate.
C) marginal utility is decreasing.
D) total utility is increasing at an increasing rate.
E) it will cause you to spend all of your money
F) marginal utility per dollar is less than one
Which of following is necessarily true regarding total utility (TU) and marginal utility (MU)?
A) Diminishing MU implies negative MU
B) If MU is diminishing it means that TU is decreasing
C) If MU is negative it means that TU is increasing
D) Most people generally exhibit the same TU and MU functions for similar goods
E) None of the above
Which of following situations is most likely to cause negative marginal utility?
A) studying too much for an exam
B) eating too much food at a buffet
C) owning too many pairs of shoes
D) eating inferior goods
E) owning a very old vehicle
Which of following is true about utility and consumption?
A) we would expect to never see a rational person continue to consume while he is experiencing diminishing marginal utility
B) eating inferior goods such as SPAM will cause negative marginal utility
C) people generally have similar preferences in making their consumption choices
D) all of the above
E) none of the above
Mike and Lauren have decided to stop studying economics and get a bite to eat. Mike wants to go for a pizza and Lauren wants a hamburger. They decide to go for pizza. What can we conclude from this?
A) Mike always gets more utility from pizza than Lauren does
B) Lauren gets less utility from pizza than she could have got from a hamburger
C) Lauren will get negative utility from the pizza
D) Utility analysis does not work here since Lauren did not choose her preferred good
When Stephanie increases the consumption of pizza and decrease the consumption of soda, her marginal utility of
A) pizza falls and the marginal utility of soda will increase.
B) both pizza and soda will decrease.
C) pizza increases and the marginal utility of soda will fall.
D) both pizza and soda will increase.
Suppose Katie has the option to buy a shirt or buy a pair of pants. Suppose Katie purchases a pair of pants. Consider the following statements:
I: Katie’s total utility increases
II: Katie’s marginal utility of shirts increases
III: Katie’s marginal utility of shirts decreases
IV: Katie’s marginal utility of pants increases
V: Katie’s marginal utility of pants decreases
VI: Katie’s total utility decreases
Choose the best answer below.
A) Only statements I, II, and V are true
B) Only statements III and VI are true
C) Only statements II and V are true
D) Only statements I and II are true
E) Only statements I and V are true
F) Only statements I, II, and IV are true
G) Only statements I and III are true
H) Only statements I, III, and V are true
Food and drink vending machines dispense one item when a consumer pays. However, newspaper vending machines often allow the consumer to open the box after paying, thus giving the consumer access to dozens of newspapers he didn’t pay for. What is the most likely explanation for this?
A) Society view snacks from vending machines as contributing to obesity, so we want to design vending machines to discourage consumption
B) It is impossible to design a newspaper vending machine that just dispenses one newspaper
C) Society views informed citizens as creating positive externalities, so we want to give away newspapers for free
D) The marginal utility of a second newspaper is extremely low, so it is unlikely that a consumer will grab more than one newspaper
Refer to the above tables. Assume the consumer spends his entire income. The price of a hamburger is $1, the price of a movie is $6, and the consumer has $15. What is the consumer's optimum?
A) 0 hamburgers and 2.5 movies
B) 2 hamburgers and 2 movies
C) 3 hamburgers and 2 movies
D) 4 hamburgers and 4 movies
Refer to the above tables. Assume the consumer spends his entire income. Assume that the price of a hamburger is $1. If the consumer's optimum at the current price of a movie is at 4 hamburgers and 4 movies, what is the consumer's income and the price of a movie?
A) Income = $17, Price of Movie = $3
B) Income = $20, Price of Movie = $4
C) Income = $28, Price of Movie = $4
D) Income = $28, Price of Movie = $7
Initially, a consumer is at an optimum in purchasing goods X and Y. Then the price of X decreases. Consequently, which statement is true after the price change?
A. Mux/Px < MUy/Py
B. Mux/Px> MUy/Py
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