Consumer Choice and Elasticity
QUESTIONS 1 THROUGH 10 ARE A SUGGESTED CHAPTER QUIZ.
1. If Mr. Smith thinks the last dollar spent on shirts yields less satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should
a. decrease his spending on cola.
b. decrease his spending on cola and increase his spending on shirts.
c. increase his spending on shirts.
d. increase his spending on cola and decrease his spending on shirts.
2. A 10 percent increase in the price of sugar reduces sugar consumption by about 5 percent. The increase causes households to
a. spend more on sugar.
b. spend less on sugar.
c. spend the same amount on sugar.
d. consume more goods like coffee and tea that are complements of sugar.
3. Which of the following would be the best example of consumer surplus?
a. Jane does not get cell-phone service because she feels that it is worth less than the $30 a month fee.
b. Sam pays $8 for a haircut that is worth $10 to him.
c. Ralph buys a house for $104,000, the maximum amount that he would be willing to pay for it.
d. Sue purchases a book for $20 and uses a credit card to pay for it.
4. “I like ice cream, but after eating homemade ice cream last night, I want to have something else for dessert today.” This statement most clearly reflects
a. the budget constraint.
b. consumer irrationality.
c. the second law of demand: Price elasticity increases with time.
d. the law of diminishing marginal utility.
5. If Sarah’s income rises by 20 percent, and, as a result, she purchases 40 percent more designer clothing, her income elasticity for designer clothing is
d. Not enough information is given to answer this question.
6. Studies indicate that the demand for fresh tomatoes is much more...