Microeconomics
If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a
20 percent decrease in the quantity demanded.
Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase total revenue?
4
Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?
Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous
Which of the following demonstrates the law of supply?
When ketchup prices rose, ketchup sellers increased their quantity supplied of ketchup.
If muffins and bagels are substitutes, a higher price for bagels would result in
an increase in the demand for muffins.
A good will have a more inelastic demand, the
broader the definition of the market
Today, producers changed their expectations about the future. This change
can affect today's supply
The line that relates the price of a good and the quantity supplied of that good is called the supply
curve, and it usually slopes upward.
The demand for grape-flavored Hubba Bubba bubble gum is likely
elastic because there are many close substitutes for grape-flavored Hubba Bubba.
If the demand for donuts is elastic, then a decrease in the price of donuts will
increase total revenue of donut sellers
A group of buyers and sellers of a particular good or service is called
market
For a good that is a luxury, demand
tends to be elastic
For which of the following goods is the income elasticity of demand likely lowest?
water
Last year, Maria made $54,000 and bought five purses. This year, Maria makes $60,000 and purchased seven purses. Holding other factors constant and using the midpoint method, it follows that Maria's income elasticity of demand is about
3.17, and Maria regards purses as normal goods
Table 4-2 Price (Dollars per unit) Quantity Demanded (Units) Bert Ernie Grover Oscar 0.00 20 16 6 8 0.50 18 12 4 6 1.00 14 10 2 5 1.50 12 8 0 4 2.00 6 6 0 2 2.50 0 4 0 0 Refer to Table 4-2. If these are the only four buyers in the market, then the market quantity demanded at a price of $1.00 is
31 units
Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by
40%
What would happen to the equilibrium price and quantity of smartphones if consumers' incomes rise and smartphones are a normal good?
Both the equilibrium price and quantity would increase
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.
Suppose there is a flood in St. Louis, Missouri, that destroys several beer bottling facilities. Which of the following would not be a direct result of this event?
Buyers would not be willing to buy as much as before at each relevant price.
Suppose that demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market for the good?
Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.
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.
What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?
Price would fall, and the effect on quantity would be ambiguous
What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages?
Quantity will fall, and the effect on price is ambiguous.
Suppose that when the price of a 16 oz. to-go cup of gourmet coffee is $4.25, students purchase 750 cups per day. If the price decreases to $3.75 per cup, which of the following is the most likely outcome?
Students would purchase more than 750 cups per day.
What will happen in the market for shotgun-shell ammunition now if buyers expect higher shotgun-shell prices in the near future?
The demand for shotgun-shell ammunition will increase.
What would happen to the equilibrium price and quantity of lattés if coffee shops began using a machine that reduced the amount of labor necessary to produce them?
The equilibrium price would decrease, and the equilibrium quantity would increase.
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 events could cause an increase in the supply of ceiling fans?
The number of sellers of ceiling fans increases.
Which of the following events would cause a movement downward and to the left along the supply curve for mangos?
The price of mangos falls.
Which of the following events would cause a movement upward and to the left along the demand curve for olives?
The price of olives rises.
Suppose the United States had a short-term shortage of farmers. Which market mechanisms would adjust to remove the shortage?
The prices of food and the wages of farmers would adjust.
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
Which of the following is not a characteristic of a perfectly competitive market?
There are few buyers and sellers
Which of the following is likely to have the most price elastic demand?
Tommy Hilfiger jeans
Assume Zima buys notebooks in a competitive market. It follows that
Zima cannot influence the price of notebooks even if she buys a large quantity of them.
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 demand 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 supply curve for a good or service?
a change in the price of the good or service
Suppose scientists provide evidence that people who drink energy drinks are more likely to have a heart attack than people who do not drink energy drinks. We would expect to see
a decrease in the demand for energy drinks.
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.
Which of the following would shift the demand curve for gasoline to the right?
an increase in consumer income, assuming gasoline is a normal good
Currently you purchase ten frozen pizzas per month. You will graduate from college in December, and you will start a new job in January. You have no plans to purchase frozen pizzas in January. For you, frozen pizzas are
an inferior good
If a decrease in income increases the demand for a good, then the good is
an inferior good
If the demand for a product increases, then we would expect equilibrium price
and equilibrium quantity both to increase.
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 prefers other food and now buys fewer Ramen noodles. When looking at income elasticity of demand for Ramen noodles, yours would
be positive, and your roommate's would be negative.
If a shortage exists in a market, then we know that the actual price is
below the equilibrium price, and quantity demanded is greater than quantity supplied.
Demand is said to be price elastic if
buyers respond substantially to changes in the price of the good
If a seller in a competitive market chooses to charge more than the going price, then
buyers will make purchases from other sellers
The price elasticity of demand measures
buyers' responsiveness to a change in the price of a good.
A likely example of complementary goods for most people would be
canoes and paddles
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
An increase in the price of a good will
decrease in quantity demanded
Two goods are substitutes when a decrease in the price of one good
decreases the demand for the other good
Equilibrium quantity must decrease when
demand decreases and supply does not change
Marcus says that he would smoke one pack of cigarettes each day regardless of the price. If he is telling the truth, Marcus's
demand for cigarettes is perfectly inelastic.
If the number of buyers in a market decreases, then
demand will decrease
For which of the following goods is the income elasticity of demand likely highest?
diamonds
When small changes in price lead to infinite changes in quantity demanded, demand is perfectly
elastic, and the demand curve will be horizontal
At the equilibrium price, the quantity of the good that buyers are willing and able to buy
exactly equals the quantity that sellers are willing and able to sell.
The law of demand states that, other things equal, when the price of a good
falls, the quantity demanded of the good rises.
Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the
flatter the demand curve will be
Pizza is a normal good if the demand
for pizza rises when income rises
Soup is an inferior good if the demand
for soup falls when income rises.
An increase in the price of a good will
increase in quantity supplied
Warrensburg is a small college town in Missouri. At the end of August each year, the market demand for fast food in Warrensburg
increases
Two goods are complements when a decrease in the price of one good
increases the demand for the other good
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 an increase in the price of rubber coincides with an advance in the technology of tire production. As a result of these two events, the demand for tires
is unaffected, and the supply of tires could increase, decrease, or stay the same.
Goods with many close substitutes tend to have
more elastic demands
A competitive market is a market in which
no individual buyer or seller has any significant impact on the market price
If the demand for a good rises when income rises, then the good is called
normal, good
You lose your job and, as a result, you buy fewer iTunes music downloads. This shows that you consider iTunes music downloads to be
normal, good
If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?
one year after the price increase
A supply schedule is a table that shows the relationship between
price and quantity supplied
The law of supply states that, other things equal, when the price of a good
rises, the quantity supplied of the good rises.
If Jelani expects to earn a higher income next month, he may choose to
save less now and spend more of his current income on goods and services
A monopoly is a market with one
seller, and that seller sets the price
The quantity supplied of a good is the amount that
sellers are willing and able to sell
market demand curve
shows how the total quantity demanded of a good varies as price varies.
The market supply curve
shows the total quantity supplied at all possible prices.
An improvement in production technology will shift the
supply curve to the right
If the number of sellers in a market increases, then the
supply in that market will increase
Oakley bakes cakes that he sells at the local farmer's market. If he purchases a new convection oven that reduces the costs of baking cakes, the
supply of Oakley's cakes will increase.
Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the
supply of bicycles will shift to the left.
Suppose roses are currently selling for $30 per dozen, but the equilibrium price of roses is $20 per dozen. We would expect a
surplus to exist and the market price of roses to decrease
A baker recently has come to expect higher prices for bread in the near future. We would expect
the baker to supply less bread now than she was supplying previously.
If something happens to alter the quantity demanded at any given price, then
the demand curve shifts
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.
For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
the good is a luxury
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.
When the quantity demanded has increased at every price, it might be because
the price of a complementary good has decreased
Which of the following is not held constant in a supply schedule?
the price of the good
Which of the following is not a determinant of the demand for a particular good?
the prices of the inputs used to produce the good
Income elasticity of demand measures how
the quantity demanded changes as consumer income changes.
Demand is said to be inelastic if
the quantity demanded changes only slightly when the price of the good changes.
If something happens to alter the quantity supplied at any given price, then
the supply curve shifts
If the supply of a product increases, then we would expect equilibrium price
to decrease and equilibrium quantity to increase
The quantity demanded of a good is the amount that buyers are
willing and able to purchase
