ECN 212 Exam 1

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

elastic, and the demand curve will be horizontal.

In each case, the budget constraint moves from BC-1 to BC-2.Which of the graphs in the figure reflects a decrease in the price of good X only?

graph b (see graph)

An increase in a consumer's income

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

If we observe that Jamie's budget constraint has moved outward, then we know for certain that

he can reach a higher indifference curve.

If the price elasticity of demand for a product is |-2|, this implies that

if the price increases by 1 percent, the quantity demanded will decrease by 2 percent.

Economists assume that people respond to:

incentives.

A lower price for batteries would result in a(n)

increase in the demand for flashlights.

The price elasticity of demand measures how sensitive the:

quantity demanded is to a change in price.

The market demand curve

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

The phenomenon of scarcity stems from the fact that

resources are limited

Economics deals primarily with the concept of

scarcity

A decrease in income will cause a consumer's budget constraint to

shift inward, parallel to its initial position.

A marginal change is a

small, incremental adjustment

If the cross-price elasticity of demand for two goods is 1.25, then

the two goods are substitutes.

The opportunity cost of a choice is:

the value of the opportunities lost.

The demand for Godiva mint chocolates is likely quite elastic because

there are many close substitutes. this particular type of chocolate is viewed as a luxury by many chocolate lovers. the market is narrowly defined.

When the price of a good (e.g., oranges) or service (e.g., hair cut) changes,

there is a movement along the demand curve of that good or service

Economics is the study of:

trade-offs when making decisions.

Economics is the study of how society manages its

unlimited wants and limited resources.

The quantity demanded of a good is the amount that buyers are

willing and able to purchase

The downward-sloping line on the figure represents a consumer's budget constraint. If the consumer's income is $100, then what is the price of an apple?

$0.50 (see graph)

The downward-sloping line on the figure represents a consumer's budget constraint. If the price of a CD is $12, then the consumer's income amounts to

$240 (see graph)

The following table contains a demand schedule for a good. If the law of demand applies to this good, then P1 could be

$4 Price Quantity Demanded $5 80 $P1 100

If the price of good X is $15, what is the price of good Y?

$50 (see graph)

The figure above is the market for soda pop drinks in ounces. What is the total producer surplus at equilibrium?

$64

At a price of

$8, there is a surplus of 6 units. (see graph)

Between point A and point B, price elasticity of demand is equal to

1.5

In the table above the income elasticity for margarine is _______ and margarine is found to be _________.

1.5, a normal good

If these are the only three sellers in the market, then an increase in the market price from $6 to $9 will increase quantity supplied by

12 units (see table)

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.

If the market consists of Michelle, Laura, and Hillary and the price falls from $4 to $3, the quantity demanded in the market increases by

5 units (Quantity demanded by Michelle at $4: 6, Quantity demanded by Laura at $4: 6, Quantity demanded by Hillary at $4: 13, Quantity demanded by Michelle at $3: 7, Quantity demanded by Laura at $3: 8, Quantity demanded by Hillary at $3: 15)

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?

75

If these are the only two sellers in the market, then the market quantity supplied at a price of $2 is

8 units

The following table contains a supply schedule for a good. If the law of supply applies to this good, then Q1 could be

90 Price Quantity Supplied $10 80 $15 Q1

In the diagram above, which of the following would most likely change equilibrium from point A to point D?

A decrease in the price of a substitute good (see graph)

In his book The Wealth of the Nations, Adam Smith claimed that individuals:

Are motivated by self-interest

Total revenue when the price is P1 is represented by the area(s)

B + D

Given the budget constraint depicted in the graph, the consumer's optimal choice will be point

C (see graph)

In the figure above, which graph represents what would happen if there was an decrease in the price of paper used in the production of books (starting at 1 and shifting to 2)?

D (see graph)

As price falls from Pa to Pb, which demand curve represents the most elastic demand?

D1

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.

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

An economy that produces only bread and petroleum jelly now discovers a new source of oil. Assume oil is an input only in the production of petroleum jelly. Which of the graphs in the figure above depicts the resulting shift of the PPC?

Figure C (see graph)

Which supply schedules obey the law of supply?

Firm F's, Firm G's, and Firm H's only

Which of the following examples demonstrates the law of demand?

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

Suppose that the federal government is concerned about obesity in the United States. Congress is considering two plans. One would require "junk food" producers to include warning labels on all junk food. The other would impose a tax on all products considered to be junk food. If the warning labels are successful, we could illustrate the plan as producing a movement from

Point A to Point B in Panel 1 (see graph)

The downward-sloping line on the figure represents a consumer's budget constraint. Which of the following statements is correct? a. Point V is unaffordable for the consumer given his budget constraint. b. Point Z costs less than point V. c. Points W, X, and Y give the consumer the same level of satisfaction. d. Points W, X, and Y all cost the consumer the same amount of money.

Points W, X, and Y all cost the consumer the same amount of money.

In which of the following situations will total revenue increase?

Price elasticity of demand is 1.2, and the price of the good decreases. Price elasticity of demand is 0.5, and the price of the good increases. Price elasticity of demand is 3.0, and the price of the good decreases.

If the equilibrium price increases and the equilibrium output decreases then what must have happened.

Supply decreased

Which of the following events could shift the demand curve for corn to the left?

There is a new study showing that consuming corn can be harmful for your health

Which of the following demonstrates the law of supply?

When the price of soccer balls rose, soccer balls sellers increase their quantity supplied of soccer ball

Which of the following would cause the demand curve to shift from Demand C to Demand A in the market for oranges in the United States?

a decrease in the price of tangerines (a substitute for oranges)

Suppose the figure shows the market demand for ipods. Suppose the price of music dowloads, a complementary good, decreases. Which of the following changes would occur?

a shift from D2 to D1 (see graph)

Which of the following would cause price to increase?

a shortage of the good

Assume that Qd = 80-2P and Qs = 2P-20, at a price of $30 this market has:

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

The movement from point A to point B on the graph represents

an increase in the price of the good that is being supplied and the suppliers' responses to that price change. (see graph)

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

Economists believe people make decisions by:

comparing marginal costs with marginal benefits.

A budget constraint illustrates the

consumption bundles that a consumer can afford.

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

decrease in quantity demanded

The movement from point B to point A on the graph shows 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)

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)

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

An increase in the price of a good will

decrease quantity demanded

The principle that trade can make everyone better off applies to

individuals, families, and countries

"Other things equal, when the price of iron (a good) rises, the quantity demanded of iron (the good) falls, and when the price (of iron) falls, the quantity demanded (of iron) rises." This relationship between price and quantity demanded (of iron)

is referred to as the law of demand

The price elasticity of demand measures the

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

A rational decision maker takes an action only if the

marginal benefit is greater than the marginal cost.

A consumer chooses an optimal consumption point where the

marginal rate of substitution equals the relative price ratio.

A group of buyers and sellers of a particular good or service is called a(n)

market

Which of the following is not held constant in a demand schedule?

price

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.