Economics for Business
Textbook Exam Questions
Course Introduction
Economics for Business provides students with an essential understanding of economic principles and their practical application within the business environment. The course covers fundamental concepts such as supply and demand, market structures, pricing strategies, and the role of government regulation. Emphasis is placed on how businesses make decisions in response to changes in macroeconomic and microeconomic factors, including economic growth, inflation, and globalization. By analyzing real-world business scenarios, students gain the skills to interpret economic data and trends, enabling informed decision-making that enhances organizational efficiency and competitiveness.
Recommended Textbook
Economics 4th Edition by Paul Krugman
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Page 2
Chapter 1: First Principles
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Q1) Although for smokers the marginal benefit from smoking may exceed the marginal cost of smoking, the negative effects of second-hand smoke may increase the marginal costs of smoking to society to a point where it exceeds that marginal benefit to society. This is an example of:
A) individual actions whose side effects are not properly taken into account by the market.
B) one party preventing mutually beneficial trades in an attempt to capture a greater share of resources for itself.
C) some goods' unsuitability for efficient management by markets.
D) regulating self-interest.
Answer: A
Q2) A busy professor can't decide whether to stay in his office to grade papers for another hour or to go home and go to bed. This is an example of:
A) equity versus efficiency.
B) how one person's spending is another person's income.
C) economic incentives.
D) marginal analysis.
Answer: D
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Chapter 2: Economic Models- Trade-Offs and Trade
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Sample Questions
Q1) The models used in economics:
A) are always limited to variables that are directly related.
B) are essentially not reliable because they are not testable in the real world.
C) are of necessity unrealistic and not related to the real world.
D) emphasize basic relationships by abstracting from complexities in the everyday world.
Answer: D
Q2) (Figure: Strawberries and Submarines) Look at the figure Strawberries and Submarines. Suppose the economy now operates at point C. Moving to point E would require that the economy:
A) achieve full employment and an efficient allocation of resources.
B) eliminate its production of strawberries.
C) reduce its production of submarines.
D) improve its technology or increase its quantities of factors of production.
Answer: B
Q3) Economic models that make unrealistic assumptions may be useful in analyzing some economic problems.
A)True
B)False
Answer: True
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Chapter 3: Supply and Demand
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Sample Questions
Q1) Good X and good Y are related. If the price of good X increases and the demand for good Y shifts left, these goods are:
A) complements.
B) substitutes.
C) inferior.
D) normal.
Q2) A decrease in the price of eggs will result in:
A) an increase in the demand for eggs.
B) an increase in the supply of eggs.
C) a shift in the supply curve for eggs.
D) a movement along the demand curve for eggs.
Q3) How would each of the following events affect the demand for new textbooks?
I. The price of a used textbook rises.
II. The price of college tuition rises.
III. More high school graduates decide to attend college.
Q4) In the Midwestern United States, the price of an ear of corn is always lowest in the summer. This seems odd, because consumers really enjoy eating ears of corn in the summer. Can you explain this?
Q5) Explain the law of demand. What does it tell us about the shape of a demand curve?
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Chapter 4: Consumer and Producer Surplus
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Q1) A consumer's willingness to pay depends on:
A) the cost of producing the good or service.
B) the expected additional benefit of consuming the good or service.
C) the size of the shortage of the good or service.
D) the size of the surplus of the good or service.
Q2) Along a given upward-sloping supply curve, a decrease in price will cause producer surplus to:
A) increase.
B) decrease.
C) stay the same.
D) We cannot determine what producer surplus will do without information about the demand curve.
Q3) Equilibrium in the market for peanut butter is disturbed by an increase in the price of peanuts. Assuming that the supply curve of peanut butter is upward-sloping, producer surplus in the peanut butter market:
A) will increase.
B) will decrease.
C) will not change.
D) may change, but we cannot determine the change without more information.
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Page 6
Chapter 5: Price Controls and Quotas- Meddling With Markets
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Q1) Hugo Chávez was the president of Venezuela. Venezuela is a major producer of oil products, which remain the keystone of Venezuela's economy. Suppose President Chávez wanted to increase his popularity with the citizens of Venezuela and enacted a government policy to reduce the price of gasoline sold at state-owned gas stations to 50% of the previous price. Assuming a downward-sloping demand curve for gasoline, in theory, this policy would result in the quantity of gasoline demanded to be _____ the quantity of gasoline supplied.
A) equal to
B) greater than C) less than
D) greater than or equal to
Q2) A limit on the amount of a foreign currency people are allowed to buy is an example of a quota.
A)True
B)False
Q3) A binding minimum wage will generally cause increased unemployment for low-skilled workers.
A)True
B)False
Q4) How could a minimum wage cause an incentive for illegal hiring practices?
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Chapter 6: Elasticity
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Sample Questions
Q1) (Figure: The Market for Lattes) Look at the figure The Market for Lattes. What is the price elasticity of demand between $2 and $2.50 per cup, using the midpoint formula?
A) 1.00
B) 1.29
C) 2.51
D) 3.00
Q2) Tomas produces 100 cartons of free range eggs when the price is $5 and 150 cartons of free range eggs when the price is $7. What is the value of Tomas's price elasticity of supply?
A) 1.2
B) 2.0
C) 1.0
D) 3.2
Q3) A perfectly inelastic demand curve for insulin would mean that the quantity demanded does NOT respond at all to changes in the price of insulin.
A)True B)False
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Chapter 7: Taxes
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Sample Questions
Q1) Suppose the price elasticity of demand is relatively elastic and the price elasticity of supply is relatively inelastic in a specific market. If an excise tax is imposed on this good, who will bear the greater burden of the tax?
A) consumers
B) producers
C) both consumers and producers equally
D) government
Q2) (Figure: The Market for Productivity Apps) Look at the figure The Market for Productivity Apps. If the government imposes a tax of $1 in this market, consumers will pay _____ more per app and purchase _____ fewer apps.
A) $1; 5
B) $1; 25
C) $0.50; 5
D) $0.50; 20
Q3) The two principles of tax fairness are:
A) the minimize-distortions principle and the maximize-revenue principle.
B) the benefits principle and the ability-to-pay principle.
C) the proportional-tax principle and the ability-to-pay principle.
D) the equity principle and the efficiency principle.
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Page 9
Chapter 9: The Rational Consumer
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Sample Questions
Q1) Whatever the relevant time, Molly's spending will be _____ by her _____.
A) unlimited; marginal utility
B) limited; marginal utility
C) limited; budget
D) unlimited; budget
Q2) The relation between an individual's consumption bundle and her satisfaction is called a _____ function.
A) demand
B) production
C) consumption
D) utility
Q3) On a sparsely populated island, high-speed Internet service would have a _____ marginal utility than in New York City, while in New York City quiet evenings would carry a _____ marginal utility than on a deserted island.
A) lower; higher
B) higher; lower
C) lower; lower
D) higher; higher
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10
Chapter 8: International Trade
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Sample Questions
Q1) Which model states that nations that are abundant in a factor will have a comparative advantage in a good whose production is intensive in that factor?
A) the pauper labor fallacy model
B) the Ricardian model
C) the Heckscher-Ohlin model
D) the oligopoly model
Q2) Britain must give up the production of 75 hats to produce 25 additional sweaters. The opportunity cost of producing 4 sweaters is _____ hats.
A) 4
B) 12
C) 71
D) 79
Q3) If the _____ differ(s) between two countries, this suggests the possibility for mutually advantageous trade.
A) currency
B) factor endowments
C) exchange rate
D) level of government spending for defense
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11
Chapter 10: Decision Making by Individuals and Firms
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Sample Questions
Q1) Whenever marginal benefit is less than marginal cost, the decision maker should do _____ of the activity.
A) less
B) that exact amount
C) more
D) none
Q2) Money that must be paid for the use of factors of production such as labor and capital is an:
A) explicit cost.
B) accounting profit.
C) implicit cost.
D) economic profit.
Q3) If marginal costs remain constant, the marginal cost curve is:
A) vertical.
B) horizontal.
C) upward-sloping from the origin.
D) downward-sloping.
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Chapter 11: Perfect Competition and the Supply Curve
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Q1) Cindy's Nails operates in the perfectly competitive pedicure industry. The city is considering requiring nail salons to be certified by a health inspector. The certification will cost $1,000 annually and is thus a fixed cost. The certification will affect Cindy's decision to operate in the long run but will not affect the number of pedicures she chooses to perform if she operates in the short run.
A)True
B)False
Q2) Which of the following is TRUE?
A) If price falls below average variable cost, the firm will shut down in the short run.
B) Total revenue and marginal revenue are the same in perfect competition.
C) Economic profit per unit is found by subtracting MC from price.
D) Economic profit is always positive in the long run.
Q3) A perfectly competitive firm will continue producing in the short run as long as it can cover its _____ cost.
A) total
B) average fixed
C) variable
D) fixed
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13
Chapter 12: Monopoly
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Q1) (Figure: The Monopolist II) Look at the figure The Monopolist II. The deadweight loss associated with this monopoly can be measured as the area:
A) 0.5(P<sub>1</sub> - P<sub>2</sub>)(Q<sub>2</sub> - Q<sub>1</sub>).
B) 0.5 (P<sub>2</sub> - P<sub>4</sub>)(Q<sub>4</sub> - Q<sub>2</sub>).
C) 0.5 (P<sub>1</sub> - P<sub>3</sub>)Q<sub>3</sub>.
D) 0.5 (P<sub>1</sub> - P<sub>3</sub>)Q<sub>2</sub>.
Q2) Suppose that you build a high-speed, magnetically powered transportation system from New York to Los Angeles, and you are the only firm providing this service. High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing average cost for any conceivable level of demand. Your monopoly would result from:
A) control of a scarce resource or input.
B) technological superiority.
C) increasing returns to scale.
D) government-set barriers.
Q3) Monopolists are engaging in price discrimination when they charge all customers the same price.
A)True
B)False
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Page 14
Chapter 13: Oligopoly
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Sample Questions
Q1) Large barriers to entry in the gas station business explain why the two only gas stations in a small town:
A) can earn an economic profit in the long run.
B) must produce at the minimum average total cost in the long run.
C) have no fixed costs in the long run.
D) must produce a level of output such that MR = MC to maximize their profit.
Q2) To calculate the Herfindahl-Hirschman index (HHI), one must _____ market share(s) of _____ in the industry.
A) sum the; the four largest firms
B) sum the; all of the firms
C) divide the; the largest firm by the sum of the four largest firms
D) sum the squared; all firms
Q3) An analytical approach through which strategic choices can be assessed is called:
A) cost-benefit analysis.
B) econometric theory.
C) game theory.
D) monopolistic competition.
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Chapter 14: Monopolistic Competition and Product
Differentiation
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Sample Questions
Q1) The profit-maximizing rule MC = MR is followed by firms operating in:
A) monopolistic competition but not perfect competition.
B) perfect competition but not monopolistic competition.
C) either monopolistic competition or perfect competition, depending on the costs of production.
D) both monopolistic competition and perfect competition.
Q2) Because of the lack of substitutes, the market for newly developed brand-name prescription drugs is best considered to be:
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
Q3) (Figure: Firms in Monopolistic Competition) In panel (A) of the figure Firms in Monopolistic Competition, the profit-maximizing quantity of output is determined by the intersection at point:
A) K.
B) P.
C) N.
D) O.
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Chapter 15: Externalities
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Q1) If the marginal social benefit received from pollution is equal to its marginal social cost:
A) society's well-being can be improved if the quantity of pollution increases.
B) society's well-being can be improved if the quantity of pollution decreases.
C) society has achieved its socially optimal level of pollution.
D) the market is producing too much pollution.
Q2) An externality is said to be internalized:
A) when individuals take external costs and benefits into account in their decision making.
B) when the Coase theorem is irrelevant or cannot be applied.
C) when individuals successfully petition the government to ban or restrict activities that generate negative externalities.
D) when individuals learn to adapt to negative externalities through introspection or internal acceptance of what are viewed as unchangeable facts of life.
Q3) Which of the following is usually associated with a positive externality?
A) smoking cigarettes
B) listening to a new CD with earbuds
C) innovation in the semiconductor industry
D) an indoor classical music concert with tickets that cost $50
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Page 17
Chapter 16: Public Goods and Common Resources
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Sample Questions
Q1) A good is most likely to be artificially scarce if:
A) it is nonexcludable and nonrival.
B) the seller is a monopolist.
C) it is nonexcludable but rival.
D) it is excludable but nonrival.
Q2) Since the public safety that a police force provides is _____ in consumption, the efficient price _____.
A) rival; is zero
B) nonrival; is zero
C) rival; equals marginal social benefit
D) nonrival; equals marginal social benefit
Q3) A private good is a good or service for which exclusion is _____ and which is _____ in consumption.
A) possible; rival
B) possible; nonrival
C) not possible; rival
D) not possible; nonrival
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Chapter 17: The Economics of the Welfare State
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Sample Questions
Q1) Approximately _____ of Americans have no health insurance.
A) 1% to 10%
B) 11% to 20%
C) 21% to 50%
D) over 50%
Q2) Which of the following countries has a health care system that directly employs health care workers and runs hospitals and clinics that are free to the public?
A) United States
B) Canada
C) France
D) Great Britain
Q3) There is considerable _____ among the quintiles of the distribution of income, with many families moving from _____ quintiles and others moving from _____ quintiles.
A) immobility; lower to higher; higher to lower
B) mobility; higher to lower; lower to higher
C) immobility; lower to even lower; higher to even higher
D) stability; lower to higher; higher to higher
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19
Chapter 18: Factor Markets and the Distribution of Income
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Sample Questions
Q1) Regardless of gender and ethnicity, more education is associated with higher median earnings.
A)True
B)False
Q2) A firm has hired the profit-maximizing number of workers when the wage is:
A) less than the price of the product.
B) greater than the average product of the last worker hired.
C) equal to the average product of the last worker hired.
D) equal to the value of the marginal product of labor of the last worker hired.
Q3) According to the marginal productivity theory of income distribution, every factor of production is paid a wage equal to the equilibrium value of its average product.
A)True
B)False
Q4) In 2012, the median earnings of union members were 25% to 30% higher than the wages of workers not represented by unions.
A)True
B)False
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20
Chapter 19: Uncertainty, Risk, and Private Information
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Q1) Common strategies to deal with the problem of adverse selection include screening (using observable information to make inferences about private information), signaling (engaging in actions that reveal one's private information), and establishing a good reputation.
A)True
B)False
Q2) Consider the marginal utility of income curves of Hank, Babe, Barry, and Willie. Hank's is constant; Babe's is slightly diminishing; Barry's is strongly diminishing; and Willie's is upward-sloping. All else equal, which of these individuals will be most risk-averse?
A) Hank
B) Babe
C) Barry
D) Willie
Q3) Risk-averse individuals will always buy insurance, regardless of the premiums charged.
A)True
B)False
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Chapter 20: Macroeconomics- the Big Picture
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Q1) Use of fiscal policy involves changes in:
A) interest rates.
B) government spending.
C) the quantity of money.
D) the quantity of money and interest rates.
Q2) In many countries, economists adopt the rule that a recession is a period of at least _____ during which aggregate output falls.
A) one quarter
B) two consecutive quarters
C) three consecutive quarters
D) a full year
Q3) When an economy's overall production grows faster than its population, it is undergoing:
A) long-run growth per capita.
B) an increase in nominal GDP.
C) deflation.
D) the paradox of thrift.
Q4) Following a trough, real GDP increases.
A)True
B)False
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Chapter 21: Gdp and the Consumer Price Index
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Q1) Which of the following transactions would NOT be counted in GDP?
A) Nike builds a retail store.
B) Your mother buys a pound of Washington-grown apples.
C) Your mother buys 100 shares of Nike stock.
D) The Indiana state government pays for repair of a damaged bridge over the Wabash River.
Q2) In the circular-flow diagram, the places where resources, especially capital and labor, are bought and sold are the:
A) product markets.
B) factor markets.
C) households.
D) firms.
Q3) Purchases of foreign-produced goods and services are:
A) net exports.
B) exports.
C) imports.
D) transfer payments.
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Chapter 22: Unemployment and Inflation
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Q1) Suppose that Allison has an accounting degree, but she lost her job two months ago when her company merged with another firm. Allison hasn't been able to find another accounting job, so she has taken a part-time job as a sales clerk at a clothing store. The Bureau of Labor Statistics classifies Allison as:
A) a marginally attached worker.
B) a discouraged worker.
C) underemployed.
D) unemployed.
Q2) If a country has a working-age population of 200 million, 120 million people with jobs, and 30 million people unemployed and seeking employment, then its unemployment rate is:
A) 5%.
B) 7.5%.
C) 15%.
D) 20%.
Q3) The increased availability of automatic teller machines has decreased the shoe-leather costs of high inflation.
A)True
B)False
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Chapter 23: Long-Run Economic Growth
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Q1) South Korea has real GDP per capita of $25,000, while England has real GDP per capita of $50,000. If real GDP per capita in South Korea grows at 7% and England's real GDP per capita grows at 3.5%, how long will it take for real GDP per capita in the two nations to converge?
A) 10 years
B) 20 years
C) 25 years
D) 35 years
Q2) Technological progress is advanced through:
A) research and development.
B) government regulation.
C) consumption.
D) infrastructure.
Q3) The aggregate production function exhibits diminishing returns to labor but not to physical capital.
A)True
B)False
Q4) (Figure: The Aggregate Production Function) Look at the figure The Aggregate Production Function. Does it exhibit diminishing returns to physical capital? Explain.
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Chapter 24: Savings, Investment Spending
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Q1) If capital inflow is negative, then a country:
A) borrows more than it lends to other countries.
B) lends more than it borrows from other countries.
C) has balanced trade.
D) imports more than it exports.
Q2) The government saves when it runs a budget deficit.
A)True
B)False
Q3) (Table: Investment Projects) Look at the table Investment Projects. If the market interest rate is 13%, the amount of planned investment spending is:
A) $200.
B) $800.
C) $1,000.
D) $2,000.
Q4) The present value of a future payment _____if the _____.
A) decreases; interest rate increases
B) increases; future payment decreases
C) decreases; interest rate decreases
D) increases; stock market falls
Q5) Compare stocks and bonds with respect to risk and return.
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Chapter 25: Fiscal Policy
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Q1) A reduction in government transfers _____, therefore shifting the aggregate demand curve to the _____.
A) increases labor costs to companies, increasing investment; left
B) decreases government purchases of goods and services, decreasing consumption; right
C) increases the marginal propensity to save, decreasing consumption; right
D) decreases disposable income and consumption; left
Q2) Which of the following is NOT a tool of fiscal policy?
A) changing tax rates
B) government transfers
C) government purchases of goods and services
D) changes in the money supply
Q3) When the government borrows funds to pay for budget deficits:
A) planned aggregate spending decreases rather than increases.
B) the multiplier effect of government purchases increases.
C) private investment spending may be crowded out.
D) the interest rate and savings decrease.
Q4) The budget deficit usually decreases when the unemployment rate increases.
A)True
B)False
Page 27
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Chapter 26: Money, Banking, and the Federal Reserve System
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Q1) All of the following are roles of money EXCEPT a:
A) measure of wealth.
B) medium of exchange.
C) unit of account.
D) store of value.
Q2) (Scenario: Monetary Base and Money Supply) Look at the scenario Monetary Base and Money Supply. How much are excess reserves?
A) $50 billion
B) $100 billion
C) $150 billion
D) $250 billion
Q3) Under the Glass-Steagall Act, investment banks were allowed to accept deposits that were not covered by deposit insurance, as well as to trade in financial assets, such as stocks and bonds.
A)True B)False
Q4) The Office of Management and Budget serves as the central bank of the United States.
A)True B)False
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Chapter 27: Monetary Policy
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Q1) Expansionary monetary policy may decrease investment spending.
A)True
B)False
Q2) Suppose that the inflation rate is 2.5%. The unemployment gap is 2%. Use the Taylor rule to estimate the target Federal funds rate.
Q3) (Figure: Monetary Policy III) Look at the figure Monetary Policy III. Expansionary monetary policy will lead to an equilibrium price level of:
A) P<sub>1</sub>.
B) P<sub>2</sub>.
C) P<sub>3</sub>.
D) P<sub>4</sub>.
Q4) If during 2007 the interest rate on one-month Treasury bills was 2.5% and during 2008 it was 2%, the opportunity cost of holding money: A) decreased.
B) became negative.
C) increased.
D) did not change.
Q5) Why does a recession, all else equal, decrease the demand for money?
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Chapter 28: Inflation, Disinflation, and Deflation
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Q1) If there is too much deflation:
A) people will switch from money to real assets.
B) the nominal interest rate will be constrained by the zero interest rate bound.
C) lenders will be harmed.
D) aggregate demand will increase.
Q2) (Figure: Classical Model of the Price Level) Look at the figure Classical Model of the Price Level. If the central bank increases the money supply such that aggregate demand shifts from AD<sub>1</sub> to AD<sub>2</sub>, according to this classical model, real GDP will:
A) not change.
B) increase from Y<sub>E</sub> to Y<sub>1</sub>.
C) increase from Y<sub>1</sub> to Y<sub>E</sub>.
D) establish a new potential output.
Q3) If the public holds $300 billion in monetary purchasing power and the inflation rate is 5%, then the inflation tax that year is:
A) $5 billion.
B) $15 billion.
C) $60 billion.
D) $1,500 billion.
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Page 30
Chapter 29: Crises and Consequences
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Q1) Which of the following countries was known as the Celtic Tiger during much of the 1990s and 2000s?
A) China
B) France
C) India
D) Ireland
Q2) The recession that began in 1929 turned into the Great Depression primarily because of:
A) the banking crisis.
B) the beginning of World War II.
C) taxes that were too low to finance government programs to end the recession.
D) powerful labor unions that demanded high wages and generous benefits.
Q3) The threat of a financial crisis in Europe in 2011 and 2012 was based on problems with: A) home loans in Germany.
B) political instability in France.
C) public debt problems in southern Europe and Ireland.
D) striking labor unions in northern Europe.
Q4) Explain the two main causes of banking crises.
Q5) Explain how shadow banks, which don't take deposits, can have bank runs.
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Chapter 30: Macroeconomics- Events and Ideas
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Q1) Prior to the 1930s, classical economics was the predominant theory about the behavior of the aggregate price level, aggregate output, and the appropriate role of monetary policy. Describe how classical economists believed the economy would be affected by an increase in the money supply.
Q2) When interest rates are very high, the economy is in a liquidity trap, and monetary policy may be ineffective in fighting a recession.
A)True
B)False
Q3) The economy is in a recession. The head of the President's Council of Economic Advisers is an ardent proponent of the real business cycle theory. What will this real business cycle economist recommend or not recommend? Explain.
Q4) Keynesian economists didn't oppose monetary policy, but they felt that it was ineffective in fighting a recession.
A)True
B)False
Q5) The economy is under inflationary pressure. The head of the President's Council of Economic Advisers is a staunch Keynesian. What will this Keynesian recommend or not recommend? Explain.
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Page 32
Chapter 31: Open-Economy Macroeconomics
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Q1) When a country's currency depreciates:
A) foreigners find the country's goods to be cheaper.
B) the country's exports fall.
C) the country's imports rise.
D) foreign goods become cheaper.
Q2) The difference between a fixed and a floating exchange rate regime is that with a _____ rate system, the _____, whereas with a _____ rate system it does not.
A) fixed; central bank retains its ability to use independent monetary policy; floating B) floating; central bank retains its ability to use independent monetary policy; fixed C) fixed; government can use independent fiscal policy; floating D) floating; government can use independent fiscal policy; fixed
Q3) A recession in the United States could begin with our trading partners.
A)True B)False
Q4) A reduction in the value of a floating currency is called a depreciation. A)True B)False
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33
Chapter 32: Graphs in Economics
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Q1) If two variables are positively related:
A) as one goes up in value, the other must go up in value, too.
B) as one goes up in value, the other must go down in value.
C) there is always a trade-off between the two.
D) one variable is always the reciprocal of the other.
Q2) A pie chart is used to depict information about:
A) the relative shares of categories of data.
B) the changes of a particular variable over time.
C) positive, not negative, relationships among variables.
D) the changes of a particular variable over time and positive relationships.
Q3) The relation between two variables that move in the same direction is said to be:
A) independent.
B) neutral.
C) positive.
D) indirect.
Q4) A linear curve has the same slope between every pair of points.
A)True
B)False
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Chapter 33: Toward a Fuller Understanding
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Q1) A semiconductor firm is considering opening a new plant. The plant will generate profits of $100 million at the end of each of three years after the first year of production and then no profits after that. If the interest rate is 10%, what is the maximum cost (to the nearest million) the firm is willing to pay now for the plant?
A) $300 million
B) $249 million
C) $273 million
D) $100 million
Q2) You win a prize at your sorority, and you are given the following two payoff options:
Option 1 is to receive $100 one year from today and $100 two years from today. Option 2 is to receive $180 today. If the annual interest rate is 10%, the present value of option 1 is:
A) $173.56.
B) $190.91.
C) $182.65.
D) $181.80.
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Chapter 34: Consumer Preferences and Consumer Choice
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Q1) (Figure: The Indifference Curve Map II) Look at the figure The Indifference Curve Map II. Sara enjoys attending Chicago Cubs baseball games and eating baby back rib dinners. The figure shows two of her indifference curves for Cubs tickets and baby back rib dinners. Which of the following combinations gives Sara the highest level of utility?
A) 40 baby back rib dinners and 2 Cubs tickets
B) 20 baby back rib dinners and 4 Cubs tickets
C) 12 baby back rib dinners and 10 Cubs tickets
D) All combinations give the same level of utility.
Q2) Gillian is consuming her optimal consumption bundle of peanuts and raisins. The marginal utility associated with the last peanut she consumes is 4 utils, and the marginal utility associated with the last raisin is 2 utils. What must be the price of peanuts relative to that of raisins?
A) 0.5
B) 1
C) 2
D) The relative price is undefined.
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Chapter 35: Indifference Curve Analysis of Labor Supply
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Q1) Javon has 80 hours per week to allocate between labor and leisure. Graph hours of leisure per week on the horizontal axis and income per week on the vertical axis. If Javon's hourly wage is $8, then the horizontal intercept of his time allocation budget line is:
A) $8.
B) $640.
C) 40 hours.
D) 80 hours.
Q2) If an individual's wage rate decreases, the substitution effect will cause the individual to work fewer hours.
A)True
B)False
Q3) Javon has 80 hours per week to allocate between labor and leisure. Graph hours of leisure per week on the horizontal axis and income per week on the vertical axis. If Javon's hourly wage is $8, then the opportunity cost of an hour of leisure is:
A) $8.
B) $10.
C) $640.
D) $800.
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