Micro Test 2 Prep

Consumer surplus is equal to the difference between

the maximum price a buyer is willing to pay and the market price.

Sam's willingness to pay for a pizza is $15. If the price of pizza is $10, Sam's consumer surplus after buying the pizza is:

$5

Suppose the market for t-shirts has three potential sellers: Martin, whose willingness to sell is $6, Adam, whose willingness to sell is $10, and Clara, whose willingness to sell is $12. If t-shirts sell for $11 each, then producer surplus in this market is:

$6

Please rank each curve in terms of elasticity

Elastic is more horizontal and inelastic is more vertical

A shortage in the market for economics textbooks will ___________ the price of textbooks.

Increase

The graph shows the market for pizza cutters. Assuming $5 to be the equilibrium price for this market, please shade in consumer surplus (CS), producer surplus (PS), and total surplus (TS).

The area above the equilibrium price bound by the demand curve represents the consumer surplus. The area below the equilibrium price bound by the supply curve represents the producer surplus. Total (or social) surplus is the sum of the two areas.

Which statement is the best definition of the price elasticity of demand?

The ratio of the percent change in quantity demanded to the percent change in price

What is the percent change in gasoline sales? Please specify your answer to one decimal place and use the midpoint formula.

q2-q1/ ((q2+q1)/2)

An economic signal is

some information that helps people to make better decisions economically.

Consumer surplus is shown graphically as the area

under the demand curve and above the market price.

Suppose the hot dog market is made up of three potential buyers: Ana, who is willing to pay $10 for a hot dog, William, who is willing to pay $8, and Mara, who is willing to pay $6. If hot dogs sell for $7, then consumer surplus in this market would be:

$4

Last week, michelle spend 30 on caviar. Today michelle still spends $30 on caviar even though its price has doubled

1

What is her income elasticity of demand for running shoes?

1 income elasticity = percentage change in quantity/percentage change in income The proportion of income spent on the seashells by Attina will remain same irrespective of any change in income. This is the unitary elasticity of income which is equal to 1. The percentage change in quantity demanded of seashells will be = percentage change in income of Attina

Suppose the accompanying graph depicts a market for one pound bags of candy. Place the line labeled Excess Demand at a price that would generate an excess demand (shortage). Then, determine the size of the excess demand.

Excess demand line goes all the way down (low supply high demand) Excess Demand = D-S = 7-3 =4

The accompanying table contains the willingness to pay for 5 students in the market for a new tablet. Identify which portion of the demand curve below represents each individual. Student Willingness to pay Fransisco$200 Lily$300 Amanda$400 Julio$100 Anthony$500

Francisco is D Lily is C Amanda is B Julio is E Anthony is A Which students will purchase a tablet if the price of a tablet is $550? no one

Suppose the graph represents the labor market for low-wage workers. A minimum wage of $8 per hour is being considered.

If imposed, the minimum wage will result in a surplus of 200 workers

Suppose that Michelle buys a cappuccino from Paul's Cafe and Bakery for $5.25. Michelle was willing to pay up to $8.75 for the cappuccino, and Paul's Cafe and Bakery was willing to accept $3.25 for the cappuccino. Based on this information, answer the following questions.

Michelle's consumer surplus: $ 8.75-5.25 = 3.5 Paul's Cafe and Bakery's producer surplus: $ 5.25-3.25 = 2

Suppose the small-town market for bubble gum has the following inverse demand and supply functions: P = 20-(1/3)Q d P = -10+(1/5)Q s

P = 1.25

Suppose economists can use the following two equations to describe a market. Q = 50 - 2P Q = 30 + 3P

P = 4

Q stands for quantity of tacos and P stand for the price of a taco. Q = 100 + 10P At what price would producers be willing to supply 150 tacos? In other words, solve for P when Q = 150. P =

P = 5

Lorena considers coffee and tea to be substitutes. Therefore, the cross elasticity of demand between coffee and tea for Lorena must be

Positive

Garret is an undergraduate looking for a job to pay for college. As Garret seeks employment, he is glad to know that he will be paid at least $7.25$7.25 per hour. Select the term that best fits the scenario.

Price floor

Suppose the cost of lithium-ion batteries, an input into the production of electric vehicles, has dropped more steeply than expected. The accompanying graph depicts a market for electric vehicles. Demonstrate the effect of a reduction in the price of lithium-ion batteries by adjusting the accompanying diagram. a) Equilibrium price is now .... thousand a) Equilibrium quantity is now .... thousand

Shift supply to the right a) 40 thousand b) 6 thousand

Price elasticity of demand =

(Q1-Q0) / (Q1+Q0/2) / (P1-P0/(P1+P0/2)

Which of the scenarios are examples of an economic signal?

- Purchases of floppy disks and CDs decline dramatically as the demand for online streaming of similar goods increases. - Prices in housing markets fall. - The market price for toilet paper has not changed over the last 10 years. - Companies begin hiring more people after a long period of high unemployment in the United States.

If the quantity demanded of sunglasses decreases by 2% when average incomes fall by 10%, then we know that sunglasses are

a normal good

a) A 20% price increase for Product A causes a 10% decrease in its quantity demanded, but no change in quantity demanded for Product B b) Product C increases in price from $5 a pound to $11 a pound. This causes the quantity demanded for Product D to increase from 10 units to 18 units. c) When the price of Product E decreases 2%, this causes its quantity demanded to increase by 14% and the quantity demanded for Product F to increase 17%

a) 0 no relationship b) 0.8 substitutes c) 17/-2 =-8.5 complements

Stone and brick are substitutes in home construction. Consider the market for bricks depicted in the graph. Suppose the price of stone increases due to new regulations for the stone quarrying industry. Illustrate the impact this will have on the market for bricks. a) Equilibrium price: b) Equilibrium quantity

a) increases b) increases shift demand curve to the right

Suppose that policy makers are concerned that the price of milk may get too high. The market for milk is depicted in the accompanying diagram. What type of price control would policy makers use to keep the price of milk from getting too high? a. Suppose that the government implements the price control that you have selected. Which of these prices would be binding? b. Suppose that the government implements the price control that you have selected. Which of these prices would be binding?

a. a price ceiling b. $5

The quantity of iPads consumers want to buy at a every price. Q = 10000 - 25P How many iPads will consumers wish to buy at a price of $300? In other words, if P=300, solve Q=

Q = 2500

Use the following set of linear equations to solve for the value of Q. Q = 700 - 100P Q = 200 + 150P

Q=500

What graph represents inelastic demand

Sharp decrease graph A

The U.S. government has subsidized ethanol production since 1978. With the advent of affordable electric cars, policymakers are considering whether to allow the subsidy to expire. The accompanying graph represents the market for ethanol. Move the supply and/or demand curves to show how reducing the subsidy will affect the ethanol market. a) Equilibrium price b) Equilibrium quantity

Shift Supply curve to left a) increases b) decreases

Currently charges $0.99 for an all-day ticket, and has an average of 513 riders a day The bus company is considering increasing the ticket price to $1.21. The marketing department's studies indicate this price increase would reduce usage to 249 riders per day. Calculate the absolute value of the price elasticity of demand for bus tickets using the simple percentage change method

2.3 demand is elastic , so decreasing ticket prices will increase revenue Ed = ((Q2-Q1)/(P2-P1)) * (P1/Q1) absolute value of ed If absolute value is greater than 1 , the demand is elastic

a)If Good C increases in price by 30% a pound, and this causes the quantity demanded for Good D to increase by 40% , what is the cross price elasticity of the two goods b)What is the relationship between the two goods

40/30 = 1.3 b) substitutes

If the quantity demanded of personal computers increases by 5% every time the price of personal computers decreases by 10%, the price elasticity of personal computers is

5/10 = 0.5

The accompanying diagram depicts a demand curve for DVDs for a monopoly currently producing at point B. Specify answers to the nearest dollar, and use a negative sign to indicate decrease in revenue. If the firm lowers DVD prices from $16 to $14, what is the change in revenue, assuming quantity remains the same? c) What is the overall net effect of this price decrease on the firm's total revenue d) what is the price elasticity of demand

A) $-400 B) 1400 C) 1000 D) Elastic

For each scenario, decide whether it results in a producer or consumer surplus. Then calculate the resulting surplus. Alice is willing to spend $30 on a pair of jeans and has a coupon for $10 off. She purchases a pair of jeans that costs $35 pre-discount. Jeff finds steak in the supermarket priced at $16 but that he would have been willing to pay $20 for. The butcher notices the meat is near the expiration date and gives him an extra 75% off. Nicole has a hockey puck from the 2018 Winter Olympic Games and puts it up for sale on eBay. She will only sell the puck if the winning bid is greater than or equal to $500. After the bidding closes, the last bid stands at $501.

Alice receives a consumer surplus Alice's surplus: $ 5 Jeff receives a consumer surplus Jeff's surplus: $16 Nicole receives a producer surplus Nicole's surplus: $1

Rent controls are a typical example of a price ceiling. Please select all likely consequences of rent controls when the price ceiling is binding.

All 4: inefficient allocation of apartments more subletting of apartments reductions in apartment quality black markets

Assume Fiona is willing to pay $8 for a pizza cutter. Tim also wants one, but is only willing to pay $6 for one. At a pizza baker's convention, Fiona buys the last pizza cutter at the market price just before Tim can buy it. Tim contacts the convention organizers and complains about missing out on the last pizza cutter. The organizers refund Fiona for the pizza cutter and allow Tim to buy it at the market price. What happens as a result of the organizers refunding Fiona, taking the pizza cutter from her, and letting Tim buy it at the market price?

Consumer surplus decrease

The accompanying graph depicts a hypothetical market for analog TVs. In June 2009, the U.S. Federal Communications Commission (FCC) mandated that all over-the-air television broadcasts originating in the U.S. must be broadcast digitally instead of the traditional analog signal. These digital transmissions cannot be decoded by traditional analog TVs but require either a digital decoder be attached to an analog TV or a natively digital TV. Both sellers and consumers were made aware of the upcoming switch from analog transmission to digital several years before the mandate took effect. Demonstrate on the graph how the market for analog TVs changed immediately following the announcement of the switch to digital. For the supply side, focus on the end seller (such as an electronic store) of a TV and not the manufacturer.

Demand curve shifts left Supply curve shifts right (sellers are trying to get rid of stock)

The table contains the demand and supply schedule for apartments in a city. Suppose the city council feels that the equilibrium rent is too high and imposes a price ceiling of $750/month.

The price ceiling results in a shortage The city now has a shortage or surplus of how many apartments? 4500

During the Obama administration, the development of low-cost batteries for electric cars received large amounts of federal funding in terms of subsidies. Meanwhile, American households gave a higher priority towards minimizing their environmental impact. Consider the market for zero-emissions electric vehicles where there is an upward-sloping supply curve and a downward-sloping demand curve. a) Which direction will demand and supply shift? b) What will happen to the equilibrium price? c) What will happen to the equilibrium quantity?

a) both curves will shift right b) change is ambiguous c) quantity increases

The figure shows the supply and demand for online music. Suppose that an economic downturn decreases household wealth and erodes consumer confidence. Move the supply and/or demand curves to reflect the primary effect this would have on the market for online music. You can assume that online music is a normal good. Also select the end result of equilibrium price and quantity. a) Equilibrium price b) Equilibrium quantity

a) decreases b) decreases shift demand curve to the left

a) When Ruko, a device used to stream movies at home, increases prices by 42 percent, total revenue decreases by 67 percent b) When Cinema Supreme decreases ticket prices by 26 percent, total revenue does not change c) When bluebox, a streaming service for foreign television shows and movies, increases its prices by 49 percent, total revenue increases by 31 percent.

a) elastic b) unit elastic c) inelastic In summary: a. Elastic Demand: Consumers are highly responsive to price change, leading to a significant decrease in total revenue. b. Unit Elastic Demand: The percentage change in quantity demanded matches the percentage change in price, resulting in constant total revenue. c. Inelastic Demand: Consumers are not highly responsive to price change, leading to an increase in total revenue despite the price increase.

a) Over longer periods of time, demand tends to become b) When there are fewer substitutes , demand tends to be

a) more elastic b) less elastic

a) Contain Yourself!, a plastic container company, raises the price of its signature Lunchbox container from $3.00 to $4.00. As a result, the quantity, the quantity sold drops from 20,000 to 15,000. b) Economists working for the United States have determined that the elasticity of demand for gasoline is 0.5. c) Capital Metro decides to increase bus fare rates from $2.00 to $2.21. Consequently, the number of passengers who decide to take the bus in Austin drops from an average of 70,000 rides a day to an average of 61,000 riders a day.

a) unit elastic b) inelastic c) elastic

Suppose the graph depicts a hypothetical market for concert tickets at a local college venue. Because students are paying such high prices, a price ceiling of $40 per concert is being considered. Move the price ceiling line to correctly depict the price ceiling of $40. a. By how much does consumer surplus (CS) increase if the price ceiling is imposed? b. By how much does producer surplus (PS) decrease if the price ceiling is imposed? c. What is the value of the deadweight loss (DWL) associated with this price ceiling?

a. 250 b. 350 c. 100 price ceiling = 40

Suppose that towns collect resources from their surroundings. Then, through trade, they attempt to obtain other desirable items. Mortarville, an urban town that specializes in brick and ore, wants wood to build roads so that it can expand and connect to other major cities. Mortarville has a willingness to pay $50for wood, since wood is hard for them to obtain. Mayflair also needs wood to build grain silos for their wheat harvests. Mayflair is willing to pay $45 for wood. Timber, the only foresting company, sets the price of wood at $60. a. The change in total surplus that arises due to trades between Timber and the towns is b. John finds a set of wood in his garage which he is willing to sell for no less than $35. John chooses to sell the set to Mayflair for $40 instead of to Mortarville for $45.

a. equal to zero b. total surplus increased, but the market is inefficient

The year is 1779 in Iceland. Light sources, such as oil lamps, are precious commodities (as harnessed electricity is not yet available). The government wants to intervene in the pricing of oil lamps so that its citizens do not pay outrageous amounts of money for lighting. The currency used in Iceland at the time is the rigsdaler. Consider the graph depicting Iceland's hypothetical supply and demand for oil lamps. a. If Iceland's governor chooses to set a price floor of 15 rigsdaler for an oil lamp, what will occur? b. If Iceland's governor chooses to set a price ceiling of 40 rigsdaler for an oil lamp, what will occur?

a. nothing will change b. nothing will change

The Generator is a popular youth hostel in London located near Kings Cross. The hostel provides a bed, showers, and breakfast in their nightly fee. Suppose the quantity demanded is 0 when the price is $90 per night and 90 when the price is $10 per night. Quantity supplied is 0 when the price is $10 and 100 when the price is $80. a. In the accompanying diagram, use this information to place the supply and demand curves. b. In equilibrium, how many beds are rented? c. What is the total surplus?

a. place as told from paragraph b. 50 beds (# on graph from middle) c. area of triangle $2000

Assume the market for DVD movies is initially at equilibrium. A decrease in the price of streamed movies, a substitute for DVD movies, will __________ the equilibrium price and ___________ the equilibrium quantity of DVD movies.

decrease; decrease

Please identify the statements about property rights as either true or false. a. Property rights include the right to buy or sell one's resources and goods. b. Property can be tangible or intangible. c. The enforcement of property rights prevents many mutually beneficial transactions from occurring. d. All countries are equally effective at enforcing property rights.

a. true b. true c. false d. false

Producer surplus is shown graphically as the area

above the supply curve and below the market price.

Which of the following goods probably has the highest price elasticity of supply?

blue pencils

Which of the following prices would be a binding price floor for strawberries if the current equilibrium price is $3 per pound? a) $2 b) $3 c) $4 d) none of the above

c. $4

If last week the price of a cup of coffee was $3 and this week the price has increased tp $4, how many fewer cups of coffee do people wish to buy this week?

change in Q = 10

Amazon has a "Lightning Deal" where it slashes the price of one item. At 3:15 p.m. today, they announced that the item was a new tablet with a sales price of $150which is less than half the original price. The table contains the maximum willingness to pay of five college students wanting to buy a tablet on Amazon. Student Willingness to pay Anthony. $500 Amanda. $400 Lily $300 Francisco $200 Max. $100 a) What is total consumer surplus for the five students? b) If the price increases from $150 to $350, what is the change in total consumer surplus?

ex. (500-150)+(400-150)... a) 800 b)-600

As the price of gummy bears rises from $2.60 to $3, what are the price elasticities of demand of sugar-free gummy bears and of ordinary gummy bears? a) elasticity of demand of sugar-free gummy bears b) elasticity of demand of regular gummy bears

for a and b use q2-q1/((q2+q1)/2)/p2-p1/((p2+p1)/2)

You sell t-shirt in the street courner in order to support some of the tuition costs. Around the middle of the semester, your friend Carlos gives you the following advice: "if you increase the price of each t-shirt you sell you will be able to make a lot more money selling your t-shirts For carlos to be right, the price elasticity of t-shirts must be price:

inelastic

If the equilibrium price of solar panels is $200 per panel, but a price ceiling of $150 per panel is imposed, what happens to the market for solar panels?

quantity demanded exceeds quantity supplied and a shortage occurs

Producer surplus is the difference between

the market price and the minimum price a seller is willing to accept.