Microeconomics Final

Each point on a ________ curve shows the willingness of consumers to purchase a product at different prices.

demand

An efficient outcome is one in which:

no individual can be made better off without making someone else worse off.

The total amount of producer surplus in a market is equal to

the area above the market supply curve and below the market price.

By definition, economics is the study of

the choices people make to attain their goals, given their scare resources

A surplus exists in a market if

the current price is above its equilibrium price

Consumer surplus is

the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

Consumer surplus is:

the difference between the price consumers are willing to pay for a good and the amount they actually pay.

The principle of opportunity cost is that

the economic cost of using a factor of production is the alternative use of that factor that is given up.

Opportunity cost is

the highest valued alternative that must be give up to engage in an activity.

Bar owners often offer lower beer prices to women than they do to men. This will enhance bar revenues if

women have an elastic demand for beer.

Samia is willing to pay $10 for one bracelet and $5 for a second. Isabella is willing to pay $12 for one bracelet and $2 for a second. If the price is currently $8 per bracelet, what is the total consumer surplus after Samia and Isabella make their purchases?

$6

Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula.

0.6

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.

1.62

Assuming a $30 ticket price, based on the above information, the number of tickets sold and total consumer surplus is equal to:

3 tickets sold, total consumer surplus = $35.

After the frost (i.e. after the supply curve shifts left), consumer surplus falls to:

A

A movement along the demand curve for toothpaste would be caused by

A change in the price of toothpaste.

Which of the following will shift the demand curve for a good?

A decrease in the price of a complementary good.

Suppose McDonald's eliminates a $1.00 off coupons. This will cause

A movement along the demand curve for McDonald's Big Mac hamburgers to the left.

Studies show that the income elasticity of demand for wine is approximately five. What does this mean?

A one percent increase in income leads to a five percent increase in wine consumption.

Suppose in the market for new homes there is a substantial increase in wages paid to construction workers. The most likely effect on the market for new homes would be:

A shift left in the supply of new homes

Which of the following would result in the price elasticity of demand for a product to be more elastic?

A wide variety of substitutes are available for the good.

The figure above illustrates the supply and demand for oranges. When a frost destroys portions of the orange crop, the supply curve shifts left from Supply 1 to Supply 2. Before the supply curve shifted left, consumer surplus was:

A+B+C+D

Which of the following correctly describes how price adjustments eliminate a shortage?

As the price rises the quantity demanded decreases while the quantity supplied increases

The key determinants of the price elasticity of demand for a product are:

Availability of close substitutes, passage of time, necessities versus luxuries, definition of the market, and share of the good in the consumers budget.

An early frost in the vineyards of Napa Valley would cause

a decrease in the supply of wine, increasing price

After the frost, producer surplus is:

B+E

You observe that when the price of Jiffy peanut butter increases the demand for Smucker's Strawberry jam decreases. Jiffy peanut butter and Smucker's Strawberry jam are considered to be:

Compliments

Which of the following will cause the demand curve to shift:

Consumer income

Figure 1 illustrates four supply curves each of which represents a change is supply or a change in quantity supplied. Pick the correct diagram. Unions negotiate a large wage increase in the market for cars

Diagram 1

Figure 1 illustrates four supply curves each of which represents a change is supply or a change in quantity supplied. For the next two problems, pick the correct diagram. The tablet computer market experiences a technological advance in screen technology.

Diagram 3

Consumer and producer surplus represent the welfare or benefit consumers and producers get from interacting in markets measured in:

Dollars.

Before the frost (i.e. before the supply curve shifts left), producer surplus was

E+F+G

What do economists mean by scarcity?

Economists mean that unlimted wants exceed limited resources

Suppose the incomes of buyers in a market for a particular good decrease and there is also a reduction in input prices. What would we expect to occur in this market?

Equilibrium prices would decrease, but the impact on equilibrium quantity would be ambiguous

Economics assumes people and firms:

are rational, respond to incentives, make decisions by comparing marginal benefits with marginal costs.

Two managers have the following conversation. Manager 1: "The only way we can increase the revenue we receive from selling our frozen lasagna is by cutting the price." Manager 2: "Cutting the price of a product never increases the amount of revenue you receive. If we want to increase revenue, we have to increase price." Do you agree with the reasoning of Manager 2?

I disagree. Cutting the price will increase the revenue if the demand is price elastic.

Which of the following areas of economics studies issues such as whether government intervention is capable of reducing the severity of recessions?

Macroeconomics

Mario is willing to mow one lawn for $18; he will mow a second for $22, and a third for $28. Assume that the market rate for lawn mowing is $24. How many lawns will Mario mow? What will be his total revenue? What will be his producer surplus?

Mario will mow two lawns for a total revenue of $48, and his producer surplus will be $8.

Which of the following areas of economics studies issues such as ways to reduce teenage smoking?

Microeconomics

A primary difference between macroeconomics and microeconomics is

Microeconomics examines individual markets while macroeconomics examines the economy as a whole

DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. Should DeShawn continue to offer the engine detailing service?

No, his marginal benefit is less than his marginal cost.

Which of the following is not scare according to the economic definition?

None of the above

Graciela is willing to sell 1 dozen roses for $50, while Giuseppe is willing to sell 1 dozen roses for $60. Carlos is willing to buy 1 dozen roses for $60, while Yuriko is willing to pay $50. If the market price is $52, how many roses are sold and what is the sum total of consumer and producer surplus after the transaction(s)?

One dozen roses will be sold, and the total consumer and producer surplus will be $10.

One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls

Scarcity

Studies have shown the links between calcium consumption and a reduction in osteoporosis. How does this affect the market for calcium.

The calcium demand curve shifts to the right because of a change in tastes in favor of calcium

From. the list below, select the variable that will cause the supply curve to shift:

The cost of raw materials

If the price of Burger King's Whopper hamburger increases. This will cause:

The demand curve for McDonald's Big Mac hamburgers to shift right.

Suppose that Big Mac hamburgers are an inferior good. If the U.S. economy enters a period of declining incomes, this will cause:

The demand curve for McDonald's Big Mac hamburgers to shift right.

Prices of California Merlot wine (assume that this is a normal good) have risen steadily in recent years. Over this same period, the price of the grapes used to produce Merlot wine have dropped and consumer incomes have risen. Which of the following best explains the rising prices of California Merlots?

The demand curve for Merlot has shifted to the right more than the supply curve has shifted to the right.

What happens in the market for airline travel when the price of traveling by rail decreases?

The demand curve shifts left

Positive technological change in the production of LCD televisions caused the price of LCD televisions to fall. Holding everything else constant, how would this affect the market for blu-ray players (a complement to LCD televisions)?

The demand for blu-ray players would increase and the equilibrium price of blu-ray players would increase.

Consider a situation in which both of the following scenarios occur at the same time for Kraft: (1) Healthier products increase consumer preferences for Kraft foods and (2) lawsuits result in heavy penalties for Kraft that increase its cost of production. Which of the following accurately describes the effect of both of these events occurring simultaneously?

The equilibrium price of Kraft products will increase and there will be an ambiguous change in equilibrium quantity

Consider the market for snowboards. What will happen to the equilibrium price and quantity of snowboards if the price of lift tickets increases?

The equilibrium price of snowboards falls and the equilibrium quantity falls

Suppose that over time, you have observed an increase in the number of people owning digital cameras and a decrease in the price of these cameras. Which of the following would account for this?

The supply curve has shifted outward and the demand curve has remained constant.

Suppose you win free tickets to a move plus all you can eat at the snack bar for free. Would there be a cost to you to attend this movie?

Yes, because the movie's opportunity cost is equal to the highest-valued alternative that must be given up to attend the movie

Is it possible to tell from the income elasticity of demand whether a product is a luxury good or a necessity?

Yes. If the income elasticity of demand is greater than 1, then the good is a luxury. If the income elasticity of demand is positive but less than 1, then the good is a necessity.

If diet-conscious buyers learn that McDonalds food has a higher fat content than they find desirable, the likely effect in the market for food sold by McDonalds would be

a decrease in equilibrium price and a decrease in equilibrium quantity.

Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?

a decrease in the price of flour.

Marginal cost is

the additional cost of producing one more unit.

Which of the following will always raise the equilibrium price?

an increase in demand combined with a decrease in supply

Suppose the government reduces subsidies paid to dairy farmers. The most likely effect on the market for dairy products would be:

an increase in price as there would be a decrease in the supply of milk

Economists generally agree that people are most likely to change their behavior when they:

are given incentives to do so.

If instead, each ticket is priced at $20:

both quantity demanded and total consumer surplus will increase.

Elvira decreased her consumption of bananas when the price of peanut butter increased. For Elvira, peanut butter and bananas are

complements in consumption

If the cross-price elasticity of demand is negative, then the products are:

complements, but if it is positive, then the products are substitutes

When there is a shortage of a good:

consumers compete against one another by bidding the price upward.

Holding all other things constant, a higher price for ski lift tickets would

decrease the number of skis sold.

Suppose Wendy's hamburgers have many close substitutes available. If so, then an increase in the price of Wendy's hamburgers will likely

decrease the quantity of Wendy's hamburgers demanded by a relatively large amount.

If the price elasticity of demand (calculated using the mid-point method) for a good is 2.5, and the price of the good rises from $18 to $22, then the quantity demanded will:

decrease by 50 percent.

During a drought, the price elasticity of demand for water is less than one. During a flood, the price elasticity of demand for water is greater than one. This means that the:

demand for water is inelastic during a drought and elastic during a flood.

A service station owner in Staten Island, New York, was worried that raising the price of gasoline would cause the quantity demanded to fall by so much that he would be in a worse situation than if he did not raise the price. If raising the price of gasoline would cause the owner to receive less total revenue from the sale of gasoline, the demand for gasoline is

elastic.

One study found that the price elasticity of demand for soda is - 0.78, while the price elasticity of demand for Coca-Cola is - 1.22. The price elasticity of Coca-Cola is (interpret the absolute value of these elasticities, i.e., ignore the minus sign):

greater than it is for soda as a product because there are more substitutes for Coca-Cola than soda.

Price elasticity of demand measures

how responsive quantity demanded is to a change in price.

If the income elasticity of chicken is 0.6 then chicken is a:

necessity good.

The ________ effect refers to the change in quantity demanded for a good that results from the effect of a change in the good's price on consumer's purchasing power.

income

If the price of a pound of Kenyan coffee decreases from $12 a pound to $10 a pound, we can expect an:

increase in the quantity demanded of Kenyan coffee.

Assume that after graduation, you land a marketing job with Canon - in the digital camera division. After introducing a new digital camera, you estimate that the price elasticity of demand for the camera equals 2 and the income elasticity is equal to 0.5. Furthermore, the cross-price elasticity with a similar Kodak camera is equal to 1.25. Based on the above elasticity information, you would conclude for the new Canon camera that the product is income:

inelastic. During a period of strong economic growth the demand curve for the camera will shift outward by a smaller amount than an income elastic good

If demand is inelastic, the absolute value of the price elasticity of demand is

less than one.

Economists reason that the optimal decision is to continue any activity up to the point where the

marginal benefit equals the marginal cost.

The term _________ in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade.

market

In order to be binding, a price ceiling

must lie below the free market equilibrium price.

If you expect the economy is going to boom and average income in the economy will rise in the foreseeable future, the type of firm that would be able to increase its sales the most if your expectations are met is

one that sells a luxury good.

Use income elasticity to distinguish a normal good from an inferior good. For a normal good, the income elasticity of demand will be

positive, but for an inferior good, the income elasticity of demand will be negative.

Price elasticity of demand measures the responsiveness of:

quantity demanded to changes in price.

If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would

remain constant.

Olive oil producers want to sell more olive oil at a higher price. Which of the following events would have this effect?

research finds that consumption of olive oil reduces the risk of heart disease

A technological improvement lowers the cost of producing coffee. At the same time, consumer preferences for coffee increase. The equilibrium price of coffee will...

rise, fall, or stay the same, depending on the relative size of the shifts in the demand and supply curves

The wage rate paid by computer produces falls and at the same time the price of raw materials used in the production of computers rises. You predict that the supply curve of computers will:

shift either leftward or rightward

Suppose an advertising campaign successfully increase consumers' taste for Red Bull energy drinks. This will:

shift in the demand curve for Red Bull to the right because consumer tastes influence market demand.

If Red Bull and Monster Energy are considered substitutes, then, other things equal, an increase in the price of Red Bull will

shift the demand curve for Monster to the right.

Income elasticity of demand is

the percentage change in quantity demanded divided by the percentage change in income.

The cross-price elasticity of demand is

the percentage change in quantity demanded of one good divided by the percentage change in the price of another good.

A change in all of the following variables will shift the market demand for a product except

the price of the product.

Assume that after graduation, you land a marketing job with Canon - in the digital camera division. After introducing a new digital camera, you estimate that the price elasticity of demand for the camera equals 2 and the income elasticity is equal to 0.5. Furthermore, the cross-price elasticity with a similar Kodak camera is equal to 1.25. Based on the above elasticity information, you would conclude for the new Canon camera:

the product demand is elastic and if your firm (Canon) decreases the price of its new camera, total revenues will increase.

Deadweight loss is:

the reduction in economic surplus resulting from a market not being in competitive equilibrium

If the cost of computer components falls, then

the supply curve for computers shifts to the right

If a sin tax is placed on the producers of alcohol,

the supply curve shifts to the left

If the government subsidizes the production of solar panels

the supply curve will shift to the right

If equilibrium is achieved in a competitive market

there is no deadweight loss.

Economists assume that people are rational in the sense that

they use all available information as they take actions intended to achieve their goals