Econ 1014 Unit 1

The Department of Energy's Energy Information Service (EIS) predicts the ANWR will produce _____percent of worldwide oil production.

a little less than 1

In Vernon Smith's classroom experiments, prices, quantities, and gains from trade all converged quickly to those predicted by economic theory:

despite the fact that students knew only their own willingness to buy or sell.

Suppose that when good Y is free, buyers will demand 200 units of it, but the quantity demanded falls by 5 units for every $2 increase in the price. If the price is $40 and the quantity supplied is 125 units:

the price will eventually fall below $40. There is a surplus in this market, because quantity demanded is less than quantity supplied

From the early twentieth century to the 1970s,the supply of oil outpaced demand, and:

there were modest declines in oil prices

Vernon Smith began his laboratory experiments expecting:

to prove that the supply and demand model was wrong.

Use the midpoint method to find the value of the elasticity of supply as the price of the steak dinner rises from $16 to $28.

1.83. (60 ÷ 60) ÷ ($12 ÷ $22) = 1.83

Which of the graphs is the BEST representation of elastic demand?

A negative/flat slope. And inelastic demand would be represented with a steep curve.

What happened to the supply of oil from the early twentieth century to the 1970s?

The supply of oil increased at an even faster pace than demand for oil.

Which statement explains why the demand for a particular good is elastic?

There are many available substitutes for the good.

Which economist began testing the supply and demand model by running experiments with his undergraduate students in 1956?

Vernon Smith

Lower production costs:

result in higher equilibrium price.

Imagine that the steak dinner supply for a competing restaurant is less elastic but also passes through the point ($16, 30). What could be the number of steaks that this other restaurant is willing to sell at a price of $10?

15. Any number between 0 and 30 is possible because the other restaurant's supply curve is steeper.

Assume the price elasticity of demand for oil is -0.5 and the price elasticity of supply for oil is 0.4. What is the estimated impact on oil prices of a 2 percent increase in the supply of oil is a:

2.2 percent decrease in price.

Steve likes to read, and he buys new books every month. Every August, his favorite bookstore holds a back-to-school sale and everything in the store is priced at 10 percent off. Steve takes advantage of the sale by buying 50 percent more books in August. What is the value of the elasticity of Steve's demand for books?

−5. This is because 50% ÷ −10% = −5.

If the demand for cigarettes is inelastic, a decrease in price leads to ________ in total revenue.

a decrease. Not many people will start smoking (or smoke more) simply because the price falls!

The elasticity of demand for goods such as vending machine snacks, shoelaces, and pencils is relatively inelastic, because these goods are _____.

a small part of a buyer's budget. The smaller part of a buyer's budget a good makes up, the less there is to gain from responding to price changes.

"According to the supply and demand model, all else equal, an increase in consumer incomes will cause the price of a good to increase." This statement is:

alse, because whether price rises or falls depends on whether the good is normal or inferior.

A shift in the demand curve up and to the right is BEST described as:

an increase in demand.

Suppose the elasticity of the demand for good A is −1.20 and the elasticity of the supply of good A is 0.60. If supply were to increase by 4 percent, what would happen to the price?

It would fall by 2.22 percent. %ΔP = −[4% ÷ (1.2 + 0.6)] =−(4% ÷ 1.8) = −2.22%

Suppose the elasticity of the demand for good A is −0.40, and the elasticity of the supply of good A is 1.00. If supply were to decrease by 4 percent, what would happen to the price?

It would rise by 2.86 percent. %ΔP = −[−4% ÷ (0.4 + 1)] =−(−4% ÷ 1.4) = 2.86%

Which of the graphs could be a depiction of a perfectly elasticsupply curve?

Perfectly elastic supply curves are shown as horizontal curves (lines).

A surplus occurs when the quantity supplied is _____ the quantity demanded.

greater than

A good with inelastic demand is likely to:

have its elasticity of demand increase in the long run.

If the value of the elasticity of demand is −0.10, demand is:

inelastic. This means that a change in price will be ten times greater than the quantity change in response to it.

The absolute value of the elasticity of demand for a "necessity" good with few close substitutes is:

less than 1. Necessities tend to have inelastic demand.

If one of the graphs represents the supply curve for raw material X, which graph might represent the supply curve for manufactured good Y?

For manufactured goods, it tends to be easier to increase production at near-constant unit costs, making supply more elastic.