Econ Chapter 4 & 5
The price elasticity of demand measures
buyers' responsiveness to a change in the price of a good.
Fundamentally, economics deals with
scarcity
A manufacturer produces 350 units when the market price is $10 per unit and produces 460 units when the market price is $14 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about
.81
When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is
0.67, and an increase in price will result in an increase in total revenue for good A
For which of the following goods is the income elasticity of demand likely lowest?
Clothing
Which of the following is true?
Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.
Savion is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for $5800. Savion discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do?
He should sell the car now for $3,800.
A hair stylist currently cuts and colors hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?
It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.
Which of the following statements is valid when the market supply curve is vertical?
Market quantity supplied does not change when the price changes.
If the price of milk rises, when is the price elasticity of demand likely to be the highest?
One year after the price increase
Senator Fujita argues that replacing the federal income tax with a national sales tax would increase the level of output. Senator Watson objects that this policy would benefit the rich at the expense of the poor.
Senator Fujita's argument is primarily about efficiency, while Senator Watson's argument is primarily about equality.
After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events could prompt you to reverse this decision?
The marginal benefit of going to Spain increases.
Cadence says that she would smoke one pack of cigarettes each day regardless of the price. If she is telling the truth, Cadence's
demand for cigs is perfectly inelastic
Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the
flatter the curve will be
Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the
flatter the demand curve will be.
Central planning refers to
government guiding economic activity. Today many countries that did not have this system have implemented it.
The "invisible hand" refers to
how the decisions of households and firms lead to desirable market outcomes.
If the price elasticity of supply is 0.7, and price increased by 24 percent, quantity supplied would
increase to 16.80
If the demand for donuts is elastic, then a decrease in the price of donuts will
increase total revenue of donuts sellers.
When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. Using the midpoint method, we can conclude that for Heather, macaroni
is an inferior good and soy-burgers are normal goods; both have income elasticities of 1
An economy's production of two goods is efficient if
it is impossible to produce more of one good without producing less of the other.
Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will
lower both price and total revenues.
The adage, "There ain't no such thing as a free lunch," means
people face tradeoffs
Economists make assumptions to
simplify the complex world and make it easier to understand.
If the cross-price elasticity of two goods is positive, then the two goods are
substitutes
For a good that is a luxury, demand
tends to be elastic
In the circular-flow diagram, in the markets for
the factors of production, households are sellers and firms are buyers.
Income elasticity of demand measures how
the quantity demanded changes as consumer income changes.
Demand is said to be inelastic if
the quantity demanded changes only slightly when the price of the good changes.
Cross-price elasticity of demand measures how
the quantity demanded of one good changes in response to a change in the price of another good.
The price elasticity of supply measures how much
the quantity supplied responds to changes in the price of the good.
If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in
the same price and higher total revenue from marijuana sales.