Page 1 Name: __________________________ Date: _____________ 1. When price goes down, the quantity demanded goes up. Price elasticity measures how: A) much the price goes down. B) much the quantity goes up. C) responsive the price change is in relation to the quantity change. D) responsive the quantity change is in relation to the price change. Use the following to answer question 2: 2. (Table: Market for Pizza) In the table, the price elasticity of demand for pizza between the prices of $14 and $12 per pizza when income is $1,000 per month is: A) 0.6. B) 1. C) 1.6. D) 2. 3. The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to ________ and demand is described as ________. A) 0.2; inelastic B) 5; inelastic C) 0.2; elastic D) 5; elasticPage 2 4. The cross-price elasticity of electricity with respect to the price of natural gas has been estimated as being equal to 0.2. This implies that: A) natural gas and electricity are both normal goods. B) electricity and natural gas are complements. C) electricity and natural gas are substitutes. D) one of the two goods is inferior while the other is normal, but we need additional information to determine which of them is inferior. 5. Assume the price elasticity of demand for tobacco is 0.5, and the income elasticity of demand for tobacco is 0.4. Then: A) an increase in the price of tobacco will decrease total revenue from sales of tobacco. B) a 20% increase in the price of tobacco will decrease the quantity demanded of tobacco by 8%. C) tobacco is an inferior good. D) a 50% increase in income will increase the quantity demanded of tobacco by 20%. 6. If the estimated price elasticity of demand for foreign travel is 4, then: A) a 20% decrease in the price of foreign travel will increase quantity demanded by 80%. B) demand for foreign travel is inelastic. C) a 10% increase in the price of foreign travel will increase quantity demanded by 40% D) a 20% increase in the price of foreign travel will increase quantity demanded by 80%. 7. If total revenue goes up when price falls, the price elasticity of demand is said to be: A) price-inelastic. B) price unit-elastic. C) price-elastic. D) positive. 8. If two goods are substitutes, their cross-price elasticity of demand should be: A) less than 0. B) negative, yet almost equal to 0. C) equal to 0. D) greater than 0.Page 3 Use the following to answer questions 9-10: Figure: Market for Blue Jeans 9. (Figure: Market for Blue Jeans) The government recently levied a $10 tax on the producers of blue jeans. Using the graph, identify the area(s) that represent the loss of consumer surplus due to the tax. A) c B) b + c C) b D) a + b + c 10. (Figure: Market for Blue Jeans) The government recently levied a $10 tax on the producers of blue jeans. Using the graph, calculate the tax revenue. A) $1,000 B) $500 C) $4,000 D) $5,000Page 4 Use the following to answer question 11: Figure: Tax Incidence 11. (Figure: Tax Incidence) All other things unchanged, when a good or service is characterized by a relatively inelastic demand, as shown in panel ________, the greater share of the burden of an excise tax imposed on it is borne by ________. A) C; buyers B) C; sellers C) D; sellers D) D; buyers Use the following to answer question 12:Page 5 12. (Table: Utility) The marginal utility for the second unit is: A) 35. B) 15. C) 10. D) 5. 13. The principle of diminishing marginal utility means that when Sarah eats pizza, her satisfaction from the second slice of pizza is probably: A) greater than that from the first. B) equal to that from the first. C) less than that from the first. D) not comparable to that from the first. 14. If total utility is rising as more of Good X is consumed, we can definitely say that marginal utility is: A) falling. B) constant. C) rising. D) greater than zero. Use the following to answer question 15: Scenario: Budget Constraint Tom is trying to decide how to allocate his $50 budget for CD purchases and DVD rentals when the price of a CD is $10 and the price of a DVD rental is $5. 15. (Scenario: Budget Constraint) Which of the following combinations of CD purchases and DVD rentals lies on Tom's budget line? A) 5 CDs and 10 DVDs B) 5 CDs and 0 DVDs C) 0 CDs and 5 DVDs D) 10 CDs and 5 DVDsPage 6 Use the following to answer question 16: Figure: Budget Lines for Oranges and Apples 16. (Figure: Budget Lines for Oranges and Apples) For some time, Sylvester has had $5 per month to spend on oranges and apples. The price of an orange is $0.50 and the price of an apple is $0.25. Which of the charts shows what will happen to his budget line if the price of an orange falls to $0.25? A) Chart A B) Chart B C) Chart C D) Chart DPage 7 17. Sally Garcia devotes all of her income to the consumption of two goods, apples and Reese's Peanut Butter Cups. She has just discovered that at her current level of consumption the marginal utility of an apple is 6 and the marginal utility of a Reese's Peanut Butter Cup is 8. Suppose the price of an apple is $0.10, while the price of a Reese's Peanut Butter Cup is $0.25. To maximize her total utility, assuming that the goods are divisible, she would: A) consume more Reese's Peanut Butter Cups and fewer apples. B) consume less of both goods. C) consume more apples and fewer Reese's Peanut Butter Cups. D) There is not enough information to justify a change in her current level of consumption. 18. Which of the following is not true for indifference curves of ordinary goods? A) They never cross. B) They slope downward. C) They are convex from the origin. D) Indifference curves farther away from the origin have lower levels of utility. Use the following to answer question 19: Figure: Consumer EquilibriumPage 8 19. (Figure: Consumer Equilibrium) Given the indifference curves in the figure, the highest level of total utility that is affordable is associated with point(s) ________ on indifference curve ________. A) H; C B) I; B C) G or I; B D) J; A Use the following to answer question 20: Figure: Market for Calculators 20. (Figure: Market for Calculators) The figure shows the domestic supply and demand curves for calculators. The world price, PW, equals $100. The government imposes an import tariff of $20 per calculator. Compared with the free trade situation, the tariff leads to a