ECON 201 HW 2

An increase in the price of a good would

give producers an incentive to produce more.

If Miguel expects to earn a higher income next month, he may choose to

save less now and spend more of his current income on goods and services.

At Nick's Bakery, the cost to make a cheese danish is $1.50 per danish. As a result of selling ten danishes, Nick experiences a producer surplus in the amount of $20. Nick must be selling his danishes for

$3.50 each.

Which of the following statements about the price elasticity of demand is correct?

-The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases. -Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. -Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y.

Today's supply curve for gasoline could shift in response to a change in

the expected future price of gasoline.

A decrease in demand will cause a decrease in price, which will cause a decrease in supply. True or False?

False

Economic policies often have effects that their architects did not intend or anticipate. (true or false)

True

If the income elasticity of demand for a good is negative, then the good must be an inferior good. (true or false)

True

Taxes levied on sellers and taxes levied on buyers are equivalent. (true or false)

True

When the price of a good is high, selling the good is profitable, and so the quantity supplied is large. True or False?

True

Which of the following might cause the supply curve for an inferior good to shift to the right?

an improvement in production technology that makes production of the good more profitable

Consider the market for portable air conditioners in equilibrium. When a heat wave strikes the equilibrium price (what happens to price and quantity??)

and quantity both increase.

Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic. If a tax is imposed in this market, then the

buyers will bear a greater burden of the tax than the sellers.

OPEC has coordinated a reduction in supply that was

more profitable in the short run than in the long run.

As a result of a decrease in price,

new buyers enter the market, increasing consumer surplus.

Total surplus is represented by the area below the

demand curve and above the supply curve, up to the equilibrium quantity.

Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost. Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than Cassie. If Firm A produces a monitor that Cassie buys but David does not, then the market outcome illustrates which of the following principles? (i) Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay. (ii) Free markets allocate the demand for goods to the sellers who can produce them at the least cost.

option ii

In a competitive market free of government regulation,

price adjusts until quantity demanded equals quantity supplied.

A linear, downward-sloping demand curve has a constant elasticity but a changing slope. (true or false?)

false