economics 201 test 2

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

consumer surplus

measures the benefit buyers receive from participating in a market

consumer surplus

total surplus =

consumer surplus + producer surplus or value to buyers - cost to sellers

the demand for gasoline is rising. which of the following statements describes a possible cause

consumers expect prices to rise the near future

minimum wage laws

create a price floor below which workers cannot be legally paid

how much the quantity demanded of one good responds to a change in the price of another good

cross-price elasticity of demand

Expectations about the future (increase/decrease) current supply

decrease

demand curve shifts left

decrease in demand

any change that decreases the quantity supplied at every price

decrease in supply

supply is perfectly elastic when the price elasticity of supply = ? and the supply curve is ?

infinity horizontal

when demand curve is perfectly elastic, price elasticity of demand = ? and the demand curve is ?

infinity horizontal

variables that can shift the supply curve

input prices, technology, expectations about future, number of sellers

intstitutions that bring buyers and sellers together so the

interactive modes

amount of a good that buyers are willing and able to purchase

quantity demanded

the amount of a good that sellers are willing and able to sell

quantity supplied

Advocates of the minimum wage

raise the income of the working poor

advocates if the minimum wage

raise the income of the working poor

farm price supports

reduce food prices

constant slope

rise over run

these people determine the supply of the product

sellers

Shifts vs. movements along curves... change in demand

shift in the demand curve

Shifts vs. movements along curves... change in supply

shift in the supply curve

changes in tastes, expectations about the future, number of buyers increases all can...

shift the demand curve

a decrease in the poulation in the market will cause

shift to the left in demand

-when quantity demanded is greater than quantity supplied -excess in demand -upward pressure on price

shortage

goods that are typically used together, negative cross-price elasticity

complements

an increase in income leades to an increase in demand

normal good

-positive income elasticity -necessities -luxuries

normal goods

oponents of the minimum working wage

not the best way to combat poverty

-goods offered for sale are exactly the same -no single buyer or seller has any influence over the market price -at the market place buyers can buy all they want and sellers can sell all they want

perfectly competitive market

determine who produces each good and how much is produced

price

a legal maximum on the price at which a good can be sold (rent control laws)

price ceiling

policy makers believe that the market price of a good or service is unfair to buyers or sellers, they can generate inequities

price controls

how much the quantity demanded of a good responds to a change in the price of that good

price elasticity of demand

how much the quantity supplied of a good responds to a change in the price of that good

price elasticity of supply

a legal minimum on the price at which a good can be sold (minimum wage laws)

price floor

the amount a seller is paid for a good minus the seller's cost of providing it

producer surplus

equation for price elasticity of demand

% change in quantity demanded / % change in price

price elasticity of supply equation

% change in quantity supplied / % change in price

midpoint method

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

change in quantity demanded vs change in demand

-a change in quantity demanded results from a change in price and moves along the demand curve -factors other than price can cause a shift in the demand curve. factors like income, age, gender and personal characteristics

Law of Supply -when the price of a good rises, the quantity supplied... -when the price falls, the quantity supplied...

-also rises -also falls

impact of the minimum wage on teenage labor

-binding -willing to accept a lower wage in exchange for on the job training

one summer, a hurricane destroys part of the sugarcane crop. what is the effect on the market for ice cream

-change in the price of sugar--> supply curve shifts to the left -higher equilibrium price--> lower equilibrium quantity

effect on the market for ice cream: one summer, very hot weather

-demand curve shifts to the right -equilibrium pice and quantity become higher

one summer, hurricane and a heat wave. what is the effect on the market for ice cream?

-heat wave shift the demand curve--> demand curve shifts to the right -hurricane shifts--> supply curve shifts to the left -equilibrium price raises

Supply Schedule and Supply Curve -an increase in price... -an increase in quantity supplied...

-moves up along the y axis -moves to the right along the x axis

impact of the minimum wage on highly skilled and experienced workers

-not binding -no effect on them

opponents of minimum wage

-not the best way to combat poverty -poorly targeted policy

rent control effects in the long run

-supply and demand are more elastic -landlords -induces more people to live in the city -large shortage of housing

rent control effects in the short run

-supply and demand for housing are inelastic in the short run -small shortage -reduced rents

Can good news for farming be bad news for farmers?: new hybrid of wheat increases production per acre by 20%

-supply curve shifts to the right -higher quantity and lower price -demand is inelastic: total revenue falls

Law of Demand -when the price of a good rises... -when the price falls...

-the quantity demanded of the good falls -the quantity demanded rises

if minimum wage is above equilibrium

-unemployment -higher income for workers who have jobs -lower income for workers who cannot find jobs

supply is perfectly inelastic when the price of supply = ? and the supply curve is ?

0 vertical

when demand is perfectly inelastic, price elasticity = ? and the demand curve is ?

0 vertical

nonbinding price ceiling

A maximum legal price that is set above the existing equilibrium price. Because the market equilibrium price is lower than the price ceiling, the ceiling has no effect on the market and is said to be nonbinding.

binding price ceiling

A maximum legal price that is set below the existing equilibrium price. Because the market equilibrium price is greater than the price ceiling, the ceiling restricts trade and is said to be binding.

binding price floor

A minimum legal price that is set above the existing equilibrium price. Since the market equilibrium price is lower than the price floor, the floor restricts trade and is said to be binding.

nonbinding price floor

A minimum legal price that is set below the existing equilibrium price. Since the market equilibrium price is greater than the price floor, the floor has no effect on the market and is said to be nonbinding.

Lower prices generally...

A: motivate consumers to buy

a shift in the demand curve can be directly caused by...

a change in one of the determinants of demand

assume the demand schedule for mp3 players is downward sloping. if the price of mp3 players increases from $100 to $150

a decrease in quantity demanded will occur

-takes all the information about buyers and sellers into account -guides everyone in the market to the best outcome -economic activity is all guided by...

adam smiths invisible hand

all else equal, a decrease in the number of businesses selling pizza will cause

an increase in the equilibrium price of pizza (because supply shifts to the left)

when the price of a good changes in the market...

both the quantity demanded and quantity supplied change for the good

these people determine the demand for the product

buyers

which of the following will cause an increase in consumer surplus a. the imposition of a binding price ceiling in the market b. buyers expect the price of the good to be lower next month c. the price of a substitute increases d. income oncreases and buyers consider the good to be inferior

c

market in which there are many buyers and many sellers

competitive market

an increase in the price of one leads to an decrease in the demand for the other

complements

teenage labor market: a 10% increase in the minimum wage increases/decreases teenage emplyment by 1-3%

decreases

relationship between the price of a good and quantity demanded

demand

a graph of the relationship between the price of a good and the quantity demanded

demand curve

Variety of Demand Curves: price elasticity of demand is =1

demand has unit elasticity

Variety of Demand Curves: price elasticity of demand >1

demand is elastic

Variety of Demand Curves: price elasticity of demand <1

demand is inelastic

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

demand schedule

Demand Schedule and Demand Curve a decrease in price causes a shift...

down the y axis

maximizing the total surplus received by all members of society

efficiency

At points with a high price and low quantity, the demand curve is

elastic

luxuries have a (inelastic/elastic) demand

elastic

long-run: supply and demand are decrease in supply...

elastic small increase in price

demand in which changes in price have large effects on the amount demanded

elastic demand

quantity demanded responds substantially to changes in price

elastic demand

for supply curve, Points with low price and high quantity

elastic supply

quantity supplied responds substantially to changes in the price

elastic supply

measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

elasticity

the property of distributing economic prosperity uniformly among the members of society

equality

a situation where market price has reached the level where supply and demand curves intersect

equilibrium

price floors are the outcome of some haphazard process true or false

false

what is the best way to organize economic activity

free markets

the flatter the demand curve, the ______ the price elasticity of demand

greater

all else equal, the law of demand states that ____ quantity of a good will be demanded the ___ its price

higher lower

markets for many agircultural commodities vs markets for ice cream in a particular town

highly organized vs less organized

variables that can shift the demand curve

income, prices of related goods, tastes, expectations, number of buyers

demand curve shifts right

increase in demand

any change that increases the quantity supplied at every price

increase in supply

advances in technology, reduces firms costs and (increases/decreases) supply

increases

when new buyers enter the market, consumer surplus...

increases

At points with a low price and high quantity, the demand curve is...

inelastic

necessities have a (inelastic/elastic) demand

inelastic

short-run: supply and demand are... decrease in supply...

inelastic large increase in price

A situation in which an increase or a decrease in price will not significantly affect demand for the product

inelastic demand

quantity demanded responds only slightly to changes in price

inelastic demand

for supply curve, points with high price and high quantity

inelastic supply

quantity supplied responds only slightly yo changes in the price

inelastic supply

An item whose demand rises as people's incomes fall is known as a(n) ________ good.

inferior

an increase in income leads to a decrease in demand

inferior good

-negative income elasticities

inferior goods

the price of any good adjusts to bring the quantity supplied and the quantity demandd for that good into balance

law of supply and demand

tax burden falls more heavily on the side of the market that is more/less elastic

less

what is a complementary good for a kayak

life jacket

a group of buyers and sellers of a particular good or service

market

sum of all individual demands for a good or service

market demand

sum of all the supplies of all sellers for a good or service

market supply

the only seller in the market sets the price

monopoly

demand is more/less elastic over a longer time

more

narrowly defined markets have a more/less elastic demand

more

availability of close substitutes: goods with close substitutes are...

more elastic demand

in france the average income is 30% lower and minimum wage is

more than 30% higher

Shifts vs. movements along curves... change in the quantity demanded

movement along a fixed demand curve

Shifts vs. movements along curves... change in the quantity supplied

movement along a fixed supply curve

supply is (positively/negatively) related to prices of inputs Higher input prices (decreases/increases) supply

negatively decreases

an increase in the price of one leads to an increase in the demand for the other

substitutes

goods typically used in place of one another, positive cross-price elasticity

substitutes

The quantity demanded in a market is the ____ of the quantities demanded by all the _____ at each price. Thus, the market demand curve is found by adding _______ the individual demand curves.

sum buyers horizontally

The quantity supplied in a market is the _____ of the quantities supplied by all the _____ at each price. Thus, the market supply curve is found by adding_______ the individual supply curves.

sum sellers horizontally

relationship between the price of a good and the quantity supplied

supply

the behavior of people as they interact with one another in competitive markets

supply and demand

a graph of the relationship between the price of a good and the quantity supplied

supply curve

Variety of supply curves: price elasticity of supply >1

supply is elastic

Variety of supply curves: price elasticity of supply <1

supply is inelastic

Variety of supply curves: price elasticity of supply =1

supply is unit elastic

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

supply schedule

-when quantity supplied is greater than quantity demanded -excess in supply -downward pressure on price

surplus

a ______ occurs when price is above market equilibrium

surplus

manner in which the burden of a tax is shared among participants in the market

tax incidence

tool to raise revenue for public purposes and to influence market outcomes

taxes

as the price of orange juice rises

the demand for grape juice falls

in a free market the main signal to the market that brings price to equilibrium comes from

the excess or shortage of inventory for sale

when economists refere to "market demand" curve we know that it represents...

the horizontal submation of individual demand curves

1. Decide whether the event shifts the supply curve, the demand curve, or, in some cases, both curves 2. Decide whether the curve shifts to the right or to the left 3. Use the supply-and-demand diagram

three steps to analyze changes in equilibrium

why does government use taxes

to raise revenue for public projects

in 1990, congress adopted a new luxury tax. what was their goal?

to raise revenue from those who could most easily afford to pay

Demand Schedule and Demand Curve an increase in quantity demanded causes a shift...

to the right on the x axis

suppose that an artist prices his painting at 150 but it remains unsold. the price of 150 is

too high, it should be lowered

the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold (P xQ)

total revenue

for a price increase... if demand is elastic then

total revenue decreases

for a price increase... if demand is inelastic then

total revenue increases

buyers and sellers share the vurden of tax true or false

true

economists ususally oppose price ceiling and price floors true or false

true

people respond to incentives true or false

true

prices balance supply and demand true or false

true

taxes discourage market activity true or false

true

If the minimum wage exceeds the equilibrium wage, then

unemployment, higher income for workers who have jobs, lower income for workers who cannot find jobs

Price is on the ___ axis and quantity is on the ___ axis.

vertical and horizontal

the study of how the allocation of resources affects economic well being

welfare economics

maximum amount that a buyer will pay for a good

willingness to pay


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