Microeconomics Unit 2 Review

You're a producer in this market, and you'd be willing to sell a Greebe for $0.15. How much producer surplus would you get from selling this Greebe?

$0.15

If a business is willing to produce 50 of a good at a price of $20 and is willing to produce 100 at a price of $30, then the elasticity of supply over this range (measured with a price of $20 as the starting point) is:

2

To say that two goods are unrelated, their cross price elasticities of demand should be:

equal to zero

For which of the following is the cross-price elasticity of demand most likely a large positive number?

french fries and onion rings

If a quota is set above the equilibrium quantity, there will be:

No effect from the quota

The market system corrects a shortage by

raising product price to increase production

The price elasticity of supply measures:

responsiveness of quantity supplied to a change in price

The price of bookcases increases by 8% and the quantity supplied of bookcases increases by 4%. The price elasticity of supply for bookcases is:

0.5

You are told that the income elasticity for pinwheels is -3.0. This means that:

A 10 percent increase in income produces a 30 percent decrease in the consumption of pinwheels as they are an inferior good.

What is a price ceiling?

A legal maximum on the price at which a good can be sold

What is a price floor?

A legal minimum on the price at which a good can be sold

What is a quota?

A limit on the number of goods that can be imported

Suppose the cross-price elasticity between demand for Burger King burgers and the price of McDonald's burgers is 0.8. If McDonald's increases the price of its burgers by 10%, then:

Burger King will sell 8% more burgers

Nico's DVD rentals increase by 10% when his income increases by 20%. Based on this information, we know that:

His DVDs are normal goods

Suppose the U.S. government imposes a quota on the number of Japanese-made cars allowed into the United States (the quota is set at a quantity below equilibrium). Then we would expect the price of Japanese cars to ________ and the price of U.S.-made cars to ________.

Increase, Increase

The market for salmon is in equilibrium. A price ceiling, a price floor, and a quota limit in this market would all have what outcome in common?

Inefficiencies created by a quantity exchanged that is less than the equilibrium quantity.

When elasticity is less than 1, it is:

Inelastic

To say that two goods are complements, their cross-price elasticities of demand should be:

Less than zero

Which of the following is likely to make supply more inelastic?

The inputs necessary for production cannot readily be increased.This answer is correct.

If growing corn becomes more profitable than growing wheat, which of the following will occur?

The price of corn will decrease

An increase in the price of gasoline will cause the demand curve for tires to shift in which direction?

To the left, because gasoline and tires are complements

If your purchases of shoes remain constant at 9 pairs per year when the price of shirts increases from $8 to $12, then, for you, shoes and shirts are considered:

Unrelated goods

An increase in the supply of wheat in the United States is most likely to result from

a change in farming technology that improves the soil for wheat

An increase in demand and and supply will

affect price indeterminately and increase equilibrium quantity

The law of demand states that

as price increases, quantity demanded decreases

If price elasticity is equal to 1:

demand is unit elastic

If the quantity supplied responds substantially to a relatively small change in price, supply would be:

price-elastic

If the price elasticity of supply is greater than 1, then:

supply is price-elastic

Consumer surplus

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

What is deadweight loss?

the fall in total surplus that results from a market distortion, such as a tax

If the income elasticity of demand for a good is negative

the good is inferior

if the income elasticity of demand is positive

the good is normal

A perfectly inelastic supply curve is:

vertical line indicating that even a very large increase in price won't increase the quantity supplied.