Microeconomics Study Guide

OPEC successfully raised the world price of oil in the 1970s and early 1980s, primarily due to

an inelastic demand for oil and a reduction in the amount of oil supplied.

In the market for oil in the short run, demand

and supply are both inelastic.

If price increases from $10-$20, total revenue will

increase by $120, so demand must be inelastic in this price range.

The supply of oil is likely to be

inelastic in the short run and elastic in the long run.

If the price elasticity of supply is 1.2, and price increased by 5%, quantity supplied would

increase by 6%

In the early 1970s, OPECs goal was to

increase the world-wide price of oil by reducing the quantity of oil supplied.

There are fewer farmers in the US today than 200 years ago because of

inprovements in farm technology.

food and clothing tend to have

small income elasticities because consumers, regardless of their incomes, choose to buy relstively constant quantities of these goods.

Given the market for illegal drugs, when the government is successful in reducing the flow of drugs into the US

supply decreases, demand is unaffected, and price increases.

When a supply curve is relatively flat, the

supply is elastic.

Income elasticity of demand measures how

the quantity demanded changes as consumer income changes.

Demand is also said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes.

The price elasticity of supply measure how much

the quantity supplied responds to changes in the price of the good.

If the price elasticity of supply is 1.5, and a price increase led to 1.8% increase in quantity supplied, then the price increase is about

1.20%

If the price elasticity of supply is 0.4, and a price increase is led to a 5% increase in quantity supplied, then the price increase is about

12.5%

A 10 percent increase in gasoline prices reduces gasoline consumption by about

2.5 percent after one year and 6 percent after five years

In general, elasticity is a measure of

How much buyers and sellers respond to changes in market conditions.

How did the farm population in the US change between 1950 and today?

It dropped from 10 million to fewer than 3 million people.

A key determinant of the price elasticity of supply is the time period under consideration. Which best explains that

The number of firms in a market tend to be more variable over long periods of time that over short periods of time.

As price elasticity of supply increases, the supply curve

becomes flatter.

A decrease in supply will cause the smallest increase in price when

both supply and demand are elastic

In the long run, the quantity supplied of most goods

can respond substantially to a change in price.

The price elasticity of demand for a good measures the willingness of

consumers to buy less of the good as the price rises.

Good news for farming can be bad news for farmers because the

demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to sellers

If the quantity demanded for a certain good responds only slightly to a chnage in the price of the good, then the

demand for the good is said to be inelastic.

The discovery of a new hybrid wheat would increase the supply of wheat. As a result, wheat farmers would realize an increase in total revenue if the

demand for wheat is elastic

For which of the following goods is the income elasticity of demand likely highest?

diamonds

When studying how some event or policy affects a market, elasticity provides information on the

direction and magnitude of the effect

An advantage of using the midpoint method to calculate the price elasticity of demand is that it uses the metric system

false

The demand for bread is likely to be more elastic than the demand for solid-gold bread plates

false

Demand is elastic if the price elasticity of demand is

greater than 1

Farm programs that pay farmers not to plant crops on all their land

help farmers by increasing total revenues in the market but hurt consumers by raising food prices.

demand is inelastic if the price elasticity of demand is

less than 1

The supply of a good will be more elastic, the

longer the time period being considered.

Goods with many close substitutes tend to have

more elastic demands

Whether a good is luxurt or necessity depends on the

preferences of the buyer

The price elasticity of demand measures how much

quantity demanded responds to a change in price

If soybean farmers know that the demand for soybeand is inelastic, in order to increase their total revenues they should

reduce the number of acres they plant to decrease their output

When consumers face rising gasoline prices, they typically

reduce their quantity demanded more in the long run than in the short run.

The demand for Godiva mint chocolates is likely quite elastic because

there are many close substitutes, the market is narrowly defined, and this type of chocolate is viewed as a luxury by chocolate lovers.

A key determinant of the price elasticity of supply is the

time horizon

Goods with many close substitutes tend to have more elastic demands than goods without close substitutes

true

In general, demand curves for luxuries tend to be price elastic

true

Necessities tend to havr inelastic demands, whereas luxuries tend to have elastic demands

true

The demand for rice krispies is more elastic than the demand for cereal in general

true