Micro Midterm
Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are
substitute goods.
Suppose the government imposes a 20-cent tax on the sellers of artificially-sweetened beverages. The tax would shift
supply, raising the equilibrium price and lowering the equilibrium quantity in the market for artificially sweetened beverages.
If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of
the availability of close substitutes in determining the price elasticity of demand.
If something happens to alter the quantity demanded at any given price, then
the demand curve shifts.
Mina decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is
the enjoyment she would have received had she gone to the park.
If a price floor is not binding, then
the equilibrium price is above the price floor.
Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,
the equilibrium quantity decreases, and the equilibrium price is unchanged.
Suppose the market demand curve for a good passes through the point (quantity demanded = 100, price = $25). If there are five buyers in the market, then
the marginal buyer's willingness to pay for the 100th unit of the good is $25.
Consider Luis's decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Luis's cost of going to college is
$42,600.
Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book?
$8
When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is
0.67, and an increase in price will result in an increase in total revenue for good A.
If something happens to alter the quantity supplied at any given price, then
the supply curve shifts.
Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?
A 13.33 percent increase in the price of the good
Which of the following changes would not shift the supply curve for a good or service?
A change in the price of the good or service
Which of the following changes would not shift the demand curve for a good or service?
A change in the price of the good or service.
Refer to Table 3-9. The values in the table represent the amounts of lemonade and pizzas that Alice and Betty can produce in one week without and with specialization and trade. What are Alice and Betty's gains from specialization and trade?
Alice gains 7 pitchers of lemonade and 10 pizzas, while Betty gains 13 pitchers of lemonade and 10 pizzas.
If scientists discover that steamed milk, which is used to make lattés, prevents heart attacks, what would happen to the equilibrium price and quantity of lattés?
Both the equilibrium price and quantity would increase.
Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then
Dallas's consumer surplus would increase.
For which of the following goods is the income elasticity of demand likely highest?
Diamonds
Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?
Lower the price to increase total revenue.
For which pairs of goods is the cross-price elasticity most likely to be positive?
Pens and pencils
Which of the following is not correct?
Taxes levied on sellers and taxes levied on buyers are not equivalent.
Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?
The effective price received by sellers is $0.40 per bottle less than it was before the tax.
What would happen to the equilibrium price and quantity of lattés if the cost of producing steamed milk, which is used to make lattés, rises?
The equilibrium price would increase, and the equilibrium quantity would decrease.
Which of the following is not held constant in a supply schedule?
The price of the good
Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?
The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve.
Which of the following is not a determinant of the price elasticity of demand for a good?
The steepness or flatness of the supply curve for the good
Suppose buyers of fountain drinks are required to send $0.50 to the government for every fountain drink they buy. Further, suppose this tax causes the effective price received by sellers of fountain drinks to fall by $0.20 per drink. Which of the following statements is correct?
This tax causes the demand curve for fountain drinks to shift downward by $0.50 at each quantity.
Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result,
a shortage of treadmills will develop.
If a binding price floor is imposed on the video game market, then
a surplus of video games will develop.
When we move along a given demand curve,
all nonprice determinants of demand are held constant.
When we move along a given supply curve,
all nonprice determinants of supply are held constant.
You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would
be positive, and your roommate's would be negative.
Ryan produces hair clips and earrings. Celia also produces hair clips and earrings, but Ryan is better at producing both goods. In this case, trade could
benefit both Celia and Ryan.
Henry is willing to pay 45 cents, and Janine is willing to pay 55 cents, for 1 pound of bananas. When the price of bananas falls from 50 cents a pound to 40 cents a pound,
both Janine and Henry experience an increase in consumer surplus.
Suppose you like to make, from scratch, pies filled with bananas and vanilla pudding. You notice that the price of bananas has increased. As a result, your demand for vanilla pudding would
decrease
The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10 percent. The equilibrium price will?
decrease in both the aged cheddar cheese and bread markets.
The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate
decreases, and producer surplus decreases.
A drought in California destroys many red grapes causing the prices of both red grapes and red wine to rise. As a result, the consumer surplus in the market for red grapes
decreases, and the consumer surplus in the market for red wine decreases.
Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we know that the
demand is more inelastic than the supply.
Suppose the cross-price elasticity of demand between peanut butter and jelly is −2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to
fall by 50 percent.
Economists make assumptions to
focus their thinking on the essence of the problem at hand.
If the government removes a binding price ceiling from a market, then the price paid by buyers will
increase, and the quantity sold in the market will increase.
When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is
inelastic.
Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will
lower both price and total revenues.
Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline market
may increase, decrease, or remain unchanged.
If a nonbinding price floor is imposed on a market, then the
quantity sold in the market will stay the same.
Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should
sell the ticket because the marginal benefit exceeds the marginal cost.
You have driven 800 miles on a vacation and then you notice that you are only 15 miles from an attraction you hadn't known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include
the cost of driving the next 15 miles, but not the cost of driving the first 800 miles.
You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that
the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.
A production possibilities frontier is bowed outward when
the rate of trade-off between the two goods being produced depends on how much of each good is being produced.
Suppose there are only two people in the world. Each person's production possibilities frontier also represents his or her consumption possibilities when
they choose not to trade with one another.
Consider the market for gasoline. Buyers
would lobby for a price ceiling, whereas sellers would lobby for a price floor.
If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is
zero.
