MICRO 3-5

If the price and quantity for an inferior good, Good X, is $8 and 6 units at the original equilibrium, what is one possibility for the new equilibrium of Good X if we see income increase and all other factors stay constant?

$6 and 4 units

If the percentage change in quantity demanded of Good B is 2% and the percentage change in the price of Good A is -10%, what is the cross-price elasticity of demand?

-0.20

If the cross-price elasticity between Good A and Good B is -1.5 and the percentage change in quantity demanded of Good B is 15%, what is the percentage change in the price of Good A?

-10%

A producer knows that the price elasticity for his product is -0.5. He wants to increase quantity demanded by 30%. By what percentage does he need to change the price?

-60%

You are given a list of income elasticity of demand values. Which one represents a necessity?

0.5

5 supply shifters

1. the costs of inputs 2. changes in technology 3. taxes + subsidies 4. Number of buyers/sellers 5. Price expectation

The initial price of picture frames is $6 and suppliers offer 20 frames. When the price falls to $4, suppliers offer only 10. The price elasticity of supply is:

1.67.

If the cross-price elasticity of demand between Good A and Good B is 2 and the percentage change in price of Good A is 5%, what is the percentage change in quantity demanded of Good B?

10%

If the percentage change in the quantity consumed of pizza is 8% and the percentage change in income is 2%, what is the income elasticity of demand for pizza?

4

Which of the following will cause the demand curve for burgers to shift the right?

A study is published by the National Association for Burger Research that says eating burgers can reduce the risk for bad acne.

Which of the following would cause the demand curve to shift to the right?

Income decreases for an inferior good.

What are the four determinants of the Price Elasticity of Demand?

The existence of Substitutes The share of the budget spent on the good Necessities versus luxury goods Time and the Adjustment Process

The equilibrium price of peanut butter is $5. A study comes out that says the fat in peanut butter is good for your heart. Holding all other factors constant, which of the following scenarios could happen?

The price of peanut butter increases to $7 because of a demand shift.

When a tax is imposed on some good, what usually happens to consumer and producer surplus?

They both decrease.

inferior good

a good in which we buy less of when we make more income

normal good

a good in which we buy more of when we get more income

When the price is _________ the equilibrium price, we would expect there to be a _________, causing the market to put _________ pressure on the price until it went back to the equilibrium price.

above; surplus; downward

An improvement in technology:

allows a producer to increase output with the same amount of input.

Which of the following situations would cause the demand curve to shift to the right?

an increase in the price of a substitute

Excise taxes are taxes that are:

applied to a particular good or activity.

5 demand shifters

changes in income, price of related goods, changes in tastes and preferences, future expectations, number of buyers

Which one of the following pairs of goods is likely to have a negative cross-price elasticity of demand?

coffee and cream

If the cross-price elasticity of demand is -5, Good A and Good B are:

complements.

The price of good X increases by 25%, causing the quantity consumed of good Y to decrease by 10%. If everything else is held constant in the economy, we can say with certainty that good X and good Y are:

complements.

Two goods that are used together are called:

complements.

The demand curve for a good will shift to the right if, holding all else constant,

consumers expect future prices to increase.

When you change your quantity demanded of one good because of a change in price of another good, you are acting according to the principle of:

cross-price elasticity of demand.

An expectation of a lower price in the future will:

decrease current demand.

When the price of ground beef increases and all else is held constant, we would expect the supply of hamburgers to _________, causing the price to _________.

decrease; increase

When supply shifts to the right and demand stays constant, the equilibrium price:

decreases and the equilibrium quantity increases.

When firms in a market expect the price of their product to rise, the supply curve of their good:

decreases, causing the equilibrium price to rise.

Over time, the price elasticity of supply for sunglasses will become more:

elastic.

When the price of scooters drops by 5%, the quantity demanded changes by 20%. You know that the price elasticity of demand for scooters is:

elastic.

At higher prices, the price elasticity of demand is likely to be ___ , whereas it is likely to be ___ at lower prices.

elastic; inelastic

The local bakery calculates the price elasticity of demand for its cinnamon rolls to be -1.25. This tells them that demand is ___ and price is ___ to the buyer.

elastic; more important than the quantity

When quantity demanded and price increase by 10%, you know that price and quantity are to the consumer.

equally important

When supply shifts left and demand shifts right, the:

equilibrium price always rises.

When the demand curve shifts to the left and all else is held constant, the

equilibrium price falls and the equilibrium quantity falls.

When both supply and demand shift to the left, the:

equilibrium quantity always falls.

substitues

goods that can be used in place of eachother

We would expect to see a positive cross-price elasticity between:

ice cream and frozen yogurt.

when is demand inelastic?

if quantity demanded changes a small amount as a result of the price change

when is demand elastic?

if quantity demanded changes significantly as price changes

Which of the following would cause a normal good's demand curve to shift to the left?

income decreases

Taxes cause the equilibrium price of a good to:

increase.

If the number of buyers in a market increases from 50 to 100, you would expect the equilibrium price to _________ and the equilibrium quantity to _________, holding all else constant.

increase; increase.

A 15% increase in the price of cookies results in a 9% decrease in the quantity of cookies sold. The revenue received by cookie suppliers will because the price elasticity of demand for cookies is .

increase; inelastic

Something is an inferior good if the demand for the good:

increases as the consumer's income decreases.

Something is a normal good if the demand for the good:

increases as the consumers income increases

. A local merchant raises the price of his good and finds that his total revenues increase. The demand for this good is:

inelastic.

At a price of $2, the quantity demanded for pens is 12. When the price increases to $3, the quantity demanded for pens is 10. The price elasticity of demand for pens is:

inelastic.

Super Economy Brand products have an income elasticity of -1.4. Thus, these are ___ goods.

inferior

If the income elasticity of demand is -3, the good will be a(n):

inferior good.

A subsidy:

is a payment made by the government to encourage consumption or production of a good or service.

A demand schedule:

is a table representing the relationship between the price of a good or service and the quantity demanded.

A supply schedule:

is a table representing the relationship between the price of a good or service and the quantity supplied.

A change in quantity supplied:

is represented by a movement along the supply curve.

normal goods and their categories

luxuries and necessities

When incomes fall by 20%, quantity demanded of specialty baked goods falls by 50%. Specialty baked goods are:

luxuries.

When Sue received a promotion at work, her income rose by 50%. The income elasticity of demand for steak was found to be 1.5. For her, steak is a(n):

luxury

If the income elasticity of demand is 1.2, the good will be a(n):

luxury good.

Demand is almost always more price elastic in the long run because:

more options become available and people can make different choices.

If the income elasticity of demand is 0.5, the good will be a(n):

necessity good.

Income elasticity of demand for professional haircuts is found to be 1.7. This service is a:

normal good and a luxury good.

Price elasticity of demand is measured as the:

percentage change in quantity demanded divided by the percentage change in price.

Sellers of bottled water find that whether the price falls or rises, the quantity bought by consumers remains unchanged every week. The price elasticity of demand for bottled water is:

perfectly inelastic.

If a business finds that demand for its good is very price elastic, it knows that:

price is very important.

Price elasticity of demand measures the change in:

quantity demanded due to the change in price.

The income elasticity of demand for a good measures the responsiveness of ___ to a change in ___

quantity demanded; income

Higher input costs:

reduce profits

If the price elasticity of supply is 1.5, we know that supply is:

relatively elastic.

If the price elasticity of supply is 2.5, we know that it is:

relatively elastic.

When the price elasticity of demand is elastic, a consumer is:

relatively responsive to a change in price.

Inputs are:

resources that firms use in the production of final goods and services.

elasticity

responsiveness of buyers and sellers to changes and conditions

A decrease in demand is represented by a:

shift of the demand curve to the left.

If the cost of flour increases from $3 to $5 a bag, you could predict the supply curve for bagels to:

shift to the left.

If the cross-price elasticity of demand is 6, Good A and Good B are:

substitutes.

In the long run, both supply and demand tend to become more elastic. This suggests that, in the long run, the:

tax revenue will be lower than it is in the short run.

Deadweight loss is defined as:

the cost to society created by distortions in the market.

Pepsi and Coke are considered substitute goods. Because of this, one would predict that, holding all else constant, if the price of Pepsi increases, we would see:

the demand curve for Coke shift to the right.

If the price of a good increases, holding all else constant,

the demand for all of that good's substitutes will increase.

When the demand curve shifts to the right and the supply curve is held constant,

the equilibrium price and quantity increase.

Which of the following is both a shift in supply and a shift in demand?

the number of buyers

equilibrium price

the price at which the quantity demanded equals the quantity supplied

Which of the following will cause a movement along a good's supply curve?

the price of the good increases

According to the law of demand, all other things being equal

the quantity demanded falls when the price rises, and the quantity demanded rises when the price falls.

The law of supply states that, all other things being equal,

the quantity supplied falls when the price falls, and the quantity supplied rises when the price rises.

A shortage occurs whenever:

the quantity supplied is less than the quantity demanded.

When the government places a tax on the producer of a good or service:

the supply curve for the good or service shifts to the left.

When the number of firms in a market decreases,

the supply curve shifts to the left.

Cross-price elasticity measures the relationship between:

two goods and services.

complements

two goods used together

Firms are indifferent to changing prices when the price elasticity of demand is:

unitary elastic.

When the price increases by 30% and the quantity demanded drops by 30%, the price elasticity of demand is:

unitary elastic.

when is demand relatively elastic

when we are relatively sensitive to change and the demand curve is relatively flatter