Econ exam 2

Assume the price of an inferior good increases in what direction will income effect change the quantity demanded?

As price increases real income decreases and the quantity demanded for the inferior good will increase

If Jakob knows the marginal cost of producing the seventh sports jersey is $21 then total cost of seven jerseys is: A. $21. B. $147. C. $60. D. The answer cannot be determined from the information provided

D. the answer cannot be determined from the info provided

True or False? The price elasticity of demand is the percent change in the quantity supplied divided by the percent change in the quantity demanded

False- quantity DEMANDED divided by percent change in their price

Assume the price of inferior good increases. Given the demand curve for the good slopes downward, what is true of the relative sizes of the income and substitution effects for the inferior good?

The substitute effect is greater than the income effect. If income effect were larger than substitution effect more of the good would be purchased as the price increased and demand curve would be upward sloping.

If a decrease in price from $2 to $1 causes an increase in quantity demanded from 100 to 120, using the midpoint method, price elasticity of demand equals a. 0.17 b. 0.27 e. 3.72

b. 0.27

If a 2% change in the price of a good leads to a 10% change in the quantity demanded of a good, what is the value of price elasticity of demand? a.0.02 b. 5

b. 5

If the cross price elasticity between two goods is negative, this means that the two goods are a. substitutes b. complements c. normal d. inferior e. luxuries

b. complements

A perfect elastic demand curve is: a. upward sloping b. vertical c. not a straight line d. horizontal e. downward sloping

b. vertical

The demand for a good is income-inelastic if the income elasticity is

between zero and 1

Which of the following leads to a more inelastic price elasticity of supply? I. the use of inputs that are easily obtained II. a high degree of substitutability between inputs III. a shorter time period in which to supply the good a. I only b. II only c. III only d. I and II only e. I, II, and III

c. III only

The income effect is most likely to come into play for which of the following goods? a. water b. clothing c. housing d. transportation e. entertainment

c. housing

Total revenue is maximized when demand is a. elastic b. inelastic c. unit-elastic d. zero e. infinite

c. unit elastic

diseconomies of scale

cost increases as output increases

constant returns to scale

cost stays constant and output stay constant

If Kylie buys 200 units of good X when her income is $20,000 and 300 units of good X when her income increases to $25,000 her income elasticity of demand, using the midpoint method, is: a. 0.06 b. 0.5 c. 1.65 d. 1.8 e. 2.00

d. 1.8

A perfectly elastic supply curve is: a. positively sloped b. negatively sloped c. vertical d. horizontal e. U-shaped

d. horizontal

The income elasticity of demand for a normal good is: a. zero b. 1 c. infinite d. positive e. negative

d. positive

Which of the following is true if the price elasticity of demand for a good is zero? a. the slope of the demand curve is zero b. the slope of the demand curve is one c. the demand curve is vertical d. the demand curve is horizontal e. the price of the good is high

d. the demand curve is horizontal

Which of the following would cause the demand for a good to be relatively inelastic? A. the good has a large number of close substitutes B. expenditures on the good represent a large share of consumer income. C. there is ample time to adjust to price changes D. the good is a necessity E. the price of the good is in the upper left section of a linear demand curve.

d. the good is a necessity

Which of the following is correct for price increase? When demand is _____, total revenue will _______ a. inelastic decrease b. elastic decrease c. unit elastic increase d. unit elastic decrease

d. unit-elastic, decrease

cross price elasticity measures:

effect of changes in one goods price on the quantity demand of another good

The demand for a good is income-elastic if the income elasticity is

greater than 1

If the income elasticity is negative, the good is a(n)

inferior good

Economies of scale

output increases as cost decreases

increasing returns to scale

output increases more than increase in all inputs

income elasticity

percent change in demand divided by percent change in income

The price elasticity of supply is

percentage change in quantity supplied divided by percentage change in supply

When the supply curve is horizontal, supply is _______.

perfectly elastic- very small change in price with make a big change in quantity supplied

The ___________ is the ratio of the percentage change in the quantity demanded to the percentage change in the price.

price elasticity of demand

When demand is inelastic

the price effect dominates the quantity effect; so a fall in price reduces total revenue.

When demand is elastic

the quantity effect dominates the price effect; so a fall in price increases total revenue

When demand is unit elastic

the two effects balance each other out; so a fall in price has no effect on total revenue

how to find consumer surplus

willingness to pay - price paid=