1) Suppose there is an increase in demand (rightward shift in demand). Consider
ID: 1094618 • Letter: 1
Question
1) Suppose there is an increase in demand (rightward shift in demand). Consider two graphs. In Graph [X], supply is relatively inelastic. In Graph [Y], supply is relatively elastic. Which of the following is true? Drawing graphs will help.
A) The change in Q* will be relatively smaller in Graph [X] compared to Graph [Y]
B) The change in Q* will be relatively larger in Graph [X] compared to Graph [Y]
C) The change in P* will be relatively smaller in Graph [X] compared to Graph [Y]
D) The change in P* will be relatively larger in Graph [X] compared to Graph [Y]
E) both answers [A] and [D] are true
F) both answers [B] and [C] are true
2) If you and a group of friends have been consuming large quantities of liquid beverages on a hot summer afternoon and you decide to refrain from any additional consumption, it can be concluded that
A) total utility has reached a minimum and the marginal utility of an additional drink would be large.
B) total utility has reached a maximum and the marginal utility of an additional drink would be small.
C) total utility has reached a maximum and the marginal utility of an additional drink would be zero.
D) total utility has reached a minimum and the marginal utility of an additional drink would be negative.
3) Chad is undecided about whether to eat at a restaurant or to order pizza at home. He then obtains a coupon for 20 percent off at the restaurant and decides to go there to eat. This is an example of
A) someone using criteria other than price to make a consumption decision.
B) a lower price leading a consumer to substitute more of the less expensive good for the relatively more expensive good.
C) a lower price changing the utility that is received from consumption
D) diminishing marginal utility
Explain your answers please.
Explanation / Answer
1) Suppose there is an increase in demand (rightward shift in demand). Consider two graphs. In Graph [X], supply is relatively inelastic. In Graph [Y], supply is relatively elastic. Which of the following is true? Drawing graphs will help.
E) both answers [A] and [D] are true
Q* will be smaller in X because supply cannot be increased so much. Change in P* in X will be larger because higher demand and lower supply will lead to higher price
2) If you and a group of friends have been consuming large quantities of liquid beverages on a hot summer afternoon and you decide to refrain from any additional consumption, it can be concluded that
C) total utility has reached a maximum and the marginal utility of an additional drink would be zero.
Reason- Consumption is increased until maximum utility is attained
3) Chad is undecided about whether to eat at a restaurant or to order pizza at home. He then obtains a coupon for 20 percent off at the restaurant and decides to go there to eat. This is an example of
B) a lower price leading a consumer to substitute more of the less expensive good for the relatively more expensive good.
Eating out is more expensive but discount led him to pay more and eat out
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