ECON 221 Test ONE

If the price of good Y falls from $10 to $8, and the quantity supplied of Good Y falls from 1,000 units to 600 units, the price elasticity of supply is

2.25

Computers and printers are compliments in consumption. What will happen to the demand of printers if the price of computers increases?

The demand of printers will decrease

If baseball ticket prices rise by 15%, the number of tickets sold falls by 5%. The elasticity of demand is

-1/3

The starting price of cigars is $10, with a quantity demanded of 1,000 per day. When the price increases to $12, the quantity demanded declines to 800 per day. What is the absolute value of elasticity of demand?

1.22

If the price of ice cream changes by 30% and the quantity demanded changes by 75%, what is the absolute value of demand elasticity?

2.5; demand is elastic

T/F: Suppose that it is extremely inexpensive to acquire additional acres of land to grow bananas. We would then expect that the elasticity of supply of bananas is elastic

A

T/F: An increase in the price of foreign-made automobiles would lead to a decrease in the price of domestic automobiles

False

T/F: If the price of good X is $10 and price of good Y is $15, the slope of the budget constraint is -1.5.

False

T/F: The supply curve is more inelastic in Texas than it is globally

False

Why do supply curves tend to be more elastic over time?

Sellers have time to adjust and increase production

Lead, an input in the production of ammunition, has increased in price from $0.60/lb in 2006 to over $1.50/lb in 2007. What happened to the equilibrium price and quantity of ammunition over this period?

The equilibrium price increased and the equilibrium quantity decreased.

Because of new production technology, the manufacturers of plasma television screens have reduced the number of defective screens that are scrapped in production. What effect will this have in the market of plasma televisions in terms of supply?

The supply curve will increase

Which good below might be expected to have the most inelastic demand curve? a) salt b) women's blouse from Walmart c) potato chips d) Tylenol

a) salt

Five new sellers enter a market (which has seven old sellers from before) and begin producing a good. Which of the following answer choices explains what happens to the equilibrium Q and P?

The supply curve will shift to the left, and the equilibrium P will fall while the equilibrium Q will rise

T/F: A perfectly inelastic supply curve is vertical

True

T/F: An economic recession, which decreases consumer income would lead to a decrease in the price of domestic automobiles

True

T/F: An increase in the number of domestic automakers would lead to a decrease in the price of domestic automobiles

True

T/F: The supply curve is more elastic in the long run than in the short run

True

Which of the following does not shift the demand curve? a) changes in the price of the product itself b) changes in income c) changes in population d) changes in tastes and preferences

a) changes in the price of the product itself

If the income elasticity of demand of a good is negative, we can conclude that the good is

an inferior good

Which of the following factors does not result in a shift of the supply curve? a) a change in the number of sellers in the market b) a change in the demand for the product c) a change in the production technology d) a change in the costs of production

b) a change in the demand of the product

If the demand for a good is elastic, then firms producing the good should ______ price in order to increase revenue

decrease

Potato chips and popcorn are substitutes. A subsidy for potato chips will _______ the demand for popcorn and the quantity of popcorn will

decrease; increase

Spaghetti is an inferior good. As people's incomes increases and other things remains the same, yo predict that the demand for spaghetti will _______ and the demand curve shifts to the _______

decrease; right

The demand curve for a physician office visits is quite inelastic. A large increase in prices would cause quantity demanded to (decrease/increase) by (very little/a lot)

decrease; very little

Gladys is hungry and the first piece of pizza she eats tastes wonderful! The second tastes great, the third good, the fourth okay, and the fifth piece of pizza she eats makes her sick. This best illustrates the concept of

diminishing marginal utility

Consumers maximize their utility when the marginal utility per dollar is

equal across all goods consumed and all income is spent

If the price elasticity of demand is 2 in absolute value, then when the price of Good X rises by 25%, the quantity demanded of Good X

falls by 12.5%

T/F: Consumers maximize their utility when they consume the good on which they place the highest overall value

false

T/F: Demand for necessities is elastic, while demand for luxuries is inelastic

false

T/F: Surplus drive price up while shortages drive price down

false

T/F: There is no difference is saying that there is a change in supply and in saying there is a change in the quantity supplied

false

T/F: When a good has fewer substitutes in consumption, and is a small part of the consumer's budget, and a long time passes, demand for such a good is inelastic.

false

T/F: When there is a shortage of 1,000 units of a particular good, the price of the good will fall

false

If Joseph chooses a combination of apples and oranges along his budget line, where the marginal utility of apples is 2 and the marginal utility of oranges is 1; the price of an apple is $.50 and the price of an orange is $.10, then Joseph should consume _______ apples and ______ oranges to maximize total utility

fewer; more

For most goods, as well move down an indifference curve, the slope

gets flatter

Higher indifference curves represent ________ levels of utility than lower curves

greater

If sellers want to sell more products than buyers are willing to purchase, we know that the market price is

greater than the equilibrium price

In the market for fertilizer, an advance in technology will

increase the supply of fertilizer

You observe that the price of coffee has increased, yet evidence suggest demand for coffee has been stable; you surmise a possible explanation is that wages of workers in coffee production might have

increased

Since the demand for illegal drugs is quite inelastic, an increase in the price of illegal drugs would affect seller revenues by?

increasing seller revenues

Combinations of two goods that yield equal levels of utility are shown on a(n) __________ curve

indifference

Quantity demanded is the amount of a good or service a buyer

is willing to purchase at any given price

Products that take a long time to produce, such as decade-aged Scotch whiskey, have supply curves that are _____ responsive to price changes.

less

In free markets, the sum of consumer surplus and producer surplus are

maximized

In a free market when there are unexploited gains from trade, there are buyers who are willing to pay

more goods than sellers are willing to sell

A farmer produces corn and wheat. The price of wheat rises; so he shifts his resources towards wheat and the supply curve of wheat rises. This correctly illustrates how changes in _______________ affects supply

opportunity costs

Positive expectations for the economy, economic growth, a fall in the price of a complementary good are factors that would cause a demand curve for a normal good to

shift to the right

The per-unit cost of producing Tic Tac candy does not change with increases in production, which means the

supply of Tic Tac candy is elastic

T/F: In free markets, the buyers with the highest willingness to pay purchase the goods

true

When there is a shortage of 1,000 units of a particular good, the price of the good

will rise