BAM 040: Managerial Economics

Teachers’ Guide Module #17

Name: Permit number: _______

_________________________________________________________________ Date:_______________
Section: ____________ Schedule:_____________________________________

SECOND PERIODICAL EXAMINATION

Score:
Multiple Choice (1 pt. each)
___________
Direction: Write the letter of your answer on the space provided before the given number.
Use CAPITAL LETTERS ONLY.

_____1. Indifference curves are convex, or bowed toward the origin, because
a. each indifference curve represents a constant, but different level of utility.
b. of diminishing marginal utility: the consumption of an additional unit of a good generates a smaller
increase in total utility than the previous unit consumed.
c. they are not allowed to intersect one another.
d. they are downward sloping.

_____2. Suppose that Bob gets 40 units of utility when he consumes 2 hot dogs and 3 sodas and he gets
40 units of utility when he consumes 3 hot dogs and 1 soda. Then,
a. Bob must like hot dogs more than soda.
b. Bob must like soda more than hot dogs.
c. these two combinations of hot dogs and soda must lie on the same indifference curve.
d. these two combinations of hot dogs and soda must lie on the same budget line.

_____3. Joe’s income each month is $500 and Joe purchases only two types of goods: food and clothing.
Each unit of food (F) costs $10 per unit and each unit of clothing (C) costs $20 per unit.
Which of the following equations expresses Joe’s budget line?
a. $500 = $10/F + $20/C
b. F = 50 − 2C
c. F = 500 − 2C
d. C = 25 − (1/2)F
e. Answers (b) and (d) are both correct.

_____4. The vertical intercept of the individual’s budget line is equal to

a. the price of the good measured on the vertical axis divided by the individual’s income.
b. the price of the good measured on the horizontal axis divided by the individual’s income.
c. the individual’s income divided by the price of the good measured on the vertical axis.
d. the individual’s income divided by the price of the good measured on the horizontal axis.

_____5. In the indifference curve/budget line diagram, consumers reach higher indifference curves when
a. their budget decreases.
b. the price of only the good measured along the y-axis increases.
c. the price of either good falls.
d. the price of either good rises.

_____6. Reb buys fishing lures and steaks. If his budget does not change and the price of a fishing lure
decreases, the maximum number of fishing lures he can purchase ________ and the maximum
number of steaks he can purchase ________.
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 BAM 040: Managerial Economics
Teachers’ Guide Module #17

Name: Permit number: _______

_________________________________________________________________ Date:_______________
Section: ____________ Schedule:_____________________________________

a. increases; decreases
b. does not change; does not change
c. decreases; increases
d. increases; does not change

_____7. Suppose that you consume only pizza and Diet Pepsi. The table above gives your utility from
consuming these two goods. What is the marginal utility you get from the fourth slice of pizza?
a. 18 b. 12 c. 4 d 36

_____8. Juan's marginal utility from strawberries is 200 and his marginal utility from cream is 100. Juan
spends all his budget. The price of strawberries is $5 per pound and the price of cream is $5 per
pint. To maximize his utility, Juan should
a. buy less cream and more strawberries.
b. buy less cream and fewer strawberries.
c. buy more cream and fewer strawberries.
d. buy more cream and more strawberries
.
_____9. As Shaniq drinks additional cups of tea at breakfast, Shaniq's
a. marginal utility from tea decreases.
b. total utility from tea increases.
c. total utility from tea decreases.
d. Both answers A and B are correct.

_____10. Suppose that Misty likes pizza and hotdogs. If her marginal utility per dollar from pizza is 6 and
from hotdogs it is 5, Misty
a. could increase her total utility by buying more hotdogs and less pizza.
b. must obtain more income in order to reach her consumer equilibrium.
c. is maximizing her marginal utility.
d. could increase her total utility by buying more pizza and fewer hotdogs.

_____11. The maximum price a consumer is willing to pay for an extra unit of a good or service when
total utility is maximized is known as
a. marginal utility.
b. quantity demanded.
c. marginal benefit.
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 BAM 040: Managerial Economics
Teachers’ Guide Module #17

Name: Permit number: _______

_________________________________________________________________ Date:_______________
Section: ____________ Schedule:_____________________________________

d. total utility.

_____12. As a consumer moves away from the origin onto higher indifference curves, what happens?
a. The consumer reaches less preferred combinations of goods.
b. The consumer reaches more affordable combinations of goods.
c. The consumer reaches more preferred combinations of goods.
d. Nothing

_____13. What is the maximum amount of good Y that can be purchased if X and Y are the only two goods
available for purchase and Px = $10, Py = $20, X = 0, and M = 400?
a. 10 b. 20 c. 5 d. 0

_____14. The difference between a price increase and a decrease in income is that:
a. a decrease in income does not affect the slope of the budget line, while an increase in price does
change the slope.
b. a price increase does not affect the consumption of other goods, while a decrease in income
does.
c. a price increase will increase real income, while a decrease in income will increase real income.
d. None of the preceding statements is correct.

_____15. If a consumer's income decreases, what will happen to the budget line?
a. It will shift outward. c. It will become flatter.
b. It will become steeper. d. It will shift inward.

_____16. 1. Assume that the price elasticity of demand is −2 for a certain firm's product. If the firm raises
price, the firm's managers can expect total revenue to:
a. decrease. c. remain constant.
b. increase. d. either increase or remain constant

_____17. The own price elasticity of demand for apples is −1.2. If the price of apples falls by 5 percent,
what will happen to the quantity of apples demanded?
a. It will increase 5 percent. c. It will increase 4.2 percent.
b. It will fall 4.3 percent. d. It will increase 6 percent.

_____18. If apples have an own price elasticity of −1.2 we know the demand is:
a. unitary. c.elastic.
b. indeterminate. d. inelastic.

_____19. The quantity consumed of a good is relatively unresponsive to changes in price whenever
demand is:
a. elastic. c.falling.
b. unitary. d. inelastic

_____20. The demand curve for a good is horizontal when it is:

a. a perfectly inelastic good.
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 BAM 040: Managerial Economics
Teachers’ Guide Module #17

Name: Permit number: _______

_________________________________________________________________ Date:_______________
Section: ____________ Schedule:_____________________________________

b. a unitary elastic good.

c. a perfectly elastic good.
d. an inferior good.

_____21. Demand is more inelastic in the short term because consumers:

a. are impatient.
b. have no time to find available substitutes.
c. are present-oriented.
d. None of the preceding statements is correct

_____22. The elasticity which shows the responsiveness of the demand for a good due to changes in the
price of a related good is the:
a. own price elasticity.
b. income elasticity.
c. log-linear elasticity.
d. cross-price elasticity.

_____23. If the cross-price elasticity between goods A and B is negative, we know the goods are:
a. inferior goods. c. inelastic.
b. complements. d. substitutes.

_____24. If the cross-price elasticity between ketchup and hamburgers is −1.2, a 4 percent increase in the
price of ketchup will lead to a 4.8 percent:
a. drop in quantity demanded of ketchup.
b. drop in quantity demanded of hamburgers.
c. increase in quantity demanded of ketchup.
d. increase in quantity demanded of hamburgers.

_____25. The elasticity that measures the responsiveness of consumer demand to changes in income is
the:
a. income elasticity.
b. own price elasticity.
c. cross-price elasticity.
d. none of the above

_____26. If the income elasticity for lobster is 0.4, a 40 percent increase in income will lead to a:
a. 10 percent drop in demand for lobster.
b. 16 percent increase in demand for lobster.
c. 20 percent increase in demand for lobster.
d. 4 percent increase in demand for lobster.

_____27. Which of the following factors would NOT affect the own price elasticity of a good?
a. Time
b. Price of an input
c. Available substitutes
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 BAM 040: Managerial Economics
Teachers’ Guide Module #17

Name: Permit number: _______

_________________________________________________________________ Date:_______________
Section: ____________ Schedule:_____________________________________

d. Expenditure share

_____28. If the price of pork chops falls from $8 to $6, and this leads to an increase in demand for apple
sauce from 100 to 140 jars, what is the cross-price elasticity of apple sauce and pork chops at a pork chop
price of $6?
a. −1.17 c. 0.42
b. 2.71 d. −0.86

_____29.The maximum legal price that can be charged in a market is:

a. a price floor. c. the market equilibrium price.
b. an ad valorem tax. d. a price ceiling.

_____30. Suppose you produce wooden desks, and government legislation protecting the spotted owl has
made it more expensive for you to purchase wood. What do you expect to happen to the equilibrium price
and quantity of wooden desks?
a. Price and quantity will increase.
b. Price will increase but quantity will decrease.
c. Price and quantity will decrease.
d. Price will decrease but quantity will increase.

_____31. Consumer surplus is:

a. the value consumers get from a supplier.
b. the value consumers do not pay because of a discount by a supplier.
c. the value consumers get from a good but do not pay for.
d. equal to the amount consumers pay for a good.

_____32. Producer surplus is the:

a. area above the supply curve but below the demand curve.
b. area above the supply curve but below the market price of the good.
c. minimum amount required by a producer for producing the good.
d. maximum amount a producer can collect from consumers.

_____33. When quantity demanded exceeds quantity supplied:

a. there exists a surplus of a good.
b. the price tends to fall.
c. the price is below the equilibrium price.
d. there is no excess demand.

_____34. Competitive market equilibrium:

a. is determined by the intersection of the market demand and supply curves.
b. implies that quantity supplied is sufficiently larger than quantity demanded.
c. is determined by the intersection of the excess demand and excess supply curves.
d. implies that quantity demanded is sufficiently larger than quantity supplied.

_____35. When an effective price ceiling is in place:

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 BAM 040: Managerial Economics
Teachers’ Guide Module #17

Name: Permit number: _______

_________________________________________________________________ Date:_______________
Section: ____________ Schedule:_____________________________________

a. every consumer is better off.

b. every consumer is worse off.
c. some consumers are better off and others are worse off.
d. on average the net change in consumer surplus is zero.

_____36.The minimum wage:

a. is an example of a price floor.
b. leads to an increase in the number of people employed in unskilled jobs.
c. leads to a decrease in the number of people employed in skilled jobs.
d. causes an increase in social welfare.

_____37. Jane pays the market price of $69 for a new pair of running shoes, even though she would be
happy to pay a maximum of $100 for the same pair of shoes. This is an example of the concept of:
a. producer surplus.
b. price ceilings.
c. full economic prices.
d. consumer surplus.

_____38. Graphically, an increase in the number of vegetarians will cause the demand curve for tofu (a
meat substitute) to:
a. shift rightward. c. become flatter.
b. shift leftward. d. become steeper.

_____39. All else held constant, as additional firms enter an industry:

a. more output is available at each given price.
b. less output is available at each given price.
c. the same output is available at each given price.
d. output could increase or decrease at each given price.

_____40. Consider a market characterized by the following inverse demand and supply functions: PX = 10
− 2QX and PX = 2 + 2QX. An $8 per unit price floor will result in a:
a. shortage of 1 unit. c. shortage of 3 units.
b. surplus of 2 units. d. surplus of 3 units.