ECON 201 FINAL

The income elasticity of demand for good B is 0.5. What can we deduce based on this information?

Good B is a normal good. The income elasticity of demand is equal to the percentage change in quantity, divided by the percentage change in income: eI = %ΔQ / %ΔI. For a normal good, an increase in income leads to an increase in demand (i.e., a rightward shift in the demand curve). Thus, for a normal good, if %ΔI is positive, %ΔQ will also be positive, and if %ΔI is negative, %ΔQ will also be negative. Therefore, if a good is a normal good, and if we divide %ΔQ by %ΔI, we will have a positive number. In this question, the income elasticity of demand is 0.5, which is indeed positive. Thus good B is a normal good

The cross-price elasticity of demand for good C with respect to the price of good D is -0.2. On the basis of this information, what can we deduce? .

Good C and good D are complements. When two goods are complements, an increase in the price of one good will lead to a decrease in demand (i.e., a leftward shift in the demand curve) for the other good. Thus for complements, if %ΔP is positive for one good, then %ΔQ will be negative for the other good, and if %ΔP is negative for one good, then %ΔQ will be positive for the other good. Therefore, if two goods are complements, and if we divide %ΔQ for one good by %ΔP for the other good, we will have a negative number. In this question, the cross-price elasticity is -0.2, which is indeed negative. Thus good C and D are complements.

what else must be true for a perfectly competitive profit maximizing firm if we know that price is equal to MR, what does this mean

price = marginal cost as well, it means that the supply curve of a perfectly competitive firm is the same as the firm's marginal-cost curve

what is profit equal to in terms of profit per unit

profit per unit multiplied by quantity is profit

what does the own price elasticity of demand measure

refers to movements *along* an existing demand curve

what does the downward sloping portion of the average total cost curve mean

results from the fact that the fixed costs are spread out over an increasingly long amount of time

what does the cross price elasticity of demand refer to?

shifts in the demand curve caused by changs in the prices of other goods

what is to the metric to measure's what good's demand elasticity is larger than the other

size of own-price elasticity demand; larger the more elastic

what is a positive statement

statements about what is, i.e., statements about the actual workings of the economy. Thus, in principle, positive statements can be shown to be incorrect

what does it means in terms of elasticity if we are given a vertical supply curve

supply elasticity is zero supply is perfectly inelastic

what does it means in terms of elasticity if we are given a horizontal supply curve

supply is perfectly elastic

Microeconomics is primarily concerned with

the behavior of households and business firms, and the way they interact in markets.

what is the profit equation and at what needs to be equal for profit to be maximised

P = TR - TC. MR = MC

what is the equation for zero economic profit, what does it imply in terms of average total cost

P=MC=ATC, average total costs are minimized

There is a leftward shift in the demand curve for edible fruit arrangements (i.e., there is a decrease in demand for edible fruit arrangements). At the same time, there is a leftward shift in the supply curve for edible fruit arrangements (i.e., there is a decrease in the supply of edible fruit arrangements). As a result, what will happen to the equilibrium price and equilibrium quantity of edible fruit arrangements?

Price could increase, decrease, or stay the same, so that we cannot determine the direction of change in price without more precise information; quantity will decrease. By itself, the leftward shift in the demand curve will lead to a decrease in both the equilibrium price and the equilibrium quantity. By itself, the leftward shift in the supply curve will lead to an increase in equilibrium price, but a decrease in equilibrium quantity. Thus both of the shifts will push the equilibrium quantity downward, which means that the net effect will definitely include a decrease in the equilibrium quantity. However, the two shifts push the equilibrium price in opposite directions. The net effect on the equilibrium price will depend on the relative sizes of the two shifts, as well as on the shapes of the demand and supply curves

The demand curve for soccer balls shifts to the left (i.e., there is a decrease in the demand for soccer balls). As a result, what will happen to the equilibrium price and equilibrium quantity of soccer balls?

Price will decrease; quantity will decrease A leftward shift in the demand curve means that, at any given price, buyers are willing and able to buy a smaller quantity than they were previously willing and able to buy. If the supply curve obeys the Law of Supply, then a leftward shift in the demand curve will cause the market to move downward and to the left along the existing supply curve. The result will be a new equilibrium, with a lower equilibrium price and lower equilibrium quantity.

Assume that oranges and grapefruit are substitutes. There is a decrease in the price of oranges. As a result, what will happen to the equilibrium price and equilibrium quantity of grapefruit?

Price will decrease; quantity will decrease When the price of one substitute goes down, the demand for the other substitute will also go down. Thus in this case, when the price of oranges falls, consumers will substitute toward oranges and away from grapefruit. As a result, the demand for grapefruit will decrease (i.e., the demand curve will shift to the left). As long as the supply curve obeys the Law of Supply, a decrease in demand will lead to a decrease in the equilibrium price, and a decrease in the equilibrium quantity.

Assume that pink slime is an inferior good. There is an increase in the incomes of potential buyers of pink slime. As a result, what will happen to the equilibrium price and equilibrium quantity of pink slime?

Price will decrease; quantity will decrease. For an inferior good, an increase in incomes will lead to a decrease in demand (i.e., the demand curve will shift to the left). As long as the supply curve obeys the Law of Supply, a decrease in demand will lead to a decrease in the equilibrium price, and a decrease in the equilibrium quantity.

Titanium is an input in the production of dental implants. There is a decrease in the price of titanium. As a result, what will happen to the equilibrium price and equilibrium quantity of dental implants?

Price will decrease; quantity will increase A decrease in the price of an input will lead to an increase in supply (i.e., the supply curve will shift to the right). As long as the demand curve obeys the Law of Demand, a rightward shift in the supply curve will lead to a decrease in the equilibrium price, and an increase in the equilibrium quantity.

how will the consumer maximize satisfaction

choosing the quantity at which marginal utility is equal to price

if the price rises because of a leftward shift in the supply curve, what will happen to consumer surplus

consumer surplus will decrease

As quantity increases, average fixed cost

decrease Average fixed cost, or fixed cost per unit, is equal to total fixed cost divided by the quantity of output: AFC = TFC/Q. Total fixed cost does not change. Thus, as quantity increases, the numerator of the AFC equation stays the same, while the denominator increases. Thus the quotient (AFC) will decrease.

how is average fixed cost affected change in quantity

decrease in quantity always leads decrease in average fixed cost

economic costs

defined to include not only explicit, out-of-pocket costs, but also the opportunity cost of being in business

what does it mean if a demand line is a vertical curve

demand is perfectly inelastic and is zero

consumer surplus

difference between the maximum amount that the consumer is willing to pay and the amount actually paid for that quantity

what's greater, economic costs or accounting costs

economic costs are greater than accounting costs, and economic profits are less than accounting profits.

how is elasticity affected as we move from left to right on a downward sloping vertical demand curve

elasticity decreases

In the short run, with one input, why does marginal cost have to rise

eventually has to increase, as the production process is constrained by the fixed input

what is the elasticity of a good that has *unit elastic* demand, how will total revenue be, how will total revenue behave in reference to price change

exactly one, will remain unchanged

marginal cost

extra amount of cost that the the first incurs, when it produces one additional unit of output.

what does marginal revenue mean

extra amount of money a firm receives when it sells one more additional unit of output

marginal utility

extra amount of money that the individual is willing to pa, to consume one more unit

how do you extract a higher response from sellers

give them more time to adjust to the price change

what does a vertical supply curve mean, give example

good cannot be reproduced, artwork from dead man

the change in consumer surplus is our dollar measure of what

harm to consumers from a price increase, or the benefit to consumers from a price decrease

market supply curve

is derived by summing horizontally the supply curves of the individual perfectly competitive firms.

What must be true For total revenue to increase as a result of a decrease in price?

it must be true that the change in quantity demanded is relatively larger than the change in price

will the supply elasticity be a positive or negative number if it follows the Law of Supply

it will be a positive number

what can we say about the firm's short run supply curve in a perfectly competitive industry (hint: MC, AVC)

its marginal-cost curve for prices that are equal to or greater than average variable cost (AVC). For prices below AVC, the firm's quantity supplied will be zero.

what is the elasticity of an inelastic demand curve, if demand is inelastic what happens to total revenue when price falls

less than one, total revenue will also fall

what must the own-price elasticity of demand be if a good is to be considered inelastic

less than zero

is it easier to make big changes in the short term or the long term

long term

what do we know about marginal in terms of total revenue

marginal is the change in total revenue from adding one more additional unit

what is price equal to in a perfectly competitive firm

marginal revenue

what is the slope of the total revenue/cost curve

marginal revenue/cost

diminishing marginal utility

marginal utility will decrease when the quantity of their consumption of a good increases

when a perfectly competitive market is experiencing economic profits, do the new firms that enter increase market supply or market demand?

market supply

what will happen to the market supply if many firms exit and the market decreases in size, how will this affect market price

market supply will fall, market price will rise

total utility

maximum amount that a consumer is willing to pay for a particular quantity of some item

Economic profits

net of the opportunity cost of being in business, which includes the "normal" return on investment

what do opportunity costs include

opportunity cost of the business manager's time (he/she could do something else) as well as the opportunity cost of the business manager's money invested in the firm (he/she could invest in something else)

what is the equation for cross price elasticity of demand

percentage change in demand for ONE good divided by the percentage change in demand for ANOTHER good

what is the equation for the income elasticity

percentage change in demand/divided by percentage change in income

what is the elasticity of a horizontal demand curve

perfectly elastic with an elasticity of infinity

what is the elasticity of a vertical demand curve

perfectly inelastic with an elasticity of zero

what is the equation for profit per unit

price - average total cost

what three things are equal in a prefectly elastic demand curve

price = average revenue = marginal revenue

what curve depicts the individual demand curve

the marginal utility curve

what must be true for the average to increase for any quantity or value

when marginal is greater than the average of the previous units

what do we know about price that tells us when its time to shut down a firm

when price is less than average variable cost

how does the TR curve behave in relation to the TC curve of a firm that is maximizing profit, why

the curves will be parrallel because the slopes will be equal

what happend to the demand curve if the incomes or the expectations of buyers change

the demand curve shift

For good A, the demand curve is given by Qd = 40 - P. The supply curve is given by Qs = P. When the market is at equilibrium, what is the value of consumer surplus? (Hint: To solve this problem, you will need to calculate the area of a triangle.)

$200 To answer this question, it is first necessary to find the equilibrium price and quantity. At the equilibrium Qs = Qd. To find the equilibrium, we substitute the demand equation and supply equation into the equilibrium equation: 40 - P = P. Adding P to both sides of the equation gives us 40 = 2P. Dividing both sides of the equation by 2, we have (40/2) = 2P/2. Thus P = $20 per unit. If we then substitute the price of $20 per unit into the demand equation, we have Qd = 40 - 20 = 20 units. If we substitute the price into the supply equation, we get Qs = 20, which confirms that we are indeed at equilibrium. At this equilibrium, the consumer surplus is the area of the triangle under the demand curve but above the price line. The base of this triangle is the quantity, which is 20 units of good A. The height of the triangle is the difference between the vertical intercept of the demand curve and the price of $20 per unit. The vertical intercept of the demand curve is $40. Thus the height of the triangle is $(40 - 20) = $20. Next, we need to calculate the area of this triangle, with height of $10 per unit and base of 10 units. The formula for the area of a triangle is 1/2 bh, where b = base and h = height. Thus the area of the triangle is ½ (20)($20) = ½ ($400) = $200.

For Company X, total fixed cost is $20. When Q=0, total variable cost (TVC) is $zero. When Q=1, TVC=$4. When Q=2, TVC=$10. When Q=3, TVC=$19. What is the marginal cost of the second unit of output (i.e., the additional cost associated with increasing the quantity of output from Q=1 to Q=2)?

$6 Marginal cost is the additional cost associated with producing one additional unit of output. Thus marginal cost is the change in total cost from one additional unit: MC = ΔTC/ΔQ. However, remember that total cost is equal to the sum of total fixed cost and total variable cost: TC = TFC + TVC. It follows that any change in TC has to be accounted for by changes in TFC or TVC: ΔTC = ΔTFC + ΔTVC. But by definition, TFC does not change, i.e, ΔTFC = 0. Therefore the change in total cost is identical to the change in total variable cost. Thus MC = ΔTVC/ΔQ. In this question, we are given the levels of TVC for various levels of Q. When Q increases from 1 to 2, TVC increases from $4 to $10. Thus the marginal cost of the second unit of output is the change in TVC, which is $(10 - 4) = $6

what are the three business optimal choices

(a) The firm chooses to produce and sell the quantity at which profit is maximized, and (b) the firm chooses to produce and sell the quantity at which the difference between total revenue and total cost is maximized, and (c) the firm chooses to produce and sell the quantity at which marginal revenue is equal to marginal cost.

what are three ways to characterize consumer's optimal choice

(a) it is the quantity at which consumer surplus is maximized, and (b) it is the quantity at which the difference between total utility and total expenditure is maximized, and (c) it is the quantity at which marginal utility is equal to price.

do we drop the minus sign when reporting on the income elasticity of demand?

**** NO!

do we drop the minus sign when reporting on the cross price elasticity of demand

**** TO THE SUPER**** NO!!

In Lower Slobbovia, the equilibrium price of a zizwomp is $10. But then the government of Lower Slobbovia issues a law saying that it is illegal to buy or sell zizwomps for more than $5. The government of Lower Slobbovia is well known for its brutality, and it is generally believed that anyone caught violating the law will be shot. As a result of this price control, what will happen in the market for zizwomps in Lower Slobbovia?

-Buyers will move down and to the right along their existing demand curves. -Sellers will move down and to the left along their existing supply curves. Demand curves and supply curves are constructed by allowing the current price of the good to vary, while holding constant all other potential influences on buyers or sellers. This question refers to a change in the price. It does not refer to a change in any of the variables that are held constant when we construct the curves. Thus this question does not refer to anything that would lead to a shift in one of the curves.

what is true about market equilibrium

-When the market price is at its equilibrium level, quantity demanded is equal to quantity supplied. -Graphically, market equilibrium occurs where the supply curve and the demand curve cross each other. -When the market price is at its equilibrium level, neither a surplus nor a shortage will occur.

A business firm's marginal cost is

-the additional cost that the firm must incur to produce one additional unit of output. -the increase in total variable cost associated with producing one additional unit of output

Marginal cost is a)the change in total cost from producing one additional unit of output. b)the change in total variable cost from producing one additional unit of output. c)the change in total fixed cost from producing one additional unit of output. d)all of the above. e)(a) and (b) only.

-the change in total cost from producing one additional unit of output. -the change in total variable cost from producing one additional unit of output

Consumer surplus is

-the difference between the maximum amount that consumers are willing to pay and the total amount that -they actually pay. -the difference between total utility and total expenditure. -represented graphically by the area under the demand curve, but above the price line

what is the consumer's optional purchase

-total amount that he/she is willing to pay -the total amount that she actually has to pay

Average total cost is equal to

-total cost divided by the quantity of output. -average fixed cost plus average variable cost As we have seen in the previous question, ATC = TC/Q. Thus choice (a) is correct. Also, TC = TFC + TVC, and if we divide both sides of this equation by Q, the equation will still hold. This gives us TC/Q = TFC/Q + TVC/Q, which means ATC = AFC + AVC. Thus choice (b) is also correct.

The price of flibboos goes down from $4.50 to $3.50. As a result, the quantity demanded increases from 95 to 105. What is the own-price elasticity of demand?

0.4 The own-price elasticity of demand is the proportional change in quantity demanded, divided by the proportional change in price: e = (ΔQd/Qd) / (ΔP/P). Quantity demanded increases from 95 to 105. Thus the change in quantity demanded, ΔQd, is (105 - 95) = 10. To get the proportional change in quantity demanded, we have to divide ΔQd by the reference level of Qd. Our rule is to use the average of the beginning and ending values as the reference level. Thus Qd is the average of 95 and 105, which is 100. If we then divide ΔQd by Qd, we have 10/100 = 0.1. Price decreases from $4.50 to $3.50. This is actually a negative change, but our rule is to use absolute value. Thus the change in price, ΔP, is $(4.50 - 3.50) = $1.00. For price, as for quantity demanded, we use the average of the beginning value and the ending value as the reference level. Thus P is the average of $4.50 and $3.50, which is $4.00. If we then divide ΔP by P, we have $1.00/$4.00 = 0.25. Now we are ready to find the elasticity, by dividing the proportional change in quantity demanded by the proportional change in price: 0.1/0.25 = 0.4.

what three things are true if demand is elastic, all else equal.

1. if it is easy to substitute away from a good when its price changes 2. Consumers are given a longer time to adjust to the price change 3.item is a relativel2. large share of the buyer's expenditure.

Which of the following would be expected to shift the supply curve for hand sanitizer to the right? 1.A decrease in the prices of inputs used in production of hand sanitizer 2.Discovery of a new technology that makes it possible to produce more hand sanitizer without using more inputs 1.A decrease in the prices of inputs used in production of hand sanitizer." This will indeed lead to a rightward shift in the supply curve 2. Discovery of a new technology that makes it possible to produce more hand sanitizer without using more inputs." This will also lead to a rightward shift in the supply curve

1.A decrease in the prices of inputs used in production of hand sanitizer 2.Discovery of a new technology that makes it possible to produce more hand sanitizer without using more inputs 1.A decrease in the prices of inputs used in production of hand sanitizer." This will indeed lead to a rightward shift in the supply curve 2. Discovery of a new technology that makes it possible to produce more hand sanitizer without using more inputs." This will also lead to a rightward shift in the supply curve

Assume that the demand for alarm clocks obeys the Law of Demand. On the basis of this assumption, which of the following statements is/are definitely true?

1.All else equal, an increase in the price of alarm clocks will lead to a decrease in the quantity of alarm clocks demanded. 2.The demand curve for alarm clocks will slope downward as we go from left to right. THESE ARE THE ONLY THINGS THAT ARE DEFINITELY TRUE IF A PRODUCT FOLLOWS THE LAW OF DEMAND

what does it mean in terms of price and average total cost if profit is 1. positive 2.zero 3.negative

1.price is greater than ATC 2.price = ATC 3.price < ATC

The price of a taco combo increases from $4.50 to $5.50. As a result, the quantity demanded falls from 120 to 80. What is the own-price elasticity of demand?

2.0 The own-price elasticity of demand is the proportional change in quantity demanded, divided by the proportional change in price: (ΔQd/Qd) / (ΔP/P). In this case, ΔQd is the difference between 120 and 80, which is 40. The reference level of Qd is the average of the beginning value and the ending values of quantity demanded. The average of 120 and 80 is 100. Thus the proportional change in quantity demanded is 40/100, which is 4/10. The change in price is $(5.50 - 4.50) = $1. The reference level of price is the average of the beginning and ending values of price, which is $5. Thus the proportional change in price is $1/$5, or 1/5. To get the elasticity, we divide 4/10 by 1/5. To solve (4/10)/(1/5), we multiply both the numerator and the denominator by the reciprocal of the fraction in the denominator. This gives us (4/10)(5), which is 20/10, which is 2.0.

We discussed tariffs, import quotas, and voluntary export restraints (VERs). Each of these interferes with international trade, and thus there are some similarities among the effects of the three policies. However, there are also some differences. In class, we suggested that, if it is absolutely necessary to interfere with international trade, it might be preferable to use a VER. Why would this be?

A VER may increase the profits of producers in the exporting country, and thus they may be less likely to push their government to retaliate. A VER is operated by the exporters. Effectively, a VER gives the exporters the ability to control the market, and they may be able to increase their profits as a result. In the case of the VERs on Japanese exports of autos to the United States in the early 1980s, the Japanese firms did very well. As a result, there was no reason for them to push for their government to retaliate against U.S. firms.

Which of the following will lead to an increase in the demand for ibuprofen (i.e., a rightward shift in the demand curve for ibuprofen)? a) increase in the price of boxing gloves (complement) b) increase in the price of morphine (substitute) c) decrease in the price of morphine d)decrease in the price of boxing gloves

A decrease in the price of boxing gloves, which are a complement for ibuprofen When two goods are complements, an increase in the price of one of the goods will lead to a decrease in the demand for the other one. Also, when two goods are complements, a decrease in the price of one of the goods will lead to an increase in the demand for the other one. One of the choices for this question was "A *decrease in the price* of ibuprofen." If the price of ibuprofen decreases, we move downward and to the right along the existing demand curve, but we *do not shift to a different demand curve*.

We observe a decrease in the equilibrium price of paring knives, and a decrease in the equilibrium quantity of paring knives. Which of the following could have caused these changes?

A leftward shift in the demand curve for paring knives. When the demand curve shifts to the left, we slide down the supply curve to a new equilibrium, with a lower equilibrium price and a lower equilibrium quantity. Thus if we observe a decrease in both the equilibrium price and the equilibrium quantity, the only shift that could cause it is a leftward shift in the demand curve.

There is a decrease in the price of a pair of blue jeans. What effect would this have on the demand curve for blue jeans?

A movement downward and to the right along the existing demand curve, without any shift to a new demand curve. (In other words, an increase in quantity demanded.) It is very important to distinguish between a movement along an existing demand curve and a shift to a new demand curve. When we construct a demand curve, we allow the price to vary, while holding constant every other possible influence on buyers. Thus if the price changes, we move along the existing demand curve. In order to shift to a new demand curve, it is necessary for something else (other than the price) to change. The demand shifters are the influences on buyers that are held constant when we construct a particular demand curve. These include tastes or preferences, buyers' incomes, the prices of complements and substitutes, buyers' expectations about future prices and incomes, and the number of buyers.

Which of the following would shift the supply curve for smart phones

An increase in the price of computer chips, which are an input in the production of smart phones. an increase in production

Angela has already decided to buy one pound of apples. Her marginal utility from consuming a second pound of apples is $3. The price of apples is $2 per pound. On the basis of this information, what can we say

Angela should buy at least one more pound of apples, and maybe more We define marginal utility as the maximum amount that an individual is willing to pay for one additional unit of a good. If marginal utility is greater than price, the consumer should buy. In this case, since marginal utility is $3 and price is $2, the consumer should buy at least one more pound of apples. On the basis of the information given here, we can tell that this consumer should buy at least one more pound of apples, but we cannot tell exactly how many more she should buy. In order to determine exactly how many more she should buy, we would have to have a complete schedule for marginal utility, and not merely the marginal utility of the second pound of apples.

If the marginal cost of the next unit is greater than the average total cost of all previous units, what can be said about average total cost?

Average total cost will increase. The relationships between "marginal" values and "average" values are the same, regardless of whether we are considering marginal cost and average total cost, or marginal cost and average variable cost, or marginal anything else and average anything else. If the marginal value is less than the average of the previous units, the average will decrease. If the marginal value is equal to the average of the previous units, the average will stay the same. If, as in this question, the marginal is greater than the average of the previous units, the average will increase

For Company X, total fixed cost is $20. When Q=0, total variable cost (TVC) is $zero. When Q=1, TVC=$4. When Q=2, TVC=$10. When Q=3, TVC=$19. When the quantity of output is 3 units, what is average total cost a)Zero b)Infinity c)$8 d)$15 e)$13

Average total cost, or total cost per unit, is calculated by dividing total cost by the quantity of output: ATC = TC/Q. In turn, total cost is the sum of total fixed cost and total variable cost: TC = TFC + TVC. Thus the first step in answering this question is to calculate TC when Q=3. Total fixed cost is always $20, and total variable cost is $19 when Q=3. Thus when Q=3, TC = $20 + $19 = $39. When we divide this value by the quantity of 3, we get ATC = $39/3 = $13.

what is average variable cost (its calculation)

Average variable cost = total value cost/ quantity of output

Which of the following characteristics does an import quota have in common with a voluntary export restraint?

Both are direct restrictions on the quantity of internationally traded goods (whereas a tariff is a price mechanism) An import quota is a direct restriction on the quantity of imports, operated by a person or firm in the importing country. A VER is also a direct restriction on quantity, but it is operated by the exporters. Thus choice (a) is correct. Choice (b) is incorrect—a quota will harm the exporters, but a VER will not. Choice (c) is also incorrect—neither a quota nor a VER will harm the producers in the importing country. Finally, choice (d) is also incorrect—a tariff will bring in revenue for the government of the important country, but neither a quota nor a VER will do so

What does a price floor that is enforced above the equilibrium price have in common with a price ceiling that is enforced below the equilibrium price?

Both will reduce the quantity that is actually bought and sold

what do we know about cross price elasticity in reference to complements and subs

CPE is negative for complements CPE is positive for subs

The demand curve for gwickdoops is given by P = 20 - Qd. Another way to write exactly the same demand curve for gwickdoops is Qd = 20 - P. Because of a leftward shift in the supply curve for gwickdoops, the price of a gwickdoop increases from $10 to $16. As a result of this increase in price, what happens to the consumer surplus of consumers of gwickdoops? (Hint: To solve this problem, you may find it useful to draw a diagram with a straight-line demand curve, and draw a price line at $10 and another price line at $16, and then calculate the areas of some triangles.)

Consumer surplus decreases by $42 At first P=$10. If we insert this into the demand equation, Qd = 20 - P, we find that quantity demanded is Qd = 20 - 10 = 10. Consumer surplus is the area of the triangle that is below the demand curve but above the price line. The base of this triangle is the quantity, which is 10 gwickdoops. The height of the triangle is the difference between the vertical intercept of the demand curve and the price of $10. The vertical intercept of the demand curve is $20. Thus the height of the triangle is $(20 - 10) = $10. Next, we need to calculate the area of this triangle, with height of $10 per gwickdoop and base of 10 gwickdoops. The formula for the area of a triangle is 1/2 bh, where b = base and h = height. Thus the area of the triangle is ½ (10)($10) = ½ ($100) = $50. Now, the price increases from $10 to $16. If we insert this into the demand equation, we find that the new quantity demanded is Qd = 20 - 16 = 4. This is the base of the new consumer-surplus triangle. The height of the new triangle is the difference between the vertical intercept of the demand curve (which is still $20) and the new price of $16. This difference is $4. Thus the new consumer surplus, after the price increase, is ½ (4)($4) = 1/2 ($16) = $8. To find the change in consumer surplus, we subtract the new consumer surplus from the old consumer surplus: $50 - $8 = $42.

In class, we discussed three types of interference with international trade—tariffs, import quotas, and voluntary export restraints. What group is harmed by all three of these policies?

Consumers in the importing country Consumers in the importing country are harmed by all of these interferences with international trade. They face higher prices, and thus by the Law of Demand, they will buy fewer of the imported goods. Producers in the importing country are helped by all three of these policies, because the policies reduce competition. The producers in the importing country are thus able to charge higher prices, and/or grab a larger share of the market. Producers in the exporting country are harmed by tariffs and import quotas, but they are helped by VERs.

Ezekiel's Bar and Grill sells onion rings. In an attempt to increase the total revenue that it receives from selling onion rings, Ezekiel's decreases the price of onion rings. What does this imply about Ezekiel's beliefs, regarding the own-price elasticity of demand for its onion rings

Demand is elastic By itself, the decrease in price will lead to an increase in total revenue. But the decrease in price will also lead to an increase in quantity demanded. By itself, the increase in quantity demanded will lead to an increase in total revenue. Thus the change in price and the change in quantity demanded have effects on total revenue that go in opposite directions. The net effect on total revenue will depend on whether the change in price or the change in quantity demanded is relatively larger. If the change in price is relatively larger than the change in quantity demanded, then a decrease in price will lead to a decrease in total revenue. However, in this question, the company wants to increase total revenue. For total revenue to increase as a result of a decrease in price, it must be true that the change in quantity demanded is relatively larger than the change in price.

Buyers come to believe that the price of kumquats will increase one week from today. What will this do to the market for kumquats this week?

Demand will increase (i.e., the demand curve will shift to the right).

Assume that diamond earrings are a normal good. There is an increase in consumer incomes. As a result of the increase in incomes, what will happen in the market for diamond earrings

Demand will increase (i.e., the demand curve will shift to the right). When we construct a demand curve, we allow the price of the good to vary, while holding constant all other possible influences on buyers. One of those possible influences is buyers' incomes. For a normal good, an increase in incomes will lead to a rightward shift in the demand curve. Also, for a normal good, a decrease in incomes will lead to a leftward shift in the demand curve

he price of good A decreases. As a result, the demand for good B increases (i.e., the demand curve for good B shifts to the right). On the basis of this information, what can we say about good A and good B?

Good X is an input in the production of good Y. When the price of a complement good increases, the demand for its complement will fall. When the price of a complement good goes down, the demand for its complement will increase.

what should you know about income elasticity in reference to normal and inferior goods

IE is positive for normal goods negative for normal goods

how is income elasticity different than own price elasticity

IE refers to shifts to a new curve where as OP refers to movements along the existing line

where the position of marginal cost when average total cost is at its minimum

MC = ATC

where the position of marginal cost when average variable cost is at its minimum

MC = AVC

what do we know about marginal utitlity in terms of total utility

MU is the change in total utility, when quantity increases by one unity

There is a rightward shift in the supply curve for printer paper (i.e., there is an increase in the supply of printer paper). As a result, what will happen to the equilibrium price and equilibrium quantity of printer paper?

Price will decrease; quantity will increase. A rightward shift in the supply curve means that, at any given price, sellers are willing and able to sell a larger quantity than they were previously willing and able to sell. If the demand curve obeys the Law of Demand, then a rightward shift in the supply curve will cause the market to move downward and to the right along the existing demand curve. The result will be a new equilibrium, with a lower equilibrium price and higher equilibrium quantity.

A new technology makes it possible to produce more flash drives, without using any additional resources. As a result, what will happen to the equilibrium price and equilibrium quantity of flash drives

Price will decrease; quantity will increase. An improvement in technology will lead to an increase in supply (i.e., the supply curve will shift to the right). As long as the demand curve obeys the Law of Demand, an increase in supply will lead to a decrease in the equilibrium price, and an increase in the equilibrium quantity.

Assume that there are only 100 okalzes in the world, and that okalzes cannot be reproduced. As a result, the supply curve for okalzes is represented graphically by a vertical line. (Note that this does NOT obey the Law of Supply.) The demand for okalzes decreases (i.e., the demand curve shifts to the left). As a result of this change in demand, what will happen to the equilibrium price and quantity of okalzes

Price will decrease; quantity will stay the same. If the supply curve is a vertical line, then the equilibrium quantity is determined solely by the supply curve. If the supply curve is vertical, the same quantity supplied is associated with every price, and there is no way for the equilibrium quantity to change. When demand decreases, the demand curve will slide down along the vertical supply curve to a new price that is lower than before.

The demand curve for kumquats shifts to the right (i.e., there is an increase in demand for kumquats). At the same time, the supply curve for kumquats shifts to the left (i.e., there is a decrease in the supply of kumquats). As a result, what will happen to the equilibrium price and equilibrium quantity of kumquats?

Price will increase; quantity could increase, decrease, or stay the same, so that we cannot determine the direction of change in quantity without more precise information. By itself, the rightward shift in the demand curve will lead to an increase in both the equilibrium price and the equilibrium quantity. By itself, the leftward shift in the supply curve will lead to an increase in the equilibrium price, but a decrease in the equilibrium quantity. Thus both of the shifts will push the equilibrium price upward, which means that the net effect will definitely include an increase in the equilibrium price. However, the two shifts push the equilibrium quantity in opposite directions. The net effect on the equilibrium quantity will depend on the relative sizes of the two shifts, as well as on the shapes of the demand and supply curves.

There is a leftward shift in the supply curve for swimsuits (i.e., there is a decrease in the supply of swimsuits). As a result, what will happen to the equilibrium price and equilibrium quantity of swimsuits?

Price will increase; quantity will decrease A leftward shift in the supply curve means that, at any given price, sellers are willing and able to sell a smaller quantity than they were previously willing and able to sell. If the demand curve obeys the Law of Demand, then a leftward shift in the supply curve will cause the market to move upward and to the left along the existing demand curve. The result will be a new equilibrium, with a higher equilibrium price and lower equilibrium quantity.

There is a decrease in the number of sellers of bib overalls. As a result, what will happen to the equilibrium price and equilibrium quantity of bib overalls

Price will increase; quantity will decrease. A decrease in the number of sellers will lead to a decrease in market supply (i.e., the market supply curve will shift to the left). As long as the demand curve obeys the Law of Demand, a leftward shift in the supply curve will lead to an increase in the equilibrium price, and a decrease in the equilibrium quantity.

Low-fat milk is an input in the production of skinny lattes. There is an increase in the price of low-fat milk. As a result, what will happen to the equilibrium price and equilibrium quantity of skinny lattes?

Price will increase; quantity will decrease. An increase in the price of an input will lead to a decrease in supply (i.e., the supply curve will shift to the left). As long as the demand curve obeys the Law of Demand, a leftward shift in the supply curve will lead to an increase in the equilibrium price, and a decrease in the equilibrium quantity.

Because of an increase in the size of the elderly population and an increase in the number of extremely obese people, there is an increase in the number of potential buyers of walkers. As a result, what will happen to the equilibrium price and equilibrium quantity of walkers?

Price will increase; quantity will increase An increase in the number of buyers will lead to an increase in market demand (i.e., the market demand curve will shift to the right). As long as the supply curve obeys the Law of Supply, an increase in demand will lead to an increase in the equilibrium price, and an increase in the equilibrium quantity.

The demand curve for personal computer mice shifts to the right (i.e., there is an increase in the demand for mice). As a result, what will happen to the equilibrium price and equilibrium quantity of computer mice?

Price will increase; quantity will increase. A rightward shift in the demand curve means that, at any given price, buyers are willing and able to buy a larger quantity than they were previously willing and able to buy. If the supply curve obeys the Law of Supply, then a rightward shift in the demand curve will cause the market to move upward and to the right along the existing supply curve. The result will be a new equilibrium, with a higher equilibrium price and higher equilibrium quantity.

Luxury automobiles are a normal good. There is an increase in the incomes of people who are potential buyers of luxury automobiles. As a result, what will happen to the equilibrium price and equilibrium quantity of luxury automobiles?

Price will increase; quantity will increase. For a normal good, an increase in the incomes of potential buyers will lead to an increase in demand (i.e., the demand curve will shift to the right). As long as the supply curve obeys the Law of Supply, a rightward shift in the demand curve will lead to an increase in the equilibrium price, and an increase in the equilibrium quantity.

Assume that hot dogs and mustard are complements. There is a decrease in the price of mustard. As a result, what will happen to the equilibrium price and equilibrium quantity of hot dogs?

Price will increase; quantity will increase. When the price of one complement goes down, the demand for the other complement goes up. Thus in this case, when the price of mustard falls, the demand for hot dogs will increase (i.e., the demand curve will shift to the right). As long as the supply curve obeys the Law of Supply, an increase in demand will lead to an increase in the equilibrium price, and an increase in the equilibrium quantity.

Assume that the supply curve for paintings by Artemis Gordon is vertical. (Note that this means that the supply curve does not obey the Law of Supply.) Also, assume that paintings by Artemis Gordon are a normal good. There is an increase in the incomes of potential buyers of Artemis Gordon paintings. As a result, what will happen to the equilibrium price and equilibrium quantity of Artemis Gordon paintings

Price will increase; quantity will stay the same For a normal good, an increase in income will lead to an increase in demand (i.e., the demand curve will shift to the right). As we have seen in earlier questions, if the supply curve obeys the Law of Supply, a rightward shift in the demand curve will lead to an increase in the equilibrium price, and an increase in the equilibrium quantity. However, in this case, the supply curve does not obey the Law of Supply. Instead, the supply curve is vertical, which means that the quantity supplied remains the same, regardless of what happens to the price. As a result, in this case, the rightward shift in demand will lead to an increase in the equilibrium price, but the equilibrium quantity will stay the same.

The elasticity of demand for zoozoos is 1.5. Due to a government price control, the price of zoozoos increases by 10%. What will happen to the quantity demanded?

Quantity demanded will decrease by 15% The own-price elasticity of demand is the percentage change in quantity demanded, divided by the percentage change in price: e = %ΔQd/%ΔP. In this problem, we have e = 1.5 and %ΔP = 10. Inserting these values into the formula, we have 1.5 = %ΔQd/10. Multiplying both sides of the equation by 10, we have (1.5)(10) = %ΔQd = 15. If the elasticity is 1.5, a 10% increase in price will lead to a 15% decrease in quantity demanded, all else equal

There is an increase in the demand for arancini (i.e., the demand curve for arancini shifts to the right). At the same time, there is an increase in the supply of arancini (i.e., the supply curve for arancini shifts to the right). As a result of these changes, what will happen to the equilibrium price and quantity of arancini?

Quantity will increase; the direction of change in price cannot be determined without more specific information about the sizes of the shifts and the shapes of the curves By itself, the increase in demand will lead to an increase in both the equilibrium quantity and the equilibrium price. By itself, the increase in supply will lead to an increase in the equilibrium quantity, along with a decrease in the equilibrium price. Thus both of the shifts will lead to an increase in equilibrium quantity, so that we can be certain that the total effect of the two shifts will include an increase in the equilibrium quantity. However, the two shifts push the equilibrium price in opposite directions. Thus, depending on the sizes of the two shifts and the shapes of the supply and demand curves, the total effect could be an increase in price, or a decrease in price. A third possibility is that the supply shift and the demand shift could offset each other exactly, so that price would remain unchanged.

Which of the following would be included in a good definition of economics

Scarcity and choice A good definition of economics would refer to the fundamental economic issue, which is that resources are scarce, but desires are limitless. As a result, it is necessary to make choices.

There is a decrease in consumer incomes. As a result of this decrease in consumer incomes, the demand curve for smart phones shifts to the left. In other words, there is a decrease in the demand for smart phones. On the basis of this information, what can we say about the market for smart phones?

Smart phones are a normal good Consumer income is one of the demand shifters. When there is a change in consumer incomes, we shift to a different demand curve. The direction of the shift will depend on whether incomes go up or down, and on whether the good is a normal good or an inferior good. For a normal good, an increase in income leads to a rightward shift in the demand curve. Also, for a normal good, a decrease in income leads to a leftward shift in the demand curve.

what is the equation for total revenue of sellers

Total revenue for the sellers of a good is equal to the price received by the sellers, multiplied by quantity: TR=(p)(q)

Silk is an important input in the production of silk neckties. There is an increase in the price of silk. As a result of the increase in the price of silk, what happens in the market for silk neckties?

Supply will decrease (i.e., the supply curve will shift to the left). When we construct a supply curve, we allow the price to vary, while holding constant every other possible influence on sellers. Thus if the price changes, we move along the existing supply curve. In order to shift to a new supply curve, it is necessary for something else (other than the price) to change. The *supply shifters are the influences on sellers that are held constant when we construct a particular supply curve. These include the prices of inputs, the technology of production, and the number of sellers*. If the price of an input increases, the supply curve will shift to the left.

Milk is an important input in the production of butter. There is a decrease in the price of milk. As a result of the decrease in the price of milk, what will happen in the market for butter?

Supply will increase (i.e., the supply curve will SHIFT to the right)

A new technology makes it possible to produce more safety pins, without using any more inputs. As a result of this technological improvement, what will happen in the market for safety pins?

Supply will increase (i.e., the supply curve will shift to the right) The technology of production is one of the things that is held constant when we construct a supply curve. Thus if there is a change in the technology of production, the supply curve will shift. In this case, the technology improves, which means that supply will increase. (A deterioration in the technology of production will lead to a decrease in supply.

A new technology makes it possible to produce more flat-screen televisions, without using any more inputs. As a result of this technological improvement, what will happen in the market for flat-screen television

Supply will increase (i.e., the supply curve will shift to the right). A deterioration of technology will shift the supply curve to the left. An improvement in technology will shift the supply curve to the right.

In the graph of a tariff, or a quota, or a VER, there is a rectangle of revenue. The base of the rectangle is the quantity that gets bought and sold when the trade restriction is in place. The height of the rectangle is the difference between the demand curve and the supply curve at that quantity. Who receives the rectangle

Tariff: the government of the importing country; Quota: the holder of the import license; VER: the exporting firms A tariff is operated by the government of the importing country, and it generates revenue for that government. An import quota is operated by a person or firm in the importing country; we refer to that person or firm as the holder of the import license. Since the holder of the import license operates the trade restriction, he/she/they can generate profits. These profits are sometimes called "quota rents". A VER is operated by the exporters, and it can generate profits for them.

Which of the following is/are a normative statement A)When the demand curve shifts to the right, the equilibrium price rises and the equilibrium quantity also rises. B)A monopoly will produce a lower quantity than an otherwise-comparable industry that is perfectly competitive. C)The United States should increase the degree of progressivity of its tax system. D)A price ceiling that is below the equilibrium price will lead to shortages. E)All of the above

The United States should increase the degree of progressivity of its tax system in principle, positive statements can be shown to be incorrect. Choices (a), (b), and (d) are all positive statements. Normative statements, on the other hand, are about what ought to be. Thus normative statements depend on value judgments, and cannot be shown conclusively to be correct or incorrect. Choice (c) is a normative statement. People could begin with the same positive understanding of the economy, and yet reach different conclusions about what the tax system should be.

If we are given a beginning price, an ending price, a beginning quantity demanded, and an ending quantity demanded, we can calculate the own-price elasticity of demand. In calculating the elasticity, it is necessary (among other things) to determine a "reference level" of the price. In this course, what value do we use for the reference level of price?

The average, or midpoint, of the beginning and ending prices.

Apples and bananas are substitutes. On the basis of this information, what can we say?

The cross-price elasticity of demand for apples with respect to the price of bananas is greater than zero. The cross-price elasticity of demand for apples with respect to the price of bananas is equal to the percentage change in quantity of apples, divided by the percentage change in the price of bananas: eAB = %ΔQA / %ΔPB. When two goods are substitutes, an increase in the price of one good will lead to an increase in the demand for the other good. In this case, if apples and bananas are substitutes, an increase in the price of bananas will lead to an increase in demand for apples. If we insert this information into the formula for the cross-price elasticity, their cross-price elasticity will be positive, i.e., greater than zero.

Assume that apples and bananas are substitutes. There is an increase in the price of apples. As a result, what will happen in the market for bananas?

The demand curve for bananas will shift to the right (i.e., there will be an increase in the demand for bananas). The prices of substitutes and complements are *demand shifters*. When there is a change in the price of one of these related goods, we shift to a different demand curve. The direction of the shift will depend on whether the related good is a complement or substitute, and on whether the price of the related good goes up or down. When two goods are substitutes, an increase in the price of one of the goods will lead to an increase in the demand for the other one. Also, when two goods are substitutes, a decrease in the price of one of the goods will lead to a decrease in the demand for the other one.

There is a decrease in the price of good X. Good X and good Y are complements. What (if anything) will happen in the market for good Y?

The demand curve for good Y will shift to the right. When two goods are complements, they are related in demand. The price of goods that are related in demand are held constant when we construct a demand curve, and when those prices change, we will get a shift to a new demand curve. Specifically, if two goods are complements, a decrease in the price of one good will lead to an increase in demand for the other good (i.e., the demand curve for the other good will shift to the right).

Fumpworts are an inferior good. There is a decrease in the incomes of the consumers who might potentially buy fumpworts. As a result, what will happen in the market for fumpworts?

The demand curve will shift to the right. The incomes of consumers are held constant when we construct a demand curve. Thus if incomes change, the demand curve will shift. However, the direction of the demand shift will depend on the nature of the good. For a normal good, a decrease in incomes will lead the demand curve to shift to the left. However, for an inferior good, a decrease in incomes will lead the demand curve to shift to the right.

Assume that peanut butter and jelly are complements. The price of peanut butter decreases. As a result of the decrease in the price of peanut butter, what will happen in the market for jelly?

The demand for jelly will increase (i.e., the demand curve for jelly will shift to the right) When two goods are complements, an increase in the price of one of the goods will lead to a decrease in the demand for the other one. Also, when two goods are complements, a decrease in the price of one of the goods will lead to an increase in the demand for the other one.

Assume that the demand curve for good E is a straight line. As we move downward and to the right along the demand curve, what happens to the own-price elasticity of demand?

The elasticity decreases. The own-price elasticity of demand is the proportional change in quantity demanded, divided by the proportional change in price: e = (ΔQd/Qd) / (ΔP/P). Along a straight-line demand curve, the slope of the curve is always the same. The slope is ΔP/ ΔQd. Thus we can assume that, as we move downward and to the right along the demand curve, we are always considering the same small ΔP, and the same small ΔQd.

The supply of calamari increases (i.e., the supply curve for calamari shifts to the right). As a result, what will happen to the equilibrium price and quantity of calamari?

The equilibrium price will fall; the equilibrium quantity will rise As long as the demand curve is downward sloping, a rightward shift in the supply curve will take us to a new equilibrium, in which the equilibrium quantity will be larger than before, and the equilibrium price will be smaller than before.

There is an increase in the demand for grandfather clocks. In other words, the demand curve for grandfather clocks shifts to the right. What will happen to the equilibrium price and quantity of grandfather clocks as a result?

The equilibrium price will rise; the equilibrium quantity will rise

The price of tarfsnods increases by 20%. As a result of the price increase, the quantity of tarfsnods demanded falls by 20%. Which of the following is true? a)Demand is inelastic; the price increase will lead to an increase in total revenue. b)Demand is unit elastic; total revenue will be unchanged. c)Demand is elastic; the price increase will lead to a decrease in total revenue. d)Demand is unit elastic; the price increase will lead to an increase in total revenue. e)Demand is unit elastic; the price increase will lead to a decrease in total revenue

The own-price elasticity of demand is equal to the percentage change in quantity demanded, divided by the percentage change in price: e = %ΔQd /%ΔP. In this problem, %ΔQd = 20% and %ΔP = 20%. Thus e = 20%/20% = 1. When the demand elasticity is 1.0, we say that demand is unit elastic. By itself, the increase in price will lead to an increase in total revenue. By itself, the decrease in quantity demanded will lead to a decrease in total revenue. When demand is unit elastic, these two influences on total revenue will exactly cancel each other out, and total revenue will be unchanged

The own-price elasticity of demand for Belgian endive is 1.5. The price of Belgian endive increases by 10%. As a result of the increase in price, what will happen to quantity demanded? a)Quantity demanded will fall by 1.5%. b)Quantity demanded will fall by 6.666%. c)Quantity demanded will fall by 10%. d)Quantity demanded will fall by 15%. e)Quantity demanded will remain unchanged.

The own-price elasticity of demand is equal to the percentage change in quantity demanded, divided by the percentage change in price: e = %ΔQd /%ΔP. In this problem, we have e = 1.5, and %ΔP=10. If we substitute these facts into the elasticity equation, we have 1.5 = %ΔQd / 10%. If we then multiply each side of the equation by 10%, we have (1.5)(10%) = %ΔQd. Thus the percentage change in quantity demanded is (1.5)(10%) = 15%

The price of Good X decreases from $1.10 per unit to $0.90 per unit. As a result, the quantity demanded increases from 800 units per week to 1200 units per week. What is the own-price elasticity of demand for Good X? Zero 0.5 1.0 2.0 2.75

The own-price elasticity of demand is the proportional change in quantity demanded, divided by the proportional change in price: e = (ΔQd/Qd) / (ΔP/P). Quantity demanded increases from 800 to 1200. Thus the change in quantity demanded, ΔQd, is (1200 - 800) = 400. To get the proportional change in quantity demanded, we have to divide ΔQd by the reference level of Qd. Our rule is to use the average of the beginning and ending values as the reference level. Thus Qd is the average of 1200 and 800, which is 1000. If we then divide ΔQd by Qd, we have 400/1000 = 0.4. Price decreases from $1.10 to $0.90. This is actually a negative change, but our rule is to use absolute value. Thus the change in price, ΔP, is $(1.10 - 0.90) = $0.20. For price, as for quantity demanded, we use the average of the beginning value and the ending value as the reference level. Thus P is the average of $1.10 and $0.90, which is $1.00. If we then divide ΔP by P, we have $0.20/$1.00 = 0.2. Now we are ready to find the elasticity, by dividing the proportional change in quantity demanded by the proportional change in price: 0.4/0.2 = 2.0.

product possibilities frontier In the production-possibilities frontier diagram below, point J is above the curve, and point K is below the curve

The production-possibilities frontier shows the combinations of outputs that can be produced, if the available resources are used efficiently, i.e., if the resources are used as well as possible. This means that any point that is up and to the right from the frontier (such as point J) simply cannot be produced with the resources that are currently available. Point K is below the frontier. Thus, at point K, the available resources are not being used efficiently, which means that point K is associated with waste or inefficiency

In the market for imports of flamzogs, the equilibrium price is $15 and the equilibrium quantity is 20. Then, a tariff of $10 per flamzog is imposed. As a result, the market moves to a new equilibrium, in which the price paid by buyers is $20, the price received by sellers is $10, and the quantity is 10. How much tariff revenue is collected by the government of the importing country? a)$ 10 b)$ 20 c)($ 50 d)$ 100 e)$ 200

The tariff revenue for the government of the importing country is equal to the tariff per unit, multiplied by the number of units that are bought and sold when the tariff is in place. In this question, the tariff is $10 per unit. After the tariff is in place, the quantity is 10. Multiplying gives us tariff revenue of ($10)(10) = $100.

total revenue for sellers will increase when price decreases in an elastic demand situation, why?

This is because, when the price falls and demand is elastic, the increase in quantity demanded is sufficiently large that it will outweigh the price decrease. Similarly, if demand is elastic, total revenue will fall when price rises.

would an increase in the price of hand sanitizer shift its supply curve to the right?

This will not shift the supply curve. Instead, if the price increases, we move upward and to the right along the existing supply curve, but we do not shift to a different curve.

Total fixed cost is represented graphically by

Total fixed cost does not change as quantity of output changes. Therefore, in the type of graph that we have used repeatedly in this portion of the course, with quantity on the horizontal axis, total fixed cost is represented by a horizontal line.

In class and in the textbook, you have seen average-total-cost and average-variable-cost curves that are "U-shaped" (i.e., the curves slope downward, reach a minimum, and then slope upward). Each of these curves reaches its minimum point at the quantity at which a)it is intersected by the average-fixed-cost curve. b)it is intersected by the total-fixed-cost curve. c)it is intersected by the total-variable-cost curve. d)it is intersected by the total-cost curve. e)it is intersected by the marginal-cost curve.

When MC is greater than ATC, ATC will increase. Similarly, when MC is greater than AVC, AVC will increase. When MC is less than ATC, ATC will decrease. Similarly, when MC is less than AVC, AVC will decrease. When MC is equal to ATC, ATC will not change. This means that ATC must be either at a minimum or a maximum. In the context of a "U-shaped" ATC curve, we are at a minimum. Similarly, when MC is equal to AVC, AVC will not change. This means that AVC must be either at a minimum or a maximum. In the context of a "U-shaped" AVC curve, we are at a minimum.

how is a price floor above eq price similar to a price

When a price floor is enforced above the equilibrium price, the quantity that is actually bought and sold is the quantity demanded. (The quantity supplied is higher, but we only have a transaction when the buyers are willing to buy.) The quantity demanded is smaller than the equilibrium quantity, so that a price floor above the equilibrium price will reduce the quantity that is actually bought and sold. When a price ceiling is enforced below the equilibrium price, the quantity that is actually bought and sold is the quantity supplied. (The quantity demanded is higher, but we only have a transaction when the sellers are willing to sell.) The quantity supplied is smaller than the equilibrium quantity, so that a price ceiling below the equilibrium price will reduce the quantity that is actually bought and sold.

When we construct a demand curve, which of the following is/are allowed to vary? (In other words, which of the following is/are NOT held constant when we construct a demand curve? a. The current price of the good b. The incomes of buyers c. The expectations of buyers, regarding future prices d. All of the above e. (b) and (c) only

When we construct a demand curve, the *price of the good is allowed to vary*, and all other potential influences on the behavior of buyer are held constant. Choices (b) and (c) are things that are held constant when we construct a demand curve. If the incomes or expectations of buyers were to change, we would shift to a different demand curve

As a result of a hurricane, several refineries are damaged, and are temporarily unable to produce gasoline. Thus it could be said that the technology of producing gasoline has deteriorated. This could be characterized as

a leftward shift in the supply curve for gasoline

The own-price elasticity of demand for motor oil is 0.4. The quantity of motor oil demanded decreases by 8%. What must have happened to the price of motor oil, to lead to this decrease in quantity demanded? a)Price increased by 20%. b)Price increased by 8%. c)Price increased by 4%. d)Price increased by 10%. e)Not enough information has been given to answer the question.

a) increase by 20% The own-price elasticity of demand is equal to the percentage change in quantity demanded, divided by the percentage change in price: e = %ΔQd /%ΔP. In this problem, we have e = 0.4 and %ΔQd = 8%. If we substitute these facts into the elasticity equation, we have 0.4 = 8% / %ΔP. Multiplying both sides of the equation by %ΔP, we have (0.4)(%ΔP) = 8%. We then divide both sides of the equation by 0.4, to get %ΔP = 8% / 0.4. Thus the percentage increase in price must have been 8% / 0.4 = 20%.

what are the two necessary characteristics of a perfectly competitive industry

a) the presence of many sellers, each of which is small relative to the market, and b) each of which produces a homogeneous, undifferentiated product that can't be distinguished from the outputs of the other firms in the industry.

The consumer's optimal purchase rule is to buy and consume the quantity at which

a)the difference between total utility and total expenditure is maximized. b)marginal utility is equal to price. c)consumer surplus is maximized

The demand for good Y is inelastic. Due to an earthquake, there is a decrease in the supply of good Y (i.e., the supply curve shifts to the left). What will happen to the total revenues of sellers of good Y? a)Total revenue will increase. b)Total revenue will decrease. c)Total revenue will stay the same. d)None of the above!!!! e)Not enough information has been given to answer the question

a. As a result of the leftward shift in the supply curve, the equilibrium quantity will decrease, and the equilibrium price will increase. By itself, the increase in price will lead to an increase in total revenue. But the increase in price will also lead to a decrease in quantity demanded. By itself, the decrease in quantity demanded will lead to a decrease in total revenue. However, when demand is inelastic, the percentage change in quantity demanded is less than the percentage change in price. Thus the increase in price will have a larger effect on total revenue than the decrease in quantity demanded; as a result, total revenue will increase.

The price of good A increases. As a result of the price increase, there is a decrease in the total revenue received by sellers of good A. What does this imply about the own-price elasticity of demand for good A a)Demand is elastic. b)Demand is unit elastic. c)Demand is inelastic, but not perfectly inelastic. d)Demand is perfectly inelastic. e)Not enough information has been given to answer the question

a. By itself, the increase in price will lead to an increase in total revenue. But the increase in price will also lead to a decrease in quantity demanded. By itself, the decrease in quantity demanded will lead to a decrease in total revenue. Thus the change in price and the change in quantity demanded have effects on total revenue that go in opposite directions. The net effect on total revenue will depend on whether the change in price or the change in quantity demanded is relatively larger. If the change in price is relatively larger than the change in quantity demanded, then an increase in price will lead to an increase in total revenue. However, in this question, the increase in price leads to a decrease in total revenue. For this to occur, it must be true that the change in quantity demanded is relatively larger than the change in price. In other words, it must be true that the percentage change in quantity demanded is larger than the percentage change in price. When the percentage change in quantity demanded is larger than the percentage change in price, the own-price elasticity of demand is greater than one. In this case, we say that demand is elastic

In the Republic of Renkabondo, if all resources are devoted to the production of Good A, it is possible to produce 10 units of A per day. Also, if all resources are devoted to the production of Good B, it is possible to produce 10 units of B per day. Between these two endpoints, the production-possibilities frontier is a straight line. Now, technological improvements increase the production possibilities for Good B. After the technological improvements, if all resources are devoted to production of Good B, it is now possible to produce 30 units of B per day, but the maximum production of Good A stays the same, at 10 units of A per day. Once again, between these two endpoints, the p.p.f. is a straight line. As a result of the technological improvement in production of Good B, what can we say about the opportunity costs of A and B?

a. The opportunity cost of Good A has increased. Before the improvement in the production possibilities for Good B, the opportunity cost of 10 units of A is 10 units of B. Thus 10A = 10B. If we divide both sides of this equation by 10, we find that the opportunity cost of 1 unit of A is 1 unit of B. After the productivity improvement, 10A = 30B. If we divide both sides of this equation by 10, we find that the opportunity cost of 1 unit of A is 3 units of B. Thus the opportunity cost of A has increased (and the opportunity cost of B has decreased).

Which of the following will lead to a decrease in the demand for print cartridges (i.e., a leftward shift in the demand curve for print cartridges)? An increase in the price of printers, which are a complement for print cartridges. -A decrease in the incomes of buyers of print cartridges, assuming that print cartridges are a normal good. -A change in beliefs about the future price of print cartridges, so that buyers of print cartridges come to believe that the price will be much lower in the future.

all of the above

how does an increase in price of a complement good affect the demand of the other complement

an increase in price of one comp piece will lead to a decrease in demand for the other good

what's greater, economic profits or accounting profits

and economic profits are less than accounting profits.

what is a normative statement

are about what ought to be. Thus these statements depend on value judgments, and cannot be shown conclusively to be correct or incorrect.

where is the consumer surplus graphically located.?

area under the demand curve but above the price line

what will happen to the average if the marginal is equal to the average of the previous units, what about when its less

average will remain unchanged, average will decrease

which of the following are not relevant to consider when thinking about shutting down you firm? a)Marginal Costs b)Average Variable Costs c) Fixed Costs

c) fixed costs

The supply of miffwangs is given by Qs = 2P. The demand for miffwangs is given by Qd = 30 - P. What are the equilibrium price and quantity of miffwangs

b) P = $10, Q = 20. We are given an equation for demand and an equation for supply. To find the equilibrium price and quantity, we need to specify the equation for equilibrium, which is that quantity demanded is equal to quantity supplied at the equilibrium: Qd = Qs. If we insert the supply equation and the demand equation into the equilibrium equation, we have 30 - P = 2P. Adding P to each side of the equation gives us 30 = 3P. Dividing both sides of this new equation by 3, we have P = 30/3 = 10. Thus the equilibrium price is 10. If we then take the price of 10 and insert it into either the demand equation or the supply equation, we find that the equilibrium quantity is 20.

what will happen to total expenditures of buyers if there are no taxes? what if there are

buyer's price will stay constant so the total revenue of sellers will match the total expenditure of buyers, but if it's taxed than expenditures for the buyer outweigh that of the seller

Continue to use the equations for the supply curve and demand curve from the previous question, but now assume that the authorities enforce a price-floor law at a price of $15. This will cause a surplus, i.e., the quantity supplied will be greater than the quantity demanded. How large will the surplus be?

c. 15 miffwangs If we insert the price of $15 into the supply equation, we have Qs = 2P = (2)(15) = 30. If we insert the price of $15 into the demand equation, we have Qd = 30 - P = 30 - 15 = 15. Thus the quantity supplied is 30 miffwangs and the quantity demanded is 15 miffwangs. Subtracting, we find that the amount of the surplus is (30 - 15) miffwangs = 15 miffwangs.

In Lower Slobbovia, the government imposes a price floor in the market for zbisznys. The price floor is above the equilibrium price of zbisnys, and the law is enforced. As a result, the quantity that is actually bought and sold will decrease. The decrease in the quantity bought and sold will be larger if a)the elasticity of supply is larger. b)the elasticity of supply is smaller. c)the elasticity of demand is larger. d)the elasticity of demand is smaller. e)zbisnys are an inferior good

c. When a price floor is enforced at a level that is higher than the equilibrium price, the market will not be able to go to equilibrium. Instead, the market will be forced into disequilibrium. The quantity supplied will be greater than the equilibrium quantity, and the quantity demanded will be smaller than the equilibrium quantity. Thus, at the price floor, the quantity supplied will be greater than the quantity demanded, and we will have a surplus. However, the quantity that is actually bought and sold will be determined by the demand curve. (The difference between quantity supplied and quantity demanded involves surplus units that no one is willing to buy.) The decrease in the quantity bought and sold will be larger if the quantity demanded has a greater response to the increase in price. In other words, the decrease in the quantity bought and sold will be larger if the own-price elasticity of demand is larger.

The price of a taco gigante is $3. How many tacos gigantes should Jason buy? a) 0 b) 1 c) 2 d) 3 e) 4

d) 3 The consumer's optimal purchase rule is to buy and consume the quantity at which marginal utility is equal to price. If the price of a taco gigante is $3, then the optimal choice is to buy and consume the number of tacos gigantes, such that the marginal utility of the *last one* is $3

Which of the following is/are a true statement regarding market equilibrium? a. When the market price is at its equilibrium level, quantity demanded is equal to quantity supplied. Graphically, market equilibrium occurs where the supply curve and the demand curve cross each other. When the market price is at its equilibrium level, neither a surplus nor a shortage will occur. d. All of the above are correct

d) all of the above are correct

Which of the following is true for BOTH the own-price elasticity of demand and the elasticity of supply? a)If the demand curve or supply curve is vertical, we say that demand or supply is perfectly inelastic. b)If the demand curve or supply curve is horizontal, we say that demand or supply is perfectly elastic. c)Both demand and supply are likely to have a larger elasticity, if there is more time for people to adjust to a change in price. d)All of the above. (a) and (c) only.

d)all of the above In the case of choice (a), with a vertical curve, demand or supply is perfectly inelastic, and the demand or supply elasticity is zero. For choice (b), demand or supply is perfectly elastic, and the limit of the elasticity as the curve becomes horizontal is infinity. Choice (c) is also correct—often, it is costly to make large changes in behavior over a very short time period. However, when economic agents are given a longer period of time over which to adjust their behavior, they can make larger changes.

In the Kingdom of Zlatko, the economy is on its production-possibilities frontier (p.p.f.) in 2018. Then, by one year later (in 2019), the economy produces more of every good than it had produced in 2018. How could this occur?

d. By adopting new technologies and increasing the size of the labor force. The economy is on its production-possibilities frontier. Thus it is producing efficiently, which means that choice (a) cannot be correct, since there is no waste to reduce. If the economy moves along the existing p.p.f., as in choices (b) and (c), it will produce more of one good, but less of the other good. If the economy starts on the frontier, the only way to produce more of every good is to push the p.p.f. outward. This can be done by adopting new technologies, or by increasing the size of the labor force, or by improving the skills of the labor force, or by making capital investments.

The opportunity cost of producing wozzicks is lower in the Republic of Istvan than in any other country. This implies that a. the world economy will be strengthened if other countries impose tariffs or quotas on imports of wozzicks from Istvan. b. Istvan has comparative advantage in the production of wozzicks. c. it could be beneficial for Istvan to specialize in the production of wozzicks, and export them to other countries. d. all of the above are correct. e. (b) and (c) only are correct.

e) By the definition of comparative advantage, a country has comparative advantage if its opportunity cost is lower than the opportunity cost in other countries. Thus choice (b) is correct. Choice (c) is also correct—we have seen that it can be beneficial for countries to specialize in the activities in which they have comparative advantage, and then to trade with other countries that have comparative advantage in other activities. However, choice (a) is not correct. We have seen that tariffs and quotas reduce the amount of economic activity.

There is a shortage in the market for zwambogs. This means that a. the quantity of zwambogs demanded is greater than the quantity of zwambogs supplied. b. the quantity of zwambogs supplied is greater than the quantity of zwambogs demanded. c.t here will be pressure for the price of zwambogs to rise. d. All of the above are correct. e. (a) and (c) only are correct

e) Choice (a) is correct; it is the definition of a shortage. Choice (c) is also correct. When there is a shortage, there will be pressure for the price to rise until the price reaches its equilibrium value.

The Principle of Increasing Opportunity Cost a. is observed when the production-possibilities frontier has its usual, outward-bowed shape. b)indicates that the opportunity cost of additional increases in production of a good is constant. c)is observed when the two goods on the axes of the production-possibilities frontier use different resources and/or technologies. d)All of the above are correct. e)Only (a) and (c) are correct.

e) Only (a) and (c) are correct The Principle of Increasing Opportunity Cost states that as the production of a good increases, the opportunity cost of further increases in production of that good will increase. If opportunity cost is increasing, it cannot also be constant, which means that choice (b) is incorrect. Opportunity cost is associated with the slope of the production-possibilities frontier: The slope of the frontier is the negative of the opportunity cost of the good on the horizontal axis. Thus if opportunity cost is constant, the p.p.f. will be a straight line. In the more common case of increasing opportunity cost, the p.p.f. will be bowed outward from the origin.

The slope of the production possibilities frontier is

the negative of the opportunity cost of the good on the horizontal axis. The slope of any line is the change along the vertical axis, divided by the change along the horizontal axis. As we move from left to right along a p.p.f., the slope is the decrease in the quantity of the good on the vertical axis, divided by the increase in the quantity of the good on the horizontal axis. In other words, the slope of the p.p.f. is the negative of the amount of the good on the vertical axis that must be given up, in order to get an additional unit of the good on the horizontal axis. Thus, the slope of the p.p.f. is the negative of the opportunity cost of the good on the horizontal axia

How do you calculate the own price of elasticity of supply

the own price elasticity of *supply* is the percentage change in QUANTITY supplied, divided by the percentage change in the price.

what is a price taker, what is the elasticity and direction (horiz/vert) of a price taking firm's demand curve?

the perfectly competitive firm takes the market price as given perfectly elastic

short run

the period of time during which at least one of a firm's inputs is fixed

what does the cross price elasticity of demand measure

the responsiveness of demand for one good to changes in the price of a *different good*

what does the income elasticity of demand measure

the responsiveness of demand to changes in the incomes of the buyers

total expenditure

total amount that buyers pay for a particular quantity of some item. Total expenditure is equal to the price paid by the buyers, multiplied by the quantity: TE = (P)(Q).

if demand is elastic, how will total revenue for sellers be affected by price decreases

total revenue for sellers will increase

what do we know about the relation of total values that tell us that a firm must shut down

total revenue is less than total variable cost

The own-price elasticity of demand for toothpicks is 0.6. The price of toothpicks falls by 10%. As a result, what will happen to the total revenue received by sellers of toothpicks?

total revenue will decrease If the own-price elasticity of demand is less than 1.0, we say that demand is inelastic. In this case, the elasticity is 0.6, which is indeed less than 1.0, so we have inelastic demand. By itself, the decrease in price will lead to a decrease in total revenue. But the decrease in price will also lead to an increase in quantity demanded. By itself, the increase in quantity demanded will lead to an increase in total revenue. However, when demand is inelastic, the percentage change in quantity demanded is less than the percentage change in price. Thus the decrease in price will have a larger effect on total revenue than the increase in quantity demanded; as a result, total revenue will decrease.

how will total revenue behave in references to changes in price in an elastic demand curve

total revenue will fall when price rises

the quantity at which marginal utility is equal to price is the same quantity that .........

total utility minus total expenditure is great

what is the shape of the short run average total cost curve

u-shaped

Michelangelo's "Pieta" is in St. Peter's Basilica in Rome. The Roman Catholic Church is unlikely to offer this sculpture for sale. However, if they were to put it on the market, its supply curve would be a vertical line, since the sculpture cannot be reproduced. In a case like this, what is the elasticity of supply?

zero The (own-price) elasticity of supply is the proportional change in quantity supplied, divided by the proportional change in price: eS = (ΔQs/Qs) / (ΔP/P). If the supply curve is vertical, then the quantity supplied does not change, regardless of what happens to price. Thus ΔQs = 0, which means that (ΔQs/Qs) is zero, which means that eS = (ΔQs/Qs) / (ΔP/P) = 0.