ECON 3140 practice questions
The demand for a product is Q = 800 −5P and supply is Q = 100 + 2P. The market-clearing price is $_________ and the market-clearing quantity is _________ units. (Enter your responses as whole numbers.) Consumers complain that this price amounts to price gouging and successfully lobby the government to set a price ceiling of $60 for the product. As a result, consumers will want to consume __________ units while producers will want to sell only _________. (Enter your responses as whole numbers.) As a result of the price ceiling, there will be a ________ of _________ units
$100 300 units 500 units 220 shortage 280
Elizabeth babysits on the weekends for extra money. Suppose that three neighbors with children are interested in paying Elizabeth to babysit their children. In particular, Mr. and Dr. Brown would be willing to pay $32 to have Elizabeth babysit their children, Mr. Smith would be willing to pay $30 for Elizabeth's babysitting services, and Professor Jones and Mr. Jones would be willing to pay $24 to have her watch their children. If Elizabeth offers to babysit each set of children for an evening for $24, what will be consumer surplus, considering the three sets of children combined? $________. (Enter your response using an integer.)
$14
The average price of milk per gallon was $2.61 in 1995 and $3.01 in 2010. The consumer price index was 152.4 in 1995 and 218.1 in 2010. Therefore, the real price of milk in 2010 expressed in 1995 dollars was $_________. (Enter your answer rounded to two decimal places.)
$2,10
Suppose the demand for eggs is: Q=9,000−3,000P and the supply of eggs is: Q=−1,000 + 2,000P, where quantity is measured in millions (of eggs). Find the market-clearing price and quantity for eggs. (Enter price responses rounded to two decimal places.) The market-clearing price is $________ and the market-clearing quantity is ________ million eggs. Now suppose the cost of producing eggs increases such that the supply curve for eggs shifts to Q=−2,000 + 2,000P. Find the market-clearing price and quantity for the product. The market-clearing price is $______ and the market-clearing quantity is _______ million eggs.
$2.00 3,000 million eggs $2.20 2,400 million eggs
Suppose the demand function (D) for golf clubs is: Q=210−1.00P, where P is the price paid by consumers in dollars per club and Q is the quantity demanded in thousands. Suppose the supply curve (S) for golf clubs is estimated to be: Q=2.00P. Calculate the equilibrium price for golf clubs and the equilibrium quantity sold. The equilibrium price is $_________ per club (Enter your response as an integer.), and the equilibrium quantity is _________ thousand clubs (Enter your response as an integer.) Suppose instead that golf club producers agree to charge a price of $90 per club. This would result in a _________ of _________ thousand clubs (Enter your response as an integer.)
$70 per club 140 thousand clubs surplus; 60 thousand clubs
A minor league baseball team raised the average price of its tickets from $8 to $8.50 and found that average attendance at its games dropped from 5,200 to 4,600. Using the arc elasticity of demand formula, the price elasticity of demand for tickets is ____________. (Express your answer as a real number rounded to two decimal places. Don't forget the negative sign.) The demand for tickets is therefore ___________
-2.02 price elastic
A consumer purchased 10 units of good X and 6 units of good Y in year 1 (the base period) when the price of good X was $8 and the price of good Y was $5. The next year (year 2) the price of X fell to $7 and the price of Y increased to $8. Set the Laspeyres price index in year 1 equal to 100. Then the Laspeyres price index in year 2 is _________. (Enter your response as a real number rounded to one decimal place.) Based on the Laspeyres price index, inflation between year 1 and year 2 was _________ percent. (Enter your response as a real number rounded to one decimal place.) The consumer says that if she could afford to purchase 11 units of X and 4.5 units of Y at the prices in year 2, she would be just as well off as she was in year 1. Based on this information, the ideal cost-of-living index for this consumer is _________. (Enter your response as a real number rounded to one decimal place.)
107.3 7.3 percent 102.7
Consider the market for CD players, illustrated in the figure to the right. Suppose there are network externalities in this market such that the quantity of a good demanded grows in response to the growth of purchases by other individuals (as indicated by the demand curve "Demand" in the figure). Suppose that the price is initially $90 where the quantity demanded is 120 (thousand CD players per month). If the price of CD players falls to $70, demand will increase to ________ thousand CD players per month. (Enter your response using an integer.) Of this increase, ________ thousand units of the 30 thousand-unit increase is the pure price effect and ________ thousand units of the increase is the bandwagon effect. The bandwagon effect causes the demand for CD players to be more ________ than would otherwise be the case (without network externalities).
150 thousand 10 thousand 20 thousand elastic
Roberto is a senior citizen who consumes food and health care. When he retired in 2002, he consumed 90 meals and 3 medical checkups per month. Suppose in 2002 that the price of a meal was $10 and the price of a medical checkup was $82. However, in 2012, the price of a meal is $11 and the price of a medical checkup is $297. As a result, Roberto consumes 100 meals and 2 medical checkups per month. Calculate a Laspeyres cost-of-living index for Roberto using 100 as the base in 2002. In particular, the Laspeyres index for 2012 is _________. (Enter your response rounded to two decimal places.) The Laspeyres index suggests inflation has been _________ percent over the 10-year period from 2002 to 2012. (Enter your response rounded to two decimal places.) Next, calculate a Paasche cost-of-living index for Roberto using 100 as the base in 2002. In particular, the Paasche index for 2012 is _________. (Enter your response rounded to two decimal places.) The Paasche index suggests inflation has been _________ percent. (Enter your response rounded to two decimal places.)
164.14 64.14 145.53 45.53
Cary has the following utility function: U(X,Y)=10X(sqd)Y where X is her consumption of Blu-ray disks with a price of $20 and Y is her consumption of DVDs with a price of $10. She has $600 with which to spend on the two goods. Determine the number of Blu-ray disks and DVDs that will maximize Cary's utility. Cary maximizes utility when she consumes ________ Blu-ray disks and ________ DVDs. (Enter your responses using integers.)
20 Blu-ray 20 DVDs
Chapter 3-B: Suppose Naomi consumes two goods: good 1 and good 2. Last year, the price of good 1 was $2.00 and the price of good 2 was $0.80. Given these prices, Naomi maximized satisfaction consuming bundle A, as indicated in the figure to the right. However, this year, the price of good 1 has increased to $6.00 and the price of good 2 has changed to $3.75. Given these prices, Naomi would be equally well off at consumption bundle B. Calculate a Laspeyres cost-of-living index for Naomi using 100 as the base for last year. In particular, the Laspeyres index for this year is ___________. (Enter your response rounded to two decimal places.) The Laspeyres index suggests inflation has been ___________ percent over the year. (Enter your response rounded to two decimal places.) The Laspeyres cost-of-living index overstates the rate of inflation because it assumes that consumers do not alter their consumption patterns as prices change. Naomi's true cost-of-living increase has been ___________ percent. (Enter your
384.38 284.38 275.00
Suppose the market for copper is illustrated in the figure to the right. The equilibrium quantity of copper is _______ million metric tons per year (Enter your response rounded to two decimal places.) and the equilibrium price is $_______ per pound. (Enter your response rounded to two decimal places.) If instead the market price were $1.25 per pound, then there would be a __________ of _______ million metric tons per year. (Enter your response rounded to one decimal place.)
5.5 million $2.25 per pound shortage of 3 million
The price elasticity of supply is 0.8, and price increases by 10 percent. As a result, the quantity supplied will increase by _________ percent. (Enter your response as a real number rounded to one decimal place, and do not use a percentage sign.)
8.0 percent
In the diagram on the right the consumer's original budget line is L1, and the consumer buys the amount of good X at point A. Then the price of good X decreases dramatically so that the consumer's new budget line shifts to L2. After the price decrease the consumer buys the amount of good X at point C. The substitution effect due to the price change is the movement from point ________ to point ________ . The income effect due to the price change is the movement from point ________ to point ________. Based on the income effect, good X is ________ good.
A to B B to C an inferior
Which one of the following is an example of normative analysis? A. A firm determines the best price to charge for its product. B. Microeconomic theory predicts that firms will invest less in equipment when interest rates increase. C. A survey finds that consumers pay little attention to price when deciding which brand of chewing gum to purchase. D. When consumers' incomes increase, they normally buy more of a given product.
A. A firm determines the best price to charge for its product.
Which one of the following would not occur if the market price was above the market-clearing price? A. Consumers would bid up the price. B. Producers would want to produce and sell more than consumers would want to buy. C. There would be a surplus. D. Producers would begin to lower their prices to sell off excess inventory.
A. Consumers would bid up the price.
For which of the following goods would a 10 percent price increase lead to the largest income effect for most consumers? A. Housing B. Cell phone service C. Movie tickets D. Salt
A. Housing
Suppose the equilibrium price of copper is P*=$2.00 per pound and the equilibrium quantity of copper is Q*=12 million metric tons per year (mmt/yr). Furthermore, suppose the absolute value of the slope of the copper demand curve is 3, average consumer income, I, is I=$35 (thousand per year), and the income-elasticity of demand is 1.20. Using this information, derive the linear demand curve for copper. (Round all calculations to two places.) Let the demand curve be of the general form Q=a−bP+fI, where a, b, and f are constants, quantity is in millions, and income is in thousands of dollars. The equation for the demand curve is A. Q=3.65−3P+0.41I. B. Q=3.65+0.41I. C. Q=8.35−3.65P+0.41I. D. Q=8.35+3P−0.41P. E. Q=3.65−0.41P.
A. Q=3.65−3P+0.41I.
A consumer says he prefers a Toyota automobile to a Ford and a Ford to a Jeep. He also says he prefers a Jeep to a Toyota. Which basic assumption about preferences does this consumer violate? A. Transitivity. B. More is better than less. C. Completeness. D. All of the above.
A. Transitivity.
Somewhat differently, macroeconomics examines A. aggregate economic quantities such as unemployment. B. the technical know-how that firms use to produce things. C. the income constraint facing consumers. D. the time constraint facing workers. E. Both A and B are correct.
A. aggregate economic quantities such as unemployment.
Which of the following statements is true of theories in economics? Theories in economics A. are used to construct models from which quantitative predictions can be made. B. are developed to explain observed phenomena free from restrictions imposed by a set of assumptions. C. are never modified or refined. D. Both A and B are correct. E. None of the above.
A. are used to construct models from which quantitative predictions can be made.
Consumer surplus A. is the area under the demand curve and above price. B. is the same thing as total expenditures on the good. C. is the total area under the demand curve up to the quantity demanded. D. is the area below price up to the quantity demanded.
A. is the area under the demand curve and above price.
The government rations the amount of gasoline that consumers can purchase. A consumer who would have purchased more than the rationed amount of gasoline will instead A. purchase less gasoline, more of other goods, and be on a lower indifference curve. B. purchase less gasoline, more of other goods, and be on a higher indifference curve. C. purchase more gasoline, less of other goods, and be on a lower indifference curve. D. purchase more gasoline, less of other goods, and be on a higher indifference curve.
A. purchase less gasoline, more of other goods, and be on a lower indifference curve.
When the optimal point on an indifference curve and budget line diagram is a corner solution, A. the marginal rate of substitution usually does not equal the ratio of prices for the two goods. B. the consumer does not spend her entire budget on the two goods. C. the budget line must have a kink in it. D. All of the above.
A. the marginal rate of substitution usually does not equal the ratio of prices for the two goods.
Which of the following will cause the demand for kerosene heaters to increase? A. An increase in the price of kerosene. B. A decrease in the price of kerosene. C. A decrease in the price of kerosene heaters. D. An increase in the price of kerosene heaters.
B. A decrease in the price of kerosene.
Which of the following is not a method used to obtain information about consumer demand? A. Consumer interviews. B. Measuring consumer surplus at the current market price. C. Statistical methods using historical data. D. Direct marketing experiments.
B. Measuring consumer surplus at the current market price.
The demand for apples in the United States is QUS=800−20P, and foreign demand for apples is QF=1200−40P, where quantity demanded is measured in millions of bushels and price is in dollars per bushel. The world demand for apples is therefore A. Q=400−20P when P is $20 or less. B. Q=2000−60P when P is $30 or less. C. Q=400+20P for all prices.. D. Q=2000−20P when P is $30 or less. The world supply of apples is QS= 200+30P. Therefore, the world equilibrium price for apples is $________ per bushel and the equilibrium quantity of apples is ________ million bushels. (Enter your responses as integers.) At the equilibrium price, ________ million bushels will be sold in the U.S., and ________ million bushels will be sold in foreign markets. (Enter your responses as integers.)
B. Q=2000−60P when P is $30 or less. $20 per bushel 800 million bushels 400 million bushels 400 million bushels
To reduce the bias in the CPI, the U.S. government recently changed the construction of the CPI to A. a Laspeyres price index. B. a chain-weighted price index. C. a Paasche price index. D. an ideal cost-of-living index.
B. a chain-weighted price index.
When the price of good X increases and all goods (including X) are normal goods, the income effect leads consumers to buy A. more of all goods. B. less of all goods. C. less of good X and more of other goods. D. more of good X and less of other goods.
B. less of all goods.
Paul consumes only books and DVDs. At his current consumption bundle, his marginal utility from DVDs is 20 and from books is 3. Each DVD costs $8, and each book costs $2. Is he maximizing his utility? Explain. Let MUB be the marginal utility of books, MUD be the marginal utility from DVDs, PB be the price of books, PD be the price of DVDs, and MRS be the marginal rate of substitution. Paul is A. maximizing his utility because MRS=MUBMUD. B. not maximizing his utility because MUBPB<MUDPD. C. maximizing his utility because MUBPB<MUDPD. D. maximizing his utility because MUBPB=MUDPD. E. not maximizing his utility because MRS<MUBMUD. If he is not, how can he increase his utility while keeping his total expenditure constant? Paul could increase utility while keeping total expenditures constant by consuming more _______ and fewer _______.
B. not maximizing his utility because MUBPB<MUDPD. DVDs; books
An indifference curve shows all combinations of two goods that A. the consumer would choose at different levels of income. B. provide the consumer with the same level of satisfaction. C. the consumer would choose at different prices. D. cost the same amount of money.
B. provide the consumer with the same level of satisfaction.
Janet spends her entertainment budget on movies and basketball games. Movie tickets cost $9 each and basketball game tickets cost $15 each. If Janet saw one more movie (holding the number of basketball games constant), her total utility would increase by 24. On the other hand, if she attended one more basketball game (holding the number of movies constant), her utility would increase by 55. From this information we can conclude that Janet A. should attend fewer basketball games and see more movies. B. should see fewer movies and attend more basketball games. C. is attending the optimal combination of movies and basketball games. D. should see more movies and attend more basketball games.
B. should see fewer movies and attend more basketball games.
Farmers complain that they cannot make a living selling sugar at the current market-clearing price. They successfully lobby the government to initiate price controls on the sale of sugar. The government sets a price floor substantially above the equilibrium price, and no one is allowed to sell sugar for a price less than the price floor. As a result, A. the supply curve for sugar will shift to the right because of the higer price. B. there will be a surplus of sugar. C. the demand curve for sugar will shift to the left because of the higher price. D. All of the above are correct.
B. there will be a surplus of sugar.
As more people use a social networking site like Facebook, it becomes more attractive for other people to use that site also. This effect is called A. a fad. B. an external demand. C. a positive network externality. D. the snob effect.
C. a positive network externality.
Pablo's demand for pizza is inelastic. If the price of pizza increases, we can predict that Pablo will A. eat more pizza and spend less on pizza than he did before the price increase. B. eat more pizza and spend more on pizza than he did before the price increase. C. eat less pizza and spend more on pizza than he did before the price increase. D. eat less pizza and spend less on pizza than he did before the price increase.
C. eat less pizza and spend more on pizza than he did before the price increase.
When the price of good X increases, the substitution effect leads consumers to buy A. more of good X and more of substitute goods. B. less of good X and less of substitute goods. C. less of good X and more of substitute goods. D. more of good X and less of substitute goods.
C. less of good X and more of substitute goods.
Suppose you have drawn a consumer's budget line for food and clothing with food on the horizontal axis and clothing on the vertical axis. If the price of food increases, A. the budget line shifts inward in a parallel fashion. B. the budget line shifts outward in a parallel fashion. C. the budget line becomes steeper. D. the budget line becomes flatter.
C. the budget line becomes steeper.
An inferior good A. has an upward sloping demand curve. B. will never be purchased by consumers. C. will experience decreases in demand as consumers' incomes increase. D. is made with faulty material and/or workmanship.
C. will experience decreases in demand as consumers' incomes increase.
Chapter 3-A Charles faces budget line L1 in the figure to the right. Under such a constraint, suppose Charles chooses bundle A. 1.) Using either the triangle drawing tool or the rectangle drawing tool, shade in the bundles for which bundle A is preferred. Label this area 'Inferior bundles'. 2.) Using either the triangle drawing tool or the rectangle drawing tool, shade in all the bundles that are revealed to be preferred to bundle A. Label this area 'Superior bundles'. Carefully follow the instructions above, and only draw the required objects.
Chapter 3-A
At the optimal point on an indifference curve and budget line diagram (assuming an interior solution) A. the marginal rate of substitution between the two goods equals the ratio of their prices. B. the optimal indifference curve is tangent to the budget line. C. the consumer spends his or her entire budget on the two goods. D. All of the above.
D. All of the above.
Even though the annual consumption of copper is now about 100 times greater than it was in 1880, the real price of copper has remained relatively unchanged. Which of the following help account for this pattern? A. More efficient technologies reduced production costs. B. Demand for copper grew dramatically. C. New deposits that were cheaper to mine were discovered. D. All of the above.
D. All of the above.
Most economists believe the Consumer Price Index (CPI) overstates inflation because A. it does not adequately account for changes in product quality and new products. B. it does not adequately account for changes in consumer purchases in response to price changes. C. it does not adequately account for the growth of discount stores. D. All of the above.
D. All of the above.
A product's price and the quantity consumed both increased from one year to the next. Which of the following could have happened? A. Supply increased and demand remained constant. B. Demand decreased and supply remained constant. C. Supply decreased and demand remained constant. D. Demand increased and supply remained constant.
D. Demand increased and supply remained constant.
Which of the following best describes the basic idea of revealed preference? A. If a consumer is asked which of two market baskets he or she prefers, the consumer will always be able to reveal his or her preference. B. If a consumer chooses one market basket over another, then the consumer must prefer the chosen market basket. C. If a consumer prefers market basket A to market basket B and also prefers market basket B to market basket C, then the consumer has revealed that he or she prefers market basket A to market basket C. D. If a consumer chooses one market basket over another, and if the chosen market basket is more expensive than the alternative, then the consumer must prefer the chosen market basket.
D. If a consumer chooses one market basket over another, and if the chosen market basket is more expensive than the alternative, then the consumer must prefer the chosen market basket.
Which one of the following would not cause the demand for Coca-Cola to shift? A. Coca-Cola increases its advertising expenditures by 20 percent. B. The price of Pepsi-Cola increases. C. A new study finds that drinking Coca-Cola causes stomach cancer. D. The cost of producing Coca-Cola increases.
D. The cost of producing Coca-Cola increases.
Which one of the following is not a perfectly competitive market? A. The U.S. stock market. B. The U.S. wheat market. C. The world gold market. D. The world diamond market.
D. The world diamond market.
In an effort to get more Americans to drink milk, the government sets a price ceiling on milk that is substantially below the equilibrium price. Which of the following will occur? A. Production of milk will increase. B. Consumption of milk will increase. C. The demand for milk will shift to the right. D. There will be a shortage of milk.
D. There will be a shortage of milk.
Rasheed's utility function for goods X and Y is U(X,Y) = 2XY + Y. Let PX and PY be the prices for goods X and Y, and let I be Rasheed's income. Rasheed's demand equations for X and Y are: A. X=I2PX and Y=I2PY. B. X=2I+PY4PX and Y=2I+PX4PY. C. X=2I+PX4PX and Y=2I−PX4PY. D. X=2I−PX4PX and Y=2I+PX4PY. If Rasheed's income is $103, the price of X is $2 and the price of Y is $4, Rasheed will purchase ________ units of X and ________ units of Y. (Enter your responses as real numbers rounded to one decimal place.)
D. X=2I−PX4PX and Y=2I+PX4PY. 25.5 units 13 units
Industries that manufacture products whose demands fluctuate sharply in response to short-run changes in income are called A. light industries. B. volatile industries. C. service industries. D. cyclical industries.
D. cyclical industries
When supply increases, the supply curve A. becomes steeper. B. shifts upward. C. shifts to the left. D. shifts to the right.
D. shifts to the right.
Suppose you have drawn a consumer's budget line for food and clothing with food on the horizontal axis and clothing on the vertical axis. If the prices of food and clothing remain the same and the consumer's income increases, A. the budget line shifts inward in a parallel fashion. B. the budget line becomes steeper. C. the budget line becomes flatter. D. the budget line shifts outward in a parallel fashion.
D. the budget line shifts outward in a parallel fashion.
A market is in equilibrium when A. there is a surplus of the product. B. the government sets the price high enough so that all producers can make profits. C. the government sets the price low enough so that all consumers can afford to purchase as much of the product as they want. D. the price is such that the amount consumers want to buy equals the amount producers want to sell.
D. the price is such that the amount consumers want to buy equals the amount producers want to sell.
Which of the following is a trade-off studied in microeconomics? A. Firms trade off producing more of one output for producing more of another output. B. Consumers trade off current consumption for future consumption. C. Workers trade off working now with immediate income for continued education with greater future earnings. D. All of the above. E. Only A and B are correct.
D. All of the above
Microeconomics is the branch of economics that deals with A. the behavior of individual owners of land. B. how economic units interact to form industries. C. interest rates. D. aggregate economic quantities. E. Both A and B are correct.
E. Both A and B are correct.
George buys 2.5 pounds of hamburger and 2 pounds of chicken per week when hamburger costs $4 per pound and chicken costs $5 per pound, and this bundle of goods costs him $20 per week. What wil1 happen if the price of hamburger drops to $2 per pound and the price of chicken increases to $7.50 per pound? [Note that George's original bundle of hamburger and chicken still costs $20 after these price changes.] A. George buys more hamburger and less chicken, and he is worse off. B. George buys more hamburger and less chicken, and he is just as well off as before. C. George buys less hamburger and more chicken, and he is better off. D. George buys the same amounts of hamburger and chicken as before, and he is just as well off as before. E. George buys more hamburger and less chicken, and he is better off. F. George buys less hamburger and more chicken, and he is worse off.
E. George buys more hamburger and less chicken, and he is better off.
The supply of coffee is QS = 2.0 + 0.2P, where quantity is in billions of pounds and price is dollars per pound. The price elasticity of demand for coffee is about -0.3, the current price is $3.00 per pound and the quantity bought and sold is 2.6 billion pounds. Based on this information, the linear demand curve for coffee is QD = ________ −_______P. (Enter your responses - the intercept and slope - as real numbers rounded to 2 decimal places. Note that a negative sign already appears in front of the slope term, so enter your slope coefficient as a positive number.) A severe drought reduces the supply of coffee by 10 percent at every price. The new equilibrium price of coffee will be $________, and the new equilibrium quantity will be _______ billion pounds. (Enter your responses as real numbers rounded to 2 decimal places.)
Qd = 3.38-.26P $3.59 2.45 billion pounds
The graph on the right shows a demand curve labeled D1. Use the line drawing tool to draw the new demand curve, D2, when demand increases by 20 percent. Attach the appropriate provided label. Carefully follow the instructions above, and draw only the required object. The equation for the original demand curve D1 is Q = 50−6.25P. Find the new demand equation when demand increases by 20 percent. (Enter numeric values rounded to one decimal place in the spaces below. Note that there is already a negative sign in front of the slope term, so enter the slope value as a positive number.) Q = ________−________P. The supply curve for the product is Q = −10 + 12.5P. Find the original equilibrium price and quantity using the original demand curve D1. (Enter your responses as real numbers rounded to 2 decimal places.) P = _______ and Q = _______. Find the new equilibrium price and quantity after demand increases 20 percent (i.e., use demand curve D2). (Enter your responses as real numbers rounded to 2 decimal places.) P = _______ and Q = _______. Calculate the price elasticity of demand and the price elasticity of supply at the new equilibrium (i.e., use demand curve D2). (Enter your responses as real numbers rounded to 2 decimal places.) Price elasticity of demand is _______. Price elasticity of supply is _______
Q = 60.0−7.5P Original equilibrium: P = $3.20 and Q = 30 20%: P = $3.50 and Q = 33.7 Price elasticity of demand is −0.78 Price elasticity of supply is 1.30
When Sue graduated from college, she got a job with a starting salary of $30,000. When Sue's sister Jan graduated five years later, her starting salary was $34,000. Jan likes to tease Sue about earning more than Sue did right out of college. Sue claims that she actually had the higher salary in real dollars. The Consumer Price Index rose 15 percent during the five years separating the sisters' graduations. Therefore, we can conclude that
Sue earned the higher salary
For most industries, supply is ________ in the short run than in the long run.
less elastic
Buying at a low price in one location and selling at a higher price in another location is called
arbitrage
Suppose that the world price of oil is roughly $100.00 per barrel and that the world demand and total world supply of oil equal 34 billion barrels per year (bb/yr), with a competitive supply of 20 bb/yr and 14 bb/yr from OPEC. Statistical studies have shown that the short−run price elasticity of demand for oil is −0.05, and the short−run competitive price elasticity of supply is 0.10. Using this information, derive linear demand and competitive supply curves for oil. Let the demand curve be of the general form Q=a−bP and the competitive supply curve be of the general form Q=c+dP, where a, b, c, and d are constants. The equation for the short−run demand curve is A. Q=2.00−36.00P. B. Q=2.00−0.02P. C. Q=36.00+0.02P. D. Q=36.00−P. E. Q=36.00−0.02P. The equation for the short−run competitive supply curve is A. Q=2.00+0.02P. B. Q=18.00+36.00P. C. Q=18.00+0.02P. D. Q=18.00−0.02P. E. Q=2.00+0.02P.
demand: E. Q=36.00−0.02P. supply: C. Q=18.00+0.02P.
Steel and aluminum are substitutes. If the price of steel increases, other things remaining the same, we would expect the price of aluminum to ____________ and the equilibrium quantity of aluminum to ____________.
increase increase
The current price for a good is $20, and 90 units are demanded at that price. The price elasticity of demand for the good is −2. When the price of the good drops by 10 percent to $18, consumer surplus ________ by $________. (Enter your response to the nearest penny.)
increases $198.00
Chapter 3-B Suppose the figure to the right illustrates the average level of happiness with life across income classes for a particular country. Assume that satisfaction resulting from income can be measured with a cardinal index and that this index is measured on the figure's vertical axis. According to this information, happiness ___________ with income at ___________ rate. If so, then this suggests that the marginal utility of spending an extra dollar on a consumption good will ___________
increases a diminishing rate decrease
Consider the market in the figure to the right. What happens to the market supply curve if the costs of production decrease? Using the line drawing tool, graph the new supply curve with a lower cost of production. Label it S'. Carefully follow the instructions above, and only draw the required object. According to the graph, for a given price, firms now supply a ________ quantity.
larger
Andy's utility function for goods X and Y is linear and is given by U(X,Y) = 2X + 3Y. Based on this utility function, we can conclude that goods X and Y are ________ for Andy. The price of X is $4, the price of Y is $8, and Andy's income is $40. To maximize his utility, Andy should purchase ________ units of X and ________ units of Y. (Enter your responses as real numbers rounded to one decimal place.)
perfect substitutes 10.0 units 0 units
The price elasticity of demand for natural gas is −0.9, and the price elasticity of supply for natural gas is 0.4. If the government imposes a ceiling price for natural gas that is 10 percent below the equilibrium price, the result will be a ____________ equal to ____________ percent of the equilibrium quantity. (Enter your response as a whole number. Do not use a percentage sign.)
shortage; 13 percent
