Microeconomics Chapter 3-5

The Five Demand Shifters

Changes in Income Price of related goods Changes in Tastes and Preferences Future Expectations Number of Buyers

Five Determinants of Elastic or Inelastic Demand

The Existence of substitutes The share of the budget spent on the good Whether the good isa necessity or a luxury good How broadly defined the market is Time

The Five Supply Shifters

The cost of inputs Changes in Technology Taxes and Subsides Number of sellers Price Expectations

Taxes cause the equilibrium price of a good to: a) increase b) decrease c) remain the same d) go up only for producers e) go down only for consumers

a) increase

If the income elasticity of demand is 0.5, the good will be a(n): a. complement good. b. substitute good. c. necessity good. d. inferior good. e. luxury good.

c) necessity good

Two goods that are used together are called: a) complements b) inferior c) giiffin d) substitutes e) normal

a) complements

When the price of ground beef increases and all else is held, constant, we would expect the supply of hamburgers to ______, causing the price to _______ a. decrease; increase b. decease; decrease c. stay the same; stay the same d. increase; increase e. increase; decrease

a) decrease; increase

When firms in a market expect the price of their product to rise, the supply curve of their good: a. decreases, causing the equilibrium price to rise. b. decreases, causing the equilibrium price to fall. c. increases, causing the equilibrium price to fall. d. increases, causing the equilibrium price to rise. e. increases, causing the equilibrium price to rise and the equilibrium quantity to fall.

a) decreases, causing the equilibrium price to rise

When quantity demanded and price increase by 10%, you know that price and quantity are to the consumer a) equally important b) everything c) nothing d) relatively important e) relatively unimportant

a) equally important

When supply shifts left and demand shifts right, the: a. equilibrium price always rises. b. equilibrium price always falls. c. equilibrium quantity always falls. d. equilibrium quantity always rises. e. equilibrium price is indeterminate.

a) equilibrium price always rises

Which of the following would cause a normal good's demand curve to shift to the left? a) income decreases b) income increases c) the price increases d) the price decreases e) the input price increase

a) income decreases

Which of the following would cause the demand curve to shift to the right? a) income decreases for an inferior good b) income decreases for a normal good c) tastes and preferences decrease d) the price of a substitute decreases e) the price of a complement increases

a) income decreases for an inferior good

If the number of buyers in a market increases from 50 to 100, you would expect the equilibrium price to ______ and the equilibrium quantity to ______, holding all else constant a. increase; increase. b. increase; decrease. c. decrease; decrease. d. decrease; increase. e. remain the same; remain the same.

a) increase; increase

Something is a normal good if the demand for the good: a) increases as the consumer's income increases b) increases as the consumer's income decreases c) decreases if the price of a substitute good increases d) increases if the price of a complement good increases e) decreases as the income of the consumer increases

a) increases as the consumer's income increases

A local merchant raises the price of his good and finds that his total revenues increase. The demand for this good is a. inelastic. b. elastic. c. relatively price sensitive. d. perfectly elastic. e. unitary elastic.

a) inelastic

A subsidy: a) is a payment made by the government to encourage consumption or production of a good or service b) is a payment taken by the government to discourage consumption or production of a good or service c) shifts the demand curve of a product d) is designed to decrease the available supply of a good or service e) raises the cost of doing business

a) is a payment made by the government to encourage consumption or production of a good or service

If a business finds that demand for its good is very price elastic, it knows that: a) price is very important b) price is unimportant c) price is unrelated d) the effect of price is less important than the impact of the quantity consumers buy e) the quantity consumers buy is unimportant

a) price is very important

Price elasticity of demand measures the change in: a) quantity demanded due to the change in price b) demand due to the change in price c) quantity demanded due to the change inn price of another good/service d) price due to a change in quantity demanded e) price due to the change in demand

a) quantity demanded due to the change in price

Higher input costs: a) reduce profits b) increase profits c) shift the demand curve d_ always happen during a recession e) provide an incentive to hire more workers

a) reduce profits

. If the price elasticity of supply is 1.5, we know that supply is: a. relatively elastic. b. relatively inelastic. c. perfectly inelastic. d. unitary elastic. e. perfectly elastic.

a) relatively elastic

Deadweight loss is defined as: a) the cost to society created by distortions in the market. b) how much revenue a tax generates. c) who pays a tax out of pocket. d) the dollar cost of a tax per unit of sales. the benefit from additional government spending

a) the cost to society created by distortion in the market

Pepsi and Coke are considered substitute good. Because of this, one would predict that, holding all else constant, if the price of Pepsi increases, we would see: a) the demand curve for Coke shift to the right b) the demand curve for Coke to shift to the left c) no change in the demand for Coke d) the demand curve for Pepsi shift to the right e) the demand curve for Pepsi shift to the left

a) the demand curve for Coke shift to the right

The law of supply states that, all other things being equal, a) the quantity supplied falls when the price falls, and the quantity supplied rises when the price rises b) the quantity supplied falls when the price rises, and the quantity supplied rises when the price falls c) the supply falls when the price falls, and the demand rises when the price rises d) the supply falls when the price rises, and the demand rises when the price falls e) price and quantity are always negatively correlated

a) the quantity supplied falls when the price falls, and the quantity supplied rises when the price rises

If the cross-price elasticity of demand between Good A and Good B is 2 and the percentage change in price of Good A is 5%, what is the percentage change in quantity demanded of Good B? a. 3% b. 10% c. -1.25% d. 1.50% e. -3%

b) 10%

If the percentage change in the quantity consumed of pizza is 8% and the percentage change in income is 2%, what is the income elasticity of demand for pizza? a. -0.25 b. 4 c. 0.25 d. -4 e. -1

b) 4

If the cross-price elasticity of demand is -5, Good A and Good B are: a. inferior goods. b. complements. c. substitutes. d. normal goods. e. luxury goods.

b) complements

When you change your quantity demanded of one good because of a change in price of another good, you are acting according to the principle of: a. price elasticity of demand. b. cross-price elasticity of demand. c. income elasticity of demand. d. price elasticity of supply. e. income elasticity of supply.

b) cross-price elasticity of demand

At higher prices, the price elasticity of demand is likely to be _____, whereas it is likely to be _____ at lower prices a. perfectly elastic; perfectly inelastic b. elastic; inelastic c. inelastic; elastic d. perfectly inelastic; perfectly elastic e. unitary elastic; elastic

b) elastic; inelastic

The local bakery calculates the price elasticity of demand for its cinnamon rolls to be -1.25. This tells the owners that demand is ________ and price is ________ to the buyer. a. inelastic; less important than the quantity b. elastic; more important than the quantity c. unitary elastic; on the same level as quantity d. perfectly inelastic; everything e. perfectly elastic; meaningless

b) elastic; more important than the quantity

We would expect to see a positive cross-price elasticity between: a. peanut butter and jelly. b. ice cream and frozen yogurt. c. basketballs and steak. d. sneakers and socks. e. computers and iPods.

b) ice cream and frozen yogurt

Something is an inferior good if the demand for the good: a) increases as the consumer's income increases b) increases as the consumer's income decreases c) decreases as the price of a complement increases d) decreases as the price of a substitute increases e) decreases as the consumer's income decreases

b) increases as the consumer's income decreases

At a price fo $2, the quantity demanded for pens is 12. When the price increases to $3, the quantity demanded for pens is 10. The price elasticity of demand for pens is: a. perfectly inelastic. b. inelastic. c. horizontal. d. elastic. e. perfectly elastic.

b) inelastic

Super Economy Brand products have an income elasticity of -1.4. Thus, these are ______ goods a. necessity b. inferior c. luxury d. normal e. complementary

b) inferior

A change in quantity supplied: a) is represented by a shift in the supply curve b) is represented by a movement along the supply curve c) happens only when the price increases d) happens only when the price decreases e) is positive if the price of the good decreases

b) is represented by a movement along the supply curve

The income elasticity of demand for a good measures the responsiveness of _____ to a change in ______ a. quantity demanded; price of a related good b. quantity demanded; income c. demand; price of good d. quantity demanded; price of a good e. income; quantity demanded

b) quantity demanded; income

If the cost of flour increases from $3 to $5 a bag, you could predict the supply curve for bagels to a) shift to the right b) shift to the left c) become steeper d) become flatter e) increase

b) shift to the left

Which of the following will cause a movement along a good's supply curve? a) an increase in the price of an input b) the price of the good increases c) the production process of the good becomes more efficient d) more firms enter the market e) the government places a subsidy on the producer of the good

b) the price of the good increases

According to the law of demand, all other things being equal, a) the quantity demanded falls when the price falls, and the quantity demanded rises when the prices rises b) the quantity demanded falls when the price rises, and the quantity demanded rises when the price falls c) the demand falls when the price falls, and the demand rises when the price rises d) the demand falls when the price rises, and the demand rises when the price falls e) price and quantity are always positively correlated

b) the quantity demanded falls when the price rises, and the quantity demanded rises when the price falls

If the price and quantity for an inferior good, Good X, is $8 and 6 units at the original equilibrium, what is one possibility for the new equilibrium of Good X if we see income increase and all other factors stay constant? a. $10 and 4 units b. $10 and 8 units c. $6 and 4 units d. $6 and 8 units e. $10 and 2 units

c) $6 and 4 units

The initial price of picture frames is $6 and suppliers offer 20 frames. When the price falls to $4, suppliers offer only 10. The price elasticity of supply is: a. 0.33. b. 0.67. c. 1.67. d. 0.60. e. 0.40.

c) 1.67

The price of good X increases by 25% causing the quantity consumed of good Y to decrease by 10%. If everything else is held constant in the economy, we can say with certainty that good X and good Y are: a) substitutes b) inferior c) comlements d) normal e) unrelated

c) complements

The demand curve for a good will shift to the right if, holding all else constant, a) consumers expect future prices to decrease b) an input cost of the item goes up c) consumers expect future prices to increase d) the price of the good goes down e) the price of a substitute good goes down

c) consumers expect future prices to increase

When the demand curve shifts to the left and all else is held constant, the a. equilibrium price falls and the equilibrium quantity rises. b. equilibrium price rises and the equilibrium quantity falls. c. equilibrium price falls and the equilibrium quantity falls. d. equilibrium price rises and the equilibrium quantity rises. e. equilibrium price falls and the equilibrium quantity remains constant.

c) equilibrium price falls and the equilibrium quantity falls

When both supply and demand shift to the left, the: a. equilibrium price always rises. b. equilibrium price always falls. c. equilibrium quantity always falls. d. equilibrium quantity always rises. e. equilibrium quantity is indeterminate.

c) equilibrium quantity always falls

A demand schedule a) is a curve representing the relationship between the price of a good or service and the quantity demanded b) is a list of goods services demanded a different prices c) is a table representing the relationship between the price of a good or service and the quantity demanded d) can only be used to analyze the individual's demand for a good or service e) can only be used to analyze the entire market's demand for a good or service

c) is a table representing the relationship between the price of a good or service and the quantity demanded

A supply schedule: a) is a curve representing the relationship between the price of a good or service and the quantity supplied b) is a list of goods and services supplied at different prices c) is a table representing the relationship between the price of a good or service and the quantity supplied d) can be used only to analyze individuals' supply for a good or service e) can be used only to analyze the entire market's supply for a good or service

c) is a table representing the relationship between the price of a good or service and the quantity supplied

Sellers of bottled water find that whether the price falls or rises, the quantity bought by consumers remains unchanged every week. The price elasticity of demand for bottled water is: a) inelastic b) elastic c) perfectly inelastic d) perfectly elastic e) unitary elastic

c) perfectly inelastic

A decrease in demand is represented by a: a) shift of the demand curve to the right b) movement along the demand curve to the right c) shift of the demand curve to the left d) movement along the demand curve to the left e) shift in the supply curve

c) shift of the demand curve to the left

If the cross-price elasticity of demand is 6, Good A and Good B are: a. inferior goods. b. complements. c. substitutes. d. normal goods. e. luxury goods.

c) substitutes

A shortage occurs whenever: a) the quantity supplied is greater than the quantity demanded b) the price is above the equilibrium quantity c) the quantity supplied is less than the quantity demanded d) the government places a binding price floor e) the government places a nonbinding price ceiling

c) the quantity supplied is less than the quantity demanded

When a tax is imposed on some good, what usually happens to consumer and producer surplus? a) They both increase. b) They both fall to zero. c) They both decrease. d) Consumer surplus increases and producer surplus decreases. e) Consumer surplus decreases and producer surplus increases.

c) they both decrease

When the price increases by 30% and the quantity demanded drops by 30%, the price elasticity of demand is: a) perfectly inelastic b) inelastic c) unitary elastic d) elastic e) perfectly inelastic

c) unitary elastic

Bob is willing to pay $65 for a new pair of shoes. Bill is willing to pay $50 for the same shoes. The shoes have a price of $45. What is the total consumer surplus for Bob and Bill? a) $15 b) $20 c) $5 d) $25 e) $35

d) $25

Which of the following will cause the demand curve for burgers to shift the right? a) the price of burgers decreases b) the price of burgers increases c) the price of burger buns increases d) a study is published by the national association for burger research says eating burgers can reduce the risk for bad acne e) the price of steak decreases

d) a study is published by the National Association for Burger Research that says eating burgers can reduce the risk for bad acne

An improvement in technology: a) is one way to shift the demand curve b) always increases producers' profits c) allows a producers to decrease output with the same amount of input d) allows a producer to increase output with the same amount of input e) shifts the supply curve to the left

d) allows a producer to increase output with the same amount of input

Which of the following situations would cause the demand curve to shift to the right? a) a decrease in the number of consumers b) a decrease in the number of producers c) an increase in the price of a complement d) an increase in the price of a substitute e) a change in taste and preferences

d) an increase in the price of a substitute

An expectation of a lower price in the future will a) increase current demand b) decrease current demand c) not change demand d) cause demand to stay the same but increase the quantity demanded e) cause demand to stay the same but decrease the quantity demanded

d) decrease current demand

When supply shifts to the right and demand stays constant, the equilibrium price: a) increases and the equilibrium quantity decreases b) increases and the equilibrium quantity increases c) decreases and the equilibrium quantity decreases d) decreases and the equilibrium quantity increases e) stays the same and the equilibrium quantity increases

d) decreases and the equilibrium quantity increases

Over time, the price elasticity of supply for sunglasses will become more: a. inelastic. b. unitary elastic. c. unchanged. d. elastic. e. perfectly elastic.

d) elastic

When the price of scooters drops by 5%, the quantity demanded changes by 20%. You know that the price elasticity of demand for scooters is: a. perfectly inelastic. b. inelastic. c. unitary elastic. d. elastic. e. perfectly elastic.

d) elastic

Which of the following is both a shift in supply and a shift in demand? a) the number of firms in an industry b) tastes and preferences c) income changes d) expectations of future prices e) the number of buyers

d) expectations of future prices

If the income elasticity of demand is -3, the good will be a(n): a. complement good. b. substitute good. c. necessity good. d. inferior good. e. luxury good.

d) inferior good

When incomes fall by 20%, quantity demanded of speciality baked goods falls by 50%. Speciality baked goods are: a. inferior goods. b. necessities. c. substitutes for mass-produced bread. d. luxuries. e. complements to butter.

d) luxuries

Demand is almost always more price elastic in the long run because: a) people's preferences change b) newer versions of a good/service replace older ones c) production of the good/service stops d) more options become available and people can make different choices e) government regulations increase

d) more options become available and people can make different choices

When the price elasticity of demand is elastic, a consumer is: a) completely unresponsive to a change in price b) relatively unresponsive to a change in price c) unaffected by a change in price d) relatively responsive to a change in price e) completely responsive to a change in price

d) relatively responsive to a change in price

In the long run, both supply and demand tend to become more elastic. This suggests that, in the long run, the: a) deadweight loss from a tax will be less than it is in the short run. b) deadweight loss will be zero. c) government will likely reduce tax rates. d) tax revenue will be lower than it is in the short run. e) tax revenue will be higher than it is in the short run.

d) tax revenue will be lower than it is in the short run

If the price of a good increases, holding all else constant, A) the demand for all of that good's substitutes will decrease b) the quantity demanded for that good will increase c) the demand for all of that good's complements will increase d) the demand for all of that good's substitutes will increase e) the demand curve will shift to the left

d) the demand for all of that good's substitutes will increase

When the demand curve shifts to the right and the supply curve is held constant, a) the equilibrium price and quantity decrease b) the equilibrium price increases, and the equilibrium quantity decreases c) the equilibrium prices decreases, and the equilibrium quantity increases d) the equilibrium price and quantity increase e) you see a movement along the demand curve

d) the equilibrium price and quantity increase

The equilibrium price of peanut butter is $5. A study comes out the says the fat in peanut butter is good for your heart. Holding all other factors constant, which of the following scenarios could happen? a. The price of peanut butter increases to $7 because of a supply shift. b. The price of peanut butter decreases to $4 because of a supply shift. c. The price of peanut butter decreases to $4 because of a demand shift. d. The price of peanut butter increases to $7 because of a demand shift. e. The price of peanut butter increases to $7 because of a demand AND a supply shift.

d) the price of peanut butter increases to $7 because of a demand shift

When the government places a tax on the producer of a good or service: a) the demand curve for the good or service shifts to the right b) the demand curve for the good or service shifts to the left c) the supply curve for the good or service shifts to the right d) the supply curve for the good or service shifts to the left e) both the supply and demand curves for the good or service shifts to the left

d) the supply curve for the good or service shifts to the left

When the number of firms in a market decreases, a) the demand curve shifts to the left b) the demand curve shifts to the right c) the supply curve shifts to the right d) the supply curve shifts to the left e) both the supply and the demand curves shift to the left

d) the supply curve shifts to the left

Cross-price elasticity measures the relationship between a. normal goods and inferior goods. b. complements and inferior goods. c. necessities and luxuries. d. two goods and services. e. income and substitute goods.

d) two goods and services

Firms are indifferent to changing prices when the price elasticity of demand is: a. inelastic. b. perfectly elastic. c. elastic. d. unitary elastic. e. perfectly inelastic.

d) unitary elastic

If the percentage change in quantity demanded of Good B is 2% and the percentage change in the price of Good A is -10%, what is the cross-price elasticity of demand? a. 0.20 b. -5 c. 1 d. 5 e. -0.20

e) -0.20

You are given a list of income elasticity of demand values. Which one represents a necessity? a. -5 b. -0.5 c. 0 d. 5 e. 0.5

e) 0.5

When the price is _____ the equilibrium price, we would expect there to be a ________, causing the market to put _______ pressure on the price until it went back to the equilibrium price a. above; surplus; upward b. above; shortage; downward c. below; surplus; upward d. below; shortage; downward e. above; surplus; downward

e) above; surplus; downward

Excise taxes are taxes that are: a) applied to all goods and activities. b) usually applied to inferior goods. c) usually applied to income and capital gains. d) never applied to goods or activities. e) applied to a particular good or activity.

e) applied to a particular good or activity

Which one of the following pairs of goods is likely to have a negative cross-price elasticity of demand? a. tea and coffee b. soda and water c. spaghetti and ravioli d. tennis shoes and flip flops e. coffee and cream

e) coffee and cream

A 15% increase in the price of cookies results in a 9% decrease in the quantity of cookies sold. The revenue received by cookie suppliers will _______ because the price elasticity of demand for cookies is ________ a. decrease; inelastic b. increase; elastic c. decrease; elastic d. not change; unitary elastic e. increase; inelastic

e) increase; inelastic

If the income elasticity of demand is 1.2, the good will be a(n); a. complement good. b. substitute good. c. necessity good. d. inferior good. e. luxury good.

e) luxury

When Sue received a promotion at work, her income rose by 50%. The income elasticity of demand for steak was found to be 1.5. For her, steak is a(n): a. inferior good. b. necessity. c. complement to potatoes. d. substitute for chicken. e. luxury.

e) luxury

Income elasticity of demand for professional haircuts is found to be 1.7. This service is a: a. normal good and necessity good. b. luxury good but not a normal good. c. necessity good but not a normal good. d. substitute good. e. normal good and a luxury good.

e) normal good and a luxury good

Price elasticity of demand is measured as the: a. change in quantity demanded divided by the change in price. b. change in price divided by the change in quantity demanded. c. percentage change in price divided by the percentage change in quantity demanded. d. percentage change in demand divided by the percentage change in income. e. percentage change in quantity demanded divided by the percentage change in price.

e) percentage change in quantity demanded divided by the percentage change in price

If the price elasticity of supply is 2.5, we know that it is: a. perfectly elastic. b. perfectly inelastic. c. unitary elastic. d. relatively inelastic. e. relatively elastic.

e) relatively elastic

Inputs are: a) goods that are used together b) goods that are used in place of one another c) goods that you demand more of as your income increases d) goods that you demand less of as your income increases e) resources that firms use in the production of final goods and services

e) resources that firms use in the production of final goods and services