ECON 210 Test 1
When does equilibrium occur?
When the demand curve and supply curve intersect
Assume that demand for a commodity is represented by the equation P=22−4Qd.P=22−4Qd.Supply is represented by the equation P=−2+2Qs,P=−2+2Qs,where Qd and Qs are quantity demanded and quantity supplied, respectively, and P is price. Using the equilibrium condition Qs = Qd, solve the equations to determine equilibrium price and equilibrium quantity. Equilibrium price =
$6.00
What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? Income declines and small cars are an inferior good:
Demand increases
What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? Small cars become more fashionable:
Demand increases
What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? The price of large cars rises (with the price of small cars remaining the same):
Demand increases
______ is a primary determinant of elasticity supply.
Time
What is the total revenue formula?
Total Revenue = P × Q
Large crop yield: ______ demand, ________ total revenue.
inelastic; lower
Excise taxes: _____ demand, more ______.
inelastic; total revenue
What is inelastic demand?
insensitive to price changes and small changes in quantity demanded
What are markets?
interactions between buyers and sellers
What does sustainability mean?
it has more substitutes and demand is more elastic
What are the four categories of economic resources?
land, labor, capital (investment), and entrepreneurial ability
What is the economizing problem?
limited income and unlimited wants
What type of markets are there?
local, national, and international
We choose to do something if the ____ _____is greater than the _____ _____.
marginal benefit; marginal cost
The short run supply is ____ _____ than in the immediate market period.
more elastic
What is a luxury good?
more elastic demand
Complementary goods if elasticity is ________.
negative
Inferior goods if elasticity is _____.
negative
Low or negative income elasticities are ____ _____ that much by a recession.
not affected
How is pleasure/ satisfaction measured?
one unit is a util
What's the law of demand?
other things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls
percentage change in Total revenue =
percentage change in price (P)+ percentage change in quantity(Q)
If Ed= infinity, demand is ______.
perfectly elastic
If Ed =0 demand is ______.
perfectly inelastic
Normal goods if elasticity is ______.
positive
Substitute goods if elasticity is ________.
positive
What are the basic determinants of an individual's demand?
preference/tastes, income, and price of other goods
What do price floors do?
prices are set above market price and chronic surpluses (ex. the minimum wage law)
What is the scientific method?
procedure for the systematic pursuit of knowledge involving the observation of facts and the formulation of testing hypotheses to obtain theories, principles, and laws
When people act with rational behavior, they are showing what?
purposeful behavior
What is a budget line?
represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income
What does income elasticity of demand measure?
responsiveness of buyers to changes in their income
What does cross elasticity of demand measure?
responsiveness of the purchases of one good to a change in the price of another good
What does economic perspective consider?
scarcity and choice, opportunity cost, purposeful behavior to increase utility, and marginal analysis
What is elastic demand?
sensitive to price changes and large changes in quantity demanded
What do price ceilings cause?
set below equilibrium price, rationing problem, shortages, and black markets (ex. rent control)
Substitutes are goods consumed as _____.
substitutes
What is the law of diminishing marginal utility?
As the consumption of a particular good increases, marginal utility obtained from each additional unit decreases
Danny "Dimes" Donahue is a neighborhood's 9-year-old entrepreneur. His most recent venture is selling homemade brownies that he bakes himself. At a price of $2.75 each, he sells 100. At a price of $2.25 each, he sells 300. What is the elasticity of demand?
1.20
What is consumer equilibrium?
A condition in which total utility cannot increase by spending more of a given budget on one good and spending less on another good.
What is economics?
A social science concerned with making optimal choices under conditions of scarcity
What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? The price of gasoline substantially drops:
Cannot be determined
What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? Consumers anticipate that the price of small cars will decrease substantially in the near future:
Demand decreases
What is the midpoint formula?
Ed= (Q2-Q1/(Q2+Q1/2))/(P2-P1/(P2+P1/2))
What is the price elasticity formula?
Ed= percentage change in quantity demanded of product X/ percentage change in price of product X
What is the formula for price elasticity?
Ed=percentage change in Q / percentage change in P
What is the formula for income elasticity of demand?
Ei=percentage change in the quantity demanded/ percentage change in income
What is the formula for cross elasticity of demand?
Exy= percentage change in quantity demanded of product X/ percentage change in the price of product Y
Application of Elasticity of Supply: Antiques are?
Inelastic supply
Application of Elasticity of Supply: Volatile gold prices are?
Inelastic supply
What does scarcity force us to do?
It forces us to make choices
When consumption is increased and satisfaction is decreased, this is what?
Law of diminishing marginal utility
What is the formula for marginal utility?
MU=change in TU/ change in Q
What is the formula for consumer equilibrium?
MUa/Pa=MUb/Pb
Application of Elasticity of Supply: Reproductions are?
More elastic supply
What is the law of supply?
Other things equal, as the price rises, the quantity supplied rises and as the price falls, the quantity supplied falls
Currently, at a price of $2 each, 200 popsicles are sold per day in the perpetually hot town of Rostin. Consider the elasticity of supply. In the short run, a price increase from $2 to $4 is unit-elastic (Es = 1). In the long run, a price increase from $2 to $4 has an elasticity of supply of 1.50. (Hint: Apply the midpoints approach to the elasticity of supply.) How many popsicles will be sold each day in the short run if the price rises to $4 each?
Q2= 400
Currently, at a price of $2 each, 200 popsicles are sold per day in the perpetually hot town of Rostin. Consider the elasticity of supply. In the short run, a price increase from $2 to $4 is unit-elastic (Es = 1). In the long run, a price increase from $2 to $4 has an elasticity of supply of 1.50. (Hint: Apply the midpoints approach to the elasticity of supply.) How many popsicles will be sold per day in the long run if the price rises to $4 each?
Q2=600
What is macroeconomics?
The study of the entire economy or a major aggregate of the economy
High income elasticitys are most affected by what?
a recession
What is another name for other-things-equal assumption?
ceteris paribus assumption
What are some determinants in demand?
change in consumer's taste/ preference, number of buyers, and income
What are some determinants of supply?
change in resource prices, technology, number of sellers, taxes and subsidies, prices of other goods, an producer expectations
What does price elasticity of demand measure?
consumers' sensitivity to price changes
A(n) ______ in consumer's income will decrease for _____ goods.
decrease; normal
Decriminalization of illegal drugs: inelastic _____, ______ total revenue.
demand; more
What is microeconomics?
economics of an individual consumer, firm, or market
If Ed> 1 demand is _______.
elastic
In the total revenue test, If P and TR move in the opposite directions, is it inelastic or elastic demand?
elastic demand
What is the utility maximizing rule?
equating the ratio of the marginal utility of a good to its price for all goods
Long run supply is ____ ______ _____ than in the short run.
even more elastic
What does marginal mean?
extra, additional, or the next
What's a demand curve?
graph
What does proportion of income mean?
higher proportion of income means demand is more elastic
What are time periods considered to be?
immediate market period, short run, and long run
A(n) _____ in prices, will decrease _______.
increase; demand
If Ed<1 demand is ______.
inelastic
The immediate market period is perfectly ______ supply.
inelastic
In the total revenue test, If P and TR move in the same direction, is it inelastic or elastic demand?
inelastic demand
What's a demand schedule?
table
What is the other things equal assumption?
the assumption that factors other than those being considered do not change
What is the income effect?
the impact a price change has on a consumer's real income
What is the substitution effect?
the impact a price change has on a product's relative expensiveness
What is utility?
the satisfaction one gets from consuming a good/ service (ex. artwork, candy, Krispy Kreme donuts)
What is scarcity?
the state of being scarce or in short supply; shortage.
What is marginal utility?
the total amount of satisfaction from an additional unit of the good
Complementary goods are consumed______.
together
What is total utility?
total amount of satisfaction
If Ed=1, demand is ______.
unit elastic
Independent goods if elasticity is _________.
zero or near zero