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Microeconomics Graphs and Supply Curves

Question 1

Refer to the graphs. In which graph is there no consumer surplus either with or without a per unit tax?

A.

B.

C.

D.

Question 2

If the supply curve is perfectly elastic the burden of a tax on suppliers is borne:

entirely by the suppliers.

entirely by the consumers.

mostly by the suppliers, and partly by the consumers, if the demand curve is inelastic.

partly by the suppliers, and mostly by the consumers, if the demand curve is elastic.

Question 3

Suppose elasticity of demand is 1, elasticity of supply is 2, and a 5% excise tax is levied on consumers. Which of the following changes will reduce the burden of the tax on consumers?

Elasticity of demand falls to 0.

Elasticity of demand rises to 2.

Taxing authorities levy the tax on suppliers.

Nothing will change the burden of the tax.

Question 4

If the price of one can of Alpo is $.50 and the price of each McBurger is $1, which of the following would Ms. Tightwad, a utility maximizing consumer, buy with her $4?

4 McBurgers.

3 McBurgers and 2 cans of Alpo.

2 McBurgers and 4 cans of Alpo.

1 McBurger and 6 cans of Alpo.

Question 5

Which of the following is an example of conspicuous consumption?

Purchasing an expensive automobile to impress others.

Avoiding cheap computers because low price indicates low quality.

Purchasing of hip-hugger pants because pop stars wear them.

Purchasing fast food because it is cheap and convenient.

Question 6

When elasticities of supply and demand are both equal to one, the burden of a tax will be:

entirely on buyers.

entirely on sellers.

half on buyers and half on sellers.

mostly on buyers.

Question 7

To calculate the marginal utility of consuming the Nth product:

subtract additional satisfaction from consuming the (N-1)th production from the additional satisfaction from consuming the Nth product.

subtract total satisfaction from consuming N-1 products from total satisfaction from consuming N products.

divide total satisfaction from consuming all N products by the price of the product.

divide total satisfaction from consuming all N products by N.

Question 8

The following table describes utility for consuming cans of soda. At what point does the law of diminishing marginal utility set in?

Between 3 and 4.

Between 4 and 5.

Marginal utility diminishes everywhere.

Marginal utility never diminishes.

Question 9

A per unit tax on coffee paid by the seller causes the:

supply of coffee curve to shift upward by the amount of the per unit tax.

supply of coffee curve to shift downward by the amount of the per unit tax.

demand for coffee curve to shift upward by the amount of the per unit tax.

demand for coffee curve to shift downward by the amount of the per unit tax.

Question 10

Refer to the graphs that show indifference curve analysis with the associated demand curves. The best explanation for a movement from point D to point F is:

an outward rotation of the budget constraint along the X axis, allowing the consumer to move from point A to point B.

a parallel shift of the budget constraint, allowing the consumer to move from point A to point C.

an inward rotation of the budget constraint along the X axis, forcing the consumer to move from point B to point A.

an outward rotation of the budget constraint along the Y axis, allowing the consumer to move from point B to point C.

Question 11

Joseph Gallo relates that he poured two glasses of wine from the same bottle and put a price of 10 cents a bottle on one and 5 cents a bottle on the other. He let people test both and asked them which they wanted. Most wanted the 10-cent bottle, even though they were the same one. a. What does it tell us about people? b. Can you think of other areas where that may be the case? c. What does this suggest about pricing?

Question 12

Suppose Charlie Parker CDs cost $10 apiece and Lester Young CDs cost $5 apiece. You have $40 to spend on CDs. The marginal utility that you derive from additional CDs is as follows:
NUMBER of CDS Charlie Parker Lester Young
Have 0 buy number 1 60 30
Have 1 buy number 2 40 28
Have 2 buy number 3 30 24
Have 3 buy number 4 20 20
Have 4 buy number 5 10 10

How many of each CD would you buy? Suppose the price of a Lester Young CD rises to $10. How many of each CD would you buy? Use this to show how the principle of rational choice leads to the law of demand.

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Solution Preview

Question 1

Refer to the graphs. In which graph is there no consumer surplus either with or without a per unit tax?

A.
There is no consumer surplus when the demand curve is horizontal.

Question 2

If the supply curve is perfectly elastic the burden of a tax on suppliers is borne:

entirely by the consumers.

Question 3

Suppose elasticity of demand is 1, elasticity of supply is 2, and a 5% excise tax is levied on consumers. Which of the following changes will reduce the burden of the tax on consumers?

Elasticity of demand rises to 2.

The tax falls more on the market participant whose quantity supplied or demanded is least affected by price.

Question 4

If the price of one can of Alpo is $.50 and the price of each McBurger is $1, which of the following would Ms. Tightwad, a utility maximizing consumer, buy with her $4?

3 McBurgers and 2 cans of Alpo.

The consumer needs to find the point where the marginal utility per dollar is the same, ...

Solution Summary

Consumer surplus and taxation; marginal utility; luxury goods

$2.19