ECON 202 Unit 1 Quizzes
The buyers of a good will want to purchase it as long as their willingness to pay for the good is
greater than or equal to the price
If the price of a good is raised and total revenue increases, demand is _______
inelastic
If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, demand for using the toll road must be
inelastic
When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent. This indicates that the demand for tortilla chips is elastic. perfectly inelastic. unit elastic. inelastic
inelastic
Goods for which demand declines as consumers' incomes rise are ___________.
inferior goods
A supply schedule
is a table that shows the relationship between the price of a product and the quantity of the product supplied
A perfectly elastic demand curve:
is parallel to the quantity axis
Willingness to pay:
is the highest price that a buyer is willing and able to pay for a unit of good
When the price of a product changes,
it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well
The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in
its price
The area under the supply curve is the _______________ to producers making an item
opportunity cost
The highest valued alternative that must be given up to engage in an activity is the definition of
opportunity cost
People do not "feel" rich because
people always want more
Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that
people with health insurance are more likely to be more overweight than people without health insurance
Suppose at the going wage rate of $20 per hour, firms can hire as many hours of janitorial services as they desire. If any firm tries to lower the wage rate to $19, it will not be able to hire any janitor. What does this indicate about the supply curve for janitorial services?
perfectly elastic
If firms do not increase their quantity supplied when price changes, then supply is
perfectly inelastic
Assembly lines are an example of: Product innovation Capital investment Process innovation
process innovation
Economists assume that individuals
are rational and respond to incentives
In economics, the term ________ means "additional" or "extra."
marginal
positive statement
"it is"
normative statement
"it should be"
John is ready to pay $5 for an extra loaf of bread. Due to an ongoing discount in the store, he gets a loaf for $2. John's consumer surplus from the purchase is ________
$3
Arthur buys a new cell phone for $150. He receives consumer surplus of $150 from the purchase. How much does Arthur value his cell phone?
$300
Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul's consumer surplus from the purchase is
$75
"When there is a shortage of a good...
... consumers compete against one another by bidding the price upward. The process continues until the market is finally in equilibrium."
Things that Effect Demand
1. Income 2. Prices of Related Goods 3. Tastes 4. Population and Demographic 5. Expected Future Prices
Things that Effect Supply
1. Input Prices 2. Technology 3. Prices of Related Goods in Production 4. Number of Firms 5. Expected Future Prices
Elasticity is:
the ratio of the percentage change in two variables
Suppose the value of the price elasticity of supply is 4. What does this mean?
A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent
According to the law of supply, A.there is a positive relationship between price and quantity supplied. B.as the price of a product increases, firms will supply less of it to the market. C.as the price of a product increases, firms will supply more of it to the market. D.A and C only
A and C only
allocative efficiency
A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it. - achieved when the combination of competition among firms and voluntary exchange between firms and consumers results in firms producing the mix of goods and services that consumers prefer the most
Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil? A twofold increase in the prices of both pens and pencils A decrease in the consumer's income An increase in the consumer's income A twofold increase in the price of pens and a threefold increase in the price of pencils
A twofold increase in the price of pens and a threefold increase in the price of pencils
Assume that cotton is a normal good. Which of the following would cause both the equilibrium price and equilibrium quantity of cotton to increase? A. an increase in consumer income B. a decrease in consumer income C. unusually good weather that results in a bumper crop of cotton D. a drought that sharply reduces cotton output
A. an increase of consumer income
Which of the following can be established using economic analysis: People should work on teams to produce things because there is more job satisfaction. Products should be made more reliably. The government should not be the entity to choose the amounts of all available goods and services in the economy. None of the above can be established through economic analysis. All of the above can be established through economic analysis.
All of the above can be established through economic analysis.
What is the difference between an "increase in supply" and an "increase in quantity supplied"?
An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.
mixed economy
An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
market economy
An economy in which the decisions of households and firms interacting in markets allocate economic resources.
Which of the following illustrates the law of supply?
An increase in price causes an increase in the quantity supplied, and a decrease in price causes a decrease in the quantity supplied
Which of the following is the formula to calculate arc elasticity of demand?
Arc elasticity of demand = [(Q2 - Q1) / (Q2+ Q1)/2] / [(P2 - P1) / (P2 + P1)/2]
Consider the markets for BP supreme-grade gasoline, all BP grades of gasoline, and all gasoline. For which of these three markets will demand be most elastic?
BP supreme-grade gasoline, then for all BP grades of gasoline, and then for all gasoline
________ is the difference between the willingness to pay and the price paid for a good
Consumer surplus
Assume that the hourly price for the services of tarot card readers has risen and sales of these services have also risen. One can conclude that A. the number of tarot card readers has increased. B. tarot card readers are deliberately charging high prices because they provide services for superstitious clients. C. the law of demand has been violated. D. the demand for tarot card readers has increased.
D. The demand for tarot card readers has increased
Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?
Demand is likely to be relatively inelastic.
Which of the following statements about the price elasticity of demand is correct? Demand is more elastic in the long run than it is in the short run. Demand is more elastic the smaller the percentage of the consumer's budget the item takes up. The absolute value of the elasticity of demand ranges from zero to one. The elasticity of demand for a good in general is equal to the elasticity of demand for a specific brand of the good.
Demand is more elastic in the long run than it is in the short run.
The steps needed to evaluate the best way to organize an economy include:
Determining what will be produced, how it will be produced, and who gets it, and then evaluating these outcomes.
Let D= demand, S = supply, P = equilibrium price, and Q= equilibrium quantity. What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of cholesterol?
D increases, S no change, P and Q increase
Which of the following statements is true of the scientific method?
Empirical arguments are more credible when they are based on a large data set.
(T/F) Because the demand for illegal drugs is inelastic and the supply is elastic, policies that reduce supply in the illegal drug market reduce revenue for drug dealers
False
(T/F) Suppose the absolute value of the price elasticity of demand for basketball game tickets on your campus is greater than 1. Increasing ticket prices will increase the total revenue from ticket sales.
False
(T/F) The income effect explains why there is an inverse relationship between the price of a product and the quantity of the product demanded
False
(T/F) The income effect of a price change refers to the change in the quantity demanded of a good that results from a change in the price of a complementary product
False
(T/F) When Audrina raised the price of her homemade cookies, her total revenue increased. This suggests that the demand for Audrina's cookies is elastic.
False
Because the supply of low-quality guns is very elastic, gun buy-back programs in a single city will reduce the number of guns by a large amount (T/F)
False
Which of the following could explain why the demand for table salt is inelastic?
Households devote a very small portion of their income to salt purchases.
The production possibilities frontier will shift outward if
If resources are used to produce capital goods
Which of the following statements is true? If the price of a good is raised and total revenue does not change, demand is perfectly elastic. If the price of a good is lowered and total revenue increases, demand is inelastic. If the price of a good is lowered and total revenue decreases, demand is elastic. If the price of a good is raised and total revenue increases, demand is inelastic.
If the price of a good is raised and total revenue increases, demand is inelastic.
What does increasing marginal opportunity costs mean?
Increasing the production of a good requires larger and larger decreases in the production of another good.
Jenny sells both wheat bread and organic whole milk. Based on this information, demand for wheat bread will be more price ________ than demand for organic whole milk, because wheat bread:
Inelastic is a necessity good
With the increased usage of cell phone services, what has happened to the price elasticity of demand for land-line telephone services?
It has become more price elastic.
Advantages of trade include that...
It permits specialization. It can improve economic performance. It generally benefits both parties
Which of the following is an example of capital? Washington, D.C. smartphones self checkout lines Kyle Field
Kyle Field
The key advantage of market exchange compared to one-on-one (barter) trade is that
Markets allow for greater specialization. Markets allow trading to occur to a larger extent. Markets are more efficient.
Which of the following statements about the economic decisions consumers, firms, and the government have to make is false?
Only individuals face scarcity; firms and the government do not
Which of the following pairs of goods are likely to be considered complements? Laptops and electric heaters Pens and writing pads Nokia and Samsung cell phones Motorcycles and typewriters
Pens and writing pads
Which of the following goods is likely to have the highest price elasticity of demand? Gasoline Salt Life-saving drugs Pizza
Pizza
Total Surplus =
Producer Surplus + Consumer Surplus
Let D= demand, S = supply, P = equilibrium price, Q= equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged?
S decreases, D no change, P increases, Q decrease
Suppose when Nablom's Bakery raised the price of its breads by 10 percent, the quantity demanded fell by 15 percent. What was the effect on sales revenue?
Sales revenue decreased
Economics is the study of
Scarcity and how societies deal with it
Economics studies
Scarcity. The social institutions used to address scarcity. What to produce, how to produce it, and who gets it.
Assume there is a shortage in the market for digital music players. Which of the following statements correctly describes this situation? the shortage will cause an increase in the equilibrium price of digital music players. Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price. The supply for digital music players is greater than the demand of digital music players. The price of digital music players will rise in response to the shortage; as the price rises the quantity demanded will increase and the quantity supplied will decrease
Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price.
Let D= demand, S = supply, P = equilibrium price, and Q= equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged?
S decreases, D no change, P increases, Q decreases.
Which of the following describes the substitution effect of a price change?
The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.
What happens if a country produces a combination of goods that efficiently uses all of the resources available in the economy
The country is operating on its production possibilities frontier
The Internet has created a new category in the book selling market, namely, the "barely used" book. How does the availability of barely used books affect the market for new books?
The demand curve for new books shifts to the right.
In January, buyers of gold expect that the price of gold will rise in February. What happens in the gold market in January, holding all else constant?
The demand curve shifts to the right
Positive technological change in the production of LCD televisions caused the price of LCD televisions to fall. Holding everything else constant, how would this affect the market for Bluminusray players (a complement to LCD televisions)?
The demand for Blu-ray players would increase and the equilibrium price of Blu-ray players would increase.
Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. Which of the following events would cause the price differences in these letters to get smaller?
The demand for Lincoln letters increases and the supply of Booth letters increases
Over longer periods of time, increases in oil prices provide firms with incentives to explore and recover oil. What does this indicate about the long-run price elasticity of supply for oil?
The elasticity coefficient is likely to be higher in the long run that in the short run.
opportunity cost
The highest-valued alternative that must be given up to engage in an activity
Trade-off
The idea that, because of scarcity, producing more of one good or service means producing less of another good or service.
Which of the following statements is true about the income elasticity of demand?
The income elasticity of demand for normal goods is always positive.
When sellers sell goods in a market they are doing so because
The price is at least as much as the cost to produce.
What are the implications of this idea for the shape of the production possibilities frontier? (increasing marginal opportunity costs
The production possibilities frontier will be bowed outward.
In June, buyers of titanium expect that the price of titanium will fall in July. What happens in the titanium market in June, holding everything else constant?
The quantity demanded increases.
In October, market analysts predict that the price of platinum will fall in November. What happens in the platinum market in October, holding everything else constant? . The demand curve shifts to the right. . The quantity of platinum demanded and the quantity of platinum supplied both increase. . The supply curve shifts to the right. . The supply curve shifts to the left.
The supply curve shifts to the right.
Danielle Ocean pays for monthly pool maintenance for her home swimming pool. Last week the owner of the pool service informed Danielle that he will have to raise his monthly service fee because of increases in the price of pool chemicals. How is the market for pool maintenance services affected by this
There is a decrease in the supply of pool maintenance services
When buyers buy goods in a market they are doing so because
They value those goods at least as much as the price charged
(T/F) The additional cost to a producer of hiring an additional unit of labor is called the marginal cost.
True
(T/F) When voluntary exchange takes place, both parties gain from the exchange
True
A major question that faced societies 250 years ago was
What would happen if you organized more of the economy with markets
The substitution effect is the change in the quantity demanded of a good that results from ______________, holding constant the effect of the price change on consumer purchasing power.
a change in price making the good more or less expensive relative to other goods
A change in the slope of a budget constraint indicates
a change in the price of either good that causes a change in the opportunity cost
A change in the slope of a budget constraint indicates: . a change in the price of either good without a change in the opportunity cost. . a change in the consumer's tastes and preferences. . a change in the consumer's income. . a change in the price of either good that causes a change in the opportunity cost.
a change in the price of either good that causes a change in the opportunity cost.
A budget constraint is a straight line because:
a consumer faces a fixed price of both goods that do not change with changes in consumption
A production possibilities frontier (PPF) is
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
Which of the following is the textbook's definition of a supply curve?
a curve that shows the relationship between the price of a product and the quantity of the product supplied
If demand is perfectly elastic, then what is the effect of an increase in price?
a decrease in quantity demanded to zero
A decrease in the demand for soft drinks due to changes in consumer tastes, accompanied by an increase in the supply of soft drinks as a result of reductions in input prices, will result in
a decrease in the equilibrium price of soft drinks; the equilibrium quantity may increase or decrease
Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase? . an increase in the price of flour . a decrease in the price of flour . an increase in the price of butter, a complement for white bread . an increase in the price of rye bread, a substitute for white bread
a decrease in the price of flour
Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase? an increase in the price of butter, a complement for white bread an increase in the price of flour an increase in the price of rye bread, a substitute for white bread a decrease in the price of flour
a decrease in the price of flour
The income effect of a decrease in the price of macaroni and cheese (assume this is an inferior good) results in
a decrease in the quantity of macaroni and cheese demanded
Of the following, which is the best example of good with a perfectly inelastic demand? the demand for a college education by a student who has a full scholarship to an Ivy League school a diabetic's demand for insulin the demand for gasoline the demand for tickets in New York City when the Mets or Yankees are in the World Series
a diabetic's demand for insuliin
If the demand and supply curves for a commodity both shift to the left and the shift in demand is less than the shift in supply, then in comparison to the initial equilibrium, the new equilibrium will be characterized by:
a higher price and a lower quantity
An increase in the price of off-road vehicles will result in a larger quantity of off-road vehicles supplied. a decrease in the supply of off-road vehicles. a smaller quantity of off-road vehicles supplied. an increase in the demand for off-road vehicles.
a larger quantity of off-road vehicles supplied.
Assume that the supply curve for a commodity shifts to the right and the demand curve shifts to the left, both by the same degree. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by
a lower price and the same quantity
An increase in the demand for a good is represented by
a right shift to a new demand curve.
In 2004, hurricanes damaged a large portion of Florida's orange crop. As a result of this, many orange growers were not able to supply fruit to the market. Consider this new, post-hurricane situation under previous, pre-hurricane equilibrium price. We would expect to see:
a shortage of oranges
productive efficiency
a situation in which a good or service is produced at the lowest possible cost - achieved when competition among firms forces them to produce goods and services at the lowest cost
A decrease in the price of GPS systems will result in . a decrease in the demand for GPS systems. . an increase in the supply of GPS systems. . a larger quantity of GPS systems supplied. . a smaller quantity of GPS systems supplied.
a smaller quantity of GPS systems supplied
Which of the following is the textbook's definition of a supply schedule?
a table that shows the relationship between the price of a product and the quantity of the product supplied
Consider the following statements: a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area. b. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment. c. Firms produce more of a particular DVD when its selling price rises. Which of the above statements demonstrates that economic agents respond to incentives?
a, b, and c
the revenue received from the sale of ________ of a product is a marginal benefit to the firm
an additional unit
centrally planned economy
an economy in which the government decides how economic resources will be allocated
Which of the following would cause an increase in the equilibrium price and an increase in the equilibrium quantity of watermelons?
an increase in supply and an increase in demand greater than the increase in supply
A good is said to have a relatively elastic demand if the value of price elasticity is:
greater than 1
An increase in the demand for lobster due to changes in consumer tastes, accompanied by a decrease in the supply of lobster as a result bad weather reducing the number of fishermen trapping lobster, will result in
an increase in the equilibrium price of lobster; the equilibrium quantity may increase or decrease
Holding everything else constant, a decrease in the price of bicycles will result in
an increase in the quantity demanded of bicycles
Which of the following would cause a decrease in the equilibrium price and an increase in the equilibrium quantity of salmon?
an increase of supply
Which of the following would cause a decrease in the supply of milk? . an increase the price of a product that producers sell instead of milk . an increase in the number of firms that produce milk . a decrease in the price of milk . an increase in the price of cookies (assuming that milk and cookies are complements)
an increase the price of a product that producers sell instead of milk
Which of the following is a product innovation? antibiotics Kyle Field assembly lines self check-out lines
antibiotics
The elasticity of demand for turkeys at Thanksgiving and roses at Valentine's day
becomes less elastic
Consumer Surplus is the area ______ the demand curve and ________ the price
below above
Demand for a luxury item, such as a yacht, is likely to be both income elastic and price elastic. both income inelastic and price inelastic. income inelastic and price elastic. income elastic and price inelastic.
both income elastic and price elastic
If the price of lattes, a normal good you enjoy, falls
both the income and substitution effects lead you to buy more lattes.
If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely.
budget constraint
We can derive the market demand curve for gold earrings
by adding horizontally the individual demand curves of each gold earring consumer
If the cross-price elasticity of demand is negative, then the products are
complements, but if it is positive, then the products are substitutes
In order to prove that Motrin and Ibuprofen are substitutes, one should measure the ________ and get a ________.
cross-price elasticity; positive number
If the price of a good increases, the consumer surplus ___________
decreases
when income increases, demand for inferior goods ________
decreases
The ________ plots the relationship between prices and the quantity that buyers are willing to purchase
demand curve
The equilibrium price will rise and the equilibrium quantity might increase, decrease, or stay the same when the
demand for a good increases and the supply of it decreases
Making "how much" decisions involves
determining the additional benefits and the additional costs of that activity.
An outward shift of a nation's production possibilities frontier represents
economic growth
A service station owner in Staten Island, New York, was worried that raising the price of gasoline would cause the quantity demanded to fall by so much that he would be in a worse situation than if he did not raise the price. If raising the price of gasoline would cause the owner to receive less total revenue from the sale of gasoline, the demand for gasoline is
elastic
If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is
elastic
If, for a given percentage increase in price, quantity supplied increases by a proportionately larger percentage, then supply is
elastic
Economists use the concept of ________ to measure how one economic variable, such as quantity, responds to a change in another economic variable, such as price
elasticity
Suppliers will be willing to supply a product only if the price received is at least ______ to the additional cost of producing the product
equal
If a 1% change in the price of a good causes a 1% change in the quantity demanded, the good has an elasticity of demand:
equal to 1
If a 1% change in the price of a good causes a 1% change in the quantity demanded, the good has an elasticity of demand:
equal to 1.
Producers start producing an item when the price of the item ____ the opportunity cost of supplying that item
equals
Economists assume that rational behavior is useful in explaining choices people make
even though people may not behave rationally all the time.
Marginal utility is the
extra satisfaction received from consuming one more unit of a product
(T/F) A shortage is defined as the situation that exists when the quantity of a good supplied is greater than the quantity demanded
false
(T/F) Government policies will have their intended effect irrespective of the laws of supply and demand
false
(T/F) The total amount of producer surplus in a market is equal to the area below the supply curve
false
An item has utility for a consumer if it
generates enjoyment or satisfaction.
For luxury goods, the percentage change in demand is ________ than the percentage change in consumers' incomes
greater
An omitted variable is a variable that:
has been left out, and if included, would explain why the variables considered in a study are correlated.
Price elasticity of supply is used to gauge
how responsive suppliers are to price changes
If a good has a price elasticity of demand of -3, it implies that
if the price of the good increases by 1%, the quantity demanded of the good will decrease by 3%
The income effect causes quantity demanded to ________ when the price of a normal good decreases, and causes quantity demanded to ________ when the price of an inferior good decreases.
increase; decrease
Which of the following was not mentioned in the video as a driver of economic growth? Capital investment Process innovation Increased demand Product innovation
increased demand
If a good has elastic demand, lowering the price ____________ revenue for that good
increases
when income increases, demand for a normal good _______
increases
Jenny sells many different cuts of beef, from steak to ground beef. She is considering raising the price on just steak or on all beef. Her sales of steak will decrease by more if she raises the price on __________ , because demand for steak is more price ___________ than demand for all beef due to steak's __________ market definition
just steak elastic narrower
For a necessity good, the percentage change in demand is ______than the percentage change in consumers' incomes
less
If demand is inelastic, the absolute value of the price elasticity of demand is
less than 1
If the production possibilities frontier is ________, then opportunity costs are constant as more of one good is produced.
linear
The difference between the ________ and the ________ from the sale of a product is called producer surplus
lowest price a firm would have been willing to accept; price it actually receives
Economists assume that the goal of consumers is to
make themselves as well off as possible
The production possibilities frontier shows the ________ combinations of two products that can be produced in a particular time period with available resources
maximum attainable
If Jenny decreases the price of Raisin Bran and Whole Milk by 15%, she will sell _________ of both goods, but sales of the most price ___________ good will change by a larger percentage.
more elastic
The larger the share of a good in a consumer's budget, holding everything else constant, the
more price elastic is a consumer's demand.
Higher price elasticity of demand means that a consumer's demand is:
more responsive to price changes
the income elasticity of demand for inferior goods is ________
negative
If a market is in equilibrium, is it necessarily true that all potential buyers and sellers are satisfied with the market price? (yes/no)
no
Goods for which demand increases as consumers' incomes rise are __________.
normal goods
Suppose a medical study reveals new benefits to consuming beef and at the same time a bumper corn crop reduces the cost of feeding steers. The equilibrium price of beef will
perhaps rise, fall, or stay the same, but more information is needed to determine which it does
A decrease in the price of either one or the other good will cause a consumer's budget constraint to:
pivot rightward (pivot out)
If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to
pivot rightward (pivot out) along the horizontal axis
If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint:
pivots leftward (pivot in) without a change in the intercept on the horizontal axis.
Which of the following goods is likely to have the highest price elasticity of demand? Pizza Gasoline Salt Life-saving drugs
pizza
Economic models do all of the following except
portray reality in all its minute details.
the income elasticity of demand for a normal good is _________
positive
As the ______ of a good increases, its ________ demanded decreases.
price quantity
Total revenue equals
price per unit times quantity sold
By drawing a demand curve with ________ on the vertical axis and ________ on the horizontal axis, economists assume that the most important determinant of the demand for a good is the ________ of the good
price; quantity; price
If, for a product, the quantity supplied exceeds the quantity demanded, the market price will fall until
quantity demanded equals quantity supplied. The market price will then equal the equilibrium price
A budget constraint
refers to the limited amount of income available to consumers to spend on goods and services
If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is
relatively elastic
If a firm raised its price and discovered that its total revenue fell, then the demand for its product is
relatively elastic
If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is
relatively inelastic
A production possibilities frontier:
shows the maximum attainable combinations of two goods that may be produced with available resources.
The more price inelastic a good is, the ___________ its demand curve will be
steeper
Goods for which quantity demanded increases as the price of a related good rises are _______________
substitute goods
The market for smartwatches has begun to grow, due in part to the success of the Apple Watch. Following the successful launch of the Apple Watch in 2015, companies such as Samsung, Sony, and LG have all developed products to compete with the Apple Watch. The smartwatches introduced to compete with the Apple Watch would be considered
substitutes for the Apple Watch
A ________ curve shows the marginal cost of producing one more unit of a good or service
supply
Marginal cost is
the additional cost to a firm of producing one more unit of a good or service
The total amount of producer surplus in a market is equal to
the area above the market supply curve and below the market price
The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as
the budget constraint
The income effect of an increase in the price of peaches is
the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant.
From the list below, select the variable that will cause the supply curve to shift: A. The cost of raw materials B. Prices of related goods C. Consumer income D. Population and demographics
the cost of raw materials
If the absolute value of the price elasticity of demand for aspirin equals 0.8 then
the demand for aspirin is inelastic
Suppose a decrease in the supply of bottled water results in a decrease in revenue. This indicates that
the demand for bottled water is elastic in the price range considered
equity
the fair distribution of economic benefits
When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to the substitution effect. the income effect. the elasticity effect. the deadweight loss effect
the income effect
A change in the price of a good has two effects on the quantity consumed. What are these effects?
the income effect and the substitution effect
The demand curve for canned peas is downward sloping. If the price of canned peas, an inferior good, rises,
the income effect which causes you to increase your canned peas purchases is smaller than the substitution effect which causes you to reduce your purchases, resulting in a net decrease in the quantity demanded
The demand curve for corn is downward sloping. If the price of corn, an inferior good, falls,
the income effect which causes you to reduce your corn purchases is smaller than the substitution effect which causes you to increase your corn purchases, resulting in a net increase in quantity demanded.
When demand is elastic, a fall in price causes total revenue to rise because
the increase in quantity sold is large enough to offset the lower price
In a competitive market equilibrium
the marginal benefit equals the marginal cost of the last unit sold
When economists speak of a shortage, they mean a situation in which
the market price is below the equilibrium price. some consumers are unable to make a purchase at the current price. the quantity demanded exceeds quantity supplied.
Willingness to pay measures
the maximum price that a buyer is willing to pay for a good.
The slope of a demand curve is not used to measure the price elasticity of demand because
the measurement of slope is sensitive to the units chosen for price and quantity
supply
the number of units that sellers will offer for sale at various prices
Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases:
the opportunity cost of buying sweaters increases.
The slope of a budget constraint represents:
the opportunity cost of one good in terms of another.
If the demand for a steak is unit elastic, then
the percentage change in quantity demanded is equal to the percentage change in price
If the demand for cell phone service is inelastic, then
the percentage change in quantity demanded is less than the percentage change in price (in absolute value)
Cross-price elasticity of demand measures
the percentage change in quantity demanded of one good caused by a percentage change in the price of another good
The price elasticity of supply is equal to
the percentage change in quantity supplied divided by the percentage change in price
The attainable production points on a production possibilities curve are
the points along and inside the production possibility frontier
One would speak of a change in the quantity of a good supplied, rather than a change in supply, if
the price of the good changes.
If a good has a price elasticity of demand equal to 0, ________. . the quantity demanded is completely unaffected by a change in its price . the demand curve of the good is upward sloping . the percentage change in quantity demanded for the good will be greater than the percentage change in its price . the smallest increase in its price causes consumers to stop consuming it completely
the quantity demanded is completely unaffected by a change in its price
The Law of Demand states that:
the quantity demanded of a commodity varies inversely with the price of the commodity
If the demand and supply curves for a commodity both shift to the left by the same amount, then in comparison to the initial equilibrium, the new equilibrium will be characterized by
the same price and a lower quantity
Economic surplus is equal to
the sum of consumer surplus and producer surplus
In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit,
the supply curve shifted to the left resulting in an increase in the equilibrium price.
Assume that the price for swimming pool maintenance services has risen and sales of these services have fallen. One can conclude that
the supply of swimming pool maintenance services has decreased
When buyers and sellers operate in a competitive market, it is because
the value to consumers is at least as great as the cost to produce
A demand curve shows . the willingness of consumers to substitute one product for another product. . the relationship between the price of a product and the demand for the product. . the willingness of consumers to buy a product at different prices. . the relationship between the price of a product and the total benefit consumers receive from the product.
the willingness of consumers to buy a product at different prices
A correlation between two variables implies that:
there is a mutual relationship between both the variables.
Every individual, no matter how rich or poor, is faced with situations that require _________.
trade-offs
(T/F) A surplus occurs when the actual selling price is above the market equilibrium price
true
(T/F) An increase in the quantity of a product supplied is caused by an increase in the price of the product
true
(T/F) Because the demand for illegal drugs is inelastic and the supply is elastic, policies that reduce supply in the illegal drug market do not reduce equilibrium quantity very much
true
(T/F) In response to a surplus the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplies will decrease until equilibrium is reached.
true
(T/F) Marginal cost is the additional cost to a firm of producing one more unit of a good or service.
true
(T/F) Producer surplus is the difference between the lowest price a firm is willing to accept for a product and the price it actually receives for the product
true
(T/F) The total surplus measures the net benefit to society as a whole
true
Making optimal decisions "at the margin" requires
weighing the costs and benefits of a decision before deciding if it should be pursued.
A decrease in the equilibrium price for a product will result
when there is an increase in supply and a decrease in demand for the product.
If the demand for a product is perfectly inelastic, a decrease in the price of the product
will decrease total revenue
We can show economic inefficiency:
with points inside the production possibilities frontier
We can show economic efficiency:
with points on the production possibilities frontier.
When quantity demanded is completely unresponsive to price, what is the value of price elasticity of demand?
zero
