ECON 302 Exam 2 Questions With Correct Answers

The law of diminishing marginal returns assumes that A. Additional inputs are added in smaller and smaller increments B. there is at least one fixed input C. All inputs are changed by the same percentage D. All inputs are held constant - Answer B If indifference curves cross, then A. Consumers minimize their satisfaction B. The assumption of a demising marginal rate of substitution is violated C. The assumption of completeness is violated D. The assumption of transivity is violated E. All of the above - Answer D The above figure shows Bobby's indifference map for soda and juice. B1 indicates his original budget line. B2 indicates his budget line resulting from a decrease in the price of soda. What change in quantity best represents his substitution effect? A. 3 B. 10 C. 15 D. 7 - Answer A The curve in the digram below is called A. The demand curve B. The price consumption curve C. The income consumption curve D. The Engel Curve E. None of the above - Answer B An upward sloping indifference curve defined over two goods violates which of the following assumptions from the theory of consumer behavior? A) more is preferred to less. B) transitivity. C) preferences are complete. D) all of the above E) none of the above - Answer A Bill currently uses his entire budget to purchase 5 cans of Pepsi and 3 hamburgers per week. The price of Pepsi is $1 per can, the price of a hamburger is $2, Bill's marginal utility from Pepsi is 4,and his marginal utility from hamburgers is 6. Bill could increase his utility by: A) increasing Pepsi consumption and reducing hamburger consumption. B) increasing hamburger consumption and reducing Pepsi consumption. C) maintaining his current consumption choices. D) We do not have enough information to answer this question. - Answer A In the long run, all factors of production are A) rented. B) materials. C) fixed. D) variable. - Answer D If the price elasticity of demand for a good is less than one in absolute value, economists would characterize consumers of this good A) as very sensitive to price. B) as not very sensitive to price. C) as elastic. D) as not very sensitive to the quantity they demand. - Answer B Johnny has allocated $30 toward coffee and tea and feels that coffee and tea are perfect substitutes.Due to differences in caffeine levels, his MRS for coffee with tea equals 2. If coffee and tea sell forthe same price, Johnny will A) spend $20 on coffee and $10 on tea. B) spend all $30 on coffee. C) spend all $30 on tea. D) be indifferent between any bundle of coffee and tea costing $30. - Answer B