Econ Review #3
Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.
0.5
If 50 unites are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula
1.62
Government intervention in agricultural markets in the U.S. began in the
1930's
Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand? Use the midpoint formula.
2.69
Studies show that the income elasticity of demand for wine is approximately five. What does this mean?
A one percent increase in income leads to a five percent increase in wine consumption.
Refer to the diagram to the right. What area represents the increase in producer surplus when the market price rises from P1 to P2?
A+B
Refer to the diagram to the right. What area represents producer surplus at a price of P2?
A+B+C
Which of the following statements is true?
An increase in demand causes a change in the equilibrium price; the change in price does not cause a further change in demand or supply.
Which of the following statements is true? (2)
An increase in supply causes a change in equilibrium price; the change in price does not cause a further change in demand or supply.
Let D=demand, S=Supply, P=equilibrium, and Q= equilibrium quantity. What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of cholesterol?
D increases, S no change, P and Q increase
_________ is maximized in a competitive market when marginal benefit equals marginal cost.
Economic surplus
Which of the following could explain why the demand for table salt is inelastic?
Households devote a very small portion of their income to salt purchases.
In October, market analysis predict that the price of platinum will fall in November. What happens in the platinum market in October, holding everything else constant?
The supply curve shifts to the right.
Economists refer to a market where buying and selling take place at prices that violate government price regulations as
a black market
Rent control is an example of
a price ceiling
Which term refers to a legally established minimum price that firms may charge?
a price floor
What is the difference between an 'increase in supply' and in 'increase in quantity supplied'?
an "increase in supply" means the supply curve has shifted to the right while "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.
Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09. This means that
an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good
If a 5 percent increase in income leads to a 10 percent decrease in quantity demanded for a product, this product is
an inferior good
Assume that both the demand curve and the supply curve for MP3 players shift to the right but the demand curve shifts more than the supply curve. As a result
both the equilibrium price and quantity of MP3 players will increase
Assume that the demand curve for MP3 players shifts to the right and the supply curve for MP3 players shift to the left, but the supply curve shifts less than the demand curve. As a result
both the equilibrium price and quantity of MP3 players will increase.
If the cross-price elasticity of demand for goods X and Y is negative, this means the two goods are
complements
The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called
consumer surplus
A(n) __________ is represented by a leftward shift of the demand curve while a(n) _______ is represented by a movement along a given demand curve.
decrease in demand; increase in quantity demanded
If there is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and consumer surplus plus producer surplus is maximized, then
economic efficiency is achieved
If the quantity demanded for a good rises as income rises then the income elasticity of demand for this good is ________ than 0, and the good is _______ good.
greater; normal
A demand curve that is horizontal indicates that the commodity
has a large number of substitutes.
Price elasticity of demand measures
how responsive quantity demanded is to a change in price.
The demand for gasoline in the short run is
inelastic because there are no good substitutes for gasoline.
If a good has a negative income elasticity of demand, this indicates that the good is
inferior
Economic surplus
is equal to the sum of consumer surplus and producer surplus.
If demand is inelastic, the absolute value of the price elasticity of demand is
less than one
The difference between the _______ and the ______ from the sale of a product is called producer surplus.
lowest price a firm would have been willing to accept; price it actually receives
In a competitive market, the demand curve shows the _________ received by consumers and the supply curve shows the ___________.
marginal benefit; marginal cost
To affect the market outcome a price ceiling
must be set below the equilibrium price
In order to be binding, a price ceiling
must lie below the free market equilibrium price
cross-price elasticity of demand is calculated as the
percentage change in quantity demanded of one good divided by percentage change in price of a different good
Marginal cost is
the additional cost to a firm of producing one more unit of a good or service.
The total amount of producer surplus in a market is equal to
the area above the market supply curve and below the market price
Consumer surplus in a market for a product would be equal to ____________ if the market price was zero.
the area under the demand curve
Suppose a decrease in the supply of bottled water resulted in a decrease in revenue. This indicates that
the demand for bottled water is price elastic in the price range considered
Assume that both the demand curve and the supply curve for MP3 players shift to the right but the supply curve shifts more than the demand curve. As a result
the equilibrium price of MP3 players will decrease; the the equilibrium quantity will increase
Assume that the demand for MP3 players shifts to the right and the supply curve for MP3 players shifts to the left, but the supply curve shifts more than the demand curve. As a result
the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease.
Willingness to pay measures
the maximum price that a buyer is willing to pay for a good
Total revenue is equal to
the price of a product multiplied by the number of units of the product sold
Suppliers will be willing to supply a product only if
the price received is at least equal to the additional cost of producing the product.
The income elasticity of demand measures
the responsiveness of quantity demanded to changes in income
Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which
the sum of consumer surplus and producer surplus is at a maximum
If the market for a product is broadly defined, then
there are few substitutes for the product and the demand for the product is relatively inelastic.
When the price of pistachio nuts is $7.50 per lb. the quantity demanded is 48 lbs. When the price of pistachio nuts it $9.00 per lb. the quantity demanded is 40 lbs. When the midpoint formula is used to measure the price elasticity of demand we can say that the demand for pistachio nuts is
unit elastic
A demand curve which is _______ represents perfectly inelastic demand, and a demand curve which is _________ represents inelastic demand.
vertical; downward sloping
Along a downward-sloping, linear demand curve, total revenue is the greatest
where demand is unit elastic
If demand is perfectly inelastic, the absolute value of the price elasticity of demand is
zero