MICRO CH 5 QUIZ 3

The price of a pair of shoes is $30, not including 10% tax. A consumer pays $31.50 for the shoes after the tax is applied. On whom does the tax burden rest?

The tax burden is shared. If prices adjust by a fraction of the tax, the tax burden is shared. In this case, the shoes adjust by $1.50, which is a fraction of the $3 tax.

If the price of strawberries raises by 5% and the quantity demanded decreases by 5%, then which of the following describes the price elasticity of demand for strawberries?

Strawberries are unitary elastic

A certain product has a price elasticity of supply of 3.0 and demand has a price elasticity of 0.1. If a tax were placed on the product, what is most likely to happen? Please select two correct answers.

Sellers will bear significantly less of the tax burden when compared with consumers. Consumers will bear a disproportionately higher amount of the tax burden when compared with producers.

As the average hourly wage increases from $20 per hour to $21 per hour, the quantity demanded of smartphones increases from 4,900 to 5,250. What is the income elasticity of demand for smartphones?

1.41

True or false? If demand is more inelastic than supply, then sellers will bear more of a tax burden.

False If demand is more inelastic than supply, consumers bear most of the tax burden, and if supply is more inelastic than demand, sellers bear most of the tax burden.

Consider the budget constraint below. If income remains the same, but the prices of both cups of coffee and bottles of water decrease, how will this influence the budget constraint?

The budget constraint shifts to the right.

Given the table below, what is the marginal utility (x) associated with the 5th candy bar consumed?

To find the marginal utility associated with the 5th candy bar, calculate the change in total utility from the 4th to the 5th candy bar. That is, 165−160=5.

The percentage change in the quantity of labor supply divided by the percentage change in wage is the definition of __________.

Wage elasticity of labor supply The wage elasticity of labor supply is the percentage change in hours worked divided by the percentage change in wages.

A price elasticity of demand greater than 1 is called __________ and a price elasticity of demand less than 1 is called ___________.

elastic; inelastic

Behavioral economists seek to enrich our understanding of decision-making by integrating _____________________ into economics.

the insights of psychology

As the average hourly wage increases from $18 per hour to $20 per hour, the quantity of frozen dinners demanded decreases from 3,550 to 3,350. What is the income elasticity of demand for frozen dinners?

-0.55

The quantity demanded of instant noodles decreases from 1,000 to 700 as income increases from $10 per hour to $14 per hour. What is the income elasticity of demand for instant noodles?

-1.06

The quantity demanded of oatmeal increased from 1,350 to 1,700 when the price of grits increased from $2.05 to $2.65. What is the estimated cross-price elasticity of demand for oatmeal? Round your answer to the nearest hundredth.

.90

The table below shows the percentage changes in quantity and the percentage changes in price between pairs of points along a supply curve. Price increases from Point A to Point E and the points are consecutive. Which of the following statements best describes the elasticity of this good with respect to its supply curve?

Price elasticity of supply decreases as price increases. Using this formula, price elasticity of supply between Points A and B is 1.33, between Points B and C is 1, between Points C and D is approximately 0.875, and between Points D and E is 0.80. Therefore, we can see that price elasticity of supply decreases as price increases.

Billy spends his budget on going to the movies and eating out on Friday nights. Of the two, going to the movies has been considered a normal good while eating out an inferior good. What happens when his income increases?

his budget constraint shifts out and he will chose to maximize his utility such that he would optimize going to the movies.

If Bob considers overnight stays an inferior good and concert tickets a normal good, which of the following could happen when his income increases?

his budget constraint shifts out and he will maximize his utility at point P. Because Bob considers overnight stays an inferior good, if his income increases, he will want to purchase fewer overnight stays. If concert tickets are a normal good, he will want to purchase more concert tickets. These purchasing decisions can only be seen at point P after his income increases.

Suppose you are taking a luxury tour of a city in a limousine. With just a few passengers, the tour is pleasant and everyone has plenty of space to stretch and move around to see the sights. As more people get in the limo, it may start to become crowded. Using the chart below, calculate the marginal utility (x) for the first person who enters a limousine.

Going from zero people in the limousine to 1 person increases the total utility from 0 to 100. Thus, the marginal utility is the difference in total utility, or 100−0=100.

As the average hourly wage increases from $12 per hour to $16 per hour, the quantity of filet mignon demanded increases from 1,200 to 1,500. What is the income elasticity of demand for filet mignon?

0.78

The table below shows the percentage changes in quantity and the percentage changes in price between pairs of points along a supply curve. Price increases from Point A to Point E and the points are consecutive.

Supply is elastic when elasticity is greater than 1, or percentage change in quantity is greater than percentage change in price. From Point A to Point B, price elasticity of supply is 10/8= 1.25.

Your buddy Joseph wants your advice. He presents you with his utility schedule above and want to know how many units of Product B he should purchase to maximize his utility. He tells you the price of Product A is $4 and the price of Product B is $5. Joseph informs you he only wants to spend a total $27 on both products.How many units of Product B do you tell Joseph to purchase?

Along the budget constraint, the total price of the two goods remains the same. A quantity of 3 units of Product A would cost $12, and 3 units of Product B would cost $15, meeting Joseph's budgeted goal of $27. This means that these quantities at these prices would remain on the budget constraint.

Consider a market where demand is relatively more inelastic than supply. If the price of a major input increases, how will this increase in input costs be split between producers and consumers?

Consumers will face a greater portion of the burden of the cost increase than producers.

The price elasticity of the supply curve for Good A can be described as constant unitary elastic.

False Constant unitary elasticity, in either a supply or demand curve, occurs when a price change of one percent results in a quantity change of one percent. That is, when percentage change in quantity is equal to percentage change in price. This is clearly not the case for the curve above. On the supply curve above, as price increases, elasticity decreases.

What happens when two goods are complements?

The cross-price elasticity of demand for each good with respect to the other is negative. When two goods are complements, an increase in the price of one leads to a decrease in the quantity demanded of the other. Cross-price elasticity of demand is the percentage change in the quantity of good A that is demanded as a result of a percentage change in the price of good B. Therefore, when two goods are complements, the cross-price elasticity of demand for each good with respect to the other is negative.

When the price of butter decreases from 4.05 to 3.75, which of the following is true regarding the cross-price elasticity of demand for margarine?

The cross-price elasticity of demand for margarine will be positive.

Suppose that when income falls by 20%, the quantity of bologna demanded at the current price increases by 10%. Calculate the income elasticity of demand for bologna.

The income elasticity of demand for bologna is 10% / 20%=−0.5.

___________ occurs when the price of a good changes and consumers have an incentive to consume less of the good with a higher price and more of the good with a lower price.

The substitution effect

If the price for a cup of coffee increases, then what happens to the budget constraint? Assume the price of bottle water and income remain unchanged.

The vertical endpoint will stay the same and the horizontal endpoint will shift in. The price of coffee increases, that means with a fixed budget we can buy less of it. This is shown on the graph by shifting the endpoint on the horizontal axis in and keeping the vertical axis the same since the price of water has not changed.

Behavioral economists seek to explain irrational behavior by examining how different dollar amounts have different meanings to individuals, depending on the circumstances.

True Behavioral economics seeks to enrich our understanding of decision-making by integrating the insights of psychology into economics. It does this by investigating how given dollar amounts can mean different things to individuals depending on the situation. This can lead to decisions that appear outwardly inconsistent, or irrational, to the outside observer.

True or false?The cross-price elasticity of demand between butter and margarine is positive.

True Butter and margarine are substitutes because they can be used for the same purpose. When two goods are substitutes, the cross-price elasticity of demand is positive. That is, a higher price for one the goods will lead to a greater quantity consumed of the other.

the income elasticity of demand for peanut butter is 0.1. From this, we know that peanut butter is a(n) __________ because _______________.

normal good; elasticity is positive For most products, most of the time, including peanut butter in this case, the income elasticity of demand is positive. These are called normal goods. For normal goods, a rise in income will cause an increase in the quantity demanded.

Given the table below, what is the marginal utility (x) associated with the 4th dog owned?

To calculate the marginal utility associated with the 4th dog, calculate the change in total utility from the 3rd to the 4th dog. That is, 500−450=50.

It is easy to confuse the elasticity of a demand curve with its slope. Which two of the following statements about elasticity and slope are true for a linear demand curve?

Both elasticity and slope are given as ratios. The slope is constant and does not change, but the elasticity will change along the curve.

Jennifer is trying to decide what combination of music albums and DVDs to buy. She has $45 to spend. DVDs cost $15. Albums cost $7.50. What consumption bundle does Jennifer most prefer?

D

If Tony considers salad to be an inferior good, when his income increases, he will move from point C to point ______ to maximize his utility.

D If salad is an inferior good, then when Tony's income increases, he will buy less salad and more pizza. This is seen on the new budget constraint at point D.

Suppose that when income rises by 12% and the price of pizzas remains constant, the quantity of pizzas demanded increases by 5%. Calculate the income elasticity of demand for pizza. Round your answer

.42 5/12 = .42

Suppose that when the price of hamburgers rises by 7%, the quantity of ketchup demanded at the current price of ketchup falls by 6%. When income rises by 12%, the quantity of ketchup demanded at the current price increases by 5%. Calculate the income elasticity of demand for ketchup.

0.42 5 / 12 = 0.42

The table shows the price and quantity demanded for exercise balls. Using the Midpoint Method, what is the price elasticity of demand between points D and E?

1.48 https://www.vcalc.com/wiki/cataustria/Midpoint+Method+for+Price+Elasticity+of+Demand

As the average hourly wage increases from $15 per hour to $16 per hour, the quantity demanded of snow blowers increases from 4,000 to 4,450. What is the income elasticity of demand for snow blowers?

1.65

Assume you can only consume two goods: Product A and Product B. Your goal is to maximize your utility subject to a budget constraint. If the prices of Product A and Product B are $1 and $3 respectively and your budget constraint is $25 for both goods, how many units of Product B will you consume to maximize your utility?

6 To maximize utility, consumption of goods with the highest marginal utility per dollar should be prioritized until the entire budget is spent. Let A1 represent the first unit of Product A and let B3 represent the third unit of Product B. Consumption should be prioritized in the following order: A1, A2, A3, A4 and B1 (tied), A5, A6, B2, B3, B4, B5, A7 and B6 (tied). At this point, the budget limit of $25 has been reached (since 7×$1+6×$3=$25). Therefore, the optimal consumption choice is 7 units of Product A and 6 units of Product B.

When we study the price elasticity of demand of a good or service, it is important to take into account which of the following determinants?

All of the above The study of price elasticity of demand for a given product or service should include analysis of the availability of substitutes, the distinction between luxuries and necessities.

Please refer to the table above. The price of Product A is $10 and the price of Product B is $5. Assume there is a budget constraint of $30. How many units of Product B are in the utility optimizing consumption choice?

Consumption should be prioritized in the following order: B1, A1, A2 and B2 (tied). At this point, the budget limit of $30 has been reached (since 2×$10+2×$5=$30). Therefore, the optimal consumption choice is 2 units of Product A and 2 units of Product B.

You are deciding how much of Product A and Product B you should consume. To help yourself, you create a utility schedule like the one shown above. If you know that the equilibrium price of Product A is $2 and the equilibrium price of Product B is $3, in order to maximize your utility, how many of Product B should you buy if you have at most $17 to spend on both goods?

To maximize utility, consumption of goods with highest marginal utility per dollar should be prioritized until the entire budget is spent. Let A1 represent the first unit of Product A and let B3 represent the third unit of Product B. Consumption should be prioritized in the following order: B1, A1, A2, A3, B2, A4 and B3 (tied). At this point, the budget limit of $17 has been reached (since 4×$2+3×$3=$17). Therefore, the optimal consumption choice is 4 units of Product A and 3 units of Product B.

Elasticity of labor supply measures ____________.

he change in hours worked as a response to changes in wage. The wage elasticity of labor supply is the percentage change in hours worked divided by the percentage change in wages. This measures the responsiveness of labor supply to changes in wages.

The graph below represents the demand for Good A. The numbers on the chart show the percent changes in price and quantity moving along the supply curve. The numbers below the solid horizontal lines indicate the percent change in quantity, while the numbers to the left of the dotted vertical lines indicate the percent change in price. Horizontal = quantity, vertical = price.

elastic From Point A to Point B, price elasticity of demand (in absolute value) is 35/25=1.4. When elasticity is greater than 1, price elasticity of demand for the good is said to be elastic on that area of the demand curve.

Abby is considering buying lip gloss and nail polish, but she wants to purchase the combination that will give her the most satisfaction (utility) for her money. She has a total amount of $15 to spend. The table below shows the choices that are part of Abby's budget constraint (each choice costs $15). How many lip glosses will give Abby the most satisfaction for her money?

$4\text{ lip glosses}$4 lip glosses​ The utility-maximizing choice between consumption goods occurs at point D where total utility is 145. At this point, 4 lip glosses will be purchased.

The quantity demanded of cereal increased from 1,350 to 1,700 when the price of milk decreased from $2.05 to $1.65. What is the estimated cross-price elasticity of demand for cereal? Include a minus sign if elasticity is a negative number. Round your answer to the nearest hundredth.

-.1.06

Kathryn is shopping and needs to choose a combination of pants and shirts to buy. She has a total of $24 to spend. Each pair of pants costs $8 while each shirt costs $4. To help her, she makes a list of her total utility for different quantities of pants and shirts which is given below. If Kathryn wants to maximize her utility, how many pairs of pants and shirts should she buy?

1 PAIR OF PANTS, AND 4 SHIRTS Most people approach their utility-maximizing combination of choices in a step-by-step way. A consumer will compare the net utility gained or lost from rearranging a consumption bundle by consuming more or one good and less of another. That is, the consumer will compare the total utility of two alternative consumption bundles at a time and select the one with higher total utility. Because consumers are utility maximizers, the consumer will always prefer the consumption bundle with higher utility. Net utility is calculated in the table below for each of the four consumption choices. As you can see, Choice C is the preferred choice, which means that Kathryn will purchase 1 pair of pants and 4 shirts.

The data in the table shows the price and quantity supplied for curtains. Using the Midpoint Method, what is the price elasticity of supply from point C to point D ?

1.03 C: Price $29 quantity 700 D: Price $31 quantity 750

Based on the information about utility in the table below, for what number of dogs owned (x) does the marginal utility first begin to diminish?

2

The table shows the price and quantity demanded for snow shovels. Using the Midpoint Method, what is the price elasticity of demand between points C and D?

3

A customer is considering strawberry jam versus blueberry jam, but she wants to purchase the combination that will give her the most satisfaction for her money. She has a total amount of $20 to spend. The table below shows the choices that are part of this customer's budget constraint (each choice costs $20). How many blueberry jams are in the combination that will give the customer the most satisfaction for her money?

6 BLUEBERRY JAMS The utility-maximizing choice between consumption goods occurs at choice C, which has a total utility of 60. The marginal utility of choice C is 8. Note that at point C, the customer will purchase 6 blueberry jams.

Kathryn needs to decide how many shirts and vests to buy for her daughter. She has estimated her daughter's total utility of different quantities of shirts and vests in the table below. Kathryn is willing to spend no more than $18 on her daughter. If the price of a shirt is $6 and the price of a vest is $3, then what will Kathryn's daughter's total utility be if Kathryn buys 0 shirts and 6 vests for her?

93 UTILS To find the total utility from 0 shirts and 6 vests, add the total utility from 0 shirts to the total utility from 6 vests. Recall that not consuming something (i.e. 0 units consumed) gives no utility. Therefore, the total utility from 0 shirts is 0 utils. From the chart, the total utility from 6 vests is 93 utils. Therefore, Kathryn's daughter's total utility if she receives 0 shirts and 6 vests would be 0+93=93 utils.

Suppose that when income rises by 10%, the demand for bagels increases by 1% at the current price. The income elasticity of demand for bagels is 0.1. Are bagels a normal good or an inferior good?

Bagels are a normal good. A positive income elasticity of demand signals a normal good. For normal goods, like bagels in this example, an increase in income means that one might purchase more of the good.

Your family is deciding how much corn and steak to purchase for a 4th of July picnic. You and your family decide to make a utility schedule which appears above. If the price of corn is $1 and price of a steak is $1, how many steaks should your family purchase for their 4th of July picnic if you have a budget of $6?

Consumption should be prioritized in the following order: B1, B2, A1, B3, B4 and A2 (tied). At this point, the budget limit of $6 has been reached (since 2×$1+4×$1=$6). Therefore, the optimal consumption choice is 2 units of corn and 4 steaks.

If the % change in the quantity demanded of bicycles is greater than the % change in the price of bicycles, then are bicycles elastic, inelastic, or unitary elastic?

Elastic >1, then elasticity is said to be elastic.

True or false? Because firms can easily expand their markets in the long run, elasticity of supply is lower in the long run.

False It is more difficult for firms to respond to the market in the short run, but they can easily expand production in the long run. This means that elasticity is greater in the long run.

True or false? The slope of either the supply or demand curve defines its elasticity.

False The slope is the rate of change in units along the curve, or the rise/run (change in y over the change in x). Elasticity is the percentage change, which is a different calculation from the slope and has a different meaning. The formula for elasticity is the percentage change of quantity demanded over the percentage change of price.

If the decrease in price of good B causes the demand for good A to decrease, then what can we determine about goods A and B?

Good A and good B are substitutes. If two goods are substitutes, then a decrease in the price of one of them will cause a decrease in demand for the other. Since substitute goods are two alternative goods that can be used for the same purpose, they have positive cross-price elasticities of demand.

If the price elasticity of demand is such that a 3% rise in prices leads to a 1% decrease in quantity demanded while the price elasticity of supply is such that a 3% rise in prices leads to a 5% increase in quantity supplied, then which of the following will be a consequence if a key input cost rises?

Increases in production costs can largely be passed along to consumers. When demand is relatively more inelastic than supply, then increases in production costs can be pushed onto consumers rather than being absorbed by producers. This is because consumers are less responsive to changes in price and are therefore more willing to accecpt higher prices.

Suppose you are taking a luxury tour of a city in a limousine. With just a few passengers, the tour is pleasant and everyone has plenty of space to stretch and move around to see the sights. As more people get in the limo, it starts to become crowded. Given the following chart, at what number of people in the limo (x) does your marginal utility first begin to decrease due to the crowded limo?

Marginal utility for each number of people in the limo is calculated in the table below. When the number of people in the limo goes from 6 to 8, marginal utility decreases from 130 to 45. Therefore, a passenger's marginal utility begins to decline with 8 people in the limo.

The equation for a supply curve is Q=5P−20. Would you expect the price elasticity of supply as price rises from $9 to $10 to be the same as the price elasticity of supply as price rises from $19 to $20?

No, since the percentage changes in quantity and price are different across these two cases. Price elasticity of supply would not be the same. Although the curve's slope is constant, elasticity is different from slope. Slope is the rate of change in units along the curve, or the rise/run (change in y over the change in x). Elasticity is measured in terms of percentage changes. In this case, the price elasticity of supply as price rises from $9 to $10 is approximately 1.73, while price elasticity of supply as price rises from $19 to $20 is approximately 1.26.

The graph below represents the demand for Good A. The numbers on the chart show the percent changes in price and quantity moving along the demand curve. The numbers below the solid horizontal lines indicate the percent change in quantity, while the numbers to the left of the dotted vertical lines indicate the percent change in price.

Point C to Point D Point D to Point E

The graph below represents the supply of Good A. The numbers on the chart show the percent changes in price and quantity moving along the supply curve. The numbers below the horizontal lines indicate the percent change in quantity, while the numbers to the right of the vertical lines indicate the percent change in price. Which portion of the supply curve for Good A is inelastic?

Point D to Point E Supply is inelastic when elasticity is less than 1, or percentage change in quantity is less than percentage change in price. From Point D to Point E, price elasticity of supply is 25/35=0.71.

Robert needs his daily fix of coffee in the mid-afternoon and visits different coffee shops that will give him as much utility as possible, given his $20/month food budget. On Monday, the Blue Coffee Shop was selling espresso shots for $3 each and Robert added 3 shots to his cappuccino. By Friday, the Purple Coffee Shop offered espresso shots for $2 each, while all other prices remained the same, so Robert was bold and added 4 espresso shots to his hot beverage. Given this information, plot Robert's demand curve for espresso shots.

Robert's utility maximizing choices of cappuccino espresso shots gives us information about his demand for espresso shots. Prior to the price change, Robert chose to purchase 3 espresso shots at a price of $3 each. When he spotted a cheaper price of $2, but income and other prices remained the same, Robert purchased 4 espresso shots for his cappuccino. To plot the demand curve, we simply plot the ordered pairs: Monday (3,3)and Friday (4,2). Coordinates are plotted as (Quantity, Price).

The below table shows Senem's marginal utility of consuming chocolate bars and milkshakes. We can see from the table that she gets 8 utils from consuming her first bar of chocolate, 2 utils from the second, and −5 utils from the third. She also gets 2 utils from her first milkshake, 1 util from the second, and −6 utils from the third. If each bar of chocolate costs $3 and each milkshake costs $4 and Senem has $6 to spend on chocolate and milkshakes, what is her total utility from the purchase (assuming she wants to maximize total utility)?

Senem will consume two chocolate bars and no milkshakes. Note that the first chocolate bar will yield 8 utils for $3. The second chocolate bar will yield 2 utils for $3. The first milkshake will yield 2 utils for $4. Clearly, she prefers to buy the second chocolate bar instead of the first milkshake - they yield the same utility but the chocolate bar is cheaper. Also, after spending $3 on the first bar of chocolate, she only has $3 left to spend. She cannot afford the $4 milkshake with her remaining budget. Thus, Senem will spend all her budget of $6 on just 2 bars of chocolate. The total utility from the purchase is found by summing the utils over the units that she purchases: Total utility=8+2=10 utils.

The quantity demanded of chicken breasts increased 14% when the price of ground beef increased 12%. Calculate cross-price elasticity of demand for chicken breasts. Round your answer to the nearest hundredth.

The cross-price elasticity of demand is 14% / 12% = 1.17.

The formula for price elasticity of demand is:

The price elasticity of demand measures how responsive quantity demanded is to changes in the price of output. Mathematically, it can be defined as: % change in quantity demanded _________________________________________________ % change in price

Dave is considering buying soda and potato chips, but he wants to purchase the combination that will give him the most satisfaction for his money. He has a total amount of $30 to spend. The table below shows the choices that are part of Dave's budget constraint (each choice costs $30). What is the marginal utility of the choice that will give Dave the most satisfaction for his money?

The utility-maximizing choice between consumption goods occurs at choice D, which has a total utility of 143. The marginal utility of choice D is 11.

Becky needs to decide how many cups of coffee and pieces of cakes she will buy for a meeting with an officemate. She estimates her total utility for different quantities of coffee and cakes below. Cups of coffee are $1 and cakes are $0.50 per piece. Becky has a total of $3 to spend. What is Becky's total utility if she buys 1 cup of coffee and 4 pieces of cake?

To find the total utility from 1 cup of coffee and 4 pieces of cake, add the total utility from1 cup of coffee to the total utility from 4 pieces of cake. From the chart, the total utility from 1 cup of coffee is 31 utils and the total utility from 4 pieces of cake is 66 utils. Therefore, Becky's total utility if she decides to buy 1 cup of coffee and 4 pieces of cake would be 31+66=97 utils.

Please refer to the table above. The price of Product A is $4 and the price of Product B is $5. How many of Product A is in the optimal consumption choice if this consumer is limited to spending $27.

To maximize utility, the consumer should prioritize consuming goods with the highest marginal utility per dollar until the entire budget is spent. Let A1 represent the first unit of Product A and let B3 represent the third unit of Product B. Consumption should be prioritized in the following order: B1, A1, A2, B2, A3 and B3 (tied). At this point, the budget limit of $27 has been reached (since3×$4+3×$5=$27). Therefore, the utility optimizing level of consumption is 3 units of Product A and 3 units of Product B.

True or false? The income effect describes the positive impact on the buying power of income resulting from a decrease in the price of a good.

True The income effect describes how changes in prices change real income which changes consumption. The income effect of higher price means, in effect, the buying power of income has been reduced (even though actual income has not changed), which leads to buying less of the good (when the good is normal). The income effect of lower price means, in effect, the buying power of income has been increased (even though actual income has not changed), which leads to buying more of the good (when the good is normal).

Which example is not an example of loss aversion?

While at the zoo, you lose $5 out of your wallet. Later you find $5 outside the penguin exhibit. Since you found $5 you recognize that you are back to where you started regarding money and have neutral feelings about original loss of $5.

Your mother needs help deciding how many of two kinds of flowers to purchase for a bouquet she is making. She wants to purchase two kinds of flowers: Flower A and Flower B. If the price of Flower A is $2 and the price of Flower B is $3, how many of Flower A should your mother purchase for her bouquet to maximize her utility if she can spend at most $17 on flowers?

Your mother should prioritize her consumption of flowers in the following order: B1, A1, A2, A3, B2, A4 and B3 (tied). At this point, the budget limit of $17 has been reached (since 4×$2+3×$3=$17). Therefore, the optimal consumption choice is 4 units of Flower A and 3 units of Flower B.

Elasticities that are equal to one everywhere along a supply or demand curve are referred to as __________.

constant unitary elasticity Elasticities that are equal to one everywhere along a demand or supply curve is defined as unitary elastic.

If the supply curve is perfectly inelastic, the burden of a tax on suppliers is borne _____________.

entirely by the suppliers Since the supply curve is perfectly inelastic, the supplier will bear all of the tax burden. This is the logical extreme of the general rule that the economic agent that is more inelastic will bear more of the tax burden.

First-class plane tickets (for personal travel) are a product that has a ____________ demand curve.

highly elastic Luxury goods, goods that take a large share of individuals' income, and goods with many substitutes are likely to have perfectly elastic or infinitely elastic demand curves. Examples of such goods are Caribbean cruises, sports vehicles, and first class plane tickets.

Suppose you earn $50 working at the ice cream shop for 5 hours. On your way home, you find $50 next to a garbage can. You are excited for the extra money and decide to spend it on new shoes as soon as you can, whereas you are saving your paychecks to pay off your credit card debt. This scenario of viewing money differently is an example of ________________________.

mental accounting This scenario of viewing money differently is an example of mental accounting, or putting dollars in different mental categories where they take different values. Economists typically consider dollars to be fungible, or having equal value to the individual, regardless of the situation.

The analysis, or manner, of how a tax burden is divided between consumers and producers is called _________.

tax incidence The analysis, or manner, of how a tax burden is divided between consumers and producers is called tax incidence. Tax incidence is the idea that excise taxes, also known as per unit taxes, are borne by both consumers and producers.

The equation for a demand curve is P=2/Q. Would you expect the elasticity of demand as price in dollars falls from 5 to 4 to be the same as the elasticity of demand as the price falls from 9 to 8? Why?

No, because the percent change in price is not equal and the quantity is not the same at each part of the demand curve.

Which portion of the supply curve for Good A is unitary elastic?

Point C to Point D Supply is unitary elastic when elasticity is equal to 1, or percentage change in quantity is equal to percentage change in price. From Point C to Point D, price elasticity of supply is 30/30=1.

The table below shows the percentage changes in quantity and the percentage changes in price between pairs of points along a demand curve. Price increases from Point A to Point E and the points are consecutive.

Price elasticity of demand decreases (in absolute value) along the demand curve as price increases. Using this formula, price elasticity of demand between Points A and B is 1.25, between Points B and C is 1, between Points C and D is approximately 0.882, and between Points D and E is 0.88. Therefore, we can see that price elasticity of demand decreases (in absolute value) as price increases.

The graph below represents the demand for Good X. The numbers on the chart show the percent changes in price and quantity moving along the demand curve. The numbers below the solid horizontal lines indicate the percent change in quantity, while the numbers to the left of the dotted vertical lines indicate the percent change in price.

Price elasticity of demand increases (in absolute value) as price increases. 35/25= 1.4 30/30= 1 32/35= .94 30/37= .81

The graph below represents the supply of Good X. The numbers on the chart show the percentage changes in price and quantity moving along the supply curve. The numbers below the horizontal lines represent the percentage change in quantity, whereas the numbers next to the vertical lines represent the percentage change in price. Which of the following statements best describes the elasticity of Good X along the supply curve?

Price elasticity of supply decreases as price increases. Point A to B: price elasticity of supply is 35/30=1.17. Point B to C: price elasticity of supply is 37/32=1.15. Point C to D: price elasticity of supply is 30/30=1. Point D to E: price elasticity of supply is 25/35=0.71. Also note that from Points A to B and B to C, price elasticity of supply is elastic. From Point C to D, price elasticity of supply is unitary elastic. And from Point D to E, price elasticity of supply is inelastic

A certain product has supply elasticity 0.4 and demand elasticity 2.7. If a tax were placed on the product, what is most likely to happen?

Sellers will bear more of the tax burden. In this case, the elasticity of supply is significantly less than the elasticity of demand. Since demand is more elastic, or less inelastic, than supply, suppliers will absorb most of the tax burden into their production costs since consumers are much more responsive to changes in price than producers.

If the price elasticity of demand is 0.2 and the price elasticity of supply is 0.5, and a 10% excise tax is levied on the good, then which of the following will occur?

The tax burden on consumers will be greater. Since the price elasticity of demand is less than the price elasticity of supply, the consumer will have to bear greater burden of the tax. This is because the market agent that is more inelastic, or less elastic, will bear the greater tax burden.

Which of the following statements best describes the elasticity of this good with respect to its supply curve?

Using this formula, price elasticity of supply between Points A and B is 1.33, between Points B and C is 1, between Points C and D is approximately 0.875, and between Points D and E is 0.80. Therefore, we can see that price elasticity of supply decreases as price increases. 4/3 - 1.3 7/8- .875 8/10- .8

The quantity of sugar demanded increased from 2,350 to 2,550 when the price of flour decreased from $3.85 to $3.15. What is the estimated cross-price elasticity of demand for sugar? Round your answer to the nearest hundredth.

-.41

Suppose you are taking a luxury tour of a city in a limousine. With just a few passengers, the tour is pleasant and everyone has plenty of space to stretch and move around to see the sights. As more people get in the limo, it may start to become crowded. Suppose the 5th and 6th individuals enter the limousine together. What is your marginal utility (x) associated with this increase of passengers?

130 Marginal utility for each number of people in the limo is calculated in the table below. When the 5th and 6th individuals enter the limousine together, total utility continues to increase (the limo is not too crowded) and marginal utility for the additional two people is 355−225=130.

Aaron is trying to decide what combination of baseballs and baseball bats to buy. His total utility for different quantities of baseballs and baseball bats is given in the table below. Baseballs are $10 each and baseball bats are $5 each. Aaron has a total of $30 to spend. What consumption bundle will Aaron purchase?

2 BASEBALL, 2 BATS

The quantity demanded of hot dogs decreased from 2,050 to 1,250 when the price of T-bone steaks decreased from $3.75 to $2.95. What is the estimated cross-price elasticity of demand for hot dogs?

2.03

John is considering buying movie tickets and ice cream, but he wants to purchase the combination that will give him the most satisfaction. The table below shows the trade-off between purchasing movie tickets and ice cream in terms of total utility. What is the marginal utility of the choice that will give John the most satisfaction

3 We can calculate the marginal utility, or change in utility, for each choice. The table below shows the trade-off between purchasing movie tickets and ice cream, and the marginal utility for each choice.The point which gives John the most utility is point D (3 tickets and 1 ice-cream), where utility is at 118. Moving from choice C to choice D, John gains utility of 3 (which is the marginal utility of point D).

Suppose you are deciding what to buy your mother for her birthday. Since you are taking economics, you decide that you want to maximize your mother's total utility. To help with this, you ask your mother to give you her total utility levels for different amounts of flowers and chocolates. Her responses are listed in the table below. If flowers cost $3 each and chocolates cost $1.50 each, and you want to spend no more than $9, then what would your mother's total utility be if you bought her 3 flowers and 0 chocolates?

72 utils​ To find the total utility from 3 flowers and 0 chocolates, add the total utility from 3 flowers to the total utility from 0 chocolates. From the chart, the total utility from 3 flowers is 72 utils. Recall that not consuming something (i.e. 0 units consumed) gives no utility. Therefore, the total utility from 0 chocolates is 0 utils. Therefore, your mother's total utility if you bought her 3 flowers and 0 chocolates would be 72+0=72 utils.

Aaron is trying to decide what combination of bananas and apples to buy. A banana costs half as much as an apple. At his current income level, if Aaron buys no apples, then he can buy at most 6 bananas. However, if he purchases 0 bananas, then he can buy at most 3 apples. What is the total utility of Aaron if he buys 0 apples and 6 bananas?

75 utils. To find the total utility from 0 apples and 6 bananas, add the total utility from 0 apples to the total utility from 6 bananas. Recall that not consuming something (i.e. 0 units consumed) gives no utility. Therefore, the total utility from 0 apples is 0 utils. From the chart, the total utility from 6 bananas is 75 utils. Therefore, Aaron's total utility if he decides to buy 0 apples and 6 bananas would be 0+75=75 utils.

You are deciding how many bottles of soda and pizzas to purchase for an upcoming pizza party. You decide to make a utility schedule and determine the utilities for differing amounts of bottles of soda and pizza as shown above. If the price of a bottle of soda is $2 and the price of a pizza is $3, how many of bottles of soda should you purchase for your pizza party if you have a budget of $28 for both items?

Consumption should be prioritized in the following order: B1, A1, A2, A3, B2, A4 and B3 (tied), B4, B5, A5 and B6 (tied). At this point, the budget limit of $28 has been reached (since 5×$2+6×$3=$28). Therefore, the optimal consumption choice is 5 bottles of soda and 6 pizzas for the party.

__________ measures the responsiveness of one variable to changes in another variable.

Elasticity Elasticity measures the responsiveness of one variable to changes in another variable. Typically, responsiveness is measured as the percent by which one variable changes in response to a percent change in another variable.

True or false? The graph below represents a case of constant unitary elasticity of demand.

False Constant unitary elasticity, in either a supply or demand curve, occurs when a price change of one percent results in a quantity change of one percent. A demand curve with constant unitary elasticity has a steeper slope on the left and a flatter slope on the right—and a curved shape overall. Alternatively, a constant unitary elasticity of demand would imply that the demand curve has an elasticity equal to one everywhere along the demand curve. Clearly, this is not the case with this demand curve.

True or false? Perfect elasticity and zero elasticity refer to the same event, which occurs when quantity demanded or quantity supplied change by an infinite amount in response to any change in price.

False Infinite elasticity, also known as perfect elasticity, refers to the extreme case when the quantity supplied or quantity demanded changes by an infinite amount in response to a small change in price. On the other hand, zero elasticity refers to the case when there is no change in the quantity supplied or quantity demanded with any change in its price.

From point A to Point B on the demand curve for Good A, the price elasticity of demand is:

From Point A to Point B, price elasticity of demand (in absolute value) is 35/25=1.4. When elasticity is greater than 1, price elasticity of demand for the good is said to be elastic on that area of the demand curve.

Harold wants to increase the number of MP3 songs he owns so he can play them on his long commute to work each day. He shops on one of the world's largest online retailers in search for the MP3s that will give him as much utility as possible, given his $50 entertainment budget. Harold starts his collection by purchasing 5 MP3 songs by his favorite artist at $3 each. Fifteen days later, he receives an email stating that MP3s are on sale for repeat customers at $1 each, while all other prices remain the same, so he decides to purchase 10 of them. Given this information, plot Harold's demand curve for MP3songs.

Harold's utility maximizing choices of MP3 music gives us information about his demand for MP3 songs at one of the world's largest online retailers. Prior to the price change, Harold chose to purchase 5 MP3 songs at a price of $3 each. When he received the email about the sale of MP3s at $1 each, but income and other prices remained the same, Harold purchased 10 MP3s to add to his music collection. To plot the demand curve, we simply plot the ordered pairs as: Day 1 (5,3) and Day 15(10,1). The coordinates are plotted as (Quantity, Price).

Which of the following correctly explains the meaning of tax incidence?

How tax burden is divided between consumers and producers based on elasticity. The analysis, or manner, of how a tax burden is divided between consumers and producers is called tax incidence. Tax incidence determines to what degree consumers and producers will bear the costs of taxation policies.

The graph below represents the demand for Good A. The numbers on the chart show the percent changes in price and quantity moving along the demand curve. The numbers below the solid horizontal lines indicate the percent change in quantity, while the numbers to the left of the dotted vertical lines indicate the percent change in price. Which portions of the demand curve for Good A are elastic?

Point A to Point B 35/25 = 1.4 anything above 1 is ELASTIC

The graph below represents the supply of Good X. The numbers on the chart show the percent changes in price and quantity moving along the supply curve. The numbers below the horizontal lines indicate the percent change in quantity, while the numbers to the right of the vertical lines indicate the percent change in price. Which portion(s) of the supply curve for Good X are elastic?

Point A to Point B, 35/30= 1.17 Point B to Point C 37/32= 1.15

Which of the following statements best describes the elasticity of this good with respect to its demand curve?

Price elasticity of demand decreases (in absolute value) along the demand curve as price increases. % change in quantity ____________________________ % change in price.

What is the equation for determining the price elasticity of a demand curve?

Price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price.

The graph below represents the supply of Good X. The numbers on the chart show the percent changes in price and quantity moving along the supply curve. The numbers below the horizontal lines indicate the percent change in quantity, while the numbers to the right of the vertical lines indicate the percent change in price.

Supply is elastic when elasticity is greater than 1, or percentage change in quantity is greater than percentage change in price. From Point A to Point B, price elasticity of supply is 35/30=1.17. And from Point B to Point C, price elasticity of supply is 37/32=1.15. Point A to Point B Point B to Point C

In the short run, a significant increase in the price of oil has little effect on the quantity of oil demanded. However, in the long run, a significant increase in the price of oil will significantly decrease the quantity demanded. Which of the following reasons explains this?

The demand for oil is less elastic in the short run and more elastic in the long run. Demand is often inelastic in the short run, so that shifts in either demand or supply can cause a relatively greater change in prices. However, since supply and demand are more elastic in the long run, the long-run movements in prices are more muted, while quantity adjusts more easily in the long run.

Suppose that the quantity of canned vegetables demanded falls by 10% when income rises by 13%. What is the income elasticity of demand for canned vegetables?

Therefore, the income elasticity of demand for canned vegetables is −10/13≈−0.77.

Suppose that the quantity demanded of motorcycles rises by 13% when income rises by 8%. What is the income elasticity of demand for motorcycles?

Therefore, the income elasticity of demand for motorcycles is 13/8≈1.63.