98 á Step 4. Review the Knowledge You Need to Score High
á Review Questions
- If the price of corn rises 5 percent and the quan-
tity demanded for corn falls 1 percent, then
(A)Ed=5 and demand is price elastic.
(B)Ed=1/5 and demand is price elastic.
(C)Ed=5 and demand is price inelastic.
(D)Ed=1/5 and demand is price inelastic.
(E)Ed=5 and corn is a luxury good.- A small business estimates price elasticity of
demand for the product to be 3. To raise total
revenue, owners should
(A) decrease price as demand is elastic.
(B) decrease price as demand is inelastic.
(C) increase price as demand is elastic.
(D) increase price as demand is inelastic.
(E) do nothing; they are already maximizing total
revenue.- Mrs. Johnson spends her entire daily budget on
potato chips, at a price of $1 each, and onion dip
at a price of $2 each. At her current consumption
bundle, the marginal utility of chips is 12 and the
marginal utility of dip is 30. Mrs. Johnson should
(A) do nothing; she is consuming her utility
maximizing combination of chips and dip.
(B) increase her consumption of chips until the
marginal utility of chip consumption equals 30.
(C) decrease her consumption of chips until
the marginal utility of chip consumption
equals 30.
(D) decrease her consumption of chips and increase
her consumption of dip until the marginal util-
ity per dollar is equal for both goods.
(E) increase her consumption of chips and
increase her consumption of dip until the
marginal utility per dollar is equal for both
goods.- A consequence of a price floor is
(A) a persistent shortage of the good.
(B) an increase in total welfare.
(C) a persistent surplus of the good.
(D) elimination of deadweight loss.
(E) an increase in quantity demanded and a
decrease in quantity supplied.Use the figure below to respond to the next two
questions.The competitive market equilibrium is at point C. If
a per unit excise tax is imposed on the production of
this good, the deadweight loss is(A) the area BDE.
(B) the area BADH.
(C) the area GDH.
(D) the area DAC.
(E) the area GDAB.QuantityPrice $DemandCDEFG
SupplySupplyIB AHJQ 1 Q 0Individual and Market Demand Curves
We can take the individual decisions made by consumers like Joe and expand the analysis
to build a market demand curve for coffee and other goods. This process is called horizon-
tal summation. At every price, we would simply add the quantity demanded for all indi-
vidual consumers.- Utility maximizing behavior of individuals creates individual demand curves.
- Summing the quantity demanded by individuals at each price creates market demand
curves.
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