Macro unit 1-2
Which of the following is true of the cross-price elasticity of demand?
It is greater than zero for two goods that are substitutes.
Which of the following is most likely to occur when a competitive market adjusts from one equilibrium to another?
A decrease in supply will cause the equilibrium price to decrease, the equilibrium quantity to increase, and consumer surplus to decrease.
Which of the following statements about the price elasticity of demand is true?
As more close substitutes become available, demand tends to be more price elastic.
Which of the following best describes how a consumer maximizes total utility from the consumption of a bundle of goods and services?
By choosing the combination of goods such that the marginal utility per dollar spent on the last unit of each good is equal
In relation to tacos, the cross-price elasticity of demand for Good X is negative. What would be the result if the price of taco increases?
The demand for Good X will decrease because it is a complement to tacos.
If a severe drought destroys a significant portion of the peanut crop and peanut farmers' revenues increase, which of the following is true over the observed range of prices?
The demand for peanuts must be price elastic
Which of the following describes how a market will respond when the scarcity of a good increases?
The price of the good will increase.
The price elasticity of demand for a product is 0.5. If the price of the product increases by 20 percent, which of the following will occur?
The quantity demanded of the good will decrease by 10%.
Assume that the market demand for a good is perfectly inelastic, the market supply for the good is perfectly elastic, and the market is in equilibrium. If there is a decrease in the price of a key input used in the production of the good, which of the following will occur?
There will be no change in the producer surplus.
In the absence of market failures, a perfectly competitive market equilibrium is efficient for which of the following reasons?
Total economic surplus is maximized and all mutually beneficial transactions are exhausted.
For a rational consumer with diminishing marginal utility, the consumption of an additional unit of a good will result in which of the following?
Total utility will increase while marginal utility will decrease.
The difference between what consumers are willing to pay for units of a good and the price consumers actually paid for units of the good is called
consumer surplus
To determine whether two goods are complements, one would calculate the
cross-price elasticity of demand
The additional satisfaction received from consuming an additional unit of a good is called the
marginal utility
The cross-price elasticity of demand between good X and good Z measures the percentage change in the quantity demanded of good X in response to a percentage change in
the price of good Z
Consumer surplus exists because of the
willingness of some consumers to pay a price higher than the market price for some units of a good