test bank to accompany -...

Test Bank to Accompany

Microeconomics Seventh Edition

by

Pindyck / Rubinfeld

Pearson Education

2009 8/12/2008

Contents Chapter1 Preliminaries ........................................................................................................................1

Chapter2 TheBasicsofSupplyandDemand..................................................................................16

Chapter3 ConsumerBehavior...........................................................................................................55

Chapter4 IndividualandMarketDemand...................................................................................125

Chapter5 UncertaintyandConsumerBehavior ...........................................................................179

Chapter6 Production ........................................................................................................................236

Chapter7 TheCostofProduction ...................................................................................................273

Chapter8 ProfitMaximizationandCompetitiveSupply ............................................................327

Chapter9 TheAnalysisofCompetitiveMarkets ..........................................................................375

Chapter10 MarketPower:MonopolyandMonopsony.................................................................438

Chapter11 PricingwithMarketPower ............................................................................................480

Chapter12 MonopolisticCompetitionandOligopoly ...................................................................528

Chapter13 GameTheoryandCompetitiveStrategy......................................................................565

Chapter14 MarketsForFactorInputs ..............................................................................................614

Chapter15 Investment,TimeandCapitalMarkets ........................................................................656

Chapter16 GeneralEquilibriumandEconomicEfficiency ...........................................................698

Chapter17 MarketswithAsymmetricInformation........................................................................743

Chapter18 ExternalitiesandPublicGoods......................................................................................787

Chapter1 Preliminaries

1) Microeconomicsisthebranchofeconomicsthatdealswithwhichofthefollowingtopics?A) ThebehaviorofindividualconsumersB) UnemploymentandinterestratesC) ThebehaviorofindividualfirmsandinvestorsD) BandCE) AandC

Answer: EDiff:1Section: 1.1

2) ARollingStonessonggoes:Youcantalwaysgetwhatyouwant.Thisechoesanimportantthemefrommicroeconomics.Whichofthefollowingstatementsisthebestexampleofthistheme?

A) Consumersmustmakethebestpurchasingdecisionstheycan,giventheirlimitedincomes.

B) Workersdonothaveasmuchleisureastheywouldlike,giventheirwagesandworkingconditions.

C) Workersinplannedeconomies,suchasNorthKorea,donothavemuchchoiceoverjobs.D) Firmsinmarketeconomieshavelimitedfinancialresources.

Answer: ADiff:1Section: 1.1

3) Economicsisabouttheallocationofscarceresources.WhichofthefollowingisNOTanexampleofeconomicscarcity?

A) IfStevegoestoseethemovieMasterandCommanderonSaturday,hewillnotbeabletoaffordbuyingicecream.

B) IfJennystudiesforhereconomicsquizthisevening,shewillnothavetimetowalkherdog.

C) IfGeneralMotorsincreasesitsproductionofSUVsthisyear,itwillhavetospendmoreonadvertising.

D) IfBordersBooksincreasesthenumberoftitlesitcarries,itwillhavetoreallocateshelfspacetoaccommodatethenewtitles.

Answer: CDiff:2Section: 1.1

4) Avalidandusefultheoryofgoldprices:A) helpstopredictthemovementsofgoldpricesovertime.B) maybefoundedonsimplifyingassumptions.C) neednotexactlypredicteverychangeingoldprices.D) alloftheaboveE) noneoftheabove

Answer: DDiff:1Section: 1.1

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5) Usethefollowingtwostatementstoanswerthisquestion:I. Economictheoriesaredevelopedtoexplainobservedphenomenabydeducingfromasetofbasicrulesandassumptions.II. Economictheoriesusevaluejudgmentstodeterminewhichpeopleoughttopaymoretaxes.

A) BothIandIIaretrue. B) Iistrue,andIIisfalse.C) Iisfalse,andIIistrue. D) BothIandIIarefalse.

Answer: BDiff:1Section: 1.1

6) Whichofthefollowingisapositivestatement?A) ThePresidentoftheUnitedStatesoughttobeelectedbyadirectvoteoftheAmerican

peopleratherthantheElectoralCollege.B) Afundamentalassumptionoftheeconomictheoryofconsumerbehavioristhat

consumersalwayspreferhavingmoreofanygoodtohavinglessofit.C) Becausemanyadultscannotaffordtogotocollege,taxcreditsfortuitionshouldbe

introduced.D) alloftheaboveE) noneoftheabove


7) Whichofthefollowingisanormativestatement?A) Thetaxespaidbythepoorshouldbereducedinordertoimprovetheincome

distributionintheU.S.B) Stategovernmentsshouldnotsubsidizecorporationsbytrainingwelfarerecipients.C) Presidentialcandidatesshouldnotbegivenfundsfromthefederalgovernmenttorun

campaigns.D) TheseaottershouldnotbeallowedtospreadintoSouthernCaliforniacoastalwaters,

becauseitwillreducethevalueoffisheries.E) alloftheabove


8) Whichofthefollowingisapositivestatement?A) Intermediatemicroeconomicsshouldberequiredofalleconomicsmajorsinorderto

buildasolidfoundationineconomictheory.B) Theminimumwageshouldnotbeincreasedbecausethisactionwouldincrease

unemployment.C) Smokingshouldberestrictedonallairlineflights.D) Allautomobilepassengersshouldberequiredtowearseatbeltsinordertoprotectthem

againstinjury.E) noneoftheabove


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9) Whichofthefollowingisapositivestatement?A) Whenthepriceofagoodgoesup,consumersbuylessofit.B) Whenthepriceofagoodgoesup,firmsproducemoreofit.C) WhentheFederalgovernmentsellsbonds,interestratesriseandprivateinvestmentis

reduced.D) alloftheaboveE) noneoftheabove


10) Whichofthefollowingstatementsisfalse?Aneconomicanalysisofcarbontaxescan:A) calculatetheincreaseincostsfacedbycoal-usingindustries.B) predicttheeffectonunemploymentinWestVirginiacoalminingcommunities.C) comparethelikelyreductionsinmedicalexpendituresondiseasescausedbysmog.D) presentatrade-offofthecostsandbenefitsofdifferentlevelsofcarbontaxes.E) concludethatsuchtaxesshouldbeimposedtobenefitfuturegenerations.


11) Usethefollowingtwostatementstoanswerthisquestion:I. Inordertoanswernormativequestions,itisnecessarytomakevaluejudgments.II. Inordertoconductpositiveeconomicanalysis,itisalwaysnecessarytouseempiricalevidenceinadditiontoeconomictheories.

A) IandIIareincorrect. B) Iiscorrect,IIisincorrect.C) Iisincorrect,IIiscorrect. D) BothIandIIarecorrect.


12) __________ questionshavetodowithexplanationandprediction,__________ questionshavetodowithwhatoughttobe.

A) Positive;negative.B) Negative;normative.C) Affirmative;positive.D) Positive;normative.E) Econometric;theoretical.


13) Thekeyassumptionunderlyingthetheoryofthefirmisthat:A) firmsareassumedtomaximizesalesrevenue.B) managersareassumedtomaximizethenumberofemployeesintheirdepartment.C) firmsareassumedtomaximizeprofits.D) noneoftheabove


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14) WhichofthefollowingstatementsisNOTtrue?A) Thetrade-offsfacingconsumersandproducersarebasedonprices.B) Allpricesaredeterminedbymarketinteractionsbetweenbuyersandsellers.C) Pricesserveanimportantroleinmicroeconomics.D) OnlyAandBabovefalse.E) OnlyBandCabovearefalse.


15) Pleaseusethefollowingstatementstoanswerthisquestion:I. Theprocessoftestingandrevisingtheoriesiscentraltothedevelopmentofeconomicsasascience.II. Theoryisimperfectandmaynotadequatelydescribeeconomicbehaviorinsomecases.

A) IandIIaretrue. B) IistrueandIIisfalse.C) IisfalseandIIistrue. D) IandIIarefalse.


16) Thetrade-offsfacingconsumersinclude:A) howtoallocateincomeacrossgoodsandserves.B) howtoallocateincomebetweenconsumptionandsavings.C) bothAandBD) noneoftheabove


17) Thetrade-offsfacingworkersincludeallofthefollowingEXCEPT:A) decisiontoworkorremainoutsidetheworkforce.B) decisiontoworkorseekadditionaleducation.C) decisiontoworkforalargecorporationorasmallfirm.D) decisiontoallocatetheirtimebetweenworkandleisure.E) Alloftheabovearetrade-offsfacingworkers.


18) Firmsfacetrade-offsinproduction,includingdecisionsrelatedto:A) whichproductstoproduce.B) howmuchofaparticularproducttoproduce.C) thebestwaytoproduceagivenamountofoutput.D) alloftheabove


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19) Whichofthefollowingmarketshasthemostrestrictivegeographicboundary?A) Themarketforretailgasoline B) ThemarketforhousingC) Themarketforgold D) Themarketforbeef


20) AninvestorcanacquiresharesofstockinAcmeCorporationeitherbypurchasingsharesonthestockmarketorbypurchasingabondthatisconvertibleintosharesofAcmestock.Aftercarefulstudy,theinvestordiscoversthatshecanprofitbypurchasingthebond,convertingittosharesofstock,andsellingthestock.Thispracticeiscalled:

A) sellingshort.B) arbitrage.C) profiteering.D) dumping.E) noneoftheabove


21) Usethefollowingtwostatementstoanswerthisquestion:I. Amarketisacollectionofbuyersandsellersthat,throughactualorpotentialinteractions,determinethepriceforaproductorsetofproducts.II. Anindustryisacollectionofmarketsforsimilarorcloselyrelatedproducts.



22) Inaperfectlycompetitivemarket:A) thereareafewbuyers.B) thereisasingleseller.C) thereisacartel.D) nosinglebuyerorsellercansignificantlyaffectthemarketprice.


23) BoeingCorporationandAirbusIndustriesaretheonlytwoproducersoflong-rangecommercialaircraft.Thismarketisnotperfectlycompetitivebecause:

A) eachcompanyhasannualsalesover$10billion.B) eachcompanycansignificantlyaffectprices.C) AirbusreceivessubsidiesfromtheEuropeanUnion.D) AirbuscannotsellaircrafttotheUnitedStatesgovernment.E) alloftheabove


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24) Whichofthefollowingareexamplesofperfectlycompetitivemarkets?A) WheatB) TextilesC) GoldD) ThestockmarketE) alloftheabove


25) AlthoughtheU.S.airlineindustryhasonlyarelativelysmallnumberofsellers,themarketisneverthelesshighlycompetitive.Thereasonisthat:

A) thenumberofbuyersisverylarge.B) duetofiercecompetition,nofirmhassignificantcontroloverprices.C) duetofiercecompetition,nofirmhassignificantcontroloverthequantitysupplied.D) mostairlineroutesareservedbyrelativelymanysellers.


26) WashingtonD.C.smetrotrainsystemisbeingextendedfurtherintotheneighboringstatesofMarylandandVirginia,therebyreducingthecostofcommutingintotheUnitedStatescapital.Otherthingsbeingheldconstant,thiscanbeexpectedto:

A) decreasetheextentofthemarketforhousingaroundWashingtonD.C.B) increasetheextentofthemarketforhousingaroundWashingtonD.C.C) havenoeffectontheextentofthemarketforhousingaroundWashingtonD.C.asthe

actualgeographyremainsunchanged.D) havenoeffectontheextentofthemarketforhousingaroundWashingtonD.C.asthe

rangeofhousesavailablehasnotchanged.E) havenoeffectontheextentofthemarketforhousingaroundWashingtonD.C.as

propertytaxeshavenotchanged.Answer: BDiff:2Section: 1.2

27) Whyismarketdefinitionimportantforeconomicdecisionmaking?A) Afirmisinterestedinknowingitsactualandpotentialcompetitors.B) Afirmwilldefineitsmarketinordertomaximizerevenue.C) Governmentregulatorsareinterestedinknowingtheeffectofmergersandacquisitions

oncompetitionandpricesinaparticularmarket.D) bothAandCE) bothAandB


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28) Whichofthefollowingfeaturesarerelevantfordeterminingtheextentofamarket?A) Itsgeographicalboundaries.B) Technologicalinnovationsthatwouldreducethecostofproduction.C) Therangeofproductstobeincludedinit.D) bothAandBE) bothAandC


29) WhichofthefollowingstatementsaboutmarketsandindustriesisTRUE?A) Amarketincludesbuyersbutnotsellers.B) Amarketincludessellersbutnotbuyers.C) Anindustryincludesbuyersbutnotsellers.D) Anindustryincludessellersbutnotbuyers.


30) Althoughtherearemanyreasonswhyamarketcanbenon-competitive,theprincipaleconomicdifferencebetweenacompetitiveandanon-competitivemarketis:

A) thenumberoffirmsinthemarket.B) theextenttowhichanyfirmcaninfluencethepriceoftheproduct.C) thesizeofthefirmsinthemarket.D) theannualsalesmadebythelargestfirmsinthemarket.E) thepresenceofgovernmentintervention.


31) WhichofthefollowingcouldnotpossiblybeincludedinthesamemarketasCoke?A) Pepsi B) Gatorade C) Milk D) Bread


32) Usethefollowingstatementstoanswerthisquestion:I. PoliticalcandidatesneedtoknowthegeographicalextentofthemarketforTVcommercialsindetermininghowtoreachthetargetnumberofeligiblevoterswiththesmallestpossibleexpenditure.II. ThegeographicalextentofthemarketforgasolineinTexaswilldeterminewhetheranoilcompanydrillsforoilthere.

A) IandIIaretrue. B) Iistrue,andIIisfalse.C) Iisfalse,andIIistrue. D) IandIIarefalse.


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33) Whichofthefollowingassertions,ifproventrueinacourtoflaw,wouldhelpArcher-Daniels-Midland,amakerofcornsyrup,initsattempttoacquireanothercornsyrupproducer,theClintonCornProcessingCompany?

A) Archer-Daniels-Midlandisadominantproducerofcornsyrup.B) Therearenogoodsubstitutesforcornsyrupforanyofitsmajoruses.C) Archer-Daniels-MidlandandtheClintonCornProcessingCompanytogetherholdonly

asmallshareofthemarketforsweetenersincludingcornsyrupandsugar.D) Archer-Daniels-Midlandproducesmanyotherdifferentagriculturalproducts,in

additiontocornsyrup.Answer: CDiff:1Section: 1.2

34) Usethefollowingstatementstoanswerthisquestion:I. Iftheextentofamarketisbroader,itislesslikelythatfirmsinthemarketcaninfluencethemarketprice.II. Indeterminingwhethertwodifferentproductsbelongtothesamemarket,itisnecessarytoknowwhetherthetwoproductscanbeusedassubstitutesforeachother.

A) IandIIarebothfalse. B) Iisfalse,andIIistrue.C) Iistrue,andIIisfalse. D) IandIIarebothtrue.


35) Usethefollowingstatementstoanswerthisquestion:I. Thepriceforagivenproductmaydifferacrosssellersifthemarketisnotperfectlycompetitive.II. Asinglemarketpricedoesnotexistinimperfectlycompetitivemarkets.

A) IandIIaretrue. B) IistrueandIIisfalse.C) IIistrueandIisfalse. D) IandIIarefalse.


36) Supposeyouareinchargeofproductpricingandmarketingstrategyforapharmaceuticalcompany.Youwillhavegreaterabilitytoindependentlysetpricesforyourproductif:

A) therearenoclosesubstitutesforyourproduct.B) therearelotsofotherfirmssellingcloselyrelatedproductsinyourmarket.C) Yourpricingpolicyshouldnotdependonthenumberofclosesubstituteproducts.D) noneoftheabove


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37) Toarbitrageapricedifferencebetweentwomarkets,youshould:A) sellinthelow-pricemarketandbuyinthehigh-pricemarket.B) buyinthelow-pricemarketandsellinthehigh-pricemarket.C) sellinbothmarketstocapturealoweraveragemarketprice.D) noneoftheabove


38) Arbitragingpricedifferencesbetweentwomarketsisgenerallynotpossibleif:A) therearepositivecostsoftransportingtheproductsfromonemarkettotheother.B) thetransportationcostsarelargerthanthedifferenceinprices.C) thegovernmenthasprohibitedexchangebetweenthetwomarkets.D) AandCaboveE) BandCabove


39) WhichofthefollowingstatementisFALSE?A) Perfectlycompetitivemarketsarecomposedofmanybuyersandsellers.B) Somemarketsmayhaveonlyafewsellersbutexhibitthepropertiesofperfect

competition.C) Amarketmaybecomposedofonlyonebuyerandoneseller.D) Alloftheabovestatementsarecorrect.


40) Theconstantdollarpriceis:A) therealpriceofagood.B) thenominalpriceofagoodadjustedforinflation.C) thecurrentdollarpriceadjustedforinflation.D) alloftheaboveE) noneoftheabove


41) WhatdoesitmeanwhentheCPIishigherthisyearthanlast?A) Therateofinflationhasincreased.B) Therehasbeeninflationsincelastyear.C) Realpriceshaveincreased.D) Realpriceshavedecreased.


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42) Thepriceofatacowas$0.29in1970and$0.99in1993.TheCPIwas38.8in1970and144.0in1993.The1993priceofatacoin1970dollarsis:

A) $0.08. B) $0.27. C) $0.34. D) $3.67.Answer: BDiff:2Section: 1.3

43) Sincelastyear,thepriceofgoldhasrisenfrom$120to$420.Whatannualinflationratewouldleavetherealpriceofgoldunchangedoverthelasttwelvemonths?

A) Approximately29%B) 40%C) Approximately71%D) 250%E) noneoftheabove


44) Overthepastyearpriceinflationhasbeen10%,butthepriceofausedFordEscorthasfallenfrom$6,000to$5,000.TherealpriceofaFordEscorthasfallenby:

A) 12%. B) 17% C) 20%. D) 24% E) 32%.Answer: DDiff:2Section: 1.3

45) Supposethenominalpriceofgasolinewas$0.90pergallonin1987.Toconvertthisvaluetotherealpriceof1987gasolinein2008dollars,weshould:

A) multiplybythe1987CPIanddividebythe2008CPI.B) multiplybythe2008CPIanddividebythe1987CPI.C) notdoanythingbecausethisistherealpricein2008dollars.D) noneoftheabove


46) Thenominalpriceofindustrialredpaintwas$12pergallonin1993.Toconvertthisvaluetotherealpriceofpaintin2008dollars,weshouldusethe:

A) ConsumerPriceIndex. B) ProducerPriceIndexC) Fedfundsrate. D) 30-dayT-billrate.


47) WhichofthefollowinggoodsisNOTalikelycomponentoftheConsumerPriceIndex?A) Hamburger B) 87octanegasolineC) Structuralsteelbeams D) Movietickets


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48) WhichpriceindexpublishedbytheUSfederalgovernmentrepresentswholesalepricechanges?

A) ConsumerPriceIndex B) ProducerPriceIndexC) GDPdeflator D) Dow-JonesIndustrialAverage


49) When1983istheCPIbaseyear,theCPIvalueis82.4for1980and172.2for2000.SupposewewanttoconvertthisCPIseriestohaveabaseyearof2000(thatis,CPI2000=100).WhatisthevalueoftherevisedCPIfor1980?

A) 172.2 B) 100 C) 47.9 D) 209.0Answer: CDiff:1Section: 1.3

50) Usethefollowingstatementstoanswerthisquestion:I. Theinflationrate(therateofchangeinthegeneralpricelevel)calculatedfromapriceindexlikeCPIisthesameregardlessofthebaseyearweusetoformthepriceindex.II. AlthoughtheCPImayindicatethegeneralpricelevelincreasedby5%lastyear,therearesomeconsumerproductsthatmayhaveexperiencedmoreorlessinflationinthepastyear.

A) IandIIaretrue. B) IistrueandIIisfalse.C) IisfalseandIIistrue. D) IandIIarefalse.


51) WhichpriceindexpublishedbytheUSfederalgovernmentrepresentsretailpricechanges?A) ConsumerPriceIndex B) ProducerPriceIndexC) GDPdeflator D) Dow-JonesIndustrialAverage


52) WhichofthefollowingisNOTanexampleofwaysinwhichmicroeconomicanalysiscanhelpFordMotorCompanyitsincorporatedecisionmaking?

A) ForecastingdemandfornewautomobilesB) DetermininghowmanyautomobilestoproduceinordertomaximizeprofitsC) PredictinghowcompetitorswillreacttothefirmspricingstrategyD) ForecastingtheeffectofFordshiringpatternsontheU.S.unemploymentrateE) ForecastingtheeffectofanoilpriceincreaseondemandforSUVs


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53) WhichofthefollowingisNOTanexamplesofwaysinwhichmicroeconomicanalysiscanhelpindesigningenvironmentalpolicy?

A) DeterminingtheoptimallevelofvehicletailpipeemissionsstandardsB) Designinglawstoprovideincentivesforfirmstoimplementcleantechnologiesinnew

vehiclesC) LobbyingconsumersandfirmstoreduceconsumptionofenergyD) Examiningthetradeoffsbetweenecologicalbenefitsofenvironmentallegislationandits

impactsonconsumersstandardoflivingAnswer: CDiff:1Section: 1.4

54) ToevaluatethepotentialimpactofchangestoitsSUVbusiness,FordMotorCompanywoulduse:

A) normativeeconomicanalysis. B) positiveeconomicanalysis.C) negativeeconomicanalysis. D) arbitrageanalysis.


55) TheCleanAirActisdesignedtorestrictautomobileemissionsandreducetheexternalcostsofairpollution.TheeconomicanalysisusedtodeveloptheCleanAirActwas:

A) normative. B) positive.C) macroeconomic. D) noneoftheabove


56) SupposetheSocialSecurityAdministrationwouldliketoguaranteethepurchasingpowerofsocialsecuritypaymentstotheelderlydoesnotdiminish.Thatis,therealvalueofthepaymentsdoesnotdecrease.TheCPIin1990was130.7andtheCPIin1998was163.0.HowmuchdoestheSocialSecurityAdministrationneedtoincreasepaymentsfrom1990to1998toaccomplishthisobjective?Answer: Thechangeinthegeneralpricelevelis100(163-130.7)/130.7= 25%.Thus,thelevelof

paymentsin1998needtobeP(1990)*(1+0.25).Diff:1Section: 1.3

57) Supposetheminimumwagewas$0.25perhourin1938andtheCPIinthatyearwas11.5.IftheCPIin1990was130.7,whatistherealvalueofthe1938minimumwageintermsof1990dollars?Therealvalueofthe1990minimumwageintermsof1990dollarsis$4.25.Hastherealvalueoftheminimumwagedeclinedsince1938?Answer: W(1938)=130.7($0.25)/11.5= $2.84,sotherealvalueoftheminimumwagehas

increasedfrom1938to1990.Diff:1Section: 1.3

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58) TherewardforthecaptureofJesseJameswas$500.00in1881.SupposetheCPIin1881was0.25.Whatistherealvalueoftherewardin1990dollarsiftheCPIwas130.7in1990?Answer: 130.7($500)/0.25=130.7($2,000)= $261,400.Diff:1Section: 1.3

59) TheCPIin1970was38.8andin1998theCPIwas163.0.Iftherealvalueofa1970gallonofmilkintermsof1998dollarsis$0.70,whatwasthenominalpriceofmilkin1970?Answer: 38.8($0.70)/163=$0.17.Diff:2Section: 1.3

60) Thenominalpriceofmilkwas$2.25in1998whiletheCPIwas163.0thatyear.Also,theCPIin1970was38.8.Whatwastherealvalueof1998milkintermsof1970dollars?Answer: 38.8($2.25)/163=$0.54.Diff:2Section: 1.3

61) Thenominalpriceofa1990laptopwas$3,500andtheCPIthatyearwas130.7.Thenominalpriceofalaptopin1998was$1,600andtheCPIthatyearwas163.0.Whatistherealpriceofa1998laptopintermsof1990dollars?Bywhatpercenthastherealpriceoflaptopschanged?Answer: 130.7($1,600)/163=$1,283.Percentdeclineintherealvalueoflaptops:

-100($1,283-$3,500)/$3,500=$2,217(100)/$3,500=63.34%Diff:2Section: 1.3

62) ThepricetoattendaNBAbasketballgameinChicagois$55whiletheCPIinChicagois153.TheCPIinCharlotteis108whilethepricetoattendaNBAbasketballgameis$52.WhichcityoffersasmallerrealcostofattendingaNBAbasketballgame?Answer: Chicagorealvalue[NBA(Charlotte)]= 153(52)/108= $73.67. Therealvalueofagamein

CharlotteexceedstherealvalueofagameinChicago.Chicagooffersasmallerrealcostofattendingagame.

Diff:2Section: 1.3

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63) ThefirstcolumnofthefollowingtabledescribesthepricemovementofAOLCorporationstockoverthelast5years.Thesecondcolumngivestheperiodsconsumerpriceindex.Calculatetherealvalueofthestockforeachtimeperiodusingyear5asthebaseyear.Ifyoupurchased$1,000worthofAOLCorporationinyear1,whathashappenedtothepurchasingpowerofyouroriginal$1,000investmentwhenyousellthestockinyear5?

Year AOL CPI1996 $4.00 147.81997 $3.84 155.31998 $7.00 163.01999 $37.00 165.42000 $70.00 172.1

Answer:Year RealAOLStockPrice

in2000Dollars1996 $4.661997 $4.261998 $7.391999 $38.502000 $70.00

Therealvalueofayear1996dollarin2000is172.1($1)/147.8=$1.16.Iwouldhavebought250sharesofAOLat1996prices(ignoringtransactioncosts)withthe$1,000.Thevalueofthestockintheyear2000is(250($70))=$17,500.Thechangeinmypurchasingpoweris($17,500-$1,160)/$1,160=14.09. Thatis,mypurchasingpowerfrominvestinginthestockrisesby1,409%.

Diff:2Section: 1.3

64) ThefollowingisalistofhousingcostsinfivedifferentcountriesalongwiththeirCPI.Forwhichcountryistherealcostofhousingdeclining?Useyear2asthebaseyearinyouranswer.

Answer: TherealcostofhousinginSpainhasdecreased.Therealcostofyear1housinginyear2is(169/143)53=$62.64.Thisexceedstherealcostofyear2housinginyear2,$57.00.Thus,housingcostshavedeclinedinSpain.

Diff:1Section: 1.3

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65) ForeachcityacrosstheU.S.,economistsconstructapriceindexforasimilarbasketofgoods.InLosAngelestheindexis127.3andtheindexforDallasis94.8.Ifyouhavebeenoffered$137,000forajobinLosAngelesand$117,000forasimilarjobinDallas,whichjobaffordsyouthehighestpurchasingpowerofthebundleofgoodsinthepriceindex?UsetheLosAngelesvalueasthebase.Answer: Realvalue[Dallas]=127.3($117,000)/94.8= $157,111.Thisexceedsthereal$137,000

salaryforthejobinLosAngeles.TheDallasjobprovideshigherpurchasingpower.Diff:2Section: 1.3

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Chapter2 TheBasicsofSupplyandDemand

1) WhichofthefollowingisNOTanapplicationofsupplyanddemandanalysis?A) UnderstandingchangingworldeconomicconditionsandtheireffectsonpricesB) EvaluatingtheeffectsofgovernmentpricecontrolsontheagriculturalindustryC) DetermininghowtaxesaffectaggregateconsumptionspendingpatternsD) alloftheaboveE) noneoftheabove


2) Asupplycurvereveals:A) thequantityofoutputconsumersarewillingtopurchaseateachpossiblemarketprice.B) thedifferencebetweenquantitydemandedandquantitysuppliedateachprice.C) themaximumlevelofoutputanindustrycanproduce,regardlessofprice.D) thequantityofoutputthatproducersarewillingtoproduceandsellateachpossible

marketprice.Answer: DDiff:1Section: 2.1

3) Plasticandsteelaresubstitutesintheproductionofbodypanelsforcertainautomobiles.Ifthepriceofplasticincreases,withotherthingsremainingthesame,wewouldexpect:

A) thepriceofsteeltofall.B) thedemandcurveforsteeltoshifttotheright.C) thedemandcurveforplastictoshifttotheleft.D) nothingtohappentosteelbecauseitisonlyasubstituteforplastic.E) thedemandcurveforsteeltoshifttotheleft.


4) Coffeeandcream:A) arebothluxurygoods.B) arecomplements.C) arebothmoreinelasticindemandinthelongrunthanintheshortrun.D) haveapositivecrosspriceelasticityofdemand.


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5) Whichofthefollowingwouldshiftthedemandcurvefornewtextbookstotheright?A) AfallinthepriceofpaperusedinpublishingtextsB) AfallinthepriceofequivalentusedtextbooksC) AnincreaseinthenumberofstudentsattendingcollegeD) Afallinthepriceofnewtextbooks.


6) Whenanindustrysrawmaterialcostsincrease,otherthingsremainingthesame,A) thesupplycurveshiftstotheleft.B) thesupplycurveshiftstotheright.C) outputincreasesregardlessofthemarketpriceandthesupplycurveshiftsupward.D) outputdecreasesandthemarketpricealsodecreases.


7) Sugarcanberefinedfromsugarbeets.Whenthepriceofthosebeetsfalls,A) thedemandcurveforsugarwouldshiftright.B) thedemandcurveforsugarwouldshiftleft.C) thesupplycurveforsugarwouldshiftright.D) thesupplycurveforsugarwouldshiftleft.


8) Assumethatsteakandpotatoesarecomplements.Whenthepriceofsteakgoesup,thedemandcurveforpotatoes:

A) shiftstotheleft.B) shiftstotheright.C) remainsconstant.D) shiftstotherightinitiallyandthenreturnstoitsoriginalposition.


9) Whichofthefollowingeventswillcausealeftwardshiftinthesupplycurveofgasoline?A) AdecreaseinthepriceofgasolineB) AnincreaseinthewagerateofrefineryworkersC) DecreaseinthepriceofcrudeoilD) AnimprovementinoilrefiningtechnologyE) alloftheabove


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10) WhichofthefollowingwillNOTcauseashiftinthesupplyofgasoline?A) AnincreaseinthewagerateofrefineryworkersB) AdecreaseinthepriceofgasolineC) AnimprovementinoilrefiningtechnologyD) Adecreaseinthepriceofcrudeoil


11) Whichofthefollowingwouldcauseashifttotherightofthesupplycurveforgasoline?I. Alargeincreaseinthepriceofpublictransportation.II. Alargedecreaseinthepriceofautomobiles.III. Alargereductioninthecostsofproducinggasoline.

A) Ionly B) IIonly C) IIIonly D) IIandIIIonlyAnswer: CDiff:2Section: 2.1

12) YouareanalyzingthedemandforgoodX.WhichofthefollowingwillresultinashifttotherightofthedemandcurveforX?

A) AdecreaseinthepriceofXB) AnincreaseinthepriceofagoodthatisacomplementtogoodXC) AnincreaseinthepriceofagoodthatisasubstituteforXD) alloftheabove


13) ThepriceofgoodAgoesup.Asaresult,thedemandforgoodBshiftstotheleft.Fromthiswecaninferthat:

A) goodAisusedtoproducegoodB.B) goodBisusedtoproducegoodA.C) goodsAandBaresubstitutes.D) goodsAandBarecomplements.E) noneoftheabove


14) WhichofthefollowingwillcausethedemandcurveforBeatlescompactdiscstoshifttotheright?

A) AnincreaseinthepriceofthediscsB) AdecreaseinconsumersincomesC) AnincreaseinthepriceofPhilCollinslatestcompactdisc(asubstitute)D) alloftheaboveE) noneoftheabove


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15) WhichofthefollowingwillNOTcausearightwardshiftinthedemandcurveforbeer?A) AchangeinthepriceofbeerB) AhealthstudyindicatingpositivehealthbenefitsofmoderatebeerconsumptionC) AnincreaseinthepriceofFrenchwine(asubstitute)D) Adecreaseinthepriceofpotatochips(acomplement)E) noneoftheabove


16) Whichofthefollowingwouldcausearightwardshiftinthedemandcurveforgasoline?I. Alargeincreaseinthepriceofpublictransportation.II. Alargedecreaseinthepriceofautomobiles.III. Alargereductioninthecostsofproducinggasoline.

A) IonlyB) IIonlyC) IandIIonlyD) IIandIIIonlyE) I,II,andIII


17) Supposebiochemistsdiscoveranenzymethatcandoubletheamountofethanolthatmaybederivedfromagivenamountofbiomass.Basedonthistechnologicaldevelopment,weexpectthe:

A) supplycurveforethanoltoshiftleftward.B) supplycurveforethanoltoshiftrightward.C) demandcurveforethanoltoshiftleftward.D) demandcurveforethanoltoshiftrightward.


18) ThediscussionofFigure2.2inthetextindicatesthatquantitydemandedformostgoodstendstoincreaseasincomerises.However,thequantityofbananasdemandedintheU.S.tendstodecreaseasincomerises.Underthiscondition,weexpectthatanincreaseinconsumerincomeshiftsthedemandcurveforbananas:

A) rightward B) noshift. C) leftward. D) downward.Answer: CDiff:1Section: 2.1

19) Duetotherecentincreaseinthepriceofnaturalgas,thequantityofcoaldemandedbyelectricpowergenerationplantshasincreased.Basedonthisinformation,coalandnaturalgasare:

A) complements. B) substitutes.C) independentgoods. D) noneoftheabove


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20) ToprotectthecodfisheryoffthenortheastcoastoftheU.S.,thefederalgovernmentmaylimittheamountoffishthateachboatcancatchinthefishery.Theresultofthispublicpolicyisto:

A) shiftthecoddemandcurvetotheleft. B) shiftthecoddemandcurvetotheright.C) shiftthecodsupplycurvetotheright. D) shiftthecodsupplycurvetotheleft.


21) Whenthecurrentpriceisabovethemarket-clearinglevelwewouldexpect:A) quantitydemandedtoexceedquantitysupplied.B) quantitysuppliedtoexceedquantitydemanded.C) ashortage.D) greaterproductiontooccurduringthenextperiod.


22) Assumethatthecurrentmarketpriceisbelowthemarketclearinglevel.Wewouldexpect:A) asurplustoaccumulate.B) downwardpressureonthecurrentmarketprice.C) upwardpressureonthecurrentmarketprice.D) lowerproductionduringthenexttimeperiod.


23) Aslongastheactualmarketpriceexceedstheequilibriummarketprice,therewillbe:A) downwardpressureonthemarketprice.B) upwardpressureonthemarketprice.C) nopurchasesmade.D) BothAandCarecorrect.E) BothBandCarecorrect.


24) Iftheactualpricewerebelowtheequilibriumpriceinthemarketforbread,a:A) surpluswoulddevelopthatcannotbeeliminatedovertime.B) shortagewoulddevelop,whichmarketforceswouldeliminateovertime.C) surpluswoulddevelop,whichmarketforceswouldeliminateovertime.D) shortagewoulddevelop,whichmarketforceswouldtendtoexacerbate.


20

25) Supposethequantityofnursingservicesdemandedexceedsthequantityofnursingservicessupplied.Thenursingwageratewill:

A) decrease. B) increase.C) notchange. D) noneoftheabove


Scenario2.1:

Thedemandforbooksis: Qd=120-PThesupplyofbooksis: Qs=5P

26) RefertoScenario2.1.Whatistheequilibriumpriceofbooks?A) 5B) 10C) 15D) 20E) noneoftheabove


27) RefertoScenario2.1.Whatistheequilibriumquantityofbookssold?A) 25B) 50C) 75D) 100E) noneoftheabove


28) RefertoScenario2.1.IfP=$15, whichofthefollowingistrue?A) Thereisasurplusequalto30.B) Thereisashortageequalto30.C) Thereisasurplus,butitisimpossibletodeterminehowlarge.D) Thereisashortage,butitisimpossibletodeterminehowlarge.


29) RefertoScenario2.1.IfP=$15, whichofthefollowingistrue?A) Quantitysuppliedisgreaterthanquantitydemanded.B) Quantitysuppliedislessthanquantitydemanded.C) Quantitysuppliedequalsquantitydemanded.D) Thereisasurplus.


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30) RefertoScenario2.1.IfP=$25, whichofthefollowingistrue?A) Thereisasurplusequalto30.B) Thereisashortageequalto30.C) Thereisashortage,butitisimpossibletodeterminehowlarge.D) Thereisasurplus,butitisimpossibletodeterminehowlarge.


31) RefertoScenario2.1.IfP=$25, whichofthefollowingistrue?A) Quantitysuppliedisgreaterthanquantitydemanded.B) Quantitysuppliedislessthanquantitydemanded.C) Quantitysuppliedequalsquantitydemanded.D) Thereisashortage.


32) Supposetheequilibriumpriceofmilkis$3pergallonbutthefederalgovernmentsetsthemarketpriceat$4pergallon.Themarketmechanismwillforcethemilkpricebackdownto$3pergallonunlessthegovernment:

A) rationstheexcessdemandformilkamongconsumers.B) buystheexcesssupplyofmilkandremovesitfromthemarket.C) BothAandBareplausibleactions.D) Thegovernmentcannotmaintainthepriceabovetheequilibriumlevel.


33) ThecurrentmarketpriceforgoodXisbelowtheequilibriumprice,andthenthedemandcurveforXshiftsrightward.Whatisthelikelyoutcomeofthedemandshift?

A) Thesurplusincreases. B) Thesurplusdecreases.C) Theshortageincreases. D) Theshortagedecreases.


34) Supposethereiscurrentlyasurplusofwheatontheworldmarket.Theproblemofexcesssupplymayberemovedfromthemarketby:

A) loweringthemarketprice. B) shiftingthesupplycurveleftward.C) shiftingthedemandcurveleftward. D) BothAandBareplausibleactions.


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35) Whichofthefollowingwouldcauseanunambiguous decreaseintherealpriceofDVDplayers?A) AshifttotherightinthesupplycurveforDVDplayersandashifttotherightinthe

demandcurveforDVDplayers.B) AshifttotherightinthesupplycurveforDVDplayersandashifttotheleftinthe

demandcurveforDVDplayers.C) AshifttotheleftinthesupplycurveforDVDplayersandashifttotherightinthe

demandcurveforDVDplayers.D) AshifttotheleftinthesupplycurveforDVDplayersandashifttotheleftinthe

demandcurveforDVDplayers.Answer: BDiff:2Section: 2.3

36) From1970to1993,therealpriceofacollegeeducationincreased,andtotalenrollmentincreased.Whichofthefollowingcouldhavecausedthisincreaseinpriceandenrollment?

A) Ashifttotherightinthesupplycurveforcollegeeducationandashifttotheleftinthedemandcurveforcollegeeducation.

B) Ashifttotheleftinthesupplycurveforcollegeeducationandashifttotherightinthedemandcurveforcollegeeducation.

C) Ashifttotheleftinthesupplycurveforcollegeeducationandashifttotheleftinthedemandcurveforcollegeeducation.

D) noneoftheaboveAnswer: BDiff:3Section: 2.3

37) From1970to1993,therealpriceofeggsdecreased.Whichofthefollowingwouldcauseanunambiguousdecreaseintherealpriceofeggs?

A) Ashifttotherightinthesupplycurveforeggsandashifttotherightinthedemandcurveforeggs.

B) Ashifttotherightinthesupplycurveforeggsandashifttotheleftinthedemandcurveforeggs.

C) Ashifttotheleftinthesupplycurveforeggsandashifttotherightinthedemandcurveforeggs.

D) Ashifttotheleftinthesupplycurveforeggsandashifttotheleftinthedemandcurveforeggs.


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38) From1970to1993,therealpriceofeggsdecreasedandthetotalannualconsumptionofeggsdecreased.Whichofthefollowingwouldcauseanunambiguousdecreaseintherealpriceofeggsandanunambiguousdecreaseinthequantityofeggsconsumed?

A) Ashifttotherightinthesupplycurveforeggsandashifttotherightinthedemandcurveforeggs.

B) Ashifttotheleftinthesupplycurveforeggsandashifttotherightinthedemandcurveforeggs.

C) Ashifttotheleftinthesupplycurveforeggsandashifttotheleftinthedemandcurveforeggs.

D) noneoftheaboveAnswer: DDiff:3Section: 2.3

39) Weobservethatboththepriceofandquantitysoldofgolfballsarerisingovertime.Thisisdueto:

A) continualimprovementsinthetechnologyusedtoproducegolfballs.B) increasesinthepriceofgolfclubsovertime.C) decreasesinmembershipfeesforcountryclubswithgolffacilities.D) morestringentprofessionalrequirementsonthequalityofgolfballsrequiringproducers

tousemoreexpensiverawmaterials.Answer: CDiff:3Section: 2.3

40) Whichofthefollowingwillcausethepriceofbeertorise?A) AshifttotherightinthedemandcurveforbeerB) AshifttotheleftinthesupplycurveofbeerC) bothAandBD) noneoftheabove


Scenario2.2:

In1992,theOccupationalSafetyandHealthAuthoritypassedtheBloodbornePathogensStandard(BBP),whichregulatesdentalofficeprocedures.Thisregulationisdesignedtominimizethetransmissionofinfectiousdiseasefrompatienttodentalworker.Theeffectofthisregulationwasbothtoincreasethecostofprovidingdentalcareandtoeasethefearofgoingtothedentistastheriskofcontractinganinfectiousdisease.

41) RefertoScenario2.2.WhatistheeffectoftheBBPonthemarketfordentalcare?A) Onlythesupplycurveshifts.B) Onlythedemandcurveshifts.C) Boththedemandandsupplycurvesshift.D) Neitherthedemandnorsupplycurveshifts.


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42) RefertoScenario2.2.WhatistheeffectoftheBBPonthemarketfordentalcare?A) Bothsupplyanddemandshifttotheright.B) Bothsupplyanddemandshifttotheleft.C) Supplyshiftstotheright,anddemandshiftstotheleft.D) Supplyshiftstotheleft,anddemandshiftstotheright.E) noneoftheabove


43) RefertoScenario2.2.WhatistheeffectoftheBBPontheequilibriumpriceofdentalcare?A) Itunambiguouslyincreases.B) Itunambiguouslydecreases.C) Itincreasesonlyifsupplyshiftsmorethandemand.D) Itincreasesonlyifdemandshiftsmorethansupply.


44) RefertoScenario2.2.Underwhatcircumstanceswilltheequilibriumlevelofoutputofdentalcareremainthesame?

A) Ifsupplyshiftsmorethandemand.B) Ifdemandshiftsmorethansupply.C) Ifbothdemandandsupplyshiftbythesamemagnitude.D) Ifsupplyanddemandshiftinthesamedirection.


45) RefertoScenario2.2.Underwhatcircumstanceswilltheequilibriumlevelofoutputofdentalcareincrease?

A) Ifsupplyshiftsmorethandemand.B) Ifdemandshiftsmorethansupply.C) Ifbothdemandandsupplyshiftbythesamemagnitude.D) Ifsupplyanddemandbothdecrease.


46) AftertheSeptember11,2001attacksontheWorldTradeCenter,thesupplyofdowntownofficespaceinManhattanwasdramaticallyreduced.Forecasterspredictedthattheequilibriumpricewouldrise,butinfactthepricefell.Whataresomefactorsthatcouldexplainthefallintheequilibriumprice,whichtheforecastersfailedtotakeintoaccount?

A) Demandforofficespacefellduetoquality-of-lifeconcerns.B) Theeconomicslowdowncauseddemandforofficespacetofall.C) bothAandBD) noneoftheabove


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47) TheeffectoftheSeptember11attacksontheWorldTradeCenteronthemarketforofficespaceindowntownManhattanwasthatboththeequilibriumpriceandtheequilibriumquantityfell.Whatisthemostlikelyexplanationforthis?

A) Supplyanddemandbothshiftedleft,andthemagnitudeofthedemandshiftwasgreater.

B) Supplyanddemandbothshiftedleft,andthemagnitudeofthesupplyshiftwasgreater.C) Supplyshiftedleft,demandshiftedright,andthemagnitudeofthedemandshiftwas

greater.D) Supplyshiftedleft,demandshiftedright,andthemagnitudeofthesupplyshiftwas

greater.Answer: ADiff:2Section: 2.3

48) Lastyear,theworlddemandcurveforcoppershiftedrightwardduetocontinuedeconomicgrowthinChinaandotheremergingeconomies.Also,thesupplycurveforcoppershiftedleftwardduetostrikesandotherlabordisruptionsatsomeofthecoppermines.Asaresult,weobserved:

A) higherequilibriumcopperpricesandunambiguouslylowerquantities.B) higherequilibriumcopperpricesandunambiguouslyhigherquantities.C) higherequilibriumcopperpricesandeitherhigherorlowerquantities.D) lowerequilibriumcopperpricesandeitherhigherorlowerquantities.


49) Supposethesupplyoftextbooksisupwardslopingandshiftsleftwardduetohigherinkandpapercosts.Whichofthefollowingeventswouldleavetheequilibriumpriceoftextbooksatthesamelevelobservedbeforethesupplyshift?

A) Demandisperfectlyelastic(horizontal).B) Demandisdownwardslopingandshiftsleftward.C) alloftheaboveD) noneoftheabove


50) Ifweplotthequantityofaluminumoreminedperyearonthehorizontalaxisandtherealannualpriceofaluminumoreontheverticalaxis,wefindthatthepathofprice-quantitycombinationsgenerallyindicateslowerrealpricesandhigherquantitiesovertime.Whichofthefollowingstatementsisaplausibleexplanationforthisobservedoutcome?

A) Aluminumsupplyshiftedleftwardfasterthanthealuminumdemandcurveshiftedrightward.

B) Aluminumsupplyshiftedrightwardfasterthanthealuminumdemandcurveshiftedrightward.

C) Aluminumsupplyshiftedrightwardandaluminumdemandremainedconstant.D) bothAandBaboveE) bothBandCabove


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51) TheincomeelasticityofdemandistheA) absolutechangeinquantitydemandedresultingfromaoneunitincreaseinincome.B) percentchangeinquantitydemandedresultingfromtheabsoluteincreaseinincome.C) percentchangeinquantitydemandedresultingfromaonepercentincreaseinincome.D) percentchangeinincomeresultingfromaonepercentincreaseinquantitydemanded.E) percentchangeinincomeresultingfromaonepercentincreaseinprice.


52) ThepriceelasticityofdemandforademandcurvethathasazeroslopeisA) zero.B) one.C) negativebutapproacheszeroasconsumptionincreases.D) infinity.


53) ElasticitymeasuresA) theslopeofademandcurve.B) theinverseoftheslopeofademandcurve.C) thepercentagechangeinonevariableinresponsetoaonepercentincreaseinanother

variable.D) sensitivityofpricetoachangeinquantity.


54) Whichofthefollowingrepresentsthepriceelasticityofdemand?

A)

QPPQ

B) QP+ P

QC) Q

P P

QD) Q

P- P

Q


55) AverticaldemandcurveisA) completelyinelastic. B) infinitelyelastic.C) highly(butnotinfinitely)elastic. D) highly(butnotcompletely)inelastic.


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56) Whichofthesemeasurestheresponsivenessofthequantityofonegooddemandedtoanincreaseinthepriceofanothergood?

A) priceelasticity. B) incomeelasticity.C) crosspriceelasticity. D) crosssubstitutionelasticity.


57) ThecrosspriceelasticitybetweenapairofcomplementarygoodswillbeA) positive.B) negative.C) zero.D) positiveorzerodependinguponthestrengthoftherelationship.


Figure2.1

58) RefertoFigure2.1.AtpointA,demandis:A) completelyinelastic.B) inelastic,butnotcompletelyinelastic.C) unitelastic.D) elastic,butnotinfinitelyelastic.E) infinitelyelastic.


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59) RefertoFigure2.1.AtpointB,demandis:A) small.B) inelastic,butnotcompletelyinelastic.C) unitelastic.D) elastic,butnotinfinitelyelastic.E) infinitelyelastic.


60) RefertoFigure2.1.AtpointC,demandis:A) completelyinelastic.B) inelastic,butnotcompletelyinelastic.C) unitelastic.D) elastic,butnotinfinitelyelastic.E) infinitelyelastic.


61) RefertoFigure2.1.AtpointD,demandis:A) completelyinelastic.B) inelastic,butnotcompletelyinelastic.C) unitelastic.D) elastic,butnotinfinitelyelastic.E) infinitelyelastic.


62) RefertoFigure2.1.AtpointE,demandis:A) completelyinelastic.B) inelastic,butnotcompletelyinelastic.C) unitelastic.D) elastic,butnotinfinitelyelastic.E) infinitelyelastic.


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63) Whichofthefollowingstatementsaboutthediagrambelowistrue?

A) Demandisinfinitelyelastic.B) Demandiscompletelyinelastic.C) Demandbecomesmoreinelasticthelowertheprice.D) Demandbecomesmoreelasticthelowertheprice.



A) Demandisinfinitelyelastic.B) Demandiscompletelyinelastic.C) Demandbecomesmoreinelasticthelowertheprice.D) Demandbecomesmoreelasticthelowertheprice.


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A) Demandisinfinitelyelastic.B) Demandiscompletelyinelastic.C) Demandbecomesmoreinelasticaspricedeclines.D) Demandbecomesmoreelasticaspricedeclines.


66) Alonganydownwardslopingstraight-linedemandcurve:A) boththepriceelasticityandslopevary.B) thepriceelasticityvaries,buttheslopeisconstant.C) theslopevaries,butthepriceelasticityisconstant.D) boththepriceelasticityandslopeareconstant.


67) Whichofthefollowingpairsofgoodsaremostlikelytohaveanegativecrosspriceelasticityofdemand?

A) HotdogsandhotdogbunsB) CokeandPepsiC) RailticketsandplaneticketsD) ALucianoPavarotticompactdiscandaPlacidoDomingocompactdisc(BothPavarotti

andDomingoareoperastars.)Answer: ADiff:1Section: 2.4

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68) ConsiderthedemandcurveoftheformQ= a- bP. Ifaisapositiverealnumber,andb= 0,thendemandis

A) completelyinelastic. B) inelastic,butnotcompletely.C) unitelastic. D) elastic,butnotinfinitely.


69) Formostconsumergoods,theownpriceelasticityofdemandisA) negativeonlywhenpricedecreases.B) negativeregardlessofthedirectionofthepricechange.C) positiveonlywhenpricedecreases.D) positiveregardlessofthedirectionofthepricechange.


70) Iftwogoodsaresubstitutes,thecrosspriceelasticityofdemandmustbeA) negative. B) positive. C) zero. D) infinite.


71) Supposethedemandforgourmetcoffeecanberepresentedbyalineardemandcurve.Attheprevailingmarketpricetheincomeelasticityofdemandforgourmetcoffeeis2.Whenincomerisesthedemandcurveforgourmetcoffee:

A) becomeslesselasticateveryprice.B) becomeslesselasticatthepricethatprevailedbeforethechangeinincomeC) becomesmoreelasticateverypriceD) becomesmoreelasticatthepricethatprevailedbeforethechangeinincome


72) Thecross-priceelasticityofdemandforpeanutbutterwithrespecttothepriceofjellyis-0.3.Ifweexpectthepriceofjellytodeclineby15%,whatistheexpectedchangeinthequantitydemandedforpeanutbutter?

A) +15% B) +45% C) +4.5% D) -4.5%Answer: CDiff:1Section: 2.4

73) ForU.S.consumers,theincomeelasticityofdemandforfruitjuiceis1.1.Iftheeconomyentersarecessionnextyearandconsumerincomedeclinesby2.5%,whatistheexpectedchangeinthequantityoffruitjuicedemandednextyear?

A) -2.75% B) +2.75% C) -27.5% D) +27.5%Answer: ADiff:1Section: 2.4

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74) ThepriceelasticityofgasolinesupplyintheU.S.is0.4.Ifthepriceofgasolinerisesby8%,whatistheexpectedchangeinthequantityofgasolinesuppliedintheU.S.?

A) +3.2% B) -3.2% C) +32.0% D) +0.32%Answer: ADiff:1Section: 2.4

75) Icecreamcanbefrozen.Intheshortrunthemagnitudeoftheownpriceelasticityofdemandforicecream:

A) ishigherthaninthelongrun.B) islowerthanintheshortrun.C) isthesameasinthelongrun.D) doesnotdependonthefactthaticecreamcanbefrozen.


76) TheintroductionofrefrigeratorsintoAmericanhomes:A) decreasedthemagnitudeoftheshortrunownpriceelasticityofdemandforrawmeat.B) didnotaffecttheshortrunownpriceelasticityofdemandforrawmeat.C) increasedthemagnitudeoftheshortrunownpriceelasticityofdemandforrawmeat.D) decreasedthemagnitudeoftheshortrunownpriceelasticityofdemandforsmoked

meats.Answer: CDiff:3Section: 2.5

77) Usethefollowingstatementstoanswerthisquestion:I. Eventhoughpeopleneedwatertosurvive,thepriceofwaterislessthanthepriceofdiamondsbecausewaterisingreatersupplythandiamonds.II. Supposethatthedemandforcornishighlypriceinelastic.Ifeverycornfarmersharvestingtechnologiesbecomemoreefficient,thetotalrevenuereceivedbyallcornfarmerswouldfall.

A) IandIIaretrue. B) Iistrue,andIIisfalse.C) IIistrue,andIisfalse. D) IandIIarefalse.


78) Duetocapacityconstraints,thepriceelasticityofsupplyformostproductsis:A) thesameinthelongrunandtheshortrun.B) greaterinthelongrunthantheshortrun.C) greaterintheshortrunthaninthelongrun.D) toouncertaintobeestimated.


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79) Inthelongrun,newfirmscanenteranindustryandsothesupplyelasticitytendstobeA) moreelasticthanintheshortrun. B) lesselasticthanintheshortrun.C) perfectlyelastic. D) perfectlyinelastic.


80) AfreezeinFloridasorangegrowingregionswill:A) resultinasharpincreaseinthepriceoforangesintheshortrunbecausedemandand

supplyarehighlyinelastic.B) resultinasharpincreaseinthepriceoforangesintheshortrunbecausedemandand

supplyarehighlyelastic.C) resultinasharpdecreaseinthepriceoforangesintheshortrunbecausedemandis

highlyinelasticandsupplyishighlyelastic.D) resultinlittlechangeinthepriceoforangesintheshortrunbecausesupplyisinfinitely

elastic.Answer: ADiff:2Section: 2.5

81) Usethefollowingtwostatementstoanswerthisquestion:I. Thesupplyofnewlyminedcopperismoreelasticinthelongrunthanintheshortrun.II. Thesupplyofscrapcopperismoreelasticintheshortrunthaninthelongrun.



82) Thisyearanewoilfieldwithsubstantialreserveshasbeendiscovered.Suchdiscoveriesarenotmadeeveryyear.Thereforeanincreaseinthedemandforoilwill:

A) increasethelongrunpriceofoilmorethantheshortrunpriceofoil.B) increasethelongrunpriceofoillessthantheshortrunpriceofoil.C) ensurethelongrunpriceofoilandshortrunpriceofoilincreasebythesameamount.D) ensurethattheshortrunpriceofoilfalls.E) ensurethattheshortrunpriceofoilremainsunchanged.


83) AnimportantdeterminantoftheamountofgrainsharvestednextyearbyEthiopianfarmersistheamountofseedsplantedthisyear.GiventhatWesternnationshaveguaranteedtodonatefivehundredtonsofgrainnextyear,thisyeartheEthiopianfarmerswill:

A) plantmoreseedsasthefoodaidestablishesaminimumpriceforgrain.B) plantmoreseedsasthefarmersconfidenceisrestored.C) plantthesameamountofseedsastheywouldhavewithoutthefoodaid.D) plantfewerseedsasconsumersdemandforgrainiscompletelypriceelastic.E) plantfewerseedsasthepriceofgrainwillbelowerwiththefoodaid.


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84) Therearetwotechniquesofeggproduction:freerange(wherehensroamaroundthefarm)orfactory(wherehensarefedandwateredinwirecages).Thefreerangetechniquehasamuchmoreelasticsupplycurvethanthefactorytechnique.Whenthedemandforeggsfalls:

A) eggproductionusingthefactorytechniquefallslessthanwiththefreerangetechnique.B) eggproductionusingthefactorytechniquefallsmorethanwiththefreerangetechnique.C) theproductionusingbothtechniquesfallsbythesameamount.D) thefactoryeggproducerssupplycurveshiftsinward.E) thefreerangeeggproducerssupplycurveshiftsinward.


85) Ademandcurveoftheform:Q= a- bP, whereaandbarepositiverealnumbers,:A) isanupwardslopingstraightline.B) hasaconstantpriceelasticityofdemand.C) isadownwardslopingstraightline.D) isaparaboliccurve.


86) Considerasupplycurveoftheform:Q= c+ dP. Ifdequalszero,thensupplyis:A) completelyinelastic. B) inelastic,butnotcompletelyinelastic.C) elastic,butnotinfinitelyelastic. D) infinitelyelastic


87) Consideralinear,upwardslopingsupplycurve.Ifthesupplycurveshiftsupward,then:A) thepriceelasticityofsupplywillincrease.B) thepriceelasticityofsupplywillincreaseiftheslopeofthesupplycurveisgreaterthan

one.C) thepriceelasticityofsupplywillincreaseiftheslopeofthesupplycurveisgreaterthan

oneandthelowestpriceneededtoinducefirmstosupplyanythingispositive.D) thepriceelasticityofsupplywillbeconstant.E) noneoftheabove


88) Forcomputersandotherbusinessequipment,smallchangesinbusinessearningstendtogeneraterelativelylargeshort-runchangesinthedemandforthisequipment.Inthelongrun,theresponsivenessofdemandforbusinessequipmentwithrespecttoincomechangestendstobe:

A) evenmoreresponsive. B) lessresponsive.C) equallyresponsive. D) noneoftheabove


35

89) Forcomputersandotherbusinessequipment,smallchangesinbusinessearningstendtogeneraterelativelylargeshort-runchangesinthedemandforthisequipment,andthelong-runincomeresponsetendstobesmaller.Industriesthatfacedemandbehaviorofthistypeareknownas:

A) naturalmonopolies. B) cartels.C) cyclicalindustries. D) constant-costindustries.


90) ForautomobiledemandintheU.S.,theincomeresponsetendstobelargerinthe:A) shortrun.B) longrun.C) Theincomeresponseisthesameinthelongrunandtheshortrun.D) Wedonothaveenoughinformationtoanswerthisquestion.


91) AsimplelineardemandfunctionmaybestatedasQ= a- bP+ cIwhereQisquantitydemanded,Pistheproductprice,andIisconsumerincome.Tocomputeanappropriatevalueforc,wecanuseobservedvaluesforQandIandthensettheestimatedincomeelasticityofdemandequalto:

A) c(I/Q) B) c(Q/I) C) -b(I/Q) D) Q/(cI)Answer: ADiff:2Section: 2.6

92) AsimplelineardemandfunctionmaybestatedasQ= a- bP+ cIwhereQisquantitydemanded,Pistheproductprice,andIisconsumerincome.Tocomputeanappropriatevalueforb,wecanuseobservedvaluesforQandPandthenset-b(P/Q)equaltothe:

A) incomeelasticityofdemand. B) cross-priceelasticityofdemand.C) priceelasticityofdemand. D) priceelasticityofsupply.


93) Whenthegovernmentcontrolsthepriceofaproduct,causingthemarketpricetobeabovethefreemarketequilibriumprice,

A) allproducersgain.B) bothproducersandconsumersgain.C) onlyconsumersgain.D) some,butnotall,sellerscanfindbuyersfortheirgoods.


36

94) Whenthegovernmentcontrolsthepriceofaproduct,causingthemarketpricetobebelowthefreemarketequilibriumprice,

A) someconsumersgainfromthepricecontrolsandotherconsumerslose.B) allproducersgainfromthepricecontrols.C) bothproducersandconsumersgain.D) allconsumersarebetter-off.


95) Supposethat,atthemarketclearingpriceofnaturalgas,thepriceelasticityofdemandis -1.2andthepriceelasticityofsupplyis0.6.Whatwillresultfromapriceceilingthatis10percentbelowthemarketclearingprice?

A) Ashortageequalto1.8percentofthemarketclearingquantityB) Ashortageequalto0.6percentofthemarketclearingquantityC) Ashortageequalto18percentofthemarketclearingquantityD) Ashortageequalto6percentofthemarketclearingquantityE) Moreinformationisneeded.


96) Whathappensifpricefallsbelowthemarketclearingprice?A) Demandshiftsout.B) Supplyshiftsin.C) Quantitydemandeddecreases,quantitysuppliedincreases,andpricefalls.D) Quantitydemandedincreases,quantitysupplieddecreases,andpricerises.


97) Whichofthefollowingresultsfromabindingpricefloor?A) Equilibrium B) ExcessdemandC) Excesssupply D) Shortage


98) Otherthingsbeingequal,theincreaseinrentsthatoccursafterrentcontrolsareabolishedissmallerwhen

A) theownpriceelasticityofdemandforrentalhomesispriceinelastic.B) theownpriceelasticityofdemandforrentalhomesispriceelastic.C) theownpriceelasticityofdemandforrentalhomeshasunitarypriceelasticity.D) rentedhomesandownedhomesarecomplements.E) rentedhomesandownedhomesaresubstitutes.


37

99) SupposetheU.S.governmentimposesamaximumpriceof$5pergallonofgasoline,andthecurrentequilibriumpriceis$3.50pergallon.Thispolicyrepresentsa:

A) bindingpricefloor. B) non-bindingpricefloor.C) bindingpriceceiling. D) non-bindingpriceceiling.


100) Whichofthefollowingpublicpoliciesisanexampleofapriceceiling?A) SupportpricesforagriculturalcommoditiesB) MinimumwagelawsC) RentcontrolprogramD) alloftheabove


101) TheinversedemandcurveforproductXisgivenby:PX=25-0.005Q+0.15PY,

wherePXrepresentspriceindollarsperunit,Qrepresentsrateofsalesinpoundsperweek,andPYrepresentssellingpriceofanotherproductYindollarsperunit.TheinversesupplycurveofproductXisgivenby:PX=5+0.004Q.

a. DeterminetheequilibriumpriceandsalesofX.LetPY=$10.b. DeterminewhetherXandYaresubstitutesorcomplements.Answer: a. EquatesupplytodemandtocalculateQ.

25-0.005Q+0.15(10)=5+0.004Q21.5=0.009QQ=2,388.9unitsperweek

AtQ=2,388.9,P=25-.005(2,388.9)+0.15(10)=$14.56perunit.

b. Sincewecansolveforquantitydemandedasafunctionofprices,

Q=25+0.15PY-PX

0.005

weseethatthereisadirect,positiverelationshipbetweenQandPY.AnincreaseinthepriceofgoodYgeneratesanincreaseinthequantitydemandedforgoodXatanyvalueofPX,whichimpliesthatgoodsYandXaresubstitutes.

Diff:2Section: 2.2

38

102) ThedailydemandforhotelroomsonManhattanIslandinNewYorkisgivenbytheequationQD=250,000-375P.ThedailysupplyofhotelroomsonManhattanIslandisgivenbytheequationQS=15,000+212.5P.Diagramthesedemandandsupplycurvesinpriceandquantityspace.WhatistheequilibriumpriceandquantityofhotelroomsonManhattanIsland?

Answer: Theequilibriumpricecanbefoundbyequatingquantitydemandedandquantitysupplied(graphically,thisiswheretheDemandandSupplycurvesintersect).ThesolutionfortheequilibriumpricemaybederivedfromQD=250,000-375P=15,000+212.5P=QS .Wecanthensolveforequilibriumpriceas

P=235,000587.5

=400.Atapriceof$400,quantitysuppliedandquantitydemandedare

100,000.Diff:1Section: 2.2

39

103) Supposeanewdiscoveryincomputermanufacturinghasjustmadecomputerproductioncheaper.Also,thepopularityandusefulnessofcomputerscontinuestogrow.UseSupplyandDemandanalysistopredicthowtheseshockswillaffectequilibriumpriceandquantityofcomputers.Isthereenoughinformationtodetermineifmarketpriceswillriseorfall?Why?

Answer: Theincreaseindemandduetotheusefulnessofcomputerswillshiftthedemandcurvetotheright.Thiseffectaloneonthemarketwillinfluencethemarketpriceandquantitytorise.ThisisshownabovebyamovementfromtheoriginaldemandcurveD0toanewdemandcurvesuchasD1orD1.Thereductioninthecostofproducingcomputerswillresultinanincreaseinsupply(arightwardshiftofthesupplycurve).Thiseffectaloneonthemarketwillinfluencethepriceofcomputerstofallwhilethequantitywillincrease.Notethatthesupplyanddemandeffectsonpriceworkinoppositedirections.Ifthesupplyeffectdominatesthedemandeffect,theequilibriumpriceswillfall.ThisisexhibitedbytheincreaseindemandtoonlyD1.Onthisdemandcurve,theneteffectisforpricestofallfromP0toP1.Ontheotherhandifthedemandeffectdominates,equilibriumpriceswillrise.ThisisexhibitedbytheincreaseindemandtoD1.Onthisdemandcurve,theneteffectisforpricestorisefromP0toP1.Aswedontknowgiventhecurrentinformationwhicheffectdominates,wecantperfectlypredictthechangeinprice.Thechangeinquantityisunambiguouslyincreased.

Diff:2Section: 2.3

40

104) Supposethatduetomorestringentenvironmentalregulationitbecomesmoreexpensiveforsteelproductionfirmstooperate.Also,recenttechnologicaladvancesinplasticshasreducedthedemandforsteelproducts.UseSupplyandDemandanalysistopredicthowtheseshockswillaffectequilibriumpriceandquantityofsteel.Canwesaywithcertaintythatthemarketpriceforsteelwillfall?Why?

Answer: Theincreaseinthecostofproductionofsteelwillshiftthesupplycurvetotheleft.Thiseffectaloneonthemarketwillinfluencethemarketpricetorisewhilethemarketquantitywillfall.ThisisshownabovebyamovementfromtheoriginalsupplycurveS0toanewsupplycurvesuchasS1.Thedecreaseindemandwillcausethedemandcurvetoshifttotheleft.Thiseffectaloneonthemarketwillinfluencethemarketpriceandquantityofsteeltofall.Notethatthesupplyanddemandeffectsonpriceworkinoppositedirections.Ifthesupplyeffectdominatesthedemandeffect,theequilibriumpriceswillrise.ThisisexhibitedbythedecreaseindemandtoD1.Onthisdemandcurve,theneteffectisforpricestorisefromP0toP1.Ontheotherhandifthedemandeffectdominates,theequilibriumpricewilldecline.ThisisexhibitedbythedecreaseindemandtoD1.Onthisdemandcurve,theneteffectisforpricestofallfromP0toP1.Aswedontknowgiventhecurrentinformationwhicheffectdominates,wecantperfectlypredictthechangeinprice.Thechangeinequilibriumquantityisunambiguouslydecreased.

Diff:2Section: 2.3

41

105) Historically,investorshaveconsideredgoldcommoditiestobeagoodinvestmenttopreservewealthintimesofinflation.Ifinvestorsarenolongerworriedaboutinflationandgolddemanddecreases,whatdoyouexpectwillhappentogoldprices?Howwouldyouranswerchangeifyoulearnthatarecentgoldminediscoverywillincreasethesupplyofgold?

Answer: Thedecreaseingolddemandduetoreducedfearsofinflationwillshiftthedemandcurvetotheleft.ThisisindicatedabovebyamovementfromD0toD1.Theeffectongoldpricesisnegative.Ifnewgolddiscoveriesincreasethesupplyofgold,thesupplycurvewillshifttotheright.Thiseffectwillalsoexertdownwardpressureongoldprices.ThiseffectisdiagrammedaboveasamovementfromS0toS1.Sincebotheffectscausegoldpricestobecomelower,wecansayunambiguouslythatgoldpriceswilldecline.

Diff:2Section: 2.3

42

106) ThecurrencyusedbytheConfederateStatesofAmericaduringitsbriefexistencefrom1861to1865hasbecomeacollectorsitemtoday.TheConfederateCurrencysupplyisperfectlyinelastic.Asthedemandforthecollectibleincreasesandsomeoftheoldcurrencyisdestroyedornolongerofvalueasacollectible,whathappenstothemarketprice?

Answer: TheincreaseindemandforConfederatecurrencywillresultinarightwardshiftofdemandfromD0toD1.ThisdemandeffectwillputupwardpressureonthepriceofConfederatecurrency.Assomeofthecollectiblesdeteriorateandbecomeworthless,thesupplycurveshiftsbacktotheleftasindicatedabovebythemovementfromS0toS1.Thesupplyeffectplacesupwardpressureonprices.Botheffectsputupwardpressureonprices,sowecansayunambiguouslythatpricesforConfederatecurrencywillrise.

Diff:2Section: 2.3

43

107) SupposethecableTVindustryiscurrentlyunregulated.However,duetocomplaintsfromconsumersthatthepriceofcableTVistoohigh,thelegislatureisconsideringplacingapriceceilingoncableTVbelowthecurrentequilibriumprice.Assumingthegovernmentdoesmakethispriceceilinglaw,pleaseconstructadiagramthatshowstheimpactofthislawonthecableTVmarket,andpleasebrieflyexplaintheeffectsonmarketpricesandquantitieswithsupplyanddemandanalysis.Also,ifthecableTVcompanyisworriedaboutdisgruntlingcustomers,thecompanymayintroduceadifferenttypeofprogrammingthatischeaperforthecompanytoprovideyetisequallyappealingtocustomers.Whatwouldbetheeffectsofthisaction?

Answer: Beforeimplementationofthepriceceiling,theequilibriumpriceandquantityisgivenbytheintersectionofdemandandsupply.Thisisillustratedaboveasp0andq0.Apriceceilingbelowtheinitialequilibriumpricewillcauseashortage.Thatisquantitydemanded(qdc)atthepriceceiling(pc)exceedsquantitysupplied(qsc).Toavoidupsettingconsumers,thecompanymayprovidealowerqualitycableTVsubscription.ThischeaperpackagewouldincreasethesupplyofcableTV.Thesupplycurvewillrightward.ThisactionwillmovetowardseliminatingthecableTVshortageasthequantitysuppliedofthemodifiedpackageincreases.

Diff:2Section: 2.3

44

108) SupposethattheresaleofticketstoprofessionalfootballgamesisillegalinMissouri.DuetothehighdemandforChiefs(whoplayinKansasCity,Missouri)ticketsthereisashortageofticketsatthecurrentticketprice.GiventhattheChiefswillnotraisethepriceatwhichtheysellthetickets,whatwouldbetheresultofallowingticketstoberesoldinasecondarymarketatwhateverpricethemarketwouldsupport?IfspeculatorsenteredthemarketandbeganbuyingticketsdirectlyfromtheChiefsinhopesofresellingtheticketslater,whatwouldhappentothelineoutsideoftheticketofficeswhentheticketsareinitiallysold?

Answer: Initially,thereisashortageduetotheprohibitionofresaleofticketsabovefacevalue.Thatisquantitydemanded(qd0)exceedsquantitysupplied(q)atthefacevalueprice(pfv).Ifresaleofticketsisallowed,theshortagewilldisappearasmarketforcesbidthepriceofChiefticketsuptothepriceatwhichquantitydemandedandsuppliedareequal.IftheChiefsorganizationcontinuestosellticketsatp0,speculatorsmaybeginpurchasingtheticketsdirectlyinhopesofresellingtheticketsonthesecondarymarketforhigherprices.Theinfluxofspeculativedemandwillshiftthedemandcurvetotheright.Thisimpliesthatatfacevalue,thereisevenagreatershortagefortickets,andthelineoutsidetheticketofficewillgrowlonger.

Diff:3Section: 2.3

45

109) HardingEnterpriseshasdevelopedanewproductcalledtheGilloolyShillelagh.Themarketdemandforthisproductisgivenasfollows:

Q=240-4P

a. Atwhatpriceisthepriceelasticityofdemandequaltozero?b. Atwhatpriceisdemandinfinitelyelastic?c. Atwhatpriceisthepriceelasticityofdemandequaltoone?d. Iftheshillelaghispricedat$40,whatisthepointpriceelasticityofdemand?Answer: a. Thedemandcurvegiveninthisproblemislinear.Theinterceptsoftheinverse

demandcurveonthepriceandquantityaxesare$60and240respectively.Thepriceelasticityofdemandvariesalongthelengthofthisdemandcurve.Demandisinfinitelyelasticattheinterceptonthepriceaxis.Demandiscompletelyinelasticattheinterceptonthequantityaxis.Demandisunitelasticatthehalf-waypointbetweenthesetwoextremes.Thus,thepriceelasticityofdemandequalszero(iscompletelyinelastic)atapriceofzero.

b. Demandisinfinitelyelasticatapriceof$60.c. Thepriceelasticityofdemandequalsoneatapriceof$30.

d. Thepriceelasticityofdemandequals PQ

QP

IfPequals$40,Qequals80. QP

isconstantalongalineardemandcurve.Inthiscaseitequals-4.Therefore,thepriceelasticityofdemandequals(40/80)(-4)=-2.

Diff:2Section: 2.4

110) Thedemandforabushelofwheatin1981wasgivenbytheequationQD=3550-266P. Atapriceof$3.46perbushel,whatisthepriceelasticityofdemand?Ifthepriceofwheatfallsto$3.27perbushel,whathappenstotherevenuegeneratedfromthesaleofwheat?Answer: Atapriceof$3.46perbushel,thequantitydemandedforwheatis2,629.64bushelsof

wheat.Atapriceof$3.27perbushel,thequantitydemandedforwheatis2,680.18.The

priceelasticityofdemandat$3.46isED=PQ

QP

= 3.462,629.64

50.54-0.19

=-0.35. Ata

priceof$3.46perbushel,therevenuegeneratedfromthesaleofwheatis$12,558.554.Atapriceof$3.27perbushel,therevenuegeneratedfromthesaleofwheatis$8,764.1886.Wheatrevenuedropsby$3,794.366whenpricedecreasesfrom$3.46to$3.27perbushel,whichisexpectedwhenpricesdeclinealongtheinelasticportionofademandcurve.

Diff:2Section: 2.4

111) ThedemandforpacksofPokemoncardsisgivenbytheequationQD = 500,000-45,000P. Atapriceof$2.50perpack,whatisthequantitydemanded?At$5.00perpack,whatisthepriceelasticityofdemand?Answer: Atapriceof$2.50perpack,thequantitydemandedis387,500packsofcards.Ataprice

of$5.00perpack,thequantitydemandedis275,000.At$5.00perpack,theprice

elasticityofdemandisED=PQ

QP

= 5275,000

-112,5002.50

=-0.818.

Diff:1Section: 2.4

46

112) ThemonthlysupplyofdesktoppersonalcomputersisgivenbytheequationQS=15,000+43.75P.Atapriceof$800,whatisthepriceelasticityofsupply?

Answer: Atapriceof$800,thequantitysuppliedis50,000.Thepriceelasticityofsupplyis

ES=PQ

QP

= 80050,000

43.75 =0.7

Diff:1Section: 2.4

113) ThedemandforticketstotheDaytona500NASCAReventisgivenbytheequationQD=350,000-800P.ThesupplyofticketstotheeventisgivenbythecapacityoftheDaytonatrack,whichis150,000.Whatistheequilibriumpriceofticketstotheevent?Whatisthepriceelasticityofdemandattheequilibriumprice?Whatisthepriceelasticityofsupplyattheequilibriumprice?

Answer: ConsumersarewillingtopayP=200,000800

=$250perticket.Thepriceelasticityof

demandat$250isED=PQ

QP

= 250150,000

-800 =-1 13.Thepriceelasticityof

supplyisES=PQ

QP

= 250150,000

0 =0.

Diff:2Section: 2.4

114) MidcontinentPlasticsmakes80fiberglasstruckhoodsperdayforlargetruckmanufacturers.Eachhoodsellsfor$500.00.Midcontinentsellsallofitsproducttothelargetruckmanufacturers.Supposetheownpriceelasticityofdemandforhoodsis0.4andthepriceelasticityofsupplyis1.5.

a. Computetheslopeandinterceptcoefficientsforthelinearsupplyanddemandequations.b. Ifthelocalcountygovernmentimposedaperunittaxof$25.00perhoodmanufactured,whatwouldbethenewequilibriumpriceofhoodstothetruckmanufacturer?c. WouldaperunittaxonhoodschangetherevenuereceivedbyMidcontinent?

Answer: Given: P*=$500 Q*=80hoodsperdayEd=-0.40 Es=1.5

a. Demand:Qd=a0+a1P Supply:Qs=b0+b1P

Use:E= PQQPtocomputea1andb1.

-0.4=50080

a1 1.5=50080

b1

a1=-0.064 b1=0.24

Solvefora0andb0Qd=a0+a1P Qs=b0+b1P80=a0+-0.064(500) 80=b0+0.24(500)a0=112b0=-40Qd=112-0.064P Qs=-40+0.24P

47

b. Thetaxrepresentsapriceincreasetothepurchaserregardlessofthecurrentprice.Thus,thesupplycurvewillbeadjustedverticallyupwardby$25.Qs=-40+0.24PorP=166.67+4.17Qs,thenPt=P+$25=166.67+25+4.17QsPt=191.67+4.17QsorQs=-45.96+0.24P

Thenewequilibriumpricewillbe:NewSupply=DemandQs=-45.96+0.24P=112-0.064P=QdSolvingyieldsP=$519.60pertruckhood

c. Sincethenewsellingpricein(c)is$519.60andthetaxis$25perhood,Midcontinentwouldreceiveonly$494.6perhood.Asquantitysoldhasfallentoo,revenueswouldfall.

Diff:3Section: 2.6

115) SupposethatasmallmarketMajorLeagueBaseballteamcurrentlycharges$12foraticket.Atthisprice,theyareabletosell12,000ticketstoeachgame.Iftheyraiseticketpricesto$15,theywouldsell11,053ticketstoeachgame.Whatisthepriceelasticityofdemandat$12?Ifthedemandcurveislinear,whatisthealgebraicexpressionfordemand?

Answer: ThepriceelasticityofdemandisE= PQ

QP

= 1212,000

-9473

=-0.316.Ifthe

demandcurveislinear,itisintheformofQD=a+bP.Also,weknowthat

E=b PQb=E Q

P=-0.316 12,000

12=-316.Rearrangingthelinearexpressionfor

demandallowsustosolveforaasfollows:a=QD-bPa=12,000+316(12)=15,792.WemaynowwritethelinearexpressionfordemandasQD=15,792-316P.

Diff:2Section: 2.6

48

116) Supposethattheshort-runworlddemandandsupplyelasticitiesforcrudeoilare-0.076and0.088,respectively.Thecurrentpriceperbarrelis$30andtheshort-runequilibriumquantityis23.84billionbarrelsperyear.Derivethelineardemandandsupplyequations.Answer: Ifthedemandcurveislinear,itisintheformofQD = a + bP Also,weknowthat

E=b PQb=E Q

P=-0.076 23.84

30=-0.060.Rearrangingthelinearexpressionfor

demandallowsustosolveforaasfollows:a=QD-bPa=23.84+0.060(30)=25.640.WemaynowwritethelinearexpressionfordemandasQD=25.640-0.060P. Ifthesupplycurveislinear,itisintheformof

QS=c+dP.Also,weknowthatE=dPQd=E Q

P=0.088 23.84

30=0.070.

Rearrangingthelinearexpressionfordemandallowsustosolveforcasfollows:c=QS-dPc=23.84-0.070(30)=21.740.WemaynowwritethelinearexpressionforsupplyasQS=21.740+0.070P.

Diff:2Section: 2.6

117) Supposethatthelong-runworlddemandandsupplyelasticitiesofcrudeoilare-0.906and0.515,respectively.Thecurrentlong-runequilibriumpriceis$30perbarrelandtheequilibriumquantityis16.88billionbarrelsperyear.Derivethelinearlong-rundemandandsupplyequations.Next,supposethelong-runsupplycurveyouderivedaboveconsistsofcompetitivesupplyandOPECsupply.Ifthelong-runcompetitivesupplyequationis:SC=7.78+0.29P,whatmustbeOPECslevelofproductioninthislong-runequilibrium?

Answer: Ifthedemandcurveislinear,itisintheformofQD = a + bP. Also,weknowthat

E=b PQb=E Q

P=-0.906 16.88

30=-0.510.Rearrangingthelinearexpressionfor

demandallowsustosolveforaasfollows:a=QD-bPa=16.88+0.510(30)=32.180.WemaynowwritethelinearexpressionfordemandasQD=32.18-0.510P. Ifthesupplycurveislinear,itisintheformof

QS=c+dP.Also,weknowthatE=dPQd=E Q

P=0.515 16.88

30=0.290.

Rearrangingthelinearexpressionfordemandallowsustosolveforcasfollows:c=QS-dPc=16.88-0.290(30)=8.18. WemaynowwritethelinearexpressionforsupplyasQS=8.18+0.290P. OPECssupplyisthedifferencebetweentheworldsupplyandcompetitivesupplyat$30.Weknowthatworldsupplyat$30is16.88.Competitivesupplyat$30is7.78+0.29(30)=16.48.ThisimpliesthatOPECssupplyis0.4billionbarrelsperyearat$30inthislong-runequilibrium.

Diff:3Section: 2.6

118) TheU.S.DepartmentofAgricultureisinterestedinanalyzingthedomesticmarketforcorn.TheUSDAsstaffeconomistsestimatethefollowingequationsforthedemandandsupplycurves:

Qd=1,600-125PQs=440+165P

Quantitiesaremeasuredinmillionsofbushels;pricesaremeasuredindollarsperbushel.

a. Calculatetheequilibriumpriceandquantitythatwillprevailunderacompletelyfree49

market.b. Calculatethepriceelasticitiesofsupplyanddemandattheequilibriumvalues.c. Thegovernmentcurrentlyhasa$4.50bushelsupportpriceinplace.Whatimpactwillthissupportpricehaveonthemarket?Willthegovernmentbeforcedtopurchasecornunderaprogramthatrequiresthemtobuyupanysurpluses?Ifso,howmuch?Answer: a. SetQd=Qstodetermineprice.

1600-125P=440+165P1160=290PP=4

ObtainQbysubstitutingintoeitherexpression.Qd=1600-125(4)Qd=1600-500Q=1100P*=$4,Q*=1100

b. FortheOwnPriceElasticityofDemandE=-125 41100

=-0.45(approximately)

FortheOwnPriceElasticityofSupplyE=-165 41100

=0.60

c. CalculateQdandQsatthe$4.50priceQd=1600-125(4.5)Qd=1037.5Qs=440+165(4.5)Qs=1182.5surplus=Qs-Qd=1182.5-1037.5=145

Thesupportpricewouldcreateanexcesssupplyof145millionbushelsthatthegovernmentwouldbeforcedtobuy.

Diff:2Section: 2.7

50

119) Themarketforgravelhasbeenestimatedtohavethesesupplyanddemandrelationships:SupplyP=10+0.01QDemandP=100-0.01Q,

wherePrepresentspriceperunitindollars,andQrepresentssalesperweekintons.Determinetheequilibriumpriceandsales.DeterminetheamountofshortageorsurplusthatwoulddevelopatP=$40/ton.Answer: TheequilibriumpricecanbefoundbyequatingStoDintermsofQ.

10+0.01Q=100-0.01Q0.02Q=90Q=4,500tons/weekP=10+0.01(4,500)=$55/ton.

AtP=$40/ton,thequantitydemandedis:40=100-0.01Q-or-Q=6,000tons/week

Thequantitysuppliedis:40=10+0.01Q-or-Q=3,000tons/week

Theshortageis3,000tons/week.Diff:2Section: 2.7

120) AmericanMiningCompanyisinterestedinobtainingquickestimatesofthesupplyanddemandcurvesforcoal.Thefirmsresearchdepartmentinformsyouthattheelasticityofsupplyisapproximately1.7,theelasticityofdemandisapproximately-0.85,andthecurrentpriceandquantityare$41and1,206,respectively.Priceismeasuredindollarsperton,quantitythenumberoftonsperweek.

a. Estimatelinearsupplyanddemandcurvesatthecurrentpriceandquantity.b. Whatimpactwoulda10%increaseindemandhaveontheequilibriumpriceandquantity?c. IfthegovernmentrefusedtoletAmericanraisethepricewhendemandincreasedin(b)above,whatshortageiscreated?Answer: a. Firstweestimatethedemandcurve

Q=a0-b0P

Elasticityofdemand=b0PQ

.85=b0411206

-1025.1=b041b0=25Q=a0-b0P1206=a0-25(41)1206=a0-1025a0=2231Q0=2231-25P

Next,weestimatethesupplycurveQ=a1+b1P

ElasticityofSupply=b1PQ

51

1.7=b1411206

2050.2x=b141b1=50Q=a1+b1P1206=a1+50(41)a1=-844Qs=-844+50P

Checktoseeifcorrect:SetQs=Qd2231-25P=-844+50P3075=75PP=41

Theequationsarecorrect.

b. Multiplydemandequationby1.101.10(2231-25P)Qd=QsandsolveQs=-844+50PSetQd=Qsandsolve.2454.1-27.5P=-844+50P3298.1=77.5PP=42.56

SubstitutePintoQdtofindquantitydemandedQd=2454.1-27.5(42.56)Qd=1283.7or1284

c. Sincepricecannotrise,theshortagewillbethequantitydemandedwiththenewdemandminusthequantitysuppliedwiththeunchangedsupply

Quantitydemanded: Q=2454.1-27.5(41)=1326.6Quantitysupplied: Q=-844+50(41)=1206.0Shortage=1326.6-1206.0=120.6tonsperweek.

Diff:3Section: 2.7

121) Inacitywithamediumsizedpopulation,theequilibriumpriceforacitybusticketis$1.00,andthenumberofriderseachdayis10,800.Theshort-runpriceelasticityofdemandis-0.60,andtheshort-runelasticityofsupplyis1.0.

a. Estimatetheshortrunlinearsupplyanddemandcurvesforbustickets.b. Ifthedemandforbusticketsincreasedby10%becauseofariseintheworldpriceofoil,whatwouldbethenewequilibriumpriceofbustickets?c. Ifthecitycouncilrefusedtoletthebuscompanyraisethepriceofbusticketsafterthedemandforticketsincreases(see(b)above),whatdailyshortageofticketswouldbecreated?d. Wouldthebuscompanyhaveanincentivetoincreasethesupplyinthelongrungiventhecitycouncilsdecisionin(c)above?Explainyouranswer.

52

Answer: Given: P*=$1.00perticket Q*=10,800Ed=-0.60 Es=1.0

a. Demand: Qd=a0+a1P Supply: Qs=b0+b1P

Use:E= PQQPtocomputea1andb1.

Ed=1

10,800a1 Es=

110,800

b1

-0.60= 110,800

a1 1.0=1

10,800b1

a1=-6,480 b1=10,800

Solvefora0Qd=a0+a1P

Solveforb0Qs=b0+b1P

10,800=a0-6,480.00(1.0) 10,800=b0+10,800.00(1.0)

a0=17,280 b0=0.0

Qd=17,280-6,480P Qs=0.0+10,800P

b. Newdemand=(1.10)Qd=(17,280-6,480P)(1.10)Qd=19,008.00-7,128P

EquateQdtoQstogetnewequilibriumprice.19,008-7,128P=0.0+10,800PP*=$1.06perticket

c. TheshortagewouldbethequantitydemandedatP=$1.00minusthequantitysuppliedatP=$1.00

Qd=19,008-7,128($1.00)= 11,880Qs=0.0+10,800($1.00)= 10,800Shortage=11,800-10,800= 1,080ridesperday

d. No.Thebuscompanyhasnoincentivetosupplymorethan10,800ridesperday,aslongasthepriceisrestrictedat$1.00.

Diff:3Section: 2.7

53

122) Thecurrentpricechargedbyalocalmovietheateris$8perticket.Theconcessionstandatthetheateraverages$5inrevenueforeachticketsold.Atthecurrentticketprice,thetheatertypicallysells300ticketspershowing.Ifthetheaterraisesticketpricesto$9,thetheaterwillsell270tickets.Whatisthepriceelasticityofdemandat$8?Whathappenstoticketrevenueifthetheaterincreasesticketpricesto$9from$8?Whathappenstoconcessionrevenueifthetheaterincreasesticketprices?Ifthetheaterwantstomaximizethesumofticketandconcessionrevenue,shouldtheyraiseticketpricesto$9?

Answer: Thepriceelasticityofdemandat$8isE= PQ

QP

= 8300

-301=-0.8.

Initially,ticketrevenueisP*Q=$8(300)=$2,400.Ifticketpricesareraisedto$9,ticketrevenuebecomesP*Q=$9(270)=$2,430.Thus,ifticketpricesareraisedto$9,ticketrevenueincreasesby$30.At$8,theconcessionstandwillaverage$1,500permovieshowing.Ifticketpricesareraisedto$9,theconcessionstandwillaverage$1,350.Thus,concessionstandrevenueswillfallonaverageby$150.Ifthetheaterwantstomaximizethesumofticketandconcessionrevenue,theyshouldnotraiseticketpricesto$9.

Diff:3Section: 2.7

54

Chapter3 ConsumerBehavior

1) GaryFranklinisamoviecritic.HeinventedtheFranklinScalewithwhichheratesmoviesfrom1to10(10beingbest).Whenaskedabouthisscale,Mr.Franklinexplainedthatitisasubjectivemeasureofmoviequality.Amoviewitharankingof10isnotnecessarily10timesbetterthanamoviewitharankingof1,butitisbetter.Amoviewitharankingof5isbetterthanamoviewitharankingof1,butisnotasgoodamoviewitharankingof10.Thatsallitreallytellsyou.BasedonMr.Franklinsdescription,hisscaleis:

A) ordinalbutnotcardinal. B) cardinalbutnotordinal.C) anobjectivestandardtojudgemovies. D) neithercardinalnorordinal.


2) WhichofthefollowingisNOTanassumptionregardingpeoplespreferencesinthetheoryofconsumerbehavior?

A) Preferencesarecomplete.B) Preferencesaretransitive.C) Consumersprefermoreofagoodtoless.D) Alloftheabovearebasicassumptionsaboutconsumerpreferences.


3) Thetheoryofconsumerbehaviorisbasedoncertainassumptions.Thesetoffourbasicassumptionsincludes:

A) completeness.B) transitivity.C) intransitivity.D) BothAandBarecorrect.E) BothAandCarecorrect.


4) Theassumptionoftransitivepreferencesimpliesthatindifferencecurvesmust:A) notcrossoneanother.B) haveapositiveslope.C) beL-shaped.D) beconvextotheorigin.E) alloftheabove


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5) Ifamarketbasketischangedbyaddingmoreofatleastonegood,thenrationalconsumerswill:

A) rankthemarketbasketmorehighlyafterthechange.B) morelikelypreferadifferentmarketbasket.C) rankthemarketbasketasbeingjustasdesirableasbefore.D) beunabletodecidewhetherthefirstmarketbasketispreferredtothesecondorvice

versa.E) haveindifferencecurvesthatcross.


6) AconsumerprefersmarketbasketAtomarketbasketB,andprefersmarketbasketBtomarketbasketC.Therefore,AispreferredtoC.Theassumptionthatleadstothisconclusionis:

A) transitivity.B) completeness.C) allgoodsaregood.D) diminishingMRS.E) assumptionofrationality.


7) Theassumptionthatpreferencesarecomplete:A) meansthataconsumerwillspendherentireincome.B) isunnecessary,aslongastransitivityisassumed.C) recognizesthattheremaybepairsofmarketbasketsthatcannotbecompared.D) meansthattheconsumercancompareanytwomarketbasketsofgoodsanddetermine

thateitheroneispreferredtotheotherorthatsheisindifferentbetweenthem.Answer: DDiff:1Section: 3.1

8) Acurvethatrepresentsallcombinationsofmarketbasketsthatprovidethesamelevelofutilitytoaconsumeriscalled:

A) abudgetline.B) anisoquant.C) anindifferencecurve.D) ademandcurve.E) noneoftheabove


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9) Anupwardslopingindifferencecurvedefinedovertwogoodsviolateswhichofthefollowingassumptionsfromthetheoryofconsumerbehavior?

A) transitivity.B) preferencesarecomplete.C) moreispreferredtoless.D) alloftheaboveE) noneoftheabove


10) Theslopeofanindifferencecurvereveals:A) thatpreferencesarecomplete.B) themarginalrateofsubstitutionofonegoodforanothergood.C) theratioofmarketprices.D) thatpreferencesaretransitive.E) noneoftheabove


11) ZoeisanexecutiveatDellComputerCompanywhoisinchargeofdesigningthenextversionoflaptopcomputers.Shewillconsidersuchfeaturesasscreensize,weight,processorspeed,andCDandDVDdrives.Giventhefactthatitiscostlytoincludemorefeaturesinnewproducts,whymightZoebeinterestedindataonhowmuchconsumerspaidforarangeoflaptopswithdifferentattributes?

A) inordertoestimatewillingnesstopayforeachfeature.B) inordertosetanoptimalpriceforthelaptops.C) inordertodeterminethebestfeaturestoinclude.D) inordertoestimatewillingnesstotradeoffonefeatureforanother.E) alloftheabove


12) Inwhatwayscaneconomistshelpautomanufacturersestimatethemarginalrateofsubstitutionbetweenfeaturessuchasvehicleinteriorsizeandacceleration?

A) ExaminingproductioncostdataB) ConductingconsumersurveysaboutwillingnesstopayforautofeaturesC) SolvingthestandardconsumermodelD) StatisticallyanalyzinghistoricaldataonpurchasesofdifferenttypesofautosE) BandDonly


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13) Indifferencecurvesareconvextotheoriginbecauseof:A) transitivityofconsumerpreferences.B) theassumptionofadiminishingmarginalrateofsubstitution.C) theassumptionthatmoreispreferredtoless.D) theassumptionofcompleteness.E) noneoftheabove


14) Supposethatamarketbasketoftwogoodsischangedbyaddingmoreofoneofthegoodsandsubtractingoneunitoftheother.Theconsumerwill:

A) rankthemarketbasketmorehighlyafterthechange.B) rankthemarketbasketmorehighlybeforethechange.C) rankthemarketbasketjustasdesirableasbefore.D) anyoneoftheabovestatementsmaybetrue.


15) Ifindifferencecurvescross,then:A) theassumptionofadiminishingmarginalrateofsubstitutionisviolated.B) theassumptionoftransitivityisviolated.C) theassumptionofcompletenessisviolated.D) consumersminimizetheirsatisfaction.E) alloftheabove


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AlvinspreferencesforgoodXandgoodYareshowninthediagrambelow.

Figure3.1

16) BasedonFigure3.1,itcanbeinferredthat:A) AlvindoesnotconsidergoodXasgood.B) AlvinwillneverpurchaseanyofgoodY.C) AlvinregardsgoodXandgoodYasperfectsubstitutes.D) AlvinregardsgoodXandgoodYasperfectcomplements.E) noneoftheabove


17) RefertoFigure3.1.WhichofthefollowingistrueconcerningAlvinsmarginalrateofsubstitution?

A) Itisdiminishing.B) Itispositivebutvariesalongtheindifferencecurve.C) Itisconstant.D) Itiszero.


18) RefertoFigure3.1.WhichassumptionconcerningpreferencesdoAlvinsindifferencecurvesviolate?

A) DiminishingmarginalratesofsubstitutionB) TransitivityofpreferencesC) MoreispreferredtolessD) Completeness


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AlvinspreferencesforgoodXandgoodYareshowninthediagrambelow.

Figure3.2

19) BasedonFigure3.2,itcanbeinferredthat:A) AlvindoesnotconsidergoodXasgood.B) AlvinwillneverpurchaseanyofgoodY.C) AlvinregardsgoodXandgoodYasperfectsubstitutes.D) AlvinregardsgoodXandgoodYasperfectcomplements.E) noneoftheabove


20) RefertoFigure3.2.AtanyconsumptionbundlewiththequantityofgoodXexceedingthequantityofgoodY(thatis,abundlelocatedbelowthe45degreeline,likepointA),AlvinsmarginalrateofsubstitutionofgoodXforgoodYis

A) diminishing. B) positive.C) constantandpositive. D) zero.


21) RefertoFigure3.2.WhichassumptionconcerningpreferencesdoAlvinsindifferencecurvesviolate?

A) DiminishingmarginalratesofsubstitutionB) TransitivityofpreferencesC) MoreispreferredtolessD) CompletenessE) bothAandC


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22) Whichofthefollowingistrueabouttheindifferencecurvewhereonecommodity(suchaspollution)isbad?

A) Ithasanegativeslope. B) Ithasapositiveslope.C) Itishorizontal. D) Itisvertical.


23) Ifindifferencecurvesareconcavetotheorigin,whichassumptiononpreferencesisviolated?A) DiminishingmarginalratesofsubstitutionB) TransitivityofpreferencesC) MoreispreferredtolessD) Completeness


24) Envisionagraphwithmeatonthehorizontalaxisandvegetablesontheverticalaxis.Astrictvegetarianwouldhaveindifferencecurvesthatare:

A) verticallines.B) horizontallines.C) diagonalstraightlines.D) rightangles.E) upwardsloping.


Considerthefollowingthreemarketbaskets:

Table3.1Food Clothing

A 6 3B 8 5C 5 8

25) RefertoTable3.1.Ifpreferencessatisfyallfourofthebasicassumptions:A) AisonthesameindifferencecurveasB.B) BisonthesameindifferencecurveasC.C) AispreferredtoC.D) BispreferredtoA.E) BothAandBanswerchoicesarecorrect.


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26) RefertoTable3.1.Whichofthefollowingcannot betrue?A) TheconsumercouldbeindifferentbetweenAandB.B) AandCcouldbeonthesameindifferencecurves.C) TheconsumercouldbeindifferentbetweenBandC.D) AandCcouldbeondifferentindifferencecurves.


27) Considerthefollowingthreemarketbaskets:

Food ClothingA 15 18B 13 19C 14 17

IfbasketsBandCareonthesameindifferencecurve,andifpreferencessatisfyallfourofthebasicassumptions,then:

A) AispreferredtoC.B) AispreferredtoB.C) BothAandBanswerchoicesarecorrect.D) noneoftheabove


28) Mikeyisverypickyandinsiststhathismommakehisbreakfastwithequalpartsofcerealandapplejuiceanyothercombinationanditendsuponthefloor.Cerealcosts4centspertablespoonandapplejuicecosts6centspertablespoon.IfMikeysmombudgets$8permonthforMikeysbreakfast,howmuchcerealandjuicedoesshebuy?

A) 40tablespoonseachofcerealandjuiceB) 80tablespoonseachofcerealandjuiceC) 40tablespoonsofcerealand75tablespoonsofjuiceD) 100tablespoonsofcerealand67tablespoonsofjuice


29) Janeistryingtodecidewhichcoursestotakenextsemester.Shehasnarroweddownherchoicetotwocourses,Econ1andEcon2.Nowsheishavingtroubleandcannotdecidewhichofthetwocoursestotake.Itsnotthatsheisindifferentbetweenthetwocourses,shejustcannotdecide.Aneconomistwouldsaythatthisisanexampleofpreferencesthat:

A) arenottransitive.B) areincomplete.C) violatetheassumptionthatmoreispreferredtoless.D) alloftheabove


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30) Whichofthefollowingareexamplesofsituationsinwhichthestandardmodeloftheconsumermaynotberealistic?

A) ImpulsepurchasesB) FollowingfadsandfashionsinsteadofonesownpreferencesC) Addic

test bank to accompany -...

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