Are these true or false?
Problem 1. Marginal cost is the additional cost incurred in undertaking an activity?
Problem 2. The "invisible hand" is the price mechanism that guides our actions in the market.
Problem 3. When individuals trade, using their comparative advantages, the production possibility curve does not change?
Problem 4. A quota is a tax on an imported product.
Problem 5. Demand refers to a schedule of quantities of a good while Quantity demanded refers to a specific amount of demand?
Problem 6. The minimum wage is an example of a price floor.
Problem 7. Total utility cannot decline as consumption rises.
Problem 8. The cross-price elasticity of demand is positive for substitutes and negative for complements.
Choose 1 per problem:
Problem 1. If the price of movies on video rises while the price of movies on DVD remains the same, the law of demand predicts that consumers will:
A) substitute movies on video for movies on DVD.
B) substitute movies on DVD for movies on video.
C) buy only movies on video.
D) buy only movies on DVD.
Problem 2. Pizza prices rose from $2 to $3 and quantity demanded dropped from 100 to 75 pizzas. Using the traditional method what is the price elasticity of demand:
A) 2.0
B) -2.0
C) -0.5
D) none of the above
Problem 3. Products with a positive income elasticity greater than one are:
A) dying products
B) normal goods
C) luxury goods
D) inferior goods
Written Question
Problem 1. Show calculations and respond to questions for the following example. Use either arc convention or the normal % change formula. Specify what you used.
Quantity of
Demand Income
Period 1 100 $25,000
Period 2 125 $35,000
A) % change demand=
B) % change income=
C) income elasticity of demand=
D) elastic or inelastic=