Microeconomics Test #2
The buyer's reservation price for a particular good or service is the:
largest price the buyer would be willing to pay for it
Example of complements
tennis rackets and tennis balls
If the demand for gadgets increases as a result of a decrease in the price of widgets, the widgets and gadgets are:
complementary goods
When a market is in equilibrium
there is neither excess demand nor excess supply
Example of substitutes
cloth diapers and disposable diapers
The market equilibrium quantity:
is sometimes socially optimal quantity
What might cause a decrease in the current supply of a product?
New information that leads sellers to believe that the product's price will rise in the future.
Assume both the demand for beef and the supply of beef decrease. Which of the following outcomes is certain to occur?
The equilibrium quantity of beef will fall.
A seller's reservation price is generally equal to:
The seller's opportunity cost of producing an additional unit.
A decrease in both the equilibrium price and the equilibrium quantity of rice is best explained by:
a decrease in the demand for rice
Suppose that the technology used to manufacture laptops has improved. The likely result would be:
an increase in the supply of laptops
One reason the demand curve slopes downward:
as prices fall, more people find that the price is now less than their reservation price
Example of complements
birthday cake and birthday candles
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.
At the beginning of the fall semester, college towns experience large increases in their populations causing:
increase in the demand for apartments
If the demand for a good decreases as income decreases, then the good is a
normal good
Suppose rice is a normal good. If consumers' incomes fall, and a new technology is introduced that lowers the marginal cost of producing rice, then the equilibrium:
price of rice will fall, but we cannot say for sure what will happen to the equilibrium quantity.
Jessica's marginal cost for producing a pitcher of lemonade is .25. Therefore, .25 is her
reservation price
Example of complements
washing machines and dryers
A price ceiling that is set above the equilibrium price:
will NOT effect the market.
Which of the following factors will lead to a decrease in the current supply of a good?
A belief that the price of a good or service will go up in the future
Market Equilibrium
leaves no unexploited opportunities for individuals
Marginal cost
the cost added by producing one additional unit of a product or service
