Micro Econ

Price Elasticity of Demand

% change in qty demanded/% change in price

Price elasticity of demandThe simple method

(Q2-Q1)/Q1 divided by (P2-P1)/P1 This is how we will calculate percentage change in price.

Edith buys 9 magazines per week when the price is $3. She buys 11 magazines per week when their price is $2. Edith's price elasticity of demand is

-1/2 = -0.5

Matt bought 6 CDs last month, when the price was $14. This month, when the price of CDs increased to $16, Matt bought only 4 CDs. Matt's price elasticity of demand is

-3

What is the price elasticity of demand between $20 and $40 in Exhibit 18-2?

-3/7

What is the most likely reason that the market for electricity is not perfectly competitive?

-There are not a lot of buyers in the market. -It is not easy to enter or exit the industry as a supplier

Which of the following effects a product's price elasticity of demand?

-ease or difficulty of substitution -the time factor -how much of a necessity the product is to consumers

Elasticity . . .

... A measure of how much one economic variable responds to changes in another economic variable. ... allows us to analyze supply and demand with greater precision.

Cross-Price Elasticity of Demand

... is a measure of how much the quantity demanded of one good responds to a change in the price of another good.

What is the price elasticity of demand in Exhibit 18-1 ?

0

Jane's opportunity cost of producing 1 pound of corn is ______ pound(s) of green beans.

1

What is the price elasticity of supply between $10 and $20 on supply curve S in Exhibit 18-3?

1

What is the price elasticity of supply between $20 and $40 on supply curve S1 in Exhibit 18-3?

1

Four barriers to entry

1) Entry blocked by government action patent or copyright. 2) Control of a key resource. 3) Network externalities. 4) Natural Monopoly.

The Requirements for Successful Price Discrimination

1) Market power. 2) Consumers with differing willingness to pay. 3) No arbitrage is possible.

The terms of trade for 1 pound of green beans must lie between _____ and _____ pounds of corn.

1, 8

Giovanni's opportunity cost of producing 1 pound of green beans is ______ pound(s) of corn. Jorge's opportunity cost of producing 1 pound of green beans is ______ pound(s) of corn

1,4

If seller 3 exits the market (goes out of business), then the weekly market quantity supplied at a price of $4 will be _____.

10

Dave's opportunity cost of producing 1 pound of green beans is ______ pound(s) of corn.

2

When price increases from $45 to $55, the quantity supplied increases from 20 units to 30 units. The price elasticity of supply is

2.0

Assume Jake consumes 20 pounds of green beans and 80 pounds of corn without trade. Also, assume that Jane consumes 40 pounds of green beans and 40 pounds of corn without trade. If the terms of trade are 1 pound of green beans for 3 pounds of corn, and Jake sells Jane 72 pounds of corn, then the gains from trade for Jake are ______ pounds of green beans and ______ pounds of corn with trade and specialization.

4, 8

The marginal benefit (utility) of the third unit of X is

4.

If there were 100 sellers in the market, each with a supply schedule identical to seller 2 in the table above, then the weekly quantity of hamburger supplied in the market at a price of $5 would be

500.

The Demand Curve of a Perfectly Competitive Firm

A Perfectly Competitive Firm Faces a Horizontal Demand Curve

Externality

A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service.

In market economies, most production and consumption decisions are guided by

A business will only sell what consumers want to buy.

Classifying costs - B

A firm's cost of production include explicit costs and implicit costs. Explicit costs involve a direct money outlay for factors of production. Implicit costs do not involve a direct money outlay.

Important Properties of Costs

AFC is always decreasing ATC is usually a U shaped curve MC intersects ATC at the point where ATC has its minimum.

Average fixed cost: Fixed cost divided by the quantity of output produced

AFC=FC/Q

Average variable cost: Variable cost divided by the quantity of output produced.

AVC=VC/Q

Determinants of Elasticity of Supply

Ability of sellers to change the amount of the good they produce. Beach-front land is inelastic. Books, cars, or manufactured goods are elastic. Time period. Supply is more elastic in the long run.

Which of the following is consistent with the law of demand?

An increase in the price of hamburgers causes buyers to buy fewer hamburgers.

Which of the following illustrates a macroeconomic question?

Are increasing wage demands by workers contributing to price inflation?

The Long Run: Market Supply with Entry and Exit

At the end of the process of entry and exit, firms that remain must be making zero economic profit. The process of entry & exit ends only when price and average total cost are driven to equality. In the long-run equilibrium firms must operate at the minimum of their ATC. The long-run market supply curve is horizontal at this price.

Average Costs

Average costs can be determined by dividing the firm's costs by the quantity of output produced. The average cost is the cost of each typical unit of product.

The Relationship between Marginal Product and Average Product

Average product of labor The total output produced by a firm divided by the quantity of workers. The average product of labor is the average of the marginal products of labor. Using the numbers from the table on slide 9, we can find the average product of labor for three workers:

Characteristics of PPF

Both constant and increasing opportunity cost PPFs have a negative slope (they are downward sloping). This is because of the trade-offs. Due to scarcity we can only produce more of one product if we give up some of the other product.

Increasing opportunity cost PPF's:

Bowed outwards As you keep increasing production, opportunity cost is increasing.

normative statement

Claims that attempt to prescribe how the world should be. Value based opinions, value judgment.

The duopolists may agree on a monopoly outcome.

Collusion The two firms may agree on the quantity to produce and the price to charge. Cartel The two firms may join together and act in unison

Other alternatives to deal with negative externalities

Command and control Market based approach (tradable emissions)

The elasticity of Demand

Conditions that might change: Price Price elasticity of demand Income Income elasticity of demand Price of other good cross-price elasticity of demand

Who has the comparative advantage in the production of corn?

Dave

Price Elasticity of Demand

Demand is elastic if eD<-1 Quantity demanded responds strongly to changes in price. For instance, eD=-2 Then (%∆𝑄_𝑑)/(%∆𝑃)=−2, which essentially means that |%∆ 𝑖𝑛 𝑄_𝑑 |=2∗|% ∆ 𝑖𝑛 𝑃| Or that the absolute value (or magnitude) of the % change in quantity demanded is twice as much as the absolute value (or magnitude) as the % change in price.

Price discrimination - is it legal?

Discrimination on the basis of arbitrary characteristic, such as race or gender, is certainly illegal. Price discrimination is performed, however, on the basis of willingness and ability to pay; and as such is generally legal. Example: Students and the elderly tend to be poorer than adults of working age, so their willingness to pay for a movie ticket tends to be lower. There are some gray areas. Car insurance companies typically charge lower prices to women than to men, because men have more accidents than women. But what if a car company determined that one race tended to have more accidents than another?

Government policy towards mergers

Economists and lawyers at the Department of Justice (DOJ) and the Federal Trade Commission (FTC) developed guidelines for themselves and firms to use in evaluating whether potential merger is acceptable. These include: Market definition, Measure of concentration, Merger standards. For this, it uses the Herfindahl-Hirschman Index (HHI), created by squaring the percentage market shares of each firm, and adding up the results.

Herfindahl-Hirschman Index (HHI)

Firms having their merger applications challenged must satisfy the DOJ and FTC that their merger would result in substantial efficiency gains. The burden of proof is on the merging firms.

Production

Firms use inputs (such as workers, machines, natural resources, and technology) to produce outputs (such as cars, computers, health care services, etc.)

The Long Run: Market Supply with Entry and Exit

Firms will enter or exit the market until profit is driven to zero. In the long run, price equals the minimum of average total cost. The long-run market supply curve is horizontal at this price.

Revenue of a Competitive Firm

For competitive firms, marginal revenue equals the price of the good. Marginal revenue is the change in total revenue from an additional unit sold. MR =TR/ Q

Income Elasticity- Types of Goods -

Goods consumers regard as necessities tend to be income inelasticExamples include food, fuel, clothing, utilities, and medical services. Goods consumers regard as luxuries tend to be income elastic.Examples include sports cars, furs, and expensive foods.

Questions in Micro:

How does the threat of global warming affect real estate prices in coastal areas? Why do women end up doing most of the housework? Why do senior citizens get discount at museums, movie theatres, etc.?

The Welfare Cost of Monopoly

In contrast to a competitive firm, the monopoly charges a price above the marginal cost. From the standpoint of consumers, this high price makes monopoly undesirable. However, from the standpoint of the owners of the firm, the high price makes monopoly very desirable.

Competitive industry and the firm in the Long-run

In the long run entries and exits will keep the market in equilibrium.

Income Elasticity of Demand

Income elasticity of demand measures how much the quantity demanded of a good responds to a change in consumers' income. It is computed as the percentage change in the quantity demanded divided by the percentage change in income.

What causes externalities?

Incomplete property rights.

competitive firm

Is one of many producers Faces a horizontal demand curve Is a price taker Sells as much or as little at same price

monopoly

Is the sole producer Faces a downward-sloping demand curve Is a price maker Reduces price to increase sales

Questions in Macro:

Is the total level of economic activity rising or falling? What is the reason for the rising rate of unemployment? Is the rate of inflation increasing or decreasing?

Two important effects of price discrimination:

It can increase the monopolist's profits. It can reduce deadweight loss.

Price discrimination - or is it?

It often seems as if different firms are charging different prices for the same product, even when people could easily choose between them. Example: The same book may sell for different prices on different web sites.

MC=MR still holds for monopolies

It then uses the demand curve to find the price that will induce consumers to buy that quantity. (Profit Maximization of a Monopoly)

Constant opportunity cost PPF's:

Linear lines Opportunity cost is constant (the same) no matter where you produce.

Government responds to the problem of monopoly in one of various ways:

Making monopolized industries more competitive. Regulating the behavior of monopolies. Turning some private monopolies into public enterprises. Doing nothing at all.

monopolistic competition

Many firms selling differentiated products Many sellers Product differentiation No barriers to entry

Marginal Costs

Marginal cost (MC) measures the amount total cost rises when the firm increases production by one unit. Marginal cost helps answer the following question: How much does it cost to produce an additional unit of output?

People respond to incentives

Moral incentives Social incentives Economic incentives

Examples of Price Discrimination

Movie tickets Airline prices Discount coupons Quantity discounts

Social Costs=Private costs + EXTERNAL costs

Negative Externality

Long-run supply is upward-sloping in an increasing-cost industry

Next we want to see what happens if we relax the condition that all firms are alike and therefore all of them have the same cost curves (they have access to the same technology). So, let's imagine that there are two types of lands we can farm on good quality land (which are very popular among farmers and everybody wants to farm on these) Low quality land (which is not as fertile and therefore costs more to farm on because these farmers have to spend more money on irrigation and fertilization.

Income Elasticity- Types of Goods -

Normal Goods (eI>0) Inferior Goods (eI<0)

oligopoly

Only a few sellers, each offering identical products.

For a profit maximizing competitive firm, price equals marginal cost.

P = MR = MC

For a profit maximizing monopoly firm, price exceeds marginal cost.

P > MR = MC

In the U.S., governments block entry in two main ways:

Patents and copyrights

Ranges of Price elasticity of Supply

Perfectly elastic eS = ¥ Perfectly inelastic eS = 0

Summary of demand elasticities

Price elasticity of demand (cannot be positive) Income elasticity of demand (can have any sign) Cross-price elasticity of demand (can have any sign)

Price Elasticity of Demand

Price elasticity of demand is the percentage change in quantity demanded divided by percent change in the price. This is how we calculate it:

Price Elasticity of Supply

Price elasticity of supply is the percentage change in quantity supplied resulting from a percent change in price. It is a measure of how much the quantity supplied of a good responds to a change in the price of that good.

Positive Externality

Private benefit The benefit received by the consumer of a good or service. Social benefit The total benefit from consuming a good, including both the private benefit and any external benefit.

Firms Stay in Business with Zero Profit

Profit equals total revenue minus total cost. Total cost includes all the opportunity costs of the firm. In the zero-profit equilibrium, the firm's revenue compensates the owners for the time and money they expend to keep the business going.

The firm's goal is to maximize profits

Profits=TR-TC Total revenue for a firm is the selling price times the quantity sold. TR=(P*Q), therefore, Profits=(P*Q)-(ATC*Q) Profits=(P-ATC)*Q

Ranges of Price elasticity of Supply

Relatively Elastic eS > 1

Ranges of Price elasticity of Supply

Relatively Inelastic eS < 1

Four Categories of Goods

Rivalry The situation that occurs when one person's consuming a unit of a good means no one else can consume it. Excludability The situation in which anyone who does not pay for a good cannot consume it. By these two categories we can classify four types of goods.

Short run vs. Long run

Short run: at least one of the inputs is fixed (e.g. the building of the factory). Long run: firm can vary all of its inputs.

Monopolistic Competition in the Short Run

Short-run economic losses encourage firms to exit the market. This: Decreases the number of products offered. Increases demand faced by the remaining firms. Shifts the remaining firms' demand curves to the right. Increases the remaining firms' profits.

Monopolistic Competition in the Short Run

Short-run economic profits encourage new firms to enter the market: Increases the number of products offered. Reduces demand faced by firms already in the market. Incumbent firms' demand curves shift to the left. Demand for the incumbent firms' products fall, and their profits decline.

Why the Long-Run Supply Curve Might Slope Upward

Some resources used in production may be available only in limited quantities. Firms may have different costs. In particular they may operate in an increasing-cost industry This means that early firms have access to cheap technology, but late entrants will only have access to more expensive technology.

When Price Discrimination is NOT possible (or NOT easy)

Suppose that two identical products are sold for different prices. Example: An Apple iPad might sell for $499 in stores in Atlanta and for $429 in stores in San Francisco What do you think would happen? In all likelihood, some clever entrepreneur would start buying iPads in San Francisco, shipping them to Atlanta, and selling them for $499 (or a little less). This practice of buying a product in one market and reselling it in a market with a higher price is known as arbitrage.

Comparative advantage

The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than other producers.

Absolute advantage

The ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources

As a result of its characteristics, the perfectly competitive market has the following outcomes:

The actions of any single buyer or seller in the market have a negligible impact on the market price. Each buyer and seller takes the market price as given.

private costs

The cost borne by the producer of a good or service.

Minimum efficient scale

The level of output at which all economies of scale are exhausted.

Which of the following markets is most likely to be perfectly competitive?

The market for mushrooms

Which of the following markets is most likely to be perfectly competitive?

The market for rock salt

Economies of scale

The situation in which a firm's long-run average total costs fall as the firm increases output.

Constant returns to scale

The situation in which a firm's long-run average total costs remain unchanged as it increases output.

Diseconomies of scale

The situation in which a firm's long-run average total costs rise as the firm increases output.

Macroeconomics

The study of economy-wide phenomena - aggregates (inflation, unemployment...)

social costs

The total cost of producing a good, including both the private costs AND any external costs.

A perfectly competitive market has the following characteristics:

There are many buyers and sellers in the market. The goods offered by the various sellers are largely the same - identical products. Firms have no barriers to enter or exit the market.

Antitrust laws give government various ways to promote competition

They allow government to prevent mergers. They allow government to break up companies. They prevent companies from performing activities which make markets less competitive.

TRADE: the main question

To be self-sufficient and produce everything we need

Calculating percentage decreases/increases from a given number:

To calculate a percentage decrease, convert the percentage to a decimal by dividing it by 100%, subtract it from 1, and then multiply that value by the original number.

Classifying costs - A

Total Costs (TC): costs of all inputs. Variable Costs (VC): Costs of inputs that change as output changes Fixed Costs (FC): Costs of fixed inputs - that remain constant as output changes. TC=VC+FC

Average Total Cost:

Total cost divided by the quantity of output produced. ATC=TC/Q

Elasticity and Total Revenue

Total revenue is the amount paid by buyers and received by sellers of a good. Computed as the price of the good times the quantity sold. TR = P x Q

Ranges of Price elasticity of Supply

Unit-elastic eS = 1

Economics uses scientific methods

Using assumptions we develop economic models we collect data using the data we test hypotheses we then revise our models if necessary.

Profit Maximization for the Competitive Firm

When MR > MC increase Q When MR < MC decrease Q When MR = MC Profit is maximized.

What is the Marginal Revenue curve like?

When a firm wants to sell more they have to cut prices. (This was not the case for perfectly competitive firms). Cutting prices will result in a) More units sold b) The firm receives less revenue from each unit than it would have received at the higher price

Advertising

When firms sell differentiated products and charge prices above marginal cost, each firm has an incentive to advertise in order to attract more buyers to its particular product.

Production function

Which of these production functions are the most realistic? Well, if you think about the short run, then because at least one of the inputs is fixed, probably after a while the marginal product of labor will be diminishing. And it is also easy to imagine that our first few workers are more productive if they work in group. That is why Type I. is probably the most realistic production function out of the three.

Produce or temporary shut down

Why would a firm produce if they lose money? In the short run, a firm experiencing a loss has two choices: Continue to produce Stop production by shutting down temporarily

Average Product of Labor

You can also calculate the Average product of labor (APL) by dividing total product by the number of workers. What you get is the contribution of the 'average' or typical worker. APL=Q/L

If price elasticity of demand is -0.5,

a 1% decrease in price leads to a 0.5% increase in quantity demanded

Which of the following will not cause a change in the demand for product A?

a change in the price of A

The figure above shows three supply curves for corn. Which of the following would cause the quantity of corn supplied to decrease from point b to point a?

a decrease in the price of corn

A perfectly elastic demand curve is

a horizontal straight line

Oligopoly

a market structure in which a small number of interdependent firms compete, will require completely different tools to analyze. Why? Oligopolies are large, and know that their actions have an effect on one another Barriers to entry exist, preventing firms from competing away profits

The diagram shows three supply curves for corn. Which of the following would cause the supply of corn to shift from S1 to S3?

a new bacteria that destroys corn crops

A monopoly firm is

a price maker

An industry is a natural monopoly when

a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms

A perfectly inelastic demand curve is

a vertical straight line

PPF's demonstrate

a) opportunity costs (trade-offs). b) efficient production. c) economic growth.

The assertion that "there is no free lunch" means that

all production involves the use of scarce resources and thus the sacrifice of alternative goods.

When production reflects consumer preferences

allocative efficiency

The figure above shows three supply curves for corn. Which of the following would cause the quantity of corn supplied to increase form point a to point b?

an increase in the price of corn

Optimal decisions

are made at is to continue any activity up to the point where the marginal benefit equals the marginal cost

Network Externalities

as a situation in which the usefulness of a product increases with the number of consumers who use it. Examples: phone, social network sites (Facebook).

A point inside the production possibilities curve is _______ while a point outside the curve is ________.

attainable; unattainable

The main reason for monopolies to arise is because there are

barriers to entry

Along a linear, downward-sloping demand curve, price elasticity of demand

becomes more elastic as price increases

Which of the following is likely to have the most elastic demand?

beef steak

A person should consume more of something when its marginal

benefit exceeds its marginal cost.

Which supply curve tends to be more elastic in Exhibit 18-3?

both S and S1 have the same elasticity

Jorge's production possibility schedule demonstrates that

both corn and green beans require a trade-off

If the price of Pepsi decreases, other factors constant, then we'd expect to see a consequent shift of the demand curve for

coke to the left

An individual should specialize in the production of a good in which he/she has a

comparative advantage.

A linear, downward-sloping demand curve has

constant slope and varying elasticity

When economists say that the demand for a product has decreased, they mean that

consumers are now willing and able to buy less of this product at each possible price.

provide the exclusive right to produce and sell creative works like books and films.

copyrights

Monopolistic competition comes with

deadweight loss

Refer to the above table. If the price of hamburger falls from $5 to $4, then the weekly market quantity supplied will

decrease from 17 to 13.

Consumers pay a larger proportion of a sales tax if

demand is less elastic and supply is more elastic

When demand is price inelastic, total revenue is

directly related to quantity demanded

a simplified version of reality used to analyze real world economic situations

economic model

the study of how society manages its scarce resources

economics

A natural monopoly arises when there are

economies of scale over the relevant range of output.

The combination of zero pounds of corn and eighty pounds of green beans is

efficient.

If a 5% increase in price leads to an 8% decrease in quantity demanded, demand is

elastic

If a price reduction leads to greater total revenue, demand is

elastic

The "fair" distribution of economic benefits

equity

The diagram shows three supply curves for apples today. Which of the following would cause the supply of apples to shift from S1 to S3?

expectations of higher apple prices in the future

In understanding and analyzing "market supply," we focus on how much all

firms can and will sell at a given price.

A market with well-established rules and structure is a(n) _______ market.

formal

Natural resources

found in the nature, can be used for production.

Capital

has been produced for use in the production of other goods and services.

Income elasticity of demand is important to producers because it indicates

how a firm's sales react to movements of the economy through the business cycle

The most important determinant of price elasticity of supply is

how rapidly costs increase when a firm increases its output

Labor

human effort applied to production

Which of the following products would be most likely to have a perfectly inelastic supply curve?

humidors used by President John F. Kennedy

Other things being equal, the price elasticity of demand for a product will be more elastic

if spending on the item is a very large proportion of the household's budget

Advertising is related to price elasticity of demand

in that producers try to convince consumers that their particular product is unique, with no close substitutes

An inferior good is defined as one for which demand increases as

income decreases

Luxury goods are usually

income elastic

Economists distinguish between normal and inferior goods using

income elasticity of demand

Suppose that a more efficient way to produce a good is discovered, thus lowering production costs for the good. This will cause a(n)

increase in supply.

If a firm raises the price of its product, its total revenue will

increase only if demand is price inelastic

If a firm's demand curve is illustrated in Exhibit 18-2 and it is currently charging $20, its total revenue will

increase, if it raises its price slightly

In moving stepwise from possibility A to B to C ... to F, the opportunity cost of a unit of steel in terms of wheat

increases.

Refer to the graph. The combination "5 drill presses and 2 bread" indicates an

inefficient combination for the nation.

What is the price elasticity of demand in the segment of the demand curve below $40 and above $20 in Exhibit 18-2?

inelastic

The relationship between quantity demanded and price is a(n) _____ relationship.

inverse

A perfectly elastic supply curve

is a horizontal straight line

While a competitive firm

is a price taker

The burden of a sales tax

is paid partly by consumers and partly by producers, depending on price elasticity of demand and price elasticity of supply

A firm is considered a pure monopoly if . . .

it is the sole seller of its product. its product does not have close substitutes.

If a firm facing a perfectly inelastic demand curve raises its price,

it will still sell exactly the same amount of output as it did at the lower price

If a firm whose product faces a perfectly elastic demand curve raises its price,

its sales will decrease to zero

Technology & the Entrepreneur

knowledge that can be applied to the production & person who wants to earn profit from new ways to organize factors of production.

The four factors of production (or types of resources) are

land, labor, capital, and entrepreneurial ability.

The upward slope of the supply curve reflects the

law of supply.

Farmers withholding some of their current corn harvest from the market because they anticipate a higher price of corn in the near future would cause a

leftward shift in the current supply of corn.

imperfect competition

market structures that fall between perfect competition and pure monopoly. includes industries in which firms have competitors but do not face so much competition that they are price takers.

Specialization allows a society to produce _____________ goods.

more

More "elastic" means

more responsive

An "increase in the quantity supplied" suggests a

movement up along the supply curve.

An increase in the price of digital cameras will result in a

movement up and to the left along the demand curve for digital cameras.

For most products, purchases tend to fall with decreases in buyers' incomes. Such products are known as

normal goods

is the second best alternative that you give up to engage in that activity

opportunity cost

encourage innovation and creativity, since without them, firms would not be able to substantially profit from their endeavors.

patents & copyrights

Newly developed products like drugs are frequently granted

patents, the exclusive right to produce a product for a period of 20 years from the date the patent is filed with the government.

John spends exactly the same dollar amount of candy bars each week, regardless of their price. John's demand curve for candy bars is

perfectly inelastic

The price elasticity of demand in Exhibit 18-1 is

perfectly inelastic

A decrease in supply would best be reflected by a change from

point 2 to point 1.

Substitutes are defined as products with

positive cross-price elasticity of demand

Without making an adjustment such as finding the absolute values of the percentage changes, the price elasticity of demand would be negative because

price and quantity demanded are inversely related

Unit elastic demand occurs when

price elasticity of demand is exactly -1

Total revenue is defined as

price times quantity sold

When the demand curve is linear with the typical downward slope, a firm can receive the greatest total revenue by

producing where demand is unit elastic

When production takes place at the lowest possible cost

productive efficiency

A government designation that a firm is the only legal provider of a good or service is known as a

public franchise

If the price of a product decreases, we would expect

quantity supplied to decrease.

Perfect Price Discrimination

refers to the situation when the firm knows exactly the willingness to pay of each customer and can charge each customer a different price

Farmers selling some of their soybeans in storage because they anticipate a lower price of soybeans in the near future would cause a

rightward shift in the current supply of soybeans

limited nature of society's resources

scarcity

If product Y is an inferior good, a decrease in consumer incomes will

shift the demand curve for product Y to the right.

An improvement in production technology will

shift the supply curve to the right.

If the price of gasoline increases significantly, then we'd expect the demand curve for large trucks and SUVs to

shift to the left

Production possibilities frontier (PPF)

shows the maximum attainable combinations of two products that may be produced if we use our resources efficiently. Sometimes economists call this Production Possibilities Curve (PPC). PPF or PPC, we mean the very same thing by them.

An increase in the supply for MP3 music indicates that more are

sold even if prices of MP3 music stayed the same.

An increase in the price of product B leads to an increase in the demand for product C. This indicates that products B and C are

substitute goods

As a result of a decrease in the price of online streaming movies, consumers download more movies online and buy fewer DVDs. This is an illustration of

substitution effect

An increase in supply would best be reflected by a change from

supply curve A to supply curve B.

Knowledge of price elasticity of demand

tells producers what will happen to total revenue if they change product price

positive statement

that attempt to describe the world as it is. Assertions that can be demonstrated to be false or correct.

Which of the following is not a cause of special problems in U.S. agricultural markets?

the demand for farm products tends to be income elastic

The figure above shows three supply curves for corn. Which of the following would cause the supply of corn to shift from S1to S2?

the development of a more effective insecticide against corn rootworm

what, how, for whom?

the fundamental problem

Price elasticity of demand and price elasticity of supply are both influenced by

the length of the adjustment period considered

The more broadly a good is defined

the less substitutes it has, so its demand will be less elastic

Optimal decisions are made at

the margin

Price elasticity of supply is calculated as

the percent change in price caused by a 1% change in quantity supplied

Price elasticity of demand is calculated as

the percentage change in quantity demanded divided by the percentage change in price

price discrimination

the practice of charging different prices to different customers for the same product when the price differences are not due to differences in cost. The goal of price discrimination is to gain ("steal") most of the consumer surplus.

In calculating price elasticity of demand, which of the following is assumed to be held constant?

the prices of all other products

In general, "elasticity" can measure

the responsiveness of decision makers to economic changes in prices

In calculating price elasticity of demand, we use average price and average quantity as our base value because

the resulting measure is then not influenced by whether price is rising or falling

Microeconomics

the study of how households and firms make decisions

When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes

the substitution effect

Negative cross-price elasticity of demand indicates that

the two products are complements

Price elasticity of demand is not influenced by

the units of measurement used for price or for quantity demanded

A characteristic of many unregulated agricultural markets is that

total farm revenue decreases when there are bumper crops and it increases when there are meager crops

Which of the following most closely relates to the idea of opportunity costs?

trade-offs

Cross-price elasticity of demand is used to determine whether

two products are substitutes or complements

Which of the following is most likely to be an inferior good?

used clothing

Tax incidence refers to

who bears the burden of the tax

In understanding and analyzing "market demand," we focus on how much all buyers are

willing and wanting to buy

Governments tend to tax products

with inelastic demand, because it leads to higher revenue

Computing Income Elasticity

𝑒_𝐼=(%∆𝑄_𝑑)/(%∆𝐼)