ECN 202 MIDTERM EXAM 2 QUESTIONS WITH CORRECT ANSWERS

Utility maximization rule


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1. Satisfy the rule of equal marginal utility per dollar spent.
2. Exhaust your budget.




Short-run ATC is u-shaped because of diminishing returns.


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True

,​Instead, suppose ham is
an inferior good.


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If the price of ham​increases, then consumers will demand
more ham due to the income effect and less ham due to the substitution
effect.




Is it possible to tell from the income elasticity of demand whether a product is a
luxury good or a​necessity?


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Yes. If the income elasticity of demand is greater than​1, then the good is a
luxury. If the income elasticity of demand is positive but less than​1, then the
good is a necessity.




If long-run ATC decreases as production increases, the firm is experiencing


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constant returns to scale




Diseconomies of scale


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, In​particular, when the price is​$10.00, market demand is __ games.
When the price is​$50.00, market demand is __ games.


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27; 7




The income effect causes quantity demanded to​________ when the price of a normal
good​decreases, and causes quantity demanded to​________ when the price of an
inferior good decreases.


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​increase; decrease




Marginal Cost


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