microeconomics

1. Calculate the price elasticity of demand if when the price increases from $10 to $20 the quantity demanded decreases from 50 to 20. a. 1.28 b. -1.28 c. 0.78 d. -0.78

1. % change in quantity demanded % change in price = 𝑒𝑙𝑎𝑠𝑡𝑖𝑐𝑖𝑡𝑦 𝐸𝑛𝑑 𝑃𝑜𝑖𝑛𝑡−𝑆𝑡𝑎𝑟𝑡 𝑃𝑜𝑖𝑛𝑡 𝑀𝑖𝑑𝑝𝑜𝑖𝑛𝑡 ∗100% = % change 20−50 35 ∗100% 20−10 15 ∗100% =−86% 67% =−1.28

1. Which of the following events would cause an increase in the supply of ceiling fans? a. The number of sellers of ceiling fans decreases. b. There is an increase in the price of air conditioners, and consumers regard air conditioners and ceiling fans as substitutes. c. There is a decrease in the price of the motor that powers ceiling fans. d. All of the above will cause an increase in the supply of ceiling fans.

1. C; A decrease in the number of sellers will decrease supply. A change in the price of air conditioners will shift demand, but not supply.

2. Calculate the percentage change if price increases from $35 to $55. a. 0.57 b. 1.75 c. 0.44 d. 2.25

2. 𝐸𝑛𝑑 𝑃𝑜𝑖𝑛𝑡−𝑆𝑡𝑎𝑟𝑡 𝑃𝑜𝑖𝑛𝑡 𝑀𝑖𝑑𝑝𝑜𝑖𝑛𝑡 ∗100% = % change $55−$35 $45 ∗100% = 44% or 0.44

2. Which of the following might cause the supply curve for a good to shift to the left? a. An increase in input prices. b. A decrease in consumer income. c. An improvement in production technology that makes production of the good cheaper. d. An increase in the number of sellers in the market.

2. A; An increase in the number of sellers and an improvement in technology will both increase supply, shifting the curve to the right. A change in consumer income influences demand, not supply.

3. Consider the market for oranges. If the number of orange sellers increases and the price of apples falls (assuming apples and oranges are substitutes), what will be the change in equilibrium price and quantity? a. Equilibrium price will increase. It is not clear whether equilibrium quantity will increase or decrease. b. Equilibrium price will decrease. It is not clear whether equilibrium quantity will increase or decrease. c. Equilibrium quantity will increase. It is not clear whether equilibrium price will increase or decrease. d. Equilibrium quantity will decrease. It is not clear whether equilibrium price will increase or decrease.

3. B; More sellers means supply will increase, which will increase equilibrium quantity and decrease equilibrium price. Cheaper apples will decrease demand, which will decrease equilibrium quantity and decrease equilibrium price. Since both changes decrease price, we know that price will fall. Both changes push quantity in opposite directions, so the total change in quantity is unclear without knowing the relative size of the supply and demand shifts.

3. The income elasticity of demand for a normal good is: a. Great than 0 b. Equal to 0 c. Between 0 and -1 d. Less than -1

3. The income elasticity of demand for a normal good is greater than 0. The income elasticity of demand for an inferior good is less than 0.

4. Which good would have the most elastic demand? a. Automobiles b. SUVs c. Silver SUVs d. Honda CRV

4. A Honda CRV would have the closest and most plentiful substitutes, making it more elastic than the less narrowly defined groups in the other possible answers.

4. Which of the following statements is true? a. If there is excess demand at the current price, the price will fall as it moves to equilibrium. b. If there is excess supply at the current price, the price will fall as it moves to equilibrium. c. When the price is set above equilibrium, there will be excess supply in the market. d. Excess supply is the same thing as a shortage, and excess demand is the same thing as a surplus. e. Both a. and c. are true. f. Both b. and c. are true. g. Both b. and d. are true. h. b., c., and d. are all true. i. a., c., and d. are all true.

4. F; Answer a. is incorrect because excess demand will put upward pressure on prices. Answer d. is incorrect because excess demand is the same as a shortage while excess supply is the same thing as a surplus.

5. Which of the following will not shift the supply curve for cat food? a. Input prices rise. b. The number of sellers in the cat food market increases. c. The price of cat food rises. d. All of the above will shift the supply curve for cat food.

5. C; A change in the price of cat food will cause movement along the curve and a change in quantity supplied. It will not shift the entire supply curve.

5. At equilibrium, which of the following occurs? a. Quantity demanded exceeds quantity supplied b. Quantity demanded equals quantity supplied c. Quantity supplied exceeds quantity demanded d. None of the above

5. The market clears at equilibrium as quantity demanded equals quantity supplied

6. If a change in price does not change the quantity demanded, then the demand curve is: a. Perfectly elastic b. Elastic c. Unit elastic d. Inelastic e. Perfectly inelastic

6. A perfectly inelastic (vertical) demand curve would not witness a change in quantity demanded if the price changed.

6. Consider the market for Coca-Cola. Which of the following events will increase the equilibrium quantity of Coca-Cola produced? a. Wages rise for workers at Coca-Cola. b. Buyers expect that the price of Coca-Cola will fall in the near future. c. The price of Pepsi increases, and Pepsi is a substitute for Coca-Cola. d. Incomes rise, and Coca-Cola is an inferior good.

6. C; An increase in wages will decrease supply, which decreases equilibrium quantity. If buyers expect the price to fall in the future, they will buy less today, decreasing demand. Similarly, if Coke is an inferior good, increasing income will also decrease demand. Decreasing demand will decrease equilibrium quantity.

7. Assume socks and running shoes are complementary goods. Consider the market for running shoes. Which event will not cause a shift in the demand curve for running shoes? a. The number of running shoe buyers increases b. The price of socks decreases c. The price of running shoes decreases d. A new study emphasizes the importance of running

7. A change in price would not shift the demand curve for running shoes. A change in price of running shoes would cause a movement along the demand curve. The number of buy ers would shift the demand curve. The price of socks, a complementary good, would shift the demand curve. A new study that changes preferences would shift the demand curve.

7. When economists make normative statements, they are a. speaking as scientists. b. speaking as policy advisers. c. making claims about how the world is. d. making claims that can be either confirmed or refuted.

7. B; All other answers describe positive statements.

8. Which of these statements best represents the law of demand? a. When buyers' tastes for a good increase, they purchase more of the good. b. When income levels increase, buyers purchase more of most goods. c. When the price of a good increases, buyers purchase less of the good. d. When the price of a good increases, buyers purchase more of the good.

8. C; Answers a. and b. describe an increase in demand, while the law of demand refers to how price influences quantity demanded. Answer d. is backwards.

9. Paula loves economics and hates engineering. Stanley loves engineering and hates economics. Consider the following allocations: i: Paula gets a book on economics, Stanley gets a book on engineering. ii: Paula gets a book on engineering, Stanley gets a book on economics. iii: Paula gets both books, Stanley gets neither book. iv: Paula gets neither book, Stanley gets both books. How many of the above allocations are Pareto Efficient? a. 0 b. 1 c. 2 d. 3 e. 4

9. D; The only allocation that is not Pareto Efficient is allocation ii.