Eco 2301 Test 2 Quizzes

If the price of music downloads decreases, which of the following is most likely to occur? A. Demand will decrease. B. Quantity demanded will increase. C. Quantity demanded will decrease. D. Demand will increase.

B. Quantity demanded will increase. If the price for music downloads decreases, then by the Law of Demand, the quantity demanded will increase. The Law of Demand establishes that there is an inverse relationship between the quantity demanded and the price of a given good. An increase in the quantity demanded, as a result of a price decline, is represented graphically by a downward movement along the demand curve. To the contrary, a decrease in the quantity demanded, as a result of a price increase, is represented graphically by an upward movement along the demand curve. So, changes in price of a good affect the quantity demanded of that good, but the schedule (price versus quantity demanded) or the curve (price and quantity represented in the axis) remains the same. However, there are other variables besides the price that also affect demand. Some of those variables are income, the price of related goods, tastes, natural conditions, advertising, the number of consumers, etc. Whenever any of those other variables changes, then the demand schedule or the demand curve will change, and economists refer to it as a change in demand. In summary, a change in quantity demanded and change in demand are not the same thing. Whenever there is a change in price, then quantity demanded changes (inverse relationship); whenever there is a change in a variable different than price, then the demand changes. In graphical terms, the first effect is represented by a movement along the demand curve, while the second effect is represented by a movement or shift of the whole demand curve.

Which of the following is most likely to be an inferior good? A. Porsches. B. Used clothing. C. An Ivy League education. D. Lobster.

B. Used clothing. In economics, an inferior good is a good for which an increase in income leads to an decrease in demand, ceteris paribus. A normal good, on the other hand, is a good for which an increase in income leads to an increase in demand, ceteris paribus. Used clothing is consider to be a inferior good. If the families' income decrease, consumers would demand more used clothing. Families are more likely to buy used clothing and less likely to buy expensive new clothing. The term inferior does not make reference to the good's quality. It is used to illustrate the reverse relationship between income and demand.

Whenever the price of Good A decreases, the demand for Good B increases. Good A and B appear to be: A. substitutes. B. complements. C. inferior goods. D. compliments. E. normal goods.

B. complements. In general, two goods are considered complements if an decrease in the price of one causes the demand of the other to increase (an inverse relationship), or vice versa. Two good are complements if they tend to be consumed together. Tennis rackets and tennis balls are such type of goods: there is not that much that can be done with a racket alone, or with a tennis ball alone. Others examples of complement goods are computers and memory devices, printers and cartridges, and computers and software.

If the elasticity of demand for bangles is equal to 1, an increase in price will: A. decrease the quantity demanded and decrease total revenue. B. decrease the quantity demanded but leave total revenue unchanged. C. not affect the quantity purchased. D. decrease the quantity demanded and increase total revenue.

B. decrease the quantity demanded but leave total revenue unchanged. If the elasticity of demand for bangles is equal to 1, the percentage decrease in quantity equals the percentage increase in price, and total revenue remains the same, since the identical opposite changes in price and quantity offset each other. General rule: if demand is unit elastic, total revenue remains unchanged when the prices changes, it does not vary with price.

Demand is said to be ____ when the quantity demanded is very responsive to changes in price. A. flexible B. elastic C. unit elastic D. independent E. inelastic

B. elastic Demand is said to be elastic, when the quantity demanded is very responsive to changes in price. The price elasticity of demand Ed is defined as percentage change in quantity demanded divided by percentage change in price (elasticity is expressed in absolute terms, omitting the negative sign). So, Ed is a number that can take several values. If that number is greater than 1, then the demand is elastic, implying that percentage change in quantity is greater than the percentage change in price, or that the quantity demanded is very responsive to changes in price. Example: If the price of pork increases by 3%, causing the quantity of pork demanded to decrease by 6%, then the price elasticity of demand is 2, an elasticity greater than 1, or elastic demand.

The demand schedule for a good: A. indicates the quantity that people will buy at the prevailing price. B. indicates the quantities that will be purchased at alternative market prices. C. indicates the quantities that suppliers will sell at various market prices. D. indicates the quantity that people will buy at different times of the day or year. E. is determined primarily by the cost of producing the good.

B. indicates the quantities that will be purchased at alternative market prices. A demand schedule indicates the quantities of a given good or service that will be purchased or demanded at alternative market prices, ceteris paribus. A demand schedule is presented in a table form, which is often depicted in a graph, or represented thru a mathematical function.

If the demand for apples is highly elastic and the supply is highly inelastic, then if a tax is imposed on apples it will be paid: A. equally by the sellers and buyers of apples. B. by the government. C. largely by the sellers of apples. D. largely by the buyers of apples.

C. largely by the sellers of apples. Remember, elasticity is like flexibility. The person or company with the most flexibility (elasticity) will be able to avoid most of the tax. Since the demanders (consumers) have more elasticity (flexibility) they can avoid most of the tax, and the suppliers will have to pay most of it.

Consumer surplus is: A. the area underneath the demand curve. B. the total utility derived from consuming a good. C. the difference between what consumers are willing to pay and what they are required to pay for a good. D. the marginal utility of the last unit consumed multiplied by the number of units consumed. E. the dollar amount spent acquiring a good.

C. the difference between what consumers are willing to pay and what they are required to pay for a good. Consumers surplus is the difference between what consumers are willing to pay and what the are required to pay (or actually pay) for a good. It measures the benefit buyers get from being market participants. Geometrically, consumer surplus is the area underneath the demand curve and above the market price.

A perfectly elastic supply curve is: A. All of the other graphs show perfectly elastic supply curves. B. horizontal. C. downward sloping to the left. D. upward sloping to the right. E. vertical.

A perfectly elastic supply curve is the one with a elasticity equal to infinity. The price elasticity of supply is equal to infinity, when a very small percentage change in price (mathematically tending to zero) produces a very large percentage change in quantity supplied (mathematically tending to infinity). That is the extreme case when the supply curve is horizontal. For a horizontal supply curve at price P0, producers will supply any quantity at that price (see graphs below showing all possible cases). The price elasticity of supply is a measure of the responsiveness of the quantity supplied to changes in the price, or how much the quantity supplied responds to a change in price. It is defined as the percentage change in quantity supplied divided by the percentage change in price.

Which of the below is true? A. Both price floors and price ceilings generally reduce the quantity exchanged in the market. B. Both price floors and price ceilings generally increase the quantity exchanged in the market. C. A price ceiling increases the quantity exchanged on the market, but a price floor decreases the quantity exchanged on the market. D. A binding price ceiling reduces the quantity exchanged on the market, but a price floor increases the quantity exchanged on the market.

A. Both price floors and price ceilings generally reduce the quantity exchanged in the market. The statement is true: both binding price floors and binding price ceilings generally reduce the quantity exchanged in the market. a) In the case of a binding price ceiling, a shortage is created by artificially fixing a legal maximum price below the equilibrium price. The shortage implies that quantity demanded is greater than quantity supplied.Only the amount that the firms supply at the low price would be sold, which is less than the quantity traded if there were not a price ceiling. b) In the case of a binding price floor, a surplus is created by artificially fixing a legal minimum price above the equilibrium price. The surplus implies that quantity demanded is less than quantity supplied.Only the amount that the consumers demand at the high price would be bought, which is less than the quantity traded if there were not a price floor.

Which of the following is an example of an unintended consequence? A. a price ceiling on gasoline that causes a gas shortage B. increased taxes on cigarettes and liquor that lead to less smoking & drinking C. increased parking fines that lead to fewer violators D. None of the other answers is correct. E. first time tax credits that cause more home sales

A. a price ceiling on gasoline that causes a gas shortage A policy consisting of imposing a price ceiling on gasoline intends to control inflation, which is the intended consequence, however it also causes a shortage, as the quantity demanded exceeds the quantity supplied. The shortage is an example of an unintended consequence.

A steel mill raises the price of steel by 7%, which results in a 20% reduction in the quantity of steel demanded. The demand curve facing this firm is: A. elastic. B. inelastic. C. unit elastic. D. unit inelastic.

A. elastic. If a steel mill raises the price of steel by 7%, resulting in a 20% reduction in the quantity of steel demanded, the price elasticity of demand is Ed = 20/7 = 2.86, which is greater than 1. Thus, the demand curve facing this firm is elastic. The price elasticity of demand Ed is defined as percentage change in quantity demanded divided by percentage change in price (elasticity is expressed in absolute terms, omitting the negative sign). So, Ed is a number that can take several values. If that number is greater than 1, then the demand is elastic, implying that percentage change in quantity is greater than the percentage change in price, or that the quantity demanded is very responsive to changes in price. The demand curve facing this firm is elastic when its Ed > 1.

The elasticity of supply is defined as the ____ change in quantity supplied divided by the ____ change in price. A. percentage; percentage B. marginal; percentage C. total; percentage D. percentage; marginal E. total; total

A. percentage; percentage The price elasticity of supply is a measure of the responsiveness of the quantity supplied to changes in the price. It is defined as the percentage change in quantity supplied divided by the percentage change in price and it is unit less. As explained in the video, elasticity of demand and elasticity of supply are similar concepts.

The law of demand refers to the: A. increase in price that results from an increase in demand for a good of limited supply. B. inverse relationship between the price of a good and the quantity demanded. C. increase in the quantity of a good made available when its price increases. D. decrease in price that results as more units of a product are demanded.

B. inverse relationship between the price of a good and the quantity demanded. The Law of Demand refers to the inverse relationship that exists between the price of a good and the quantity demanded of that good. This inverse relationship implies that, other things equal, the quantity demanded of a good rises when the price of the good declines, and vice versa. The quantity demanded of a good is the amount of a good that buyers are willing and able to purchase.

If there is a surplus, ____ will be frustrated by their inability to exchange at the current price, and they will ____ the prices as a result. A. buyers; lower. B. sellers; lower. C. buyers; raise. D. sellers; raise.

B. sellers; lower. If there is a surplus, sellers will be frustrated by their inability to exchange at the current price, and they will lower the prices as a result. There is a surplus when the quantity supplied QS exceeds quantity demanded QD, a situation of temporary disequilibrium at current price PC. The surplus is represented by QS - QD (see graph below). To eliminate the surplus, frustrated suppliers would cut prices from current price PC to increase sales, buyers respond to the lower price by increasing their purchases, and this would continue until the market returns to equilibrium at point E, thus eliminating the surplus.

If the price of tennis rackets were to increase, we would expect: A. the demand for tennis balls to increase. B. the demand for tennis balls to decrease. C. the supply of tennis balls to increase, leading to a movement along the demand curve for tennis balls. D. the supply of tennis balls to decrease. E. both b. and d. to occur.

B. the demand for tennis balls to decrease. If the price of tennis racket were to increase, for the Law of Demand, the quantity demanded of tennis rackets will decline, and consequently the demand for tennis balls will decline as well. Two good are complements if they tend to be consumed together. Tennis rackets and tennis balls are such type of goods: there is not that much that can be done with a racket alone, or with a tennis ball alone. Others examples of complement goods are computers and memory devices, printers and cartridges, and computers and software. In general, two goods are considered complements if an increase in the price of one causes the demand of the other to decline.

Fantastic Cuts Hair Salon knows that a 15% increase in the price of their haircuts will result in a 5% decrease in the number of haircuts sold. What is the elasticity of demand facing Fantastic Cuts? A. 0.10 B. 0.15 C. 0.33 D. 0.05 E. 3.0

C. 0.33 The price elasticity of demand Ed is defined as percentage change in quantity demanded divided by percentage change in price (elasticity is expressed in absolute terms, omitting the negative sign). Percentage change in quantity demanded %ΔQd = 5% Percentage change in price %ΔP = 15% Price elasticity of demand Ed = %ΔQd / %ΔP = 5% / 15% = 0.333 which is less than 1 This is a case of inelastic demand

The supply curve shows: A. how the quantity demanded varies with price. B. the same basic information as a demand curve. C. how the quantity produced varies with price. D. how the average cost of production varies with price.

? A supply curve does not show how the quantity demanded varies with the price. A demand curve does. A demand curve shows the relationship between the quantities demanded of specific a good at different prices, ceteris paribus. Each point of the curve indicates the quantity that buyers of the good are willing to buy at a specific price.

Which of the following best explains the source of consumer surplus for Good A? A. Many consumers would be willing to pay more than the market price for some units of Good A. B. Many consumers think the market price of Good A is greater than its cost. C. Many consumers pay prices that are greater than the equilibrium price of Good A. D. Many consumers of Good A place a value on it that is less than the market price.

A. Many consumers would be willing to pay more than the market price for some units of Good A. Consumer surplus results from consumers who are able to purchase a good for less than their reservation price (i.e., when the current market price is less than the maximum they would be willing to pay).

Each point on the supply curve shows the: A. quantity supplied at that price. B. the amount producers want to sell to buyers of different income levels. C. productive capacity of an individual producer. D. amount that people want to buy at that price.

A. quantity supplied at that price. A supply curve shows the relationship between the quantities offered of specific a good at different prices, ceteris paribus. Each point of the curve indicates the quantity that sellers of the good are willing to sell at a specific price.

Assume a price floor is imposed at the current equilibrium price in the market for lettuce. If the demand for lettuce then increases: A. the quantity of lettuce supplied will increase. B. a shortage of lettuce will be created. C. the quantity of lettuce traded remains the same. D. a surplus of lettuce will be created. E. the quantity of lettuce supplied will decrease.

A. the quantity of lettuce supplied will increase. Let's carry out the analysis step by step (see graph below). a) Initially, the market for lettuce is at equilibrium point A where quantity supplied equals quantity demanded. The coordinates of point A are QA and PA. b) If a price floor is imposed at the current equilibrium price PA in the market for lettuce, the economic impact would be nil since that is already the equilibrium price. c) If the demand for lettuce then increases, the demand curve would shift rightward, and as a consequence, there will an new equilibrium point B, to the right and above point A. The supply curve will remain the same. The coordinates of point B are QB and PB. d) The price floor lies now below the equilibrium point B, and it is not binding since price floor PA, the legal minimum, is lower that the new equilibrium price PB. The market clears at point B, for which quantity supplied QB is greater that quantity supplied QA. In conclusion, the quantity of lettuce supplied will increase.

Which of the following would NOT cause a change in the supply of milk? A. The changes in all of the other answers will cause a change in the supply of milk. B. an increase in the price of milk C. the discovery of growth hormones to stimulate the milk production of cows D. an increase in government subsidies to dairy farmers E. an increase in the cost of feed for cows

B. an increase in the price of milk An increase in the price of milk would not cause a change in the supply of milk. Rather, it would cause an increase in the quantity supplied of milk. There is a difference between supply and quantity supplied. An increase in the quantity supplied, as a result of a price increase, is represented graphically by an upward movement along the supply curve. To the contrary, a decrease in the quantity supplied, as a result of a price increase, is represented graphically by a downward movement along the supply curve.

If the elasticity of supply of a good was 2, how much would the price have to increase to lead to an increase in output of 6 percent? A. 8 percent. B. 4 percent. C. 3 percent. D. 12 percent.

C. 3 percent. The price elasticity of supply Es is a ratio defined as the percentage change in the quantity supplied over the percentage change in price. If the ratio is 2 and the numerator is 6%, the denominator has to be 3%.

To an economist, a decrease in supply means a: A. rightward shift of the supply curve. B. downward shift of the supply curve. C. None of the other answers is correct. D. movement up along a supply curve. E. movement down along the supply curve.

C. None of the other answers is correct. To an economist, a decrease in supply means that for any given price, the producer is now willing to produce and sell less. A decrease in supply is represented by a shift leftward of the whole curve. The following changes or factors would result in a decrease in supply of a specific good: a) In increase in input prices, b) An increase in the price of a substitute in production, c) A decrease in the price of a complement in production, d) An expectation of higher prices in the future, e) A decline in the number of suppliers, f) New taxes that affect the cost of production, g) A drought or freezing temperatures.

A shortage currently exists in the market for strawberries. Which of the following statements is correct? A. The quantity of strawberries supplied exceeds the quantity demanded and the market price is below the equilibrium price. B. The quantity of strawberries demanded exceeds the quantity supplied and the market price equals the equilibrium price. C. The quantity of strawberries demanded exceeds the quantity supplied and the market price is below the equilibrium price. D. The quantity of strawberries demanded exceeds the quantity supplied and the market price is above the equilibrium price. E. The quantity of strawberries supplied exceeds the quantity demanded and the market price is above the equilibrium price.

C. The quantity of strawberries demanded exceeds the quantity supplied and the market price is below the equilibrium price. Of course! If a shortage currently exists in the market for strawberries, the quantity of strawberries supplied is less than the quantity demanded and the market price is below the equilibrium price.

Which of the following would increase the quantity of LCD TVs demanded but would not increase the demand for LCD TVs? A. an increase in incomes assuming that LCD TVs are normal goods B. an increase in the expected future price of LCD TVs C. a decrease in the current price of LCD TVs D. an increase in the price of plasma TVs, a substitute E. an increase in the current price of LCD TVs

C. a decrease in the current price of LCD TVs A decrease in the current price for LCD TVs would increase the quantity demanded of the good (movement along the curve), however it would not increase its demand. Demand is the range of prices and quantities that form the demand curve, while quantity demanded is the specific quantity that consumers demand at a specific price. When the price changes, there is a change in quantity demanded; however, when a variable other than the good's price changes, there is a change in demand.

If the supply curve for a product is vertical, then the elasticity of supply is: A. equal to infinity. B. equal to one. C. equal to zero. D. greater than one but less than infinity.

C. equal to zero. If the supply curve for a product is vertical, then the quantity supplied is the same for each alternative price and its percentage change is zero. Thus, the price elasticity of supply is zero. The price elasticity of supply is a measure of the responsiveness of the quantity supplied to changes in the price. It is defined as the percentage change in quantity supplied divided by the percentage change in price.

Which of the following would most likely feature elastic demand? A. heart surgery B. a required textbook C. fresh green beans D. all of the above E. none of the above

C. fresh green beans In general, the more substitutes for a specific good, the more elastic its demand tends to be. In the case of fresh green beans, there are close substitutes, like canned or frozen green beans, or fresh peas. So, fresh green beans most likely does feature elastic demand.

If the elasticity of supply of bangles is equal to 1, an increase in the price of bangles will: A. not affect the quantity purchased. B. increase the quantity supplied and decrease total revenue. C. increase the quantity supplied and increase total revenue. D. increase the quantity supplied and leave total revenue unchanged.

C. increase the quantity supplied and increase total revenue. If the elasticity of supply is equal to one, then a price increase of any percent, will cause an increase in quantity supplied by the same percent, resulting in an increase in total revenue.

The longer the time period considered, the elasticity of supply tends to: A. remain constant. B. converge to zero. C. increase. D. decrease.

C. increase. A key factor affecting the price elasticity of supply is time. In the short run, quantity supplied is not that responsive to price changes since suppliers can not easily adjust the size of their production. However, in the long run, quantity supplied is much more responsive to price changes since suppliers can adjust their production by expanding or contracting, or by building new factories or closing old ones. As a consequence, the longer the time period considered, the elasticity of supply tends to increase: the supply curve becomes flatter.

The difference between a change in quantity supplied and a change in supply is that a change in: A. supply is caused by a change in a good's own, current price, while a change in the quantity supplied is caused by a change in some other variable, such as input prices, prices of related goods, expectations, or taxes. B. quantity supplied is a change in the amount people want to sell, while a change in supply is a change in the amount they actually sell. C. quantity supplied is caused by a change in a good's own, current price, while a change in supply is caused by a change in some other variable, such as input prices, prices of related goods, expectations, or taxes. D. supply and a change in the quantity supplied are the same thing.

C. quantity supplied is caused by a change in a good's own, current price, while a change in supply is caused by a change in some other variable, such as input prices, prices of related goods, expectations, or taxes. The difference between a change in quantity supplied and a change in supply is that a change in quantity supplied is caused by a change in a good's own, current price, while a change in supply is caused by a change in some other variable, such as input prices, prices of related goods, expectations, or taxes. A change in the quantity supplied is represented in by a movement along the supply curve: upward in the case of an increase, downward in the case of a decrease. A change in the supply is represent by a shift of the supply curve: rightward in the case of an increase and downward in the case of a decrease.

The market supply schedule reflects the total quantity: A. supplied at market price. B. supplied by all of the producers at the equilibrium price. C. supplied at each price by all of the producers. D. the vertical summation of the supply curves for individual firms.

C. supplied at each price by all of the producers. The market supply schedule reflects the total quantity of a good or service supplied at each price by all producers. The market supply schedule results from summing, for any given price, the quantities that each individual producer is willing to produce and sell.

An upward-sloping supply curve shows that: A. buyers are willing to pay more for particularly scarce products. B. suppliers expand production as the product price falls. C. suppliers are willing to increase production of their goods if they receive higher prices for them. D. buyers are not affected either directly or indirectly by the sellers' costs of production. E. buyers are willing to buy more as the product price falls.

C. suppliers are willing to increase production of their goods if they receive higher prices for them. An upward-sloping supply curve shows that suppliers are willing to increase production of their goods if they receive higher prices for them. The upward-sloping supply curve is explained by the Law of Supply. The Law of Supply states than when the price of a good increases, the quantity offered by the producers also increases, ceteris paribus.

Assume that coffee and tea are substitutes for each other. If weather conditions cause a substantial portion of the available coffee crop to be destroyed, then most probably: A. the price of tea will decrease. B. the price of coffee will decrease. C. the demand for tea will increase. D. the supply of tea will increase. E. both c. and d. are correct.

C. the demand for tea will increase. If weather conditions cause a substantial portion of the available coffee crop to be destroyed, the supply for coffee declines (its curve moves leftwards), causing an increase in coffees' prices and a decrease in quantity, as the demand curve for coffee remains the same (see the Coffee Market graph below). If two goods are substitutes, as coffee and tea are, an increase in the price of coffee causes some consumers to shift to the relatively cheaper tea. As a result, the demand curve for tea increases and shifts to the right, while the supply curve remains the same

When there is an excess quantity demanded of a product at the current price, then: A. producers will reduce output and sales will fall. B. the price must be above the equilibrium price. C. the price will tend to rise. D. the price will tend to fall.

C. the price will tend to rise. Yes, the price would tend to rise. When there is an excess of quantity demanded of at the current price, then there is a shortage (see graph below). The consumers will not find sufficient quantity offered of the product at the current price PC, and they would offer to pay sellers a higher price, moving towards PE. Higher prices would entice suppliers to increase the quantity supplied and consumers to reduce the quantity demanded, as to ultimately eliminate the shortage.

Which of the following is true of a competitive market? A. Each buyer's or seller's effect on market price is substantial. B. The rules of supply and demand do not apply to it. C. Few sellers offer similar products. D. Buyers and sellers have little market power.

D. Buyers and sellers have little market power. A competitive market is characterized by many buyers and sellers of a similar or homogenous product, and no single buyer or seller can affect the market prices. The classic example of a competitive market is the market of specific agricultural products, wheat for example, where there are many farmers who each produce a very small fraction of the total production of wheat, and many buyers who each consume a tiny portion of that production. Because no single buyer or seller can affect the price of wheat, the price is taken as given. At the market price, buyers can buy all they want, and sellers can sell all they want.

Interpret the following statement: "Demand exceeds the available quantity of apartment housing. If the price of apartment rentals were increased, demand would decrease and an equilibrium could be achieved." A. The statement is correct. B. The statement would be correct only if the terms "demand" and "supply" were interchanged. C. The statement would be correct if it read "supply would decrease" in response to a price increase. D. The statement is incorrect because it confuses "demand" with "quantity demanded." E. The statement is incorrect because the price should be decreased, not increased, in order to achieve equilibrium.

D. The statement is incorrect because it confuses "demand" with "quantity demanded." The correct statement is: "Quantity demanded exceeds the available quantity of apartment housing. If the price of apartment rentals were increased, quantity demanded would decrease and an equilibrium could be achieved". When there is an excess quantity demanded of a product at the current price, then there is a shortage (see graph below). The consumers will not find sufficient quantity offered of the product at the current price, and they would offer to pay sellers a higher price. If the price of apartment rentals were increased from PC, then the quantity demanded decreases (Law of Demand) and the quantity supplied increases (Law of Supply). As the price rises towards PE, the shortage is gradually reduced until quantity supplied equals quantity demanded and the equilibrium is restored at point E. Keep in mind that when any other factor different from the price changes, then the demand changes (the demand curve shifts). The same applies to supply.

If the price elasticity of demand was 4.0 (in absolute terms), a 10% off sale would lead to: A. a 2.5% decrease in purchases by customers. B. a 2.5% increase in purchases by customers. C. None of the other answers. D. a 40% increase in purchases by customers. E. a 40% decrease in purchases by customers.

D. a 40% increase in purchases by customers. The price elasticity of demand Ed is defined as percentage change in quantity demanded divided by percentage change in price (elasticity is expressed in absolute terms, omitting the negative sign). Price elasticity of demand Ed = %ΔQd / %ΔP = %ΔQd / 10% = 4.0 Percentage change in price %ΔP = 10% So, percentage change in quantity demanded %ΔQd = 10% X 4.0 = 40% Then, a 10% off sale would lead to a 40% increase in purchases by customers (Law of Demand).

Which of the following would be most likely to cause a reduction in the supply of Nintendo video games? A. a decrease in the demand for Nintendo video games B. an increase in the demand for Nintendo video games C. a decrease in the price of computer chips used to make Nintendo games D. an increase in the price of computer chips used to make Nintendo games E. a decrease in the price of Nintendo video games

D. an increase in the price of computer chips used to make Nintendo games The computer chips are inputs in the production of the Nintendo games. The cost of the inputs is one of the factors then influence supply: If the price of the inputs increase, the cost of production increases, and as a consequence the supply of Nintendo Games decreases. This is is represented by the supply curve shifting leftward.

Ceteris paribus, an increase in the price of a good will cause the: A. quantity demanded of the good to increase. B. quantity supplied of the good to decrease. C. supply of the good to increase. D. consumer surplus derived from the good to decrease. E. Both c. and d. are correct.

D. consumer surplus derived from the good to decrease. An increase in the price of a good will cause the consumer surplus derived from the good to decrease. Why? The consumer surplus is defined as the difference between the maximum price the consumer is willing to pay for an additional unit of the product and its actual market price. So, if the price increases, the difference becomes smaller.

A 10% decrease in the price of energy bars leads to a 20% increase in the quantity of energy bars demanded. It appears that: A. demand is unit elastic and total revenue will remain constant. B. demand is elastic and total revenue will decrease. C. demand is inelastic and total revenue will increase. D. demand is elastic and total revenue will increase. E. demand is inelastic and total revenue will decrease.

D. demand is elastic and total revenue will increase. Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. So, if a 10% decrease in the price of energy bars leads to a 20% increase in the quantity of energy bars demanded, the price elasticity of demand is Ed = 20/10 = 2, which implies that the demand for energy bars is elastic. (The negative sign is not taken into consideration for practical purposes). With respect to total revenue, it will increase since the percentage increase in the quantity is greater that the percentage reduction in price. General rule: If demand is inelastic, price and total revenue have a direct relationship (move in the same direction). If demand is elastic, price and total revenue have a inverse relationship (move in opposite directions)

A price cut will increase the total revenue a firm receives if the demand for its product is: A. unit inelastic. B. inelastic. C. unit elastic. D. elastic.

D. elastic. A price cut will increase the total revenue a firm receives if the demand for its product is elastic. The reason? If the demand is elastic, the percentage increase in quantity demanded is greater than the (absolute value of) the percentage reduction in price. Thus, total revenue increases. For example, for a demand curve with Ed = 2, if the price goes down from $ 10 to $ 9, a 10% reduction, then the quantity demanded goes up from 100 to 120, a 20% increase, and total revenue increases from $ 1000 to $ 1080, an 8% increase.

The Shoe Emporium reduces the price of its shoes by 50% and finds that the quantity demanded for its shoes more than doubles. The demand for shoes from The Shoe Emporium appears to be: A. unit inelastic. B. inelastic. C. perfectly inelastic. D. elastic. E. unit elastic.

D. elastic. The Shoe Emporium reduces the price of its shoes by 50% and finds that the quantity demanded for its shoes more than doubles. If the quantity demanded more than doubles, the percentage change is more than 100%. The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. So, the demand for shoes exhibits a price elasticity of demand greater than 1: the demand for shoes from The Shoe Emporium appears to be elastic.

A surplus will result whenever the: A. government imposes a price ceiling below the equilibrium price. B. government imposes a price floor below the equilibrium price. C. government imposes a price ceiling above the equilibrium price. D. government imposes a price floor above the equilibrium price. E. quantity demanded exceeds the quantity supplied.

D. government imposes a price floor above the equilibrium price. A price floor will have an impact when the government impose a price floor above the equilibrium price. At the regulated price, the quantity supplied is larger that the quantity demanded and that generates the surplus. The forces of supply and demand may tend to move the price towards equilibrium, but the price can not be less that the regulated price floor.

A change in which of the following variables does not cause a change in demand? A. expectations of demanders B. tastes of demanders C. the number of demanders D. prices of unrelated goods E. incomes of demanders

D. prices of unrelated goods Changes in the prices of unrelated foods do not affect the demand of a specific good. In Economics, the related goods are the so called complements or substitutes goods. Changes in the prices of a complement or a substitute do have an impact in the demand of a specific good. If two goods are substitutes, when the price of one increases, the demand for the other also increases. If two goods are complements, when the price of one increases, the demand for the other decreases.

The Book Nook reduces prices by 20%. If the dollar value of The Book Nook's sales remain constant, it indicates that: A. the quantity of books sold remains constant. B. the demand curve is horizontal. C. the demand curve is vertical. D. the quantity of books sold increases by 20%. E. both a. and c. are correct.

D. the quantity of books sold increases by 20%. If the price of the books is lowered by 20%, the only way for total sales to remain the same is if the quantity of books sold increased by 20%. This would be unit elastic demand.

Ceteris paribus, if the vacancy rate in an apartment complex increased from 5% to 20% over the past two years, we would expect to see A. the rent decrease leading to a decrease in quantity demanded. B. the rent increase leading to a decrease in quantity demanded. C. the rent decrease leading to an increase in quantity supplied. D. the rent decrease leading to an increase in quantity demanded. E. the rent increase leading to an increase in quantity supplied.

D. the rent decrease leading to an increase in quantity demanded. An increase in vacancy rates reflects a wider surplus situation: the quantity supplied further exceeds the quantity demanded of apartments for rent, a situation of temporary disequilibrium. As a result of the imbalance between supply and demand, rental prices should come down. Buyers would respond to the lower price by increasing their rentals (an increase in quantity demanded), while landlords would respond by reducing the offer of rental units (a decrease in the quantity supplied). This would continue until the market returns to equilibrium, thus eventually eliminating the surplus.

In economics, the demand for a good refers to the amount of the good people: A. need to achieve a minimum standard of living. B. will buy at alternative income levels. C. would like to have if the good were free. D. will buy at various prices.

D. will buy at various prices. In economics, the demand for a good refers to the amount of the good people would buy at different prices, other things equal, or ceteris paribus "People' could be understood as an individual, as a single family, as all families in San Marcos, or even as all families in the United States or in the whole world. The ceteris paribus condition implies that the demand refers to the different amounts demanded at different prices of a specific good, isolating other factors that could impact the demand, such as income, tastes and prices of related goods.

Which of the following is false? A. If demand is elastic, it means the quantity demanded changes by a relatively larger amount than the price change. B. The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. C. The price elasticity of demand measures the responsiveness of quantity demanded to a change in price. D. If demand is inelastic, it means the quantity demanded changes by a relatively smaller amount than the price change. E. All of the other answers are true.

E. All of the other answers are true. All right. All of the statements above are true, none are false.

Which of the following is the correct way to describe equilibrium in a market? A. At equilibrium, market forces no longer apply. B. Equilibrium is a tendency for price to change, a state of perpetual motion. C. At equilibrium, demand equals supply. D. At equilibrium, the "fairest" price for output is achieved. E. At equilibrium, quantity demanded equals quantity supplied.

E. At equilibrium, quantity demanded equals quantity supplied. At the equilibrium market point, quantity demanded equals quantity supplied. At any other point there is disequilibrium, if the price is below the equilibrium price, the quantity demanded exceeds quantity supplied; if above, quantity supplied exceeds quantity demanded.

Elasticity of demand will ____ as the availability of substitutes ____. A. increase; decreases B. decrease; increases C. increase; increases D. decrease; decreases E. Both c. and d. are correct answers.

E. Both c. and d. are correct answers. If the number of substitutes of given good increases, the price elasticity of that good tends to be higher. For example, there were few substitutes for CDs (as storage device) when it was first introduced so its demand curve was relatively inelastic (steep demand curve). As other storage devices were introduced, such as DVDs, portable hard disks, and flash memories, the demand curve for CDs became more elastic (flatter demand curve). And also, if the number of substitutes of given good decreases, the price elasticity of that good tends to be lower.

The imposition of a price ceiling on a market often results in: A. none of the above. B. a surplus. C. an increase in investment in the industry. D. a decrease in discrimination on the part of sellers. E. a shortage.

E. a shortage. The imposition of a price ceiling on a market often results in a shortage. That would happen precisely when the price ceiling, a legal maximum, is below the equilibrium point, since at the artificially fixed price the quantity demanded is greater than the quantity supplied, which is the condition for a shortage. Otherwise, the price ceiling would not be binding and its effect would be nil, since the market would clear (quantity demanded equal to quantity supplied) at a price which is below the price ceiling, the legal maximum.

If the demand is perfectly inelastic, what would happen to the quantity demanded if there is a tiny increase in price? A. quantity demanded will decrease proportionately B. quantity demanded will increase proportionately C. quantity demanded will fall to zero D. quantity demanded will register a disproportionately high increase E. quantity demanded will remain the same

E. quantity demanded will remain the same Of course, the quantity demanded will remain the same. If the demand is perfectly inelastic, the price elasticity of demand is zero. So, any change in price, large or small, would not affect the quantity demanded. There are very few examples of a perfectly inelastic demand. Table salt is (almost) one of them: If the price of salt doubled in price, and the quantity demanded might remain (almost) the same. Salt has two characteristics that explain its perfectly inelastic behavior: a) Salt has no readily available substitutes. b) Salt is so cheap that consumers might not even notice an increase in its price.

Graphically, consumer surplus is measured by: A. the area below the demand curve, but above the market price. B. the area below the market demand curve, but above the supply curve. C. the area below the demand curve. D. the area below the demand curve, but above the upward-sloping supply curve.

A. the area below the demand curve, but above the market price. Consumer surplus is measured by the area below the demand curve, but above the market price.

A supply schedule shows: A. how many units producers are willing and able to sell at various prices. B. how many units consumers would like to buy at various prices. C. projected sales as ad spending varies. D. possible combinations of output as input prices vary.

? it is the demand schedule that shows how many units consumers would like to buy at various prices.

Which of the following would not shift the supply curve for swordfish? A. an increase in the wages of fishermen B. the development of innovative new fishing equipment that makes it easier to catch swordfish C. a reduction in the number of available fishing boats D. unusually stormy weather during fishing season E. an increase in the price of swordfish

E. an increase in the price of swordfish An increase in the price of swordfish would not shift the supply curve for swordfish. However, it would change the quantity supplied. Be clear about the difference. You will be asked questions like this on the written tests.

At the equilibrium price for gasoline: A. everyone with the desire and the income to buy gasoline at that price can do so. B. surpluses are inevitable. C. quantity demanded exceeds the quantity supplied. D. all sellers willing and able to sell gasoline at that price can do so. E. both a. and d. are correct.

E. both a. and d. are correct. At the equilibrium price, every seller willing and able to sell gasoline at that price can do so; and every consumer with the desire and the income to buy gasoline at that price can do so

When there is an excess quantity supplied of a product at the current price, then: A. the market price must be below equilibrium price. B. the market price will tend to rise. C. the market price must be above equilibrium price. D. the market price will tend to fall. E. both c. and d. will occur.

E. both c. and d. will occur. Statement C is true. There is a surplus when the quantity supplied exceeds quantity demanded, which necessarily implies that the market price is above the equilibrium price. Statement D is also true. If there is a surplus, sellers will be frustrated by their inability to exchange at the current price, and they will lower the prices as a result. The market price will tend to fall.

A decrease in consumer incomes will: A. increase the demand for a normal good. B. increase the supply of a normal good. C. decrease the supply of an inferior good. D. None of the other answers is correct. E. decrease the demand for an inferior good.

Feedback: D. None of the other answers is correct.

Price elasticity of demand is defined as: A. the percentage change in quantity demanded divided by the percentage change in price. B. the percentage change in price divided by the percentage change in quantity demanded. C. the inverse of the price elasticity of supply. D. the slope of the demand curve divided by the price. E. the slope of the demand curve.

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. Example: In the international copper market, it is observed that an increase of 2% in the price of copper causes a decrease of 5% in the quantity demanded of copper. The price elasticity of demand is 5% / 2% = 2.5 Note: A price increase causes a decrease in quantity demanded (Law of Demand). So, in strict terms the change in quantity demanded has a negative sign, and the elasticity is negative. However, for practical purposes, elasticity is expressed in absolute value terms, that is, as a positive number.