ECO 2301 TTU Exam 2

Suppose supply decreases, but there is no change in demand. As the market reaches its new equilibrium:

excess demand will lead the price to rise.

Suppose price of broccoli is $4 per pound, buyers wish to buy 500 pounds per day and sellers wish to sell 800 pounds per day. In this case:

excess supply will lead the price of broccoli to fall.

If an increase in the price of good X leads to decrease in the demand for good Y, then:

good X and good Y are complements.

Suppose market price for hot dogs sold by street vendors has risen from $4.50 to $5, in response Curly has now begun operating a hot dog cart. We can assume Curly's reservation price for hot dogs is:

greater than $4.50 but no more than $5.

When the price of NBA tickets is $25 each, 30,000 tickets are sold. After price rises to $30 each, 20,000 tickets are sold. At the original price, the demand for NBA ticket is:

elastic.

Suppose each Mac & Cheese costs $.50 to make no matter how many servings are produced. This means that the price elasticity of supply for Mac & Cheese is ____ and the supply curve is ____.

infinite; perfectly elastic

Efficiency is an important social goal because:

movements toward economic efficiency make the total economic pie larger.

If demand for salad dressing increases when the price of lettuce decreases, the cross-price elasticity of demand between salad dressing and lettuce will be _____ because these two goods are _____.

negative; complements.

If the demand for a good decreases as income decreases, then the good is a(n):

normal good.

If the demand for steak increases as income increases, then steak is a(n):

normal good.

If most consumer goods and services are _____, then most income elasticities are _____.

normal; positive

If the demand curve for good is a vertical line at Q=1, then a decrease in the price of that good will:

not change the quantity demanded.

If the demand curve is horizontal, then demand is:

perfectly elastic.

If percentage change in quantity demanded is zero for any percentage change in the price of the good, demand is classified as:

perfectly inelastic.

If demand increases and supply decreases, the change in the equilibrium price will be ____, and the change in the equilibrium quantity will be ____.

positive; uncertain

The price elasticity of demand for a good measures the responsiveness of:

quantity demanded to a 1 percent change in price of that good.

If supply curve and demand curve both shift to the left, then the new equilibrium:

quantity will be lower, but the direction of the price change is uncertain.

At price of $20 each, the demand for t-shirts from a group's fundraising activity is unit elastic. Thus, the group's total revenue from selling t-shirts _____ at a price of $20 each.

reaches its maximum

On given linear demand curve, as price increases demand becomes:

more elastic.

Suppose the price of apples rises, people switch from eating apples to eating oranges. This is known as:

The substitution effect of a price change.

If the absolute value of the price elasticity of demand for tickets to football game is 2, then if the price increases by 1 percent, quantity demanded decreases by:

2 percent.

Suppose that Tom bought a bike from Helen for $195. If Helen's reservation price was $185, and Tom's reservation price was $215, the seller's surplus from this transaction was:

$10

If quantity demanded of a good is Q when price for the good is P, the price elasticity of demand for that good at that point is:

(P/Q) x (1/slope)

The slope of demand curve (ignoring the negative sign) is:

.5

A perfectly elastic demand curve has a slope of ____ while a perfectly inelastic demand curve has slope of ____.

0; infinity

If a 10 percent decrease in the price of a good leads to a 20 percent increase in the quantity demanded, then what is the price elasticity of demand?

2

If price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to:

3.

Suppose increase in price of golf clubs from $75 to $125 leads to an increase in quantity supplied from 200 units to 300 units. The price elasticity of supply for golf clubs at the original price of $75 is ____, so supply is ____.

3/4; inelastic

If the price elasticity of demand for cigarettes is 0.55, and the price of cigarettes increases by 10 percent, then the quantity of cigarettes demanded will fall by:

5.5 percent.

Office workers and word processing programs are complements if:

A decrease in the wage paid to office workers leads to an increase in the demand for word processing programs.

Slice of pizza sold for $2, Moe did not purchase any. When price fell to $1.74, Moe purchased a slice each day for lunch. Thus, Moe's reservation price for a slice of pizza is:

At least $1.75 but less than $2.

When the price of a good changes, the amount of that good that buyers wish to buy changes:

Because of both the substitution and income effects.

A movement along a demand curve from one price-quantity combination to another is called a:

Change in quantity demanded.

"All else constant, consumers will purchase more of a good as the price falls."

Demand Curve.

Shelly purchases a purse for $400, one can infer that:

Her reservation price was at least $400.

The tendency of markets to automatically gravitate toward equilibrium is an application of the:

Incentive Principle.

As the price of a good rises:

More firms can cover their opportunity cost of producing the good.

Suppose the market demand curve is given by Qd = 80-10P, and the market supply curve is given by Qs=10+15P. What is the equilibrium price and quantity?

P=$2.80 and Q=52

In a market in which the government has a set price ceiling below the equilibrium price:

a black market might develop.

Suppose you observe a decrease in the equilibrium price and quantity of corn. Best explain by:

a fall in consumer income assuming corn is a normal good.

All else equal, the price elasticity of demand tends to be higher when:

a good has a many substitutes.

The price of bananas will increase in response to:

an excess demand for bananas.

An increase in both the equilibrium price and the equilibrium quantity of DVD players is best explained by:

an increase in demand for DVD players.

The price elasticity of demand equals 1:

at the midpoint of straight-line demand curve.

Satellite TV is close substitute for cable TV. In the 1990's small satellite TV units were developed that made it less costly for individual consumers to subscribe to satellite TV service. This caused the price elasticity of demand for cable TV service to:

become more elastic.

If the demand for gadgets increases as result of a decrease in the price of widgets, the widgets and gadgets are:

complementary goods.

All else equal, a decrease in demand for oranges will lead to a(n) ____ in equilibrium price and a(n) ____ in equilibrium quantity.

decrease; decrease

A demand curve is ______ sloping because ______.

downward; fewer people are willing to buy an item at higher prices.

Diet Coke is close substitute for Diet Pepsi. When Cola introduced Diet Cola in 1982, the price elasticity of demand for diet pepsi ____ and PepsiCo's ability to raise revenues through price increases ____.

increased; was reduced

The situation described in the book as " smart for one, dumb for all" occurs when:

individuals act rationally, but there ares still unexploited opportunities for society as a whole.

If consumers cannot readily switch to a close substitute when the price of a good increases, the demand for that good is likely to be:

inelastic.

If price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is:

inelastic.

Suppose 10% increase in the price of aspirin leads to a 5% decrease in the quantity demanded of aspirin. The demand for aspirin, therefore, is

inelastic.

If demand is ____ with respect to price, a price increase will ____ total revenue.

inelastic; increase

If an increase income leads to a decrease in the demand for ground beef, then ground beef is a(n):

inferior good.

The championship game will be held next weekend in your college's 40,000-seat stadium. The supply of tickets to the game:

is perfectly inelastic.

The market equilibrium quantity:

is sometimes the socially optimal quantity.

Suppose price of snicker candy bar is $2 at both airport and grocery store. Price of elasticity of demand for a Snicker at an airport likely to be ____the price elasticity of demand for Snickers at the grocery store.

less than

Suppose you believe paid flannel shirts are inferior good, and want test with economic data. You expect to find that income elasticity for plaid flannel shirts is:

less than zero.

Suppose you have one hour to catch flight and it takes 45 minutes to drive to airport. Your car is almost out of gas and the price closest gas station is higher than at other gas stations that are much farther away. To you, the price elasticity of demand for gas is likely to be ____ than it would be if you has several hours before the flight.

lower

If supply increases and demand decreases, the new equilibrium price will be ____ and the new equilibrium quantity will be ____.

lower; uncertain

A firm that produces a good with many substitutes will most likely find that:

lowering its price will increase total revenue.

In free market, if the price of a good is above the equilibrium price, then:

sellers, dissatisfied with growing inventories, will lower their prices.

If cross-price elasticity of demand between two goods is positive, the two goods are:

substitutes.

If the demand for olives falls when the price of cheese falls, them we know that cheese and olives are:

substitutes.

When Joe's Gas raises its price fore regular unleaded gasoline, total revenue from regular unleaded gas falls to zero. It must be the case that

the demand for Joe's regular unleaded gasoline is perfectly elastic.

When a market is not in equilibrium:

the economic motives of sellers and buyers will move the market to its equilibrium.

Suppose that the price of doughnuts decreases. Given that doughnut holes are a by-product of producing doughnuts one would expect:

the supply of doughnut holes to decrease.

If equilibrium quantity of a good is also the socially optimal quantity, then:

total economic surplus has been maximized.

Suppose that total expenditures for coffee reach a maximum at a price of $5 per pound. At this price, the demand for coffee is:

unit elastic.

In 1985 a desert community stopped pumping water from a 1000 foot well because it had run dry. In 2005 the price of water doubled. The community then drilled the well deeper and started pumping again. In this community,

water production is characterized by increasing opportunity costs.

Excess demand occurs:

when price is below the equilibrium price.

A price ceiling that is set above the equilibrium price:

will have no effect on the market.