econ 201 module 1 quizlet

Diminishing marginal benefit:

is when buying an additional item yields a smaller marginal benefit than the previous item.

When you calculate marginal costs, they should include:

only variable costs.

substitues

shoes and sandals beef and chicken

supply increases and demand increases how does this affect p and q

the both also increase

producer surplus

-economic surplus adds up everyones costs and benefits - consumer surplus does not tell the full story - we also care about the firms producing the goods that consumers buy

2. Will the heat wave result in a shortage or surplus of Las Vegas hotel rooms at the previous price? Will the price of hotel rooms rise or fall?

surplus, fall

An individual demand curve is a graph:

that plots the quantity of an item that someone plans to buy, at each price.

The interdependence principle:

implies that buyers decisions are affected by many factors other than the price of an item.

Which of the following are correct about fixed costs?(i) They do not change with the level of production in the short run.(ii) They include variable costs.(iii) They are present even when the firm is producing zero units.(iv) They are irrelevant to marginal cost.

(i), (iii), and (iv)

market

any setting that brings together potencial buyers and potential sellers - the potential buyers are demanders - the potential sellers are suppliers

law of demand

as price goes down, quantity demanded goes up, all else held constant

Christine is the general manager of a local automated car wash. The market she operates in is perfectly competitive. All of her competitors in the area charge $7 per car wash, which is also her marginal cost per wash. b. If Christine sets her price to $5, her profits will

decrease

a. Akari's boss has offered to pay her for up to 5 hours of overtime today. Akari has already been working for 10 hours and is deciding whether to work more hours. When Akari weighs the money she will earn from working overtime against what she gives up to work the extra hours, she is applying the

cost-benefit principle.

Christine is the general manager of a local automated car wash. The market she operates in is perfectly competitive. All of her competitors in the area charge $7 per car wash, which is also her marginal cost per wash. a. If Christine sets her price at $8, her profits will

decrease

Boeing is a producer of wide‑body aircraft The manufacturing plant used to produce aircraft is a ________ cost for Boeing. The cost of the manufacturing plant ________be included in the opportunity cost of producing an additional aircraft.

fixed, should not

When the absolute value of the price elasticity of demand is infinite, demand is:

perfectly elastic.

The price elasticity of demand for a good with a vertical demand curve is:

perfectly inelastic.

When plotting a supply curve

the quantity supplied goes on the horizontal axis.

A downward-sloping demand curve implies:

there is an inverse relationship between price and quantity demanded.

If a store runs a sale on a product to clear out its stock, we can conclude that:

there was a surplus of the product in the store.

decrewasein quantity demanded vs. decrease in demand

- decrease in quantity demanded - movement up and to the left of the demand curve

dependencies between your own choices reflect the fact that

you have limited resources

Dependencies between your own choices reflect the fact that:

you have limited resources.

inelastic

- gasoline -insulin for a diabetic -electricity - water

deadweight loss DWL

- measures how far economic surplus falls belw the efficient outcome =economic surplus at the efficient outcome - actual economic surplus - deadweight loss measures the cost of inefficiency

demand for items that are considered to be necessities tend to be inelastic

- medicine - gasoline - electricity - shampoo

planned approach

- send all the donations to the shelter that has the least - divide the donations evenly among the three shelters - ask shelters their requests, and decide what to send where based on their answers

arguement against economic efficiency

- the compensation to the losers usually isnt enough - distribution of the pie is often uneven

six factors that shift demand curves

1. income 2. tastes and preferences 3. prices of other goods (substitutes and complements) 4. expectations 5. network and congestion effects 6. the number and type of buyers

what determines the price elasticity of supply

1. inventories make supply more elastic 2. easily avaiable inputs make supply more elastic 3. extra capacity makes supply elastic 4. easy entry and exit make supply more elastic 5. overtime supply becomes more elastic

supply increases and demand increases, how does this affect P and Q?

Both P and Q increase

Who would likely have a more elastic demand for cigarettes: children who are considering smoking cigarettes, who tend to not have very much money, or adults who smoke cigarettes, who are likely addicted to smoking?

Children

The cross-price demand elasticity of good X and good Y is equal to zero. The price of good X goes up. Which of the following statements accurately describes what happens:

Consumption of good Y is unchanged

Which is true

Ed is always negative because of the law of demand

Consider the following statement: "Economists always put things into monetary terms; as a result, economics can most appropriately be called the study of money."

False, economists use monetary terms because they can be quantified and compared, but economics is better described as an approach to decision making.

When the price of a product increases from 100 to 105, quantity sold decreases from 200 to 195. Demand is:

Inelastic

What is quantity supplied?

It is the amount of an item that a seller is willing to sell at a particular price.

Consumer Surplus can be defined as:

The difference between how much you are willing to pay for something and how much you actually pay for something.

Which of the following is NOT a factor that can shift supply?

The market price of a product.

When you arrive at a gas station, there is a line of cars wrapped around the block waiting for gas, so you go to the gas station down the road only to find another line of cars! You get in line and end up waiting over an hour just to get to the pump and be told that they've run out of gas.

This market is not in equilibrium because people are still willing and able to purchase gasoline, even though the quantity supplied has been exhausted.

Suppose that you have a pumpkin stall at a farmer's market, and the Halloween season arrives. You know that your customers will want to buy many pumpkins to decorate their houses and make pumpkin pies. Which of the following is a likely result of this scenario?

You can charge a higher price per pumpkin.

Two products have a cross-price elasticity of demand of 0.5 Based on this value of cross-price elasticity, which of the following products are they most likely to be?

a brand of tea and a brand of coffee

A normal good is:

a good for which higher income causes an increase in demand.

inferior good

a good for which there is a inverse (negative) relationship between the demand for the good and income

An equilibrium price is:

determined by the intersection of the demand and supply curves.

Which of the following five scenarios illustrate markets in action?(i) You rent a book at the university bookstore.(ii) You bargain at a street stall.(iii) You mow your own lawn.(iv) You get a manicure at a nail salon.(v) You grow your own vegetables and consume them yourself.

i), (ii), and (iv)

Decisions should reflect the _____ costs, rather than just the _____ costs.

opportunity; financial

if a good is normal, income elasticity is

positive

The EpiPen is a lifesaving device used by individuals with severe allergies. The U.S. manufacturer of the EpiPen raised its price by nearly 25% per year for nearly a decade.

For each 25% increase in the price, quantity demanded would decrease by less than 25%.

complements

goods that are used with one another

Demand Curve represents the ____________ for a good

willingness to pay

positive economics

"what is"

normative economics

"what ought to be"

Christine is the general manager of a local automated car wash. The market she operates in is perfectly competitive. All of her competitors in the area charge $7 per car wash, which is also her marginal cost per wash. c. Christine's profit maximizing price is

$7

welfare

- a market at equalibrium is one where quantity supplied is equal to quantity demanded - we saw earlier that most markets will be in equilibrium

economic efficiency

- an efficient outcome creates the largest possible economic surplus - the gold standard

For most consumers, a 10-year-old used car is ______ good.

an inferior

A recent article in the Wall Street Journal discusses the popularity of luxury "distressed" clothing that contains holes or stains. The sweater shown below costs $2,295, and the blazer shown below costs $2,790. Suppose distressed luxury clothes have an income elasticity of demand of 0.25. Initially, Emily is spending $1,000 per year on distressed luxury clothes. If Emily's income goes from $100,000 to $140,000, how much will she now spend on distressed luxury clothes? It is not necessary to know the price of the luxury goods she is buying. It is sufficient to know that, whatever the price is before her income change, the price is the same after her income change. So, if she was buying pants that cost $100 before her income change, she is still buying pants that cost $100 after her income change - she's just buying more of them.

$1,100

instead of attending class, one could have worked an extra hour at the cafe for $10 or watched a neighbors child for $15. the opportunity cost of attending class is

$15

It costs a total of $10 to make 20 bottles of water. The marginal cost of the 21st bottle of water is $3. What is the total cost of making 21 bottles of water?

$13

If the price elasticity of demand for a product is equal to -0.5, then a 10 percent decrease in price will increase quantity demanded by

5%.

critique 1: distribution matters

• Economic efficiency creates the largest pie possible • Scenario 1: Fred and Ted bake a 10‐inch pie and share it evenly • Scenario 2: Fred and Ted bake a 10.1‐inch pie and Fred eats all of it • Scenario 2 is more efficient, but does that mean it is "better"? • Most policies have winners and losers. • It's usually best to evaluate a policy for both efficiency and equity • Efficiency: size of pie • Equity: how the pie is divided

Economic Efficiency

• Economic efficiency is an important metric for comparing policies, but it does not tell the full story • Income taxes may not be economically efficient, but they reduce income inequality and pay for popular government services.

Critique #2: Willingness to Pay

• Efficiency means that goods go to the people with the highest willingness to pay. • D.J. Khaled is willing to pay more for a Rolls Royce than you • Should we infer that he gets greater benefit? • Your willingness to pay reflects both: • Marginal benefit • How much you would benefit from the good • Ability to pay • How much money you have

A recent article estimated the effect that the Australian wildfires would have on milk production and prices. The article estimates that global milk exports will decrease 0.6% as a result of the fires. The article assumes that the own-price demand elasticity of milk is -0.2. However, the article does not explain that its basis for this assumption. Suppose this assumption is wrong, and the demand elasticity is actually -0.1. Suppose the original price of milk was $2.00 per gallon. What would the post-wildfire price be?

$2.12

kevin goes to a local coffee shop and orders a medium sized latte. his willingness to pay for that latte is $6. the price of the latte is $2. the cost to the coffee shop to produce the latte is $1. how much economic surplus does kevin gain when he purchases the latte?

$4

Suppose demand is linear and downward-sloping, but not perfectly inelastic, and suppose that supply is perfectly inelastic. Initially, the price is $10. A tax of $1 per unit is placed on buyers. What is the pre- tax price charged by suppliers?

$9

The United Kingdom plans to end the use of gas-powered and diesel-powered cars by the year 2040. At the same time, car manufacturers, such as General Motors and Nissan, are increasing the number of electric car models they produce. Based on this information, which of the following statements is/are correct?(i) If the supply of new electric cars is greater than the demand for new electric cars, then the price of electric cars will fall in the future.(ii) The demand for gasoline will fall in the future.(iii) The demand for electricity will rise in the future.(iv) The demand for diesel will rise in the future.

(i), (ii), and (iii)

price floor

- the minimum legal price at which a good can be sold - binding price floor means that the minimum price is above the equalibrium price - most commonly seen in minimum wage laws -- workers are the suppliers of labor, firms are the demanders of labor, hourly wage is the price of labor

seller/supplier

- you consider which politican to vote for in an upcoming election - you seek employment in the industry for which you have trained - youve written a book and several publishers are interested in purchasing the rights to publish your work

buyer/demander

- you purchase coffee in a coffee shop - youre considering which job applicant to hire at your company

The price of product A is cut by 30%. As a result, the quantity demanded of product B rises by 40%. The cross-price elasticity of demand between product A and product B is _____, and they are _____.

-1.33; complements

The price of a chicken wrap at Conrad's goes from $10 to $11. Following this change, consumption goes from 100 units to 85 units. What is the elasticity of demand?

-1.5

When the price of a product increases 10 percent, the quantity demanded decreases 15 percent. The price elasticity of demand for this product is

-1.5.

the price of a good is originally 10 and decreases to 9. as a result, quantity increases from 20 to 25. what is the price elasticity of demand

-2.5

The price of milk at the local grocery store rises by 25%, and the quantity of milk demanded falls by 10%. The absolute value of the price elasticity of demand for milk is _____, and demand is _____.

0.4; inelastic

If income rises by 20% and the quantity demanded of an item rises by 10%, the income elasticity of demand for this item is:

0.5.

The price of milk at the local grocery store is cut by 15%, and the quantity of milk demanded increases by 10% in response. What is the absolute value of the price elasticity of demand for milk?

0.67

complements

wine and cheese tables and chairs shampoo and conditioner

A team of analysts at Amazon is researching the viability of producing a smart watch. How might they estimate potential demand for their smart watch? a. Consider the four-step process that many companies follow to estimate the market demand curve for their product. Place the steps in order, with the first step in the highest position and the last step in the lowest position. b. Select two factors that the analysts want to keep in mind to create the most accurate demand estimates.

1. survey customers 2. add up the total quantity demanded by the customres at each price point 3. scale up the quantities demanded by the survey respondents 4. plot the demand curve existing competition in the market consumer demographic information

four steps to estimate market demand

1. survey your customers 2. add up the total quantity demanded by eac person at each price 3. scale the quantities demanded by the survey respondents so that they represent the whole market 4. plot the market demand curve

) Initially, the price of a bicycle is $100 and 100 units are sold. The price increases by 𝑥𝑥 dollars. Price elasticity of demand is -2. How many units are sold?

100-2𝑥

According to the U.S. Department of Energy, the average price of gasoline in the U.S. fell by 14% in 2015. The number of hybrid electric vehicles (HEV) sold in the U.S. fell by 36% in the same year. Calculate the cross-price elasticity of demand for HEVs and gasoline. Round answer to one place after the decimal. a. Cross-price elasticity = Based on your answer in part a, gasoline and HEVs are

2.6, substitutes

The price of a dozen eggs falls from $3 to $2.70. In response to this price change, the quantity supplied of eggs falls from 100,000 dozen eggs to 75,000 dozen eggs. What is the price elasticity of supply for eggs?

2.7

The price of product C rises by 10%. As a result, the quantity demanded of product D rises by 20%. The cross-price elasticity of demand between product C and product D is _____, and they are _____.

2; substitutes

lisa is choosing between three alternatives a) working at her job that pays 60 dollars; b) writing a term paper which she values at 40 dollars; or c; going out with a friend, which she values at 80 dollars. the opportunity cost of writing the term paper is

80 dollars

lisa is choosing between three alternatives: a)working at her job that pays 60 dollars; b) writing a term paper which she values at 40 dollars or c) going out with a friend which she values at 80 dollars. the opportunity cost of writing the term paper is

80 dollars

Which of the following lists only the factors that would cause a decrease in the supply of an item?

A rise in input prices; a decrease in the number of sellers in the market; a rise in the price of a substitute-in-production.

Which of the following scenarios depicts a seller who is following the Rational Rule for Sellers?

American Airlines determines the marginal cost of an extra passenger to be $75 and sells a discount seat for $250.

Consider the following statement: "An increase in the cost of oil will cause the price of a plane ticket to increase. This increase in price will cause a decrease in demand for airline travel and a leftward shift in the demand curve." What is the flaw of this reasoning?

An increase in the price of a ticket will not cause a decrease in demand, but rather a decrease in quantity demanded.

Digital cameras have a linear demand curve. When price is $100, digital cameras have unit demand elasticity. If price increases to $200, the absolute value of demand elasticity is:

Greater than 1

The cross-price elasticity of peanut butter and jelly is 0.6. If the price of jelly increases by 20%, what happens to the quantity of peanut butter sold?

Increases by 12%

Consider the following statement: "The market supply for natural gas is the sum of all prices that natural gas producers are willing and able to sell at for every quantity." What is the flaw in this statement?

It should state that market supply is the sum of the quantities of natural gas that producers are willing and able to sell at every price.

Which of the following scenarios illustrates the law of demand?

Kathleen eats more steak when the price is low, and less when the price is high.

People who support a higher minimum wage typically argue that a modest increase to the minimum wage will not have a significant impact on the number of employees that firms choose to hire. In other words, they believe that:

Labor demand is inelastic

Demand for bottled water is elastic. The price of a bottle of water increases from $2.00 to $2.50. Before the price change, there were 100 bottles sold. After the price change, the number of bottles sold is:

Less than 75

Which of the following statements are true?

Markets are forums in which parties exchange goods and services at a "price," where the latter can be flexibly construed. Your current economics course, the next election, and the dating scene can all be seen as markets.

In 2015, Netflix increased its monthly price for new subscribers by $1. In response, one individual tweeted the following: "So tired of being a college student. Can't wait until I have a stable job and won't have to give up Netflix cause they raised their price by $1". What does this statement indicate about the income elasticity of demand for Netflix?

Netflix is a normal good.

a. You are the coordinator of a nonprofit that distributes donated items to three local homeless shelters and want to figure out a way of distributing the donated items to the shelters who need it the most. Which of the following would most likely achieve your goal?

Offer each shelter a virtual "budget" and have them bid on different items.

When Sony released the PlayStation 4, it was reported that Sony was taking a loss of $60 on every PS4. However, Sony expected to make this up with sales of PS+ subscriptions and increased royalties from video games. Use the interdependence principle to help explain this strategy.

The PS+ subscriptions allow PS4 owners to play their games online, receive new games monthly to download at no charge, and receive additional special discounts on other items. Therefore, the PS4 and PS+ subscriptions are complements in consumption. Decreasing the price of the PS4 will increase the demand for PS+ subscriptions. Sony expects that revenue from recurring PS+ subscriptions will be larger than the loss in revenue from PS4 sales.

You may have observed that items such as different brands of aspirin, tomato sauce, or gasoline are typically priced the same as each other. This is particularly true when consumers can find these goods in close proximity to each other. For example, prices are often the same at gas stations that are on opposite sides of the street. Prices are also generally the same for products next to each other on the same grocery store shelf.

The aforementioned examples are goods that are likely to be substitutes . You would expect the value of the cross-price elasticity to be large , because the opportunity cost of getting information on price is low.

You purchased a ticket to the musical Hamilton through a verified reseller for $457.00. When your ticket arrives, you see that the face value printed on it is $259.00.

The face value is below the equilibrium price because the rate in the secondary market exceeds the face value.

You are the manager of Frito-Lay's Cheese Puffs account, and you notice that when the price of Cheetos increases, there is an increase in demand for Cheese Puffs. What is the economic relationship between these goods that explains this behavior?

The increase in the price of Cheetos causes an increase in the demand for Cheese Puffs; therefore, these goods are substitutes.

Which principle tells you that the true cost of something is the next best alternative you have to give up to get it?

The opportunity cost principle.

You eat M&Ms every day. When you go to the store to buy some, you find that M&Ms are more expensive than they were last month. Which of the following could explain why M&Ms are more expensive?

The supply of cacao beans, used to produce chocolate, has fallen around the world.

The five-dollar Burger Joint gift card that your friend gave you for your birthday expires today. You can either use the gift card to buy yourself dinner at Burger Joint, or you can stay home and eat a delicious home-cooked meal.

The value of the ingredients that go into the home-cooked meal, and the value of a five-dollar dinner at Burger Joint.

You're shopping online, and you place an item in your virtual cart. Two days later, you return to the virtual cart to check out and find that the item is now more expensive. Assuming that the market is competitive, what could explain the price increase?

There is a shortage of the item.

Why are supply curves typically upward-sloping?

They slope upward because higher prices lead individual businesses to supply a larger quantity and more businesses are willing to supply goods and services.

A seller at a farmer's market wants $10 for a bag of 10 apples. You think his price is too high, so you counter with an offer of $6 for the bag. The seller then offers you a much smaller bag of five apples for $6. You bargain again, and the seller lets you buy the 10 apples for $8. This scenario is an example of:

a market in action.

For most consumers, the newest iPhone is ________ good.

a normal

law of supply

a principle that states that as the price of a good rises, the quantity supplied will increase, all else held constant - as prices fall, firms will produce less gasoline - as prices rise, firms will produce more gasoline

due to the popularity of streaming service like netflix and youtube, there has been a long term downward trend in the number of cable television subscribers. regarding the demand for cable television this is

a leftward shift of the demand curve

Quantity demanded is on the horizontal axis when you plot a demand curve and shows the:

amount of a good that a person is willing to buy at each price.

incentives

an opportunity to make yourself better off - cost benfit principle

Consumer surplus is the

area between the demand curve and the price

in a voluntary economic transaction between buyer and a seller, __________ can earn economic surplus from the transaction

both the buyer and the seller

joshua murphy is planning on studying late into the night for his economics exam. how many cups of coffee should he buy tonight

benefit of purchasing one more coffee equals the marginal cost

In 2017, Hurricane Irma had a significant, negative impact on the orange harvest in the state of Florida. The U.S. Department of Agriculture predicted that the quantity of oranges produced would be 21% lower than the previous year. If the price elasticity of demand for oranges is -1.5, what impact would Hurricane Irma have on the price of oranges?

change in the price of oranges: 14%

In the market for gasoline and sport utility vehicles (SUVs), the two goods are If the price of gasoline rises, what response do you expect in the market for SUVs? Shift the demand curve to show what happens in the market for SUVs when the price of gasoline rises.

complements - demand curve shifts left

In the market for smartphones and Verizon data plans, the two goods are If the price of data plans rise, what response do you expect in the market for smartphones? Shift the demand curve to show what happens in the market for smartphones when the price of data plans rise.

complements - demand curve shifts left

b. Niko, a local UPS manager, is trying to decide whether she should pay for additional trucks and drivers. When Niko compares the cost of a new truck and driver to the benefit of increasing the package center's daily deliveries, she is applying the

cost-benefit principle.

which of the following is a decision that follows the net marginal benefit principle

deciding to order a dessert at a non buffet restaurant more often than you have dessert at a buffet

which of the following is a decision that follows the net marginal benefit principle

deciding whether to spend one more hour studying for an exam

a major hurricane destroys many beachfront condos

decreases the supply of beachfront condos

1. Which of the following will occur in the demand for Las Vegas hotel rooms?

demand will decrease

the price of a good increases from 100 to 110. quantity decreases from 200 to 190. demand is

elastic

When the absolute value of the price elasticity of demand is greater than 1, demand is:

elastic.

Jonathan Mendez is deciding whether to study for his economics exam at a café down the street or go to a concert a few cities over. The time spent commuting to the concert is ____ in his opportunity cost calculations and represents a _____ cost.

included; nonfinancial

if two goods are substitutes, cross price elasticity

positive

the opportunity cost o attending college include the

potential income that could be earned working

The opportunity costs of attending college include the:

potential income that could be earned working.

a. If the supply of green tea rises, the equilibrium quantity will_______________and the equilibrium price will fall . This is because ____________________

rise, the equilibrium quantity moves down the demand curve to a lower price and a higher quantity demanded . demand will stay the same, supply will shift right

You are given data on four products — toothpaste, shampoo, soap, and laundry detergent. The absolute value of the price elasticity of demand for toothpaste is 4. The absolute value of the price elasticity of demand for shampoo is 0.2. The absolute value of the price elasticity of demand for soap is 0.5. The absolute value of the price elasticity of demand for laundry detergent is 2. Which product has the most inelastic demand?

shampoo

Will General Electric's exit from the light bulb market result in a shortage or surplus of light bulbs at the previous price? Will the price of light bulbs rise or fall?

shortage, rise

policy anaylsis stages

stage 1: what is going to happen if we adopt this policy - positive anaysis what is stage 2: what is the better outcome and what policy should the govenment adopt - normative analysis, what should happen

In the market for transportation, taking the train and taking a plane are If the price of airfare rises, what response do you expect in the market for train travel? Shift the demand curve to show what happens in the market for train travel when the price of airfare rises.

substitues - demand curve shifts right

consumer surplus

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it - a demand curve represents the willingness to pay for a good

Paint and paintbrushes are complements. If the price of paint rises, we can expect:

the demand for paintbrushes to decrease.

In 2016, the top-selling pharmaceutical drug in the world was AbbVie's Humira, which is used for the treatment of several common, chronic conditions. The majority of its profits are derived from treatment of the most common diseases, but AbbVie also develops drugs for rare conditions. Why might AbbVie develop drugs for rare diseases instead of investing all of its resources toward drugs for common diseases?

the marginal principle may be guiding AbbVie in determining if it is worth producing drugs for rare diseases. Since it is developing and producing treatments for rare diseases, the marginal benefits must exceed the costs.

congestion effect

the more other people are consuming the good, the less i want to consume it

network effect

the more other people are consuming the good, the more i want to consume it

which principle tells you that the true cot of something is the next best alternative you have to give up to get it?

the opportunity cost principle

the price of gasoline is $2.50 per gallon at the closet gas station, but is only $2.30 per gallon at a gas station two miles away. by driving to the farther gas station, the opportunity cost is:

the value of ones time and expense to go to the farther gas station

the price of gasoline is $2.50 per gallon at the closet gas station, but is only $2.30 per gallon at a gas station two miles away. by driving to the farther gas station, the opportunity cost is

the value of ones time and expenses to go to the farther gas station

interdependence principle

to fully understand the consquences of your decisions, you must take account of how decisons interacr with other decisions and with other factors 1. how your decisions interact with your other choices 2. how your decisions depend on the choices of other people 3. how decisions in one market depend on other markets 4. how todays decisions depend on past and future decisions

Two products have a cross-price elasticity of demand of 1.5. Based on this value of cross-price elasticity, which of the following products are they most likely to be?

two competing brands of soft drinks

Boeing is a producer of wide‑body aircraft The cost of the seats that are installed in each aircraft is a ________cost for Boeing. The cost of the seats ________ be included in the opportunity cost of producing an additional aircraft.

variable should

Variable costs are the costs that

vary with the quantity of output produced.

As a result of technological innovation, automated water pumps are being installed on the farms of Kenyan tomato farmers. As a result of the increased use of automated water pumps, the equilibrium price of tomatoes will:

fall, due to a rise in supply.

efficient outcome

the outcome that yields the largest possible economic surplus

independent

peanut butter and lumber

Your consumer benefit here is area a because you are_____________ the prices of the demand curve, but you ________the equilibrium price. So, you take the difference between those and get area a. Consumer surplus is the area between the demand curve and the price.

willing to pay, actually pay

subsidies work like negative taxes

work like negative taxes - whenever a transaction occurs, the government pays the buyer or seller - like with taxes, it does not matter who is paid. the actual benefits are shared by the buyer and seller

%changeQ= Q2-Q1/Q1*100

%changeP=P2-P1/P1*100

Consumer Surplus after the government imposes the excise tax:

(Highest price from demand curve - new price with tax) (quantity)(1/2):

you are deciding what to order at starbucks. a coffee costs $2 and a cappucino cost $4. you value a coffee at $3 and a cappuccino at $6. you only want to order one drink. after you buy your preferred drink what is your consumer surplus

$2

kevin williamson goes to a local coffee shop and order a medium sized latte. his willingness to pay for that latte is $6. the price of the latte is $2. the cost to the coffee shop to produce the latte is $1. how much economic surplus does kevin gain when he purchases the latte?

$4

surplus

- the market condition in which the quantity supplied exceeds the quantity demanded - some suppliers will not sell their goods - these suppliers have an incentive to cut their price and undercut the other suppliers - prices will not be stable if a surplus exists - not an equilibrium

price ceiling

- the maximum legal price at which a good can be sold - examples include ticket resale laws, housing in some cities, US gasoline prices in the 1970s - Lots of demand, not much supplied - want it, willing to pay the ceiling price for it

market failure

- when the forces of supply and demand lead to an inefficient outcome

Mary loves avocados and must consume avocados every week, regardless of the price. Which of the following must be true?

Mary has an inelastic demand for avocados.

In what ways does seeking a marriage partner resemble a market?

- There is a demand side and a supply side: prospective partners both demand and supply time, effort, certain capabilities, and emotional commitment. - Marriage is usually solidified with a legal contract. - There is a "price," namely, the commitment one makes to love, support, and spend time with the prospective partner.

shortage

- the market condition in which the quantity demanded exceeds the quantity supplied - some buyers will be unable to buy the good - they will have an incentive to offer more money for the good - prices will not be stable if a shortage exists - not an equilibrium

determinants of demand

- a change in price is movement along the demand curve - a change in "something else" is a shift of the demand curve

arguement for economic efficiency

- bigger pie to cut up - the winners would compensate the losers and everyone would be better off

tax evasion

- buyers might find it easier to evade taxes than sellers or vise verse - different possibilities for tax evasion by buyers verus sellers

five factors that shift supply curves

- cost of inputs - productivity and technology - prices of other outputs - expectations - number of sellers

demand for luxury items tends to be elastic

- designer clothes - expensive dinners - netflix

acting as a seller

- dodger starts a dog walking business - angie sells her used guitar on craigslist - john list his house for sale - vanessa is hired as a pilot for american airlines - jessica throws a birthday party for her sister

economic surplus

- economist use economic surplus as one way to compare policies - economic surplus is equal to total benefits minus total costs - count all benefits and costs, no matter who they accure to

minimum wage

- empirical evidence is ambigous or predicts small effects - much less consensus among economists than there is with rent control - maybe demand for labor is inelastic - some results may not show up in employment statisitics

acting not as a seller

- melanie sends in her application to ASU - Brendon asks his friends to help him move

elastic

- movie tickets - pizza

effects of shortages

- queuing (waiting in line): replaces a financial cost w a time cost - secondary market - bypass restrictions by bundling

negative effects of rent control

- reduction in supply - less likely to move - deterioration and lack of investment

determinants of elasticity

- substitutes: the more substitutes a good has, the more elastic it will be. specifically as prices increases, people will consume less of the good and more of its substitutes - time: the more time a consumer has to plan her purchase, the more elastic the good will be - consumer search: goods where consumers are willing to search for a lowcost alternative are more elastic

consumer surplus

- the difference between how much you are willing to pay for something and how much you actually pay for something - marginal benefit minus price

producer surplus

- the difference between the price producers reieve for a good or serice and the minimum price they are willing to accept - the minimum price they are willing to accept is the marginal cost of producing that good - the area between the supply curve and the price

the invisible hand

- the market achieves an efficient outcome even though no market participant is trying to achieve that goal - each person pursues their independent self interest - this guides the market towards an efficient outcome

Suppose that light bulbs have unit-elastic demand. Initially, price is $2 and quantity demanded is 30. Price decreases to $1. What is the new quantity demanded?

45

gasoline and bicycles are substitutes. bicycles and bike helmets are complements. the price of gasoline increases, does this affect the price and quantity of bicycle helmets

?

When a good is taxed, consumers see this as a price increase. Because demand slopes down, consumers respond to this tax increase by reducing their consumption. Note that this reduced consumption limits the effectiveness of the tax, because when the good is not consumed, no taxes are collected on it. For example, a very high tax on Coca-Cola would actually raise very little revenue for the government, because people would just switch to Pepsi to avoid paying the high price for taxed Coca-Cola. All else equal, which would raise more money:

A sales tax on a good with inelastic demand

Jan has determined that her "Serenity by Jan" candles have an elasticity of demand of -0.35. Which of the following is true?

A) Increasing price would increase revenues

Which of the following is likely to make demand for a normal good more inelastic?

An increase in income

Supply: Thinking Like a Seller — End of Chapter Problem Maria is an industrial engineer at a Nissan plant. Indicate how Maria should change her production plans in response to each change in market conditions. a. An engine supplier decreases the price it charges Nissan by 50%.

As a result, Nissan's cost of production will decrease , and Nissan should increase its supply.

Supply: Thinking Like a Seller — End of Chapter Problem Maria is an industrial engineer at a Nissan plant. Indicate how Maria should change her production plans in response to each change in market conditions. b. Workers unionize and demand a 12% across-the-board raise.

As a result, the cost of production will increase , and Nissan should decrease its supply.

If the price elasticity of demand for a product is equal to -0.5, then a 10 percent decrease in price will increase quantity demanded by

C) 5%.

A bakery hires a baker who can make 15 cakes per day. The bakery then decides to hire a second baker who will use the kitchen at the same time as the first baker. The bakery finds that the second baker can produce only an additional nine cakes per day. What concept does this scenario illustrate?

Diminishing marginal product

Edith is the owner and manager of a small coffee shop that employs three workers who use the shop's one coffee machine to make and serve coffee to paying customers. Business has begun to pick up; lines are getting longer every day in her shop. On a busy morning, she sees her baristas scrambling to take orders, get cups, fill coffee from the coffee machine, add cream and sugar, and serve customers in a timely manner. She figures if she hires three more baristas she'll be able to sell twice as much coffee. a. Do you think she's likely to be right? Why or why not?

No, more workers will just create more chaos behind the counter as the additional workers still have to wait to fill from the coffee machine.

four core pricniples of good decision making

cost benefit principle opportunity cost principle marginal principle interdependence principle

An article in Forbes noted that the Intercounty Connector toll road that connects two counties in Maryland was not generating as much toll revenue as predicted. At that time, the toll rate was $8 for a passenger car making a round trip from end to end on the tollway during rush hour. What additional information would you need to know in order to determine if the toll should be increased or decreased?

The price elasticity of demand

normal goods

a good for which there is a positive relationship between income and the demand for the good

For most consumers, dental services are _____________ good.

a normal

the msu basketball team has an excellent start to the season, leading to more fans wanting to attend basketball games. Regarding demand for basketball tickets, this is

a rightward shift of the demand curve

when four roommates agree to specialize in the chores they are most efficient at, this can lead to

a situation in which less time is spent on chores by every roommate

when four roomates agree to specialize in the chores they are most efficent at, this can lead to

a situation in which less, time is spent on chore by every roommate

ford has a factory that can produce F-350s(large commercial trucks) and ford explorers (suvs) there are a lot of companies that make SUVs and very few that make large commercial trucks. all else equal, which of the following would result in a tax that is mostly paid by Ford and not by consumers

a tax on F-350s

Almonds are a crop that grows on trees. Farmers do not need to replant trees every year to produce a crop of almonds. It takes at least five years after planting for trees to bear fruit. Several factors such as weather, disease, and long term projections about price impact the supply of almonds available. Barley is a grass that must be planted each year to produce a crop. The growing season is short, about three to four months. Several factors influence farmers' decisions to plant barley each year, including price, weather, and disease.

almonds have a more inelastic supply in the short run because little can be done to change production in the short run.

Graphically, shortages will always occur:

at prices below the equilibrium price.

Joshua Murphy is planning on studying late into the night for his economics exam. How many cups of coffee should he buy tonight? Joshua should keep buying coffee throughout the evening until the marginal:

benefit of purchasing one more coffee equals the marginal cost.

kate is binge watching her favorite show on netflix. she is attempting to decide how many more episodes to watch. kate should continue watching episodes as long as the marginal

benefit of watching another episode exceeds the marginal cost

Kathleen Alvarado is binge-watching her favorite show on Netflix. She is attempting to decide how many more episodes to watch. Kathleen should continue watching episodes as long as the marginal

benefit of watching another episode exceeds the marginal cost.

diane is a student studying economics and currently working on her class schedule for her next semester. she considers the fact that more and more data is avalianle everyday and that data interpretation skills are learned by taking additional economics courses in her course selection. this acknowledgment highlights the dependencies that exist:

between markets

Diane Jacobs is a student studying economics and currently working on her class schedule for next semester. She considers the fact that more and more data is available every day and that data interpretation skills are learned by taking additional economics courses in her course selection. This acknowledgment highlights the dependencies that exist:

between markets.

the key to using the cost benefit principle is to think about ______ aspects of decisions

both financial and nonfinancial

the key to using the cost benefit principle is to think about ________ aspects of a decision

both financial and nonfinancial

in a voluntary economic transaction between a buyer and a seller, ________can earn economic surplius from the transaction.

both the buyer and the seller

(Maximum willingness to pay - market price)(quantity of units bought)

consumer surplus calculation

Ilsia is driving home from work. She needs to buy gas and notices an Exxon-Mobil station on one side of the street and a Shell station on the other side of the street. Although run by different companies, the two stations sell gasoline at the same price. a. The most likely reason that the price is the same is that

consumers view gasoline from different gas stations as perfect substitutes

the cost benefit principle states that ______- are the incentives that shape decisions

cost and benefits

the cost benefit principle states that _______ are the incentives that shape decisions

cost and benefits

If the average price of gasoline is $3.25 per gallon in your town, and gasoline is perfectly competitive market, explain what might happen and why in your town if the price of gas dropped to $0.50 overnight. What if it jumped up to $10 per gallon overnight? b. If the price of gasoline were to suddenly jump to $10 per gallon, the quantity of gasoline bought and sold would

decrease

Consider your current uses of tap water. Think about some of the ways that you use water that are beyond what is necessary to sustain life. a. If the price of tap water triples, what are some likely changes that you will make to your consumption of tap water?

decrease the length of your showers turn water off while brushing your teeth In general, the consumption of tap water does obey the law of demand.

The batteries in Samsung smartphones begin to spontaneously combust. what happens to the market for samsung phones

demand curve shifts left

Apple increases the price of the newest iPhone by 10%. what happens to the market for samsung phones

demand curve shifts right

The cross-price elasticity of demand measures how responsive the:

demand for one good is to a change in the price of another good.

When there is a shortage of highly skilled workers in a particular region, the:

demand for skills education increases.

Edith is the owner and manager of a small coffee shop that employs three workers who use the shop's one coffee machine to make and serve coffee to paying customers. Business has begun to pick up; lines are getting longer every day in her shop. On a busy morning, she sees her baristas scrambling to take orders, get cups, fill coffee from the coffee machine, add cream and sugar, and serve customers in a timely manner. She figures if she hires three more baristas she'll be able to sell twice as much coffee. b. Adding more and more workers does not constantly increase production because of

diminishing marginal product of labor.

You just took an Uber from home to campus for the first time and were willing to pay $13 for the trip. It was so much easier than driving yourself that you are willing to pay $21 for the same trip tomorrow. Determine if you have violated the law of demand based on your choices, and why or why not that is the case.

do not violate the law of demand because your preference for the product changed after you experienced the good.

Consumers now have easy access to internet shopping because of smartphones. Technology has caused demand to become more _______________ for goods you can purchase at stores like Barnes and Noble and Best Buy. This is because the cost of getting price information from other retailers is now ___________ . To stay competitive, Best Buy uses a strategy called ___________ where they offer to sell items at competitor prices.

elastic, lower, price matching

According to the marginal principle, keep increasing quantity until the marginal benefit of an additional item is _____ the marginal cost of an additional item.

equal to

according to the marginal principle, keep increasing quantity until the marginal benefit of an additional item is ________ the marginal cost of an additional item

equal to

You are considering whether you should go out to dinner at a restaurant with your friend. The meal is expected to cost you $50, you typically leave a 20% tip, and a round-trip Uber ride will cost you $15. You value the restaurant meal at $30 and the time spent with your friend at $50. You should ____ to dinner with your friend because the benefit of doing so is _____ than the cost.

go; greater

you are considering whether you should go out to dinner at a restaurant with you friend. the meal is expected to cost you $50, you typically leave a 20% tip, and a round trip uber ride will cost you 15$. you value the restaurant meal at $30 and the time spent with your friend at $50. you should _______ to dinner with your friend because the the benefit of doing so is ____________ than the cost

go; greater

substitutes

goods that are viewed as replacements for one another

The Rational Rule for Sellers says that a seller should sell one more unit of an item if the price is:

greater than or equal to the marginal cost.

When there is a shortage of highly skilled workers in a particular region:

highly skilled workers can negotiate higher salaries.

if cross price elasticity is positive, the goods are substitutes

if cross price elasticity is negative, the goods are complements

jonathan is deciding whether to study for his economics exam at a cafe down the street or go to a concert a few cities o er. the time spent commuting to the concert is ______ in his oppourtunity cost calculation and represents a ________ cost.

included; non financial

If the average price of gasoline is $3.25 per gallon in your town, and gasoline is perfectly competitive market, explain what might happen and why in your town if the price of gas dropped to $0.50 overnight. What if it jumped up to $10 per gallon overnight? a. If the price of gasoline were to suddenly drop overnight to $0.50, the quantity of gasoline bought and sold would

increase

an advertising campaign successfully convinces consumrs that bang energy drink is healthy and delicious. how does this affect supply or demand

increase in quantity demanded

increase in quanitity demanded vs. increase in demand

increase in quantity demanded - movement to down and to the right on the demand curve

If the price elasticity of demand for a product is -2.5, then a price cut from $2.00 to $1.80 will ________ the quantity demanded by about ________.

increase; 25%

other things remaining the same, an increase in the price of beachfront condos

increases the quantity of beachfront condos supplied

When the absolute value of the price elasticity of demand is less than 1, demand is:

inelastic.

When the price of a product is increased 15%, the quantity demanded decreases 10%. We can therefore conclude that the demand for this product is

inelastic.

If demand is _____, a higher price yields _____ total revenue.

inelastic; higher

When you get hired for a well-paying job, you will most likely view older used cars as

inferior goods.

Suppose the percentage change in newspapers demanded for any price change is infinite. The absolute value of the elasticity of demand for newspapers is _____, and demand is _____.

infinity; perfectly elastic

The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _____ principle.

interdependence

the principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _______ principle

interdependence

a. Akari's boss has offered to pay her for up to 5 hours of overtime today. Akari has already been working for 10 hours and is deciding whether to work more hours.If Akari decides to work the extra hours because she does not think any overtime will be offered in the near future, she is applying the

interdependence principle.

b. Niko, a local UPS manager, is trying to decide whether she should pay for additional trucks and drivers. If Niko decides to pay for additional trucks and drivers because she expects the coming season to be extremely busy, she is applying the

interdependence principle.

Deadweight loss

is the difference in economic surplus between the "perfect" outcome and the actual outcome.

how is the economic surplus generated by a decision calculated?

it is the total benefits minus total cost arising from the decision

Ilsia is driving home from work. She needs to buy gas and notices an Exxon-Mobil station on one side of the street and a Shell station on the other side of the street. Although run by different companies, the two stations sell gasoline at the same price. b. If one station increases its price,

it will lose customers to the cheaper station across the street.

A rational buyer will:

keep buying a product until marginal benefit equals price.

Europe has eight different companies selling devices similar to the EpiPen. If these devices were available for use in the U.S. market, you would expect price elasticity of demand to become ___________ This would also lead Mylan to charge a _______ price.

less inelastic, lower

nerida could either commute to work via uber or purchase a new car. the average cost of her one way uber trip is $15. she works 5 days a week for 50 weeks a year. based solely on avoiding the cost of an uber, nerdia should purchase a car only if the ocst of the car is _________ than ______ per week.

less; $150

nerida kyle could either commute to work via uber or purchase a new car. the average cost of her one-way uber trip is $15. Nerida works five days a week for 50 weeks a year. based solely on avoiding the cost of an uber, nerida should purchase a car if the cost of the car is ________ than ______ per week.

less; $150

b. Niko, a local UPS manager, is trying to decide whether she should pay for additional trucks and drivers. When Niko considers whether she should pay for one more truck and driver, she is applying the

marginal principle.

The __________ suggests, decisions about quantities are best made incrementally.

marginal principle

a. Akari's boss has offered to pay her for up to 5 hours of overtime today. Akari has already been working for 10 hours and is deciding whether to work more hours. When Akari considers whether she should work one more hour, she is applying the

marginal principle

the ______ suggests, decisions about quantities are best made incrementally

marginal principle

Suppose the price of gasoline rises. As time passes, people adjust to the higher price, and the demand for gasoline becomes:

more elastic.

if the price of oil is $57 per barrel, ExxonMobil produces 6 million barrels per day. when the price of oil increases, we expect the quantity produced to be

more than 6 million

msu increasses the price for student football tickets, as a result, fewer students attend football games, this is

movement up along the demand curve

A market consists of ten similar suppliers that are making the same supply decisions. To find the market supply of these ten suppliers, you:

multiply the individual supply of one of the suppliers by ten.

If two goods are complements, cross price elasticity will be

negative

The basic formula for the price elasticity of demand is

percentage change in quantity demanded/percentage change in price.

market approach

offer each shelter a virtual budget and have them bid on different items

a. Akari's boss has offered to pay her for up to 5 hours of overtime today. Akari has already been working for 10 hours and is deciding whether to work more hours. If Akari decides to work overtime because her next best alternative is watching TV at home, she is applying the

opportunity cost principle.

b. Niko, a local UPS manager, is trying to decide whether she should pay for additional trucks and drivers. If Niko decides that paying for a new software upgrade is a better alternative than paying for additional trucks and drivers, she is applying the

opportunity cost principle.

Your friend remarks that longer movies are a better deal than shorter movies because the ticket price is the same in both cases. Therefore, the longer movie provides more benefit for the same cost as a shorter movie. Which of the following is the best argument against your friend's claim that longer movies provide more benefit than shorter movies?

opportunity cost principle, the length of the movie does not matter as long as watching a movie is the best way to spend your time compared to other alternatives.

decisions should reflect _________ cost, rather than just the _______- costs.

opportunity; financial

which of the following is true if there is one long line and one short line

people in the long line will move to the short line, eventually an equilibrium is reached

Graphically, the equilibrium quantity can be identified as the:

quantity corresponding to the intersection of the demand and supply curves.

A shortage occurs when:

quantity demanded exceeds quantity supplied.

Suppose that a rise in average income increases the demand for preventative dental visits.a. The increase in income leads to an increase in ______________This is because, as demand increases, the______________________

quantity supplied. equilibrium quantity moves up the supply curve to a higher price and more quantity supplied. supply will stay the same, demand will shift out

If an item is a necessity rather than a luxury, its demand curve will be:

relatively steep.

Taking the absolute value of the income elasticity of demand is incorrect because it would:

remove the ability to tell whether the product is an inferior good or a normal good.

b. As a result of the decline in available flu vaccines, the equilibrium price should____________, and the equilibrium quantity should__________

rise significantly, fall significantly

If the price of a good falls and this causes the quantity demanded of another good to fall, then the items are considered to be __________ and the cross-price elasticity is ________ . If the price of a good falls and this causes the quantity demanded of another good to increase, then the items are considered to be _____________ and the cross-price elasticity is _______________

substitues, positive, complements, negative

You are a pricing manager at a generic pharmaceutical distributor. The CEO of the company calls a meeting of all the managers and states that it is critical to increase revenue soon or you may have to start laying off employees. You know that the price elasticity of demand for your leading generic drug is 1.5 and you sell it for three times what it costs. As the pricing manager, you should

suggest decreasing the price on the leading generic drug to increase revenue.

You have recently been hires by Delta Airlines to work in its strategy division. For each of the following, illustrate how Delta's supply curve for airline flights will be affected by shifting the accompanying graphs. the price of jet fuel falls

supply curve for decrease in price of jet fuel graph shifts right

You have recently been hires by Delta Airlines to work in its strategy division. For each of the following, illustrate how Delta's supply curve for airline flights will be affected by shifting the accompanying graphs. c. Delta signs a new labor contract that increases the wages paid employees.

supply curve shifts left for increase in labor costs

You have recently been hires by Delta Airlines to work in its strategy division. For each of the following, illustrate how Delta's supply curve for airline flights will be affected by shifting the accompanying graphs. b. Innovation of new software allows Delta to more efficiently allocate its aircraft.

supply curve shifts right for new software graph

ALS medical research funds: The ALS ice bucket challenge goes viral, leading to greater awareness of the benefits of and need for ALS research. As a result, the ____________ ALS research increase(s), causing the equilibrium price (or opportunity cost) of such research to ______________ and the equilibrium quantity to _______ .

supply of and demand for, rise, fall, or remain unchanged, rise

Smartphones: Microchips used in smartphones become less costly to produce. As a result, the _________ smartphones increase(s), causing the equilibrium price to _________ and the equilibrium quantity to _____

supply of, fall, rise

Suppose General Electric, one of the largest suppliers of light bulbs, decides to discontinue its production of light bulbs. 1. Which of the following will occur in the market for light bulbs?

supply will decrease

New advances in recycling technology reduce the cost of producing paper made from recycled material. 1. Which of the following will occur in the market for paper made from recycled material?

supply will increase

(Figure: Market for Tropicana Juices) Tropicana produces both orange juice and lemonade. What will happen to the supply of Tropicana orange juice when the price of lemonade rises in the market and the price of orange juice stays the same?

supply would shift inward

2. Will the advancement in recycling technology result in a shortage or surplus of paper made from recycled material at the previous price? Will the price of paper made from recycled material rise or fall?

surplus, fall

Boeing is a producer of wide‑body aircraft The labor used to produce the aircraft is a ___________ cost for Boeing. Labor costs _______ be included in the opportunity cost of producing an additional aircraft.

variable should

An equilibrium in a market occurs:

when the quantity supplied equals the quantity demanded.

economic burden

who bears the burden of the tax

statutory burden

who is responsible for paying the tax to the government