1. Elasticity measures …
[1] the slope of a demand curve.
[2] the inverse of the slope of a demand curve.
[3] the percentage change in one variable in response to a 1% increasein
another variable.
[4] sensitivity of price to a change in quantity.
2. The price elasticity of demand for a demand curve that has a zero slopeis
…
[1] zero.
[2] one.
[3] negative but approaches zero as consumption increases.
[4] infinite.
3. A vertical demand curve is …
[1] completely inelastic.
[2] infinitely elastic.
[3] highly (but not infinitely) elastic.
[4] highly (but not completely) inelastic.
4. Along any downward-sloping straight-line demand curve …
[1] both the price elasticity and slope vary.
[2] the price elasticity varies, but the slope is constant.
[3] the slope varies, but the price elasticity is constant.
[4] both the price elasticity and slope are constant.
5. If two goods are substitutes, the cross-price elasticity of demand must be…
[1] negative.
[2] positive.
[3] zero.
[4] infinite.
TF
1 The words ―elasticity‖ and ―slope‖ are synonymous. [F]
2 The elasticity of a single point on the demand curve can be
determined. [T] 3 Essential products have a negative income elasticity.
[F]
4 Cross-elasticity is only relevant in the case of related
products. [T] 5 Price elasticity of demand is a theoretical
concept with no practical value. [F]
1. When the government controls the price of a product, causing the market
price to be below the free market equilibrium price,
[1] some consumers gain from the price controls and other consumers
lose.
[2] all producers gain from the price controls.
[3] both producers and consumers gain.
[4] all consumers are better off.
,2. What happens if price falls below the market clearing price?
[1] Demand shifts out.
[2] Supply shifts in.
[3] Quantity demanded decreases, quantity supplied increases, andprice
falls.
[4] Quantity demanded increases, quantity supplied decreases, and
price rises.
3. Other things being equal, the increase in rents that occurs after rent
controls are abolished is smaller when …
[1] the own price elasticity of demand for rental homes is price inelastic.
[2] the own price elasticity of demand for rental homes is price elastic.
[3] the own price elasticity of demand for rental homes has unitary price
elasticity.
[4] rented homes and owned homes are complements.
TF
1 In a real competitive market, government intervention is never
needed. [F] 2 To help the poor a floor price is needed on the level of
rent for housing. [F] 3 The price of cigarettes is a typical price on
which a maximum will be set. [F]
3.1
TF
1 A curve that represents all combinations of market baskets that provide the
same level of utility to a consumer is called an isoquant. [F]
2 If indifference curves cross, then the assumption of a diminishing
marginal rate of substitution is violated. [F]
1. Which of the following is NOT an assumption regarding people’s
preferences in the theory of consumer behaviour?
[1] Preferences are complete.
[2] Preferences are transitive.
[3] Consumers prefer more of a good to less.
[4] All of the above are basic assumptions about consumer preferences.
2. The assumption of transitive preferences implies that indifference curves
must …
[1] not cross one another.
[2] have a positive slope.
[3] be L-shaped.
[4] be convex to the origin.
3. If a market basket is changed by adding more of at least one good, then
rational consumers will …
[1] rank the market basket more highly after the change.
[2] more likely prefer a different market basket.
[3] rank the market basket as being just as desirable as before.
[4] be unable to decide whether the first market basket is preferredto
,the second or vice versa.
, 4. A consumer prefers market basket A to market basket B, and prefers
market basket B to market basket C. Therefore, A is preferred to C. The
assumption that leads to this conclusion is …
[1] transitivity.
[2] completeness.
[3] all goods are good.
[4] diminishing MRS.
5. The slope of an indifference curve reveals …
[1] that preferences are complete.
[2] the marginal rate of substitution of one good for another good.
[3] the ratio of market prices.
[4] that preferences are transitive.
3.2
TF
1 An increase in income, holding prices constant, can be represented as a change
in the slope of the budget line. [F]
2 If prices and income in a two-good society double, there will be no effect on
the budget line. [T]
1. A consumer has R100.00 per day to spend on product A, which has a unit
price of R7.00, and product B, which has a unit price of R15.00. What is
the slope of the budget line if good A is on the horizontal axis and goodB is
on the vertical axis?
[1] -7/15
[2] -7/100
[3] -15/7
[4] 7/15
2. Suppose that the prices of good A and good B were to suddenly double.If
good A is plotted along the horizontal axis,
[1] the budget line will become steeper.
[2] the budget line will become flatter.
[3] the slope of the budget line will not change.
[4] the slope of the budget line will change, but in an indeterminate
way.
[1] the slope of a demand curve.
[2] the inverse of the slope of a demand curve.
[3] the percentage change in one variable in response to a 1% increasein
another variable.
[4] sensitivity of price to a change in quantity.
2. The price elasticity of demand for a demand curve that has a zero slopeis
…
[1] zero.
[2] one.
[3] negative but approaches zero as consumption increases.
[4] infinite.
3. A vertical demand curve is …
[1] completely inelastic.
[2] infinitely elastic.
[3] highly (but not infinitely) elastic.
[4] highly (but not completely) inelastic.
4. Along any downward-sloping straight-line demand curve …
[1] both the price elasticity and slope vary.
[2] the price elasticity varies, but the slope is constant.
[3] the slope varies, but the price elasticity is constant.
[4] both the price elasticity and slope are constant.
5. If two goods are substitutes, the cross-price elasticity of demand must be…
[1] negative.
[2] positive.
[3] zero.
[4] infinite.
TF
1 The words ―elasticity‖ and ―slope‖ are synonymous. [F]
2 The elasticity of a single point on the demand curve can be
determined. [T] 3 Essential products have a negative income elasticity.
[F]
4 Cross-elasticity is only relevant in the case of related
products. [T] 5 Price elasticity of demand is a theoretical
concept with no practical value. [F]
1. When the government controls the price of a product, causing the market
price to be below the free market equilibrium price,
[1] some consumers gain from the price controls and other consumers
lose.
[2] all producers gain from the price controls.
[3] both producers and consumers gain.
[4] all consumers are better off.
,2. What happens if price falls below the market clearing price?
[1] Demand shifts out.
[2] Supply shifts in.
[3] Quantity demanded decreases, quantity supplied increases, andprice
falls.
[4] Quantity demanded increases, quantity supplied decreases, and
price rises.
3. Other things being equal, the increase in rents that occurs after rent
controls are abolished is smaller when …
[1] the own price elasticity of demand for rental homes is price inelastic.
[2] the own price elasticity of demand for rental homes is price elastic.
[3] the own price elasticity of demand for rental homes has unitary price
elasticity.
[4] rented homes and owned homes are complements.
TF
1 In a real competitive market, government intervention is never
needed. [F] 2 To help the poor a floor price is needed on the level of
rent for housing. [F] 3 The price of cigarettes is a typical price on
which a maximum will be set. [F]
3.1
TF
1 A curve that represents all combinations of market baskets that provide the
same level of utility to a consumer is called an isoquant. [F]
2 If indifference curves cross, then the assumption of a diminishing
marginal rate of substitution is violated. [F]
1. Which of the following is NOT an assumption regarding people’s
preferences in the theory of consumer behaviour?
[1] Preferences are complete.
[2] Preferences are transitive.
[3] Consumers prefer more of a good to less.
[4] All of the above are basic assumptions about consumer preferences.
2. The assumption of transitive preferences implies that indifference curves
must …
[1] not cross one another.
[2] have a positive slope.
[3] be L-shaped.
[4] be convex to the origin.
3. If a market basket is changed by adding more of at least one good, then
rational consumers will …
[1] rank the market basket more highly after the change.
[2] more likely prefer a different market basket.
[3] rank the market basket as being just as desirable as before.
[4] be unable to decide whether the first market basket is preferredto
,the second or vice versa.
, 4. A consumer prefers market basket A to market basket B, and prefers
market basket B to market basket C. Therefore, A is preferred to C. The
assumption that leads to this conclusion is …
[1] transitivity.
[2] completeness.
[3] all goods are good.
[4] diminishing MRS.
5. The slope of an indifference curve reveals …
[1] that preferences are complete.
[2] the marginal rate of substitution of one good for another good.
[3] the ratio of market prices.
[4] that preferences are transitive.
3.2
TF
1 An increase in income, holding prices constant, can be represented as a change
in the slope of the budget line. [F]
2 If prices and income in a two-good society double, there will be no effect on
the budget line. [T]
1. A consumer has R100.00 per day to spend on product A, which has a unit
price of R7.00, and product B, which has a unit price of R15.00. What is
the slope of the budget line if good A is on the horizontal axis and goodB is
on the vertical axis?
[1] -7/15
[2] -7/100
[3] -15/7
[4] 7/15
2. Suppose that the prices of good A and good B were to suddenly double.If
good A is plotted along the horizontal axis,
[1] the budget line will become steeper.
[2] the budget line will become flatter.
[3] the slope of the budget line will not change.
[4] the slope of the budget line will change, but in an indeterminate
way.
