40922 HW #3

Consumers in a competitive market are considered to be price takers because the purchases made by each (WILL/WILL NOT) have an effect on the market as a whole.

WILL NOT

Do all consumers in a competitive market enjoy the same amount of consumer​ surplus? A. ​No, since considerable variation exists among consumers in terms of tastes and incomes. B. ​Yes, federal law prohibits discrimination.

A. ​No, since considerable variation exists among consumers in terms of tastes and incomes.

Which of the following is not one of the three conditions that characterizes a perfectly competitive​ market? A. Firms have pricing power and can set their prices freely. B. Buyers are price takers and cannot influence the price charged. C. There are no barriers to entry or exit in the market. D. Sellers in the market produce identical goods.

A. Firms have pricing power and can set their prices freely.

John is a soda drinker that likes both Coke and Pepsi. He usually picks whichever has the best price or is most convenient. If Pepsi is on sale for ​$1 a liter and Coke is charging ​$1.50 for the​ same, John's demand curve for Coke will​ experience: A. a left shift​ (inward). B. a movement down the curve. C. a right shift​ (outward). D. a movement up the curve.

A. a left shift​ (inward).

Charley spends all of his income on soft drinks and pizza. Suppose he is currently buying these products in amounts such that his marginal benefit from an additional soft drink is $50 and his marginal benefit from an additional slice of pizza is $40. If the price of a soft drink is $1 and the price of a slice of pizza is $4​, is Charley maximizing his total​ benefits? A. ​No, he should shift consumption toward soft drinks and away from pizza to maximize total benefits. B. ​Yes, there is no other consumption choice that will make his total benefits greater. C. ​No, he should shift consumption toward pizza and away from soft drinks to maximize total benefits. D. ​No, he should increase his consumption of both goods.

A. ​No, he should shift consumption toward soft drinks and away from pizza to maximize total benefits.

Which of the following is true about how a firm in a competitive market decides what level of output to produce in order to maximize its​ profit? A. Produce until marginal cost is furthest below average total cost. B. Produce until the additional revenue from one extra unit equals the additional cost of each unit. C. Produce up to the point where price equals average total cost. D. All of the above.

B. Produce until the additional revenue from one extra unit equals the additional cost of each unit.

On the graph​ shown, consumer surplus would be the​ area: A. above the market demand curve. B. below the market demand curve and above the market price. C. below the market demand curve. D. above the market demand curve and below the market price.

B. below the market demand curve and above the market price.

For​ economists, the​ "buyer's problem" refers to​... A. the difficulty consumers have in financing their purchases. B. the insatiable desire of consumers to continually want more. C. how consumers arrive at a choice as to what to purchase. D. the trouble consumers have in distinguishing​ high-quality products from​ low-quality products.

C. how consumers arrive at a choice as to what to purchase.

Suppose one firm accounts for 55 percent of the global market share for a​ product, while 147 other firms account for the remaining 45 percent of the market. With such a large number of buyers and​ sellers, is this market likely to be​ competitive? A. ​Yes, a competitive market is characterized by having many​ firms, regardless of size. B. ​Yes, markets are only competitive if there is at least one firm large enough to act as a price setter for all other firms. C. ​No, even though there are many firms in the​ market, there is one firm large enough to influence the market price. D. ​No, even with such a large number of buyers and​ sellers, there must be barriers to entry for this market to stay competitive.

C. ​No, even though there are many firms in the​ market, there is one firm large enough to influence the market price.

Consider a good that you do not like at​ all, perhaps turnips. Given the market price for​ turnips, what would be your consumer​ surplus? A. ​Zero, unless someone actually pays you to eat them. B. ​Zero, since not liking turnips at all implies an unwillingness to pay anything. C. Some​ positive, but it will be a very small number. D. Both A and B are possible.

D. Both A and B are possible.

Why does a demand curve with a constant slope not have a constant​ elasticity? A. Slope is based on percentage change and elasticity is based on absolute change. B. Slope measures responsiveness and elasticity measures change. C. Elasticity depends on more variables than does slope. D. Slope is based on absolute change and elasticity is based on percentage change.

D. Slope is based on absolute change and elasticity is based on percentage change.

Which of the following criteria would most likely influence an optimizing​ buyer's purchasing​ decisions? A. highest marginal benefit B. lowest opportunity cost C. lowest price D. highest marginal benefit per dollar spent

D. highest marginal benefit per dollar spent

The difference between accounting profits and economic profits​ is A. explicit costs. B. goodwill. C. income taxes. D. implicit costs.

D. implicit costs.

During an economic​ slump, such as the 2008​ recession, if​ McDonald's faces an elastic demand​ curve, to maintain its sales it is likely to (INCREASE/DECREASE) the price of its product.

DECREASE

An​ individual's willingness to pay measured over different quantities of the same good define the (DEMAND CURVE/QUANTITY DEMANDED). If the retail price of the good​ increases, the (DEMAND CURVE/QUANTITY DEMANDED) will​ decrease, all other things constant.

DEMAND CURVE, QUANTITY DEMANDED

If the income elasticity of demand for a good is positive​, the good is (INFERIOR, A LUXURY, NORMAL)

NORMAL

For two goods that are substitutes​, the​ cross-price elasticity of demand will be (GREATER THAN 1.0/POSITIVE/NEGATIVE)

POSITIVE

Part I.) Mary saw a bangle bracelet at an accessories shop that she liked and told her friend Susan that the most she would pay for it was $45.00. When she found out the price was $32.50​, she immediately bought it and gained ​$_______ in consumer surplus. Part II.) If Mary was to buy another bangle​ bracelet, her additional consumer surplus would (INCREASE/STAY THE SAME/DECREASE)

Part I.) $12.50 Part II.) DECREASE

Part I.) Consider the following demand schedule for bags. Price ($) Quantity 13 60 15 56 17 48 When the price of bags rises from ​$13 to $15​, the price elasticity of demand is approximately ____ Part II.) When the price of bags increases from ​$15 to $17​, the total expenditure will (DECREASE/REMAIN CONSTANT/INCREASE) because the price elasticity of demand is (UNITARY ELASTIC/RELATIVELY INELASTIC/RELATIVELY ELASTIC)

Part I.) -0.5 WHY: Percentage change in price​ = (15−13) / (15+13)/2 =14.3 percent. Percentage change in quantity​ = (56−60) / (56+60)/2 =−6.9 percent. Price elasticity of demand​ = −6.9 / 14.3 = −0.5 approx. Part II.) DECREASE, RELATIVELY ELASTIC

Part I.) The price elasticity of demand shows the sensitivity of consumers' purchases to (AN ABSOLUTE/A PERCENTAGE) change in the good's price. Part II.) In the market for backpacks​, suppose​ Green's price elasticity of demand is 0.4​, ​Smith's price elasticity is 1.4​, and the price elasticity of all the other consumers is greater than 0.4 but less than 1.4. Could the market price elasticity be less than 0.4 or greater than 1.4​? A. ​Yes, it can be a multiple or fraction of the average of the elasticities of individual consumers. B. ​No, it must lie between 0.4 and 1.4.

Part I.) A PERCENTAGE Part II.) B. ​No, it must lie between 0.4 and 1.4.

Part I.) How does a​ consumer's budget set differ from his budget​ constraint? A. A budget set is simply the collection of the many budget constraints a consumer faces at different points in time. B. A budget set refers to all of the possible bundles of goods and services a consumer can​ purchase, while a budget constraint is limited to the bundles he can purchase using all of his income. C. A budget constraint refers to all of the possible bundles of goods and services a consumer can​ purchase, while a budget set is limited to the bundles he can purchase using all of his income. D. There is no difference at all—the terms​ "set" and​ "constraint" are interchangeable. Part II.) For a consumer with a given level of​ income, the combinations of goods for the budget constraint will be (LOWER/HIGHER) than for the budget set.

Part I.) B. A budget set refers to all of the possible bundles of goods and services a consumer can​ purchase, while a budget constraint is limited to the bundles he can purchase using all of his income. Part II.) LOWER

Part I.) The demand curve shows​ ___________. A. how the quantity demanded responds to changes in​ consumers' income. B. how the quantity demanded responds to changes in the price of the good. C. what goods you like compared to other goods and services. D. the possible bundles of goods that can be purchased with a​ consumer's income. Part II.) Everything else the​ same, as the price of the good​ increases, quantity demanded (REMAINS THE SAME/INCREASES/DECREASES).

Part I.) B. how the quantity demanded responds to changes in the price of the good. Part II.) DECREASES

Part I.) In a perfectly competitive​ market, a seller (CAN/CANNOT) choose to raise the price of its good since all sellers in the market produce (DIFFERENT GOODS/IDENTICAL GOODS), so raising the price would result in (EARNING LONG-RUN PROFITS/LOSING ALL ITS CUSTOMERS) Part II.) All firms in a competitive market are said to be A. profitable in the long run. B. price neutral. C. price takers. D. price leaders.

Part I.) CANNOT, IDENTICAL GOODS, LOSING ALL ITS CUSTOMERS Part II.) C. price takers.

Part I.) According to​ economists, the process of optimal decision making by consumers typically yields total benefits well above the amount paid for the goods. These​ market-created benefits are referred to as (CONSUMER SURPLUS/CONSUMER BONUS/BUYER GAIN) and using the graph to the​ right, are represented by area (B/A/B+A) Part II.) Suppose now that the market price rises. According to the​ graph, the excess of total benefits over the total amount spent by consumers will (INCREASE/NOT CHANGE/DECREASE).

Part I.) CONSUMER SURPLUS, B Part II.) DECREASE

If a​ cross-price elasticity is​ positive, then the two goods are (SUBSTITUTES/COMPLEMENTS). f the price of coffee goes​ up, and as​ such, the demand for Coffee Mate​ decreases, this would indicate a (POSITIVE/NEGATIVE) cross-price elasticity and that the two goods are (COMPLEMENTS/SUBSTITUTES).

SUBSTITUTES, NEGATIVE, COMPLEMENTS

Part I.) What is the difference between accounting profit and economic​ profit? A. Economic profit only subtracts implicit costs from total​ revenue, while accounting profit only subtracts explicit costs. B. Accounting profit subtracts both explicit and implicit costs from total​ revenue, while economic profit only subtracts explicit costs. C. Accounting profit only subtracts implicit costs from total​ revenue, while economic profit only subtracts explicit costs. D. Economic profit subtracts both explicit and implicit costs from total​ revenue, while accounting profit only subtracts explicit costs. Part II.) Is it possible for accounting profit to be positive and economic profit to be​ negative? A. ​Yes, this could occur if explicit costs were modest and implicit costs were high. B. ​Yes, this could occur if implicit costs were modest and explicit costs were high. C. ​No, economic profit and accounting profit will always end up being the same. D. ​No, economic profit must always be larger than accounting profit. Part III.) Under which of the following examples is it likely that the accounting profit is positive and the economic profit is​ negative? A. Using a restaurant you purchased to sell Mexican food instead of Italian food. B. Opening a McDonald's franchise in a college town. C. If you open an amusement park in the middle of New York City. D. Such a​ scenario, where accounting cost is positive and economic profit is​ negative, is not possible.

Part I.) D. Economic profit subtracts both explicit and implicit costs from total​ revenue, while accounting profit only subtracts explicit costs. Part II.) A. ​Yes, this could occur if explicit costs were modest and implicit costs were high. Part III.) C. If you open an amusement park in the middle of New York City.

Part I.) Consider the following pair of figures where the light blue line is the original budget line for a consumer and the dark blue line is the new one. In Figure​ A, the change shown was caused by​ A. an increase in the​ consumer's income. B. a change in the​ consumer's tastes in favor of good X. C. an increase in the price of good X. D. a decrease in the price of good X. Part II.) In Figure​ B, the change shown was caused by​ A. a decrease in the​ consumer's income. B. an increase in the​ consumer's income. C. an equal decrease in the prices of both goods. D. the​ consumer's desire to decrease overall consumption.

Part I.) D. a decrease in the price of good X. WHY: Figure A depicts an outward pivot in the budget constraint. Part II.) A. a decrease in the​ consumer's income. WHY: Figure B depicts an inward shift in the budget constraint. We also know that an increase in income results in an outward shift in the budget constraint.

Part I.) A​ consumer's budget constraint refers to the collection of all possible bundles that​ A. a consumer finds suitable for possible purchase. B. give the consumer the same degree of satisfaction. C. a consumer can purchase with her income. D. exactly exhaust a consumer's entire budget. Part II.) An increase in a consumer's income causes her budget constraint to encompass (MORE/FEWER) bundles.

Part I.) D. exactly exhaust a consumer's entire budget. Part II.) MORE

Part I.) Consumer surplus is​ A. the portion of consumer goods that are purchased in a given time period but not consumed. B. the income an individual has after his consumption plans are met. C. the​ per-capita excess supply that exists in a market when the price is too high. D. the value or total benefits one receives from a good in excess of the price paid for it. Part II.) For an​ individual, consumer surplus is calculated as the difference between the (ABILITY/WILLINGNESS) to pay and the price actually paid for a good.

Part I.) D. the value or total benefits one receives from a good in excess of the price paid for it. Part II.) WILLINGNESS

Suppose​ Hershey's increases the price of its chocolate syrup by 15 percent. In​ response, the quantity demanded of Nesquik chocolate syrup rises by 11 percent and the quantity demanded of​ Breyer's vanilla ice cream falls by 4 percent. Part I.) The​ cross-price elasticity of demand between​ Hershey's syrup and​ Nesquik's syrup is (POSITIVE/NEGATIVE/INDETERMINATE), implying these two goods are (COMPLEMENTS/SUBSTITUTES/NORMAL GOODS). Part II.) The​ cross-price elasticity of demand between​ Hershey's syrup and​ Breyer's vanilla ice cream is (POSITIVE/NEGATIVE/INDETERMINATE), implying these two goods are (COMPLEMENTS/SUBSTITUTES/NORMAL GOODS). Part III.) Suppose that incomes rise by 9 percent given the price change cited above. As a​ result, Hershey's experiences a 5 percent increase in sales volume. Given this​ information, Hershey's syrup is a (LUXURY/NORMAL/INFERIOR) good.

Part I.) POSITIVE, SUBSTITUTES Part II.) NEGATIVE, COMPLEMENTS Part III.) NORMAL

Suppose the price of X is ​$40​, the price of Y is ​$50​, and a consumer has income of ​$400. Part I.) Using the line drawing​ tool, show the budget constraint for this consumer on the graph to the right. Label your line​ 'BC' Part II.) Which of the following combinations of X and Y will be represented by a point on the​ consumer's budget​ constraint? A. 3 units of X and 6 units of Y. B. 5 units of X and 4 units of Y. C. 4 units of X and 5 units of Y

Part I.) Point for Good Y= 0,8 Point for Good X= 10,0 Draw line connecting these 2 points and label line as BC Part II.) B. 5 units of X and 4 units of Y.