Multiple Choice Questions

1.	Price and total revenue are inversely related when demand is
	(a) elastic.
	(b) inelastic.
	(c) unitarily elastic.
	(d) perfectly inelastic.
	 
  2.	If the owner of an ice cream store charges a $1.20 for an ice
cream cone his total revenue is $540 a day. If he lowers the price to
$1.00 his total revenue is $500 a day. The demand for ice cream is 
	(a) elastic. 
	(b) inelastic. 
	(c) unitarily elastic. 
	(d) neither elastic nor inelastic because this situation violates
            the law of demand. 
	 
  3.	A new fertilizer has led to an increase in the number of tomatoes
harvested and a decrease in the income of tomato growers. Therefore, the
demand for tomatoes must be
	(a) elastic. 
	(b) inelastic. 
	(c) unitarily elastic. 
	(d) perfectly inelastic. 
	 
  4.	A firm should always set price so that the firm 
	(a) is selling in the inelastic portion of the demand curve. 
	(b) is selling in the elastic portion of the demand curve. 
	(c) is selling at the point of unitary elasticity because that is
            where total revenue is maximized. 
	(d) is selling in either the elastic or inelastic portion of the
            demand curve, depending upon costs of production. 
	 
  5.	Jane has $500 a week to spend on food and clothing. The price of
food is $10 and the price of clothing is $25. Which of the following pairs
of food and clothing are in the Jane's choice set? 
	(a) 20 units of clothing and 50 units of food. 
	(b) 50 units of clothing and 50 units of food. 
	(c) 10 units of clothing and 25 units of food. 
	(d) 0 units of clothing and 500 units of food. 
	 
 	 
  6.	Which of the following is an INCORRECT statement about a 
household's budget constraint?
	(a) Points on a budget constraint represent combinations of the
            goods that exactly use up the household's income.
	(b) Points within the budget constraint represent combinations of
            the goods that do not use up all the household's income.
	(c) If points A and B lie on the budget constraint, we can deduce
            that a household is indifferent between the two.
	(d) If the price of one good decreased, ceteris paribus, the
            budget constraint will swivel or rotate outward.
	 
  7.	If a household's money income is doubled,
	(a) the budget constraint will shift out parallel to the old one.
	(b) the budget constraint will swivel at the Y-intercept.
	(c) the budget constraint will shift in and parallel to the old
            one.
	(d) the budget constraint is not affected.
	 
  8.	Utility
	(a) is the satisfaction yielded by a product.
	(b) can be measured.
	(c) can be used to compare different people's likes and dislikes.
	(d) all of the above.
	 
  9.	Marginal utility is the
	(a) total satisfaction gained by consuming all units of a good.
	(b) total satisfaction gained by consuming the last unit of the
            good.
	(c) additional satisfaction gained by the consumption of one more
            unit of a good.
	(d) additional consumption divided by the additional satisfaction
            gained by the additional consumption.
	 
 10.	Suppose you are eating hamburgers. The first hamburger gives you
15 utils of satisfaction, the second hamburger 8 additional utils, and
the third brings the total utility to 29. What was the marginal utility
of the third hamburger?
	(a) 6
	(b) 8
	(c) 21
	(d) 23

1) You have to decide whether to buy stock in a company selling surfboards
or a company selling roller skates. The income elasticity for roller
skates is -.2 and the income elasticity for surfboards is .1. Most
economists are predicting that consumer income will rise over the next few
years. What company should you invest in and why? 

2) One of the ideas expounded by the Reagan Administration was that if
taxes on people's wages and salaries were reduced, tax revenues would
increase. Use the concept of elasticity of supply to explain how this
could happen.

3)Assume that Paula can buy gum or candy. A pack of gum costs $.30 and a
candy bar costs $.50. Paula has $3.00 a day to spend on gum and candy
bars. Draw Paula's budget constraint. Shade in Paula's choice set. On the
graph show how Paula's budget constraint will be affected if the price of
gum increases to $.50.