Unit 1

Economists compute the price elasticity of demand as the

Percentage change in quantity demanded divided by the percentage change in price

Producing a quantity larger than the equilibrium of supply and demand is inefficient because the marginal buyer's willingness to pay is

Positive but less than the marginal sellers cost

In a free market, who determines how much of a good will be sold and the price at which it will be sold?

Suppliers

Lead is an important input in the production of crystal. If the price of lead decreases, all else equal, we would expect the supply of

crystal to increase

Which of the following would definitely result in a higher price in the market for Snickers?

demand increases and supply decreases

Which of the following is NOT a determinant of the price elasticity of demand for a good?

of The steepness or flatness of the supply curve for the good.

Suppose that a decrease in the price of X results in less of good Y sold. This would mean that X and Y are

substitute goods

Governments can improve market outcomes for

Both public goods and common resources

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

Quantity will fall and the effect on price is ambiguous

change in the price. If the owner is only interested in increasing revenue, she should The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a

Raise the price of the cinnamon rolls.

An example of a perfectly competitive market would be the

Soybean market

Assuming that gasoline is a relatively inelastic good, a 10 percent increase in gasoline prices reduces gasoline consumption (quantity) by about

2.5 percent after one year 6 percent after five years

If the income elasticity of demand is positive, then the good is

A normal good

An efficient allocation of resources maximizes

Consumer surplus plus producer surplus

An early freeze in California destroys much of the lemon crop. Consumer surplus in the market for lemons _____and consumer surplus in the market for lemondade _____

Decreases, decreases

When a market is in equilibrium, the buyers are those with the ____ willingness to pay and the sellers are those with the ____ costs

Highest, lowest

If a good is "normal", then an increase in income will result in

An increase in the demand for the good

For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The good is a luxury.