Final Microeconomics Review

Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?

3.0

Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve?

4.25

Todd is a cattle rancher. In June and July he spent his clothing budget on jeans and cowboy hats. Each pair of jeans cost $50 and each hat cost $100. At Todd's optimal choice, his marginal utility from the last pair of jeans purchased is 200. This means that his marginal utility from the last cowboy hat purchased is

400.

A 10 percent increase in the price of pop leads to a 20 percent increase in the quantity of iced tea demanded. It appears that...

Cross-price elasticity of demand for iced tea is -2

The term ___________________ is used to describe the common pattern whereby each marginal unit of a consumed good provides less of an addition to utility than the previous unit.

Diminishing marginal utility

A price cut will increase the total revenue a firm receives if the demand for its product is

Elastic

Youth smoking seems to be more __________ than adult smoking-that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price.

Elastic

If the supply curve for a product is vertical, then the elasticity of supply is...

Equal to zero.

The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed.

Income effect; higher price.

If the demand curve is perfectly elastic, then an increase in supply will..

Increase the quantity exchanged but result in no change in the price.

The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise...

Increasing the price of game tickets because demand is inelastic.

Rent controls in New York City cause all of the following

Inefficiently low quality. Wasted resources resulting from the opportunity cost of time associated with trying to find an apartment. Black markets. but NOT : An increase in the quantity of supplied of rent-controlled apartments

Taxes on goods with __________ demand curves will tend to raise more tax revenue for the government than taxes on goods with __________ demand curves.

Inelastic, Elastic.

If the demand curve for a life saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to..

Rise and the equilibrium quantity to stay the same.

Increases in the price of the good measured on the horizontal axis will make the horizontal intercept ________ and make the budget line ________.

Smaller; Steeper.

The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.

Substitution effect.

Which of the following is considered to be a tell-tale signal that the point with the highest total utility has been found?

The marginal utility per dollar is the same for both goods.

If the minimum wage is a binding price floor, then...

The number of workers who want to work will greater than the number of jobs available.

An indifference curve is a line that shows all the consumption bundles that

Yield the same total utility for an individual.

If there is an increase in demand, total surplus....

Will increase.

When there is a bountiful harvest of grapefruit, total consumer surplus in the grapefruit market...

Will increase.

The marginal utility of two goods changes ______________.

With the quantities consumed.

As a general rule, utility-maximizing choices between consumption goods occur where the...

Price ratio and marginal utilities of ratios of two goods is equal.

The step-by-step process of finding the choice with highest total utility involves a comparison of the...

Marginal utility gained and lost from different choices along the budget constraint.

If pop and iced tea are good substitutes for consumers, then it is likely that...

Their cross price elasticizes are greater than zero.

When Laurie asks Matt if he wants a large popcorn and small soda, or a large soda and small popcorn, Matt says, "Oh, I'm indifferent." This means Matt...

Thinks both bundles give him the same utility.