Microeconomics Exam 2
elasticity
measures the responsiveness of one economic variable to the changes in another (the slope, steepness of the curves)
(P2-P1)/[(P2+P1)/2]
midpoint method for change in price
(Q2-Q1)/[(Q2+Q1)/2]
midpoint method for change in quantity
(Q2-Q1)/[(Q2+Q1)/2] / (P2-P1)/[(P2+P1)/2]
midpoint method for finding elasticity
elastic
more competition in a market means more _________ demand
elasticity
more time equals more ___________
marginal product
output per extra unit of input
cause any shifts
price doesnt....
% ∆quantity change/% ∆price
price elasticity of demand
% ∆quantity supplied/% ∆price
price elasticity of supply
equilibrium
prices will change if the market is not at _________, until such is reached.
economic outcome
the efficient outcome yields the largest possible economic surplus
incidence of a tax
the final burden of a tax
deadweight loss
the loss in social surplus that occurs when a market produces an inefficient quantity
producer surplus
the market price the producer received - the amount the producer would have been willing to accept
elastic
the more flat/horizontal supply/demand is, the more _____________ it is
inelastic
the more vertical supply/demand is, the more _____________ it is
equilibrium in a competitive market
the most efficient distribution of resources (maximum economic efficiency) happens at...
equilibrium point
the point at which there is no tendency for change and quantity supplied equals quantity demanded
law of diminishing returns
the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product (added as output per extra unit of input) to increase, then decline
individual supply
the quantity an individual business will supply at each price
total revenue
the quantity you sell multiplied by the price per unit
equilibrium quantity
the resulting quantity at the equilibrium point is the...
tax wedge
the shaded area on a graph which shows what consumers are paying vs. what producers are keeping
perfect completion
the situation prevailing in a market in which buyers and sellers are so numerous and well informed that all elements of monopoly are absent and the market price of a commodity is beyond the control of individual buyers and sellers.
take the area of the triangle (1/2 x B x H)
to calculate the area of any surplus on a graph you...
calculate the average % change in both quantity and price
to find the elasticity between two points
produce more of a good; benefit; cost
to maximize economic surplus, you need to _________ if it's marginal _______ is great than (or equal to) the marginal _______
the demand and supply curves
total economic surplus is the area between...
TR = P x Q
total revenue equation
TRUE! Consumer surplus for the markets aggregates all individual consumer surplus for market participants
true/false: We can calculate the consumer surplus for an individual OR an entire market
absolute value
we use ________ when calculating equilibrium; no negatives
consumer surplus
what is the part labeled in blue
producer surplus
what is the part labeled organge
price sensitive
when consumers have more substitutes, they can be more __________
increases
when price falls with elastic demand, total revenue
decreases
when price falls with inelastic demand, total revenue
surplus
where market price is above equilibrium price (too high)
shortage
where market price is below equilibrium price (too low)
incentives rising input costs law of diminishing returns
why is a firms supply curve upward sloping?
economic surplus
by the rule of economic efficiency, an outcome is more economically efficient if it yields more
% change in Qd / % change in income
income elasticity equation
b. lost consumer and producer surplus when all mutually profitable gains from trade are NOT exploited.
A deadweight loss is the total ____. a. consumer and producer surplus gained when all mutually profitable gains from trade are NOT exploited. b. lost consumer and producer surplus when all mutually profitable gains from trade are NOT exploited. c. lost consumer and producer surplus when all mutually profitable gains from trade are exploited. d. consumer and producer surplus when all mutually profitable gains from trade are exploited.
the economic surplus at the efficient quantity minus the economic surplus at the actual quantity.
A market's deadweight loss is calculated as:
shortage; below the equilibrium price
A price ceiling creates a ________ when it is set ________.
quantity demanded exceeds quantity supplied
A shortage occurs when:
to calculate the elasticity between two points on a linear supply/demand curve
ARC elasticities
quantity supplied equals the quantity demanded
An equilibrium price is a price where the
an individual's consumer surplus
An individual's marginal benefit minus the market price equals ____ .
b. a rise in the quantity demanded of chocolate chip cookies.
At Trader Joe's, the price of chocolate chip cookies falls. As a result, you would expect to see a. a decrease in the demand for chocolate chip cookies. b. a rise in the quantity demanded of chocolate chip cookies. c. an increase in the demand for chocolate chip cookies. d. a drop in the quantity demanded of chocolate chip cookies.
$6 ; $3
At a quantity of two melons, the marginal benefit is _____ and the marginal cost is _____.
the demand would increase, meaning the demand curve would shift to the right
Canadians who live in border towns sometimes cross the border into the United States to buy goods and services from there. You find the Canadian dollar has strengthened against the US dollar, meaning that it takes fewer Canadian dollars to buy a US dollar. What would happen to the Canadian demand for US designer goods sold in the US? What would happen to the graph?
excise tax
Consumer tax on a specific kind of merchandise, such as tobacco.
fixed costs
Marginal cost does not include the
(% change in Qd for good 1) / (% change in price for good 2)
Cross Price Elasticity equation
c. not sell any milk
Daisy is a milk farmer in a perfectly competitive market where there are many milk farmers. The market price of milk is $0.15 per gallon, which is also the marginal cost per gallon of milk. If Daisy charges $0.25 per gallon, she will a. sell more milk than the other farmers. b. sell the same amount of milk as she did when she charged $0.15 per gallon. c. not sell any milk. d. increase her profitability by $0.10 per gallon.
decrease; an increase
If demand is elastic, a price ________ causes ________ in total revenue.
an increase in supply
In the graph, the movement from point H to point L represents
c. Marge's demand is inelastic, and Brad's demand is elastic.
Marge tutors English students. If she raises rates, her revenues increase. Brad tutors biology students. If he lowers rates, his revenues increase. Which of the following is TRUE? a. Marge's demand is elastic, and Brad's demand is elastic. b. Marge's demand is inelastic, and Brad's demand is inelastic. c. Marge's demand is inelastic, and Brad's demand is elastic. d. Marge's demand is elastic, and Brad's demand is inelastic.
more inelastic
Necessities tend to have a(n) ______ demand than luxuries.
QUANTITY of supply or demand
Plugging in a new P changes the...
subtracting the marginal cost from the market price
Producer surplus is a measure of a firm's net benefit from selling goods. We calculate producer surplus by ___________________ for all transactions in a market.
shortage
Qd-Qs
surplus
Qs-Qd
neither a shortage or surplus
Refer to the figure below. If a price ceiling were set at $12, there would be _____.
price taker
Someone who decides to charge the prevailing price and whose actions do not affect the prevailing price.
d. The market price of Stevia goes down because demand for Stevia decreases.
Stevia is a natural sweetener that is used as a substitute for sugar. What happens to the market equilibrium price of Stevia if the price of sugar falls? a. The market price of Stevia is unchanged because sugar is a substitute. b. The market price of Stevia goes up because demand for Stevia increases. c. The market price of stevia falls because demand for Stevia increases. d. The market price of Stevia goes down because demand for Stevia decreases.
d. there are many good substitutes for Froot Loops.
The demand curve for Froot Loops breakfast cereal is very elastic because: a. the demand curve is negatively sloped. b. it is one of the most advertised cereals in the world. c. most breakfast cereals are considered a luxury good. d. there are many good substitutes for Froot Loops.
the demand curve moves to the left
The fidget spinner toy fad is over, and children are not buying them with the same enthusiasm as they did earlier. What happens to the graph depicting the situation in the market for fidget spinners?
the marginal benefit he would receive from the game.
The highest price that Duke would be willing to pay for a particular video game is equal to ____.
largest economic surplus.
The most efficient outcome in a set of options is the one with the ____ .
tells us how responsive consumer purchases are to price changes
The price elasticity of demand:
marginal cost
Using the marginal principle, perfectly competitive firms will produce the quantity where price equals the ________ of the last unit produced
equilibrium point
We cannot have a shortage or surplus at the...
b. There are few widely available good substitutes for oil.
Why is the demand curve for oil rather inelastic? a. To increase the production of oil requires a significant outlay of exploration and drilling costs. b. There are few widely available good substitutes for oil. c. The demand curve for oil is always perfectly inelastic. d. The world supply of oil is low relative to demand.
reduce quantity traded
both price ceilings and floors...
marginal cost
When calculating producer surplus, we assume a firm is willing to sell one good for its _____ .
shortage
When quantity demanded exceeds quantity supplied, a _____ exists.
a surplus
When quantity supplied exceeds quantity demanded, _____ exists.
price ceiling; the price would otherwise be higher.
When the government pushes the price below the market equilibrium price, economists call this a ________ because_____.
only variable costs
When you calculate marginal costs, they should include:
variable costs
When you calculate the marginal cost, it should only reflect the...
c. The supply of cacao beans, used to produce chocolate, has fallen around the world.
When you go to the store to buy some M&Ms candy, you find they are more expensive than they were last month. Which of the following could explain why M&Ms are more expensive? a. A new study finds that the benefits of eating chocolate are not as great as previously thought. b. A new robot has been installed at the Mars chocolate company that reduces the time needed to produce M&Ms by half. c. The supply of cacao beans, used to produce chocolate, has fallen around the world. d. Consumers are now purchasing fewer M&Ms compared to other types of chocolates.
a. Efficient outcomes rarely make everyone happy.
Which of the following statements is TRUE regarding economic efficiency? a. Efficient outcomes rarely make everyone happy. b. Efficient outcomes are also equitable. c. Efficient outcomes will make everyone better off. d. Efficiency is associated with minimizing economic surplus.
With a price floor, the new market price will be the government regulated price, and any resulting surplus will be locked in, ceteris paribus.
Which of the following statements is correct? a. When a subsidy is placed on a market, the new price for consumers will be higher than it was, ceteris paribus. b. When a tax is levied on a product, the new price that buyers pay will always be the old price plus the tax. c. With a price ceiling, the new price will be whatever buyers are willing to pay for the amount being sold. d. With a price floor, the new market price will be the government regulated price, and any resulting surplus will be locked in, ceteris paribus.
elastic
______ demand or supply indicates a high responsiveness to changes in price
inelastic
______ demand or supply indicates a low responsiveness to changes in price
prices
______ regulate the market.
demand
_________ is more elastic when consumers have more substitutes
gains from trade
_________ means all participants can benefit
quantity demanded
a change in the price causes buyers to buy more/less
quantity supplied
a change in the price causes sellers to supply more/less
demand/supply
a determinant of ______ has caused the entire curve to shift
there is only one side of the market (ex. only supply (sellers) no demand (buyers); vice-versa)
a market fails if....
increases
as price goes down, quantity demanded ____
infinite quantities ; price
at perfect elasticity, there are ___________ sold at one ______
one quantity ; price
at perfect inelasticity, there is ____________ at every ___________ possible
positive analysis
based on objective statements & can be tested or rejected, result of test can be false but the statement has to have an objective solution to it
normative analysis
based on subjective statements of judgements and opinion ; cannot be tested
the price has changed
change in quantity in demand or quantity supply means that...
entire CURVE has SHIFTED
change in supply/demand means the...
economic surplus
consumer surplus (cs) + producer surplus (ps)
fixed costs
costs (like an equipment lease or building rent) that don't vary when you change the quantity of output you produce
variable costs
costs (like labor and raw materials) that vary with quantity of output that you produce
supply
demand doesnt cause _____ to change
consumer surplus + producer surplus
economic surplus =
marginal benefit - marginal cost
economic surplus of a single transaction is the...
equity
economic term for fairness
aim to help most but can harm others
efficient outcomes and most policies...
benefit ; cost
for every quantity in the market there is always a marginal ____________ and marginal ____________
elastic
for supply & demand, the flatter curve is more..
tax
how governments raise money from firms and citizenry
complements
if CPE is negative, the goods are
substitutes
if CPE is positive, the goods are
perfectly elastic
if a graph has a horizontal line then it is..
opposite directions
if demand is elastic, total revenue and price move in...
the same direction
if demand is inelastic, total revenue and price move in...
inferior
if income elasticity is negative, the good is
it is inelastic
if the equilibrium is less than one...
it is elastic
if the equilibrium is more than one...
perfectly inelastic
if the graph has a vertical line then it is...
a normal luxury good
if the income elasticity is 1 or over, the good is
a normal necessity
if the income elasticity is between 1 and 0, the good is
normal
if the income elasticity is positive, the good is
an inferior good
if the income elasticity is under 0, the good is
elastic
if when purchasing an item you are conscious of the price, your demand is ______
inelastic
if when purchasing an item you are not worried about the price, your demand is....
quantity
in the long run, ___________ moves more than prices
prices
in the short run, ___________ bounce up and down more than quantity
unitary elasticity
indicates that the % quantity = the % price
inverse
is elasticity inverse or parallel?
price floor
keeps prices from falling to equilibrium, creates a surplus
price ceiling
keeps prices from rising to equilibrium, creates a shortage
price controls
laws that government enacts to regulate prices (ex. price ceilings/floors)
inelasticity
less time equals more __________
economic surplus
marginal benefit minus marginal cost
demand
supply doesnt cause ______ to change
goods are manufactured quicker with easily obtained inputs & goods can be kept for longer periods
supply is more elastic when...
statutory burden
tax incidence does not equal...
consumer surplus
the amount that individuals would have been willing to play - the amount that they actually payed
