week two smartbook
Which of the following is the formula of price elasticity of demand for a good, X?
%ΔQDX/%ΔPX
Cross-price elasticity is given by which of the following expressions?
%ΔQxD%ΔPY%ΔQxD%ΔPY δQxdδPyδQxdδPy×PyQx
Due to the complexities of human thought process:
-behavior models are abstractions of the way we make decisions -behavior models are simplifications of real-world human decision-making
Total revenue is maximized when marginal revenue equals which is when the own price elasticity of demand is equal to . (Enter a number in both blanks.)
0, -1
Moving along an indifference curve from one bundle to another, a consumer gains 1 unit of X and gives up 3 units of Y. The marginal rate of substitution is between goods X and Y.
3
Suppose a firm produces two products, X and Y. The firm earns revenues from X equal to $50,000 and revenues from Y equal to $30,000. The own price elasticity of demand for X is -2 and the cross-price elasticity of demand between X and Y is -0.6. If the firm lowers the price of product X by 1%, the change in total revenues will be $. (Do not add any negative sign before your answer.)
680
Suppose a firm produces two products, X and Y. The firm earns revenues from X equal to $70,000 and revenues from Y equal to $60,000. The own price elasticity of demand for X is -1.5 and the cross-price elasticity of demand between X and Y is -0.80. If the firm decreases the price of product X by 1%, the change in total revenues will be $.
830
Given a fixed opportunity set that consists of 24 hours, workers will generally try to consume a bundle of labor and leisure that does which of the following?
Achieves the highest affordable indifference curve
Since workers substitute between leisure and income, what must firms do to induce workers to give up leisure?
Compensate workers
All affordable goods and services can be represented by which of the following?
Consumer opportunities
What is true of demand for a good that has many available substitutes?
Demand is relatively elastic.
What is true of demand for a good that has few close substitutes?
Demand is relatively inelastic.
Workers' behavior can be analyzed using which of the following?
Indifference curves
At the point of consumer equilibrium,
MRS = Px/Py
Consider the following relationship between marginal revenue and elasticity of demand: MR = P × {1+EE}1+EE. If demand is unitary elastic:
Marginal revenue equals zero.
Consider the following relationship between marginal revenue and elasticity of demand: MR = P × {1+EE}1+EE. If demand is inelastic:
Marginal revenue is negative.
If a consumer's income decreases and she now consumes less of BOTH goods X and Y, then the consumer considers X and Y to be what type of goods?
Normal goods
If demand is perfectly inelastic, which of the following is correct?
Own-price elasticity equals zero.
If demand is perfectly elastic, which of the following is correct?
Own-price elasticity is infinite in absolute value.
If a consumer spends all of his or her income on either good X or good Y or a combination of both, then the budget line is given by which of the following?
PxX + PyY = M
The budget constraint can be given by which of the following expressions?
PxX + PyY = M Y = MPyMPy - PxPyPxPy⋅X
The budget set can be defined as which of the following?
PxX + PyY ≤ M
When income is constant and the price of good X, PX, increases, what is the effect on the budget line (x is measured on the horizontal axis, y on the vertical axis)?
The budget line rotates clockwise.
When income is constant and the price of good X, PX, decreases, what is the effect on the budget line (x is measured on the horizontal axis, y on the vertical axis)?
The budget line rotates counterclockwise.
If the prices of BOTH good X and good Y double, what is the effect on the budget line (x is measured on the horizontal axis, y on the vertical axis)?
The budget line shifts to the left.
What can be said about goods X and Y if the cross-price elasticity between X and Y is negative?
They are complements.
What can be said about goods X and Y if the cross-price elasticity between X and Y is positive?
They are substitutes.
Given the following budget constraint, PxX + PYY = M, what is the maximum affordable quantity of good Y?
Y = M/PY
If elasticity is given by, EX,Y = %ΔX%ΔY%ΔX%ΔY, then elasticity is positive when:
a decrease in Y leads to a decrease in X. an increase in Y leads to an increase in X.
If elasticity is given by, EX,Y = %ΔX%ΔY%ΔX%ΔY, then elasticity is negative when:
a decrease in Y produces an increase in X. an increase in Y produces a decrease in X.
Qxd = αo - αxPx + αyPy + αMM + αHH Income elasticity is given by:
am x qx/m
Y = MPyMPy - PxPyPxPy X, represents
an affordable combination of goods X and Y.
Economists
are able to model human behavior.
Qxd = α0 - αxPx + αyPy + αMM + αHH Cross-price elasticity is given by:
ay x py/qx
Bundle A is preferred to bundle B. Bundle B is preferred to bundle C. If preferences are transitive, then
bundle A is preferred to bundle C.
Advertising elasticity measures
changes in consumption due to changes in advertising
Cross advertising elasticity measures
changes in consumption of one good due to changes in advertising on another good.
Suppose as a result of a 5% increase in the price of pizza, the demand for soft drinks decreases by 1.1%. In this example, soft drinks and pizza are ____________.
complements
The affordable bundle that generates the most consumer satisfaction is given at _____.
consumer equilibrium MRS = PxPy
Indifference curve analysis allows managers to determine the effect of price changes on
consumer equilibrium.
As a consumer obtains more and more chocolate, the consumer is willing to give up less and less peanut butter. This means the consumers indifference curve between chocolate and peanut butter will be:
convex from the origin
Responsiveness of demand for a good due to changes in the price of a related good is measured using
cross-price elasticity.
If ∣∣EQ,Px∣∣EQ,Px > 1, an increase in the price of a good will _______ total revenue.
decrease
Suppose a consumption bundle contains two goods, X and Y, and that the goods are complements. If the price of good X rises, consumption of good Y ___________.
decreases
Suppose a consumption bundle contains two goods, X and Y, and that the goods are substitutes. If the price of good X falls, consumption of good Y ___________.
decreases
If profits are on the y-axis and output is on the x axis and a manager's preferences depend solely on profit, their indifference curves will be __________.
demand
When consumer income changes and prices are held constant, the slope of the budget line
does not change.
If ∣∣EQ,P∣∣EQ,P> 1, then demand is said to be ________.
elastic
The primary analytic tool used to evaluate the responsiveness of one variable to change in another variable is called ______.
elasticity
A cash gift is generally preferred to an in-kind gift of equal value unless the in-kind gift is ______.
exactly what the consumer would have purchased with the cash
A change in a consumer's income changes consumption patterns because changes in income
expand or contract the budget constraint.
True or false: If a consumer is consuming their equilibrium consumption bundle and the price of one of the goods changes, this will not change the consumer's equilibrium consumption bundle.
false
True or false: It is generally the case that indifference curves have the same shape across all consumers.
false
Suppose elasticity is given by, EX,Y = %ΔX%ΔY%ΔX%ΔY. The absolute value of elasticity will be ________ 1 when the change in X is large relative to the change in Y.
greater than
In the case of a budget constraint for two normal goods, X and Y, an increase in a consumer's income will _____.
have the same effect as a decrease in the price of both X and Y shift the budget constraint to the right
Cash gifts tend to produce a _________ level of utility relative to in-kind gifts.
higher
A buy-one-get-one free deal makes the budget line between the first and the second unit of the good _______.
horizontal
The market demand curve is the ____________ summation of all the individual demand curves.
horizontal
If profits are on the y-axis and output is on the x axis and a manager's preferences depend solely on profit, their indifference curves will be __________.
horizontal lines
Price changes alter consumers':
incentives to buy different goods. equilibrium consumption bundles. budget constraints.
If demand is inelastic, a(n) in price will lead to an increase in total revenue.
increase
An increase in the price of good X rotates the budget line, alters the equilibrium bundle, and
indicates different quantities demanded at different prices. provides two points on a demand curve.
If income elasticity of good X is negative, (EQx, M < 0), then good X is considered a(n) good.
inferior
Given fixed prices, when consumer income decreases, the budget line shifts to the
left
Suppose elasticity is given by, EX,Y = %ΔX%ΔY%ΔX%ΔY. The absolute value of elasticity will be ________ 1 when the change in X is small relative to the change in Y.
less than
Demand tends to be ___________ elastic for goods that require a relatively small portion of consumers' budgets and ____________ elastic for goods that require a relatively large portion of consumers' budgets.
less; more
- (PXPY)PXPY represents the rate of substitution. (Enter only one word in the blank.)
market
If ∣∣EQ,Px∣∣EQ,Px= 1, total revenue is _____.
max
Demand tends to be ___________ elastic when consumers have more time to react to price changes.
more
If income elasticity of good X is positive, (EQx, M > 0), then good X is considered a(n) good.
normal
Income elasticity tells us whether goods are
normal or inferior
Elasticity measures the responsiveness of
one variable changes another
Consumer ______ represent the possible goods and services consumers can afford to consume and consumer ______ determine which of these goods will be consumed.
opportunities; preferences
When income changes, the new equilibrium point will depend entirely on consumer
preference
A buy-one-get-one free deal
reduces only the price of the second unit purchased.
Given fixed prices, when consumer income increases, the budget line shifts to the
right
Given fixed prices, when consumer income increases, the budget line shifts to the (left/right).
right
Cross-price elasticity is given by which of the following expressions?
sQxD/sPy x py/qx
Points on an indifference curve:
show consumption bundles that generate the same amount of satisfaction.
Which of the following are considered expressions for income elasticity?
sqxd/sm x m/qx
The budget set defines combinations of goods and services
that are affordable.
The marginal rate of substitution (MRS) is
the absolute value of the slope of the indifference curve.
Indifference curve analysis is a helpful tool used to derive
the demand curve.
When consumers have more time to react to a price change of a good,
the demand for the good becomes relatively more elastic. the consumers are able to locate more substitutes.
Consumer equilibrium occurs at the point where the MRS is equal to
the ratio of the prices.
- PxPyPxPy equals
the slope of the budget line
Market demand indicates the __________ quantity all consumers would purchase at each possible price
total
True or false: A new car is likely to have a more elastic demand than paper clips.
true
True or false: If a consumer is consuming their equilibrium consumption bundle and the price of one of the goods decreases while all other prices are unchanged, the consumer can reach a higher level of satisfaction.
true
If ∣∣EQ,P∣∣EQ,P= 1, then demand is said to be ________ elastic.
unitary
Total revenue is maximized at a point where demand is
unitary elastic.
If profits are on the y-axis and output is on the x axis and a manager's preferences depend solely on output, their indifference curves will be __________.
vertical lines
Given the following budget constraint, PxX + PYY = M, what is the maximum affordable quantity of good X?
x= m/px
Consider the following relationship between marginal revenue and elasticity of demand: MR = P × {1+EE}1+EE. If elasticity is unitary, marginal revenue is ___________ and total revenue is ____________.
zero; maximized
Qxd = αo - αxPx + αyPy + αMM + αHH Own price elasticity is given by:
αx × PxQx
Given a demand function, Qxd = f(Px, Py, M, H), define own price elasticity.
δQxd/δPx × Px/Qx