Econ 302

The indifference curves for two goods that are perfect compliments are

shaped as right angles

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

Along any downward-sloping , straight line demand curve

the price elasticity varies and the slope is constant

A market is in equilibrium when

the price is such that the amount consumers want to buy equals the amount producers want to sell

An engle curve

the quantity of one good consumers are willing to buy as that consumer's income changes, while a demand. curve shows the quantity of one good consumers are willing to buy as the price of the good changes

price consumption curve

the utility maximizing combinations of 2 goods that as the price of one good change, while a demand curve shows the quantity of one good consumers are willing to buy as the price of that good changes

True or False: The marginal rate of substitution is constant, where indifference curves are straight lines

true

Pablo's demand for pizza is inelastic. If the price decreases, we can predict Pablo

will eat more pizza and spend less on pizza than he did before

An inferior good

will experience decreases in demand as consumer's income increase

Food is on horizontal line and clothing on vertical axis. If price of food falls relative to clothing, the budget line will...

become flatter

Explain why two indifference curves cannot intersect?

both transitivity and more is better assumptions are violated

Preferences are ______ which means consumers are able to rank all possible bundles

complete

______ is constant along a price-consumption curve

income

A 6% increase in the price of corn flakes causes a 10% decline in the quantity demanded. What is the elasticity of demand?

1.67 Ed = % change in Q/ % change in Price

Which of the following will cause the demand for kerosene heaters to increase? - An increase in the price of kerosene heater - A decrease in the price of kerosene heaters - A decrease in the price of kerosene - An increase in the price of kerosene

A decrease in the price of kerosene

Which one of the following would NOT occur if the market price was above the market-clearing price? - There would be surplus - Consumers would bid up to the price - Producers would want to produce and sell more than consumers would want to buy - Producers would begin to lower their prices to sell off excess inventory

Consumers would bid up to the price

A product's price and the quantity consumer both increased from one year to the next. Which of the following could have happened? - Demand decreased and supply remained constant - Supply increased and demand remained constant - Demand increased and supply remained constant Supply decreased and demand remained constant

Demand increased and supply remained constant

Regard the statement: The cross-price elasticity will always be positive

False because the cross-price elasticity will be negative for complements

What happens to the MRS as you move along a linear indifference curve

MRS is constant

Can a set of indifference curves be upward sloping?

No, cannot be upward sloping because this violates the assumption that more is better, indicating that one of the goods is bad

If Jane is currently trading 3 pretzels for 1 chili dog she must like chili dogs more.

Not true if Jane's willingness to trade pretzels for 1 chili dogs depends on how many chili dogs and pretzels she has

In tracing out a price-consumption curve for good x, which variables are held constant?

The price of the other goods

What happens to the MRS as you move down a convex indifference curve

The MRS decreases

If you drew a consumer's budget line for food and clothing with food on horizontal and clothing on vertical. If the prices of food and clothing remain the same but the consumer's income increases...

The budget line will shift outward in a parallel fashion

Which of the following would not cause the demand for Coca-Cola to shift? - The price of Pepsi increases - The cost of producing Coca-Cola increases - Anew study finds Cola causes cancer - Coca-cola increases advertising expenditure

The cost of producing Coca-Cola increases

Suppose that the prices of good A and B were to double. If A is plotted on horizontal line..

The slope of the budget line will not change

In an effort to get more Americans to drink milk the government sets a price ceiling on milk that substantially below the equilibrium price. Which can occur?

There will be a shortage of milk

Regard this statement: The elasticity of demand is the same as the slope of the demand curve:

This statement is false because the price of elasticity of demand equals the slope of the demand curve multiplied by the price and divided by the quantity False because the price elasticity of demand changes along the demand curve

An increase in the cost of raw materials will cause

a leftward shift in the supply curve

When the price of good x increases and all goods are normal goods. The income effect leads to consumers buying ...

less of all goods

When the price of good X increases, the substitution effect leads consumers to buy

less of good x and more of substitute goods

A product's price and quantity demanded both increased over one year. What could have happened?

demand increased and supply remained constant

The indifference curves for two goods that are perfect substitutes are

downward-sloping straight lines

A consumer achieves maximum satisfaction when the MRS is equal to the ratio of price because

otherwise the consumer could trade one good for another at market price to obtain a higher utility

Explain the difference between a shift in the supply curve and a movement along the supply curve

price changes result in movements along the supply curve and changes in other supply-determining variables such as production costs shift the supply curve

An indifference curve shows all combinations of 2 goods that

provide the consumer with the same level of satisfaction

The income effect shows the change in consumption for all goods in reaction to a change in _________ holding ______ constant

purchasing power relative prices

An individual demand curve

relates the quantity of a good that a single customers will biyt to its price, while a market demand curve relates the quantity of a good that all consumers in a market will buy to its price

The substitution effect shows the change in consumption for all goods in reaction to a change in their ________ holding ______ constant

relative prices utility

Suppose that unusually cold weather causes the demand curve for ice cream to shift to the left. Why will the price of ice cream fall to a new market-clearing level? The cold weather will.... - cause the supply curve to become fixed, creating surplus until price falls to Qd = Qs - shift the supply curve to the left, creating surplus until price falls to Qd=Qs - shift the demand curve to the left, creating surplus until price falls to Qd=Qs - shift the demand curve to the left, creating surplus until price rises to Qd=Qs - shift the demand curve to the left, creating a shortage until price falls to Qd=Qs

shift the demand curve to the left, creating a surplus until the price falls to Qd=Qs

As supply increases, the supply curve

shift to the right

When supply increases, the supply curve..

shifts to the right

The slope of the indifference curve reveals

the MRS of one good for another good

consumer surplus is

the area under the demand curve and above price

The income effect shows

the change in consumption due to a change in purchasing power, the substitution effect shows the effect of a change in consumption due to a change in prices

An optimal point on an indifference curve and budget line diagram is...

the consumer spends his or her entire budget on the two goods The optimal indifference curve is tangent to the budget line The marginal rate of substitution between the two goods equals the ratio of their prices

The horizontal summation of the demands of each consumer at different price levels is called

the market demand curve