1.             The concept of price elasticity of demand measures:

A)            the number of sellers in a market.

B)            the number of buyers in a market.

C)            the extent to which the demand curve shifts as the result of a price decline.

D)            the sensitivity of consumers to price changes.

2.             The basic formula for the price elasticity of demand coefficient is:

A)            absolute decline in quantity demanded/absolute increase in price.

B)            percentage change in quantity demanded/percentage change in price.

C)            absolute decline in price/absolute increase in quantity demanded.

D)            percentage change in price/percentage change in quantity demanded.

3.             If the price of a case of Budweiser falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 150, then:

A)            demand is elastic.

B)            demand is inelastic.

C)            demand is of unit elasticity.

D)            the number of DWIs will probably decline due to the substitution effect. 

Use the following diagram to answer question 4:

 4.            Refer to the above diagram, and remember the formula for price elasticity of demand to answer this.  Between prices of $5.70 and $6.30:

A)            D1 is more elastic than D2.

B)            D2 is more elastic than D1.

C)            D1 and D2 have identical elasticities.

D)            None of the above

5.             Valencia Community College raises tuition for the purpose of increasing its revenue so that a hefty salary increase can be given to economics professors!!!!!. VCC is assuming that the demand for education at VCC is:

A)            decreasing.

B)            relatively elastic.

C)            perfectly elastic.

D)            relatively inelastic.

6.             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.

7.             The elasticity of demand for a product is likely to be greater:

A)            if the product is a necessity, rather than a luxury good.

B)            the greater the amount of time over which buyers adjust to a price change.

C)            the smaller the proportion of one's income spent on the product.

D)            the smaller the number of substitute products available.

8.             An anti-drug policy that reduces the supply of crack cocaine might:

A)            reduce the price of a "fix" from a $20 to a $10.

B)            reduce street muggings because the addict's demand for crack cocaine is highly elastic.

C)            increase street muggings because the addict's demand for crack cocaine is highly inelastic

D)            increase street muggings because the addict's demand for crack cocaine is highly elastic.

9.             A price floor means:

A)            that inflation is severe in this particular market.

B)            that monopolistic sellers are artificially restricting supply to raise price.

C)            the floor where Walmart and other retailers house their pricing and marketing departments.

D)            that government is imposing a legal price that is above the equilibrium price.

10.          The law of diminishing marginal utility states that:

A)            total utility is maximized when consumers get the same amount of utility per unit  (not per dollar) of each product consumed.

B)            beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.

C)            price must be lowered to induce firms to supply more of a product.

D)            it will take larger and larger amounts of resources beyond some point to produce successive units of a product.

11.          Cesar Saladino likes rum. The first shot of rum yields him 18 units of utility; the second yields him 12 more units of utility.  If he drank a third shot, his total utility from the 3 drinks would be 38 units of utility. The marginal utility of the third shot would be:

A)            38 units of utility.

B)            30 units of utility.

C)            8 units of utility.

D)            zero, even though he still wouldn’t be drunk.

12.          Utility refers to the:

A)            satisfaction that a consumer derives from a good or service.

B)            rate of decline in a product demand curve.

C)            relative scarcity of a product.

D)            phenomenon that made SUVs (sports utility vehicles) very popular. 

13.          Suppose that MUx/Px exceeds MUy/Py .  To maximize utility the consumer who is spending all her money income should buy:

A)            less of X only if its price rises.

B)            more of Y only if its price rises.

C)            more of Y and less of X.

D)            more of X and less of Y.

14.          Julio Garbanzo normally orders two tacos, but on seeing they are on sale, decides to buy three.  Julio's decision illustrates the:

A)            law of increasing opportunity costs.

B)            "hunger and cheap food" principle of consumption.

C)            principle of comparative advantage.

D)            principle of utility maximization.

15.          The basic characteristic of the short run is that:

A)            barriers to entry prevent new firms from entering the industry.

B)            the firm does not have sufficient time to change the size of its plant.

C)            the firm does not have sufficient time to cut its rate of output to zero.

D)            a firm does not have sufficient time to change the amounts of any of the resources it employs.