Test 2 practice MCQ

(Answers are at the end)

1. If the demand for product X is inelastic, a percent increase in the price of X will!

A. decrease the "uantit# of X demanded $# more than
percent.
%. decrease the "uantit# of X demanded $# less than
percent.
C. increase the "uantit# of X demanded $# more than
percent.
&. increase the "uantit# of X demanded $# less than
percent.

2. 'uppose Ai#anna(s )i**eria currentl# faces a linear demand cur+e and is char,in, a +er# hi,h price per pi**a and doin, +er#
little $usiness. Ai#anna now decides to lower pi**a prices $# - percent per wee. for an indefinite period of time. /e can e0pect
that each successi+e wee.!

A. demand will $ecome more price
elastic.
%. price elasticit# of demand will not chan,e as price is
lowered.
C. demand will $ecome less price
elastic.
&. the elasticit# of suppl# will
increase.



1.
2efer to the a$o+e dia,ram and assume a sin,le ,ood. If the price of the ,ood increased from 3-.45 to 36.15 alon, D1, the price
elasticit# of demand alon, this portion of the demand cur+e would $e!
A. 5.7
.
%. 1.5
.
C. 1.2
.
&. 2.5
.

. The elasticit# of suppl# of product X is unitar# if the price of X rises $#!
A. - percent and "uantit# supplied rises $# 4
percent.
%. 7 percent and "uantit# supplied rises $# 7
percent.
C. 15 percent and "uantit# supplied sta#s the
same.
&. 4 percent and "uantit# supplied rises $# -
percent.

-. It ta.es a considera$le amount of time to increase the production of por.. This implies that!
A. a chan,e in the demand for por. will not affect its price in the short
run.
%. the short8run suppl# cur+e for por. is less elastic than the lon,8run suppl# cur+e for
por..
C. an increase in the demand for por. will elicit a lar,er suppl# response in the short run than in the lon,
run.
&. the lon,8run suppl# cur+e for por. is less elastic than the short8run suppl# cur+e for
por..

6. The suppl# cur+e of a one8of8a8.ind ori,inal paintin, is!
A. relati+el#
elastic.
%. relati+el#
inelastic.
C. perfectl#
inelastic.
&. perfectl#
elastic.

4. /e would e0pect the cross elasticit# of demand $etween dress shirts and ties to $e!

A. positi+e, indicatin, normal
,oods.
%. positi+e, indicatin, complementar#
,oods.
C. ne,ati+e, indicatin, su$stitute
,oods.
&. ne,ati+e, indicatin, complementar#
,oods.

7. 'uppose that a 15 percent increase in the price of normal ,ood 9 causes a 25 percent increase in the "uantit# demanded of
normal ,ood X. The coefficient of cross elasticit# of demand is!

A. ne,ati+e and therefore these ,oods are
su$stitutes.
%. ne,ati+e and therefore these ,oods are
complements.
C. positi+e and therefore these ,oods are
su$stitutes.
&. positi+e and therefore these ,oods are
complements.

:.
/hich of the followin, ,oods will least li.el# suffer a decline in demand durin, a recession;

A. &inner at a nice restaurant
%. i)od
s
C. Toothpaste
&. )lasma screen and <C&
T=s

15. >enerall# spea.in,, the demand for lu0ur# ,oods is more price elastic than is the demand for necessities.

True ?alse

11. /hen the percenta,e chan,e in price is ,reater than the resultin, percenta,e chan,e in "uantit# demanded!
A. a decrease in price will increase total
re+enue.
%. demand ma# $e either elastic or
inelastic.
C. an increase in price will increase total
re+enue.
&. demand is
elastic.

12. If a firm finds that it can sell 311,555 worth of a product when its price is 3- per unit and 311,555 worth of it when its price is
36, then!
A. the demand for the product is elastic in the 3683- price
ran,e.
%. the demand for the product must ha+e
increased.
C. elasticit# of demand is
5.4.
&. the demand for the product is inelastic in the 3683- price
ran,e.

11.
/hich of the followin, ,enerali*ations is not correct;
A. The lar,er an item is in one(s $ud,et, the ,reater the price elasticit# of
demand.
%. The price elasticit# of demand is ,reater for necessities than it is for
lu0uries.
C. The lar,er the num$er of close su$stitutes a+aila$le, the ,reater will $e the price elasticit# of demand for a particular
product.
&. The price elasticit# of demand is ,reater the lon,er the time period under
consideration.

1. Mar,inal utilit# can $e!
A. positi+e, $ut not
ne,ati+e.
%. positi+e or ne,ati+e, $ut not
*ero.
C. positi+e, ne,ati+e, or
*ero.
&. decreasin,, $ut not
ne,ati+e.

1-.
'uppose that M@xAPx e0ceeds M@yAPy. To ma0imi*e utilit# the consumer who is spendin, all her mone# income should $u#!
A. less of X onl# if its price
rises.
%. more of 9 onl# if its price
rises.
C. more of 9 and less of
X.
&. more of X and less of
9.

16. /hen a consumer shifts purchases from product X to product 9 the mar,inal utilit# of!
A. X falls and the mar,inal utilit# of 9
rises.
%. X rises and the mar,inal utilit# of 9
falls.
C. $oth X and 9
rises.
&. $oth X and 9
falls.

14. &iminishin, mar,inal utilit# e0plains wh#!
A. the income effect e0ceeds the su$stitution
effect.
%. the su$stitution effect e0ceeds the income
effect.
C. suppl# cur+es are
upslopin,.
&. demand cur+es are
downslopin,.

17. Accordin, to prospect theor#, firms are more li.el# to shrin. pac.a,es than raise prices $ecause!
A. consumers feel the loss of a price increase more than the# feel the loss of $u#in, a smaller pac.a,e for their
mone#.
%. the# don(t understand that consumers reco,ni*e price increases easil#, re,ardless of what form the#
ta.e.
C. consumers associate smaller pac.a,es with hi,her "ualit# lu0ur#
,oods.
&. consumers are ,enerall# tr#in, to downsi*e their purchases and lead simpler
li+es.

1:. )rospect theor# and the wor. of $eha+ioral economists confirm that consumers are economicall# rational.

True ?alse

25. If the price of A is 312 and the price of % is 31, the $ud,et line tells us that a consumer in effect can trade!
A. 12 units of A for 1 of
%.
%. 1 unit of A for of
%.
C. 1 unit of A for 1 of
%.
&. 1 unit of % for of
A.



21.
AA is Al(s indifference cur+e and BB is %ett#(s. Al and %ett# ha+e the same $ud,et line, LL. This information implies that!
A.
Al(s demand for X is ,reater than
%ett#(s.
%.
Al(s demand for Y is ,reater than
%ett#(s.
C. Al and %ett# ha+e the same demand for $oth
products.
&.
Al will $u# some of X, $ut %ett# will
not.



22. In the a$o+e dia,ram!

A.
the consumer is indifferent $etween points A and B, $ut neither point ma0imi*es his
utilit#.
%.
the consumer is indifferent $etween points A and B and either point will ma0imi*e his
utilit#.
C.
an# com$ination of X and Y entailin, more of Y and less of X than shown at B would $e
preferred.
&.
an# com$ination of X and Y entailin, more of X and less of Y than shown at A would $e
preferred.

21. BCssentialB water is cheaper than BnonessentialB diamonds $ecause!

A. new industrial uses for diamonds ha+e $een
disco+ered.
%. the suppl# of water is ,reat relati+e to demand and the suppl# of diamonds is small relati+e to
demand.
C. althou,h the total utilit# of diamonds is ,reater, their mar,inal utilit# is
small.
&. the suppl# of diamonds is ,reat relati+e to demand and the suppl# of water is small relati+e to
demand.

2. /h# do people tend to eat more at all8#ou8can8eat $uffet restaurants than at restaurants where each item is purchased
separatel#;

A. Dnce the all8#ou8can8eat meal is purchased, consumers +iew additional trips $ac. to the $uffet as ha+in, a price of
*ero.
%. M@A) is ,reater at all8#ou8can8eat
restaurants.
C. )eople who eat at all8#ou8can8eat restaurants do not e0perience diminishin, mar,inal
utilit#.
&. ?ood at all8#ou8can8eat restaurants tends to ha+e fewer calories, so consumers feel the need to consume a ,reater +olume of
food.



2-.
2efer to the a$o+e dia,ram. The $ud,et line shift that mo+es the consumer(s e"uili$rium from point A to point B su,,ests!

A. an increase in the demand for product
X.
%. a decrease in the demand for product
X.
C. no chan,e in the demand for product
X.
&.
that X is an inferior
,ood.

test 2 practice Ee#

1. %

2. C

1. C

. %

-. %

6. C

4. &

7. C

:. C

15. T2@C

11. C

12. A

11. %

1. C

1-. &

16. %

14. &

17. A

1:. ?A<'C

25. %

21. %

22. A

21. %

2. A

2-. %