Intro to Microeconomics

Suppose that when the price of oranges is $3 per pound, the quantity demanded is 4.7 tons per day and the quantity supplied is 3.9 tons. In this case

excess demand will lead the price of oranges to rise.

The tendency of markets to automatically gravitate toward equilibrium is an application of the

Incentive Principle.

If the demand for olives falls when the price of cheese falls, then we know that cheese and olives are

substitutes.

If the absolute value of slope of the demand curve is 3, price is $6 per unit, and the quantity demanded is 12 units, then the price elasticity of demand is

.167

If the price elasticity of demand for food is 0.25, then a 3 percent increase in the price of food will lead to a ______ decrease in quantity demanded.

.75%

If a 12 percent decrease in the price of a good leads to a 12 percent increase in the quantity demanded, then what is the price elasticity of demand?

1

Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tamika 6 minutes to make a sandwich and 12 minutes to make a smoothie. What is the opportunity cost to Dan of making a sandwich?

1/3 of a smoothie

If the price of cheese falls by 1 percent and the quantity demanded rises by 2 percent, then the price elasticity of demand for cheese is equal to

2

total benefit

The sum of all the marginal benefits of consuming additional units

When a market is in equilibrium

there is neither excess demand nor excess supply.

The Principle of Increasing Opportunity Costs states that

when increasing production, resources with the lowest opportunity costs should be used first

Excess demand occurs

when price is below the equilibrium price.

shortage

A situation in which quantity demanded is greater than quantity supplied

economic surplus

the sum of consumer surplus and producer surplus

If the demand for a good decreases as income decreases, then the good is:

A normal good.

surplus

A situation in which quantity supplied is greater than quantity demanded

What might cause a demand curve to shift to the right?

An increase in the price of a substitute

Cost-Benefit Principle

An individual (or a firm or a society) should take an action if, and only if, the extra benefits from taking the action are at least as great as the extra costs.

If the production of oranges reduces global warming, then the equilibrium quantity of oranges will be ______ the socially optimal quantity.

lower than

Demand tends to be ______ in the short run than in the long run.

less elastic

The demand for a good is inelastic with respect to price if the price elasticity of demand is

less than one.

Which of the following is not a characteristic of rent controls?

Excess demand for apartments Lower expenditures on maintenance Fewer newly built apartment buildings XGreater availability of apartments

If the demand for a good is highly elastic, that good is likely to have

If the demand for a good is highly elastic, that good is likely to have

If Jorge can produce two pairs of pants per hour while Eva can produce one pair per hour, then it must be true that

Jorge has an absolute advantage in producing pants

All else equal, the price elasticity of demand for small-budget items such as soap tends to be ______ than the price elasticity of demand for big-ticket items such as flat-screen TVs.

lower

You have noticed that your next-door neighbor, Arya, sometimes works in the garden and sometimes walks the dog, and her husband, Suresh, sometimes works in the garden and sometimes walks the dog. You conclude that if Suresh and Arya are efficient, then it must be the case that

Neither Arya nor Suresh has a comparative advantage in walking the dog

Suppose the market demand curve is given by Qd = 60 − 10P, and the market supply curve is given by Qs = 12 + 10P. What is the equilibrium price and quantity?

P* = $2.40 and Q* = 36

Suppose you bought a concert ticket from Ticketmaster for $50, but when you get to the concert, there are a large number of people waiting outside who offer to pay you more than $50 for your ticket. What is probably true?

There is an excess demand for tickets at the Ticketmaster price.

Which of following is not true of the equilibrium price?

X It is fair in the sense that everyone can afford basic goods and services. It measures the value of the last unit sold to consumers. Buyers who are willing to pay the equilibrium price can acquire the good. Sellers who are willing to accept the equilibrium price can sell what they produce.

The entire group of buyers and sellers of a particular good or service makes up

a market.

If the demand for computers increases as consumers' incomes rise, then computers are

a normal good.

If the demand for steak increases as income increases, then steak is

a normal good.

Two goods are complements if

an increase in the price of one good leads to a decrease in demand for the other.

Scarcity Principle

asserts that opportunities seem more valuable when their availability is limited

When the price of a good changes, the amount of that good that buyers wish to buy changes

because of both the substitution and the income effects.

Equilibrium price and quantity are determined by

both supply and demand.

An individual has an absolute advantage in producing pizzas if that individual

can produce more pizzas in a given amount of time than anyone else

A movement along a demand curve from one price-quantity combination to another is called a

change in quantity demanded.

In general, individuals and nations should specialize in producing those goods for which they have a

comparative advantage

If the price of textbooks increases by one percent and the quantity demanded falls by one and a quarter percent, then demand for textbooks is

elastic

o increase total revenue, firms with ______ demand should lower price, and firms with ______ demand should increase price.

elastic; inelastic

Suppose that both the supply of iPads and the demand for iPads decrease. One can predict that the

equilibrium quantity will fall, but the change in equilibrium price is uncertain.

The demand for a good is elastic if the price elasticity of demand is

greater than one

Ashley has a comparative advantage over her classmates in writing term papers if she:

has a lower opportunity cost of writing term papers than her classmates

The emergence of English as the de facto world language __________ a comparative advantage in the production of books, movies, and popular music.

has given English-speaking countries

If the local slaughterhouse gives off an unpleasant stench, then the equilibrium quantity of meat will be _____ the quantity that maximizes total economic surplus.

higher than

The quantity that sellers wish to sell tends to ______ as price increases, and so the supply curve is ______ sloping.

increase; upward

implicit costs

input costs that do not require an outlay of money by the firm

The buyer's reservation price for a particular good or service is the

largest price the buyer would be willing to pay for it.

According to the textbook, government price controls fail because

legislation cannot alter basic economic incentives.

normative economics

makes prescriptions about the way the economy should work

As the price of a good rises

more firms can cover their opportunity cost of producing the good

Points that lie below the production possibilities curve are inefficient because

more of one good could be produced without producing less of the other

The slope of a production possibilities curve is _______ because ________.

negative; producing more of one good requires producing less of the other

When calculating price elasticity of demand, if the percentage change in price is negative, then the percentage change in quantity demanded is typically

positive

The percentage change in quantity supplied that results from a 1 percent change in price is known as the

price elasticity of supply

A graph that illustrates the maximum amount of one good that can be produced for every possible level of production of the other good is called a

production possibilities curve

The price elasticity of demand for a good measures the responsiveness of

quantity demanded to a 1 percent change in price of that good.

Outsourcing is a term increasingly used to refer to the act of

replacing relatively expensive American workers with low-wage workers overseas

In a free market, if the price of a good is above the equilibrium price, then

sellers, dissatisfied with growing inventories, will lower their prices.

A market equilibrium might not maximize total economic surplus because

sometimes goods entail costs and benefits that do not fall on buyers and sellers.

absolute advantage

the ability to produce a good using fewer inputs than another producer

marginal benefit

the additional benefit to a consumer from consuming one more unit of a good or service

marginal cost

the cost of producing one more unit of a good

"All else constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying

the demand curve.

When a market is not in equilibrium

the economic motives of sellers and buyers will move the market to its equilibrium.

opportunity cost

the most desirable alternative given up as the result of a decision

equilibrium price

the price that balances quantity supplied and quantity demanded

If supply and demand both increase, the new equilibrium price will be ______ and the new equilibrium quantity will be ______.

uncertain; higher