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# Multiple Choice - The government wants to reduce the consumption of electricity by 10%.

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The government wants to reduce the consumption of electricity by 10%. The price elasticity of demand for electricity is -0.4. The government should ________ the price of electricity by _____

a. raise; 0.04%
b. raise; 2.0%
c. lower; 0.4%
d. raise; 25.0%

Assume you earn \$75,000 a year and your favorite entertainment magazine costs you \$25 a year. Your demand for the entertainment magazine is likely to be

a. inelastic
b. perfectly inelastic
c. elastic
d. perfectly elastic

Marginal utility is the

a. total satisfaction gained by consuming all units of a good
b. additional satisfaction gained by the consumption of one more unit of a good
d. total satisfaction gained by consuming the last unit of the good

When supply is perfectly inelastic,

a. price is determined solely by demand
b. only the government can set the price
c. price is determined solely by supply
d. the price may be set by either supply or demand

A perfectly elastic demand curve implies that, ceteris paribus

a. the price a firm charges is irrelevant, as it will sell the same amount regardless of the price charged
b. if a firm raises its price above the market price, quantity demanded will equal zero
c. a firm can sell more by lowering its price
d. a firm can raise its price and not lose all its customers

If the quantity demanded of tea increases by 2% when the price of coffee increases by 8%, the cross-price elasticity of demand between tea and coffee is

a. 0.25
b. -4.0
c. -25.0
d. 4.0

The law of diminishing marginal utility

a. refers to the decrease in total satisfaction as more units of a good are consumed
b. refers to the decrease in additional satisfaction created by consumption of more and more units of a good
c. refers to the idea that total utility is negative
d. All of the above

If a household's income is doubled, its budget constraint will

a. pivot at the Y-intercept
b. shift out parallel to the old one
c. shift in parallel to the old one
d. not be affected

A firm in a perfectly competitive market has no control over price because

a. the government imposes price ceilings on the products produced in perfectly competitive industries
b. the market demand for products produced in perfectly competitive industries is perfectly elastic
c. every firm's product is a perfect substitute for every other firm's product
d. there is free entry and exit from the industry

When the price of fresh fish increases 5%, quantity demanded decreases 10%. The price elasticity of demand for fresh fish is

a. inelastic
b. elastic
c. perfectly inelastic
d. unitary elastic

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• BE, Bangalore University, India
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