1. Suppose there is an increase in supply (rightward shift in supply). Consider two graphs. In Graph [X], demand is relatively inelastic. In Graph [Y], demand 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 demand for a good is perfectly inelastic (demand curve is vertical), then
A) a price increase would cause a fall in quantity demanded.
B) a price increase would cause no change in quantity demanded.
C) a price increase would cause an increase in quantity demanded.
D) a price increase would cause a fall in total revenue.
3.Suppose Bill gets a pay raise of 12%, and he decides he from now on, he will purchase 3.7% less canned tuna. What can we say for certain about Bill and his preference for canned tuna?
A) Canned tuna is a luxury good for Bill
B) Canned tuna is a necessity good for Bill
C) Canned tuna is an inferior good for Bill
D) Canned tuna is an elastic demand good for Bill
E) Canned tuna is an inelastic demand good for Bill
4.Suppose the price of a filet mignon at Texas Roadhouse is $20. When Michael's income was $5,000 per month, his monthly demand for filets was Q = 15 - 0.25P. When Michael got a pay raise and began to earn $6,000 per month, his demand shifted outward to Q = 20 - 0.25P. Given this information, find Michael's income elasticity (EI) for filets.
A) 0.2
B) 0.4
C) 0.6
D) 1
E) 1.5
F) 1.666
G) 2.5
5.A rational consumer will NEVER purchase a product when
A) marginal utility is negative.
B) total utility is increasing at a decreasing rate.
C) marginal utility is decreasing.
D) total utility is increasing at an increasing rate.
E) it will cause you to spend all of your money
F) marginal utility per dollar is less than one
6.Peter consumes bags of potato chips and cans of soft drink. The marginal utility of bags of potato chips is 10 utils per bag and the marginal utility of cans of soft drink is 50 utils per can. Potato chips cost $0.50 a bag, and a can of soft drink costs $1.00. What should Peter do?
A) Peter should eat more chips, because they cost less.
B) Peter should buy more chips and less soft drink.
C) Peter should buy less soft drink, because it costs more.
D) Peter should buy more soft drink and fewer potato chips.