1. The demand for good X has been estimated to be ln Q x d = 100 ? 3 ln P X + 7
ID: 1097806 • Letter: 1
Question
1. The demand for good X has been estimated to be ln Qxd = 100 ? 3 ln PX + 7 ln PY + 5 ln M. The income elasticity of good X is
A) -3.0
B) 7.0
C) 5.0
D) -5.0
2. Consumer surplus is measured as the area:
A) below the demand curve and above the market price.
B) above the demand curve and below the market price.
C) above the supply curve and below the market price.
D) below the supply curve and above the market price.
3. Other things held constant, producer surplus decreases as:
A) The price of a good decreases.
B) The price of a good increases.
C) The demand curve shifts upward.
D) None of the above.
4. Which of the following is an implicit cost of taking a vacation?
A) Cost of the flight
B) The hotel room rate
C) Lost productivity from not working
D) Cost of eating dinner out
5. The opportunity cost of an action is the:
A) the explicit cost of the action.
B) the implicit cost of giving up taking the best alternative action.
C) the implicit cost of giving up taking the worst alternative action.
D) the explicit cost of the action and the implicit cost of giving up taking the best alternative action.
Explanation / Answer
1. The own income elasticty of demand is the coefficient of income. Here the income elasticty is 5.
The answer is C.
2. Consumer surplus is measured as the area:
B) above the demand curve and below the market price
3. Other things held constant, producer surplus decreases as:
A) The price of a good decreases.
4. Which of the following is an implicit cost of taking a vacation?
C) Lost productivity from not working
This is because implicit cost is the lost opportunity cost of doing a thing. If a person is on vacation he/she has lost the oppportunity to work and be more productive.
5. The opportunity cost of an action is the:
B) the implicit cost of giving up taking the best alternative action.
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