Chapter 7 Review in Economics

Topics: Supply and demand, Consumer theory, Elasticity Pages: 2 (416 words) Published: April 7, 2011
Question 1
Marks: 1
Marginal utility is best computed as the:
Choose one answer.
| D. change in total utility from an additional unit consumed. | | Question 2
If the price of chocolate-covered peanuts decreases from $1.05 to $0.95 and the quantity demanded increases from 180 bags to 220 bags, this indicates that, if other things are unchanged, the absolute value of the price elasticity of demand using the midpoint method is: Choose one answer.

| A. 2. | |
Question 3
If an increase in the price of a good leads to an increase in total revenue, then: Choose one answer.
| C. the demand curve must be price inelastic. | |
Question 4
If a consumer purchases a combination of commodities X and Y such that MUx/Px = 20 and MUy/Py = 10, to maximize utility, the consumer should buy: Choose one answer.
| D. more of X and less of Y. | |
Question 5
Consumers who maximize utility are said to be:
Choose one answer.
| D. rational. | |
Question 6
The absolute value of the price elasticity of demand for cabbage has been estimated to be 0.25. If an insect infestation destroys 20% of the nation's cabbage crop (and thus reduces supply), how will that affect total expenditures on cabbage, all other things equal? (Hint: Consider the change in cabbage prices.) Choose one answer.

| B. Total expenditures will rise. | |
Question 7
If an increase in income leads to a decrease in the demand for a good, then the good is said to be: Choose one answer.
| D. inferior. | |
Question 8
Michael Kawamura, a careful maximizer of utility, consumes only two goods, peanut butter and ice cream. He had just achieved the utility-maximizing solution in his consumption of the two goods when the price of peanut butter fell. As he adjusts to this event the marginal utility of peanut butter: | C. will fall, and the marginal utility of ice cream will rise. | | Question 9

If your purchases of shoes increase from 9 pairs per year to 11 pairs per...
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