micro midterm 1

Product C increases in price from $1 a pound to $2 a pound. This causes the quantity demanded for Product D to increase from 27 units to 81 units. Cross-Price elasticity ? Relationship ?

(81-27)/(81+27/2)= 1 (2-1)/(2+1/2)=.6667 1/.6667 = 1.5 Substitutes

Blake eats two bags of generic potato chips each day, and does not purchase any name-brand chips. Blake's hourly wage increases from $8.75 to $15, and he decides to eat one name-brand bag and one generic-brand bag each day. Calculate Blake's income elasticity of demand for generic potato chips.

(Change in Quantity of Chips)= (1-20/(1+2/2)=-.6667 / (Change in Income) = (15-8.75)/(15+8.75/2) = .5263 -.6667/.5263 =-1.27

A 20% price increase for Product A causes a 10% decrease in its quantity demanded, but no change in the quantity demanded for Product B. Cross-Price elasticity ? Relationship ?

zero, there is no relationship because the change of product a has no impact on product b.

The hypothetical country of Crabby Island has imposed a production quota of 4,000 crabs per month. Use the line segment in the graph to show this production quota, then answer the question. Use the line segment to show a production quota of 4,000 crabs per month. What is the price of crab after the introduction of the quota?

$7

Four college friends all lost their computers in a dorm theft after Drew forgot to lock the door. Now they are each considering buying a netbook. The table contains the maximum prices each would be willing to pay. The lowest price they can find is $150. Student Willingness to pay: Felix $500 Lauren $400 Drew $300 Oscar $100 What is the total consumer surplus?

$750

Assume that in order to help hay farmers, the government imposes a price floor on hay of $14 per bale and the price floor stays in place for the long run. Use the graph to show the price floor, then answer the questions. What is the surplus from this long‑run price floor? (question 56)

(distance between the points of price floor on supply and demand curves) 5

When Lauren's salary decreases from $34,000 to $30,000, she decides to reduce the number of outfits she purchases each year from 20 to 19. Calculate Lauren's income elasticity of demand for new outfits. New outfits are:

*MIDPOINT (19-20)/(19+20/2)= -0.0513 (30,000-34,000)(30,000+34,000/2)= -0.125 -0.0513/-0.125 =0.410 A normal good with income-inelastic demand

The table contains the willingness to pay for five students in the market for a new tablet. The accompanying graph visualizes this information. Student Willingness To Pay: Francisco $200 Lily $300 Amanda $400 Julio $100 Anthony $500 Which students will purchase a tablet if the price of a tablet is $350? everyone Lily and Francisco no one Amanda and Anthony

Amanda and Anthony

As the price of gummy bears rises from $2.60 to $3.00 , (Sugar Free: 179 to 161) (regular: 383 to 277) what is the price elasticity of demand of sugar‑free gummy bears and of ordinary gummy bears? Use the midpoint method and specify answers to one decimal place.

Sugar-free Gummy Bears: (Change in Quantity) (161-179)/(161+179/2)= -.1059/ (Change in Price) (3.00-2.60)/(3.00+2.60/2)=.1429 -.1059/.1429 = -0.7 Ordinary Gummy Bears: (277-383)/(277+383/2)=-.3212 (3.00-2.60)/(3.00+2.60/2)=.1429 -.3212/.1429 =-2.2

Suppose a $1 excise or commodity tax is placed on the purchasers of cans of soda. Use the graph to illustrate the impact this tax would have on the soda market and answer the questions.

The tax would shift the demand curve down or left by 1

allow for the exchange of goods and services using a common unit as a measure of value that ie generally accepted as payment

money

established rules for ownership of resources and creates incentives for innovation:

property rights

Look at the table Taxes, Spending, and Income. Suppose Governor Meridia's decides to initiate a state tax of 5% on all sales. This tax will be

regressive

Either or decision or Marginal decision? After graduation from law school, frank is offered one job in Chicago and another in New York, which one should he take?

either or

Either or decision or Marginal decision? Bella is accepted to four graduate school programs, where should she go?

either or

Suppose the government of Lilliput voted to decrease taxes on the top earners and increase it on the lowest earners. How would this new tax system be classified?

regressive

With fewer substitutes, demand tends to be: more elastic. perfectly inelastic. less elastic.

less elastic

brings buyers and sellers together to carry out mutually beneficial exchanges:

markets

Demand for a luxury item tends to be more elastic. perfectly inelastic. less elastic.

more elastic

Demand for an item that uses a large portion of your budget tends to be: more elastic. perfectly inelastic. less elastic.

more elastic

Movement or Shift along the demand curve? College students reduce how much detergent they use for each load of laundry in response to higher detergent prices.

movement along the demand curve

Movement or Shift along the demand curve? College students rush and buy discount furniture to take advantage of an unexpected price drop.

movement along the demand curve

The U.S. government limits the amount of sugar that can be purchased from foreign sugar producers. Select the term that best fits the scenario. price floor black market quota license price ceiling

quota

Movement or Shift along the demand curve? College students purchase many more energy drinks during finals week than during the rest of the semester.

shift in the demand curve

Movement or Shift along the demand curve? Students eat out more often as the federal government increases how much grant money it provides students.

shift in the demand curve

If a 35% price increase for Product A causes a 10% decrease in its quantity demanded, but no change in the quantity demanded for Product B, what is the cross-price elasticity of these goods? Round your answer to one decimal place.

zero, there is no relationship because the change of product a has no impact on product b.

Suppose a state passes a minimum wage law that increases the minimum wage from $5/hour to $20/hour. The equilibrium wage prior to the minimum wage hike was $10/hour. Which is likely to result from increasing the minimum wage? The state will experience full employment. Employers will demand more labor than workers will supply. The labor market will become more efficient. Some employers and workers will agree on a wage of less than $20/hour and not report the wages to the government. This result of increasing the minimum wage is an example of a license. quantity control. quota rent. black market.

1) $20/hour and not report the wages to the government. 2) Black Market

Amazon has a "Lightning Deal" where it slashes the price of one item. At 3:15 p.m. today, they announced that the item was a new tablet with a sales price of $150 which is less than half the original price. The table contains the maximum willingness to pay of five college students wanting to buy a tablet on Amazon. Anthony $500 Amanda $400 Lily $300 Francisco $200 Max $100 What is total consumer surplus for the five students? If the price increases from $150 to $350, what is the change in total consumer surplus?

1) 800 2) -600

When the price of Product E decreases 9%, this causes its quantity demanded to increase by 14% and the quantity demanded for Product F to increase 12%. Cross-Price elasticity ? Relationship ?

12%/9% = -1.3

Over longer periods of time, demand tends to be more elastic. perfectly inelastic. less elastic.

more elastic

Which statement best characterizes the relationship between the elasticity of demand, price, and total revenue? When demand is elastic and price falls, total revenue falls. When demand is inelastic and price falls, total revenue does not change. When demand is inelastic and price falls, total revenue rises. When demand is elastic and price falls, total revenue rises.

When demand is elastic and price falls, total revenue rises.

what is the biggest problem facing Command Economies (socialism)? Free enterprise Coordination and incentives to direct output Private property The invisible hand

Coordination and incentives to direct output

Stone and brick are substitutes in home construction. Consider the market for bricks depicted in the graph. Suppose the price of stone increases due to new regulations for the stone quarrying industry. Illustrate the impact this will have on the market for bricks. Effect on equilibrium quantity and price?

Demand curve shifts right Equilibrium Price: increases Equilibrium Quantity: increases

Consider two markets: the market for coffee and the market for hot cocoa. The initial equilibrium for both markets is the same, the equilibrium price is $⁢5.50, and the equilibrium quantity is 25.0. When the price is $12.75, the quantity supplied of coffee is 67.0 and the quantity supplied of hot cocoa is 105.0. For simplicity of analysis, the demand for both goods is the same. Using the midpoint formula, calculate the elasticity of supply for hot cocoa. Please round to two decimal places. Supply in the market for coffee is less elastic than supply in the market for hot cocoa. more elastic than supply in the market for hot cocoa. the same elasticity as supply in the market for hot cocoa. There is not enough information to tell which has a higher elasticity.

Elasticity for hot cocoa (105-25)/(105+25/2)= 1.2308 (12.75-5.5)/(12.75+5.5/2)= .7945 1.2308/.7945 =1.55 Elasticity for Coffee (67-25)/(67+25/2)= .9130 (12.75-5.5)(12.75+5.5/2)= .7945 .9130/.7945 =1.15 Coffee is LESS elastic than the market for hot cocoa

Consider two markets: the market for coffee and the market for hot cocoa. The initial equilibrium for both markets is the same, P=$0.50, and 𝑄=27 units. When the price is $11.75, the quantity supplied of coffee is 59 units and the quantity supplied of hot cocoa is 107 units. For simplicity of analysis, the demand for both goods is the same. What is the elasticity of supply for hot cocoa? Please round to two decimal places. Supply in the market for coffee is less elastic than supply in the market for hot cocoa. the same elasticity as supply in the market for hot cocoa. more elastic than supply in the market for hot cocoa. There is not enough information to tell which has a higher elasticity.

Elasticity for hot cocoa: (107-27)/(107+27/2)=1.1940 (11.75-.5)/(11.75+.5/2)=1.8367 1.1940/1.8367 =.65 Elasticity for coffee: (59-27)(59+27/2)=.7442 (11.75-.5)/(11.75+.5/2)=1.8367 .7442/1.8367 =.4052 Coffee is less elastic than hot cocoa

Determine how the equilibrium price and equilibrium quantity in the market for coffee changes if the price of tea, a substitute for coffee, decreases, and due to better weather, the price of coffee beans also decreases.

Equilibrium price decreases Equilibrium quantity decreases

Either or decision or Marginal decision? Jake needs to stay awake while he studies for his midterm tomorrow. What quantity of coffee should Jake drink?

marginal

Either or decision or Marginal decision? Marvin arrives at his favorite buffet and eat chinese food. Sometimes he overeats and leaves the buffet with a stomach ache.

marginal

Rent controls are a typical example of a price ceiling. Please select all likely consequences of rent controls when the price ceiling is binding. inefficient allocation of apartments reductions in apartment quality black markets more subletting of apartments

all of them

excess demand (location?)

located below equilibrium inside the triangle created by the excess demand line and supply and demand curves

Assume Fiona is willing to pay $8 for a pizza cutter. Tim also wants one, but is only willing to pay $6 for one. At a pizza baker's convention, Fiona buys the last pizza cutter at the market price just before Tim can buy it. Tim contacts the convention organizers and complains about missing out on the last pizza cutter. The organizers refund Fiona for the pizza cutter and allow Tim to buy it at the market price. What happens as a result of the organizers refunding Fiona, taking the pizza cutter from her, and letting Tim buy it at the market price?

consumer surplus decreases

organize resources in order to produce goods and services:

firms

The accompanying diagram represents the market for violins. Suppose that a new technology allows beginner-level violin producers to make violins at a substantially lower (marginal) cost while retaining the same quality. a. Use the graph to illustrate the effect that this will have on the supply and demand of beginner-level violins and then answer the following three questions. b. How much does this new technology increase consumer surplus? c. How much does this new technology increase producer surplus? d. How much does this new technology increase total (or social) surplus?

a) Supply curve will shift right b) 1,050,000 c) 1,050,000 d) (b+c) 2,100,000

The cross‑price elasticity of hamsters and hamster food is −0.3−0.3 , where the percentage change in quantity is for hamsters and the percentage change in price is measured for hamster food. Calculate the percentage that the quantity demanded of hamsters will change if the price of hamster food decreases by 14%14% . Enter the response to one decimal place and enter a negative number if the quantity demanded decreases.

% increase in quantity demanded of starships = % increase in the price of spaceships * Cross-price elasticity of starships and spaceships -14*-0.3 =4.2

The cross‑price elasticity of starships and spaceships is 0.6 , where the percentage change in quantity is for starships and the percentage change in price is measured for spaceships. If the price of spaceships increases by 7.0%, what will the percentage change in the quantity demanded of starships (%ΔQD) be? Enter the response to one decimal place and enter a negative number if the quantity demanded decreases

% increase in quantity demanded of starships = % increase in the price of spaceships * Cross-price elasticity of starships and spaceships 7*0.6 =4.2

Calculate the income tax rate for each person and enter it as a percent. IncomeTaxes paid joey $90000 (income) $27000 (tax) Monica $85000 $21250 Chandler $75000 $15000 Is this a progressive, regressive, or proportional tax system?

Joey: 30% Monica: 25% Chandler: 20% It is progressive.

The U.S. government has subsidized ethanol production since 1978. With the advent of affordable electric cars, policymakers are considering whether to allow the subsidy to expire. The accompanying graph represents the market for ethanol. Move the supply and/or demand curves to show how reducing the subsidy will affect the ethanol market. Effect on equilibrium quantity and price?

Supply Curve shifts left Equilibrium Price: Increases Equilibrium Quantity: Decreases

Recently, a series of studies have demonstrated the considerable beneficial health effects of food and drink derived from the amaranth plant. This has affected consumer tastes for amaranth flour, pods, root, etc. At the same time, particularly favorable weather has resulted in a bumper crop of amaranth plants. Show the impact of these changes by properly shifting the appropriate curve or curves in the graph.

Supply and Demand shift right

What effect would an income supplement policy have on the market? What effect would it have on the market rent and quantity of rental housing supplied, compared with your answer to the first question? The income supplement will cause demand to shift right, causing the equilibrium quantity and rental price to increase. The income supplement will cause demand to shift left, causing the equilibrium quantity and rental price to decrease. The income supplement will cause supply to shift right, causing the equilibrium quantity to increase and rental price to decrease. The income supplement will cause supply to shift left, causing the equilibrium quantity to decrease and rental price to increase.

The income supplement will cause demand to shift right, causing the equilibrium quantity and rental price to increase.