Microeconomics--Test 2
Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result, CineArts Videos experienced a 16 percent decline in its movie club membership. What is the value of the cross-price elasticity between the two movie club memberships?
1.6 (16/10)
Refer to the diagrams above. The demand curve on which elasticity changes at every point is given in
a diagonal line from left to right
Compare the price elasticity of demand for sugar with the price elasticity of demand for food. The price elasticity of demand for sugar is likely
more inelastic because sugar tends to represent a smaller fraction of a consumer's budget
The drug insulin is one example of a product that would have a perfectly inelastic demand curve.
True
In 2011, President Barack Obama described a trade agreement reached with the government of Colombia as a "'win-win' for both our countries."
No, workers employed at companies that are less efficient than foreign companies will lose jobs.
In fall 2006, Pace University in New York raised its annual tuition from $24,500 to $29,600. Freshman enrollment declined from 1,475 in fall 2005 to 1,150 in fall 2006. Assuming that the demand curve for places in the freshmen class at Pace did not shift between 2005 and 2006, use this information to calculate the price elasticity of demand. Use the midpoint formula in your calculation. The price elasticity of demand for Pace University for the fall of 2006 is The demand for places in Pace's freshman class is price Calculate the total revenue generated from Pace's freshman class in 2005 Calculate the total revenue generated from Pace's freshman class in 2006 The total amount of tuition Pace received from its freshman class _________ in 2006 compared with 2005
-1.31 elastic 36137500 34040000 fell
If a 15 percent increase in the price of Cheerios causes a 11 percent reduction in the number of boxes of cereal demanded, the price elasticity of demand for Cheerios is: The demand for Cheerios is
-11/15 = -0.73 inelastic (because demand is inelastic when the percentage change in quantity demanded is less than the percentage change in price)
Suppose the price elasticity of demand for a Czech novel translated into English is perfectly inelastic. Assume the initial price of the translated novel is $27.00 and the quantity demanded is 195 copies per year. If the price of the translated novel increases by $2.00, then the quantity demanded will be _____ copies per year. Next, suppose the price elasticity of demand for a mystery novel by Dean Koontz is infinitely elastic. In this example, assume the initial price of the novel is $25.00 and the quantity demanded is 22 thousand copies per year. If the price of the mystery novel increases by $1.00, then the quantity demanded will be _____ copies per year.
195 0
Suppose the cross price elasticity of demand between grapefruit fruit and orange juice is approximately 6. What does this mean?
A 1 percent decrease in the price of grapefruit juice leads to a 6 percent decrease in orange juice consumption.
Suppose the value of the price elasticity of demand is minus 3. What does this mean?
A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
Studies show that the income elasticity of demand for wine is approximately five. What does this mean?
A one percent increase in income leads to a five percent increase in wine consumption.
Which of the following is not a main source of comparative advantage?
A.Internal economies of scale. Your answer is correct. B.Technology. C.Relative abundance of labor and capital. D.Climate and natural resources. E.External economies of scale. Answer A
Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?
Demand is likely to be relatively inelastic.
Which of the following statements about the price elasticity of demand is correct?
Demand is more elastic in the long run than it is in the short run.
"International trade is more important to the U.S. economy than to most other economies."
Disagree. Exports and imports are a relatively small fraction of the United States GDP.
Manager 1: "The only way we can increase the revenuewe receive from selling our frozen pizzas is by cutting the price." Manager 2: "Cutting the price of a product never increases the amount of revenue you receive. If we want to increase revenue, we have to increase price." Do you agree with the reasoning of Manager 2?
I disagree. Cutting the price will increase revenue if the demand is price elastic
"Unfortunately, Bolivia does not have a comparative advantage with respect to the United States in the production of any good or service."
If the U.S. trades at all with Bolivia, then the argument above is false. There would be no trade unless both countries were made better off, and this would imply Bolivia has the comparative advantage in the production of at least one good or service.
Seth is a competitive body builder. He says he has to have his 12-oz package of protein powder to "feed his muscles" every day. On the basis of this information, what can you conclude about his price elasticity of demand for protein powder?
It is perfectly inelastic.
When lettuce prices doubled, from about $1.55 per head to about $3.10, the reaction of one consumer was quoted in a newspaper article: "I will not buy [lettuce] when it's $3.10 a head," she said, adding that other green vegetables can fill in for lettuce. "If bread were $5 a loaf we'd still have to buy it. But lettuce is not that important in our family." For this consumer's household, which product has the higher price elasticity of demand: bread or lettuce? For this consumer's household, is the cross-price elasticity of demand between lettuce and other green vegetables positive or negative:
Lettuce positive because substitutes
If sugar protectionism has the bad effects as stated in the editorial, which of the following is a likely reason why Congress and the president do not eliminate it?
Sugar growers have a very strong lobby in Washington. Consumers are unaware of the existence of the quota. There is little political support for the elimination of the quota.
What happens when the quantity demanded is very responsive to changes in price?
The percentage change in quantity demanded will be greater than the percentage change in price.
Suppose the government imposes an 8 percent sales tax on clothing items and the tax is levied on sellers. Who pays for the tax in this situation? (Assume that the demand curve is downward-sloping and that the supply curve is upward-sloping.)
The tax will be borne by partly by consumers and partly by sellers.
What are the key determinants of the price elasticity of demand for a product?
availability of close substitutes, passage of time, necessities versus luxuries, definition of the market, and share of the good in the consumer's budget.
What is the difference between absolute advantage and comparative advantage? ______ advantage is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors. While ______ advantage is the ability of an individual, a firm, or a country to produce more of a good or service than competitors when using the same amount of resources. A country will always be an exporter of a good where it has
comparative; absolute a comparative advantage in production
The rule of equal marginal utility per dollar spent suggests that consumers maximize utility by
equalizing the marginal utility per dollar spent across goods and services.
The demand for most farm products is relatively inelastic. All else constant, what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases in productivity?
farm revenue decreases
One study found that the price elasticity of demand for soda is -0.78, while the price elasticity of demand for Coca-Cola is -1.22. The price elasticity of Coca-Cola is
greater than it is for soda as a product because there are more substitutes for Coca-Cola than soda.
Price elasticity of demand measures
how responsive quantity demanded is to a change in price
Price elasticity of supply is used to gauge
how responsive suppliers are to price changes.
The United States practices "sugar protectionism" by
imposing a quota on sugar imports.
International trade has always played a role in the U.S. economy. Is this role increasing or decreasing (in terms of exports and imports)?
increasing because government policies facilitate trade
If the price elasticity of demand for canned soup is estimated at -1.62, what happens to sales revenue if the price of canned soup rises?
it falls
"Sugar protectionism" is viewed as a "job killer" because
it leads to job losses in the candy industry and various food manufacturing industries that use sugar
As far as the effect of "sugar protectionism" on U.S. consumers is concerned,
it raises the prices of sugar and candy that consumers have to pay and leads to a loss of consumer surplus.
In the 2010 holiday season, Steve Richardson decided to cut the prices of his hand-crafted wooden puzzles to increase sales. According to a newspaper account, "the number of orders at Stave Puzzles Inc., his Norwich, Vt. business, hasn't been enough to offset the price cuts." The demand for these puzzles:
must be inelastic because the percentage increase in the quantity demanded for orders is less than the percentage decrease in price of the puzzles.
Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes. All else constant, Sefton's income elasticity of demand for potatoes is
negative, so Sefton considers potatoes to be an inferior good
We do not see complete specialization in the real world because
not all goods and services are traded internationally, production of most goods involves increasing opportunity costs, and tastes for products differ.
Compare the price elasticity of demand for water with the price elasticity of demand for wine. The price elasticity of demand for wine is likely
relatively more elastic because wine is a luxury
"If the Indians suddenly slashed all tickets to $10, would their attendance actually increase? Not all that much and revenue would drop dramatically." The sportswriter is assuming that the demand for Indians tickets is
relatively price inelastic.
Suppose the demand for milk is relatively inelastic. What happens to sales revenue if the government imposes a price floor above the free market equilibrium price in the market for milk?
sale revenue rises
Which determinant is the most important?
the availability of close substitutes
What is the midpoint method for calculating price elasticity of demand? How else can you calculate the price elasticity of demand? What is the advantage of the midpoint method?
the change in quantity divided by the average of the initial and final quantities divided by the change in price divided by the average of the initial and final prices. Price elasticity of demand can be calculated using initial values for price and quantity & price elasticity of demand can be calculated using final values for price and quantity. The midpoint formula will give the same value whether moving from the higher price to the lower price or from the lower price to the higher price.
Why isn't elasticity just measured by the slope of the demand curve?
the measurement of slope is sensitive to the units chosen for quantity and price
Which of the following is a primary determinant of the price elasticity of supply? In particular, the supply curve for a particular product will be increasingly more inelastic over a _______ period of time
the passage of time. shorter
Income elasticity of demand is For a normal good, the income elasticity of demand will be Is it possible to tell from the income elasticity of demand whether a product is a luxury good or a necessity?
the percentage change in quantity demanded divided by the percentage change in income. positive, but for an inferior good, the income elasticity of demand will be negative. Yes. If the income elasticity of demand is greater than 1, then the good is a luxury. If the income elasticity of demand is positive but less than 1, then the good is a necessity.
What is the formula for the price elasticity of demand?
the percentage change in quantity demanded divided by the percentage change in price.
The cross-price elasticity of demand is If the cross-price elasticity of demand is negative, then the products are:
the percentage change in quantity demanded of one good divided by the percentage change in the price of another good. complements, but if it is positive, then the products are substitutes.
The formula for the price elasticity of supply is If an increase of 12 percent in the price of frozen pizzas results in a 14 percent increase in the quantity of frozen pizzas supplied, the price elasticity of supply for frozen pizzas is Is the supply of pizzas elastic or inelastic?
the percentage change in quantity supplied divided by the percentage change in price. 1.17 elastic
Although international trade leads to substantial net benefits, not everyone gains from international trade. Which of the following groups is most likely to lose from trade?
the workers and companies in the industries that compete with the imports
If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is
unit-elastic
