iQuizes & HW for ECN 212 Test 1

Suppose that the demand for good Y is given by the equation: Qdy = 200- 2Py + 3Px, where Px is the price of good X and Py is the price of good Y. Based on this equation we can conclude that: When the price of X goes up the quatity demanded of Y goes down Good X and good Y are substitute goods When the price of X goes down the quatity demanded of Y goes up Good X and good Y are complementary goods

Good X and good Y are substitute goods

During the last few decades in the United States, health officials have argued that eating too much beef might be harmful to human health. As a result, there has been a significant decrease in the amount of beef produced. Which of the following best explains the decrease in production? Beef producers, concerned about the health of their customers, decided to produce relatively less beef. Individual consumers, concerned about their own health, decreased their demand for beef, which lowered the equilibrium price of beef, making it less attractive to produce. Anti-beef protesters have made it difficult for both buyers and sellers of beef to meet in the marketplace. Government officials, concerned about consumer health, ordered beef producers to produce relatively less beef.

Individual consumers, concerned about their own health, decreased their demand for beef, which lowered the equilibrium price of beef, making it less attractive to produce.

Which of the following would cause price to increase? a surplus of the good a shortage of the good a decrease in demand an increase in supply

a shortage of the good

Assume that Qd = 80-2P and Qs = 2P-20, at a price of $30 this market has: a shortage of 20 units and the price will go up to reach the equilibrium price a surplus of 20 units and the price will go up to reach the equilibrium price a surplus of 20 units and the price will go down to reach the equilibrium price a surplus of 20 units and the price will go up to reach the equilibrium price

a surplus of 20 units and the price will go down to reach the equilibrium price

If the cross-price elasticity of demand for two goods is 1.25, then the two goods are substitutes. one of the goods is normal and the other good is inferior. the two goods are luxuries. the demand for one of the goods conforms to the law of demand, but the demand for the other good violates the law of demand.

the two goods are substitutes.

Coke and Pepsi are substitute soft drinks. Which of the following would cause the demand curve for Pepsi to shift to the left? a new Pepsi ad campaign that increases the popularity of Pepsi the cost of making Pepsi rises the price of Coke decreases the price of Pepsi decreases

the price of Coke decreases

Assume that Qd = 80-2P and Qs = 2P-20. Equilibrium price and quantity are respectively $20,10 $60, 40 $25, 30 $15, 10 $10, 20

$25, 30

Assume that the market for Good X is defined as follows: QD = 64 - 16P and QS = 16P. What is the producer surplus in this market? $24 $2 $64 $32

$32

Consumer A - $1.459 B - $1,320 C - $1,201 D - $1,165 If the market price of Apple computers is $1,200 each, how much total consumer surplus (in $) are the four consumers earning? $415 $5,145 $345 $380

$380

Suppose the demand curve is: P = 300 - 2QD and the supply curve is: P = 100 + 3QS. What is the sum of the consumer and producer surplus in the market at the equilibrium price and quantity? $2400 $4000 $3200 $2600

$4000

(Check your book for an explanation of double counting costs) Consider Diego's decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Diego's cost of going to college is $33,800. $42,600. $49,800. $57,000.

$42,600.

Suppose that demand is given by the equation: Qd = 180 -3P And supply is given by the equation: Qs = P-20 Using the midpoint formula, calculate the elasticity for demand when the price changes from $50 to $40

3 , and elastic

Suppose that the demand for good Y is given by the equation: Qdy = 40- 2Py + Px, where Px is the price of good X and Py is the price of good Y. If Py is $16, and Px is $8 , what is the consumer surplus in market Y? $64 $128 $8 $16

$64

Price elasticity of demand midpoint method

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

Suppose the demand function for good X is given by Qdx = 15-0.5Px-0.8Py where Qdx is the quantity demanded of good X, Px is the price of good X, and Py is the price of good Y, which is related to good X. Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $5 and the price of good Y decreases from $5 to $2, the cross price elasticity of demand is about

-0.29, and X and Y are complements.

Suppose that when the price of good X falls from $6 to $4, the quantity demanded of good Y rises from 30 units to 40 units. Using the midpoint method, the cross-price elasticity of demand is -1.40, and X and Y are substitutes. -0.71, and X and Y are substitutes. -1.40, and X and Y are complements. -0.71, and X and Y are complements.

-0.71, and X and Y are complements.

Ronda's cake store earned $3,750 in total revenue last month when it sold 125 cakes. This month it earned $3,600 in total revenue when it sold 90 cakes. The price elasticity of demand for Ronda's cake store is

1.14

When a university bookstore prices chemistry textbooks at $200 each, it generally sells 120 books per month. If it lowers the price to $160, sales increase to 160 books per month. Given this information, we know that the price elasticity of demand for chemistry books is about 0.78, and a decrease in price from $200 to $160 results in a decrease in total revenue. 1.29, and a decrease in price from $200 to $160 results in an increase in total revenue. 0.78, and a decrease in price from $200 to $160 results in an increase in total revenue. 1.29, and a decrease in price from $200 to $160 results in a decrease in total revenue.

1.29, and a decrease in price from $200 to $160 results in an increase in total revenue.

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about

1.43, and an increase in the price will cause hotels' total revenue to decrease.

P1 = $7 Qd = 12 P2 = $5 Qd = 20 Calculate price elasticity of demand between these points

1.5

Using the midpoint method, what is the price elasticity of supply between $5 and $6? Qs for $5 = 30 and Qs for $6 = 40

1.57

What is the income elasticity of demand for tea? Tea = 5 Income = $30,000 Tea = 15 Income = $45,000

2.5

The elasticity of demand for a good is |-0.75|. A 4 percent increase in price will cause a: 3 percent decrease in quantity demanded. 0.19 percent decrease in quantity demanded. 5.33 percent increase in quantity demanded. 5.33 percent decrease in quantity demanded.

3 percent decrease in quantity demanded.

Suppose that the demand is given by the equation: Qd = 200 - 2P. if the market price is 20, what is the consumer surplus? 8,100 6,400 64,000 81,000

6,400

Bill consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle, and the price of spaghetti is $8 per serving. His income is $1,000 per month. He spends all of his income each month. He purchases 200 bottles of iced tea. How many servings of spaghetti does he purchase? 50 75 125 10

75

What would most likely cause a decrease in quantity supplied? (movement down & to the left of the supply curve) An decrease in the price of a complementary good An increase in the price of an input An increase in population A decrease in the price of good X A decrease in the price of a substitute good

A decrease in the price of a substitute good

Good A: price elasticity of demand = 1.9 Good B: price elasticity of demand = 0.8 Which of the following is consistent with the elasticities given in Table 5-1? A has fewer substitutes than B. A is a good immediately after a price increase and B is that same good 3 years after the price increase. A is a good after an increase in income and B is that same good after a decrease in income. A is a luxury and B is a necessity.

A is a luxury and B is a necessity. (trends: luxuries --> elastic necessities --> inelastic)

The demand for Godiva mint chocolates is likely quite elastic because the market is narrowly defined. All of the above are correct. there are many close substitutes. this particular type of chocolate is viewed as a luxury by many chocolate lovers.

All of the above narrow market --> elastic more substitutes --> elastic luxuries --> elastic

In which of the following situations will total revenue increase? Price elasticity of demand is 3.0, and the price of the good decreases. Price elasticity of demand is 1.2, and the price of the good decreases. All of the above are correct. Price elasticity of demand is 0.5, and the price of the good increases.

All of the above are correct.

What would most likely cause a decrease in quantity supplied? (movement down & to the left of the supply curve) An increase in the price of a complementary good An increase in the price of a substitute good An increase in population An increase in the price of an input A decrease in the price of good X

An increase in the price of a complementary good

Assume that at the current market price of $4 per unit of a good, you are willing and able to buy 30 units. Last year at a price of $4 per unit, you would have purchased 20 units. What has most likely happened over the last year? Demand has increased. Quantity supplied has increased. Supply has increased. Demand has decreased.

Demand has increased.

Suppose the incomes of buyers in a market for a particular inferior good decrease and there is also a reduction in input prices. Equilibrium output would increase, but the impact on equilibrium price would be ambiguous. Equilibrium output would decrease, and equilibrium price would decrease. Equilibrium price would increase, but the impact on equilibrium output would be ambiguous. Equilibrium output would decrease, but the impact on equilibrium price would be ambiguous.

Equilibrium output would increase, but the impact on equilibrium price would be ambiguous.

If supply and demand for a good both decrease, which of the following is true? Equilibrium price and quantity will both decrease. Equilibrium price will decrease but we cannot say for sure what will happen to equilibrium quantity. Equilibrium quantity will increase but we cannot say for sure what will happen to equilibrium price. Equilibrium quantity will decrease but we cannot say for sure what will happen to equilibrium price. Equilibrium price will increase but we cannot say for sure what will happen to equilibrium quantity.

Equilibrium quantity will decrease but we cannot say for sure what will happen to equilibrium price. (you can never predict both when there is a change to both)

Which of the following examples demonstrates the law of demand? Mary buys fewer Milky Ways at $0.80 per Milky Way after the price of Snickers falls to $0.70 per Snicker. Amy buys fewer muffins at $2.00 per muffin than at $3.50 per muffin, other things equal. After Mark got a raise at work, he bought more cookies at $2.50 per cookie than he did before his raise. Kelvin buys more donuts at $0.80 per donut than at $0.95 per donut, other things equal.

Kelvin buys more donuts at $0.80 per donut than at $0.95 per donut, other things equal.

Katie is planning to sell her house, and she is considering making two upgrades to the house before listing it for Replacing the carpeting will cost her $2,500 and replacing the roof will cost her $9,000. Katie expects the new carpeting to increase the value of her house by $3,000 and the new roof to increase the value of her house by $7,000. She should replace the carpeting but not replace the roof she should make both improvements to her house she should replace the roof but not replace the carpeting She should not make either improvement to her house

She should replace the carpeting but not replace the roof

If the equilibrium price increases and the equilibrium output decreases then what must have happened. Demand decreased Supply increased Demand increased Supply decreased

Supply decreased

What would happen if there was a decrease in the price of paper used in the production of books? No change Demand shifts positively Demand shifts negatively Supply shifts positively Supply shifts negatively

Supply shifts positively (key word = used in production; R(otten) )

Saddle shoes are not popular right now, so very few are being produced. If saddle shoes become popular, then how will this affect the market for saddle shoes? The demand curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity. The supply curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity. The demand curve for saddle shoes will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity. The supply curve for saddle shoes will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity.

The demand curve for saddle shoes will shift right (Qd > Qs), which will create a shortage at the current price. Price will increase (shortage means price increase), which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity.

After much consideration, you have chosen Cancun over Ft. Lauderdale as your Spring Break destination this year. However, Spring Break is still months away, and you may reverse this decision. Which of the following events would prompt you to reverse this decision? The marginal benefit of going to Cancun increases. The marginal cost of going to Cancun decreases. The marginal benefit of going to Ft. Lauderdale decreases. The marginal cost of going to Ft. Lauderdale decreases.

The marginal cost of going to Ft. Lauderdale decreases.

Which of the following events could shift the demand curve for corn to the left? The income of corn buyers falls, and corn is an inferior good. The income of corn buyers rises, and corn is a normal good. There is a new study showing that consuming corn can be harmful for your health The price of corn rises.

There is a new study showing that consuming corn can be harmful for your health (ROTTEN - Expectations)

Suppose that Jane enjoys Diet Coke so much that she consumes one can every day. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot. These examples illustrate the importance of the time horizon in determining the price elasticity of demand. the availability of close substitutes in determining the price elasticity of demand. the definition of a market in determining the price elasticity of demand. a necessity versus a luxury in determining the price elasticity of demand

a necessity versus a luxury in determining the price elasticity of demand

A budget constraint illustrates the consumption bundles that give a consumer equal satisfaction. purchases made by consumers. prices that a consumer chooses to pay for products he consumes. consumption bundles that a consumer can afford.

consumption bundles that a consumer can afford.

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is highly responsive to changes in income. unit elastic. elastic. inelastic.

inelastic.

When we move along a given demand curve, all determinants of quantity demanded are held constant. income and price are held constant. all nonprice determinants of demand are held constant. only price is held constant.

all nonprice determinants of demand are held constant.

Perfectly inelastic

as price increases or decreases, there is no change in quantity demanded

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. Your roommate still enjoys Ramen noodles very much and buys even more, but you plan to buy fewer Ramen noodles in favor of foods you prefer more. When looking at income elasticity of demand for Ramen noodles, yours would be positive and your roommate's would be negative. be negative and your roommate's would be positive. approach infinity and your roommate's would be zero. be zero and your roommate's would approach infinity.

be negative and your roommate's would be positive.

If a shortage exists in a market, then we know that the actual price is below the equilibrium price, and quantity demanded is greater than quantity supplied. above the equilibrium price, and quantity supplied is greater than quantity demanded. below the equilibrium price, and quantity supplied is greater than quantity demanded. above the equilibrium price, and quantity demanded is greater than quantity supplied.

below the equilibrium price, and quantity demanded is greater than quantity supplied.

Cross price elasticity If negative --> ? postitive --> ?

complements substitutes

A consumer has preferences over two goods, X and Y. Suppose we graph this consumer's preferences (which satisfy the usual properties of indifference curves) and budget constraint on a diagram with X on the horizontal axis and Y on the vertical axis. At the consumer's current consumption bundle, the consumer is spending all available income, and the marginal rate of substitution is greater than the slope of the budget constraint. We can conclude that the consumer is currently maximizing satisfaction subject to the budget constraint. could increase satisfaction by consuming more X and less Y. could increase satisfaction by consuming less X and more Y. could purchase more X and more Y and increase total satisfaction.

could increase satisfaction by consuming more X and less Y.

A movement upward and to the left along a demand curve is called a(n)

decrease in quantity demanded.

If Kindle e-readers and Nook e-readers are substitutes, a lower price for Nooks would result in a(n) increase in the demand for Kindles. decrease in the demand for Kindles. decrease in the demand for Nooks. increase in the demand for Nooks.

decrease in the demand for Kindles.

Suppose buyers of computers and computer software regard the two goods as complements. Then an increase in the price of computer software will cause a(n) increase in the equilibrium price of computers and a decrease in the equilibrium quantity of computers. decrease in the equilibrium price of computers and an increase in the equilibrium quantity of computers. decrease in the demand for computers and a decrease in the quantity supplied of computers. decrease in the supply of computers and a decrease in the quantity demanded of computers.

decrease in the demand for computers and a decrease in the quantity supplied of computers.

If the demand for bananas is elastic, then an increase in the price of bananas will increase total revenue of banana sellers. decrease total revenue of banana sellers. not change total revenue of banana sellers. There is not enough information to answer this question.

decrease total revenue of banana sellers.

If an indifference curve is bowed in toward the origin, the marginal rate of substitution is likely to be identical to the price ratio for each bundle along the indifference curve. different for each bundle along the indifference curve. likely to be constant for all bundles along the indifference curve. not likely to reflect the relative value of goods.

different for each bundle along the indifference curve.

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly inelastic, and the demand curve will be vertical. elastic, and the demand curve will be vertical. inelastic, and the demand curve will be horizontal. elastic, and the demand curve will be horizontal.

elastic, and the demand curve will be horizontal.

Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 5-4. The change in equilibrium quantity will be greater in the beef market than in the milk market. Any of the above could be correct. greater in the milk market than in the beef market. the same in the milk and beef markets.

greater in the beef market than in the milk market.

An increase in a consumer's income has no effect on the consumer's budget constraint. decreases the slope of the consumer's budget constraint. has no effect on the slope of the consumer's budget constraint. increases the slope of the consumer's budget constraint.

has no effect on the slope of the consumer's budget constraint.

If the price elasticity of demand for a product is |-2|, this implies that if the price increases by $1, the quantity demanded will decrease by 2 units. the change in quantity demanded divided by the change in price is equal to 2. if the price increases by 1 percent, the quantity demanded will decrease by 2 percent. if the price increases by 2 percent, the quantity demanded will decrease by 1 percent.

if the price increases by 1 percent, the quantity demanded will decrease by 2 percent. (*remember %change Qd/% change P)

Prices will _ to eliminate a shortage and _ to eliminate a surplus

increase, decrease

Mario buys eight units of good X when his income is $2,000 a month. When his income increases to $2,700 per month, he buys only six units of good X. For Mario, good X is: an inferior good. a good of high value. a normal good. a good with few substitutes.

inferior good

Giffen goods have positively-sloped demand curves because they are normal goods with no substitution effect. inferior goods for which the income effect outweighs the substitution effect. inferior goods with no substitution effect. inferior goods for which the substitution effect outweighs the income effect.

inferior goods for which the income effect outweighs the substitution effect.

Perfectly elastic

infinite response to a change in price, infinite quantity demanded

If the price of milk rose to $6 per gallon, consumers would purchase fewer gallons of milk than if the price were $2 per gallon. If the price of chocolate fell to $1.50 per piece, consumers would purchase more chocolate than if the price were $5 per piece. These relationships illustrate the difference between substitute and complement goods. law of supply. law of demand. difference between normal and inferior goods.

law of demand babyyy

The price elasticity of demand measures the responsiveness of quantity demanded to a change in income size of the shortage created by the increase in demand. direction of the shift in the demand curve in response to a market event. magnitude of the response in quantity demanded to a change in price.

magnitude of the response in quantity demanded to a change in price.

The price elasticity of demand measures the size of the shortage created by the increase in demand. magnitude of the response in quantity demanded to a change in price. direction of the shift in the demand curve in response to a market event. responsiveness of quantity demanded to a change in income.

magnitude of the response in quantity demanded to a change in price.

A consumer chooses an optimal consumption point where the slope of the indifference curve exceeds the slope of the budget constraint. marginal rate of substitution equals the relative price ratio ratios of all the marginal utilities are equal. All of the above are correct.

marginal rate of substitution equals the relative price ratio

If the law of demand applies to this good, then P1 could be 4,6,7, or 8? P = $5 Q = 80 P1 = ? Q = 100

must be $4 because increase in Qd --> decrease in price

Income elasticity Normal goods have _ Inferior goods have _

positive elasticity because as income rises, demand rises negative elasticity because as income rises, demand falls

What is not held constant in a demand schedule? (income, expectations, tastes, or price)?

price

The price elasticity of demand measures how sensitive the: price is to a change in the quantity supplied. quantity demanded is to a change in price. demand is to a change in the number of suppliers. price is to a change in quantity demanded.

quantity demanded is to a change in price.

If price elasticity of demand = |-1.5| and price decreases by 10 percent, then quantity demanded will increase by 1.5 percent demand will increase by 15 percent total revenue will remain unchanged total revenue will decrease quantity demanded will increase by 15 percent

quantity demanded will increase by 15 percent

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should lower the price of the cinnamon rolls. raise the price of the cinnamon rolls. reduce costs. leave the price of the cinnamon rolls unchanged.

raise the price of the cinnamon rolls.

T astes and preferences R elated prices of goods I ncome B uyers E xpectation

really like something then you are more willing to buy it substitutes are directly related; complements inversely increase in McD cause positive shift for BK income increase demand increase, decrease --> decrease More buyers more demand, less, less Meat causes cancer, demand decrease Energy drink makes you smarter, demand increase

If quinoa farmers know that the demand for quinoa is inelastic, in order to increase their total revenues they should reduce the number of acres they plant to decrease their output. plant additional acres to increase their output. use more fertilizers and weed killers to increase their yields. Both a and b are correct.

reduce the number of acres they plant to decrease their output

The market demand curve

represents the sum of the quantities demanded by all the buyers at each price of the good.

R esources O pportunity costs T axes T echnology E xpectations N umber of sellers/producers

resource price/costs: if the price of resources increase, the curve shifts to the left, b/c the price must increase opportunity costs of giving up one good for another taxes/subsidies: government takes/gives $ technology: makes things less expensive to produce- shifts to the right expectations of producers (about future prices): if prices are expected to increase in the future, producers decrease supply now and wait till price increases number of producers/sellers: more suppliers, supply of good rises; less suppliers, supply will decline

An increase in demand for burgers shifts the demand curve to the left. results in an increase in quantity demanded at every price. results in a movement upward and to the left along a demand curve. results in a movement downward and to the right along a demand curve.

results in an increase in quantity demanded at every price.

Suppose the cost of flying a 400-seat plane for an airline is $250,000 and there are 6 empty seats on a flight. If the marginal cost of flying a passenger is $130 and a standby passenger is willing to pay $140, the airline should sell the ticket because the marginal benefit exceeds the marginal cost. sell the ticket because the marginal benefit exceeds the average cost. not sell the ticket because the marginal benefit is less than the marginal cost. not sell the ticket because the marginal benefit is less than the average cost.

sell the ticket because the marginal benefit exceeds the marginal cost.

If we observe that Jamie's budget constraint has moved outward, then we know for certain that her income must have decreased. the price of one or both of the goods must have decreased. she will be indifferent between goods X and Y. she can reach a higher indifference curve.

she can reach a higher indifference curve.

A decrease in income will cause a consumer's budget constraint to pivot along the horizontal axis. pivot along the vertical axis. shift outward, parallel to its initial position. shift inward, parallel to its initial position.

shift inward, parallel to its initial position.

Suppose there is an increase in the price of wood. We would expect the supply curve for pencils to remain unchanged as the price of pencils and the quantity supplied move down. shift leftward. shift rightward. remained unchanged as the price of pencils and the quantity supplied move up.

shift leftward. ( refer to R(otten) )

Suppose roses are currently selling for $40 per dozen, but the equilibrium price of roses is $30 per dozen. We would expect a surplus to exist and the market price of roses to decrease. surplus to exist and the market price of roses to increase. shortage to exist and the market price of roses to decrease. shortage to exist and the market price of roses to increase.

surplus to exist and the market price of roses to decrease. (must meet equilibrium @ $30 --> decrease in price means surplus)

Theresa spends 2 hours working instead of watching TV with her friends. The opportunity cost to her of working is the salary earned working per hour. the salary earned working per hour. minus the enjoyment of watching TV. the enjoyment she would have received if she had watched TV with her friends. zero. Since Theresa chose to study rather than to watch TV, the value of studying must have been greater to her than the value of watching TV.

the enjoyment she would have received if she had watched TV with her friends.

Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result, the equilibrium price increases, and the equilibrium quantity is unchanged. the equilibrium quantity decreases, and the equilibrium price is unchanged buyers' total expenditure on the good is unchanged. the equilibrium quantity and the equilibrium price both are unchanged.

the equilibrium price increases, and the equilibrium quantity is unchanged.