ch.4 micro homework
A black market is
a market in which buying and selling take place at prices that violate government price regulations
Economic efficiency is
a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.
Economic surplus in a market is the sum of _____ surplus and _____ surplus. In a competitive market, with many buyers and sellers and no government restrictions, economic surplus is at a _____ when the market is in _____.
consumer, producer, maximum, equilibrium
Suppose Wendy's hamburgers have many close substitutes available. If so, then an increase in the price of Wendy's hamburgers will likely
decrease the quantity of Wendy's hamburgers demanded by a relatively large amount.
Compare the demand for pencils with demand for food. The demand for pencils is likely
more inelastic because pencils tend to represent a smaller fraction of a consumer's budget.
Consumer and producer surplus measure the _____ benefit rather than the _____ benefit.
net, total
Rent controls, government farm programs, and other price ceilings and price floors are bad." This is an example of a
normative statement. The statement is concerned with what should be.
Compare the demand for water with the demand for wine. The demand for water is likely
relatively more inelastic because water is a necessity
When the government imposes price floors or price ceilings,
some people win, some people lose, and there is a loss of economic efficiency.
Tax incidence is
the actual division of the burden of a tax between buyers and sellers in a market.
What information must economists have to estimate the price elasticity of demand? To estimate the price elasticity of demand, economists need to know
the demand curve for a product.
How is the price elasticity of demand measured? The price elasticity of demand is measured as
the percentage change in the quantity demanded divided by the percentage change in price.
Consider the demand for cigarettes. Suppose the government increases the price of cigarettes by raising cigarette taxes. How will this affect the demand for cigarettes over time? If the price of cigarettes increases, then the quantity of cigarettes demanded will
decrease, and this effect will likely become larger (in absolute value) over time.
Consider firms that introduce new products, such as DVDs in 2001. When firms introduce new products, how do they typically determine the price elasticity of demand for those products? Firms with new products often
estimate price elasticity of demand by experimenting with different prices.
