Microeconomics Test #2

The buyer's reservation price for a particular good or service is the:

largest price the buyer would be willing to pay for it

Example of complements

tennis rackets and tennis balls

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

complementary goods

When a market is in equilibrium

there is neither excess demand nor excess supply

Example of substitutes

cloth diapers and disposable diapers

The market equilibrium quantity:

is sometimes socially optimal quantity

What might cause a decrease in the current supply of a product?

New information that leads sellers to believe that the product's price will rise in the future.

Assume both the demand for beef and the supply of beef decrease. Which of the following outcomes is certain to occur?

The equilibrium quantity of beef will fall.

A seller's reservation price is generally equal to:

The seller's opportunity cost of producing an additional unit.

A decrease in both the equilibrium price and the equilibrium quantity of rice is best explained by:

a decrease in the demand for rice

Suppose that the technology used to manufacture laptops has improved. The likely result would be:

an increase in the supply of laptops

One reason the demand curve slopes downward:

as prices fall, more people find that the price is now less than their reservation price

Example of complements

birthday cake and birthday candles

Suppose that when the price of oranges is $3 per pound, the quantity demanded is 4.7 tons per day and the quantity supplied is 3.9 tons. In this case:

excess demand will lead the price of oranges to rise.

At the beginning of the fall semester, college towns experience large increases in their populations causing:

increase in the demand for apartments

If the demand for a good decreases as income decreases, then the good is a

normal good

Suppose rice is a normal good. If consumers' incomes fall, and a new technology is introduced that lowers the marginal cost of producing rice, then the equilibrium:

price of rice will fall, but we cannot say for sure what will happen to the equilibrium quantity.

Jessica's marginal cost for producing a pitcher of lemonade is .25. Therefore, .25 is her

reservation price

Example of complements

washing machines and dryers

A price ceiling that is set above the equilibrium price:

will NOT effect the market.

Which of the following factors will lead to a decrease in the current supply of a good?

A belief that the price of a good or service will go up in the future

Market Equilibrium

leaves no unexploited opportunities for individuals

Marginal cost

the cost added by producing one additional unit of a product or service