CHAPTER FIVE QUESTION POOL Flashcards
Consider a demand curve given by Q(P) = 36 − 14P. What is the price elasticity of demand at Q = 4? a) 8 b) 49 c) 2 49 d) 24.5
A
Consider three persons A, B, and C. All three of them have the same willingness to pay for a
good. Each of them buys the good for the same price p. The sum of their consumer surplus is
150. Which of the following statements would be in line with this setting?
a) The maximum willingness to pay of each of them is 150 and the price is p=100.
b) The maximum willingness to pay of each of them is 100 and the price is p=100.
c) The maximum willingness to pay of each of them is 150 and the price is p=150.
d) The maximum willingness to pay of each of them is 100 and the price is p=150.
A
Consider a demand curve given by Q(P) = 20−4P. At which price is the price elasticity of
demand equal to one (round to the first decimal if needed)?
a) P=2.2
b) P=4.8
c) P=2.5
d) P=4.7
C
Consider our discussion of different types of elasticities in class. Which of the following
statements is NOT correct?
a) As the number of available substitutes for a good grows, the price elasticity of demand for
that good increases.
b) Complements have negative cross-price elasticity, while substitutes have positive crossprice
elasticity.
c) Luxury goods such as foreign vacation are likely to have a high income elasticity of
demand.
d) Normal goods have a negative income elasticity of demand, while inferior goods have a
positive income elasticity of demand.
D
Consider our discussion of utility in class. Which of the following statements is correct?
a) The unit of the marginal rate of substitution 𝑀𝑅𝑆!””#$%,’()()(%is ‘()()(%
!””#$% .
b) Lower indifference curves are preferred to higher ones.
c) If a consumer’s utility is 20 for bundle A and 40 for bundle B, this implies that the
consumer likes bundle B twice as much as bundle A.
d) Indifference curves sometimes cross.
A
In the two countries A-Land and B-Land, the market for apples is perfectly competitive. In ALand,
demand for apples is almost perfectly elastic. In B-Land, demand for apples is almost
perfectly inelastic. Suppose that in both countries the supply curve shifts to the left by the
same magnitude. Which statement is correct?
a) The change in the equilibrium price in B-Land is smaller than in A-Land.
b) The change in the equilibrium quantity in A-Land is bigger than in B-Land.
c) The shift of the supply curve leads to an increase in demand in A-Land.
d) The shift of the supply curve leads to an increase in demand in B-Land.
B
Consider a demand curve given by Q(P) = 18 − 7P. What is the price elasticity of demand at Q = 4? a) 3.5 b) 4.5 c) 7 d) 5
A
Consider a perfectly competitive market for smartphones. Assume that demand is neither
perfectly elastic nor perfectly inelastic. Initially the market for smartphones is at its long-run
equilibrium. Now the price for tablets increases. Tablets and smartphones are substitutes.
Which statement is correct in the short run (holding all else equal)?
a) The price for smartphones increases and the economic profit of firms in the smartphone
market increase.
b) The price for smartphones increases and the economic profits of firms in the smartphone
market stay constant.
c) The price for smartphones decreases and the economic profits of firms in the smartphone
market decrease.
d) The price for smartphones decreases and the economic profits of firms in the smartphone
market stay constant.
A
Consider a consumer who can only buy apples and oranges. Suppose that a combination of 11
apples and 3 oranges lies on the consumer’s budget constraint. The price of one apple is €9,
and the price of one orange is €3. What is the consumer’s budget?
a) 42
b) 168
c) 126
d) 108
D
Sarah’s utility function is given by 𝑢(𝑥_1, 𝑥_2 ) = 𝑥* ∗ 𝑥+
+ . Her budget is 72. The price for
good 1 is 4 and the price for good 2 is 12. Which amounts of good 1 and good 2 will she buy?
a) 𝑥=12 and 𝑥+=2
b) 𝑥=9 and 𝑥+=6
c) 𝑥=9 and 𝑥+=3
d) 𝑥=6 and 𝑥+=4
D
Consider a demand curve given by Q(P) = 15000 – 50P. What is the price elasticity of
demand at P = 10 (round to two decimals if needed)?
a) -0.5
b) -4
c) -2
d) -0.03
D
Your market research department calls you to tell you that demand for your product has
decreased by 0.5% in response to a drop in incomes by 1%. This implies that
a) your product is a normal good.
b) your product is a luxury good.
c) your product is an inferior good.
d) The cross-price elasticity of demand of your product is negative.
A
Which statement is correct?
a) In a perfectly competitive market an individual firm wants to maximize revenue.
b) In a perfectly competitive market an individual firm always faces a perfectly elastic
demand curve.
c) In a perfectly competitive market the average total cost of an individual firm always
decrease as it produces more quantity.
d) In a perfectly competitive market an individual firm always has constant marginal cost.
B
Which of the following statements is NOT correct?
a) The marginal rate of substitution decreases as we move along an indifference curve.
b) An indifference curve shows consumption bundles the consumer could buy given their
income.
c) An indifference curve shows combinations of two goods between which a consumer is
indifferent.
d) A higher (in the sense of moving up and to the right of the origin) indifference curve
represents a higher utility.
B
A consumer spends her entire budget on two goods, A and B. At the current choice,
𝑀𝑈!/𝑃!=25 and 𝑀𝑈’/𝑃’=20. The consumer should
a) leave the choices as they are.
b) buy less of A and more of B.
c) buy less of A and buy less of B.
d) buy more of A and less of B.
D
