Micro Spring 2018 Test #1

An increase in quantity demanded is:

An increase in quantity demanded is:

A(n) _____ occurs when the quantity supplied is greater than the quantity demanded.

surplus

If gun buyback programs became very common, they could potentially increase the number of guns on the street because:

the buyback program acts like a free insurance policy protecting the gun against decreases in value.

When the free market maximizes the total gains from trade, the supply of goods is sold by:

the sellers with the lowest costs.

A slave redemption effort (wherein a charitable organization raises money and uses that money to buy and free slaves in places like the Sudan) will cause an initial increase in the number of people captured into slavery if:

the supply curve for slaves is upward-sloping. In this case, the increase in demand increases the price, which increases the quantity supplied.

Use the midpoint method to find the elasticity of demand as the price of the steak dinner rises from $16 to $40.

−2.33 (−60 ÷ 30) ÷ ($24 ÷ $28) = −2.33

Which economist began testing the supply and demand model by running experiments with his undergraduate students in 1956?

Vernon Smith For his pioneering work in experimental economics, he was awarded the Nobel Memorial Prize in Economic Sciences in 2002.

Which is most likely to be an inferior good?

a bus pass

Total producer surplus is measured by the area _____ and below the price.

above the supply curve

Which will cause a decrease in demand?

an increase in the price of complements

Which does not shift the supply curve?

changes in the price of substitutes

The _____ is a function that shows the quantity demanded at various prices.

demand curve

If the demand for oil increased, the _____ curve would shift to the _____.

demand; right

A _____ maximizes the total of producer surplus and consumer surplus.

free market The free market does this by having low-cost sellers produce output for high-value buyers, by encouraging all mutually beneficial trades, and by not wasting resources.

If the value of the elasticity of demand is −0.10, demand is:

inelastic. This means that a change in price will be ten times greater than the quantity change in response to it.

A change in _____ does not shift the demand curve.

input prices

Consumer surplus is the difference between the _____ the consumer is willing to pay for a good and the market price.

maximum price

A vertical demand curve represents a(n) __________ demand.

perfectly inelastic This is because a vertical demand curve represents the same quantity at different prices.

The _____ is the producer's gain from exchange.

producer surplus

If the supply of oil decreased in the U.S.:

quantity demanded would decrease in the U.S. A leftward shift is a decrease, which causes quantity demanded would decrease.

If the demand for oil increased:

quantity supplied would increase.

Assume the price elasticity of demand for oil is -0.6 and the price elasticity of supply for oil is 0.3. What is the estimated impact on oil prices of a 1.5 percent increase in the supply of oil?

1.67 percent decrease in price.

If peanuts become cheaper to produce because of new technology, what will happen to their equilibrium price and equilibrium quantity?

Equilibrium price will decrease, and equilibrium quantity will increase.

Which apartment hunter has the MOST elastic demand?

Farah owns a gorgeous country estate. To add some variety to her life, she decides she would also like an apartment in the city.

The financial crisis of 2007-2010 had a huge impact on the U.S. housing market, causing the number of uninhabited houses to be far greater than the number of people able and willing to buy a house. What probably happened in the housing market?

Housing prices fell. Housing prices dropped over 25% between 2006 and 2010.

Which statement about Vernon Smith's laboratory experiments is correct?

The participants were undergraduate students.

What happened to the supply of oil from the early twentieth century to the 1970s?

The supply of oil increased at an even faster pace than demand for oil.

Which statement explains why the demand for a particular good is elastic?

There are many available substitutes for the good.

A _____ curve shows quantity demanded at a range of prices, while quantity demanded is the quantity that buyers are willing and able to buy at a particular price.

demand

In Vernon Smith's classroom experiments, prices, quantities, and gains from trade all converged quickly to those predicted by economic theory:

despite the fact that students knew only their own willingness to buy or sell.

A(n) ______ occurs when the quantity demanded is equal to the quantity supplied.

equilibrium

A surplus occurs when the quantity supplied is _____ the quantity demanded.

greater than

A good with inelastic demand is likely to:

have its elasticity of demand increase in the long run.

Jan is a buyer in Vernon Smith's classroom experiment of the market model. Which does she know?

her own willingness to buy

As consumer income increases, the equilibrium price of a normal good _____ and the equilibrium quantity of a normal good increases.

increases When income increases, the demand for a normal good rises.

Producer surplus is the difference between the _____ price and the minimum price at which a producer would be willing to sell a particular quantity.

market

The supply curve is a function that shows the _____ at various prices.

quantity supplied

The _____ shows the quantity supplied at various prices.

supply curve

Suppose that when good X is free, buyers will demand 200 units of it, but the quantity demanded falls by 5 units for every $2 increase in the price. If the price is $30 and the quantity supplied is 125 units:

there is no pressure for the price to change.

Suppose that next week the price of mustard (an input for sandwiches) is going to double. Which could be the quantity of sandwiches supplied next week if the price is $3?

4 Supply would decrease, which means all of the numbers in the quantity supplied column would have to decrease.

The Department of Energy's Energy Information Service (EIS) predicts the ANWR will produce about _____barrels of oil per day.

800,000

In Vernon Smith's classroom experiments, total gains from trade were very close to being maximized throughout the experiment because:

only once was a seller with a cost greater than equilibrium price able to sell and only once was a buyer with a willingness to pay less than the equilibrium price able to buy. Maximization of the gains from trade implies that only the highest-value buyers and the lowest-cost sellers participate in the market.

The elasticity of supply measures:

responsiveness of the quantity supplied to a change in price. When the price rises, quantity supplied will rise too, but the elasticity of supply helps us answer the question, "by how much?"

Suppose that when good X is free, buyers will demand 200 units ofit, but the quantity demanded falls by 5 units for every $2 increase in the price. If the price is $30 and the quantity supplied is 125 units:

this market is in equilibrium.

"According to the supply and demand model, all else equal, if the technology used to produce a good improves, supply will increase, causing the price to fall, which causes the quantity demanded to rise as well." This statement is:

true

If revenue from the sale of a certain good remains constant despite a change in price, demand for that good is:

unit elastic. It must be that the change in price was exactly offset by a change in quantity.

Total consumer surplus is measured by the area _____ and _____ the price.

below the demand curve; above

The elasticity of demand for goods such as vending machine snacks, shoelaces, and pencils is relatively inelastic, because these goods are _____.

easily substitutable