Exam 1
An increase in the price of pineapples will result in
a larger quantity of pineapples supplied.
If an increase in income leads to in an increase in the demand for peanut butter, then peanut butter is
a normal good.
If price is falling, then the market is reacting to
a potential surplus
Rent control is an example of
a price ceiling.
Which of the following would cause a decrease in the supply of milk?
an increase the price of a product that producers sell instead of milk
If an increase in income leads to a decrease in the demand for popcorn, then popcorn is
an inferior good.
Lucinda buys a new GPS system for $250. She receives consumer surplus of $75 from the purchase. How much does Lucinda value her GPS system?
$325
Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul's consumer surplus from the purchase is
$75.
In September 2012, the average price of gasoline in the United States was $3.91 per gallon and consumers bought 5 percent less gasoline than they had during September 2011, when the average price was $3.66 per gallon. Based on these numbers, what was the price elasticity of demand for gasoline from September 2011 to September 2012?
-0.76
Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.
0.5
Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula.
0.61
Which of the following would not be caused by an increase in demand?
A decrease in supply
Saffron, a spice, is very expensive and there is very small quantity that is sold. What would best explain this?
A small supply
What is the difference between an "increase in demand" and an "increase in quantity demanded"?
An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve.
What is the difference between an"increase in supply" and an "increase in quantity supplied"?
An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.
What would cause price and quantity of a good to rise?
An increase in demand
The price of a good falls, and the quantity sold increases. This would be explained by
An increase in supply which causes an increase in quantity demanded
Rank these three items in terms of the elasticity of the demand for them at any given price, from most elastic to least elastic: hot beverages, coffee and Peet's Coffee.
Peet's Coffee, coffee, hot beverages
There's an excess of demand over supply. Economic theory predicts
Price will rise
If the market is in equilibrium
Prices have no reason to increase or decrease
Over longer periods of time, increases in oil prices provide firms with incentives to explore and recover oil. What does this indicate about the long run price elasticity of supply for oil?
The elasticity coefficient is likely to be higher in the long run than in the short run.
Bringing oil to the market is a relatively long and costly process. The whole process from exploration to pumping significant amounts of oil can take years. What does this indicate about the price elasticity of supply for oil?
The elasticity coefficient is likely to be low and supply is highly inelastic.
Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product decreases. Which of the following statements accurately predicts the resulting decrease in price?
The more elastic the supply curve, the smaller the price decrease.
In October, market analysts predict that the price of platinum will fall in November. What happens in the platinum market in October, holding everything else constant?
The supply curve shifts to the right.
In the market for electric guitars, the wage of guitar makers increase. As a result-
There's a decrease in supply
In the market for electric guitars, the price of accessories (tuners, amps, cases, etc) decreases. As a result:
There's an increase in demand
In the market for electric guitars, there's an increase in the number of teenagers, an age group known for playing guitars. As a result:
There's an increase in demand
A movement along the demand curve for toothpaste would be caused by
a change in the price of toothpaste.
Which of the following will shift the demand curve for a good?
a decrease in the price of a complementary good
Marginal benefit is equal to the ________ benefit to a consumer receives from consuming one more unit of a good or service.
additional
The law of demand implies, holding everything else constant, that
as the price of bagels increases, the quantity of bagels demanded will decrease.
If a firm wanted to know whether the demand for its product was elastic, unit-elastic, or inelastic, then the firm could
change price a little bit and observe what happens to total revenue.
The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called
consumer surplus.
If, for a given percentage increase in price, quantity supplied increases by a proportionately larger percentage, then supply is
elastic
Economists use the concept of ________ to measure how one economic variable, such as quantity, responds to a change in another economic variable, such as price.
elasticity
Suppose that when the price of hamburgers decreases, the Ruiz family increases their purchases of ketchup. To the Ruiz family,
hamburgers and ketchup are complements.
Price elasticity of supply is used to gauge
how responsive suppliers are to price changes.
A supply schedule
is a table that shows the relationship between the price of a product and the quantity of the product supplied.
The demand for all carbonated beverages is likely to be ________ the demand for Dr. Pepper.
less elastic than
The demand by all the consumers of a given good or service is the ________ for the good or service.
market demand
To affect the market outcome, a price ceiling
must be set below the equilibrium price.
Cross-price elasticity of demand is calculated as the
percentage change in quantity demanded of one good divided by percentage change in price of a different good.
If a supply curve is a horizontal line, supply is said to be
perfectly elastic.
In the market for a bag of socks, what happens if the price of cotton falls?
price of a bag of socks will decrease, quantity will increase
If there's an increase in income, in the market for an inferior good, we would expect to see
price will decrease, quantity will decrease
If there's an increase in the price of a substitute to a good, then theory predicts for that good
price will increase, quantity will increase
When there few close substitutes available for a good, demand tends to be
relatively inelastic.
The market for smart phones has grown rapidly over the past few years, due in part to the overwhelming success of the Apple iPhone. Following the successful launch of the iPhone in 2007, companies such as Samsung, HTC, and LG have all introduced products to compete with the iPhone. The smart phones introduced to compete with the iPhone would be considered
substitutes for the iPhone.
Marginal cost is
the additional cost to a firm of producing one more unit of a good or service.
The total amount of producer surplus in a market is equal to
the area above the market supply curve and below the market price.
When demand is elastic, a fall in price causes total revenue to rise because
the increase in quantity sold is large enough to offset the lower price.
Economic efficiency in a competitive market is achieved when
the marginal benefit equals the marginal cost from the last unit sold.
The price elasticity of demand is equal to
the percentage change in quantity demanded divided by the percentage change in price.
The income effect of a price change refers to the impact of a change in
the price of a good on a consumer's purchasing power.
A change in all of the following variables will change the market demand for a product except
the price of the product.
Suppliers will be willing to supply a product only if
the price received is at least equal to the additional cost of producing the product.
If, in a competitive market, marginal benefit is less than marginal cost
the quantity sold is greater than the equilibrium quantity.
If, in the market for oranges, the supply has increased then
the supply curve for oranges has shifted to the right.
If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that
the two brands of detergent are close substitutes.