Econ exam #2

Excess demand occurs when?

Excess demand occurs when price is below the equilibrium price, so that the quantity demanded is greater than the quantity supplied. when price is below the equilibrium price

)Refer to the accompanying figure. Assume the market is originally at point W. Movement to point Y is the result of?

Movement from W to Y is the result of a rightward shift in the supply curve and a movement along the original demand curve. an increase in supply and an increase in quantity demanded.

Refer to the accompanying figure. Suppose the solid line shows the current demand for coffee. In response to a news story explaining that coffee causes heart disease, you should expect

News that coffee causes heart disease will lead to a decrease in the demand for coffee. the demand curve to shift to D(A) because some people will stop drinking coffee

The demand curve illustrates the fact that consumers tend to purchase

A fundamental property of the demand curve is that it is downward sloping with respect to price. That is, as price falls, quantity demanded rises. more of a good as its price falls

"All else constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying

A fundamental property of the demand curve is that it is downward sloping with respect to price. That is, as price falls, quantity demanded rises. the demand curve

Suppose the price P on a given demand curve results in a price elasticity of demand equal to 1. Any price higher than P will lie on the ______ part of the demand curve, and any price lower than P will lie on the ______ part of the demand curve

Along a straight-line demand curve, the price elasticity of demand at the midpoint equals one. At higher prices, demand is elastic with respect to price, and at lower prices demand is inelastic with respect to price. elastic; inelastic

The buyer's reservation price for a particular good or service is the

By definition, a buyer's reservation price is the largest dollar amount the buyer would be willing to pay for a good. largest price the buyer would be willing to pay for it

Suppose the company that owns the vending machines on your campus has doubled the price of a can of soda. They then notice that they are selling approximately 15 percent fewer sodas. The price elasticity of demand for sodas from the campus vending machines, therefore, is

If the percentage change in quantity demanded is less than the percentage change in price, then the price elasticity of demand will be less than one, implying that demand is inelastic. inelastic

All else equal, the price elasticity of demand for a good tends to be lower

If there are few substitutes for a good, then the quantity demanded will change very little in response to a change in price. if the good represents a large share of a consumer's budget

Refer to the accompanying figure. Let εX denote the price elasticity of demand at point X. Which of the following describes the relationship between εA, εB, and εC?

The slopes of these two lines are exactly the same. Thus, since the elasticity of demand equals ( P/ Q) × (1/slope), a comparison of the elasticities at points A, B, and C, only requires a comparison of P/ Q. ε A> ε B> ε C

When a market is not in equilibrium

A key feature of free markets is that individual incentives will lead markets to their respective equilibrium prices and quantities. the economic motives of sellers and buyers will move the market to its equilibrium

The entire group of buyers and sellers of a particular good or service makes up

A market for any good consists of all buyers and sellers of that good. a market.

)If the demand for computers increases as consumers' incomes rise, then computers are

A normal good is a good for which an increase in income leads to an increase in demand and a decrease in income leads to a decrease in demand. a normal good

)A seller's reservation price is generally equal to

A seller's reservation price is generally equal to the seller's marginal cost. the seller's marginal cost.

The manufacturer of the over-the-counter pain reliever would _______ total revenue by increasing the price from $15 to $16. 1

Along the upper half of a linear demand curve, demand is elastic with respect to price, so a price increase will decrease total revenue. experience no change in

)Refer to the accompanying figure, which shows the market for cups of coffee. What might cause a shift from the original supply curve to the new supply curve?

An improvement in technology will shift the supply curve to the right because it will lower production costs.

Refer to the accompanying figure, which shows the market for Marvel action figures. Suppose the solid linerepresents the current supply of Marvel action figures. If the price of the plastic used to make action figures rises,current supply will

An increase in input prices will cause supply to shift leftward. shift to S(A).

Refer to the accompanying figure. Moving from demand curve D2 to demand curve D1 could be caused by a(n)

An increase in the price of a complement shifts demand leftward. increase in the price of a complement

)Refer to the accompanying figure. Moving from demand curve D1 to demand curve D2 could be caused by

An increase in the price of a substitute shifts demand rightward. an increase in the price of a complement

As the price of flour (an input in the production of cookies) increases, firms that produce cookies will

An increase in the price of an input of production causes the supply curve to shift to the left because production costs are higher. decrease the supply of cookies.

Which of the following is not a characteristic of a market in equilibrium

Even when the market is in equilibrium, sellers would be pleased to receive a higher price and buyers would be happy to pay a lower price. neither buyers or sellers want the price to change

)If the demand for a good is highly elastic, that good is likely to have

If a good has many close substitutes, a small increase in its price will motivate consumers to purchase the close substitutes. many close substitutes

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

If an increase in price leads to a relatively small percentage drop in quantity demanded (that is, if demand is inelastic), then total revenue will increase. inelastic; increase

Which of the following factors will lead to a decrease in the current supply of a good?

If sellers believe that the price will go up in the future, then they will decrease their current supply so that they can sell more when the price is high. A decrease in the price of inputs to the production process

When calculating price elasticity of demand, if the percentage change in price is negative, then the percentage change in quantity demanded is typically

If the percentage change in price is negative (that is, if price falls), then the percentage change in quantity demanded will be positive, since price and quantity demanded move in opposite directions. less than one

If the percentage change in the price of a good is less than the resulting percentage change in the quantity demanded of that good, then the demand for that good is?

If the percentage change in quantity is greater than the percentage change in price, then the price elasticity of demand will be greater than one, implying that demand is elastic. elastic

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

If the percentage change in quantity is less than the percentage change in price, then the price elasticity of demand will be less than 1 in absolute value, implying that demand is inelastic. If price elasticity of demand is greater than 1, that demand is elastic. If the price elasticity of demand is equal to 1, demand is unit elastic. If price elasticity of demand is 0, it is perfectly inelastic. inelastic.

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

If two goods are substitutes, then if the price of one increases, the quantity demanded of the other will increase, implying that the cross-price elasticity of demand between the two goods is positive. substitutes.

Refer to the accompanying figure. A decrease in supply is represented by a shift from

Supply curves are upward sloping, and a decrease in supply is represented by a leftward shift in the supply curve curve B to curve A.

The cross-price elasticity of demand between two goods that are substitutes can never be

The cross-price elasticity between two goods that are substitutes is positive. positive

Refer to the accompanying figure. The equilibrium price is ______, and the equilibrium quantity is ______.

The equilibrium quantity and price of a product are the values that correspond to the intersection of the supply and demand curves. $6; 4

Refer to the accompanying figure. For demand curve D1, what is the price elasticity of demand when P = 12?

The formula for the price elasticity of demand at a given point is ( P/ Q) × (1/slope). Here, (12/2) × (1/2) = 3. 3

The accompanying graph depicts demand.

The formula for the price elasticity of demand at a given point is ( P/ Q) × (1/slope). Here, (5/4) × (1/0.5) = 5/2. Since this is greater than one, demand is elastic at point A. elastic

If the absolute value of slope of the demand curve is 1.5, price is $6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is

The formula for the price elasticity of demand at a given point is ( P/ Q) × (1/slope). Here, (6/8) × (1/1.5) = 0.5 0.5

If the income elasticity for a particular good is negative, then

The income elasticity of demand will be negative if an increase in income leads to a decrease in demand (or a decrease in income leads to an increase in demand). as income increases, consumers will tend to purchase more of the good

The percentage change in quantity demanded that results from a 1 percent change in price is known as the

The price elasticity of demand for a good is the percentage change in quantity demanded that results from a 1 percent change in price. price elasticity of demand.

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

The price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a 1 percent change in its price. quantity demanded to a 1 percent change in price of that good.

If the price elasticity of demand for pineapples is 0.9, then a 5 percent increase in the price of pineapples will lead to a

The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. So, if the price elasticity of demand is 0.9 and price increases by 5 percent, then quantity demanded must fall by 4.5 (= 0.9 × 5) percent. Recall that price and quantity demanded move in opposite directions. 4.5 percent decrease in the quantity of pineapples demanded

)Diet Coke is a close substitute for Diet Pepsi. When Coca-Cola introduced Diet Coke in 1982, the price elasticity of demand for Diet Pepsi ______ and PepsiCo's ability to raise revenues through price increases ______

The price elasticity of demand tends to be higher for goods that have more close substitutes. When demand is elastic, total revenue increases when price decreases, and total revenue decreases when price increases. increased; was reduced

The price elasticity of supply at a point is the

The price elasticity of supply at a point is the percentage change in quantity supplied divided by the percentage change in price. percentage change in quantity supplied divided by the percentage change in price.

)Refer to the accompanying figure. If the price rises from $10 to $14, what will happen to the price elasticity of supply?

The price elasticity of supply computed as ( P/ Q) × (1/slope). Note that as price rises from $10 to $14, P/Q falls, and since slope is constant along a linear supply curve, this implies that the price elasticity of supply falls as price rises from $10 to $14. It increases

Suppose an increase in the price of hamburger from $5 to $6 leads to an increase in quantity supplied from 100 units to 200 units. At the original price, the price elasticity of supply for hamburgers is ______ so supply is ______.

The price elasticity of supply is the percentage change in quantity supplied (Δ Q/ Q) divided by the percentage change in price (Δ P/ P). This can be expressed as ( ΔQ/Q)/(Δ P/ P) or (Δ Q/Δ P) × ( P/ Q).

The supply curve illustrates that firms

The supple curve is upward sloping, reflecting the fact that as price rises, so does the quantity supplied. increase the quantity supplied of a good when its price rises.

When a market is in equilibrium

There is neither excess demand nor excess supply when the market is in equilibrium. there is either excess demand or excess supply

Two goods are compliments if?

Two goods are complements if an increase in the price of one good leads to a decrease in the demand for the other (or a decrease in the price of one good leads to an increase in the demand for the other). an increase in the price of one good leads to a decrease in demand for the other

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

Two goods are complements if an increase in the price of one good leads to a decrease in the demand for the other (or a decrease in the price of one good leads to an increase in the demand for the other). good X and good Y are complements

What might cause a demand curve to shift to the right?

Two goods are substitutes if an increase in the price of one good leads to a rightward shift in the demand for the other. An increase in the price of a complement

)If the demand curve for open-heart surgery is vertical for people with serious heart conditions, then the demand for open-heart surgery is ______ with respect to price.

Vertical demand curves are said to be perfectly inelastic perfectly elastic

Demand tends to be ______ in the short run than in the long run

When consumers have more time to adapt to a price change, the change in quantity demanded will be higher, implying that the price elasticity of demand will be higher in the long run than in the short run. less elastic

When the demand curve shifts to the right and supply doesn't change

When the demand curve shifts to the right (reflecting an increase in demand), both the equilibrium price and quantity will rise. quantity demanded will rise