Section 3-6 Review

Price elasticity of demand =

% change in quantity demanded / % change in price

In anticipation of a major hurricane hitting the Gulf Coast, the quantity of gasoline sales rise from 360 million gallons to 375 million gallons.

(375-360)/(375+360/2) * 100 = 4.1%

If the price of Product E decreasing by 9% causes its quantity demanded to increase by 14% and the quantity demanded for Product F to increase by 12%, what is the cross-price elasticity of demand?

-1.3 complements

Andrina always spends 1010% of her income on gadgets. Assume that her income increases by some percentage while the price of gadgets remains constant (and that all gadgets cost the same). What is her income elasticity of demand for gadgets?

1

Last week, Michelle spent $30$30 on caviar. Today, Michelle still spends $30$30 on caviar even though its price has doubled. What is Michelle's price elasticity of demand for caviar?

1

If Good C increases in price by 30% a pound, and this causes the quantity demanded for Good D to increase by 40%, what is the cross-price elasticity of the two goods? Round your answer to one decimal place. What is the relationship between the two goods?

1.3 substituents

At the beginning of this year, daily consumption of gasoline in the US amounted to 344 million gallons. It is estimated that for every 10% increase in the price of gasoline, quantity demanded falls by 1.8%. By the end of this year, the price of gasoline is expected to increase by 40 cents from $2.80 per gallon.

1.80/10= 0.18 0.40/2.80= 0.14285 * 100= 14.285 14.28* 0.18 = 2.57 344 * (1-2.57/100) 344 * .974 = 335.159

Sylvia's annual salary increases from $102,300 to $109,500. Sylvia decides to increase the number of vacations she takes per year from three to four. Use the midpoint method to calculate her income elasticity of demand for vacations. Round your answer to two decimal places. This good is:

4.20 Ey= y2-y1/y2+y1/2 a normal good and income-elastic.

Suppose the graph depicts a hypothetical market for concert tickets at a local college venue. Because students are paying such high prices, a price ceiling of $40 per concert is being considered. Move the price ceiling line to correctly depict the price ceiling of $40. A. By how much does consumer surplus (CS) change if the price ceiling is imposed? B. By how much does producer surplus (PS) decrease if the price ceiling is imposed? C. What is the value of the deadweight loss (DWL) associated with this price ceiling?

A. $250 Producer surplus =(1/2)×(50-10)×40 = $ 800 CS = (1/2)×(90-60)×30 + (60-40)×30 = $ 1,050 Change in consumer surplus = 1,050 - 800 = $ 250 B. PS =(1/2)×(40-10)×30 = $ 450 450-800= $350 C. Dead weight loss = (1/2)×(60-40)×(40-30) = $ 100

Amazon has a "Lightning Deal" where it slashes the price of one item. At 3:15 p.m. today, they announced that the item was a new tablet with a sales price of $150 which is less than half the original price. The table contains the maximum willingness to pay of five college students wanting to buy a tablet on Amazon. StudentWillingness to pay Anthony: $500 Amanda: $400 Lily: $300 Francisco: $200 Max: $100 A. What is total consumer surplus for the five students? B. If the price increases from $150150 to $350350, what is the change in total consumer surplus?

A. (500-150)+(400-150)+(300-150)+(200-150) = 350+150+150+50 =800 B. (500-350)+(400-350) = 150 + 50 = 200 800- 200 = $600

A. When Ruko, a device used to stream movies at home, increases prices by 3939%, total revenue decreased by 55%. B. When Cinema Supreme decreases ticket prices by 19%, total revenue does not change. C. When Bluebox, a DVD rental kiosk, increases its prices by 47%, total revenue increases by 28%.

A. Elastic B. Unit elastic C. Inelastic

Suppose that towns collect resources from their surroundings. Then, through trade, they attempt to obtain other desirable items. Mortarville, an urban town that specializes in brick and ore, wants wood to build roads so that it can expand and connect to other major cities. Mortarville has a willingness to pay $50 for wood, since wood is hard for them to obtain. Mayflair also needs wood to build grain silos for their wheat harvests. Mayflair is willing to pay $45 for wood. Timber, the only foresting company, sets the price of wood at $60. A. The change in total surplus that arises due to trades between Timber and the towns is: B. John finds a set of wood in his garage which he is willing to sell for no less than $35. John chooses to sell the set to Mayflair for $40 instead of to Mortarville for $45. As a result of John's transaction with Mayflair:

A. Equal to zero B. total surplus increased, but the market is inefficient.

The year is 1779 in Iceland. Light sources, such as oil lamps, are precious commodities (as harnessed electricity is not yet available). The government wants to intervene in the pricing of oil lamps so that its citizens do not pay outrageous amounts of money for lighting. The currency used in Iceland at the time is the rigsdaler. Consider the graph depicting Iceland's hypothetical supply and demand for oil lamps. A. If Iceland's governor chooses to set a price floor of 15 rigsdaler for an oil lamp, what will occur? B. If Iceland's governor chooses to set a price ceiling of 40 rigsdaler for an oil lamp, what will occur?

A. Nothing will change B. Nothing will change

Suppose that policy makers, for any number of reasons, are worried about the price of milk becoming too high. The graph of the market for milk is shown. A. What type of price control would policy makers use to keep the price of milk from getting too high? B. Suppose that the government does implement the appropriate price control you selected previously. Which of these prices would be binding?

A. Price ceiling B. $5

A. Over longer periods of time, demand tends to become.. B. When there are fewer substitutes, demand tends to be...

A. more elastic B. less elastic

A. Contain Yourself!, a plastic container company, raises the price of its signature Lunchbox container from $3.00$3.00 to $4.00$4.00. As a result, the quantity sold drops from 20,000 to 15,000. B. Economists working for the United States have determined that the elasticity of demand for gasoline is 0.50.5. C. Capital Metro decides to increase bus fare rates from $2.00$2.00 to $2.21$2.21. Consequently, the number of passengers who decide to take the bus in Austin drops from an average of 70,000 riders a day to an average of 61,000 riders a day.

A. unit elastic B. inelastic C. elastic

Which of the scenarios are examples of an economic signal?

Companies begin hiring more people after a long period of high unemployment in the United States. The market price for toilet paper has not changed over the last 10 years. Purchases of floppy disks and CDs decline dramatically as the demand for online streaming of similar goods increases. Prices in housing markets fall.

Suppose that Michelle buys a cappuccino from Paul's Cafe and Bakery for $6.25. Michelle was willing to pay up to $6.75 for the cappuccino, and Paul's Cafe and Bakery was willing to accept $3.25 for the cappuccino. Based on this information, answer the questions.

Michelle's consumer surplus: $0.50 (6.75-6.25) Paul's Cafe and Bakery's producer surplus: $3.00 (6.25-3.25)

Price elastic of demand: % quantity demand= new quantity- old quantity/ old quantity * 100 % price= new price - old price/old price * 100

Price elasticity of demand = quantity demand/price

Garret is an undergraduate looking for a job to pay for college. As Garret seeks employment, he is glad to know that he will be paid at least $7.25 per hour.

Price floor

The table contains the demand and supply schedule for apartments in a city. Suppose the city council feels that the equilibrium rent is too high and imposes a price ceiling of $750/month. The price ceiling results in a ...? The city now has a shortage or surplus of how many apartments?

Shortage of 4500 apartments

As the price of gummy bears rises from $2.60$2.60 to $3$3, what are the price elasticities of demand of sugar-free gummy bears and of ordinary gummy bears? Use the midpoint method and specify answers to one decimal place. Elasticity of demand of sugar-free gummy bears: Elasticity of demand of regular gummy bears:

Sugar free: [(273-379/(273+379)/2]/[(3.00-2.60)/(3.00+2.60)/2] = [-18/166]/[0.4/2.8] =0.7 Reg. gummy bears: [(273-379)/(273+379)/2]/(3.00+2.60)/2] = [-106/326]/[0.4/2.8] = -2.2

Suppose the graph represents the labor market for low-wage workers. A minimum wage of $8 per hour is being considered. If imposed, the minimum wage will result in a.... of?

Surplus of 200 workers

Which statement is the best definition of the price elasticity of demand?

The ratio of the percent change in quantity demanded to the percent change in price.

Please identify the statements about property rights as either true or false.

True: Property rights include the right to buy or sell one's resources and goods. Property can be tangible or intangible False: The enforcement of property rights prevents many mutually beneficial transactions from occurring. All countries are equally effective at enforcing property rights.

Producer surplus is shown graphically as the area

above the supply curve and below the market price.

The primary difference is that

accounting profits ignore implicit costs; economic profits consider them.

The Generator is a popular youth hostel in London located near Kings Cross. The hostel provides a bed, showers, and breakfast in their nightly fee. Suppose the quantity demanded is 0 when the price is $90 per night and 90 when the price is $10 per night. Quantity supplied is 0 when the price is $10 and 100 when the price is $80. a. In the accompanying diagram, use this information to place the supply and demand curves. b. In equilibrium, how many beds are rented? c. What is the total surplus?

b. 50 beds (equilibrium point) c. 2,000 = [1/2 (50-0) * (90-45)] +[1/2(50-0) * (45-10)] =[1/2 * 50 * 45] +[1/2 * 50 * 35] =2,000

A 20% price increase for Product A causes a 10% decrease in its quantity demanded, but no change in the quantity demanded for Product B.

cross-price elasticity between A and B: 0 relationship between A and B: no relationship

Product C increases in price from $3 a pound to $4 a pound. This causes the quantity demanded for Product D to increase from 44 units to 85 units.

cross-price elasticity between C and D: 2.2 relationship between C and D: substitutes

When the price of Product E decreases 9%, this causes its quantity demanded to increase by 14% and the quantity demanded for Product F to increase 12%.

cross-price elasticity between E and F: -1.3 relationship between E and F: complements

Russ owns a fried chicken stand at the local beach. In calculating how much he earns from his business, Russ notices a difference between his economic and accounting profits. Why would Russ' economic profits differ from his accounting profits? They could differ because....

he may have implicit costs associated with operating the chicken stand in addition to explicit costs.

Rent controls are a typical example of a price ceiling. Please select all likely consequences of rent controls when the price ceiling is binding.

more subletting of apartments reductions in apartment quality inefficient allocation of apartments black markets

An economic signal is

some information that helps people to make better decisions economically.

Producer surplus is the difference between

the market price and the minimum price a seller is willing to accept.

Consumer surplus is equal to the difference between

the maximum price a buyer is willing to pay and the market price.

Consumer surplus is shown graphically as the area

under the demand curve and above the market price.