Microeconomics - Exam 2
Cross elasticity of demand, which measures the relationship between substitutes and complements, is calculated by
% change in QD of good A/% change in the price of good B
If 2 percent change in price leads to a ________ percent change in the quantity demanded, then demand is ________. (HINT: Write out the price elasticity of demand equation and enter the number in to help)
1; inelastic
___________ surplus is the difference between the maximum price a consumer is (or consumers are) willing to pay for a product and the actual [market] price.
Consumer
Which of the following has become the least willing to sacrifice their environmental quality for some additional economic output?
The European Union
Which of the following would be classified as a situation where a third-party benefits from a market transaction by others?
The city of San Antonio planting 10,000 trees in parks across the city
A benefit that arises from the production or consumption that falls on someone other than the producer or consumer is called
a positive externality.
Suppose the New Orleans Saints lower ticket prices by 15 percent and as a result the quantity of tickets demanded increases by 10 percent. This set of results shows that New Orleans Saints tickets have
an inelastic demand.
To calculate the percentage change in price, the midpoint formula divides the ____________ and then multiplies by 100.
change in price by the average of the initial and the new price
An approach to environmental regulation which specifies allowable quantities of pollution and/or details which pollution-control technologies must be used is called a ___________________.
command-and-control regulation
Total surplus equals
consumer surplus + producer surplus
A price cut will increase the total revenue a firm receives if the demand for its products is:
elastic
When the percentage change in the quantity demanded exceeds the percentage change in price, then demand is
elastic
If a 20 percent rise in price leads to a 40 percent decrease in quantity demanded, then demand is
elastic and total revenue decreases.
Market failure describes a situation in which the market itself _________________ in a way that balances social costs and benefits.
fail to allocate resources efficiently
Target has a limited number of "Black Friday" items on sale. Target opens at 5 PM on Thanksgiving, and those who want the chance to buy these items must arrive early to secure a spot in line to purchase these items. Target is using a ____________ allocation method for these items.
first-come, first-served
An inferior good is a product:
for which demand decreases as income increases.
The price elasticity of demand measures which of the following?
how responsive the quantity demanded is to changes in price
__________________ refers to the sensitivity of the quantity demanded for a certain good to a change in income of consumers who buy this good, keeping all other things constant.
income elasticity of demand
The price elasticity of demand for candles is ____________ because as the price of candles rises by 21%, the quantity demanded of candles falls by 14%.
inelastic
The elasticity for food items is generally ________ the elasticity for necessities.
less elastic than
In order for a good to be classified as ________________, when one person uses the good, it does not prevent others from using it.
non-excludable
When people cannot be prevented from using a good, and it is free of charge to everyone, then that good is classified as being a ____________.
non-excludable.
Property rights are the legal rights of ownership on which others are
not allowed to infringe without paying compensation
Which of the following mechanisms encourages innovation and will increase the rate of return that can be earned by inventors?
patents, copyrights, an all of the above
The free-rider problem exists because
people cannot be excluded from consuming public goods even if they don't pay for them
Which statement about the difference between private costs and social costs is TRUE:
private cost only considers the cost assumed by producers of the good.
The price elasticity of demand measures the responsiveness of a ________ to a ________.
quantity demanded; change in price
Traditionally, policies for environmental protection in the U.S. have focused on _______________ pollutant could be emitted.
setting limits for how much of each
____________ includes both the private costs incurred by firms and also the (external) costs incurred by third parties outside the production process.
social costs
A public good is defined as a good or service
that is nonrival and nonexcludable
The price elasticity of demand is a measure of the extent to which the quantity demanded of a good changes, when ____________changes and all other influences on buyers' plans remain the same.
the price of the good
A pollution charge is a form of tax imposed on
the quantity of pollution that a firm emits.
In calculating elasticity, we use the midpoint method for calculating the percentage change because it results in
the same percentage change regardless of whether the price increases or decreases, because we are focusing on the magnitude.
If a 25 percentage change in price generates a 25 percentage decrease in the quantity demanded, then the demand for that product is ___________
unit elastic
Perfectly inelastic demand means that consumers
will buy a certain quantity, regardless of price
If you are highly asthmatic, then having high levels of industrial pollutants waft over your house every day
would be a negative externality.
An example of a negative externality is
your annoying neighbors loud party
