micro exam 2

To calculate the percentage change in price, the midpoint formula divides the change in price by the ___________________________________________ and then multiplies by 100.

average of the initial and the new price.

An example of a good or service that is

Perfectly elastic- rent Elastic- food Unit elastic- phone providers/ electronics Inelastic- gas Perfectly inelastic - medication

To calculate the percentage change in price, the midpoint formula divides the change in price by the (initial price; new price; average of the initial and the new price) and then multiplies by 100.

average of the initial and the new price

An example of an item that has unit(ary) elasticity:

cell phone service providers

Market failure describes a situation in which the market itself _________________ in a way that balances social costs and benefits.

fail to allocate resources efficiently

Market failure describes a situation in which the market itself ___________ in a way that balances social costs and benefits.

fails to allocate resources efficiently

Which of the following describes the price elasticity of supply?

the percentage change in quantity supplied of a good or service divided by the percentage change in price The price elasticity of supply measures how responsive quantity supplied is to changes in the price of an output.

a pollution charge is a form of tax imposed on

the quantity of pollution that a firm emits

A price elasticity of supply greater than 1 is elastic and a price elasticity of supply less than 1 is inelastic.

(just remember this!)

What are the definitions and examples of negative and positive externalities:

negative externalities: A situation where a third party SUFFERS from a market transaction by others -Pollution, smoking, loud parties, litter, barking dogs waste, etc. positive externalities: A situation where a third party BENEFITS from a market transaction by others. -Technology, restoring historic buildings, etc.

Public goods have two defining characteristics, what are they?

non-excludable and non-rivalrous Public goods have two defining characteristics: they are non-excludable and non-rivalrous. The first characteristic, that a public good is non-excludable, means that it is costly or impossible to exclude someone from using the good. The second main characteristic of a public good, that it is non-rivalrous, means that when one person uses the public good, another can also use it.

Property rights are the legal rights of ownership on which others are

not allowed to infringe upon without paying compensation

Comparative advantage is related most closely to which of the following:

opportunity cost

The free-rider problem exists because

people cannot be excluded from consuming public goods even if they don't pay for them.

The price elasticity of supply equation is the percentage change in the (price; quantity supplied) divided by the percentage change in the (price; quantity supplied).

quantity supplied; price

the price elasticity of demand measures the:

responsiveness of quantity demanded to change in price.

Which formula represents price elasticity of demand?

% change in quantity demanded / % change in price. The price elasticity of demand measures how responsive quantity demanded is to changes in the price of output.

The data in the table shows the price and quantity supplied for yoga mats. Using the Midpoint Method, what is the price elasticity of supply from point B to point D ? Note: Remember to take the absolute value of the result and round to the nearest hundredth. If using a calculator, rounding should be done at the end of your calculation.

0.79 - Price elasticity of supply is the percentage change in quantity divided by the percentage change in price. Using the Midpoint Method, the percentage change in quantity from point B to point D is shown.

The data in the table shows the price and quantity demanded for exercise balls. Using the Midpoint Method, what is price elasticity of demand from point B to point E? Note: Remember to take the absolute value of the result and round to the nearest hundredth. Rounding should be done at the end of your calculation.

1.3 Price elasticity of demand is the percentage change in quantity divided by the percentage change in price. Using the Midpoint Method, the percentage change in quantity from point B to point E is shown. Divide the percentage change in quantity by the percentage change in price to find the price elasticity of demand,

What is the difference between comparative advantage and absolute advantage?

Comparative Advantage - when a company/country/person has the ability to produce good at a lower opportunity cost than another producer. Absolute Advantage - when a company/country/person has the ability to produce good using fewer inputs than another producer.

What is the equation for (and know what they mean)

Cross elasticity of demand: % change in QD of good A/% change in the price of good B Income elasticity of demand: % change in QD/% change in income

Jennifer is a serious student who works on schoolwork each evening. She has a roommate who likes to party and frequently hosts noisy get-togethers in their shared apartment without warning. Which of the following might be a likely outcome of this living situation?

Jennifer will experience negative externalities A negative externality is a situation where a third party, outside the transaction, suffers from a market transaction by others. Having a roommate who parties could produce negative externalities for Jennifer in the form of noise or commotion that interrupts her ability to study.

What is the difference between substitution effect and income effect?

Substitution Effect - when a price changes, consumers tend to consume more of a substitute good with a lower price. Income Effect - a higher price means that the buying power of income has been reduced.

The definition of income effect is best defined as: ___________.

The idea that a higher price means the buying power of income has been reduced. The income effect is the idea that consumer's real income rises due to decrease in the prices.

The positive externalities of education are always reflected in general society. Which of the following is not an example of a positive externality of education?

a higher income fro a person who received a college degree from Harvard An externality is the effect of a market exchange on a third party who is outside or "external" to the exchange. A higher income for a person who received a college degree from Harvard is not an externality, since this only describes a benefit received by the person receiving the education. While the positive externalities of education are not always easy to measure, they typically include better health outcomes for the population, lower levels of crime, a cleaner environment and a more stable, democratic government.

A situation where a third party, outside the transaction, SUFFERS from a market transaction by others is called a

a negative externality

A good or resource that is both non-rival and non-excludable is

a public good

An approach to environmental regulation which specifies allowable quantities of pollution and/or details which pollution-control technologies must be used is called a ___________________.

command-and-control regulation Command-and-control regulations specify allowable quantities of pollution and may detail which pollution-control technologies companies must use.

Which formula best represents the concept of cross-price elasticity of demand?

cross-price elasticity of demand = 5 change in quantity demanded of good A / % change in price of good B Cross-price elasticity of demand is defined as 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.

If a 10 percent price increase generates a 20 percent decrease in quantity demanded, then demand is

elastic

If the percentage change in the quantity demanded exceeds the percentage change in the price, demand is

elastic

If the percentage change in the quantity demanded exceeds the percentage change in the price, demand is (elastic; inelastic).

elastic

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

elastic; inelastic if the elasticity of supply is greater than 1, it is elastic. if it is less than one, it is inelastic.

Which equation reflects income elasticity of demand?

income elasticity of demand = % change in quantity demanded / % change in income Income elasticity of demand is the percentage change in quantity demanded divided by the percentage change in income.

The price elasticity of demand for candles is __________ because as the price of candles rises by 21%, the quantity demanded of candles falls by 14%.

inelastic

When the percentage change in quantity supplied is less than the percentage change in price, then supply is

inelastic

If the budget decreased from $10 to $5, how would we expect the budget constraint to change?

it would shift in If income decreases, then you would be forced to decrease spending on bus tickets and burgers. The budget constraint would shift in making higher priced combinations no longer affordable.

_______________ includes both the private costs incurred by firms and also the additional external costs incurred by third parties outside the production process.

social costs

Perfectly inelastic demand, like that of medication, means that consumers

will buy the same quantity, regardless of price