Exam 2 - Micro

An import ban ____ the price of sugar, ____ the total (market) quantity of sugar, and ____ the quantity of sugar produced by domestic firms

None of the above

If a 10% increase in price decreases the quantity demanded by 15%, the price elasticity of demand is:

1.5

IF the marginal cost equals average total cost, we are at the minimum point of the _____ cost curve.

Average Total

Suppose the price elasticity of demand for accordions is 2.0 and the supply elasticity is 3.0. If a subsidy on accordions increases supply by 20%, the equilibrium price will ____ by ____%.

Decrease; 4

Assume that the elasticity of demand for chewing tobacco is 0.70 and the elasticity of supply is 2.30. Suppose an antichewing campaign decreases the demand for chewing tobacco by 18%. The equilibrium price of chewing tobacco will ____ by ____%.

Decrease; 6

Because _____ typically exceeds _____, _____ typically exceeds _____.

Economic costs; accounting costs; accounting profits; economic profits

If demand is elastic, an increase in price will increase total revenue.

False

In the long run, one factor is fixed (usually plant size).

False

Suppose at the current price, the price elasticity of demand for a movie theatre is 0.25. If the price is cut, total revenue will increase.

False

The typical short-run average-cost curve is shaped like the letter U, while the typical long-run average-cost curve is shaped like the letter L because diminishing returns are not applicable in the short run.

False

Demand is relatively inelastic if the product has _____ substitutes, a _____ time passes, and the consumer spends a _____ fraction of his or her budget on the product.

Few; short; small

__________ firms can adjust all factor inputs to meet the needs of the market.

In the long run

Suppose the elasticity of demand for motel rooms is 1.0 and the elasticity of supply is 0.50. If the demand for motel rooms increases by 15%, the equilibrium price of motel rooms will ____ by ____%.

Increase; 10

Suppose the price elasticity of demand for tomatoes is 0.65 and the supply elasticity is 2.35. If there is an increase in demand of 12%, the equilibrium price will _____ by _____.

Increase; 4%

The cross-price elasticity of demand is _____ for substitute goods and _____ for complementary goods.

Positive; negative

The income elasticity of demand is _____ for normal goods and _____ for inferior goods.

Positive; negative

To compute the price elasticity of demand, we divide the percent change in _____ by the percent change in _____ .

Quantity demanded; price

Producer surplus equals _____ minus _____

The amount a producer actually receives; marginal cost

As the number of substitutes for a particular product increases, the price elasticity of demand for the product increases.

True

If demand is inelastic, an increase in price will increase total revenue.

True

Over time, the price elasticity of demand for a product will increase.

True

The demand for coffee is relatively inelastic, therefore, we would expect consumers to pay a relatively large share of a tax on coffee.

True

If demand is elastic, an increase in price _____ total revenue; if demand is inelastic, an increase in price _____ total revenue.

decreases; increases