Unit 2 studyguide

The price of gasoline rises 5% and the quantity of gasoline falls 1%. The price elasticity of demand is equal to —— and demand is described as

-0.2 inelastic

Which of the following would result in the greatest rightward shift in the demand curve

10% increase in the price of good Y

unit elastic

A good and balanced spot

Consider the market for arugula, a normal good. Which of the following changes would result in an increase in both the equilibrium price and equilibrium quantity of arugula

An increase in population

Which of the following explains why the supply curve is upward sloping

At a higher price, producers are able to cover the higher marginal cost associated with increasing production

Toyota corollas are a type of car that has many substitutes. For most consumers it has been an expensive purchase, taking up a large percentage of their budget. What graph best represents the demand for Toyota Corollas

B

Which graph shows a perfectly in elastic cure

C(vertical)

At the market equilibrium price, what are the consumer surplus and the producer surplus

Consumer surplus is $50, producer surplus is $50

Suppose the price of cereal rose by 25% and the quantity of milk sold decreased by 50%. Then we know that the

Cross price elasticity between milk and cereal is -2

Which graph shows a perfectly elastic demand curve

D(horizontal)

Which of the following is true about good J

Good J is an inferior good

The income elasticity of demand of a normal good is

Greater than 0

Which of the following correctly describes the income effect associated with the law of demand

If the price of a normal good decreases, the purchasing power of a consumers income and therefore consumers will be willing and able to purchase more of the good

The absolute value of the price elasticity of demand for segment EF using the midpoint method is

Less than one, but greater than zero

We predict the long-run price elasticity of demand of gasoline would be ________ the short-run price elasticity of demand of gasoline.

Long; greater than; short

Elastic

Lower prices raises revenue

The pair of items that is likely to have the largest positive cross-price elasticity of demand is

Milk and cookies

Yovanka has diabetes and she will pay the amount of money to buy the insulin she needs to stay alive. Yovankas price elasticity of demand for insulin is

Perfectly inelastic

If the absolute value of the price elasticity of demand is found to be 6,then demand is

Price elastic

In which of the following cases would the government intervention in a market would result in an increase in the quality sold

Providing producers of a product with a per unit subsidy

Inelastic

Raising prices raises revenue

A firm estimates that the absolute value of the price elasticity of demand for its signature sandwich is 2. If the firm increases its sandwich price by 10%, what will happen to the quantity demanded

Remain unchanged

Why elasticity changes

Substitute products, time, percent income, luxury vs staple goods

The market supply curve for a product is derived from the individual firm supply curves by

Summing the quantities each producer sells at each possible price

Which of the following would cause supply of a good X to become more elastic

The ability to reallocate input to production of good X

Suppose the small country of Aronow imports 40,000 kg of bananas. The global price of bananas is $.50 and they collect $4,000 in tariff revenues from banana imports what statement is true

The consumer pays $0.60 per kg of bananas

The market for tomatoes is in the equilibrium at the price of $10 for 50 tomatoes. If the consumer surplus is $400 and the total surplus is $650, what is the surplus in the tomato market and why

The producer surplus is $250; because the total surplus less what consumers receive must go to producers

Which of the following will occur as a result of a decrease in the prices of the inputs used to produce a good

The quantity supplied would increase at each possible price for the good

Assume that the market for a good is characterized by a downward sloping demand curve and upward sloping supply curve. Suppose there was an improvement in technology for producing the good, which of the following would occur

The total surplus in the market would increase

Which of the following will initially result from an increase in the market demand for a good

There will be a temporary shortage at the original equilibrium price

Suppose supply for oranges intersects demand where the price elasticity of demand for oranges is -1.8. If a frost destroys one third of the nations orange crop how will it affect total revenue from oranges, all other things unchanged

Total revenue will fall because the decrease in quantity is large relative to increase in price

Supplier Surplus

Value of the difference between the marginal cost and marginal benefit

A newspaper typically consumes a smaller fraction of a consumer's budget than a home entertainment system. Therefore, you would expect the demand for:

a home entertainment system to be more price-elastic.

price elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

price elasticity of supply

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue. The airlines raise their prices on the assumption that:

consumer demand becomes less price-elastic as departure time approaches

On a linear demand curve

demand is elastic at high prices.

consumer surplus

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

Utility

the capacity to be useful and provide satisfaction

deadweight loss

the fall in total surplus that results from a market distortion, such as a tax

negative externality

the harm, cost, or inconvenience suffered by a third party because of actions by others

The price elasticity of demand measures the

the responsiveness of the quantity demanded to a change in price

Elasticity

A measure of how much one economic variable responds to changes in another economic variable.

Which of the following policies would result in an increase in the quality supplied of a good in the market

Imposing a binding price floor

positive externality

beneficial side effect that affects an uninvolved third party