Exam 2 Microeconomics
Suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. Then the absolute value of the price elasticity (using the midpoint formula) is
1.37
The law of diminishing returns indicates that
As extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point
What are explicit costs?
Costs directly related to costs of production
What are implicit costs?
Costs that do not require money spending. (Time, Opportunity Cost)
How would the following changes affect total revenue: Price rises and demand is elastic
Decrease
How would the following changes affect total revenue: price falls and demand is inelastic
Decrease
Suppose that the total revenue received by a company selling basketballs is $960 when the price is set at $15 per basketball and $960 when the price is set at $10 per basketball. Without using the midpoint formula, identify whether demand is elastic, inelastic, or unit-elastic over this price range.
Demands is unit-elastic
What does it mean when cross elasticity is negative
It means that goods are complements
What does it mean when cross elasticity is positive
It means that goods are substitutes
Suppose the price of movie tickets changes. The price change leads to a 30 percent increase in the quantity demanded of movie tickets. This causes the total revenue from movie tickets to increase by 10 percent. Is the demand for movie tickets elastic or inelastic?
Elastic
How would the following changes affect total revenue: Price falls and demand is elastic
Increase
How would the following changes affect total revenue: Price rises and demand is inelastic
Increase
If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will
Increase quantity demanded by 25 percent
Mrs. Simpson buys loaves of bread and quarts of milk each week at prices of $1 and 80 cents, respectively. At present she is buying these products in amounts such that the marginal utilities from the last units purchased of the two products are 80 and 70 utils, respectively.
Mrs. Simpson should buy more milk and less bread, Mrs. Simpson is not buying the utility-maximizing combination of bread and milk because the marginal utility per cent spent on each good is not equal. The marginal utility per cent of bread is 0.80 (= 80 utils/100 cents); the utility per cent of milk is 0.875 (= 70 utils/80 cents).
Frank spends $75 on 10 magazines and 25 newspapers. The magazines cost $5 each and the newspapers cost $2.50 each. Suppose that his MU from the final magazine is 10 utils while his MU from the final newspaper is also 10 utils. According to the utility-maximizing rule, Frank should:
Reallocate spending from magazines to new papers
How would the following changes affect total revenue: Price falls and demand is of unit-elasticitiy
Remain unchanged
If the income elasticity of demand for store brand macaroni and cheese is -3.00, this means that
Store brand mac and cheese is an inferior good
What are the major determinants of price elasticity of demand?
Substitutability, proportion of income, luxuries versus necessities, and time
Compared to coffee, we would expect the cross elasticity of demand for
Tea to be positive, but creamer to be negative`
Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week,
The demand will become less price elastic
An increase in demand will increase equilibrium price to a greater extent
The less elastic the supply curve
How is elasticity determined on a graph
The steeper the slope the more elastic, the more gradient the slope the more inelastic.
Demand curves slope downward because, other things held equal,
a decrease in a product's price raises MU per dollar and makes consumers wish to purchase more units
The law of diminishing marginal returns results in
a total product curve that eventually increases at a decreasing rate
An antidrug policy that reduces the supply of heroin might
increase street crime because the addict's demand for heroin is highly inelastic.
Explicit costs are payments the firm makes for
inputs such as wages and salaries to its employees, whereas implicit costs are nonexpenditure costs that occur through the use of self-owned resources such as forgone income.
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.
Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is
relatively inelastic
Jermaine spends his money on cucumbers and lettuce. If the price of cucumbers falls, the MU per dollar of cucumbers will _______ and Jermaine will _______ cucumbers for lettuce.
rise; substitute
Normal profit is
the return to the entrepreneur when economic profits are zero.
If you compute the price elasticity of demand using a quantity of tickets from 1 to 8 and using a quantity of tickets from 1,000 to 8,000, the value of the price elasticity of demand is
the same because the percentage change in quantity demanded will remain the same.
The explicit costs of going to college include
tuition costs and the cost of books, where implicit costs include forgone income.
