ap economics test 2 study guide

an efficiency loss (or deadweight loss)

is measured as the combined loss of consumer surplus and producer surplus from over- or underproducing

consumer surplus

is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price

the demand for autos is likely to be

less price elastic than the demand for honda accords

which of the following is an example of a price ceiling

limits on interest rates charged by credit card companies

the total revenue received by sellers of a good is computed by

multiplying the price times the quantity sold

an effective price ceiling will

result in a product shortage

an effective price floor will

result in a product surplus

an effective price floor on wheat will

result in a surplus of wheat

if the income elasticity of demand for store brand macaroni and cheese is -3.00, this means that

store brand macaroni and cheese is an inferior good

we would expect

the demand for coca-cola to be more price elastic than the demand for soft drinks in general

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

producer surplus is the difference between

the minimum prices producers are willing to accept for a product and the higher equilibrium price

cross elasticity of demand measures how sensitive purchases of a specific product are to changes in

the price of some other product

If an effective ceiling price is placed on hamburgers then

the quantity demanded will exceed the quantity supplied, the price charged will be below the market-clearing price, and a black market for hamburgers may evolve

the concept of price elasticity of demand measures

the sensitivity of consumer purchases to price changes

the price of old baseball cards rises rapidly with increases in demand because

the supply of old baseball cards is price inelastic

which good will least likely suffer a decline in demand during a recession

toothpaste

amanda buys a ruby for $330 for which she was willing to pay $340. the minimum acceptable price to the seller, tony, was $140. amanda experiences:

a consumer surplus of $10, and tony experiences a producer surplus of $190

jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. the minimum acceptable price to the seller, nathan, was $30... jennifer experiences

a consumer surplus of $9, and nathan experiences a producer surplus of $3

the main determinant of elasticity of supply is the

amount of time the producer has the adjust inputs in a response to a price change

the price elasticity of demand coefficient measures

buyer responsiveness to price changes

the demand for a product is inelastic with respect to price if

consumers are largely unresponsive to a per unit price change

suppose that we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. we can conclude that quantity demanded

decreased by 7 percent

the state legislature has cut gigantic state university's appropriations. gsu's board of regents decides to increase tuition and fees to compensate for the loss of revenue. the board is assuming that the

demand for education at GSU is inelastic

for a linear demand curve

demand is elastic at relatively high prices

suppose aiyanna's pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little buisness. aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. we expect that each successive week

demand will become less price elastic

the price elasticity of demand of a straight-line demand curve is

elastic in high-price ranges and inelastic in low-price ranges

a price ceiling means that

government is imposing a legal price that is typically below the equilibrium price

a perfectly inelastic demand curve

graphs as a line parallel to the vertical axis

if the demand for bacon is relatively elastic, a 10% decline in the price of bacon will

increase the amount of demand by more than 10%

if the demand for product X is inelastic, a 4 percent increase in the price of X will:

increase the quantity of X demanded by less than 4 percent

price floors and ceiling prices both

interfere with the rationing function of prices

suppose the price elasticity of demand for bread is .20. if the price of bread falls by 10%, the quantity demanded will increase by

2 percent and total expendentures on bread will fall

the price elasticity of demand for widgets is .80. assuming no change in the demand cure for widgets, a 16 percent increase in sales implies a

20 percent reduction in price

assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. the coefficient of income elasticity of demand for good X is:

negative, and therefore X is an inferior good

suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decline in the quantity demanded of a normal good X. the coefficient of cross elasticity of demand is

negative, and therefore these goods are compliments

we would expect the cross elasticity of demand between dress shirts and ties to be

negative, indicating complementary goods

the basic formula for the price elasticity of demand coefficient is

percentage change in quantity demanded/percentage change in price

the supply curve of a one-of-a-kind original painting is

perfectly inelastic

assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X. the coefficient of income elasticity of demand is:

positive, and therefore X is a normal good

suppose that a 10 percent increase in the price of normal good Y causes a 20 percent increase in the quantity demanded of normal good X. the coefficient of cross elasticity of demand is

positive, and therefore these goods are substitutes

we would expect the cross elasticity of demand between coke and pepsi to be

positive, indicating substitute goods

which of the following statements is true about price ceilings

price ceilings cause goods to be rationed by some other means than legally determined market prices

in which of the following cases will total revenue increase?

price rises and demand is inelastic

if price and total revenue vary in opposite directions, demand is

relatively elastic

other things the same, if a price change causes total revenue to change in the opposite direction demand is

relatively elastic

the demand for a necessity whose cost is a small portion of one's total income is

relatively price inelastic