econ exam 3

normal good

demand rises as income rises shift right

B

Examine the figure Demand Curves. Gala apples are a type of apple that has many close, but not perfect, substitutes and is not very expensive. Which graph best represents the demand schedule for Gala apples?

A to C

Examine the figure Supply of Coconuts. An improvement in the technology used to harvest coconuts (e.g., a faster less expensive coconut picker) would be represented in the figure as a movement from:

inelastic; increase

Examine the figure The Demand Curce. Between the prices of $3 and $4, demand is ____, and total revenue will____ if price increases.

a shortage of 8000 bushels

Examine the figure The Demand and Supply of Wheat. A temporary price of $2 in this market would result in:

price elastic

Examine the figure The Demand for Notebook Computers. The change in total revenue resulting from a change in price from P to T suggests that demand is:

$30

Examine the figure The Demand for Shirts. Total revenue is maximized if the price is

1.0

Examine the table Market for Pizza. The price elasticity of demand for pizza between the prices of $14 and $12 per pizza when income is $1,000 per month is (use the midpoint method)

inferior good

demand falls as income rises shift left

% change in quantity > % change in price elasticity > 1 as price increases, total revenue decreases and vice versa (price and TR move in opposite directions) flatter demand curve

rules for elastic demand

% change in price = 0 elasticity = infinity horizontal demand curve ---

rules for perfectly elastic demand

price elasticity

shows how responsive buyers/sellers are to a change in a good's price in terms of their quantity demanded/supplied

income - income increase, buy more (or less) stuff, demand increase advertising - preferences interest rates - rate increase, demand decrease market size - buyers increase, demand increases

what variables change demand?

price-inelastic

If the price elasticity of demand between two points on a demand curve is 0.75, then the demand between those two points is:

greater than 2

If the price of chocolate covered peanuts decreases from $1.15 to $0.90 and the quantity demanded increases from 0 bags to 400 bags, then the price elasticity of demand (using the midpoint method) is:

a shortage

If the supply and demand curves intersect at a price of $14, then any price below that would result in:

equilibrium price increases and equilibrium quantity decreases

If tortilla chips are a normal good, what happens to equilibrium price and quantity when there is an increase in income?

supply function

mathematically relates alternative prices to corresponding quantities supplied using a direct functional form equation Qs = S(P) + x

surplus

quantity supplied greater than quantity demanded Qs > Qd price must fall

decrease the supply of cotton shirts

Consider the supply curve for cotton shirts. An increase in the price of cotton will:

the quantity effect dominates the price effect, and a decrease in prices causes total revenue to rise

If demand is elastic, then:

a decrease in the amount of golf played on the course

If the demand for golf is unit-price elastic and your local public golf course increases the greens fees for using the course, you would expect:

shift to the right; increase

If the economy booms and peoples' incomes rise, then the demand curve for a normal good like new houses will ________ and the equilibrium quantity of new houses produced will ________.

inferior good

If the income elasticity for a good is negative, the good is said to be a(n):

the supply curve shifts to the left

In the local market for coffee, what would happen if Joyce's Java and Everyday Joe's coffee shops go out of business?

decrease, be indeterminate

In the market for local coffee, the price will ____ and the quantity will ____ if new coffee shops open and consumers' incomes decrease due to a recession.

an increase in the incomes of people who eat tacos

In the market for tacos, you observe that the equilibrium price and quantity have increased. This can be caused by:

there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears

Market equilibrium occurs when:

consumer demand becomes less price-elastic as departure time approaches

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:

the price will decrease, but quantity may increase, decrease, or stay the same

Suppose that supply increases and demand decreases. What is the most likely effect on price and quantity?

lower prices in South Carolina and raise prices in Alabama

Suppose the price elasticity of demand for fishing lures 1.5 in South Carolina and 0.63 in Alabama. To increase revenue, fishing lure manufacturers should:

less than 0

The cross-price elasticity of demand of complementary goods is:

comparing the percentage change in quantity demanded to the percentage change in price

The price elasticity of demand can be found by

price elastic

The price elasticity of demand for skiing lessons in New Hampshire is greater than 1.00. This means that the demand is _____ in New Hampshire

price inelastic

When a public transit system (such as a subway or bus line) raises its fares, it may experience an increase in total revenue. This suggests that demand is:

total revenue

amount of money a company will make when it sells its good at market price

an increase in the number of sellers

an increase in supply of a good can result from:

vacations entertainment produce restaurant dinners movie tickets for adults

examples of elastic demand

gas alcohol cigarettes medicine salt baseball games taxi service eggs soda chocolate coffee gambling legal services electricity movie tickets for minors

examples of inelastic demand

medicine (insulin)

examples of perfectly inelastic demand

wants not needs large shares of budget long time to buy lots of substitutes lots of advertisements

generalizations for elastic demand

approximately 1.33

if the price of a good increases by 15% and the quantity demanded changes by 20%, then the price elasticity of demand is equal to:

an increase in the supply of pizza

if the price of mozzarella cheese (an ingredient in pizza) declines, there would be:

shift left company can or will make less units

supply decrease

shift right company can or will make more units

supply increase

technology - increase input change (labor, parts, capital) - decrease if not a lot input cost - increase in price, decrease in production and vice versa transaction costs government regulation and taxes interest rate - rate increases, decrease in change to take out loan, decrease in buying capital wage - increase in wage, increase in supply complementary goods - need less of one, need less of other

what variables change supply?

perfectly inelastic demand

when buyers are completely unresponsive to price change

elastic demand

when buyers are relatively more responsive to a change in price

inelastic demand

when buyers are relatively unresponsive to a change in price

unitary elastic demand

when the calculated elasticity value is exactly equal to one

$1.50; an improvement in refining technology

Examine the figure Demand and Supply of Gasoline. When the supply curve shifts from S1 to S2, the new intersection of supply and demand has a price of ____ and quantity of 400. This supply shift could have resulted from _____

B

Examine the figure Four Markets for DVDs. If D1 or S1 is the original curve and D2 or S2 is the new curve, which of the graphs shows what may happen if some of the stores that rent DVDs close?

panel A

Examine the figure Shifts in Demand and Supply I. The graph shows how supply and demand might shift in response to specific events. Suppose a new machine is developed that allows restaurants and fast food outlets to produce french fries at a lower cost. Which panel best describes how this will affect the market for french fries?

panel B

Examine the figure Shifts in Demand and Supply. The figure shows how supply and demand might shift in response to specific events. Suppose a fall frost destroys one-third or the nation's orange crop. Which panel best describes how this will affect the market for oranges?

5.67

Examine the table Price Elasticity. What is the price elasticity of demand between $2.25 and $2.00?

a surplus of 140 bags per month

Examine the table The Market for Chocolate-Covered Peanuts. If the price of chocolate-covered peanuts is $0.80, there is:

falls; falls

French fries and hamburgers are complements. Suppose the cost of the ingredients used to make hamburgers rises, so that the price of hamburgers rises. Then the equilibrium relative price of french fries ____ and the equilibrium quantity ____.

inelastic; decrease

When the price of chocolate-covered peanurs decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. In this price range, the demand for chocolate covered peanuts is _____ and the total revenue will _____ when price decreases

quantity supplied increases

When the price of lamps increases, the:

2/3

When the price of pencils decreases from $3 to $1, the quantity demanded increases from 100 to 200 pencils. Using the midpoint method, the price elasticity of demand equals

supply schedule

a table that shows the relationship between the price of a good and the quantity supplied

(Q2 - Q1) / [(Q2 + Q1)/2] / (P2 - P1)/[(P2 + P1)/2]

arc elasticity formula

income effect

as the price of a good changes, our purchasing power for all goods also changes

law of supply

as the price of some good increases, the quantity firms are willing to supply also generally rises (all else constant)

needs short time to buy few if any substitutes little incentive to advertise extra taxes on goods addictive/vices

generalizations for inelastic demand

compliments

goods bought, used, or consumed together price increase in good A, demand decrease in good B

substitutes

goods that have some degree of interchangeability price increase in good A, demand increase in good B

substitution effect

occurs when consumers purchase more of a good that is relatively cheaper and less of a good that is relatively more expensive

(Q2 - Q1/Q1) x (P1/P2 - P1)

point elasticity formula

shortage

quantity demanded is greater than quantity supplied Qd > Qs price must rise

% change in quantity < % change in price elasticity < 1 as price increases, total revenue increases and vice versa (price and TR move in same direction) steeper demand curve

rules for inelastic demand

% change in quantity = 0 (Q doesn't change) elasticity = 0 vertical demand curve |

rules for perfectly inelastic demand

% change in quantity = % change in price elasticity = 1 45 degree demand curve \

rules for unitary elastic demand

cross price elasticity

shows how responsive buyers are in terms of their quantity demanded of one good when the price of some other good changes

income elasticity

shows how responsive buyers are to a change in income in terms of their quantity demand

excise tax

tax specifically placed on a product due to the inelastic nature of the product's demand curve

perfectly elastic demand

the case where the quantity demanded is infinitely responsive to price a lot of competition lots of goods produced in a small time

equilibrium price

the price at which the quantity demanded equals the quantity supplied

equilibrium quantity

the quantity supplied and the quantity demanded at the equilibrium price