Quiz 2

If the cross-price elasticity of two goods is positive, then the two goods are

substitutes.

In a market economy, supply and demand determine

both the quantity of each good produced and the price at which it is sold.

Wheat is the main input in the production of flour. If the price of wheat decreases, then we would expect the

supply of flour to increase.

A surplus exists in a market if

the current price is above its equilibrium price.

The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%. The change in equilibrium price will be

greater in the aged cheddar cheese market than in the bread market.

The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%. The change in equilibrium quantity will be

greater in the bread market than in the aged cheddar cheese market.

In general, elasticity is a measure of

how much buyers and sellers respond to changes in market conditions.

If suppliers expect the price of their product to fall in the future, then they will

increase supply now.

If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donut sellers.

If the demand for textbooks is inelastic, then an increase in the price of textbooks will

increase total revenue of textbook sellers.

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

inelastic.

If goods A and B are complements, then an increase in the price of good A will result in

less of good B being sold.

Goods with many close substitutes tend to have

more elastic demands.

If the demand for a good falls when income falls, then the good is called a(n)

normal good.

A key determinant of the price elasticity of supply is the

time horizon.

If the supply of a product increases, then we would expect equilibrium price

to decrease and equilibrium quantity to increase.

If consumers often purchase muffins to eat while they drink their lattés at local coffee shops, what would happen to the equilibrium price and quantity of lattés if the price of muffins falls?

Both the equilibrium price and quantity would increase.

If scientists discover that steamed milk, which is used to make lattés, prevents heart attacks, what would happen to the equilibrium price and quantity of lattés?

Both the equilibrium price and quantity would increase.

Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market?

Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.

A supply curve slopes upward because

an increase in price gives producers an incentive to supply a larger quantity.

Suppose good X has a negative income elasticity of demand. This implies that good X is

an inferior good.

If the demand for a product increases, then we would expect equilibrium price

and equilibrium quantity both to increase.

An increase in the price of a good will

decrease quantity demanded.

Good X and good Y are substitutes. If the price of good Y increases, then the

demand for good X will increase.

For a good that is a necessity,

demand tends to be inelastic.