Microeconomics--Test 2

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Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a​ result, CineArts Videos experienced a 16 percent decline in its movie club membership. What is the value of the cross-price elasticity between the two movie club​ memberships?

1.6 (16/10)

Refer to the diagrams above. The demand curve on which elasticity changes at every point is given in

a diagonal line from left to right

Compare the price elasticity of demand for sugar with the price elasticity of demand for food. The price elasticity of demand for sugar is likely

more inelastic because sugar tends to represent a smaller fraction of a​ consumer's budget

The drug insulin is one example of a product that would have a perfectly inelastic demand curve.

True

In​ 2011, President Barack Obama described a trade agreement reached with the government of Colombia as a​ "'win-win' for both our​ countries."

​No, workers employed at companies that are less efficient than foreign companies will lose jobs.

In fall​ 2006, Pace University in New York raised its annual tuition from ​$24,500 to ​$29,600. Freshman enrollment declined from 1,475 in fall 2005 to 1,150 in fall 2006. Assuming that the demand curve for places in the freshmen class at Pace did not shift between 2005 and​ 2006, use this information to calculate the price elasticity of demand. Use the midpoint formula in your calculation. The price elasticity of demand for Pace University for the fall of 2006 is The demand for places in​ Pace's freshman class is price Calculate the total revenue generated from​ Pace's freshman class in 2005 ​ Calculate the total revenue generated from​ Pace's freshman class in 2006 The total amount of tuition Pace received from its freshman class _________ in 2006 compared with 2005

-1.31 elastic 36137500 34040000 fell

If a 15 percent increase in the price of Cheerios causes a 11 percent reduction in the number of boxes of cereal​ demanded, the price elasticity of demand for Cheerios is: The demand for Cheerios is

-11/15 = -0.73 inelastic (because demand is inelastic when the percentage change in quantity demanded is less than the percentage change in price)

Suppose the price elasticity of demand for a Czech novel translated into English is perfectly inelastic. Assume the initial price of the translated novel is ​$27.00 and the quantity demanded is 195 copies per year. If the price of the translated novel increases by ​$2.00, then the quantity demanded will be _____ copies per year. ​Next, suppose the price elasticity of demand for a mystery novel by Dean Koontz is infinitely elastic. In this​ example, assume the initial price of the novel is ​$25.00 and the quantity demanded is 22 thousand copies per year. If the price of the mystery novel increases by ​$1.00, then the quantity demanded will be _____ copies per year.

195 0

Suppose the cross price elasticity of demand between grapefruit fruit and orange juice is approximately 6. What does this​ mean?

A 1 percent decrease in the price of grapefruit juice leads to a 6 percent decrease in orange juice consumption.

Suppose the value of the price elasticity of demand is minus 3. What does this​ mean?

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

Studies show that the income elasticity of demand for wine is approximately five. What does this​ mean?

A one percent increase in income leads to a five percent increase in wine consumption.

Which of the following is not a main source of comparative​ advantage?

A.Internal economies of scale. Your answer is correct. B.Technology. C.Relative abundance of labor and capital. D.Climate and natural resources. E.External economies of scale. Answer A

Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican​ restaurant?

Demand is likely to be relatively inelastic.

Which of the following statements about the price elasticity of demand is ​correct?

Demand is more elastic in the long run than it is in the short run.

​"International trade is more important to the U.S. economy than to most other​ economies."

Disagree. Exports and imports are a relatively small fraction of the United States GDP.

Manager 1​: ​"The only way we can increase the revenuewe receive from selling our frozen pizzas is by cutting the​ price." Manager 2​: ​"Cutting the price of a product never increases the amount of revenue you receive. If we want to increase​ revenue, we have to increase​ price." Do you agree with the reasoning of Manager​ 2?

I disagree. Cutting the price will increase revenue if the demand is price elastic

"Unfortunately, Bolivia does not have a comparative advantage with respect to the United States in the production of any good or​ service."

If the U.S. trades at all with​ Bolivia, then the argument above is false. There would be no trade unless both countries were made better​ off, and this would imply Bolivia has the comparative advantage in the production of at least one good or service.

Seth is a competitive body builder. He says he has to have his​ 12-oz package of protein powder to​ "feed his​ muscles" every day. On the basis of this​ information, what can you conclude about his price elasticity of demand for protein​ powder?

It is perfectly inelastic.

When lettuce prices​ doubled, from about ​$1.55 per head to about ​$3.10​, the reaction of one consumer was quoted in a newspaper​ article: ​"I will not buy​ [lettuce] when​ it's ​$3.10 a​ head," she​ said, adding that other green vegetables can fill in for lettuce.​ "If bread were​ $5 a loaf​ we'd still have to buy it. But lettuce is not that important in our​ family." For this​ consumer's household, which product has the higher price elasticity of demand: bread or​ lettuce? For this​ consumer's household, is the cross-price elasticity of demand between lettuce and other green vegetables positive or​ negative:

Lettuce positive because substitutes

If sugar protectionism has the bad effects as stated in the​ editorial, which of the following is a likely reason why Congress and the president do not eliminate​ it?

Sugar growers have a very strong lobby in Washington. Consumers are unaware of the existence of the quota. There is little political support for the elimination of the quota.

What happens when the quantity demanded is very responsive to changes in​ price?

The percentage change in quantity demanded will be greater than the percentage change in price.

Suppose the government imposes an 8 percent sales tax on clothing items and the tax is levied on sellers. Who pays for the tax in this​ situation? (Assume that the demand curve is downward-sloping and that the supply curve is upward-sloping.)

The tax will be borne by partly by consumers and partly by sellers.

What are the key determinants of the price elasticity of demand for a​ product?

availability of close​ substitutes, passage of​ time, necessities versus​ luxuries, definition of the​ market, and share of the good in the​ consumer's budget.

What is the difference between absolute advantage and comparative​ advantage? ______ advantage is the ability of an​ individual, a​ firm, or a country to produce a good or service at a lower opportunity cost than competitors. While ______ advantage is the ability of an​ individual, a​ firm, or a country to produce more of a good or service than competitors when using the same amount of resources. A country will always be an exporter of a good where it has

comparative; absolute a comparative advantage in production

The rule of equal marginal utility per dollar spent suggests that consumers maximize utility by

equalizing the marginal utility per dollar spent across goods and services.

The demand for most farm products is relatively inelastic. All else​ constant, what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases in​ productivity?

farm revenue decreases

One study found that the price elasticity of demand for soda is -0.78, while the price elasticity of demand for​ Coca-Cola is -1.22. The price elasticity of​ Coca-Cola is ​

greater than it is for soda as a product because there are more substitutes for​ Coca-Cola than soda.

Price elasticity of demand measures

how responsive quantity demanded is to a change in price

Price elasticity of supply is used to gauge

how responsive suppliers are to price changes.

The United States practices​ "sugar protectionism" by

imposing a quota on sugar imports.

International trade has always played a role in the U.S. economy. Is this role increasing or decreasing​ (in terms of exports and​ imports)?

increasing because government policies facilitate trade

If the price elasticity of demand for canned soup is estimated at -​1.62, what happens to sales revenue if the price of canned soup​ rises?

it falls

​"Sugar protectionism" is viewed as a​ "job killer" because

it leads to job losses in the candy industry and various food manufacturing industries that use sugar

As far as the effect of​ "sugar protectionism" on U.S. consumers is​ concerned,

it raises the prices of sugar and candy that consumers have to pay and leads to a loss of consumer surplus.

In the 2010 holiday​ season, Steve Richardson decided to cut the prices of his​ hand-crafted wooden puzzles to increase sales. According to a newspaper​ account, "the number of orders at Stave Puzzles​ Inc., his​ Norwich, Vt.​ business, hasn't been enough to offset the price​ cuts." The demand for these puzzles:

must be inelastic because the percentage increase in the quantity demanded for orders is less than the percentage decrease in price of the puzzles.

Last​ year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was​ $30,000. This​ year, his household income fell to​ $20,000 and Sefton purchased 80 pounds of potatoes. All else​ constant, Sefton's income elasticity of demand for potatoes is

negative, so Sefton considers potatoes to be an inferior good

We do not see complete specialization in the real world because

not all goods and services are traded​ internationally, production of most goods involves increasing opportunity​ costs, and tastes for products differ.

Compare the price elasticity of demand for water with the price elasticity of demand for wine. The price elasticity of demand for wine is likely

relatively more elastic because wine is a luxury

​"If the Indians suddenly slashed all tickets to​ $10, would their attendance actually​ increase? Not all that much and revenue would drop​ dramatically." The sportswriter is assuming that the demand for Indians tickets is

relatively price inelastic.

Suppose the demand for milk is relatively inelastic. What happens to sales revenue if the government imposes a price floor above the free market equilibrium price in the market for​ milk?

sale revenue rises

Which determinant is the most​ important?

the availability of close substitutes

What is the midpoint method for calculating price elasticity of​ demand? How else can you calculate the price elasticity of​ demand? What is the advantage of the midpoint​ method?

the change in quantity divided by the average of the initial and final quantities divided by the change in price divided by the average of the initial and final prices. Price elasticity of demand can be calculated using initial values for price and quantity & price elasticity of demand can be calculated using final values for price and quantity. The midpoint formula will give the same value whether moving from the higher price to the lower price or from the lower price to the higher price.

Why​ isn't elasticity just measured by the slope of the demand​ curve?

the measurement of slope is sensitive to the units chosen for quantity and price

Which of the following is a primary determinant of the price elasticity of supply​? In​ particular, the supply curve for a particular product will be increasingly more inelastic over a _______ period of time

the passage of time. shorter

Income elasticity of demand is For a normal​ good, the income elasticity of demand will be Is it possible to tell from the income elasticity of demand whether a product is a luxury good or a​ necessity?

the percentage change in quantity demanded divided by the percentage change in income. positive, but for an inferior​ good, the income elasticity of demand will be negative. Yes. If the income elasticity of demand is greater than​ 1, then the good is a luxury. If the income elasticity of demand is positive but less than​ 1, then the good is a necessity.

What is the formula for the price elasticity of​ demand?

the percentage change in quantity demanded divided by the percentage change in price.

The​ cross-price elasticity of demand is If the​ cross-price elasticity of demand is​ negative, then the products​ are:

the percentage change in quantity demanded of one good divided by the percentage change in the price of another good. complements, but if it is​ positive, then the products are substitutes.

The formula for the price elasticity of supply is If an increase of 12 percent in the price of frozen pizzas results in a 14 percent increase in the quantity of frozen pizzas​ supplied, the price elasticity of supply for frozen pizzas is Is the supply of pizzas elastic or​ inelastic?

the percentage change in quantity supplied divided by the percentage change in price. 1.17 elastic

Although international trade leads to substantial net​ benefits, not everyone gains from international trade. Which of the following groups is most likely to lose from​ trade?

the workers and companies in the industries that compete with the imports

If a firm lowered the price of the product it sells and found that total revenue did not​ change, then the demand for its product is

unit-elastic


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