Larissa is a famous attorney with a great reputation in court. She charges her clients $300 for each hour she spends working on their cases. If she earned $450,000 in hourly wages last year, and by raising her rates to $350 per hour her income increased to $490,000 what can we say about the elasticity of demand for Larissa's legal services?
a. It is approximately equal to 2.3.
b. It is approximately equal to 1.6.
c. It is approximately equal to 1.0.
d. It is approximately equal to 0.45.
e. It is approximately equal to 0.1.
d
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Suppose that a new drug has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph. Prior to approval of this drug, the only treatment for this condition was any one of several non-prescription, or over-the-counter, pain relievers. The demand for one brand of the several non-prescription pain relievers is also shown on the graph.
If the manufacturer of the new drug chose to increase its price from $30 to $35, consumers would buy ________ doses, and have ________ total expenditures.
A. more; lower B. fewer; higher C. more; higher D. fewer; lower
If insurance companies knew how risk-averse their customers were:
A. diversification would not occur. B. risk pooling would not occur. C. policies would be perfectly diversified, resulting in lower premiums for everyone. D. adverse selection would not occur.
If part of the labor force is unemployed, the foregone goods and services are
A. lost until the unemployed find jobs. B. are replaced by unemployment insurance. C. are lost forever. D. are replaced by an equal amount of imports.
Answer the following questions true (T) or false (F)
1. A consumer maximizes her total utility from a bundle of goods when her marginal utility from each good is equal. 2. The economic model of consumer behavior explains how consumers' tastes and preferences are formed. 3. To maximize utility consumers should buy goods and services to the point where the marginal utility of each item consumed is maximized.