David Myers, former controller for WorldCom, pleaded guilty to falsely reported costs for WorldCom that were ________ than they actually were, resulting in reported accounting profits for WorldCom that were ________ than their actual level.
a. higher; higher
b. higher; lower
c. lower; lower
d. lower; higher

12) Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because
a. car buyers are irrational.
b. the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars.
c. the total utility of less expensive cars is greater than that of luxury cars.
d. luxury cars cost a lot more than non-luxury cars.

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firms pay famous individuals to endorse their products because
a. the firms are irrational and are wasting advertising expenditures.
b. famous people obviously know what are the best goods and services.
c. famous people only consume high quality products.
d. apparently demand is affected not just by the number of people who use a product but also by the type of person that uses the product.

15) If 20 units of a good are sold at a price of $50 and 30 units are sold at a price of $40, what is the absolute value of the price elasticity of demand? Use the midpoint
a. 1.
b. 0.56.
c. 2.5
d. 1.8.
Quantity of Soup (cups) Total Utility Quantity of Sand-wiches Total Utility
1 40 1 45
2 60 2 75
3 72 3 102
4 82 4 120
5 88 5 135
6 90 6 145

16) At a price of $100, Beachside Canoe Rentals rented 11 canoes. When it increased its rental price to $125, 9 canoes were rented. Calculate the absolute value of the price elasticity of demand for canoe rentals, using the midpoint formula.
a. 0.75
b. 0.9
c. 2
d. 1.25

17) A demand curve that is horizontal indicates that the commodity
a. is a necessity.
b. must be very cheap.
c. has a large number of substitutes.
d. has few substitutes.

18) With the increased usage of cell-phone services, what has happened to the price elasticity of demand for land-line telephone services?
a. It has become more elastic.
b. It has become more a luxury.
c. It has become unit-elastic.
d. It has become more inelastic.

19) Suppose the absolute value of the price elasticity of demand for meals at Fortune Buffet House is ∞. What happens to sales revenue if the restaurant increases its price by 5 percent?
a. Sales revenue falls by less than 5 percent.
b. Sales revenue remains unchanged.
c. Sales revenue cannot be determined without information on prices.
d. Sales revenue falls to zero.

20) A characteristic of the long run is
a. plant capacity cannot be increased or decreased.
b. all inputs can be varied.
c. there are both fixed and variable inputs
d. there are fixed inputs.Unit 2 Examination 105 Principles of Economics

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