Question

5. If the price of a candy bar is $1 and the price of a fast food meal is $5, then the A) relative price of a candy bar is 5 fast food meals per candy bar. B) money price of a candy bar is 1/5 of a fast food meal per candy bar. C) relative price of a fast food meal is 5 candy bars per fast food meal. D) money price of a fast food meal is 1/5 of a candy bar per fast food meal. 6. When demand increases, the equilibrium price ________ and the equilibrium quantity ________. A) rises; decreases B) falls; decreases C) rises; increases D) falls; increases 7. The price elasticity of demand is equal to the ________ in the ________ divided by the ________ in the ________. A) percentage change; price; percentage change; quantity demanded B) change; price; change; quantity demanded C) percentage change; quantity demanded; percentage change; price D) change; quantity demanded; change; price 8. Starting at the top of a straight-line downward sloping demand curve, as the price falls, total expenditures will A) initially increase and then decrease. B) initially decrease and then increase. C) increase along the entire demand curve. D) decrease along the entire demand curve. 9. Which of the following is true? A) Lotteries work best when a resource can serve just one user at a time in a sequence. B) A market price always allocates resources better than a command system. C) In the United States, how tax dollars are allocated among competing uses is an example of how resources are allocated by majority rule. D) Force has never played an important role in allocating scarce resources. 10. The market demand curve A) can also be the marginal social cost curve. B) shows the value of a good that consumers must give up to get another unit of a different good. C) by itself determines equilibrium prices. D) can also be the marginal social benefit curve.

Answer 1

5) c is correct

Relative price of fast food = price of fast food / price of candy

= 5/1= 5

6) c is correct

When demand increases there is a rightward shift in demand. And since there is no change in supply, equilibrium quantity and price both increase.

7) c is correct

Elasticity of demand= %change in quantity demanded / %change in price

8) A is correct

Elasticity decreases towards the right end of the demand.

Total expenditure = pq

Going downwards along the demand curve is a decrease in price. Decrease in price will lead to increase in quantity demanded at a higher rate upto a certain level. This will increase the total expenditure initially, but as go downwards, decrease in price does not increase the quantity demanded much. This decreases total expenditure.