13.
Knowing that the demand for wheat is inelastic, if all farmers voluntarily did not plant wheat on 10 percent
of their land, then
a. consumers of wheat would buy more wheat.
b wheat farmers would suffer a reduction in their total revenue.
c. wheat farmers would experience an increase in their total revenue.
d the demand for wheat would decrease.
31. Katie wins $1 million in her state’s lottery. If Katie drastically reduces the number of hours she works after
she wins the money, we can infer that the income effect is larger than the substitution effect for her.
ANS: T
1. Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days. Ice
cream costs $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara has a budget of $60,
and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 8 gallons
of ice cream and 5 paperback novels?
a. Karen, Tara, and Chelsea
b Karen only
c. Tara and Chelsea but not Karen
d none of the women
2. Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days. Ice
cream costs $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara has a budget of $60,
and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 5 gallons
of ice cream and 8 paperback novels?
a. Karen, Tara, and Chelsea
b Karen only
c. Tara and Chelsea but not Karen
d none of the women
3. Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days. Ice
cream costs $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara has a budget of $60,
and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 4 gallons
of ice cream and 5 paperback novels?
a. Karen, Tara, and Chelsea
b Karen only
c. Karen and Tara but not Chelsea
d none of the women
4. Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days. Ice
cream costs $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara has a budget of $60,
and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Which of the following statements is
correct?
a. Each woman faces the same budget constraint.
b The slope of the budget constraint is the same for each woman.
c. The area underneath the budget constraint is larger for Chelsea than for Karen.
d All of the above are correct.
4. Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days. Ice
cream costs $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara has a budget of $60,
and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Which of the following statements is
correct?
a. Each woman faces the same budget constraint.
b The slope of the budget constraint is the same for each woman.
c. The area underneath the budget constraint is larger for Chelsea than for Karen.
d All of the above are correct.
43. Ken consumes two goods, Sprite and potato chips. Sprite costs $2 per can, and he consumes it to the point
where the marginal utility he receives from his last Sprite is 4. Potato chips cost $3 per bag, and the relationship
between the marginal utility he gets from eating a bag of potato chips and the number of bags he eats per month is as
follows:
Bags of potato chips 1 2 3 4 5 6
Marginal utility 30 20 12 6 2 0
If Ken is maximizing his utility, how many bags of potato chips does he buy each month?
a. 2
b 3
c. 4
d 5
44. Ken consumes two goods, Sprite and potato chips. Sprite costs $1 per can, and he consumes it to the point
where the marginal utility he receives from his last Sprite is 3. Potato chips cost $2 per bag, and the relationship
between the marginal utility he gets from eating a bag of potato chips and the number of bags he eats per month is as
follows:
Bags of potato chips 1 2 3 4 5 6
Marginal utility 30 20 12 6 2 0
If Ken is maximizing his utility, how many bags of potato chips does he buy each month?
a. 2
b 3
c. 4
d 5
45. Ken consumes two goods, Sprite and potato chips. Sprite costs $1 per can, and he consumes it to the point
where the marginal utility he receives from his last Sprite is 3. Potato chips cost $2 per bag, and the relationship
between the marginal utility he gets from eating a bag of potato chips and the number of bags he eats per month is as
follows:
Bags of potato chips 1 2 3 4 5 6
Marginal utility 30 20 12 6 2 0
If Ken is maximizing his utility, how much does he spend on potato chips each month?
a. $2
b $6
c. $8
d $12
53. Kelly is willing to pay $68 for a pair of shoes for a wedding. She finds a pair at her favorite outlet shoe
store for $48. Kelly's consumer surplus is
a. $10.
b $20.
c. $48.
d $68.
9. Karen sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.50 per
knife for as many knives as Karen is willing to sharpen. On a particular day, she is willing to sharpen the first knife
for $1.75, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.25. Assume Karen is
rational in deciding how many knives to sharpen. Her producer surplus is
a. $0.25.
b $0.50.
c. $1.00.
d $1.75.
18. Kristi and Rebecca sell lemonade on the corner. It costs them 7 cents to make each cup. On a certain day,
they sell 40 cups, and their producer surplus for that day amounts to $15.20. Kristi and Rebecca sold each cup for
a. 31 cents.
b 38 cents.
c. 45 cents.
d 55 cents.
17. Kirsten sells 300 glasses of lemonade at $0.50 each. Her total costs are $125. Her profits are
a. $25.
b $124.50.
c. $125.
d $150.
45. Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the
local farmer’s market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have
grown into flowers, she can sell them for $150 at the farmer’s market. Which of the following statements is correct
regarding Katherine’s profits from selling flowers?
a. Katherine’s accounting profits are $100, and her economic profits are $25.
b Katherine’s accounting profits are $100, and her economic profits are $75.
c. Katherine’s accounting profits are $25, and her economic profits are $100.
d Katherine’s accounting profits are $75, and her economic profits are $125.
46. Katherine gives piano lessons for $20 per hour. She also grows flowers, which she arranges and sells at the
local farmer’s market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have
grown into flowers, she can sell them for $150 at the farmer’s market. Which of the following statements is correct
regarding Katherine’s profits from selling flowers?
a. Katherine’s accounting profits are $100, and her economic profits are $100.
b Katherine’s accounting profits are $100, and her economic profits are $0.
c. Katherine’s accounting profits are $0, and her economic profits are $100.
d Katherine’s accounting profits are $0, and her economic profits are $-100.
58. Kevin quit his $65,000 a year corporate lawyer job to open up his own law practice. In Kevin's first year in
business his total revenue equaled $150,000. Kevin's explicit cost during the year totaled $85,000. Using the
information from Kevin's first year in business, what is his economic profit?
a. $0
b $20,000
c. $65,000
d $85,000
