Micro Econ Exam 2

How can gains from trade be maximized?

if producers sell the equilibrium amount of a good and consumers buy the equilibrium amount of a good

Market failures occur when ___

markets fail to reach an efficient outcome

Example of price floor

minimum wage laws

Let's assume the subway increases its price. If it experiences an increase in total revenue, what type of demand are tickets?

price inelastic

Example of price ceiling

rent control (limits landlords from over pricing)

Total surplus is defined as _________ (tip: anything that says always or never is usually wrong because there are exceptions)

the sum of consumer and producer surplus

What of the following can cause a market failure? (think about what might cause a market to not be at equilibrium)

when one party, in an attempt to capture more surplus, prevents mutually beneficial trades from occurring

Some places offer a ladies night where women drink for reduced prices. This will increase revenue only if...

women have an elastic demand for beer

During dad's weekend at WSU, hotels average $200 a night. At that price, 3,000 people stay there. Assuming the average level of consumer surplus for each guest is $35, what is the total consumer surplus?

$105,000 (adding up surplus for each individual so, 35*3,000= 105,000)

Adam and Jax each want to buy a pizza. JAx is willing to pay $7.50, and Adam is willing to pay $6.00. If a pizza costs $5, what is the total consumer surplus?

$3.50

Let's assume the price of gasoline has increased 5% which led to decrease in has purchase of 1%. What is the price elasticity of demand? What type of good is this?

.2; inelastic

Assume the price of a nintendo switch increased from 250 to 300 and the quantity demanded did not change. What is the price elasticity of demand using the midpoint formula? (Hint: if quantity doesn't change then it will always be 0)

0

With a luxury good, the price elasticity of demand is ____

elastic

You've been hired as a manager for a local distribution center! You've decided to increase your price on ground beef selling it for $4.50 per pound instead of $3.50 per pound. After raising your price, your quantity demanded has decreased from 11,000 pounds sold to 9,000 pounds sold. Using midpoint method, calculate the price elasticity of demand. (Hint: plug quantity numbers into (x2-x1)/((x2+x1)/2)) and then plug price numbers into that formula too. then put your quantity answer / price answer. also DROP ALL NEGATIVES)

0.8

What is the consumer surplus based on the graph above? (graph on review)

A

Using the figure above,calculate the consumer surplus for old customers when the market moves from a price of $7 to $5 (look at review for graph)

16

Using the figure above, calculate the consumer surplus for new customers when the market moves from a price of $7 to $5 (look at review for graph)

2

The table above shows the willingness to pay for concert tickets by different college mascots. Assume the seller can charge $80 a ticket. How many tickets are sold? What is the consumer surplus?

2 tickets; $20

Using the figure above, calculate the producer surplus when the market is at equilibrium (look at review for graph)

25

Based of the demand curve above, calculate the price elasticity of demand between 6 and 9. Use midpoint method. (hint: graph is on the review)

3

The table above show the willingness to pay for concert tickets by different college mascots. Assume the seller can charge $30 a ticket. How many tickets are sold? What is the consumer surplus? (The table states the buyer and their willingness to pay like so, Butch T. Cougar-$15, Goldy the Gopher-$20, The Nittany Lion-$30, Jack the Jackrabbit-$45, Sting the Yellowjacket- $80, and Lucy the Binturong-$100 )

4 tickets; $135

Using the figure above, calculate the consumer surplus when the market is at equilibrium (hint:A=1/2BH) (look at review for graph)

50

The table above shows the willingness to pay for concert tickets by different college mascots. Assume the seller can charge $10 a ticket. How many tickets are sold? What is the consumer surplus? (The table states the buyer and their willingness to pay like so, Butch T. Cougar-$15, Goldy the Gopher-$20, The Nittany Lion-$30, Jack the Jackrabbit-$45, Sting the Yellowjacket- $80, and Lucy the Binturong-$100 )

6 tickets; $230

The figure above shows the market for lattes. If cafe moro decides to drop their latte price from $4 to $3, what area(s) show the new consumer surplus from that change for old customers?(check graph on review)

A

The figure above shows the market for lattes. If cafe moro decides to drop their latte price from $4 to $3, what area(s) show the new consumer surplus? (check graph on review)

A and B

What is the total welfare(or net benefit to society) based on the graph above? (graph on review)

A and B

What is the area of the consumer surplus when the price is at P1? (check the review for graph)

AFP1

How does income affect elasticity of demand?

As income rises, the proportion of total consumer expenditures on necessity goods typically declines. Inferior goods have a negative income elasticity of demand; as consumers' income rises, they buy fewer inferior goods.

What is the producer surplus based on the graph above?(graph on review)

B

What is the area of the consumer surplus for new customers when price moves from p2 to p1 (hint: old consumers are always in square and new consumer are in triangle) (graph on review)

BFG

Many local 'mom and pop stores' have shut down after walmart came to their town. why?

Consumers in those areas receive larger consumer surplus from shopping at walmart than from the smaller stores

Charlie spends 5 a week on cheese no matter the price. What can you say about charlies demand for cheese?

His price elasticity of demand for cheese is equal to zero

To calculate the price elasticity of demand, you need ...

How much of the good was purchased at 2 different prices

What could cause a demand to become more elastic?

If substitutes for the good become more available

What would we expect the price elasticity of demand for cigarettes to be?

Inelastic (because you have to have it no matter what, which is why gov taxes it)

You've been hired as a manager for a doughnut shop. to try and sell more doughnuts, you've decided to decrease the price for your glazed doughnuts. After a week, you've determined that you've actually sold fewer doughnuts than before. What are your glazed doughnuts classified as?

Inferior good

The price elasticity of demand is always _______ (hint: positive or negative)

Negative

What is the areas of the consumer surplus for old customers when price moves from p1 to p2?

P1P2GB

What does the price elasticity of demand measure?

Quantity demanded to changes in price

What is true with a perfect elastic demand?

The demand curve is horizontal

We can define the price elasticity of demand as ...

The percent change in quantity demanded divided by the percent change in price

Which of the scenarios below could cause a decrease in consumer surplus for toy cars?

There is an unexpected baby boom

In what situation is consumer surplus positive?

When the price the consumer is willing to pay is more than the market price

In what situation would producer surplus be positive?

When the price the producer is willing to charge is less than the market price

What is a price ceiling?

a maximum price allowed by law

What is a price floor?

a minimum price allowed by law

Assume you've found the price elasticity for movie tickets is 2.85. What type of good is this?

elastic

What can happen in an efficient market?

all of the above (they are not always fair or equitable to all parties; they sometimes fail under certain conditions to deliver efficiency and do not maximize total surplus; not every individual consumer and producer experiences the best outcomes)

Lets assume when the price of football tickets increases 10% while the quantity demanded decreases by 18%. what type of demand is this? (hint: DROP THE NEGATIVE SIGN)

elastic (because -18%/10%= -1.8 (drop sign!!) = 1.8)

Assume you've found the price elasticity of demand for potatoes is 0.85. What type of good is this?

inelastic

Jack is willing to sell his old gamecube for $50, and Dan is willing to sell his old gamecube for $60. On the other hand, Eric is willing to buy a Gamecube for $60, and Mark is willing to buy a gamecube for $50. Assuming the market price is $52, how many gamecubes are sold and what is the welfare (total consumer and producer surplus) from the sale?

one gamecube will be sold, and the total consumer and producer surplus will be $10

Define consumer surplus

the difference between the price that consumers are willing to pay for a good and the amount they actually pay

What is cross-price elasticity of demand?

the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good