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202 Test 2 Review

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Chapters 5 and 6 —Elasticity and Consumer Choice

MULTIPLE CHOICE

202. A 15 percent increase in the price of beef reduces the quantity of beef consumed by 30 percent. Thus, the demand for beef is _______, and total consumer expenditure (or total firm revenue) will _______ as a result of the price increase. (Fill in the blanks.) a. elastic; increase
* b. elastic; decrease c. inelastic; increase d. inelastic; decrease

203. Which of the following is true about marginal benefit? a. A consumer’s marginal benefit is equal to the height of her demand curve. b. Consumers will continue to purchase up until the point where marginal benefit equals price. c. Marginal benefit declines as consumption increases because of the law of diminishing marginal utility.
* d. All of the above are true.

204. Jane received a 10 percent increase in her salary and purchased 20 percent more jewelry. For Jane, jewelry a. has an income elasticity of two. b. is a normal good. c. is a luxury good.
* d. is all of the above.

205. An inferior good is distinguished by a a. negative price elasticity of demand. b. positive price elasticity of demand. c. positive income elasticity of demand.
* d. negative income elasticity of demand.

206. If Joe’s income increased and as a result he purchased more wine and less fast food,
* a. wine is a normal good and fast food an inferior good for Joe. b. wine is an inferior good and fast food a normal good for Joe. c. both wine and fast food are inferior goods for Joe. d. both wine and fast food are normal goods for Joe.

207. “After eating nothing but fast-food hamburgers on spring break, I was anxious to return home and eat something different.” This statement most clearly reflects the law of a.

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