ECON 210 Test 1

When does equilibrium occur?

When the demand curve and supply curve intersect

Assume that demand for a commodity is represented by the equation P=22−4Qd.P=22−4Qd.Supply is represented by the equation P=−2+2Qs,P=−2+2Qs,where Qd and Qs are quantity demanded and quantity supplied, respectively, and P is price. Using the equilibrium condition Qs = Qd, solve the equations to determine equilibrium price and equilibrium quantity. Equilibrium price =

$6.00

What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? Income declines and small cars are an inferior good:

Demand increases

What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? Small cars become more fashionable:

Demand increases

What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? The price of large cars rises (with the price of small cars remaining the same):

Demand increases

______ is a primary determinant of elasticity supply.

Time

What is the total revenue formula?

Total Revenue = P × Q

Large crop yield: ______ demand, ________ total revenue.

inelastic; lower

Excise taxes: _____ demand, more ______.

inelastic; total revenue

What is inelastic demand?

insensitive to price changes and small changes in quantity demanded

What are markets?

interactions between buyers and sellers

What does sustainability mean?

it has more substitutes and demand is more elastic

What are the four categories of economic resources?

land, labor, capital (investment), and entrepreneurial ability

What is the economizing problem?

limited income and unlimited wants

What type of markets are there?

local, national, and international

We choose to do something if the ____ _____is greater than the _____ _____.

marginal benefit; marginal cost

The short run supply is ____ _____ than in the immediate market period.

more elastic

What is a luxury good?

more elastic demand

Complementary goods if elasticity is ________.

negative

Inferior goods if elasticity is _____.

negative

Low or negative income elasticities are ____ _____ that much by a recession.

not affected

How is pleasure/ satisfaction measured?

one unit is a util

What's the law of demand?

other things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls

percentage change in Total revenue =

percentage change in price (P)+ percentage change in quantity(Q)

If Ed= infinity, demand is ______.

perfectly elastic

If Ed =0 demand is ______.

perfectly inelastic

Normal goods if elasticity is ______.

positive

Substitute goods if elasticity is ________.

positive

What are the basic determinants of an individual's demand?

preference/tastes, income, and price of other goods

What do price floors do?

prices are set above market price and chronic surpluses (ex. the minimum wage law)

What is the scientific method?

procedure for the systematic pursuit of knowledge involving the observation of facts and the formulation of testing hypotheses to obtain theories, principles, and laws

When people act with rational behavior, they are showing what?

purposeful behavior

What is a budget line?

represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income

What does income elasticity of demand measure?

responsiveness of buyers to changes in their income

What does cross elasticity of demand measure?

responsiveness of the purchases of one good to a change in the price of another good

What does economic perspective consider?

scarcity and choice, opportunity cost, purposeful behavior to increase utility, and marginal analysis

What is elastic demand?

sensitive to price changes and large changes in quantity demanded

What do price ceilings cause?

set below equilibrium price, rationing problem, shortages, and black markets (ex. rent control)

Substitutes are goods consumed as _____.

substitutes

What is the law of diminishing marginal utility?

As the consumption of a particular good increases, marginal utility obtained from each additional unit decreases

Danny "Dimes" Donahue is a neighborhood's 9-year-old entrepreneur. His most recent venture is selling homemade brownies that he bakes himself. At a price of $2.75 each, he sells 100. At a price of $2.25 each, he sells 300. What is the elasticity of demand?

1.20

What is consumer equilibrium?

A condition in which total utility cannot increase by spending more of a given budget on one good and spending less on another good.

What is economics?

A social science concerned with making optimal choices under conditions of scarcity

What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? The price of gasoline substantially drops:

Cannot be determined

What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? Consumers anticipate that the price of small cars will decrease substantially in the near future:

Demand decreases

What is the midpoint formula?

Ed= (Q2-Q1/(Q2+Q1/2))/(P2-P1/(P2+P1/2))

What is the price elasticity formula?

Ed= percentage change in quantity demanded of product X/ percentage change in price of product X

What is the formula for price elasticity?

Ed=percentage change in Q / percentage change in P

What is the formula for income elasticity of demand?

Ei=percentage change in the quantity demanded/ percentage change in income

What is the formula for cross elasticity of demand?

Exy= percentage change in quantity demanded of product X/ percentage change in the price of product Y

Application of Elasticity of Supply: Antiques are?

Inelastic supply

Application of Elasticity of Supply: Volatile gold prices are?

Inelastic supply

What does scarcity force us to do?

It forces us to make choices

When consumption is increased and satisfaction is decreased, this is what?

Law of diminishing marginal utility

What is the formula for marginal utility?

MU=change in TU/ change in Q

What is the formula for consumer equilibrium?

MUa/Pa=MUb/Pb

Application of Elasticity of Supply: Reproductions are?

More elastic supply

What is the law of supply?

Other things equal, as the price rises, the quantity supplied rises and as the price falls, the quantity supplied falls

Currently, at a price of $2 each, 200 popsicles are sold per day in the perpetually hot town of Rostin. Consider the elasticity of supply. In the short run, a price increase from $2 to $4 is unit-elastic (Es = 1). In the long run, a price increase from $2 to $4 has an elasticity of supply of 1.50. (Hint: Apply the midpoints approach to the elasticity of supply.) How many popsicles will be sold each day in the short run if the price rises to $4 each?

Q2= 400

Currently, at a price of $2 each, 200 popsicles are sold per day in the perpetually hot town of Rostin. Consider the elasticity of supply. In the short run, a price increase from $2 to $4 is unit-elastic (Es = 1). In the long run, a price increase from $2 to $4 has an elasticity of supply of 1.50. (Hint: Apply the midpoints approach to the elasticity of supply.) How many popsicles will be sold per day in the long run if the price rises to $4 each?

Q2=600

What is macroeconomics?

The study of the entire economy or a major aggregate of the economy

High income elasticitys are most affected by what?

a recession

What is another name for other-things-equal assumption?

ceteris paribus assumption

What are some determinants in demand?

change in consumer's taste/ preference, number of buyers, and income

What are some determinants of supply?

change in resource prices, technology, number of sellers, taxes and subsidies, prices of other goods, an producer expectations

What does price elasticity of demand measure?

consumers' sensitivity to price changes

A(n) ______ in consumer's income will decrease for _____ goods.

decrease; normal

Decriminalization of illegal drugs: inelastic _____, ______ total revenue.

demand; more

What is microeconomics?

economics of an individual consumer, firm, or market

If Ed> 1 demand is _______.

elastic

In the total revenue test, If P and TR move in the opposite directions, is it inelastic or elastic demand?

elastic demand

What is the utility maximizing rule?

equating the ratio of the marginal utility of a good to its price for all goods

Long run supply is ____ ______ _____ than in the short run.

even more elastic

What does marginal mean?

extra, additional, or the next

What's a demand curve?

graph

What does proportion of income mean?

higher proportion of income means demand is more elastic

What are time periods considered to be?

immediate market period, short run, and long run

A(n) _____ in prices, will decrease _______.

increase; demand

If Ed<1 demand is ______.

inelastic

The immediate market period is perfectly ______ supply.

inelastic

In the total revenue test, If P and TR move in the same direction, is it inelastic or elastic demand?

inelastic demand

What's a demand schedule?

table

What is the other things equal assumption?

the assumption that factors other than those being considered do not change

What is the income effect?

the impact a price change has on a consumer's real income

What is the substitution effect?

the impact a price change has on a product's relative expensiveness

What is utility?

the satisfaction one gets from consuming a good/ service (ex. artwork, candy, Krispy Kreme donuts)

What is scarcity?

the state of being scarce or in short supply; shortage.

What is marginal utility?

the total amount of satisfaction from an additional unit of the good

Complementary goods are consumed______.

together

What is total utility?

total amount of satisfaction

If Ed=1, demand is ______.

unit elastic

Independent goods if elasticity is _________.

zero or near zero