ECP3704 Exam 1 UPDATED ACTUAL
Exam Questions and CORRECT Answers
The income effect means that when the price of a good rises - CORRECT ANSWER - 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 - CORRECT ANSWER - he will spend
his entire available income.
A budget line - CORRECT ANSWER - 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 - CORRECT
ANSWER - 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 - CORRECT
ANSWER - are L-shaped.
The idea that a consumer is limited to selecting a bundle of goods that is affordable is captured
by the: - CORRECT ANSWER - 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) -
CORRECT ANSWER - 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? - CORRECT ANSWER - 20
, If you lend $100 to that friend who never pays you back, what will happen to your budget line? -
CORRECT ANSWER - It will shift inward
If consumers expect future prices to be higher, - CORRECT ANSWER - then demand will
increase.
Which of the following is not a supply shifter? - CORRECT ANSWER - Average income
level
Suppose there is a simultaneous increase in demand and decrease in supply, what effect will this
have on the equilibrium price? - CORRECT ANSWER - 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. -
CORRECT ANSWER - $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 - CORRECT ANSWER - $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? - CORRECT ANSWER - 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 - CORRECT ANSWER - Consumer surplus
The opportunity cost of an action is the - CORRECT ANSWER - Value of the most highly
valued alternative action given up
As price raises, demand - CORRECT ANSWER - remains the same.
Exam Questions and CORRECT Answers
The income effect means that when the price of a good rises - CORRECT ANSWER - 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 - CORRECT ANSWER - he will spend
his entire available income.
A budget line - CORRECT ANSWER - 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 - CORRECT
ANSWER - 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 - CORRECT
ANSWER - are L-shaped.
The idea that a consumer is limited to selecting a bundle of goods that is affordable is captured
by the: - CORRECT ANSWER - 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) -
CORRECT ANSWER - 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? - CORRECT ANSWER - 20
, If you lend $100 to that friend who never pays you back, what will happen to your budget line? -
CORRECT ANSWER - It will shift inward
If consumers expect future prices to be higher, - CORRECT ANSWER - then demand will
increase.
Which of the following is not a supply shifter? - CORRECT ANSWER - Average income
level
Suppose there is a simultaneous increase in demand and decrease in supply, what effect will this
have on the equilibrium price? - CORRECT ANSWER - 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. -
CORRECT ANSWER - $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 - CORRECT ANSWER - $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? - CORRECT ANSWER - 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 - CORRECT ANSWER - Consumer surplus
The opportunity cost of an action is the - CORRECT ANSWER - Value of the most highly
valued alternative action given up
As price raises, demand - CORRECT ANSWER - remains the same.
