ECO 2023 Exam 2 (Modules 4-6)

The supply of product X is elastic if

a 5% increase in price generates a 7% increase in quantity supplied

It has been estimated that the price elasticity of demand for attending Atlanta Braves baseball games is -0.57^1. If price were the only factor to change, one might conclude that a decrease in attendance of 11.4% was caused by

an increase in ticket prices of 20%(11.4%/0.57)

Suppose the cross-price elasticity of demand between avocados and limes is -0.3 (E avocados / limes = −0.3). If the price of limes increases by 10%, we would expect the quantity of avocados demanded to _____________ by _____________%.

decrease; 3((0.3x10%)x100)

A television station reports that the price of coffee has increased but the quantity traded in the market has decreased. This situation would be caused by a(n)

decrease in supply

A decrease in demand and an increase in supply will

decrease price and affect the equilibrium quantity in an indeterminate way

An increase in supply for corn is greater in magnitude than the increase in the demand for corn. As a result, the equilibrium price will __________ and the equilibrium quantity will ___________

decrease, increase

A tax on buyers will cause the ________ schedule to shift ________.

demand, left

If a 5% cut in the price of a product causes the quantity demanded to rise by 10%, the demand is

elastic

Total revenue decreases as the price of a good increases, if the demand for the good is

elastic

An increase in demand for oil, along with a simultaneous increase in supply of oil, will

increase quantity, but whether it increases price depends on how much each curve shifts

If the price elasticity of demand for a product is equal to -0.5, then a 10 percent decrease in price will increase quantity demanded by

5%

The law of supply suggests that the price elasticity of supply is

positive

The cross-price elasticity of demand measures how sensitive purchases of a specific product are to changes in

the price of some other product

Nebraska had an unseasonable cold winter requiring more salt for the roads than normal. If the supply does not change what would happen to the market for salt?

The increased demand but no change in quantity supplied causes a shortage of salt

Productive efficiency occurs at the point where

The production technique minimizes average (or per unit) cost

Which is not characteristic of a product with relatively inelastic demand? The good is regarded by consumers as a necessity. There are a large number of good substitutes for the good. Buyers spend a small percentage of their total income on the product. Consumers have had only a short time period to adjust to changes in price.

There are a large number of good substitutes for the good

Consumer surplus

is the difference between the maximum price consumers are willing to pay for a product and the lower equilibrium price

Producer surplus

is the difference between the minimum price producers are willing to accept for a product and the higher equilibrium price

When the marginal benefit of an output exceeds the marginal cost

production of that output should be increased, in order to maximize economic surplus

There is a surplus in a market for a product when

quantity demanded is less than quantity supplied

Which of the following generalizations is correct? Demand tends to be

relatively more inelastic for a product considered a necessity

The price elasticity of supply measures how

responsive the quantity supplied of X is to changes in the price of X

The price of season tickets to a performing arts theater decreases by 3%. As a result, the quantity demanded increases by 6%. The price elasticity of demand for season tickets is

-2(6%/-3%)

If an increase in the price of pineapple juice of 10% results in an increase in the demand for grape juice of 5%, the cross-price elasticity of demand between pineapple juice and grape juice is

0.5(5%/10%)

The price elasticity of supply for a product will be 2 if a

1% decrease in price causes a 2% decrease in quantity supplied

The supply of product X is perfectly inelastic if the price of X increases by _______ and, as a result of the price change, the quantity supplied __________________

10%; stays the same

Identify the item most likely to be a luxury good among the four mystery items Item A: price elasticity of demand = −2.3 Item B: price elasticity of demand = −1.0 Item C: price elasticity of demand = −0.8 Item D: price elasticity of demand = −0.2

Item A: price elasticity of demand = −2.3

Why might an effective rent control actually increase homelessness in a city?

More people may move to the area hoping to find a lower-priced apartment

When a competitive market maximizes economic surplus, it implies that the

combined consumer and producer surplus is maximized

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is called

consumer surplus

If the price of a product increases

consumer surplus will decrease

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X.

decrease D, decrease P, and decrease Q

Suppose that a 20% increase in the price of product X generates a 15% increase in the quantity of X supplied. The price elasticity of supply for good X is

less than 1 and therefore supply is inelastic(15%/20%=0.75)

Deadweight loss declines in size when a unit of output is produced for which

maximum willingness to pay exceeds minimum acceptable price

Assume that a 3% increase in income across the economy produces a 1% decrease in the quantity of fast food demanded. The income elasticity of demand for fast food is ____________, and therefore fast food is _______________

negative; an inferior good

We would expect the cross-price elasticity of demand between dress shirts and ties to be __________, indicating that they are_____________

negative; complements

The basic formula for the price elasticity of demand is

percentage change in quantity demanded/percentage change in price

Generally, we calculate elasticity as the

percentage change in quantity demanded/supplied divided by the percentage change in price

A tax on suppliers will cause the ________ schedule to shift ________.

supply, left

For which of the following products is demand likely to be the most inelastic? flat screen TV table salt sports car in-ground hot tub

table salt

Allocative efficiency occurs only at that output where

the combined amounts of consumer surplus and producer surplus are maximized

There is a shortage in a market for a product when

the current price is lower than the equilibrium price

Consumer surplus arises in a market because

the market price is below what some consumers are willing to pay for the product

At the output level that maximizes economic surplus

the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output

If a price ceiling is set below the equilibrium price in a market

the quantity demanded will exceed the quantity supplied

If a price ceiling is set above the equilibrium price in a market

the quantity supplied will equal the quantity demanded

If a price floor is set above the equilibrium price in a market

the quantity supplied will exceed the quantity demanded