exam 2 economics

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

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

substitutes.

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

total economic surplus has been maximized.

Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5.00, and that in response Curly has now begun operating a hot dog cart. We can assume that Curly's reservation price for hot dogs is:

greater than $4.50 but no more than $5.00.

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

lower; uncertain

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 the 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.

A good example of central planning at work in the U.S. is:

New York City's rent control program.

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

The market equilibrium quantity:

is sometimes the socially optimal quantity.

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 the demand for DVD players.

When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer that 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 the income effects.

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.

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

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

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

inelastic.

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

inferior good.

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

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

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

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

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

the demand curve.

When a market is not in equilibrium:

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

You can spend $10 for lunch and you would like to purchase two cheeseburgers. When you get to the restaurant, you find out the price for cheeseburger has increased from $5 to $6, so you decide to purchase just one cheeseburger. This is best described as:

the income effect of a price change.

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

the substitution effect of a price change.

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.

Suppose you bought three tickets to a concert in advance at the University ticket window. At the last minute one friend cancelled, so you could use only two of the tickets. You sold the third ticket just outside the entrance to the concert for more than the price you had originally paid. Which transaction occurred in a market?

Both the purchase at the University ticket window and the sale at the concert entrance were market transactions.

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

Incentive Principle.

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

a black market might develop.

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.

Suppose you observe a decrease in the equilibrium price and quantity of corn. Of the options listed below, this is best explained by:

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

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

good X and good Y are complements.

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

change in quantity demanded.

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

complementary goods.

All else equal, a decrease in the 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

Suppose that when the 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.

Shelly purchases a leather purse for $400. One can infer that:

her reservation price was at least $400.

As the price of a good rises:

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

Efficiency is an important social goal because:

movements toward economic efficiency make the total economic pie larger.

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.