1) Which of the following statements is not true? A) If tea and coffee are perfe
ID: 1137154 • Letter: 1
Question
1) Which of the following statements is not true?
A) If tea and coffee are perfect substitutes in your consumption, then you will only consume the good with the lowest price.
B) If tea and coffee are perfect substitutes in your consumption, then you will consume some quantity of both goods if the prices of tea and coffee are equal.
C) You view coffee and donuts as perfect complements, and the corners of your indifference curves follow the 45-degree line. As long as your income and the prices of coffee and donuts are positive, you will not choose a corner solution.
D) You view coffee and donuts as perfect complements, and the corners of your indifference curves follow the 45-degree line. You will consume coffee and donuts at some point along the 45-degree line where your MRS equals the price ratio for the two goods.
2) You may consume ice cream or frozen yogurt, and ice cream consumption is plotted along the horizontal axis of your indifference map. The prices are denoted PY for frozen yogurt and PIC for ice cream. Under what condition will you only consume frozen yogurt?
A) MRS is greater than PIC/PY.
B) MRS is less than PIC/PY.
C) MRS is less than PY/PIC.
D) MRS is infinite.
3) When the current price is above the market-clearing level we would expect:
A) quantity demanded to exceed quantity supplied.
B) quantity supplied to exceed quantity demanded.
C) a shortage.
D) greater production to occur during the next period.
Scenario 1.1:
The demand for books is: Qd = 120 - 5P
The supply of books is: Qs = 5P
4) Refer to Scenario 1.1. What are the equilibrium price and quantity of books?
A) $12 and 20 books
B) $12 and 60 books
C) $60 and 12 books
D) $60 and 20 books
E) none of the above
5) Refer to Scenario 1.1. If the government imposes a price, P = $15, which of the following is true?
A) There is a surplus equal to 30.
B) There is a shortage equal to 30.
C) There is a surplus, but it is impossible to determine how large.
D) There is a shortage, but it is impossible to determine how large.
Scenario 1.2:
The inverse demand curve for product X is given by:
PX = 30 - 0.005Q + 0.15PY,
where PX represents price in dollars per unit, Q represents the rate of sales in pounds per week, and PY represents the selling price of another product Y in dollars per unit. The inverse supply curve of product X is given by: PX = 5 + 0.005Q.
6) Refer to Scenario 1.2. What are the equilibrium price and sales of X if PY = $100?
A) $22 per unit and 3,000 units per week
B) $25 per unit and 4,000 units per week
C) $14.56 per unit and 2,388.9 units per week
D) $25 per unit and 3,000 units per week
E) $10 per unit and 4,000 units per week
7) Refer to Scenario 1.2. What can you conclude about the relationship between X and Y? (Hint: try changing the price of Y whiles keeping the price of X fixed and observe how the quantity of X changes)
A) Substitutes
B) Complements
C) Unrelated
D) Insufficient Information to determine the relationship
E) None of the above
8) Which of the following represents the price elasticity of demand?
A)
B) +
C) ×
D) -
9) The income elasticity of demand refers to:
A) a change in income following a change in quantity demanded.
B) the substitution of one good for another as income changes.
C) the percentage change in quantity demanded resulting from a 1-percent increase in income.
D) the change in income required for quantity demanded to change by 1%.
10) The cross-price elasticity of demand for peanut butter with respect to the price of jelly is -0.3. If we expect the price of jelly to decline by 15%, what is the expected change in the quantity demanded for peanut butter?
A) +15%
B) +45%
C) +4.5%
D) -4.5%
11) Suppose that, at the market clearing price of natural gas, the price elasticity of demand is -1.2 and the price elasticity of supply is 0.6. What will result from a price ceiling that is 10 percent below the market clearing price?
A) A shortage equal to 1.8 percent of the market clearing quantity
B) A shortage equal to 0.6 percent of the market clearing quantity
C) A shortage equal to 18 percent of the market clearing quantity
D) A shortage equal to 6 percent of the market clearing quantity
E) More information is needed.
12) A price floor policy establishes a minimum price for a market. Which of the following results from a binding price floor?
A) Equilibrium
B) Excess demand
C) Excess supply
D) Shortage
Explanation / Answer
Answer
1) The correct answer is (D) You view coffee and donuts as perfect complements, and the corners of your indifference curves follow the 45-degree line. You will consume coffee and donuts at some point along the 45-degree line where your MRS equals the price ratio for the two goods.
Whenever there is perfect compliments of the form U(C,D) = min{C, D}, Consumer always puechase that C and D such that C = D .i.e. point on the 45 degree line. Hence the correct answer is (D)
2) The correct answer is (B) MRS is less than PIC/PY
If Budget Line is steeper than IC then he will always consume good on vertical axis.. Assuming MRS here is taken as absolute value(MRS is actually negative, I have assumed that we have taken Absolute Value of MRS). Hence -MRS > -PIC/PY => MRS(absolute value) < PIC/PY
Hence The correct answer is (B) MRS is less than PIC/PY
3) The correct answer is (B) quantity supplied to exceed quantity demanded.
If Price is higher than Market Price. As we all know at Market Price Quantity demanded = Quantity Supplied. Hence If price increases from market Price quantity demand will decrease and Quantity supplied will increase. Hence At price above Market Price Quantity Supplied is greater than Quantity Demand
4) The correct answer is A) $12 and 20 books
(Equilibrium occurs when Qd = 120 - 5P =Qs = 5P => 120 - 5P = 5P => P = 12 and Equilibrium quantity = 12*5 = 60
5) The correct answer is (A) There is a surplus equal to 30.
The correct answer is At P = 15 Quantity supplied = 75 and quantity demand = 45 Hence there is a surplus of 75 - 45 = 30 units
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