Micro Econ

The midpoint formula for the price elasticity of demand uses the (total, average) of the two quantities as a reference point in calculating the percentage change in quantity and the (total, average) of the two prices as a reference point in calculating the percentage change in price.

average / average

With Apple's introduction of the iPad, many consumers concluded that the iPad had a (lower, higher) marginal-utility-to-price ratio than the ratio for other products. They increased spending on iPads rather than other products as a way to (increase, decrease) total utility. New products succeed by increasing (total, marginal) utility.

higher / increase / total

If the marginal utility of the last dollar spent on one product is greater than the marginal utility of the last dollar spent on another product, the consumer should (increase, decrease) purchases of the first and (increase, decrease) purchases of the second product.

increase / decrease

A fall in the price of a product tends to (increase, decrease) a consumer's real income, and a rise in its price tends to (increase, decrease) real income. This is called the (substitution, income) effect.

increase / decrease / income

If a relatively large change in price results in a relatively small change in quantity demanded, demand is (elastic, inelastic)

inelastic

If a change in price causes no change in quantity demanded, demand is perfectly (elastic, inelastic) and the demand curve is (horizontal, vertical).

inelastic / vertical

In the immediate market period, the price elasticity of supply will be perfectly (elastic, inelastic) and the supply curve will be (horizontal, vertical). Typically, in the short run the price elasticity of supply is (more, less) elastic, but in the long run the price elasticity of supply is (more, less) elastic.

inelastic / vertical / less / more

Assume that the price of a product declines. C) When demand is unit-elastic, the loss of revenue due to the lower price (exceeds, is equal to) the gain in revenue due to the greater quantity demanded.

is equal to

The price elasticity of demand will tend to be greater when the number of substitute goods that are available for the product is (larger, smaller).

larger

When the consumer is maximizing the utility the consumer's income will obtain, the ratio of the marginal utility of the (first, last) unit purchased of a product to its price is (the same, greater than) for all the products bought.

last / the same

Assume that the price of a product declines. B) When demand is elastic, the loss of revenue due to the lower price is (less, greater) than the gain in revenue due to the greater quantity demanded.

less

Noncash gifts are (less, more) preferred than cash gifts because they yield (less, more) total utility to consumers.

less / less

Complete the following summary table. If demand is inelastic: the elasticity coefficient is ___? If price rises, total revenue will ___? If price falls, total revenue will ____?

less than 1 / increase / decrease

The price elasticity of demand will tend to be greater when the time period under consideration for a change in quantity is (shorter, longer).

longer

The price elasticity formula is based on (absolute amounts, percentages) because it avoids the problems caused by the arbitrary choice of units and permits meaningful comparisons of consumer (responsiveness, incomes) to changes in the prices of different products.

percentages / responsiveness

A graph of total utility and marginal utility shows that when total utility is increasing, marginal utility is (positive, negative), and when total utility is at a maximum, marginal utility is at (a maximum, zero, a minimum).

positive / zero

Assume there are only two products, X and Y, that a consumer can purchase with a fixed income. The consumer is maximizing utility algebraically when

price of Y / MU of product Y = price of X / MU of product X

The price elasticity of supply measures the percentage change in (price, quantity supplied) divided by the percentage change in (price, quantity supplied). The most important factor affecting the price elasticity of supply is (revenue, time). It is easier to shift resources to alternative uses when there is (more, less) time.

quantity supplied / price / time / more

The marginal-utility theory of consumer behavior assumes that the consumer is (wealthy, rational)and has certain (preferences, discounts)for various goods. A consumer cannot buy every good and service desired because income is (subsidized, limited)and goods and services are scarce in relation to the demand for them; thus, they have (prices, quantities).

rational / preferences / limited / prices

What are the four most important determinants of the price elasticity of demand?

1) The period of time in which demand is being considered 2) Whether the good is a necessity or luxury 3) The relative importance of the product in the total budget of the buyer 4) The number of good substitute products

In deriving a consumer's demand for a particular product, the two factors (other than the preferences or tastes of the consumer) that are held constant ar

1) the prices of other products 2) the income of the consumer

Utility is (an objective, a subjective) concept and (is, is not) the same thing as usefulness. To quantify utility is (easy, difficult).

a subjective / is not / difficult

The price elasticity of demand will tend to be greater when the price of the product relative to consumers' income is (lower, higher).

higher

The utility-maximizing rule and the demand curve are logically (consistent, inconsistent). Because marginal utility declines, a lower price is needed to get the consumer to buy (less, more)of a particular product.

consistent / more

With health insurance coverage, the price consumers pay for health care services is less than the "true" value or opportunity (benefit, cost). The lower price to consumers encourages them to consume (more, less) health care services.

cost / more

The measure of the sensitivity of the consumption of one product given a change in the price of another product is the (cross, income) elasticity of demand, while the measure of the responsiveness of consumer purchases to changes in income is the (cross, income) elasticity of demand.

cross / income

The law of diminishing marginal utility states that marginal utility will (increase, decrease) as a consumer increases the quantity consumed of a product. This law explains why the (demand, supply) curve slopes downward.

decrease / demand

When consumer preferences changed from larger computers to iPads, and the prices of iPads (increased, decreased) significantly, this led to (increased, decreased) purchases of iPads.

decreased / increased

There is a total-revenue test for the elasticity of (demand, supply). There is no total- revenue test for the elasticity of (demand, supply) because regardless of the degree of elasticity, price and total revenue are (directly, indirectly) related.

demand / supply / directly

If a relatively small change in price results in a relatively large change in quantity demanded, demand is (elastic, inelastic)

elastic

The demand for most farm products is highly (elastic, inelastic), which means that large crop yields will most likely (increase, decrease) the total revenue of farmers. Governments often tax products such as liquor, gasoline, and cigarettes because the price elasticity of the demand is (elastic, inelastic). A higher tax on such products will (increase, decrease) tax revenue.

elastic / decrease / inelastic / increase

If an extremely small change in price causes an extremely large change in quantity demanded, demand is perfectly (elastic, inelastic) and the demand curve is (horizontal, vertical).

elastic / horizontal

Complete the following summary table. If demand is unit-elastic: the elasticity coefficient is ___? If price rises, total revenue will ___? If price falls, total revenue will ___?

equal to 1 / remain constant / remain constant

Assume that the price of a product declines. A) When demand is inelastic, the loss of revenue due to the lower price is (less, greater) than the gain in revenue due to the greater quantity demanded.

greater

Complete the following summary table. If demand is elastic: the elasticity coefficient is ___? If price rises, total revenue will ___? If price falls, total revenue will ____?

greater than 1 / decrease / increase

The consideration of time has several applications. First, a person is more likely to take a more time-consuming way to travel (car or bus) from one city to another if the value of the person's time is (high, low), but a person is more likely to take a less time-consuming way to travel (airplane) from one city to the other if the value of a person's time is (high, low). Second, the high productivity of labor in the United States compared with less developed nations gives time a (high, low) market value and thus Americans tend to feel (more, less) pressure to make careful use of their time.

low / high / high / more

The price elasticity of demand will tend to be greater when a product is considered to be a (necessity, luxury).

luxury

Water is low in price because its (total, marginal) utility is low, while diamonds are high in price because their (total, marginal) utility is high. Water, however, is more useful than diamonds because the (total, marginal) utility of water is much greater than the (total, marginal) utility of diamonds.

marginal / marginal / total / total

When the price of a product increases, the product becomes relatively (more, less)expensive than it was and the prices of other products become relatively (higher, lower)than they were; the consumer will therefore buy (less, more) of the product in question and (less, more) of the other products. This is called the (substitution, income) effect

more / lower / less / more / substitution

Comparing food consumption at an all-you-can-eat buffet with a pay-per-item cafeteria would show that people eat (less, more) at the buffet because the marginal utility of any extra food is (positive, zero) while its price is (positive, zero).

more / positive / zero

If consumers increase purchases of a product as consumer incomes increase, then a good is classified as (inferior, normal), but if consumers decrease purchases of a product as consumer incomes increase, then a good is classified as (inferior, normal).

normal / inferior

When the cross elasticity of demand is positive, two products are (complements, substitutes), but when the cross elasticity of demand is negative, they are (complements, substitutes).

substitutes / compliments

The theory of consumer behavior has been generalized to account for (supply, time). This is a valuable economic resource because it is (limited, unlimited). Its value is (greater than, equal to) the income that can be earned with it. The full price to the consumer of any product is, therefore, the market (time, price) plus the value of the consumption (time, price).

time / limited / equal to / price / time

The overall satisfaction a consumer gets from consuming a good or service is (marginal, total) utility, but the extra or additional satisfaction that a consumer gets from a good or service is (marginal, total) utility.

total / marginal

Two characteristics of the price elasticity of a linear demand curve are that elasticity (is constant, varies) over the different price ranges and that the slope is (a sound, an unsound) basis for judging its elasticity.

varies / an unsound

When a percentage change in the price of one product has no effect on another product, then the cross elasticity of demand will be (zero, one) and the two products would be classified as being (dependent, independent).

zero / independent