Economics Unit 3 Test

what are determinants of the price elasticity of demand for a good?

time horizon definition of the market the availability of substitutes

the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold

total revenue

Toshiba just introduced a 32" plasma screen TV for $800. Sony offers the same size TV for $900. What will happen to the demand of Sony's TVs based on Toshiba's new price. Explain:

(Draw 2 different graphs) the curve will be sloping down (demand curve always slopes down) the demand curve for sony will fall because toshiba is cheaper and toshibas demand will increase (show the shift to right for toshiba)

List the 4 Determinants of Price Elasticity of Demand

-the larger the number of close substitutes -if the good is a luxury -the more narrowly defined the market -the longer the time period

2 goods are substitutes if a decrease in the price of one good:

decreases the demand of another good

Suppose the American Medical Association announces that men who shave their heads are less likely to die of heart failure. We could expect the current demand for:

A demand for razors will increase

Which of the following would most likely serve as an example of a monopoly?

A local cable television company; because generally there is only one and there are no other options

The term price takers refers to buyers and sellers in:

A perfectly competitive market

Which of the following events could shift the demand curve for gasoline to the left?

A public service announcement encouraging people to walk or ride their bicycles

Which of the following events could cause an increase in the supply of ceiling fans?

An increase in the number of sellers for ceiling fans

The law of demand says that:

An increase in the price causes quantity demand to decrease

Currently you purchase 6 packages of hot dogs a month. You will graduate from college in December and you will start a new job in January. You have no plans to purchase hot dogs in January. For you, hot dogs are:

An inferior good

It is likely that: A. the demand for flat-screen computer monitors is more elastic than the demand for monitors in general. B. the demand for grandfather clocks is more elastic than the demand for wristwatches. C. the demand for cardboard is more elastic over a long period of time than over a short period of time. D. All of the above are correct.

D. all of the above

Which of the following events could shift both the demand curve and the supply curve for a good?

If people change their expectations

Is the price of gasoline elastic or inelastic in the short run? What about in the long run?

In the short run, gasoline is inelastic because it is a necessity. In the long run it becomes more elastic because people adjust their habits by walking to work, riding a bike, or driving a more fuel efficient vehicle.

The negative relationship between price and quantity demanded:

It applies to most goods in the economy Its represented by a downward sloping demand curve Its referred to as the law of Demand

What kind of elasticity does water have?

It is elastic because it is a luxury

What type of elasticity do DVD players have?

It is elastic because of the availability of close substitutes

Ford Motor Company announces that it will offer $3,000 rebates on new Mustangs starting next month. As a result of this information, today's demand curve for Mustangs:

It will shift to the left in a decrease

What are 3 determinants of demand?

Tastes Expectations Prices of Related goods

Suppose you make jewelry. If the price of gold falls, we would expect you to:

You would be willing and able to purchase more jewelry than before at each possible price

If a study by medical researchers found that brown sugar caused weight loss while white sugar caused weight gain we likely would see:

an increase in the demand for brown sugar

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because:

buyers tend to be much more sensitive to a change in price when given more time to react

a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

elasticity

Other things equal, the demand for a good tends to be more inelastic, the:

fewer available substitutes

A likely example of complementary goods for most people would be?

hamburgers and fries

If Francis experiences a decrease in his income, we would expect that, as a result, Francis's demand for:

his demand for normal goods will decrease

In general, elasticity is a measure of:

how much people respond to changes in market conditions

Demand is said to be elastic if:

if buyers respond substiancially to a change in price

What kind of elasticity does gasoline have?

in the short run it is inelastic because it is a necessity

a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income

income elasticity of demand

The market demand curve

is the sum of the quantities demanded by all the buyers

If a person only occasionally buys a cup of coffee, his demand for coffee is probably:

it is probably elastic

For a good that is a luxury, demand..

it tends to be elastic

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price.

price elasticity of demand

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

price elasticity of supply

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is:

that is inelastic

How does the implantation of a minimum wage of $8.00 rather than $6.00 affect the supply of workers available for work? Explain:

the curve will be sloping up you will have an increase in the amount of workers because of the higher wage (must draw picture)

Quantity demanded falls as the price rises and rises as the price falls, so we say that:

the quantity demanded is negatively related to price

The price elasticity of demand measures how much:

the quantity demanded responds to a change in the price

According to the law of supply:

the supply curve for a good is upward sloping

For most people, you cannot eat a hamburger without french fries. If the price of hamburgers is decreasing, what happens to the quantity demanded of hamburgers? What happens to the demand of french fries? Explain:

you'll also need two curves the demand curve will slope down the demand for hamburgers will shift to the right the demand for fries will also shift to the right Both goods shift to the right because they are complimentary goods (they go hand in hand together)

You love peanut butter. You hear on the news that 50 percent of the peanut crop in the South has been wiped out by drought, and that this will cause the price of peanuts to double by the end of the year. As a result:

your demand for peanut butter increases for today