Question

1. If a good is considered a necessity, we can expect the Price Elasticity of Demand (PED) to be

1. Highly elastic
2. Highly inelastic
3. Unit elastic
4. Infinite
5. None of the above

2. When PED is highly inelastic, a price increase will result in

1. An decrease in total revenue
2. A movement toward a less elastic demand curve
3. No change in total revenue
4. An increase in total revenue
5. The quantity effect

3. If you were shirking during your group study session for this exam then you

1. Exceeded your group’s expectations
2. Put forth less effort than expected
3. Have an inelastic demand curve for a better grade
4. Met the expectations of the group
5. None of the above

4. Which of the following is true at consumer equilibrium?

1. MU of good A = MU of good B
2. MU of good A > MU of good B
3. MU of good A < MU of good B
4. MU per dollar spent on all goods are equal
5. MU per dollar spent on good A is greatest

Answer 1

1 - Option B

Highly inelastic

The demand for the necessities does not change no matter what the changes in price are. Luxury goods have highly elastic demand. Hence Option B will be correct.

2 - Option D

Increase in Total revenue

The same quantity demanded at higher price will result in rise in TR. When the demand is elastic , price rise will lead to decreased TR. When Ed is unit elastic , the TR is constant. Hence Option D will be correct.

3 - Option B

Put forth less effort than expected

If something is done unwillingly , it results in lesser efforts than the expectations.

4 - Option D

MU per dollar spent on all goods is equal

This means that the consumer must get the same utility per dollar for every good which he consumes. This will maximise his utility. The other conditions are wrong. Hence Option D will be correct.