MIDTERM 1

The price elasticity of demand coefficient measures

buyer responsiveness to price changes.

Camille's Creations and Julia's Jewels both sell beads in a competitive market. If at the market price of $5 both still have plenty of beads to sell, then we would expect both Camille's and Julia's to

lower their price and reduce their quantity supplied.

Refer to the diagram. A decrease in quantity supplied is depicted by a

move from point x to point y.

If the income elasticity of demand for name brand (as opposed to store brand) breakfast cereal is +3.00, this means that

name brand breakfast cereal is a normal good.

With a downsloping demand curve and an upsloping supply curve for a product, an increase in resource prices will

increase equilibrium price and decrease equilibrium quantity.

When the price of cars declines significantly, the price of gasoline increases. The latter occurs because of a(n)

increase in the quantity demanded for cars.

The relationship between quantity demanded and price is _____, and the relationship between quantity supplied and price is _____.

inverse; direct

Which of the diagrams illustrate(s) the effect of an increase in incomes on the market for second-hand clothing?

B only

When the percentage change in price is greater than the resulting percentage change in quantity demanded,

an increase in price will increase total revenue.

Refer to the diagram. A shortage of less than 160 units would be encountered if price was

Greater than $.50.

Which of the diagrams illustrates the effect of a decrease in automobile worker wages on the market for automobiles?

C only

Suppose the income elasticity of demand for toys is +3.00. This means that

a 10 percent increase in income will increase the purchase of toys by 30 percent.

An ineffective price ceiling will

clear the market

Suppose the price of local cable TV service increased from $16 to $19 and as a result the number of cable subscribers decreased from 200,000 to 170,000. Along this portion of the demand curve, price elasticity of demand is approximately (use the midpoint method)

0.95

Refer to the diagram and assume a single good. If the price of the good increased from $5.70 to $6.30 along D1, the price elasticity of demand along this portion of the demand curve would be

1.2

A firm's supply curve is downward sloping because

A firm's supply curve is not downward sloping.

A decrease in demand accompanied by an increase in supply will increase the equilibrium quantity, but the effect on equilibrium price will be indeterminate.

FALSE

An increase in the supply of X decreases the equilibrium price of X, which increases the demand for X.

FALSE

If demand increases and supply simultaneously increases, equilibrium price will rise.

FALSE

An increase in quantity supplied is not caused by an increase in production costs.

TRUE

The law of demand states that if price increases, other things being equal, the quantity demanded for the product will decrease.

TRUE

With a downsloping demand curve and an upsloping supply curve for a product, reducing an excise tax on this product will

decrease equilibrium price and increase equilibrium quantity.

With a downsloping demand curve and an upsloping supply curve for a product, an increase in consumer income will

decrease equilibrium price and quantity if the product is an inferior good.

Given a downsloping demand curve and an upsloping supply curve for a product, a decrease in the price of a substitute good (from the buyer's perspective) will

decrease equilibrium price and quantity.

Given a downsloping demand curve and an upsloping supply curve for a product, an increase in the price of a complimetary good (from the buyer's perspective) will

decrease equilibrium price and quantity.

Over time, the equilibrium price of a gigabyte of computer memory has fallen, while the equilibrium quantity purchased has decreased. Based on this we can conclude that

decreases in the demand for computer memory have exceeded increases in supply.

Suppose that in the clothing market, production costs have fallen, the equilibrium price has fallen, and quantity purchased has decreased. Based on this information we can conclude that

demand for clothing has fallen more than the supply of clothing has increased.

If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then

demand is price elastic.

One reason that the quantity demanded of a good decreases when its price rises is that the

higher price decreases the real incomes of buyers, encouraging them to buy less.

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is

relatively inelastic.

An effective price floor will

result in excess supply.

The elasticity of demand for a product is likely to be greater,

the greater the amount of time over which buyers adjust to a price change.

When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes

the income effect.

The broader the definition of a product,

the smaller the number of substitutes and the smaller the price elasticity of demand.

Refer to the diagram. An increase in demand is depicted by a

this graph doesn't depict a change in demand.