ap economics test 2 study guide
an efficiency loss (or deadweight loss)
is measured as the combined loss of consumer surplus and producer surplus from over- or underproducing
consumer surplus
is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price
the demand for autos is likely to be
less price elastic than the demand for honda accords
which of the following is an example of a price ceiling
limits on interest rates charged by credit card companies
the total revenue received by sellers of a good is computed by
multiplying the price times the quantity sold
an effective price ceiling will
result in a product shortage
an effective price floor will
result in a product surplus
an effective price floor on wheat will
result in a surplus of wheat
if the income elasticity of demand for store brand macaroni and cheese is -3.00, this means that
store brand macaroni and cheese is an inferior good
we would expect
the demand for coca-cola to be more price elastic than the demand for soft drinks in general
the elasticity of demand for a product is likely to be greater,
the greater the amount of time over which buyers adjust to a price change
producer surplus is the difference between
the minimum prices producers are willing to accept for a product and the higher equilibrium price
cross elasticity of demand measures how sensitive purchases of a specific product are to changes in
the price of some other product
If an effective ceiling price is placed on hamburgers then
the quantity demanded will exceed the quantity supplied, the price charged will be below the market-clearing price, and a black market for hamburgers may evolve
the concept of price elasticity of demand measures
the sensitivity of consumer purchases to price changes
the price of old baseball cards rises rapidly with increases in demand because
the supply of old baseball cards is price inelastic
which good will least likely suffer a decline in demand during a recession
toothpaste
amanda buys a ruby for $330 for which she was willing to pay $340. the minimum acceptable price to the seller, tony, was $140. amanda experiences:
a consumer surplus of $10, and tony experiences a producer surplus of $190
jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. the minimum acceptable price to the seller, nathan, was $30... jennifer experiences
a consumer surplus of $9, and nathan experiences a producer surplus of $3
the main determinant of elasticity of supply is the
amount of time the producer has the adjust inputs in a response to a price change
the price elasticity of demand coefficient measures
buyer responsiveness to price changes
the demand for a product is inelastic with respect to price if
consumers are largely unresponsive to a per unit price change
suppose that we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. we can conclude that quantity demanded
decreased by 7 percent
the state legislature has cut gigantic state university's appropriations. gsu's board of regents decides to increase tuition and fees to compensate for the loss of revenue. the board is assuming that the
demand for education at GSU is inelastic
for a linear demand curve
demand is elastic at relatively high prices
suppose aiyanna's pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little buisness. aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. we expect that each successive week
demand will become less price elastic
the price elasticity of demand of a straight-line demand curve is
elastic in high-price ranges and inelastic in low-price ranges
a price ceiling means that
government is imposing a legal price that is typically below the equilibrium price
a perfectly inelastic demand curve
graphs as a line parallel to the vertical axis
if the demand for bacon is relatively elastic, a 10% decline in the price of bacon will
increase the amount of demand by more than 10%
if the demand for product X is inelastic, a 4 percent increase in the price of X will:
increase the quantity of X demanded by less than 4 percent
price floors and ceiling prices both
interfere with the rationing function of prices
suppose the price elasticity of demand for bread is .20. if the price of bread falls by 10%, the quantity demanded will increase by
2 percent and total expendentures on bread will fall
the price elasticity of demand for widgets is .80. assuming no change in the demand cure for widgets, a 16 percent increase in sales implies a
20 percent reduction in price
assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. the coefficient of income elasticity of demand for good X is:
negative, and therefore X is an inferior good
suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decline in the quantity demanded of a normal good X. the coefficient of cross elasticity of demand is
negative, and therefore these goods are compliments
we would expect the cross elasticity of demand between dress shirts and ties to be
negative, indicating complementary goods
the basic formula for the price elasticity of demand coefficient is
percentage change in quantity demanded/percentage change in price
the supply curve of a one-of-a-kind original painting is
perfectly inelastic
assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X. the coefficient of income elasticity of demand is:
positive, and therefore X is a normal good
suppose that a 10 percent increase in the price of normal good Y causes a 20 percent increase in the quantity demanded of normal good X. the coefficient of cross elasticity of demand is
positive, and therefore these goods are substitutes
we would expect the cross elasticity of demand between coke and pepsi to be
positive, indicating substitute goods
which of the following statements is true about price ceilings
price ceilings cause goods to be rationed by some other means than legally determined market prices
in which of the following cases will total revenue increase?
price rises and demand is inelastic
if price and total revenue vary in opposite directions, demand is
relatively elastic
other things the same, if a price change causes total revenue to change in the opposite direction demand is
relatively elastic
the demand for a necessity whose cost is a small portion of one's total income is
relatively price inelastic