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Principles of Microeconomics
Test 2 Review
1.
2.
3.
Suppose that a consumer's total benefit is $4 for consuming one cup of ice cream
and $7 for consuming two cups of ice cream. The consumer's willingness to pay for
the second cup of ice cream is
a. $0.
b. $3.
c. $4.
d. $7.
e. $11.
Willingness to pay is
a. equivalent to cost.
b. equivalent to value.
c. the difference between total expenditure and what consumers have to pay
per unit.
d. total expenditure divided by the price per unit.
e. the difference between what consumers would be willing to pay and what
they have to pay.
Other things being equal, if the price of a good rises, the .consumer surplus of that
good
a. rises.
b. falls.
c. remains the same.
d. rises and then falls.
e. cannot be determined given the available information.
Use the following graph to answer questions 4 - 5:
4.
Refer to the graph above. When price is P2, consumer surplus is the numbered area
a. 2 + 3 + 4.
b. 1 + 2 + 3 + 4.
c. 1.
d. 2 + 3 + 4 + 5.
e. 1 + 6.
5.
Refer to the graph above. When price falls from P2 to P1, the size of consumer
surplus
a. increases by area 2.
b. decreases by area 2.
c. remains the same.
d. increases by areas 1 + 2.
e. decreases by areas 1 + 2.
Use the following graph to answer questions 6 – 7:
6.
Refer to the graph above. Producer surplus in the market is illustrated by area
a. A + B.
b. B.
c. A.
d. A + B - C.
e. C.
7.
Refer to the graph above. Total industry costs are illustrated by area
a. B.
b. C.
c. A.
d. A+B.
8.
If incomes increase, then the _____ in the market for luxury cars ______, as they
are normal goods.
a. supply; decreases
b. supply; increases
c. demand; increases
d. demand; decreases
e. both supply and demand; increase
Use the following table to answer questions 9 – 11:
9.
In the market represented in the table above, if price is $.50,
a. producers are not able to sell all they are willing to sell.
b. a surplus of 30 units results.
c. producers are willing to produce more than is being purchased.
d.
e.
consumers are willing to buy more than is being produced.
consumers are willing to buy the same amount as that being produced.
10. In the market represented in the table above, if price rises (perhaps due to
government mandate) from $.70 to $.80,
a. a surplus of 30 units will occur.
b. producers will not be able to sell all they are willing to produce.
c. consumers would like to buy more than will be produced.
d. a shortage of 15 units will occur.
e. a new market equilibrium quantity of 25 units will result.
11. If price is below equilibrium,
a. demand is too low for equilibrium.
b. the income and substitution effects will cause the price to rise.
c. quantity supplied exceeds quantity demanded, and a shortage exists.
d. quantity demanded exceeds quantity supplied, and a shortage exists.
e. demand will increase.
12. The diamond-water paradox
a. is the fact that people get more utility from water than diamonds, but the
price of diamonds is much higher than that of water.
b. occurs whenever someone is willing to pay more for something that is a
necessity than he or she is willing to pay for a luxury.
c. illustrates the ability economists have to measure utility.
d. occurs when an individual prefers water to diamonds.
e. occurs when an individual prefers diamonds to water.
13. Which of the following causes a movement along the supply curve for a product?
a. An increase in production cost
b. An increase in the number of sellers
c. An expectation of a higher future price
d. An increase in the tax on production
e. An increase in the price of that product
14. In the case of a surplus,
a.
b.
c.
d.
e.
there is no need for adjustment because equilibrium is rarely perfect.
the quantity supplied exceeds the quantity demanded at the current price
level.
producer incomes will fall and production will rise in order to make up
for the shortfall.
market price will rise.
the quantity demanded exceeds the quantity supplied at the current price
level.
15. The marginal benefit of a product is a measure of a good's
a. opportunity cost.
b. Cost to produce.
c. worth or value to a consumer.
d. scarcity.
16. Consumer surplus exists when a
a. person buys something with a marginal benefit less than what they paid.
b. person buys something and their willingness to pay is equal to exactly
what they paid.
c. person buys something and their willingness to pay is more than what
they paid.
d. producer sells something for more than it is worth.
Use the following graph to answer questions 17 – 18
17. In the figure above, for the 3,000th unit, the maximum price a consumer is willing
to pay is
a. $5.
b. $10.
c. $15.
d. None of the above answers is correct.
18. In the figure above, at the market price of $15, the consumer surplus equals
a. $10,000.
b. $30,000.
c. $40,000.
d. None of the above answers is correct.
19. Your marginal utility of hamburgers
a. is always greater than your total utility from hamburgers.
b. is always greater than your average utility from hamburgers.
c. is always greater than the price of hamburgers.
d. depends on how many hamburgers you’ve already eaten.
20. As Shana’s consumption of tacos increases, her
a. marginal utility from tacos decreases.
b. marginal utility from tacos increases.
c. total utility from tacos decreases then increase.
d. both total and marginal utility from tacos decrease.
21. When a consumer spends all of his or her income and consumes a bundle of goods
such that the marginal utility per dollar spent is equal for all goods, then the
a. consumer’s total utility is maximized.
b. consumer is in his or her consumption equilibrium.
c. marginal utilities for each good are maximized.
d. Both answers A and B are correct.
22. Which of the following is NOT an assumption of marginal utility theory?
a.
b.
c.
d.
Initially, as the quantity of a good consumed increases, the consumer’s
total utility increases.
As the quantity of a good consumed increases, the consumer’s marginal
utility decreases.
utility is a measure of satisfaction.
Marginal utility is measured in dollars.
23. A slice of pizza is $2 and a soda is $2. You have only $14, enough money for either
4 slices of pizza and 3 sodas, or 3 slices of pizza and 4 sodas. After the third soda
and the third slice of pizza, the marginal utility of a fourth soda is 20 and the
marginal utility of a fourth slice of pizza is 30. You should
a. drink the fourth soda and eat the fourth slice of pizza because you can’t
have soda without pizza.
b. drink the fourth soda and not eat a fourth slice of pizza.
c. eat the fourth slice of pizza and not drink the fourth soda.
d. not eat the fourth slice of pizza nor drink the fourth soda.
Answers:
1. B
2. B
3. B
4. C
5. A
6. B
7. B
8. C
9. D
10. B
11. D
12. A
13. E
14. B
15. C
16. C
17. B
18. A
19. D
20. A
21. D
22. D
23. C