ECP3704 STUDY CORRECT EXAM QUESTIONS AND
ANSWERS SURE A+
✔✔When the price of sugar was "low", total revenue collected by the U.S. sugar
industry totaled $3 billion annually. When the price doubled, total revenues for the sugar
industry increased to $5 billion annually. This data indicates that: - ✔✔the demand for
sugar is inelastic.
✔✔Assume the demand for SeatComfy chairs is Q = 5,000 - 25P + 4M + 10PA - 15PT,
where P = the price of chairs; PA = price of a competitors' chairs; PT = price of tables;
and M = income of customers. Which of the following is true? - ✔✔SeatComfy's chairs
are normal goods; SeatComfy's chairs and tables are complements, while SeatComfy's
and competitors' chairs are substitutes. SeatComfy's sales decrease by 25 units as
price increases by $1.
✔✔Since most consumers spend very little on salt, an increase in the price of salt will -
✔✔Reduce quantity demanded by a small amount
✔✔The income effect means that when the price of a good rises - ✔✔the buying power
of your income falls.
✔✔Assume Joseph spends his entire income on X and Y, and his indifference curves
have the usual convex shape. If Joseph maximizes his utility, then - ✔✔he will spend
his entire available income.
✔✔A budget line - ✔✔shows all the combinations of goods that require the same total
expenditure.
✔✔Johnny consumes only bread and milk. Suppose the quantity of bread is measured
along the horizontal axis. If the price of milk falls, his budget constraint will - ✔✔rotate
clockwise outward.
, ✔✔My wife really likes shoes. Every time she buys new shoes, she claims to need both
a right shoe and a matching left shoe. Her indifference curves for right shoes and left
shoes - ✔✔are L-shaped.
✔✔The idea that a consumer is limited to selecting a bundle of goods that is affordable
is captured by the: - ✔✔Budget constraint
✔✔What is the maximum amount of good Y that can be purchased if X and Y are the
only two goods available for purchase and PX = $3, PY = $2, X = 100, and M = 1200?
(Note: X is the quantity of X purchased, PX is the price of X, PY is the price of Y, and M
is income) - ✔✔450
✔✔Given that income is $800 and the price of good Y is $40. What is the vertical
intercept of the budget line on a normal X-Y graph? - ✔✔20
✔✔If you lend $100 to that friend who never pays you back, what will happen to your
budget line? - ✔✔It will shift inward
✔✔If consumers expect future prices to be higher, - ✔✔then demand will increase.
✔✔Which of the following is not a supply shifter? - ✔✔Average income level
✔✔Suppose there is a simultaneous increase in demand and decrease in supply, what
effect will this have on the equilibrium price? - ✔✔It will rise
✔✔Consider a market characterized by the following inverse demand and supply
functions: PX = 10 - 2QX and PX = 2 + 2QX? Compute the equilibrium price and
quantity in this market. - ✔✔$6 and 2 units, respectively
✔✔Suppose the market supply for good X is given by QXS = -100 + 5PX. If the
equilibrium price of X is $100 per unit then producer surplus is - ✔✔$16,000
✔✔Suppose the demand for good X is given by QdX= 20 - 4PX + 2PY + M. The price of
good X is $5, the price of good Y is $15, and income is $150. Given these prices and
income, how much of good X will be purchased? - ✔✔180
✔✔My wife pays the market price of $80 for a new pair of running shoes, even though
she would be happy to pay a maximum of $100 for the pair of shoes. This is an example
of the economic concept of - ✔✔Consumer surplus
✔✔The opportunity cost of an action is the - ✔✔Value of the most highly valued
alternative action given up
ANSWERS SURE A+
✔✔When the price of sugar was "low", total revenue collected by the U.S. sugar
industry totaled $3 billion annually. When the price doubled, total revenues for the sugar
industry increased to $5 billion annually. This data indicates that: - ✔✔the demand for
sugar is inelastic.
✔✔Assume the demand for SeatComfy chairs is Q = 5,000 - 25P + 4M + 10PA - 15PT,
where P = the price of chairs; PA = price of a competitors' chairs; PT = price of tables;
and M = income of customers. Which of the following is true? - ✔✔SeatComfy's chairs
are normal goods; SeatComfy's chairs and tables are complements, while SeatComfy's
and competitors' chairs are substitutes. SeatComfy's sales decrease by 25 units as
price increases by $1.
✔✔Since most consumers spend very little on salt, an increase in the price of salt will -
✔✔Reduce quantity demanded by a small amount
✔✔The income effect means that when the price of a good rises - ✔✔the buying power
of your income falls.
✔✔Assume Joseph spends his entire income on X and Y, and his indifference curves
have the usual convex shape. If Joseph maximizes his utility, then - ✔✔he will spend
his entire available income.
✔✔A budget line - ✔✔shows all the combinations of goods that require the same total
expenditure.
✔✔Johnny consumes only bread and milk. Suppose the quantity of bread is measured
along the horizontal axis. If the price of milk falls, his budget constraint will - ✔✔rotate
clockwise outward.
, ✔✔My wife really likes shoes. Every time she buys new shoes, she claims to need both
a right shoe and a matching left shoe. Her indifference curves for right shoes and left
shoes - ✔✔are L-shaped.
✔✔The idea that a consumer is limited to selecting a bundle of goods that is affordable
is captured by the: - ✔✔Budget constraint
✔✔What is the maximum amount of good Y that can be purchased if X and Y are the
only two goods available for purchase and PX = $3, PY = $2, X = 100, and M = 1200?
(Note: X is the quantity of X purchased, PX is the price of X, PY is the price of Y, and M
is income) - ✔✔450
✔✔Given that income is $800 and the price of good Y is $40. What is the vertical
intercept of the budget line on a normal X-Y graph? - ✔✔20
✔✔If you lend $100 to that friend who never pays you back, what will happen to your
budget line? - ✔✔It will shift inward
✔✔If consumers expect future prices to be higher, - ✔✔then demand will increase.
✔✔Which of the following is not a supply shifter? - ✔✔Average income level
✔✔Suppose there is a simultaneous increase in demand and decrease in supply, what
effect will this have on the equilibrium price? - ✔✔It will rise
✔✔Consider a market characterized by the following inverse demand and supply
functions: PX = 10 - 2QX and PX = 2 + 2QX? Compute the equilibrium price and
quantity in this market. - ✔✔$6 and 2 units, respectively
✔✔Suppose the market supply for good X is given by QXS = -100 + 5PX. If the
equilibrium price of X is $100 per unit then producer surplus is - ✔✔$16,000
✔✔Suppose the demand for good X is given by QdX= 20 - 4PX + 2PY + M. The price of
good X is $5, the price of good Y is $15, and income is $150. Given these prices and
income, how much of good X will be purchased? - ✔✔180
✔✔My wife pays the market price of $80 for a new pair of running shoes, even though
she would be happy to pay a maximum of $100 for the pair of shoes. This is an example
of the economic concept of - ✔✔Consumer surplus
✔✔The opportunity cost of an action is the - ✔✔Value of the most highly valued
alternative action given up
