ECON 300

Tavist allergy pills sell for $25 a box. Steve, Brian, and Toby are willing to pay $33, $27, and $19, respectively, for a box of Tavist. What is the total consumer surplus for Steve, Brain, and Toby?

$10

Nancy paid $55 for car mats but was willing to pay $80. What is Nancy's consumer surplus?

$25

the demand and supply of ethanol are given by Qd=8,000-2,000P and Qs=1,000P-1,000 where P is price per gallon and Q measures gallons per minute. If the government subsidizes ethanol at $.30 per gallon what is the deadweight loss?

$30

The demand for a good is given Qd=750-.4P. What is consumer surplus at a price of $80?

$644,405

If a 10% increase in the price of pork reduces quantity demanded by 7%, the price elasticity of demand is

-.70

The demand curve for a product is Q=50-.5P. What is the price elasticity of demand at a price of $60?

-1.50

Supply and demand model key assumptions

1. we restrict our focus to supply and demand in a single market 2. all goods bought and sold in the market are identical 3.all goods are sold in the market sell for the same price, and everyone has the same information about prices, the quality of the goods being sold, and so on 4. there are many buyers and sellers in the market

producer surplus

1/2 x equilibrium price x equilibrium - Qs

consumer surplus

1/2 x equilibrium price x qd- equilibrium

Suppose that the supply of a good is given by Q=-50+5P, where Q is the quantity supplies and P is the price measures in dollars per unit. This equation indicates that the quantity supplied increases by ________ units for every dollar increase in price.

5

The demand and supply curves for Fuji apples are given by Qd=50-6P and Qs=4P-2 where P is price per bag and Q is in thousands of bags. what are consumer surplus and producer surplus at the equilibrium price?

CS=$29,442; PS=$44,180

What is the difference between a change in quantity supplied and a change in supply?

Change in quantity supplied is a movement along the supply curve as a result of price change and change in supply is the shift of the entire supply curve caused by the change in determinant of supply

Why has microeconomics evolved into an empirical disciple?

It uses more data analysis and experiments and not just abstract theory to explore economic phenomena

How are consumption and production interconnected?

The process in terms of deciding what types of products to buy are similar to those in production for what inputs to use and how they will be useful in the end.

What is true of the quantity supplied and demanded at the market equilibrium?

The quantity supplied and quantity demanded are equal

What happens when price is below the equilibrium price? Why?

There will be excess demand

Why do economists often represent supply and demand using the inverse equations?

To put price in terms of quantity rather than the other way around

What simplifying assumption do we make to build a demand curve?

What happens to the amount of consumers demand when only a goods price changes while everything else that determines consumer demand stays the same

inferior goods

a good for which quantity demanded decreases when income rises

Price floor

a price regulation that sets the lowest price that can be paid legally for a good or service

Consumers are particularly price-responsive when

a product has many substitutes and they have a long time to adjust their consumption

All else equal, a demand increase

causes both consumer and producer surplus to increase

What is the difference between a change in quantity demanded and a change in demand?

change In quantity demanded is a movement along the demand curve that occurs as a result of change in a goods price while change in demand is the shift of the entire demand curve caused by a determinant of demand other than price

How does demand choke price relate to consumer surplus?

consumer surplus is the difference between the market price and the demand choke price

If the government quit subsidizing a product, a consumer surplus would ______ and producer surplus would _________.

decrease; decrease

Electric guitars and amplifiers are compliment goods, and electric guitars and acoustic guitars are substitute goods. An increase in the price of amplifiers ____________ the number of electric guitars consumers want to buy, while an increase in the price of acoustic guitars ___________ the number of electric guitars consumers want to buy

decrease; increases

magnitude for unit elastic

exactly 1

Compliments

goods that can be bought and used together

substitutes

goods that can be used in place of another

normal goods

goods with positive income elasticities

magnitude for elastic

greater than one

price ceiling

highest price that can be paid legally or a good or service

What happens to equilibrium quantity in the same situation?

if supply and demand increase, quantity increases, if both supply and demand decrease, quantity decreases,

In market A, a 4% increase in price reduces quantity demand by 2%. In market B, a 3% increase in price reduces quantity demanded by 4%. The price elasticity of demand in market A and market B are considered __________ and __________ respectively.

inelastic, elastic

magnitude for perfectly elastic

infinite

Factors of supply

price, suppliers cost of production, # of sellers, sellers outside options

equilibrium price/quantity

quantity supplied=quantity demanded

quotas

regulation that sets the quantity of a good or service provided

What is the difference between elasticity and slope?

slope relates a change in one level to another level whereas elasticity is expressed in relative percentage changes that eliminates unit problems and makes magnitudes comparable across markets

How does the supply choke price relate to producer surplus?

the difference between the market price and the supply choke price is the producer surplus

What happens to equilibrium price when supply and demand shift in the same direction?

the effect on price is unknown

if the price of crude oil increases, the number of people who owns cars falls

the equilibrium price of gasoline will be uncertain and equilibrium quantity of gasoline will decrease

An increase in input prices causes

the market supply to shift inward, driving the equilibrium price higher

Supply choke

the price at which no firm is willing to produce a good and quantity supplied is zero, the vertical intercept of the inverse supply curve

Demand choke

the price at which quantity demanded is zero, the vertical intercept of the inverse demand curve

technology and production

the processes used to make, distribute and sell a good

How does a shift in the demand curve cause a movement along the supply curve?

the shift in the demand curve has made the equilibrium price lower and at a lower price, suppliers produce less of the good resulting the shift causing movement along the supply curve to the new equilibrium

What tools do we use to study microeconomics?

theories and models

Movement along the supply curve

when the quantity supplied changes it falls in response to the reduced demand causing movement

tax incidence

who really bears the burden of a tax

magnitude for perfectly inelastic

zero

taxes

price added to drive a wedge between the price buyers pay and the price that producers actually receive

In what direction will price and quantity move as a result of a demand shift?

price and quantity move in the same direction

Why is the demand curve downward sloping?

Movements along the demand curve involve price and quantity which changes in opposite directions

the demand curve for a good is Q=80-.20P, where Q is the quantity demanded and P is the price per unit. This goods inverse demand curve is:

P=400-5Q

subsidies equation

Pb+subsidy=Ps (Pb=price buyer pays, Ps=price seller receives)

on some days Gus makes his own salad for lunch, preferring to use either iceberg or romaine lettuce, topped off with lots of fresh tomatoes. The cross-price elasticity of demand for iceberg lettuce with respect to romaine lettuce is __________, and the cross-price elasticity of demand for iceberg lettuce with respect to tomatoes is _________.

Positive, negative

In what direction will price and quantity move as a result of a supply shift?

Price and quantity move in opposite directions

Why is the supply curve upward sloping?

Producers are willing to supply more of a good as the price rises

demand curve equation

Q=1,000-200P

What form do inverse supply and demand equations take?

Q=1,000-200P P=5-.005Q

Why is the direction of change of either price or quantity unknown when both supply and demand shift?

The direction of change in either quantity or price is determined by the relative magnitudes and directions of the shifts

How does a supply shift affect consumer and producer surplus In a given market?

The higher the equilibrium price and lower equilibrium quantity reduce consumer surplus. for producer surplus, the lower equilibrium quantity that results from the supply shift reduces it

Define market equilibrium

The point where the demand and supply curve cross

Shift on the demand curve

anything that changes how consumers want to buy of a good at any particular price

Factors of demand

price, # of consumers, consumers income, consumer tastes, prices of other goods

Magnitudes for inelastic

less than one

What differentiates microeconomics from macroeconomics?

micro studies the specific choices made by consumers and producers while macro studies the world through a wider lens and is a description of a larger complex system in which consumers and firms operate.

luxury goods

normal goods with income elasticities above 1

subsidies

payment by the government to a buyer or a seller of a good or service