Economics Unit 3 Test Study Guide

Ford Motor Company announces that it will offer $3,000 rebates on new Mustangs starting next month. As a result of this information, today's demand curve for Mustangs:

Demand would decrease, or shift to the left (until next month)

Inelastic

Describes demand that is not very sensitive to a change in price

For a good that is a luxury, demand is:

Elastic

If a person only occasionally buys a cup of coffee, his demand for coffee is probably:

Elastic

Bottled Water:

Elastic because there is tap

DVD Players:

Elastic, there are other ways to watch movies / it is a luxury

Which of the following events could shift both the demand curve and the supply curve for a good?

Everyone revises up their expectations of next months price

Other things equal, the demand for a good tends to be more inelastic, the:

Fewer available substitutes there are

A likely example of complementary goods for most people would be:

Hamburgers and French fries

If Francis experiences a decrease in his income, we would expect that, as a result, Francis's demand for:

His demand for normal goods will decrease

The price elasticity of demand measures how much:

How much Quantity Demand responds to a change in the price

In general, elasticity is a measure of:

How much buyers and sellers respond to changes in market conditions

Demand is said to be elastic if:

If buyers respond substantially to the change in the price

Two goods are substitutes if a decrease in the price of one good:

If it decreases the demand for another good

Which of the following events could cause an increase in the supply of ceiling fans?

If there are a larger number of suppliers of ceiling fans

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is:

Inelastic

Gasoline:

Inelastic IN THE SHORT RUN. Elastic IN THE LONG RUN

Currently you purchase 6 packages of hot dogs a month. You will graduate from college in December and you will start a new job in January. You have no plans to purchase hot dogs in January. For you, hot dogs are:

Inferior Goods

The negative relationship between price and quantity demanded:

It's referred to as the law of demand, it has a downward sloping curve, it applied to most goods

The law of demand says that:

Price goes up, quantity demand goes down; Price goes down, quantity demand goes up

Toshiba just introduced a 32" plasma screen TV for $800. Sony offers the same size TV for $900. What will happen to the demand of Sony's TVs based on Toshiba's new price. Explain:

QD for Sony's TV will fall because of Toshiba's cheaper price

For most people, you cannot eat a hamburger without french fries. If the price of hamburgers is decreasing, what happens to the quantity demanded of hamburgers? What happens to the demand of french fries? Explain:

QD for hamburgers will increase because of the cheaper price, french fries would also increase because they are COMPLIMENTARY GOODS

Quantity demanded falls as the price rises and rises as the price falls, so we say that:

QD is negatively related to the price

How does the implantation of a minimum wage of $8.00 rather than $6.00 affect the supply of workers available for work? Explain:

QS of workers increase because of the higher wage

Suppose the American Medical Association announces that men who shave their heads are less likely to die of heart failure. We could expect the current demand for:

Razors

10. The market demand curve:

Represents the sum of the quantities demanded (QD) by all the buyers at each price of the good

Suppose you make jewelry. If the price of gold falls, we would expect you to:

That you'd be willing to produce more jewelry than before at each possible price

Elasticity

The ability of a material to bounce back after being disturbed

Which of the following is not a determinant of the price elasticity of demand for a good? (these will be the ones that are right)

Time Horizon, Definition of the market, the availability of close substitutes.

You love peanut butter. You hear on the news that 50 percent of the peanut crop in the South has been wiped out by drought, and that this will cause the price of peanuts to double by the end of the year. As a result:

Your demand for peanut butter will increase TODAY

Total Revenue

the total amount of money a firm receives by selling goods or services

List the 4 Determinants of Price Elasticity of Demand:

• Time Horizon • Necessities v Luxuries • Availability of close substitutes • Definition of the market

Is the price of gasoline elastic or inelastic in the short run? What about in the long run, explain your answer.

in the long run, people will have electronic cars etc.

The term price takers refer to buyers and sellers in

Competitive market

According to the law of supply:

- As price goes up, QS goes up - As price goes down, QS goes down

Which of the following would most likely serve as an example of a monopoly?

A local cable television company

Which of the following events could shift the demand curve for gasoline to the left?

A public service announcement run on TV encouraging people to walk or ride their bikes

If a study by medical researchers found that brown sugar caused weight loss while white sugar caused weight gain we likely would see:

Brown sugar demand would increase, white sugar demand would decrease

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because:

Buyers tend to be more sensitive to a change in price when given more time to react.

Income Elasticity of Demand

a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income

Price Elasticity of Demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

Price Elasticity of Supply

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

Each of the following is a determinant of demand except: (the ones below we need to know)

a. Taste b. Expectations c. Prices of related goods

Elastic

describes demand that is very sensitive to a change in price