1|Page

Review for chapter 18 and 19

1.If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will: a. increase the quantity demanded by about 2.5 percent. b. decrease the quantity demanded by about 2.5 percent. c. increase the quantity demanded by about 25 percent. d. increase the quantity demanded by about 250 percent. 2.Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases
from 110 to 118. Then the price elasticity of demand is: a. 4.00. b. 2.09. c. 1.37. d. 3.94.

3.If the demand for product X is inelastic, a 4 percent increase in the price of X will: a. decrease the quantity of X demanded by more than 4 percent. b. decrease the quantity of X demanded by less than 4 percent. c. increase the quantity of X demanded by more than 4 percent. d. increase the quantity of X demanded by less than 4 percent. 4.If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then: a. the price elasticity of demand is 0.44.
b. c.

d.

A is a complementary good. the price elasticity of demand is 2.25. A is an inferior good.

5.A perfectly inelastic demand schedule: a. rises upward and to the right, but has a constant slope. b. can be represented by a line parallel to the vertical axis. c. cannot be shown on a two-dimensional graph. d. can be represented by a line parallel to the horizontal axis.

2|Page 6.The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for
widgets, a 16 percent increase in sales implies a: a. 1 percent reduction in price. b. 12 percent reduction in price. c. 40 percent reduction in price. d. 20 percent reduction in price.

7.The price elasticity of demand of a straight-line demand curve is: a. elastic in high-price ranges and inelastic on low-price ranges. b. elastic, but does not change at various points on the curve. c. inelastic, but does not change at various points on the curve. d. 1 at all points on the curve.

8.A leftward shift in the supply curve of product X will increase equilibrium price to a greater
extent the: a. more elastic the supply curve. b. larger the elasticity of demand coefficient. c. more elastic the demand for the product. d. more inelastic the demand for the product.

9.For a linear demand curve: a. elasticity is constant along the curve.

b. c.

d.

elasticity is unity at every point on the curve. demand is elastic at low prices. demand is elastic at high prices.

10. The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded
increases from 50 to 60 units. Therefore demand for X in this price range: a. has declined. b. is of unit elasticity. c. is inelastic. d. is elastic.

11. Refer to the above diagram. Between prices of $5.70 and $6.30: a. D1 is more elastic than D2.
b. D2 is an inferior good and D1 is a normal good.

3|Page
c. D1 and D2 have identical elasticities.

d. D2 is more elastic than D1 12. Refer to the above diagram and assume a single good. If the price of the good decreases from
$6.30 to $5.70, consumer spending would: a. decrease if demand were D1 only. b. decrease if demand were D2 only. c. decrease if demand were either D1 or D2.

d. increase if demand were either D1 or D2.

13. Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result
the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is: a. 0.8. b. 1.2. c. 1.6. d. 8.0

14. Refer to the above data. If this demand schedule were graphed, we would find that: a. its slope diminishes as we move southeast down the curve. b. its slope diminishes as we move northwest up the curve. c. its slope is constant throughout. d. the data is inconsistent with the law of demand. 15. Refer to the above data. The price elasticity of demand is relatively elastic: a. in the $6-$4 price range.
b. c.

d.

over the entire $6-$1 price range. in the $3-$1 price range. in the $6-$5 price range only.

16. Refer to the above data. The price elasticity of demand is relatively inelastic: a. in the $6-$4 price range.
b. c.

d.

over the entire $6-$1 price range. in the $3-$1 price range. in the $6-$5 price range only.

17. Refer to the above data. The price elasticity of demand is unity: a. throughout the entire price range because the slope of the demand curve is constant.

4|Page b. in the $4-$3 price range only. c. over the entire $3-$1 price range. d. over the entire $6-$4 price range. 18. Refer to the above data. Which of the following is correct? a. Although the slope of the demand curve is constant, price elasticity declines as we
move from high to low price ranges.

b. Although the slope of the demand curve is constant, price elasticity increases as we
move from high to low price ranges.

c. Although the demand curve is concave to the origin, price elasticity of demand is d.
constant throughout. A steep slope means demand is inelastic; a flat slope means demand is elastic.

19. If the price elasticity of demand for gasoline is 0.20: a. the demand for gasoline is linear. b. a rise in the price of gasoline will reduce total revenue. c. a 10 percent rise in the price of gasoline will decrease the amount purchased by 2 d.
percent. a 10 percent fall in the price of gasoline will increase the amount purchased by 20 percent.

20. In which price range of the accompanying demand schedule is demand elastic?
a. b. c. $4-$3 $3-$2 $2-$1 below $1

d.

21. When the percentage change in price is greater than the resulting percentage change in
quantity demanded: a. a decrease in price will increase total revenue. b. demand may be either elastic or inelastic. c. an increase in price will increase total revenue. d. demand is elastic.

5|Page

22. Suppose that the above total revenue curve is derived from a particular linear demand curve.
That demand curve must be: a. inelastic for price declines that increase quantity demanded from 6 units to 7 units. b. elastic for price declines that increase quantity demanded from 6 units to 7 units. c. inelastic for price increases that reduce quantity demanded from 4 units to 3 units. d. elastic for price increases that reduce quantity demanded from 8 units to 7 units.

23. Suppose that the above total revenue curve is derived from a particular linear demand curve.
That demand curve must be: a. inelastic for price declines that increase quantity demanded from 2 units to 3 units. b. elastic for price declines that increase quantity demanded from 5 units to 6 units. c. inelastic for price increases that reduce quantity demanded from 4 units to 3 units. d. elastic for price increases that reduce quantity demanded from 4 units to 3 units.

24. Suppose that the above total revenue curve is derived from a particular linear demand curve.
That demand curve must be: a. inelastic for price declines that increase quantity demanded from 2 units to 3 units. b. elastic for price declines that increase quantity demanded from 5 units to 6 units. c. unit elastic for price increases that reduce quantity demanded from 5 units to 4 units.. d. inelastic for price increases that reduce quantity demanded from 4 units to 3 units.

25. Which of the following statements is not correct? a. If the relative change in price is greater than the relative change in the quantity
demanded associated with it, demand is inelastic.

b. In the range of prices in which demand is elastic, total revenue will diminish as price c. d.
decreases. Total revenue will not change if price varies within a range where the elasticity coefficient is unity. Demand tends to be elastic at high prices and inelastic at low prices.

26. In which of the following instances will total revenue decline? a. price rises and supply is elastic

6|Page
b. c. price falls and demand is elastic price rises and demand is inelastic price rises and demand is elastic

d.

27. If a firm finds that it can sell $13,000 of a product when its price is $5 per unit and $11,000 of
it when its price is $6, then: a. the demand for the product is elastic in the $6-$5 price range. b. the demand for the product must have increased. c. elasticity of demand is 0.74. d. the demand for the product is inelastic in the $6-$5 price range.

28. Suppose the price elasticity of demand for bread is 0.20. If the price of bread falls by 10
percent, the quantity demanded will increase by: a. 2 percent and total expenditures on bread will rise. b. 2 percent and total expenditures on bread will fall. c. 20 percent and total expenditures on bread will fall. d. 20 percent and total expenditures on bread will rise.

29. Other things the same, if a price change causes total revenue to change in the opposite
direction, demand is: a. perfectly inelastic. b. relatively elastic. c. relatively inelastic. d. of unit elasticity.

30. If a price reduction reduces a firm's total revenue: a. the demand for the product is inelastic in this price range. b. the product is an inferior good. c. in this price range the elasticity coefficient of demand is greater than 1. d. this price decline will increase the firm's profits.

31. Refer to the above diagram. In the P1P2 price range demand is:
a. b. c. of unit elasticity. relatively inelastic. relatively elastic. perfectly elastic.

d.

7|Page 32. Refer to the above diagram. In the P3P4 price range demand is:
a. b. c. of unit elasticity. relatively inelastic. relatively elastic. perfectly elastic.

d.

33. If the demand for a product is elastic, then total revenue will: a. increase whether price increases or decreases.
b. c.

d.

be constant in response to a price change. fall as price falls. rise as price falls.

34. Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total
revenue received by peanut farmers changes from $16 to $14 billion. Thus: a. the demand for peanuts is elastic. b. the demand for peanuts is inelastic. c. the demand curve for peanuts has shifted to the right. d. no inference can be made as to the elasticity of demand for peanuts.

35. Refer to the above diagram. Total revenue at price P1 is indicated by area(s):
a. b. c. C + D. A + B. A + C. A.

d.

36. Refer to the above diagram. If price falls from P1 to P2, total revenue will become area(s):
a. b. c. B + D. C + D. A + C. C.

d.

37. Refer to the above diagram. The decline in price from P1 to P2 will: a. increase total revenue by D.
increase total revenue by B + D. decrease total revenue by A. d. increase total revenue by D - A. Refer to the above diagram. In the P1 to P2 price range, we can say: b. c.

38.

8|Page a. b. c. d.
that consumer purchases are relatively insensitive to price changes. nothing concerning price elasticity of demand. that demand is inelastic with respect to price. that demand is elastic with respect to price.

39. Refer to the above diagram. If price falls from $10 to $2, total revenue: a. rises from A + B to A+ B + D + C and demand is elastic. b. falls from A + D to B + C and demand is inelastic. c. rises from C + D to B + A and demand is elastic. d. falls from A + B to B + C and demand is inelastic. 40. Refer to the above diagram and assume that price increases from $2 to $10. The coefficient of
price elasticity of demand (midpoints formula) relating to this change in price is about: a. .25 and demand is inelastic. b. 1.5 and demand is elastic. c. 1 and demand is unit elastic. d. .67 and demand is inelastic.

41. Refer to the above diagram and assume that price declines from $10 to $2. The coefficient of
price elasticity of demand (midpoints formula) relating to this change in price is about: a. .25 and demand is inelastic. b. 1.5 and demand is elastic. c. 1 and demand is unit elastic. d. .67 and demand is inelastic.

42. The demands for such products as salt, bread, and electricity tend to be: a. perfectly price elastic.
b. c.

d.

of unit price elasticity. relatively price inelastic. relatively price elastic.

43. The more time consumers have to adjust to a change in price: a. the smaller will be the price elasticity of demand. b. the greater will be the price elasticity of demand. c. the more likely the product is a normal good. d. the more likely the product is an inferior good.

9|Page 44. The demand for autos is likely to be: a. less elastic than the demand for Honda Accords. b. more elastic than the demand for Honda Accords. c. of the same elasticity as the demand for Honda Accords. d. perfectly inelastic.

45. Price elasticity of demand is generally: a. greater in the long run than in the short run. b. greater in the short run than in the long run. c. the same in both the short run and the long run. d. greater for "necessities" than it is for "luxuries." 46. A demand curve which is parallel to the vertical axis is:
a. b. c. perfectly inelastic. perfectly elastic. relatively inelastic. relatively elastic.

d.

47. If quantity demanded is completely unresponsive to price changes, demand is:

a. b. c. perfectly inelastic. perfectly elastic. relatively inelastic. relatively elastic.

d.
a. b. c.

48. If price and total revenue vary in opposite directions, demand is:
perfectly inelastic. perfectly elastic. relatively inelastic. relatively elastic.

d.

49. If the coefficient of price elasticity is less than 1 but greater than zero, demand is:
a. b. c. perfectly inelastic. perfectly elastic. relatively inelastic. relatively elastic.

d.

50. The demand for a luxury good whose purchase would exhaust a significant portion of one's
income is: a. perfectly inelastic. b. perfectly elastic. c. relatively inelastic. d. relatively elastic.

51. The demand for a necessity whose cost is a small component of one's total income is:
a. b. c. perfectly inelastic. perfectly elastic. relatively inelastic.

10 | P a g e d. relatively elastic. 52. The price elasticity of supply measures how: a. easily labor and capital can be substituted for one another in the production process. b. responsive the quantity supplied of X is to changes in the price of X. c. responsive the quantity supplied of Y is to changes in the price of X. d. responsive quantity supplied is to a change in incomes. 53. The main determinant of elasticity of supply is the: a. number of close substitutes for the product available to consumers. b. amount of time the producer has to adjust inputs in response to a price change. c. urgency of consumer wants for the product. d. number of uses for the product. 54. Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for
this product, equilibrium price: a. will decrease but equilibrium quantity will increase. b. and quantity will both decrease. c. will increase but equilibrium quantity will decline. d. will increase but equilibrium quantity will be unchanged.

55. The supply of product X is inelastic if the price of X rises by: a. 5 percent and quantity supplied rises by 7 percent. b. 8 percent and quantity supplied rises by 8 percent. c. 10 percent and quantity supplied remains the same. d. 7 percent and quantity supplied rises by 5 percent.

56. Refer to the above diagram and assume that price increases from $2 to $10. The coefficient of
the price elasticity of supply (midpoints formula) relating to this price change is about: a. 5 and supply is elastic. b. 1 and supply is unit elastic. c. .25 and supply is inelastic. d. 2.5 and supply is elastic.

57. Refer to the above diagram and assume that price decreases from $10 to $2. The coefficient
of the price elasticity of supply (midpoints formula) relating to this price change is about: a. 4 and supply is elastic. b. 1 and supply is unit elastic. c. .5 and supply is inelastic.

11 | P a g e d. .25 and supply is inelastic.

58. Price elasticity of supply is: a. positive in the short run but negative in the long run. b. greater in the long run than in the short run. c. greater in the short run than in the long run. d. independent of time. 59. Supply curves tend to be: a. perfectly elastic in the long run because consumer demand will have sufficient time b. c. d.
to adjust fully to changes in supply. more elastic in the long run because there is time for firms to enter or leave the industry. perfectly inelastic in the long run because the law of scarcity imposes absolute limits on production. less elastic in the long run because there is time for firms to enter or leave an industry.

60. Refer to the above data: Equilibrium price is:

a. b. c. $8. $6. $4. $2.

d.

61. Refer to the above data. Suppose quantity demanded increased by 12 units at each price,
changing the equilibrium price in a direction and an amount for you to determine. Over that price range, supply is: a. perfectly elastic. b. perfectly inelastic. c. elastic. d. inelastic.

62. Refer to the above data. Suppose quantity supplied declined by 23 units at each price,
changing the equilibrium price in a direction and amount for you to determine. Over that price range, demand is: a. elastic. b. inelastic. c. perfectly elastic.

12 | P a g e d. perfectly inelastic. 63. The price of old baseball cards rises rapidly with increases in demand because: a. the supply of old baseball cards is inelastic.
b. c.

d.

the supply of old baseball cards in elastic. the demand for old baseball cards is inelastic. the demand for old baseball cards is elastic.

64. The formula for cross elasticity of demand is percentage change in: a. quantity demanded of X/percentage change in price of X. b. quantity demanded of X/percentage change in income. c. quantity demanded of X/percentage change in price of Y. d. price of X/percentage change in quantity demanded of Y. 65. Cross elasticity of demand measures how sensitive purchases of a specific product are to
changes in: a. the price of some other product. b. the price of that same product. c. income. d. the general price level.

66. The larger the positive cross elasticity coefficient of demand between products X and Y, the: a. stronger their complementariness. b. greater their substitutability. c. smaller the price elasticity of demand for both products. d. the less sensitive purchases of each are to increases in income.

67. We would expect the cross elasticity of demand between Pepsi and Coke to be: a. positive, indicating normal goods.
b. c.

d.

positive, indicating inferior goods. positive, indicating substitute goods. negative, indicating substitute goods.

68. We would expect the cross elasticity of demand between dress shirts and ties to be: a. positive, indicating normal goods.
b. c.

d.

positive, indicating inferior goods. negative, indicating substitute goods. negative, indicating complementary goods.

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69. The above diagram suggests that: a. X and Y are both inferior goods.
b. c.

d.

X and Y are both normal goods. X and Y are substitute goods. X and Y are independent goods.

70. Compared to coffee, we would expect the cross elasticity of demand for: a. tea to be negative, but positive for cream.
b. c.

d.

tea to be positive, but negative for cream. both tea and cream to be negative. both tea and cream to be positive.

71. Suppose that a 10 percent increase in the price of normal good Y causes a 20 percent increase
in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is: a. negative and therefore these goods are substitutes. b. negative and therefore these goods are complements. c. positive and therefore these goods are substitutes. d. positive and therefore these goods are complements.

72. Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decline
in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is: a. negative and therefore these goods are substitutes. b. negative and therefore these goods are complements. c. positive and therefore these goods are substitutes. d. positive and therefore these goods are complements.

73. Assume that a 4 percent increase in income in the economy produces an 8 percent increase in
the quantity demanded of good X. The coefficient of income elasticity of demand is: a. negative and therefore X is an inferior good. b. negative and therefore X is a normal good. c. positive and therefore X is an inferior good. d. positive and therefore X is a normal good.

74. Assume that a 3 percent increase in income in the economy produces a 1 percent decline in the
quantity demanded of good X. The coefficient of income elasticity of demand for good X is: a. negative and therefore X is an inferior good.

14 | P a g e
b. c. negative and therefore X is a normal good. positive and therefore X is an inferior good. positive and therefore X is a normal good.

d.

75. Consumer surplus: a. is the difference between the maximum prices consumers are willing to pay for a
product and the lower equilibrium price.

b. the difference between the maximum prices consumers are willing to pay for a
product and the minimum prices producers are willing to accept.

c. the difference between the minimum prices producers are willing to accept for a d.
product and the higher equilibrium price. rises as equilibrium price rises.

76. Producer surplus: a. is the difference between the maximum prices consumers are willing to pay for a
product and the lower equilibrium price.

b. rises as equilibrium price falls. c. is the difference between the minimum prices producers are willing to accept for a
product and the higher equilibrium price.

d. is the difference between the maximum prices consumers are willing to pay for a
product and the minimum prices producers are willing to accept.

77. Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The
minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences: a. a consumer surplus of $12 and Nathan experiences a producer surplus of $3. b. a producer surplus of $9 and Nathan experiences a consumer surplus of $3. c. a consumer surplus of $9 and Nathan experiences a producer surplus of $3. d. a producer surplus of $9 and Nathan experiences a producer surplus of $12.

78. Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum
acceptable price to the seller, Tony, was $140. Amanda experiences: a. a consumer surplus of $10 and Tony experiences a producer surplus of $190. b. a producer surplus of $200 and Tony experiences a consumer surplus of $10. c. a consumer surplus of $770 and Tony experiences a producer surplus of $480. d. a producer surplus of $10 and Tony experiences a consumer surplus of $190.

79. Graphically, consumer surplus is measured as the triangle: a. under the demand curve and below the actual price. b. under the demand curve and above the actual price. c. above the supply curve and above the actual price. d. above the supply curve and below the actual price. 80. Graphically, producer surplus is measured as the triangle: a. under the demand curve and below the actual price. b. under the demand curve and above the actual price. c. above the supply curve and above the actual price. d. above the supply curve and below the actual price.

15 | P a g e

81. Refer to the above diagram. Assuming equilibrium price P1, consumer surplus is represented
by areas: a. a + b. b. a + b + c + d. c. c + d. d. a + c.

82. Refer to the above diagram. Assuming equilibrium price P1, producer surplus is represented
by areas: a. a + b. b. a + b + c + d. c. c + d. d. a + c.

83. Refer to the above diagram. The area that identifies the maximum sum of consumer surplus
and producer surplus is: a. a + b + c + d + e + f. b. c + d + f. c. a + b + e. d. a + b + c + d.

16 | P a g e

84. Refer to the above diagram. If actual production and consumption occur at Q1:
a. c. efficiency is achieved. an efficiency loss (or deadweight loss) of b + d occurs.

b. consumer surplus is maximized. d. an efficiency loss (or deadweight loss) of e + d occurs. 85. Refer to the above diagram. If actual production and consumption occur at Q2:
a.

b.
c.

d.

efficiency is achieved. an efficiency loss (or deadweight loss) of a + b + c + d occurs. an efficiency loss (or deadweight loss) of a + c occurs. an efficiency loss (or deadweight loss) of e + f occurs.

86. Refer to the above diagram. If actual production and consumption occur at Q3: a. efficiency is achieved.
b. c.

d.

an efficiency loss (or deadweight loss) of e + f occurs. an efficiency loss (or deadweight loss) of a + b + c + d occurs. an efficiency loss (or deadweight loss) of a + c occurs.

87. Refer to the above diagram. At quantity Q1: a. maximum willingness to pay exceeds minimum acceptable price. b. the sum of consumer and producer surplus is maximized. c. minimum acceptable price exceeds maximum willingness to pay. d. an efficiency loss (or deadweight loss) of a + b occurs. 88. Refer to the above diagram. At quantity Q3: a. maximum willingness to pay exceeds minimum acceptable price. b. the sum of consumer and producer surplus is maximized. c. minimum acceptable price exceeds maximum willingness to pay. d. an efficiency loss (or deadweight loss) of a + b occurs. 89. Refer to the above diagram. At quantity Q2: a. maximum willingness to pay exceeds minimum acceptable price. b. the sum of consumer and producer surplus is maximized. c. minimum acceptable price exceeds maximum willingness to pay. d. an efficiency loss (or deadweight loss) of b + d occurs.

Use the table below to answer the following TWO questions. Units of labor 1 2 3 4 Total product 10 20 27 25

90. According to the table above, the average product (AP) of 2 units of labor is

17 | P a g e a) 7 b) 9 c) 10 d) 27 Answer : c 91. According to the table above, the marginal product (MP) of 2rd unit of labor is a) 7 b) 9 c) 10 d) 27 Answer: c 92. Assume that the total utilities for the 7th and 8th units of a good consumed are 65 and 67, respectively. The marginal utility (MU) for the 8th unit is a) 132 b) 65 c) 67 d) 2 Answer: d 93. Suppose the first four units of an output produced have total costs of 50, 150, 300, 500, respectively. The marginal cost (MC) of the 4th unit of output is a) 200. b) 150. c) 100. d) 75. 94. I pay only $5 for a large cheese pizza at Little Caesars even though I am willing to pay $20. My consumer surplus is a) $50 b) $15 c) $7.50 d) $5 Answer b Use the following to answer questions 95-96: Answer the next question(s) on the basis of the following two schedules which show the amounts of additional satisfaction (marginal utility) which a consumer would get from successive quantities of products J and K.

18 | P a g e 95. Refer to the above data. If the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing: A) 2 units of J and 7 units of K. B) 5 units of J and 5 units of K. C) 4 units of J and 5 units of K. D) 6 units of J and 3 units of K. Answer: C

96. .Refer to the above data. What level of total utility is realized from the equilibrium combination of J and K, if the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively? A) 156 utils B) 124 utils C) 276 utils D) 36 utils Answer: C 97.A consumer is maximizing her utility with a particular money income when: A) the total utility derived from each product consumed is the same. B) MUa/Pa = MUb/Pb = MUc/Pc = ... = MUn/Pn. C) MUa = MUb = MUc = ... = MUn. D) Pa = Pb = Pc = ... = Pn. Answer: B Use the following to answer questions 98-101:

98. Refer to the above diagram where xy is the relevant budget line and I1 , I2, and I3 are indifference curves. The equilibrium position for the consumer is at: A) any point on xy. B) point M. C) point K. D) point J. Answer: C

99. Refer to the above diagram where xy is the relevant budget line and I1 , I2, and

19 | P a g e I3 are indifference curves. If the consumer is initially at point L, he or she should: A) strive for point N by obtaining a larger money income. B) purchase more of X and less of Y . C) remain at that point to maximize utility. D) purchase more of Y and less of X . Answer: D 100. Refer to the above diagram where xy is the relevant budget line and I1 , I2, and I3 are indifference curves. Point M : A) is the consumer's equilibrium position. B) is unobtainable. C) is inferior to point N . D) entails the highest attainable level of total utility. Answer: B

101. Refer to the above diagram where xy is the relevant budget line and I1 , I2, and I3 are indifference curves. At point K: A) MUx = MUy. B) MRS = Px/Py. C) MRS = Py/Px. D) Px exceeds Py. Answer: B

102.Complete the following short-run cost table using the information provided. Q 0 1 2 3 4 5 6 7 TC $ 4 7 9 10 11 13 17 22 TFC $_____ _____ _____ _____ _____ _____ _____ _____ TVC $_____ _____ _____ _____ _____ _____ _____ _____ AVC $_____ _____ _____ _____ _____ _____ _____ _____ ATC $_____ _____ _____ _____ _____ _____ _____ _____ MC $_____ _____ _____ _____ _____ _____ _____ _____

Answer each question in the space provided. Be sure to answer each question completely.

1. Consider the graph below:

20 | P a g e
sweaters

3
IC3 IC2 IC1

40

100

cups of coffee

Suppose the price of coffee is $1/cup and the price of sweaters is $20. a. How much is the consumers budget? (show your work)