Micro Test
Whether or not a good can be classified as a complement depends on whether
an increase in demand for one good follows a decrease in the price of the other
If the price of computers increases and the demand for moniters decreases as a result, then
computers and monitors are complements
If the price elasticity of demand for a good is greater than one, then the demand for that good, with respect to price is
elastic
When the price of NBA ticket is $25 each, 30,000 tickets are sold every game. After the price rises to $30 each, 20,000 tickets are sold every game. At the original price, the demand for NBA ticket is
elastic (The percentage change in quantity is 0.333 (10,000/30,000) and the percentage change in price is 0.2 ($5/$25).If the percentage change in quantity is greater than the percentage change in price, then the elasticity will be greater than one. When elasticity is greater than one, demand is price elastic
You can spend $5 for lunch and you would like to have two double cheeseburgers. When you get to the restaurant, you find out the price for double cheeseburger for lunch. This is best described as
income effect
At the beginning of the fall semester, college towns experience large increases in their populations, causing
increase in the demand for apartments
As coffee becomes more expensive, Jow starts drinking tea, and therfore quantity demanded for coffee decreases. This is called
The substitution effect
The entire group of buyers and sellers of a particular good or service makes up
a market
If the demand for a good decreases as income decreases it is a(n)
normal good
If cross price elasticity is positive but less than one, the two goods are
substiutes
The demand curve illustrates the fact that consumers
tend to purchase more of a good as its price falls
If the price of a good increases by 20% and that leads to a decrease in quantity demanded by 60%, what is the price elasticity of demand for that good?
3
Suppose that the equilibrium price of rice falls and the equilibrium quantity falls. Which of the following best fits the observed data?
A decrease in demand with supply constant
What might cause a demand function to shift to the right?
An increase in the price of a substitute
Suppose a market is in equilibrium. The area between the demand curve and the market price is
Consumer Surplus
Small budget items such as soap have __________ price elasticity of demand comapred to big ticket items such as flat-screen TV's
Lower
Assume the price of gasoline doubles tonight and remains at that price for the next two years. The short-term price elasticity of demand for gasoline will be ________ when compared with the long-term price elasticity of demand for gasoline.
More inelastic
A movement along a demand curve from one price-quantity combination to another is called
a change in quantity demanded
"As the price of personal computers continues to fall, demand increases. "This headline is inaccurate because
a falling price for personal computers increases quantity demanded, not demand
A market comprised of a downward-sloping demand curve that intersects an upward-sloping supply curve is said to be stable because
at any price other than equilibrium, forces in the market move price towards the equilibrium
When the price of an item increases, buyers tend to purchase less of that item
because of both the substitution and the income effects.
As one moves down along a linear demand curve (from high price, low quantity pairs to low price, high quantity pairs) the demand
becomes less price elastic (At the top of the demand curve, a one unit change in quantity, because it is a small quantity to begin with, will be fairly large. The opposite is true at the bottom of a demand curve. Price is low, so a one-unit change is a fairly large percentage, but quantity is large so a one-unit change is a small percentage. This combination is associated with inelastic demand)
Demand for coffee last monday is shown in bold and labeled D(Monday). On Tuesday, the news featured a story about a storm that wiped out the entire coffee crop in Brazil. On Wednesday
demand shifted to D(B) in anticipation of future price increases
As consumers incomes increase, the demand for ground beef decreases. Ground beef is called a(n)
inferior good
At the price of $20 each, demand for T-shirts for students group's fundraising activity is unitary elastic. Total expenditure for T-Shirts reaches __________ at a price of $20 each
its maximum (Total revenue is at its highest when elasticity equals one)
If the demand for a good is elastic, that good is likely to have
many close substiutes
An outcome is socially optimal if it
maximizes total economic surplus
The buyers reservation price of a particular good or service is the
maximum amount the buyer would be willing to pay for it
Suppose a market is in equilibrium. The area between the market price and the supply curve is
producer surplus
A shortage occurs when
quantity demanded exceeds quantity supplied
In surveying their alumni, State U's economics department discovered that ramen noodle consumption declined as soon as students graduated and found jobs. One conclusion the survey team might draw from this result is that
ramen noodles are inferior good (Income elasticity is the percentage change in quantity consumed when there is a one percent change in income. For inferior goods, an increase in income leads to a decrease in consumption
A pizza shop observes that when it raises the price of the large pizza, total revenue from pizza decreases and when they lower the price of the large pizza, total revenue increases. This suggests that
the demand for a large pizza must be elastic (Total revenues increase when price dereases and total revenues decrease when price increases when demand is elastic)
In general, when the supply curve shifts to the left and demand is constant then
the equilibrium price will rise
Total economic surplus is greatest when
the market is in equilibrium
Whenever the quantity demanded is not equal to the quantity supplied, the quantity that is actually sold in the market is
the smaller of the quantity demanded and the quantity supplied
The sum of the economic surpluses accruing to buyers and sellers is
total economic surplus
