Sample Quiz
Multiple Choice
1. If an increase in border patrols decreases the supply of illicit drugs, which of the following is expected?
a. A decrease in the price of illicit drugs
b. An increase in the quantity of illicit drugs
c. A decrease in drug related crime
d. An increase in the total amount spent on drugs
e. All of the above
2. The law of demand
a. says that people do less of what they want to do as the cost of doing it rises.
b. is not related to the cost/benefit principle.
c. describes a positive relationship between price and quantity demanded.
d. excludes non-monetary costs.
e. all of the above
3. Which of the following describes the law of diminishing marginal utility?
a. The more you consume, the happier you are.
b. As you consume more, your level of happiness falls.
c. As prices fall, you enjoy consuming more.
d. You enjoy the first units you consume more than later units.
e. An increase in income increases your happiness.
4. Which of the following happens as a result of an increase in income?
a. Demand is stimulated.
b. Prices fall.
c. Total utility decreases.
d. Marginal utility increases.
e. all of the above
5. If the price of new cars falls, what will happen to the demand for used cars?
a. remain the same
b. increase
c. decrease
d. shift to the right
e. become more inelastic
6. Which of the following explains why automobile engines are smaller in England than in the United States?
a. Income is higher in the United States.
b. Income is higher in England.
c. The price of gasoline is higher in the United States.
d. The price of gasoline is higher in England.
e. The gasoline tax in England is relatively low.
7. Refer to the graph below. Which of the following is correct?
a. The slope of the demand curve is -.25.
b. The vertical intercept of the demand curve is 50.
c. The vertical intercept of the demand curve is 400.
d. The equation of the demand curve is: P = 100 - 4Q.
e. The equation of the demand curve is: Q = 100 - 4P.
price
100
50
demand
200 400 Quantity
8. Which of the following goods will have the most inelastic demand?
a. A Burger King hamburger
b. A can of generic brand peaches
c. Prescription medication
d. Food in the campus dining hall
e. A particular section of an economic class at a large university
9. Which of the following is not a determinant of price elasticity of demand?
a. Substitute possibilities
b. Budget share
c. Time
d. All of the above are determinants of price elasticity of demand.
e. None of the above are determinants of price elasticity of demand.
10. Which of the following is true if income elasticity of demand is positive for goods X and Y?
a. They are substitutes.
b. They are complements.
c. They are normal goods.
d. They are inferior goods.
e. Their demands are elastic.
Problems/Short Answer
1. Your current marginal utility from consuming soda is 400 utils per ounce and your current marginal utility from consuming milk is 600 utils per ounce.
a. If the price of soda is $.07 per ounce and the price of milk is $.25 per ounce, are you maximizing your total utility from milk and soda? Explain.
b. What would happen to your total utility from milk and soda if you increased your consumption of milk and decreased your consumption of soda? Explain.
2. You operate your own business selling college t-shirts. The demand schedule for your t-shirts is shown below.
a. Graph the demand curve shown in the table.
b. Derive the algebraic expression for the demand schedule shown in the table.
c. Calculate the price elasticity of demand if the price of t-shirts is $5.
d. Use your answer in part "c" to explain what will happen to your total revenue if you increase the price of your t-shirts from $5.
|
Price |
Quantity Demanded |
|
10 |
0 |
|
7.5 |
5 |
|
5 |
10 |
|
2.5 |
15 |
|
0 |
20 |