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ECO/365

PRINCIPLES OF MICROECONOMICS

The Latest Version A+ Study Guide

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ECO 365 Week 3 Practice: Elasticity and


Consumer Choice Quiz
Complete the Week 3 Elasticity and Consumer
Choice Quiz in McGraw-Hill Connect®. These are
randomized questions.

Note: You have unlimited attempts available to


complete practice assignments. The highest scored
attempt will be recorded. These assignments have
earlier due dates, so plan accordingly. Grades must
be transferred manually to eCampus by your
instructor. Don't worry, this might happen after the
due date.

Which of the following scenarios would lead to a


decrease in the demand for labor at Stephanie’s earring
shop?


Labor productivity increases.

The cost of capital (a substitute for labor) decreases.

The price of earrings increases.

The wage rate increases.

Which of the following scenarios would lead to an


increase in the demand for mixers at Henry’s bread
bakery?

The market price of mixers decreases.

The productivity of mixers decreases.

The wage rate of labor (a substitute for capital)
decreases.

The market price of bread increases.

Henry bakes loaves of bread, which he sells for $4 each.


He is considering purchasing additional mixers (capital)
for his bakery. Each additional mixer has the productivity
described below. Fill in the “Marginal Product,” “Total
Revenue,” and “Marginal Revenue Product” columns.
Assume this is a perfectly competitive market.

Instructions: Enter your answers as a whole number.

Henry's Bakery and Revenues


Capital (mixers) Total Product (loaves of bread)
Marginal Product (loaves of bread) Price (dollars)
Total Revenue (dollars) Marginal Revenue Product
(dollars)
0 0 — $4 $0 —
1 8 8 4 32 $ 32
2 20 12 4 80 48
3 28 8 4 112 32
4 34 6 4 136 24
5 38 4 4 152 16
6 40 2 4 160 8
7 41 1 4 164 4

The marginal revenue product schedule is


Multiple Choice

upsloping.

the same whether the firm is selling in a purely
competitive or imperfectly competitive market.

the firm's resource demand schedule.

the firm's resource supply schedule.

Marginal product is

Multiple Choice

the output of the least skilled worker.

the amount an additional worker adds to the firm's total
output.

the amount any given worker contributes to the firm's
total revenue.

a worker's output multiplied by the price at which each
unit can be sold.

The change in a firm's total revenue that results from


hiring an additional worker is measured by the

Multiple Choice

marginal product.

average revenue product.

marginal revenue.

marginal revenue product.
Marginal revenue product measures the

Multiple Choice

increase in total revenue resulting from the production of
one more unit of a product.

increase in total resource cost resulting from the hire of
one extra unit of a resource.

amount by which the extra production of one more
worker increases a firm's total revenue.

decline in product price that a firm must accept to sell the
extra output of one more worker.
If the marginal revenue product (MRP) of labor is less
than the wage rate

Multiple Choice

more labor should be employed.

the firm is making profits.

the firm is incurring losses.

less labor should be employed

A profit-maximizing firm employs resources to the point


where

Multiple Choice

MRP = MRC.

resource price equals product price.

MRC = MP.

MP = product price.

The following is a total-product schedule for a resource.


Assume that the quantities of other resources the firm
employs remain constant.

Units of Resource Total Product


1 24
2 42
3 54
4 64
5 72

If the firm's product sells for a constant $2 and the price


of the resource is a constant $16, the firm will employ
how many units of the resource?

Multiple Choice

2

3

4

5
Marginal resource cost is

Multiple Choice

the increase in total resource cost associated with the
production of one more unit of output.

total resource cost divided by the number of inputs
employed.

the change in total revenue associated with the
employment of one more unit of the resource.

the increase in total resource cost associated with the hire
of one more unit of the resource.
Daphne has received job offers in six different cities
across the United States. The table below shows the
nominal wage she is being offered in each city and the
average monthly rent for an apartment in each city.

a. Calculate Daphne’s real wage in terms of how many


months of rent her wage could purchase in each city and
complete the “Real Wage” column in the table below.
Instructions: Enter your answers rounded to the nearest
whole number.

Daphne's Nominal and Real Wages


City Nominal Salary (dollars) Monthly Rent (dollars)
Real Wage (months of rent)
Atlanta $50,000 $1,200 42 ± 1%
Austin 50,500 1,36837 ± 1%
Chicago 65,000 1,92034 ± 1%
Lincoln 45,000 840 54 ± 1%
Madison 48,000 1,16441 ± 1%
New York 95,000 3,20430 ± 1%

b. In which city is the nominal wage highest?


c. In which city is the real wage highest?

Which of the following scenarios would result in an


increase in the wage rate of solar panel installers and a
decrease in the quantity of solar panel installers
employed in Billy’s town?


A decrease in people’s income decreases the demand for
solar panels.

A solar panel company shuts down in another town and
solar panel installers try to find jobs in Billy’s town.

Wages of solar panel installers increase in another town
and attract workers away from Billy’s town.

An increase in the demand for solar panels raises the
price of each installation.

The marginal revenue product of an input tends to


decrease as

Multiple Choice

more of the input is used.

productivity increases.

the price of the input decreases.

the price of output increases.
Rising wages can be explained by which of the
following?

Multiple Choice

Labor demand increases more rapidly than labor supply.

Labor supply is highly sensitive to changes in labor
productivity.

Labor supply increases more rapidly than labor demand.

Labor demand is stable and predictable.
Suppose two workers can harvest $46 and three workers
can harvest $60 worth of apples per day. On the basis of
this information we can say that the

Multiple Choice

marginal revenue product of each of the first two workers
is $23.

marginal revenue product of the third worker is $14.

marginal product of each of the first two workers is 23.

third worker should not be hired.

A characteristic of a competitive labor market is


Multiple Choice

an overall reduction in employment due to firms having
market power.

an equilibrium wage and quantity supplied.

high levels of unemployment.

labor supply changing as the wage changes.

Labor productivity and the price of the good being


produced are two variables that contribute to

Multiple Choice

the demand for the product.

the wage rate.

the marginal product.

whether or not a union forms.

As the real wage decreases, the quantity of labor


demanded ______ and the quantity of labor supplied
_______.

Multiple Choice

increases; decreases

decreases; increases

increases; increases

decreases; decreases

An inclusive union

Multiple Choice

organizes a wide range of workers in an industry to gain
bargaining power.

is most effective in a purely competitive industry.

restricts supply of labor through licensing requirements.

is most concerned with increasing the demand for
workers in an industry.

The supply curve for labor in a purely competitive


market slopes upward because

Multiple Choice

higher wages must be paid to bid workers away from
other opportunities.

marginal resource cost rises as productivity increases.

the marginal product of labor falls as output increases.

the wage rate paid to workers falls as more are hired.
Compared to a competitive labor market, workers
participating in an inclusive union will enjoy

Multiple Choice

higher wages and more workers employed.

higher wages and fewer workers employed.

similar outcomes with respect to pay and employment.

lower pay and more workers employed.
The concept of "wages" does not include which of the
following items?

Multiple Choice

money spent by workers

direct money payments, like salaries and commissions

bonuses and royalties earned

fringe benefits, like health insurance and paid leave
Use the following graph (where L is the quantity of
labor) to answer the next question.

It shows a firm that buys its inputs and sells its output in
competitive markets. If the firm develops a new
technology that increases labor productivity, the
equilibrium level of employment for this firm is expected
to be

Multiple Choice

lower than L0.

L0.

zero.

higher than L0.
The individual firm that hires labor under competitive
conditions faces a labor supply curve that

Multiple Choice

is horizontal, because individual firms have no control
over wages.

slopes upward to the right.

is vertical, because workers need a job at any wage.

slopes downward to the right.
In a purely competitive labor market, a profit-
maximizing firm will hire labor up to the point where the
marginal revenue product of labor equals the

Multiple Choice

marginal cost of one extra unit of output.

price of the product.

average cost of each unit of output.

wage rate, or the price of labor.
For each of the following scenarios, determine which
benefit of international trade applies: lower-priced goods,
increased variety of products, or access to scarce
resources.

a. Today most television sets bought in the United Stated


are made in China; however, this was not the case twenty
years ago.

b. In large grocery stores in the United States, consumers


can buy noodles from Asia, soups from France, pickled
herring from Scandinavia, and beer from Germany.

c. The United States has become a prime location for


producers of semiconductors, whose products are then
exported to nations around the world. This choice to
produce in the United States is largely due to the access
to the high-skilled workforce that is required for this type
of production.
d. While many developed nations have at least one
domestic car manufacturer, consumers in these nations
also have access to cars produced in other nations.

e. The United States has long been the world's largest


exporter of wheat. The access to vast, fertile, and highly
productive soil combined with high-technology farming
practices have made the United States a very cost-
efficient producer of agricultural goods.

In economics, goods, services, or resources produced


domestically and sold abroad are known as:

imports.

net exports.

exports.

international trade.

Domestic producers might oppose free trade agreements


because
Multiple Choice

there could be a decrease in consumer surplus.

there could be an increase in consumer surplus.

there could be a decrease in producer surplus.

there could be an increase in producer surplus.
The principal concept behind comparative advantage is
that a nation should

Multiple Choice

concentrate production on those products for which it has
the lowest domestic opportunity cost.

strive to be self-sufficient in the production of essential
goods and services.

maximize its volume of trade with other nations.

use tariffs and quotas to protect the production of vital
products for the nation.
Use the following table for a certain product’s market in
Marketopia to answer the next question.

Quantity Demanded Domestically Price Quantity


Supplied Domestically
1,400$10 2,200
1,6009 2,000
1,8008 1,800
2,0007 1,600
2,2006 1,400
2,4005 1,200

If Marketopia is entirely closed to international trade, the


equilibrium price and quantity would be

Multiple Choice

$6 and 1,400 units.

$9 and 2,000 units.

$7 and 2,000 units.

$8 and 1,800 units.

Benefits from international trade are not based on


differences in

Multiple Choice

resource availability.

technological capabilities.

product quality and other attributes.

income levels.

Limits on the quantity or total value of specific products


imported to a nation are

Multiple Choice

import quotas.

nontariff barriers.

protective tariffs.

export subsidies.
Governments often intervene in international trade and
impose quotas to

Multiple Choice

improve the performance of multinational corporations.

shift a nation's production possibilities frontier.

increase revenues from export subsidies.

protect domestic industries from foreign competition.
An import quota on a product reduces the quantity of the
product imported and

Multiple Choice

will not affect the price of the product to the consumers.

increases the total quantity of the product consumed.

decreases the price of the product to the consumers.

increases the price of the product to the consumers.
Tariffs

Multiple Choice

are excise taxes on goods exported abroad.

are per-unit subsidies designed to promote exports.

may be imposed either to raise revenue or to shield
domestic producers from foreign competition.

are also called import quotas.

The slopes of the production possibilities curves for two


nations reflect the
Multiple Choice

relative prices of the resources in the two nations.

average income levels in the two nations.

amounts of imports and exports of the two nations.

opportunity costs of production in the two nations.

If a nation imposes a tariff on an imported product, then


that nation will experience a(n)

Multiple Choice

decrease in quantity supplied and an increase in the price
of the product.

decrease in demand and a decrease in the price of the
product.

decrease in the supply of, and an increase in the quantity
demanded of, the product.

increase in the quantity supplied of, and a decrease in the
price of the product.

A tariff is a

Multiple Choice

quantity limit.

tax.

price ceiling.

subsidy.

A tax imposed by the U.S. government on imported


Chinese frozen shrimp would be an example of

Multiple Choice

a voluntary restriction.

a regulatory trade restriction.

a tariff.

a quota.

A maximum limit set on the amount of a specific good


that may be imported into a country over a given period
of time is called a

Multiple Choice

voluntary export restriction.

tariff.

quota.

nontariff barrier.

When a nation removes tariffs on imported products that


nation will

Multiple Choice

experience lower prices and consume lower quantities.

experience higher prices and consume lower quantities.

experience higher prices and consume higher quantities.

experience lower prices and consume higher quantities.
The ratio at which nations will exchange one product for
another is known as the

Multiple Choice

exchange rate.

discount rate.

terms of trade.

balance of trade.
The higher price of imported products due to trade
barriers causes some consumers to shift their purchases
to a domestically produced product that is now

Multiple Choice

higher in price because import competition has risen.

higher in price because import competition has declined.

lower in price because import competition has declined.

lower in price because import competition has risen.
The use of tariffs and quotas for trade protection results
in

Multiple Choice

less rent-seeking activity.

lower prices for domestic consumers.

less efficiency in the economy.

less revenue for the government.

When a nation removes restrictions on imported products


that nation will

Multiple Choice

experience higher prices and consume lower quantities.

experience lower prices and consume lower quantities.

experience lower prices and consume higher quantities.

experience higher prices and consume higher quantities.

The benefit of saving some American jobs in specific


industries protected from foreign competition

Multiple Choice

is much greater than the costs to the whole American
economy.

has risen in recent years.

is much less than the costs to the whole American
economy.

has fallen in recent years.

Assume that a tariff is imposed on an imported product.


The difference between the domestic price and the world
price is captured by

Multiple Choice

the government.

domestic producers.

foreign exporters.

domestic consumers.

Refer to the production possibility curve for Marketopia


below.

The graph indicates that with the resources and


technology it has available, Marketopia

Multiple Choice

can produce either 40 units of rye or 20 units of eggs.

cannot produce both 20 units of rye and 5 units of eggs.

cannot produce both 20 units of rye and 10 units of eggs.

can produce both 40 units of rye and 20 units of eggs.

If an increase in the price of pineapple juice of 10%


results in an increase in the demand for grape juice of
5%, the cross-price elasticity of demand between
pineapple juice and grape juice is:

-0.5.

-5.0.

5.0.

0.5.
An economist recently estimated that for every 1%
increase in the price of french fries at fast-food
restaurants, 0.44% fewer french fries are sold. This
indicates that the demand for fast-food french fries is:

inelastic.

elastic.

perfectly inelastic.

unit-elastic.

Generally, we calculate elasticity as the:



percentage change in quantity demanded/supplied
divided by the percentage change in price.

percentage change in quantity demanded/supplied
divided by the change in price.

percentage change in price divided by the percentage
change in quantity demanded/supplied.

change in quantity demanded/supplied divided by the
change in price.

For which of the following products is demand likely to


be the most inelastic?

Flat screen TV

Table salt

Sports car

In-ground hot tub
If a state decided to place a tax on home heating oil, over
time:

demand would become less elastic and tax revenue
would decline.

demand would become less elastic and tax revenue
would increase.

demand would become more elastic and tax revenue
would increase.

demand would become more elastic and tax revenue
would decline.

The price elasticity of demand increases with the length


of the period considered because
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Multiple Choice

consumers will be better able to find substitutes.

consumers' incomes will increase over time.

all prices will increase over time.

the demand curve will shift outward as time passes.

The elasticity of demand for a product is likely to be


greater
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Multiple Choice

the smaller the number of substitute products available.

the greater the amount of time over which buyers adjust
to a price change.

if the product is a necessity, rather than a luxury good.

the smaller the proportion of one's income spent on the
product.

The basic formula for the price elasticity of demand is

Multiple Choice

percentage change in quantity demanded/percentage
change in price.

percentage change in price/percentage change in quantity
demanded.

absolute decline in quantity demanded/absolute increase
in price.

absolute decline in price/absolute increase in quantity
demanded.

The price elasticity of supply measures how


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Multiple Choice

responsive the quantity supplied of X is to changes in the
price of X.

easily labor and capital can be substituted for one another
in the production process.

responsive the quantity supplied of Y is to changes in the
price of X.

responsive quantity supplied is to a change in incomes.
The demand schedules for such products as eggs, bread,
and electricity tend to be
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Multiple Choice

perfectly elastic.

relatively inelastic.

unit-elastic.

relatively elastic.

Use the following graph to answer the question below.

If the price is P3, then the total revenue is represented by


area
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Multiple Choice

B + C + D.

B + C + D + E + F + G.

A + B + C + D + E + F + G.

E + F + G.

For which product is the income elasticity of demand


most likely to be negative?
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Multiple Choice

apps for iPads

used clothing

computer software

bread

The definition of a normal good suggests that the


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Multiple Choice

income elasticity of demand for the good is greater than
0.

cross-price elasticity of demand for the good is positive.

income elasticity of demand for the good is negative.

price elasticity of demand for the good is negative.
The law of supply suggests that the price elasticity of
supply is

Multiple Choice

negative.

positive.

zero.

unknown.

The price elasticity of supply for a product will be 2 if a


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Multiple Choice

2% decrease in price causes a 1% decrease in quantity
supplied.

1% decrease in price causes a 2% decrease in quantity
supplied.

2% decrease in price causes a 2% decrease in quantity
supplied.

1% decrease in price causes a 0.2% decrease in quantity
supplied.

The total revenue received by sellers of a good is


computed by
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Multiple Choice

dividing the percentage change in quantity by the
percentage change in price.

multiplying the percentage change in price times the
percentage change in quantity.

adding the price and the quantity sold.

multiplying the price times the quantity sold.

Demand is said to be inelastic when


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Multiple Choice

a reduction in price results in a decrease in total revenue.

an increase in price results in a reduction in total
revenue.

a reduction in price results in an increase in total
revenue.

the absolute value of the price elasticity of demand
exceeds 1.

Use the figure below to answer the following question.

The diagram concerns supply adjustments to an increase


in demand (D1 to D2) in the immediate period, the short
run, and the long run. Supply curves S1, S2, and S3
apply to the
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Multiple Choice

immediate period, long run, and short run respectively.

immediate period, short run, and long run respectively.

long run, short run, and immediate period respectively.

short run, long run, and immediate period respectively.

Use the figure below to answer the following question.

Which graph shows the immediate period for supply?


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Multiple Choice

graph 1

graph 3

graph 2

graph 4
Economists distinguish among the immediate period, the
short run, and the long run by noting that
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Multiple Choice

supply is most elastic in the short run and perfectly
inelastic in the immediate period.

supply is most elastic in the short run and perfectly
inelastic in the long run.

demand is most elastic in the long run and perfectly
inelastic in the immediate period.

supply is most elastic in the long run and perfectly
inelastic in the immediate period.

Cross-price elasticity of demand is


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Multiple Choice

positive for general goods.

negative for complementary goods.

unitary for secondary goods.

negative for substitute goods.

For a linear demand curve


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Multiple Choice

demand is elastic at high prices.

elasticity is constant along the curve.

elasticity is unity at every point on the curve.

demand is elastic at low prices.

If a 10% increase in the price of one good results in no


change in the quantity demanded of another good, then it
can be concluded that the two goods are
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Multiple Choice

unrelated.

inferior.

complements.

substitutes.
The decision-making process followed by consumers to
maximize utility assumes that
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Multiple Choice

consumers are unable to rank their preferences.

consumers have unlimited incomes.

consumers do not know how much marginal utility they
obtain from consuming additional units of various
products.

consumers behave rationally, attempting to maximize
their satisfaction.

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