ECON 1002/ECON 2040 Sample Midterm exam CHAPTER 4 and 6 complete exam practice questions and answers

ECON 1002/ECON 2040 Sample Midterm exam CHAPTER 4 and 6 complete exam practice questions and answers Chapter 4 1. Demand-side market failure A. arises in situations in which a firm does not have to pay the full cost of producing its output. B. arises when it is impossible to charge consumers what they are willing to pay for a product. C. exists in equilibrium with supply-side market failure. D. happens only when the quantity of a good demanded is less than that which is supplied. 2. Supply-side market failure A. arises in situations in which a firm does not have to pay the full cost of producing its output. B. arises when it is impossible to charge consumers what they are willing to pay for a product. C. exists in equilibrium with supply-side market failure. D. happens only when the quantity of a good demanded is less than that which is supplied. 3. Producer surplus refers to: A. The total amount producer spends for making the product B. The area under the demand curve above the equilibrium price C. The price the producer receives. D. The difference between producer's revenue from selling the product and the cost of producing it. 4. Refer to the diagram. The area of producer surplus would be represented by triangular area: A. a. B. b. C. c. D. d. 5. If the price of a product increases: A. the consumer surplus will increase. B. the producer surplus will increase. C. the price increase has no effect on the producer surplus. D. the consumer surplus will not change. This study source was downloaded by from CourseH on :53:03 GMT -05:00 This study resource was shared via CourseH 2 Chapter 6 1. The price elasticity of demand is: A) negative, but the minus sign is ignored. B) positive, but the plus sign is ignored. C) positive for normal goods and negative for inferior goods. D) positive because price and quantity demanded are inversely related. 2. If the price of shoes falls from $10 to $8 and the amount sold increases by 12 percent, it can be concluded that: A) the demand for shoes is perfectly inelastic. B) the demand for shoes is inelastic. C) the demand for shoes is elastic. D) shoes are complementary goods. 3. If a demand for a product is elastic, the value of the price elasticity coefficient is: A) zero. B) greater than one. C) equal to one. D) less than one. 4. Which of the following is correct? A) If demand is elastic, an increase in price will increase total revenue. B) If demand is elastic, a decrease in price will decrease total revenue. C) If demand is elastic, a decrease in price will increase total revenue. D) If demand is inelastic, an increase in price will decrease total revenue. 5. A study reported that the coefficient of the cross price elasticity of popcorn and potato chips is positive. Based on this report, you can conclude that popcorn and potato chips are: A) normal goods. B) complementary goods. C) substitute goods. D) independent goods. 6. Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decline in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is: A) negative and therefore these goods are substitutes. B) negative and therefore these goods are complements. C) positive and therefore these goods are substitutes. D) positive and therefore these goods are complements. 7. If the income elasticity of demand for lard is -3.00, this means that: A) lard is a substitute for butter. B) lard is a normal good. C) lard is an inferior good. D) more lard will be purchased when its price falls. This study source was downloaded by from CourseH on :53:03 GMT -05:00 This study resource was shared via CourseH 3 8.The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a: A) 1 percent reduction in price. B) 12 percent reduction in price. C) 40 percent reduction in price. D) 20 percent reduction in price Chapter 7 1."If the price of a product falls, that product becomes cheaper and people will want to purchase more of it in place of other goods." This statement best describes: A) the income effect. B) the substitution effect. C) a complementary good. D) an inferior good. 2.George consumes only two goods, pizza and compact discs. Both are normal goods for George. Suppose the price of pizza decreases. George's consumption of compact discs will: A) increase due to the income effect. B) increase due to the substitution effect. C) increase due to a negative income elasticity. D) remain unchanged, since the income elasticity of pizza is greater than 0. 3.If a product has a diminishing but positive marginal utility, then: A) a reduction in consumption by one unit will increase total utility. B) the product cannot be an inferior good. C) total utility increases at a diminishing rate. D) total utility decreases at a diminishing rate. 4.Which of the following defines marginal utility? A) the change in total utility divided by the price of a product B) the maximum amount of satisfaction from consuming a product C) the total satisfaction received from consuming as much of the product that is available for consumption D) the additional satisfaction received from consuming one more unit of a product 5.The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi: A) is 26 units of utility. B) is 6 units of utility. C) is 8 units of utility. D) is 38 units of utility. 6.The law of diminishing marginal utility states that: A) total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. This study source was downloaded by from CourseH on :53:03 GMT -05:00 This study resource was shared via CourseH 4 B) beyond some point additional units of a product will yield less and less extra satisfaction to a consumer. C) price must be lowered to induce firms to supply more of a product. D) it will take larger and larger amounts of resources beyond some point to produce successive units of a product. 7.Consider the graphs A through D, which depict the total utility a consumer receives from consuming good X. The principle of diminishing marginal utility is best illustrated by: A) graph A. B) graph B. C) graph C. D) graph D. 8.The theory of consumer behavior assumes: A) that consumers behave rationally, maximizing their satisfactions. B) that the consumer has a limited income. C) that consumers know how much marginal utility they obtain from successive units of various products. D) all of the above. 9.When a consumer is maximizing total utility, A) the average utility from each dollar spent is the same. B) total utility cannot be increased by reallocating expenditures among various products. C) the total utility obtainable from each product is at a maximum. D) the marginal utility of the last unit of each product purchased is zero. 10.An increase in the price of product A will: A) increase the marginal utility per dollar spent on A. B) decrease the marginal utility per dollar spent on A. C) not affect the marginal utility per dollar spent on A. D) cause utility-maximizing consumers to buy more of A. 11.Assume that product Alpha and product Beta are both priced at $1 per unit and that Ellie has $20 to spend on Alpha and Beta. The marginal utility of Alpha is 40 and the marginal utility of Beta is 20. This indicates that: A) Ellie should make no change in consumption. B) given another dollar, Ellie should buy an additional unit of Beta. C) in order to maximize utility, Ellie should buy more of Beta and less of Alpha. D) in order to maximize utility, Ellie should buy more of Alpha and less of Beta. This study source was downloaded by from CourseH on :53:03 GMT -05:00 This study resource was shared via CourseH 5 12.Rosenbaum is purchasing products C and D in utility-maximizing amounts. If the price of C is $4 and the price of D is $2, then: A) the marginal utility of D is twice that of C. B) the marginal utility of D is the same as that of C. C) the marginal utility of C is twice that of D. D) the marginal utility of C is four times that of D. Use the following to answer questions 13-15: The marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4 and the price of product Y is $2. The income of the consumer is $20. 13.Refer to the above table. If the consumer can only buy product X, how much will the consumer buy and what will be the total utility per dollar spent? A) 4X and 20 B) 4X and 104 C) 5X and 16 D) 5X and 120 14.Refer to the above table. If the consumer buys both product X and product Y, how much will the consumer buy of each to maximize utility? A) 4X and 2Y B) 3X and 4Y C) 4X and 3Y D) 5X and 3Y 15.Refer to the above table. When the consumer purchases the utility-maximizing combination of product X and product Y, total utility will be: A) 72. B) 84. C) 136. D) 156.