Econ Review #3

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.

0.5

If 50 unites are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula

1.62

Government intervention in agricultural markets in the U.S. began in the

1930's

Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand? Use the midpoint formula.

2.69

Studies show that the income elasticity of demand for wine is approximately five. What does this mean?

A one percent increase in income leads to a five percent increase in wine consumption.

Refer to the diagram to the right. What area represents the increase in producer surplus when the market price rises from P1 to P2?

A+B

Refer to the diagram to the right. What area represents producer surplus at a price of P2?

A+B+C

Which of the following statements is true?

An increase in demand causes a change in the equilibrium price; the change in price does not cause a further change in demand or supply.

Which of the following statements is true? (2)

An increase in supply causes a change in equilibrium price; the change in price does not cause a further change in demand or supply.

Let D=demand, S=Supply, P=equilibrium, 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

_________ is maximized in a competitive market when marginal benefit equals marginal cost.

Economic surplus

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.

In October, market analysis predict that the price of platinum will fall in November. What happens in the platinum market in October, holding everything else constant?

The supply curve shifts to the right.

Economists refer to a market where buying and selling take place at prices that violate government price regulations as

a black market

Rent control is an example of

a price ceiling

Which term refers to a legally established minimum price that firms may charge?

a price floor

What is the difference between an 'increase in supply' and in 'increase in quantity supplied'?

an "increase in supply" means the supply curve has shifted to the right while "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.

Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09. This means that

an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good

If a 5 percent increase in income leads to a 10 percent decrease in quantity demanded for a product, this product is

an inferior good

Assume that both the demand curve and the supply curve for MP3 players shift to the right but the demand curve shifts more than the supply curve. As a result

both the equilibrium price and quantity of MP3 players will increase

Assume that the demand curve for MP3 players shifts to the right and the supply curve for MP3 players shift to the left, but the supply curve shifts less than the demand curve. As a result

both the equilibrium price and quantity of MP3 players will increase.

If the cross-price elasticity of demand for goods X and Y is negative, this means the two goods are

complements

The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called

consumer surplus

A(n) __________ is represented by a leftward shift of the demand curve while a(n) _______ is represented by a movement along a given demand curve.

decrease in demand; increase in quantity demanded

If there is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and consumer surplus plus producer surplus is maximized, then

economic efficiency is achieved

If the quantity demanded for a good rises as income rises then the income elasticity of demand for this good is ________ than 0, and the good is _______ good.

greater; normal

A demand curve that is horizontal indicates that the commodity

has a large number of substitutes.

Price elasticity of demand measures

how responsive quantity demanded is to a change in price.

The demand for gasoline in the short run is

inelastic because there are no good substitutes for gasoline.

If a good has a negative income elasticity of demand, this indicates that the good is

inferior

Economic surplus

is equal to the sum of consumer surplus and producer surplus.

If demand is inelastic, the absolute value of the price elasticity of demand is

less than one

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

In a competitive market, the demand curve shows the _________ received by consumers and the supply curve shows the ___________.

marginal benefit; marginal cost

To affect the market outcome a price ceiling

must be set below the equilibrium price

In order to be binding, a price ceiling

must lie below the free market equilibrium price

cross-price elasticity of demand is calculated as the

percentage change in quantity demanded of one good divided by percentage change in price of a different good

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

Consumer surplus in a market for a product would be equal to ____________ if the market price was zero.

the area under the demand curve

Suppose a decrease in the supply of bottled water resulted in a decrease in revenue. This indicates that

the demand for bottled water is price elastic in the price range considered

Assume that both the demand curve and the supply curve for MP3 players shift to the right but the supply curve shifts more than the demand curve. As a result

the equilibrium price of MP3 players will decrease; the the equilibrium quantity will increase

Assume that the demand for MP3 players shifts to the right and the supply curve for MP3 players shifts to the left, but the supply curve shifts more than the demand curve. As a result

the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease.

Willingness to pay measures

the maximum price that a buyer is willing to pay for a good

Total revenue is equal to

the price of a product multiplied by the number of units of the product sold

Suppliers will be willing to supply a product only if

the price received is at least equal to the additional cost of producing the product.

The income elasticity of demand measures

the responsiveness of quantity demanded to changes in income

Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which

the sum of consumer surplus and producer surplus is at a maximum

If the market for a product is broadly defined, then

there are few substitutes for the product and the demand for the product is relatively inelastic.

When the price of pistachio nuts is $7.50 per lb. the quantity demanded is 48 lbs. When the price of pistachio nuts it $9.00 per lb. the quantity demanded is 40 lbs. When the midpoint formula is used to measure the price elasticity of demand we can say that the demand for pistachio nuts is

unit elastic

A demand curve which is _______ represents perfectly inelastic demand, and a demand curve which is _________ represents inelastic demand.

vertical; downward sloping

Along a downward-sloping, linear demand curve, total revenue is the greatest

where demand is unit elastic

If demand is perfectly inelastic, the absolute value of the price elasticity of demand is

zero