ECO 2023 Escaleras Exam 2

Suppose that the quantity demanded for a product rises by 9% as people's incomes rise by 3%. What type of good is this product?

a luxury good

While Steve is cleaning out his garage, he finds an old surfboard that he no longer needs. As he walks to the dumpster to throw it out, his neighbor John asks if he could have it. John offers Steve a 6-pack of beer (worth $10) in exchange, which Steve happily accepts. Steve has achieved a producer surplus of:

$10, the value of the beer he received.

Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, how much is consumer surplus?

$11 $79-$68=11

If the average price of new homes rose by 15% last year, and, as a result, home builders increased the supply of new homes by 10%, the price elasticity of supply is _____, and the supply of new homes is _____.

0.67; inelastic

When a product's price changes from $26 to $10 and its quantity supplied changes from 200 unites to 100 units, the price elasticity of supply (using the midpoint method) equals:

0.75 (use formula)

Jack owns a pumpkin patch and has been selling pumpkins for $10. As Halloween approaches, he worries about having too many unsold pumpkins, so he lowers the price by 20%. If the price elasticity for pumpkins is 1.5, how many more pumpkins will Jack sell?

30% more. 20x1.5=30

Andrea has $30 to spend on game apps and movie downloads. If game apps are $3 each and movie downloads are $5 each, which combination can Andrea afford?

5 game apps and 3 movie downloads

At the end of the term, Vicky wants to sell her economics textbook for at least $25, otherwise she would keep it. George is looking to buy a textbook because he's taking the class next term, and he is willing to pay at most $60. If Vicky agrees to sell the textbook to George for $45:

George's consumer surplus is $15 and Vicky's producer surplus is $20.

If Jeremy's budget line shifts inward in a parallel manner, what may have happened?

Jeremy has less money to spend on the two goods.

Tracey sells 100 gourmet cupcakes per day at $2 each. She is considering raising her price to $2.50 per cupcake in order to increase her revenues. If the price elasticity of demand for Tracey's cupcakes is 2, would she increase her revenues?

No; revenues would fall because she would sell far fewer cupcakes.

If the cross elasticity of demand between fly rods and reels is -0.8, a decrease in the price of rods would _____ sales of reels because the two goods are _____.

increase; complements

Suppose the actual price for good A is $20. John is willing to pay $30, Susie is willing to pay $28, Joseph is willing to pay $25, Jessica is willing to pay $23, and Jeremy is willing to pay $21. What is the total consumer surplus?

$27 John: 30-20=10 Susie: 28-20=8 Joseph: 25-20=5 Jessica: 23-20=3 Jeremy: 21-20=1 Total consumer surplus= 10+8+5+3+1=27

Jackie finds a pair of jeans that she likes but the price tag is missing. She is willing to buy it as long as it's not more than $100. The cashier informs Jackie that the price is $72. Jackie buys the jeans, and therefore achieved a consumer surplus of:

$28, the difference between what she was willing to pay and the price.

Using the utility maximization rule, if Vicky's marginal utility of the last orange consumed is 20 and her marginal utility of the last pineapple consumed is 80, what is the price of pineapples if the price of oranges is $1 and Vicky has maximized her utility?

$4

If the price of electricity falls by 10% per kilowatt hour, and the quantity demanded for electricity subsequently increases by 8%, the price elasticity of demand for electricity is _____ and would be classified as an _____ good.

0.8; inelastic (8/-10=-0.8; less than one so is inelastic)

When the price of coffee increased from $4.50 to $5.55, the quantity demanded decreased from 185 unites sold to 150 units sold. Using the midpoint method, the price elasticity of demand is:

1 (use formula)

Suppose that the price of African safaris fell from $4,000 to $3,200 per person, and, as a result, tour operators reduced the number of trips offered by 25%. Using the midpoint method, the price elasticity of supply for African safaris is _____.

1.13

Suppose the price of a bag of jelly beans rises from $1.60 to $2.00, with the result that sales of jelly beans falls from 120 bags to 80 bags a day. Using the midpoint method, what is the elasticity of demand for jelly beans?

1.80

If the cross elasticity of demand for good A with respect to good B is 2.3, then good A is a(n):

substitute for good B

Market failure means that:

the market has not provided a socially optimal amount of goods and services.

When the markets are efficient:

the sum of consumer and producer surplus is maximized.

Jordan brought $20 to the movie theater to spend on popcorn and candy bars. Popcorn costs $5 a bucket and a candy bar costs $3. If he buys two buckets of popcorn, what would be the largest number of candy bars that he can purchase?

three

In the town of Skateville, average incomes fall by 20% due to a recession; as a result the sales of skateboards fall by 15%. The income elasticity of demand is _____, and skateboards are a(n) _____ good.

0.75; normal. (-15/-20)=0.75

Which of the following would be most inelastic? A) a vacation home in the Smoky Mountains B) a cavity filled at the dentist C) a spring break vacation to Cancun D) a pair of casual shoes at a large shoe store in the mall

a cavity filled at the dentist

The sign of the elasticity of supply is:

always positive

Jessica lists her faulty treadmill for sale on craigslist but does not disclose the problems with it. If Blake buys the treadmill believing that it's problem-free, this is an example of market failure due to:

asymmetric information

The _____ graphically illustrates the possible combinations of two goods a consumer can purchase with a given income, given the prices of both products.

budget line

Utility measures:

how much satisfaction is gained from the consumption of a good or service.

If the price elasticity of demand is 0.5, then the demand is:

inelastic

When the price of hamburgers increased from $1.50 to $2.75, the quantity demanded decreased from 375 units sold to 250 units sold. Using the midpoint method, hamburgers are said to be:

inelastic (use formula)

If there is a lack of competition in a market, a market failure results because the quantity of goods sold is ___ than the optimal level while prices are ___ than the optimal level.

lower; higher

A good with an income elasticity that is positive, but less than 1, is said to be a(n):

normal good

If a consumer's budget increases, the budget line shifts to the _____ and a consumer can reach a _____ level of consumption.

right; higher

Which of these is the most important determinant of the elasticity of supply? A) number of firms in the industry B) income levels of consumers C) time D) number of input substitutes

time

Tena has $50 per week to spend on lunches. Egg rolls cost $2 each and a plate of Chow Mein costs $7. Tena wants to buy five plates of Chow Mein and ten egg rolls per week. This combination of Chow Mein and egg rolls each week is:

unobtainable