practice exam
Suppose the income of buyers in a market for an inferior good decreases and a technological advancement occurs also. What would we expect to happen in the market?
Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?
Lower the price to increase total revenue.
Which of the following is not a determinant of the demand for a particular good?
The prices of related goods
The current price of blue jeans is $30 per pair, but the equilibrium price of blue jeans is $25 per pair. As a result, which of the following statements is not true?
The quantity supplied of blue jeans exceeds the quantity demanded of blue jeans at the $30 price.
Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?
The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve.
Suppose you like to make, from scratch, pies filled with bananas and vanilla pudding. You notice that the price of bananas has increased. As a result, your demand for vanilla pudding would
The supply curve shifts
Pizza is a normal good if the demand
curve for pizza shifts to the right when the price of burritos rises, assuming pizza and burritos are substitutes
If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of
the availability of close substitutes in determining the price elasticity of demand.
Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result
the equilibrium quantity decreases, and the equilibrium price is unchanged.
Cross-price elasticity of demand measures how
the quantity demanded of one good changes in response to a change in the price of another good.
If a 25 percent change in price results in a 40 percent change in quantity supplied, then the price elasticity of supply is about
1.60 and elastic
A likely example of substitute goods for most people would be
pencils and pens
What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?
price would fall
Suppose the cross-price elasticity of demand between peanut butter and jelly is −2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to
rise by 8 percent
The law of supply states that, other things equal, when the price of a good
rises, the quantity supplied of the good rises.
Ashley bakes bread that she sells at the local farmer's market. If she purchases a new convection oven that reduces the costs of baking bread, the
supply of ashleys bread will increase
Last year, Tess bought five handbags when her income was $54,000. This year, her income is $60,000, and she purchased seven handbags. Holding other factors constant and using the midpoint method, it follows that Tess's income elasticity of demand is about
3.17, and Tess regards handbags as normal goods.
What would happen to the equilibrium price and quantity of lattés if consumers' incomes rise and lattés are a normal good?
Both the equilibrium price and quantity would increase.
Which of the following changes would not shift the demand curve for a good or service?
Change in price of related good
Which of the following is likely to have the most price inelastic demand?
Toothpaste
You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would
Yours would be positive and your roommates would be negative
If the demand for a product increases, then we would expect equilibrium price
and equilibrium quantity both to increase.
Suppose you like to make, from scratch, pies filled with bananas and vanilla pudding. You notice that the price of bananas has increased. As a result, your demand for vanilla pudding would
decrease
Two goods are complements when a decrease in the price of one good
decreases the demand for the other good
If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in
higher price and revenue
If the price elasticity of supply is 1.2, and price increased by 5 percent, quantity supplied would
increase of 4.2 percent
If the demand for donuts is elastic, then a decrease in the price of donuts will
increase total revenue of donut sellers.
A competitive market is a market in which
no individual buyer or seller has any significant impact on the market price