comprehensive econ study guide

If the quantity of Big Macs demanded decreases by 4 percent in response to an 8 percent decrease in the price of Whoppers, then the cross-price elasticity of demand for Big Macs with respect to the price of Whoppers is:

0.5 Reason: The cross-price elasticity of demand for Big Macs with respect to the price of Whoppers is the percentage by which the demand for Big Macs changes in response to a 1 percent change in the price of Whoppers, which in this case is calculated as −4−8 = 0.5.

If the quantity of peanuts demanded increases by 6 percent in response to a 3 percent increase in the price of almonds, then the cross-price elasticity of demand for peanuts with respect to the price of almonds is:

2 The cross-price elasticity of demand for peanuts with respect to the price of almonds is the percentage by which the demand for peanuts changes in response to a 1 percent change in the price of almonds, which in this case is calculated as 63 = 2.

If the quantity supplied decreases by 6 percent in response to a 2 percent drop in prices, then the price elasticity of supply is:

3

Laura's total utility from consuming 8, 9, and 10 bonbons is 35, 42, and 45, respectively. Her marginal utility from the 9th bonbon is

C. 7

If output can be varied continuously, then firms in a perfectly competitive market maximize their profits by choosing the level of output such that _____.

P=MC

correct as it applies to pollution mitigation and recycling programs?

Reaching zero pollution increases MC above MB in most cases.

If recycling programs pay individuals and a reasonable amount for the collection of recycled raw materials, like aluminum, why do we have any litter at all?

Total economic surplus is greatest when we recycle up to the point where MB = MC. Some recyclable materials are often discarded in remote areas that make the cost of retrieval very high. Each additional unit of recyclable materials incurs an additional cost. At some point this money could be spent elsewhere.

Suppose a recent announcement by the United States Department of Agriculture leads Mr. Zuckerman, who grows sugar cane, to believe that the price of sugar cane will increase sharply next year. Mr. Zuckerman's current supply of sugar cane is likely to _______.

decrease Reason: Expectations of future price increases lead current supply to decrease because suppliers prefer to sell their product when prices are high.

As you move from point A to B to C, the price elasticity of demand _____. down the line

ecreases Reason: The elasticity of demand decreases as you move downward along a straight-line demand curve.

Suppose the owners of a local brewery carry property insurance that is paid for on an annual basis. In deciding how much beer to produce on any given day, the annual cost of the property insurance is considered a ____

fixed cost

If the price elasticity of supply for gasoline is 1.6, then if the price of gas goes up by 1 percent, the quantity of gasoline supplied will

go down by 1.6 percent. Reason: The price elasticity of supply is the percentage change in quantity supplied in response to a 1 percent change in price. In this case, since price goes up, quantity supplied goes up.

If the price elasticity of supply for tobacco is 5, then if the price of tobacco goes down by 1 percent, the quantity of tobacco supplied will

go down by 5 percent. Reason: The price elasticity of supply is the percentage change in quantity supplied that results from a 1 percent change in price. In this case, since price goes down, quantity supplied goes down.

Sven likes to water ski, but can only water ski during the one week that he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven's vacation, Sven w

increase

If the demand for economy-class airline tickets is elastic with respect to price, then if the price of economy-class airline tickets decreases, then total expenditure will _____.

increase Reason: If demand is elastic with respect to price, total expenditure will increase in response to a price decrease.

If the price of lawnmowers goes up by 9 percent and the quantity of lawnmowers demanded falls by 5 percent, then the total expenditure on lawnmowers will

increase. Reason: If the percentage increase in price is greater than the percentage decrease in quantity demanded, then total expenditure will increase.

If the price elasticity of supply is zero, then supply is _____.

inelastic

If a firm in a perfectly competitive market chooses the level of output such that price equals marginal cost, then the firm is ______

maximizing its revenue

uring Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4th one you became ill and lost the contest.Your total utility _______ with each pie you ate up to the 3rd pie.

ncrease

en years ago you had never even heard of wireless internet. Now you complete assignments for class on a laptop that accesses the Internet using wireless technology. This is evidence that

needs remain the same, but wants change

f the price elasticity of supply for dishwashers is 0.2, then if the price of dishwashers goes up by 8 percent, the quantity of dishwashers supplied will

o up by 1.6 percent. Reason: The quantity of dishwashers supplied will go up by 1.6 percent since 0.2×8=1.6.

formula for the price elasticity of demand is:

p/q times 1/slope

bundle of goods refers to

particular combination of goods.

Firms in perfectly competitive markets face demand curves that are _____.

perfectly elasstic

hoorztontal line regarding elasticity

perfectly elestic

measures each seller's marginal cost of production.

price

The cross-price elasticity of demand for popcorn with respect to the price of butter is:

the percentage change in the quantity of popcorn demanded in response to a 1 percent change in the price of butter.

Total economic surplus is greatest

when we recycle up to the point where MB = MC.

f Sal's Pizzeria uses tomato sauce, dough and cheese to make both pizza and calzones, then the price elasticity of supply for pizza at Sal's is likely to be relatively _____.

high Reason: In general, the easier it is to shift inputs away from the production of one good towards another, the more responsive will be the quantity supplied to a change in price.

if line is vertical

price elaticty is zero

he amount by which price exceeds the seller's reservation price is ____

producer surplus

difference between the total revenue of a firm and all costs (explicit and implicit) incurred by the firm is called _____.

profit

If the quantity of spaghetti demanded decreases by 4 percent in response to an 12 percent increase in the price of pasta sauce, then the cross-price elasticity of demand for spaghetti with respect to the price of pasta sauce is:

-0.33 Reason: The cross-price elasticity of demand for spaghetti with respect to the price of pasta sauce is the percentage by which the demand for spaghetti changes in response to a 1 percent change in the price of pasta sauce, which in this case is calculated as −412 = -0.33.

As the number of suppliers in the market increases, the market supply curve will shift to the ____

right

According to the rational spending rule, spending should be allocated across goods so that

the marginal utility per dollar is the same for each good.

The income elasticity of demand for guitars is

the percentage by which the quantity of guitars demanded changes in response to a 1 percent change in income.

If the price of sofas goes up by 10 percent and the quantity of sofas demanded falls by 15 percent, then the total expenditure on sofas will

decrease. Reason: If the percentage increase in price is less than the percentage decrease in quantity demanded, then total expenditure will decrease.

a horizontal line at the equilibrium price

he demand curve facing a firm in a perfectly competitive market is

if the price elasticity of demand is infiate then the line is

horzontal

perfectly elastic , then the price elasticity of demand is _____.

infitnate

Suppose Elsa owns an ice cream shop. If she expects the price of ice cream to fall next month, then this should ____

lead her current supply of ice cream to decrease Reason: Expectations of future price decreases lead current supply to increase because suppliers prefer to sell their product when prices are high.

An indifference curve traces out all of the consumption bundles that a consumer

likes equally well.

Marginal cost eventually increases because of _____.

diminishing returns Reason: Diminishing returns implies that it takes more of the variable input to produce each additional unit of output, which, in turn, implies that marginal cost is increasing.