Micro Test

Whether or not a good can be classified as a complement depends on whether

an increase in demand for one good follows a decrease in the price of the other

If the price of computers increases and the demand for moniters decreases as a result, then

computers and monitors are complements

If the price elasticity of demand for a good is greater than one, then the demand for that good, with respect to price is

elastic

When the price of NBA ticket is $25 each, 30,000 tickets are sold every game. After the price rises to $30 each, 20,000 tickets are sold every game. At the original price, the demand for NBA ticket is

elastic (The percentage change in quantity is 0.333 (10,000/30,000) and the percentage change in price is 0.2 ($5/$25).If the percentage change in quantity is greater than the percentage change in price, then the elasticity will be greater than one. When elasticity is greater than one, demand is price elastic

You can spend $5 for lunch and you would like to have two double cheeseburgers. When you get to the restaurant, you find out the price for double cheeseburger for lunch. This is best described as

income effect

At the beginning of the fall semester, college towns experience large increases in their populations, causing

increase in the demand for apartments

As coffee becomes more expensive, Jow starts drinking tea, and therfore quantity demanded for coffee decreases. This is called

The substitution effect

The entire group of buyers and sellers of a particular good or service makes up

a market

If the demand for a good decreases as income decreases it is a(n)

normal good

If cross price elasticity is positive but less than one, the two goods are

substiutes

The demand curve illustrates the fact that consumers

tend to purchase more of a good as its price falls

If the price of a good increases by 20% and that leads to a decrease in quantity demanded by 60%, what is the price elasticity of demand for that good?

3

Suppose that the equilibrium price of rice falls and the equilibrium quantity falls. Which of the following best fits the observed data?

A decrease in demand with supply constant

What might cause a demand function to shift to the right?

An increase in the price of a substitute

Suppose a market is in equilibrium. The area between the demand curve and the market price is

Consumer Surplus

Small budget items such as soap have __________ price elasticity of demand comapred to big ticket items such as flat-screen TV's

Lower

Assume the price of gasoline doubles tonight and remains at that price for the next two years. The short-term price elasticity of demand for gasoline will be ________ when compared with the long-term price elasticity of demand for gasoline.

More inelastic

A movement along a demand curve from one price-quantity combination to another is called

a change in quantity demanded

"As the price of personal computers continues to fall, demand increases. "This headline is inaccurate because

a falling price for personal computers increases quantity demanded, not demand

A market comprised of a downward-sloping demand curve that intersects an upward-sloping supply curve is said to be stable because

at any price other than equilibrium, forces in the market move price towards the equilibrium

When the price of an item increases, buyers tend to purchase less of that item

because of both the substitution and the income effects.

As one moves down along a linear demand curve (from high price, low quantity pairs to low price, high quantity pairs) the demand

becomes less price elastic (At the top of the demand curve, a one unit change in quantity, because it is a small quantity to begin with, will be fairly large. The opposite is true at the bottom of a demand curve. Price is low, so a one-unit change is a fairly large percentage, but quantity is large so a one-unit change is a small percentage. This combination is associated with inelastic demand)

Demand for coffee last monday is shown in bold and labeled D(Monday). On Tuesday, the news featured a story about a storm that wiped out the entire coffee crop in Brazil. On Wednesday

demand shifted to D(B) in anticipation of future price increases

As consumers incomes increase, the demand for ground beef decreases. Ground beef is called a(n)

inferior good

At the price of $20 each, demand for T-shirts for students group's fundraising activity is unitary elastic. Total expenditure for T-Shirts reaches __________ at a price of $20 each

its maximum (Total revenue is at its highest when elasticity equals one)

If the demand for a good is elastic, that good is likely to have

many close substiutes

An outcome is socially optimal if it

maximizes total economic surplus

The buyers reservation price of a particular good or service is the

maximum amount the buyer would be willing to pay for it

Suppose a market is in equilibrium. The area between the market price and the supply curve is

producer surplus

A shortage occurs when

quantity demanded exceeds quantity supplied

In surveying their alumni, State U's economics department discovered that ramen noodle consumption declined as soon as students graduated and found jobs. One conclusion the survey team might draw from this result is that

ramen noodles are inferior good (Income elasticity is the percentage change in quantity consumed when there is a one percent change in income. For inferior goods, an increase in income leads to a decrease in consumption

A pizza shop observes that when it raises the price of the large pizza, total revenue from pizza decreases and when they lower the price of the large pizza, total revenue increases. This suggests that

the demand for a large pizza must be elastic (Total revenues increase when price dereases and total revenues decrease when price increases when demand is elastic)

In general, when the supply curve shifts to the left and demand is constant then

the equilibrium price will rise

Total economic surplus is greatest when

the market is in equilibrium

Whenever the quantity demanded is not equal to the quantity supplied, the quantity that is actually sold in the market is

the smaller of the quantity demanded and the quantity supplied

The sum of the economic surpluses accruing to buyers and sellers is

total economic surplus