MicroEcon Chapter 5

For a normal​ good, the income elasticity of demand ________________ .

must be positive

A local furniture store recently introduced price changes for several of the items that it carries. Use the table below to answer the following​ questions:

see paper

When​ optimizing, the marginal benefit a buyer gained from the last dollar spent on a sweater was $6.25​, and the price of a pair of jeans was $84. The marginal benefit gained from the last dollar spent on a pair of jeans is

$6.25

Combinations of apples and loaves of bread that a consumer could purchase would represent a ___________ while a ____________ represents the amount of apples and bread that a consumer could choose using his or her entire budget.

Budget Set; Budget Constraint

Based on your​ graph, the demand curve is __________, because as price​ decreases, quantity demanded __________,

downward-sloping​; increases​

Suppose there is a fall in the price of a good from ​$60 to half the​ price, the quantity demanded increases from x to 3x​ units, and the price elasticity of demand is 4. Now suppose there is an increase in the price of a good from ​$30 to double its price and the price elasticity is 0.67. The elasticity is ______ and remains the same regardless of an increase or decrease in price. ​(Round your response to two decimal places​.) This is known as ____________

1.5, Arc elasticity

Mary saw a bangle bracelet at an accessories shop that she liked and told her friend Susan that the most she would pay for it was ​$39.50. When she found out the price was ​$20.00​, she immediately bought it and gained ​$______ in consumer surplus.If Mary was to buy another bangle​ bracelet, her additional consumer surplus would ______.

19.50, Decrease

John is a soda drinker that likes both Coke and Pepsi. He usually picks whichever has the best price or is most convenient. If Pepsi is on sale for ​$1 a liter and Coke is charging ​$1.50 for the​ same, John's demand curve for Coke will​ experience:

A Left Shift (inward)

Financial incentives can help make people behave in a desired way when the incentives are​ __________. A. provided consistently. B. combined with moral suasion. C. enough to satisfy other needs. D. substantial

A. provided consistently.

Which of the following best describes why consumers are price​ takers? A.Individual transactions are too small to have much impact on the market price. B.Many individuals lack the skills to negotiate prices. C.If consumers​ don't pay the price​ asked, the store will just sell the product to someone else. D.Consumers​ don't know what it costs to make most products.

A.Individual transactions are too small to have much impact on the market price.

​Ryan, a fourth grade​ student, receives an allowance of ​$14 each week. Ryan uses this money to buy candy for himself at a store next to his house. Note that the store only sells boxes of jelly beans and pieces of hazelnut chocolate. Using the graph on the​ right, which of the following bundles of candy should Ryan​ buy, assuming that he does not save his​ money? A. 12 boxes of jelly beans and 9 pieces of hazelnut chocolate B. 12 boxes of jelly beans and 3 pieces of hazelnut chocolate C. 12 boxes of jelly beans and 0 pieces of hazelnut chocolate D. 12 boxes of jelly beans and 6 pieces of hazelnut chocolate If the price of jelly beans triples and the price of hazelnut chocolate falls by 1515​%, then buying 22 boxes of jelly beans and 33 pieces of hazelnut chocolate will be ____________ Now consider that Ryan has a nut allergy. This causes the opportunity cost of buying an additional box of jelly beans at the original price to be ​$_____. ​(Enter your response as a whole number.​)

B. 12 boxes of jelly beans and 3 pieces of hazelnut chocolate within the budget set. 0

Consumer surplus is based on which of the following economic​ theories? A.Marginal costs only B.Marginal analysis C.Marginal benefits only D.Total benefits

B.Marginal analysis

Charley spends all of his income on soft drinks and pizza. Suppose he is currently buying these products in amounts such that his marginal benefit from an additional soft drink is $ 80 and his marginal benefit from an additional slice of pizza is $ 90. If the price of a soft drink is $ 5 and the price of a slice of pizza is $ 6​, is Charley maximizing his total​ benefits? A.Yes, there is no other consumption choice that will make his total benefits greater. B.No, he should shift consumption toward soft drinks and away from pizza to maximize total benefits. C.No, he should shift consumption toward pizzapizza and away from soft drinkssoft drinks to maximize total benefits. D.No, he should increase his consumption of both goods.

B.No, he should shift consumption toward soft drinkssoft drinks and away from pizzapizza to maximize total benefits.

John earns ​$4,800 per month. He spends all of his money on two​ goods, A and B. The price of good A is $240​, and the price of good B is ​$400. Identify the intercepts of​ John's budget constraint if good A is plotted on the x​-axis and good B is plotted on the y​-axis. A.10 units of good A on the x​-axis and 8 units of good B on the y​-axis B.8 units of good A on the x​-axis and 20 units of good B on the y​-axis C.18 units of good A on the x​-axis and 45 units of good B on the y​-axis D.20 units of good A on the x​-axis and 12 units of good B on the y​-axis The slope of​ John's budget constraint is ____. ​(Round your response to two decimal places. Use a negative sign if you are entering a negative number.​)

D. 20 units of good A on the x​-axis and 12 units of good B on the y​-axis A=> 4800/240=20 B=> 4800/400=12 Rise/Run=> 12/20=0.6=slope

Suppose now that the market price risesrises. According to the​ graph, the excess of total benefits over the total amount spent by consumers will ▼ .

Decrease

Anna Jones estimated the price elasticity of demand for new vehicles to be 0.88. If the price of cars increased by 20​%, one would expect the quantity of new cars demanded to _____, by _____

Decrease, 17.6%(.88 x .2= .176)

An increase in income shifts the budget constraint outward . The shift in income causes the budget constraint to increase by the same amount and the slope to remain the same .

Outward, less than income, increase

Which of the following are necessary ingredients to the​ buyer's problem?

Price of goods and services ​Consumer's tastes and preferences Amount of money the consumer has to spend.

A gift shop sells ceramic figurines for​ $80 and crystal vases for​ $100. At these​ prices, the gift shop sells 12 ceramic figurines and 8 crystal vases per day. If the price of ceramic figurines falls to​ $64 and the price of crystal vases falls to​ $25, the quantity demanded of ceramin figurines and crystal vases will increase to 18 units and 12 units per​ day, respectively. If the gift shop wants to increase​ revenue, which of the following actions should be​ taken? A.Decrease the price of ceramic figurines and increase the price of crystal vases. B.Decrease the price of both ceramic figurines and crystal vases. C.Increase the price of ceramic figurines and decrease the price of crystal vases. D.Increase the price of both ceramin figurines and crystal vases.

A.Decrease the price of ceramic figurines and increase the price of crystal vases.

A budget constraint for​ t-shirts and movie tickets is shown in the graph. If the price of either the​ t-shirt or the movie ticket​ decreases, the budget​ constraint: A.pivots outward and the slope changes. B.pivots inward and the slope increases. C.pivots outward and the slope decreases. D.pivots inward and the slope changes.

A.pivots outward and the slope changes.

All of the following are elasticity​ measures, except: A.cross-price elasticity of demand. B.behavioral elasticity of demand. C.price elasticity of demand. D.income elasticity of demand.

B.behavioral elasticity of demand.

The demand curve shows​ ___________. A. what goods you like compared to other goods and services. B. the possible bundles of goods that can be purchased with a​ consumer's income. C. how the quantity demanded responds to changes in the price of the good. D. how the quantity demanded responds to changes in​ consumers' income. Everything else the​ same, as the price of the good​ increases, quantity demanded ___________.

C. how the quantity demanded responds to changes in the price of the good. decreases

When faced with the option of buying one pair of boots for ​$60 or three sets of sandals for ​$20 ​each, Janet chose the pair of boots. The opportunity cost for the boots​ was: A. a pair of sandals. B. $60. C. three pairs of sandals. D. $120.

C. three pairs of sandals.

Richa wants to purchase 6 fluorescent light bulbs at a price of​ $30 per bulb. When the price of fluorescent light bulbs rises to​ $36, she purchases 5 bulbs. Which of the following could be the reason for​ Richa's change in the quantity​ purchased? A.Fluorescent light bulbs gives less utility than before the price rise. B.Richa is irrational. C.The opportunity cost of fluorescent light bulbs increases. D.Demand and price are directly related. Which of the following is not a possible reason for a change in the demand curve of Zee decorative light​ fixture, from DD to​ DD'? A. The change in the price of Lex decorative light fixture. B. The change in color and attractiveness of Zee decorative light fixture. C. The change in the rate of income tax. D. The change in the rate of sales tax.

C.The opportunity cost of fluorescent light bulbs increases. D. The change in the rate of sales tax.

A​ consumer's budget setset refers to the collection of all possible bundles that​ ___________. A. a consumer finds suitable for possible purchase. B. give the consumer the same degree of satisfaction. C. a consumer can purchase a consumer can purchase with her income with her income. D. exactly exhaust exactly exhaust a consumer's entire budget A decrease in a​ consumer's income causes her budget set to encompass _________ bundles.

C.a consumer can purchasea consumer can purchase with her income with her income Fewer

If you were to purchase a ​$700700 Samsung smart phone from​ Amazon, we could conclude all of the​ following, except: A.you prefer that smart phone to anything else costing ​$700. B.you believed that smart phone would bring satisfaction. C.you would rather have a laptop that costs ​$700. D.you wanted a smart phone.

C.you would rather have a laptop that costs ​$700.

According to​ economists, the process of optimal decision making by consumers typically yields total benefits well above the amount paid for the goods. These​ market-created benefits are referred to as ▼ consumer surplus​, and using the graph to the​ right, are represented by area ▼ B.

Consumer surplus, B

Ria has an income of​ $1,200. She consumes two types of​ goods, shoes and handbags. Suppose the price of a pair of shoes is​ $400, and the price of a handbag is​ $200. What is the opportunity cost of each​ good? A. The opportunity cost of a pair of shoes is 4​ handbags, and the opportunity cost of a handbag is 2 pairs of shoes. B. The opportunity cost of a pair of shoes is 4​ handbags, and the opportunity cost of a handbag is 1 pair of shoes. C. The opportunity cost of a pair of shoes is 2​ handbags, and the opportunity cost of a handbag is 1 pair of shoes. D. The opportunity cost of a pair of shoes is 2​ handbags, and the opportunity cost of a handbag is​ 1/2 pair of shoes.

D. The opportunity cost of a pair of shoes is 2​ handbags, and the opportunity cost of a handbag is​ 1/2 pair of shoes. Choosing to buy more pairs of shoes means buying fewer​ handbags, and vice versa. We can compute the opportunity cost of buying pairs of shoes using a simple​ formula: Opportunity cost Subscript shoes Baseline equals StartFraction Loss in handbags Over Gain in shoes EndFractionOpportunity costshoes=Loss in handbagsGain in shoes​, where the loss in handbags measures the number of handbags that Ria must give up for one additional pair of shoes. The price of a pair of shoes is double that of the​ handbags, so the opportunity cost of a pair of shoesequals=2 handbags. This represents the opportunity cost of buying one pair of shoes. A similar formula provides the opportunity cost of buying​ handbags: Opportunity cost Subscript handbags Baseline equals StartFraction Loss in shoes Over Gain in handbags EndFractionOpportunity costhandbags=Loss in shoesGain in handbags The opportunity cost of handbagsequals=​1/2 pair of shoes. This simply means that for every 2 handbags that Ria decides to​ purchase, she has to give up 1 pair of shoes. This is because the price of handbags is half the price of a pair of​ shoes, or​ $200 versus​ $400.

If an individual only consumes goods X and Y and is currently maximizing her total​ benefits, which of the following must be​ true? A.The marginal benefits per dollar spent are the same for both goods. B.The​ "equal bang for the​ buck" rule is adhered to. C.MB Subscript Upper X divided by Upper P Subscript Upper X equals MB Subscript Upper Y divided by Upper P Subscript Upper YMBX/PX = MBY/PY. D.No other consumption choice can make total benefits greater. E.All of the above.

E.All of the above.

The demand curve graphs a consumers responsiveness to a change in ______. The points on the curve can be verified through ______.

Price, Marginal Analysis

If a​ cross-price elasticity is​ positive, then the two goods are substitutes . If the price of coffee goes​ up, and as​ such, the demand for Coffee Mate​ decreases, this would indicate a negative ​cross-price elasticity and that the two goods are complements .

Substitutes, negative, complements

An inferior good is one in which demand is _______________ function of income.

a decreasing

An​ individual's willingness to pay measured over different quantities of the same good define the ________. If the retail price of the good​ increases, the _________ will decrease, all other things constant.

demand curve, quantity demanded

Using the information​ below, compute the income elasticity of demand​ (using the arc elasticity​ method) to determine which of the following is a luxury good. The luxury good is ____________.

good B

Which of the following criteria would most likely influence an optimizing​ buyer's purchasing​ decisions? A. lowest price B. lowest opportunity cost C. highest marginal benefit per dollar spent D. highest marginal benefit

highest marginal benefit per dollar spent

The value of the​ cross-price elasticity between tea and coffee is __________. If the price of good A is double its original price and its quantity demanded decreases to half the original quantity​ demanded, then good A has ______________. In a recent​ study, it is noted that the demand for Internet data services is unaffected when there is a tremendous increase in the price of data usage. Draw a demand curve to represent the market for Internet data services. ​1.) Using the line drawing tool​, draw a new demand curve representing the given situation. Label your curve​ 'DD1'. Carefully follow the instructions above and only draw the required object. Suppose there is a decrease in the price of toothbrushes produced by company X and the demand for toothbrushes produced by company Y decreases to zero. Show the demand curve for company Y. ​1.) Using the line drawing tool​, draw a new demand curve representing the given situation. Label your curve​ 'DD2'. Carefully follow the instructions above and only draw the required object.

positive, unit-elastic demand DD1-Data graph should be a vertical line DD2-company Y should be a horizontal line

Suppose​ Hershey's increases the price of its chocolate syrup by 14 percent. In​ response, the quantity demanded of Nesquik chocolate syrup rises by 10 percent and the quantity demanded of​ Breyer's vanilla ice cream falls by 33 percent. The​ cross-price elasticity of demand between​ Hershey's syrup and​ Nesquik's syrup is _______​, implying these two goods are _________. The​ cross-price elasticity of demand between​ Hershey's syrup and​ Breyer's vanilla ice cream is ________ ​, implying these two goods are _________. Suppose that incomes rise by 9 percent given the price change cited above. As a​ result, Hershey's experiences a 5 percent increase in sales volume. Given this​ information, Hershey's syrup is a ___________ good.

positive;substitutes negative;complements normal

Ria earns an income of ​$2,000 per month. Assume that she can either buy 5 laptops or 10 mobile phones with her income. The price of laptops is ​$400​, and the price of the mobile phone is ​$200. Suppose ​Ria's income increases by​ 20% and the price of the laptops decreases to ​$300​, what will be the effect on the budget​ constraint? The new budget constraint has a different _________than the initial budget constraint. The budget constraint shifts outward when​ _________. A.the price of both goods decreases. B.the income of the consumer decreases. C.the opportunity cost of any one good changes. D.tastes and preferences change toward cheaper goods. The budget constraint pivots outward when​ _________. A.the price of both goods decreases. B.the income of the consumer decreases. C.the opportunity cost of any one good changes. D.tastes and preferences change toward cheaper goods.

slope and position ; A.the price of both goods decreases.; C.the opportunity cost of any one good changes.