Pearson Microeconomics Hw Ch.4-6

A rent ceiling​ ________.

A rent ceiling set below the equilibrium rent has powerful effects on a market. The reason is that the rent ceiling attempts to prevent the rent from regulating the quantities demanded and supplied. The force of the law and the market forces are in​ conflict, and one​ (or both) of these forces must yield to some degree.

The​ long-run supply of wheat has an elasticity of supply equal to​ _______.

The​ long-run supply of wheat has an elasticity of supply equal to infinity. The​ long-run supply of wheat is perfectly elastic. The​ long-run supply curve shows the response of the quantity supplied to a change in price after all the technologically possible ways of adjusting supply have been exploited. So the price elasticity of supply is infinity.

We need methods of allocating scarce resources​ _______.

Resources are​ scarce, so it is not possible to fulfill​ everyone's wants. Some method of deciding which wants will be fulfilled and which will not must be used.

The demand for pens is elastic at​ _______.

all prices greater than​ $6 a pen The figure shows the demand curve for pens. Along a​ straight-line demand​ curve, demand is unit elastic at the midpoint. In the​ figure, demand is unit elastic when the price is​ $6 a pen. At all prices less than​ $6 a​ pen, demand is inelastic. And at all prices greater than​ $6 a​ pen, demand is elastic.

The price elasticity of demand is a​ units-free measure of the responsiveness of​ ______.

the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same

When a minimum wage is set above the equilibrium wage​ rate, _______.

unemployment increases

The supply of apples in the short run will be​ ______ than the supply in the long run and​ ______ than the supply today.

less​ elastic; more elastic When the price of a good rises or​ falls, the momentary supply curve shows the response of the quantity supplied immediately following a price change. Apples have a perfectly inelastic momentary supply. The quantities supplied depend on​ crop-planting decisions made earlier. The​ long-run supply curve shows the response of the quantity supplied to a change in price after all the technologically possible ways of adjusting supply have been exploited. And the​ short-run supply curve shows how the quantity supplied responds to a price change when only some of the technologically possible adjustments to production have been made. So the supply of apples in the short run is less elastic than the supply in the long run and more elastic than the supply today.

An effective production quota​ _______.

lowers the marginal cost of production The graph shows the market for dried milk when an effective production quota is in place. An effective production quota decreases production below the efficient level. As the quantity produced​ decreases, a movement occurs down along the supply curve and the marginal cost of production decreases.

Consumer surplus is​ _______.

Consumer surplus is the excess of the benefit received from a good over the amount paid for it. We can calculate consumer surplus as the marginal benefit​ (or value) of a good minus its​ price, summed over the quantity bought. Next Question

The income elasticity of demand for Spam is​ _______ because as income​ falls, the quantity of Spam demanded​ _______.

Income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. When income​ decreases, people buy more Spam. So the income elasticity of demand for Spam is negative. Next Question

When an effective production quota is applied in the market for​ rice, the quantity produced​ ______ and the price​ ______.

The figure shows the market for rice when an effective production quota is applied. Before the quota is​ applied, the equilibrium price is​ $4.00 a box and the equilibrium quantity is 120 million boxes a year. With the​ quota, the quantity produced decreases to 100 million boxes a year and the price rises to​ $5.50 a box.

The graph shows the market for books. The market for books initially has no taxes and is in competitive equilibrium. Then a tax of​ $6 a book is imposed on the sellers of books. What is the tax paid by sellers on a book and what is the tax paid by buyers on a​ book? The tax paid by the seller is​ _____ a book and the tax paid by the buyer is​ _____ a book.

The graph shows the market for books. ​Initially, the price of a book is​ $5 at the intersection of the supply curve and the demand curve. When a tax of​ $6 a book is imposed on the sellers of​ books, the price paid by buyers rises to​ $8 a book and the price received by sellers falls to​ $2 a book. The tax paid by the seller is​ $3 a book and the tax paid by the buyer is​ $3 a book.

Which of the following statements describes a perfectly inelastic demand​?

Walgreens does not find any change in the number of people buying chlorthalidone after a 7 percent rise in its price. When the percentage change in the quantity demanded is zero for any percentage change in the​ price, the good has a perfectly inelastic demand. The fact that Walgreens does not find any change in the number of people buying chlorthalidone after a 7 percent rise in its​ price, implies no change in quantity demanded as a result of a price change. So the statement describes perfectly inelastic demand.

The elasticity of supply is calculated by dividing​ ______ by​ ______.

We calculate elasticity of supply by using the​ formula: Elasticity of supply​ = Percentage change in quantity supplied÷Percentage change in price. Next Question

The price elasticity of demand is calculated by dividing the​ _______ by the​ _______.

We calculate price elasticity of demand by using the​ formula: Price elasticity of demand​ = Percentage change in the quantity demanded÷Percentage change in the price.

When Mohesha receives an increase in her pay check from​ $1,800 a month to​ $2,200 a​ month, she increases the quantity of hot chocolate that she buys from 19 cups a month to 21 cups a month. ​Mohesha's demand for hot chocolate is income​ ______. For​ Mohesha, hot chocolate is​ ______ good.

When Mohesha receives an increase in her pay check from​ $1,800 a month to​$2,200 a​ month, she increases the quantity of hot chocolate that she buys from 19 cups a month to 21 cups a month. The percentage increase in the quantity of hot chocolate demanded is ​[(21−​19)÷​20]×​100, which is 10 percent. The percentage increase in income is ​[(2200−​1800)÷​2000]×​100, which is 20 percent. Income elasticity of demand​ = percentage change in quantity demanded÷percentage change in​ income, which is 10 percent÷20 percent​ = 0.5. So​ Mohesha's demand for hot chocolate is income inelastic. Because her income elasticity of demand is​ positive, hot chocolate is a normal good.

When a​ _____ is applied to a labour​ market, it is called a minimum wage.

When a price floor is applied to a labour​ market, it is called a minimum wage.

Choose the statement that is correct.

When a price is regulated and there is a​ shortage, search activity increases. In the case of a​ rent-controlled housing​ market, frustrated​ would-be renters scan the​ newspapers, not only for housing ads but also for death​ notices!

Sally and Eric are the only people in an economy. Sally buys 3 bottles of water when the price is​ $2 a​ bottle, 4 bottles of water when the price is​ $1, and 5 bottles when the price is ​ $0.50. Eric buys 10 bottles of water when the price is​ $0.50 and 5 bottles of water when the price is​ $1, and no battles when the price is​ $2 a bottle. Complete the following sentence.

When the price of a bottle of water is​ $2, Sally buys 3 bottles and Eric buys zero​bottles, so the quantity demanded by the market is 3 bottles. When the price of a bottle of water is​ $1, Sally buys 4 bottles and Eric buys 5​bottles, so the quantity demanded by the market is 9 bottles. When the price of a bottle of water is​ $0.50, Sally buys 5 bottles and Eric buys 10​bottles, so the quantity demanded by the market is 15 bottles. The quantity of bottled water demanded increases as the price falls.

The demand for plums is unit elastic if​ _____.

a 5 percent rise in the price of plums results in a 5 percent decrease in the quantity of plums demanded When the percentage change in quantity demanded is equal to the percentage change in​ price, the good has unit elastic demand. The statement​ "The demand for plums is unit elastic if a 5 percent rise in the price of plums results in a 5 percent decrease in the quantity of plums​ demanded," implies that the percentage change in quantity demanded is the same as the percentage change in price. So the statement is an example of unit elastic demand.

​_____ is excludable and​ _____ is nonexcludable.

a camera: a concert in a public park If a​ good, service or resource is​ excludable, it is possible to prevent someone from enjoying its benefits. A camera can belong to one person and cannot be used by​ all, so a camera is an example of an excludable good. If a​ good, service or resource is​ nonexcludable, it is impossible to prevent someone from enjoying its benefits. A concert in a public park is open to​ anyone, so it is an example of a nonexcludable service.

The total revenue test is a method of estimating the price elasticity of demand by observing the​ ______ that results from​______, when all other influences on the quantity sold remain the same.

change in total​ revenue; a change in the price The total revenue test is a method of estimating the price elasticity of demand by observing the change in total revenue that results from a change in the​ price, when all other influences on the quantity sold remain the same. When a price​ changes, total revenue also changes. But a rise in price does not always increase total revenue.

The total revenue test is a method of estimating the price elasticity of demand by observing the​ ______ that results from​ ______, when all other influences on the quantity sold remain the same.

change in total​ revenue; a change in the price the total revenue test is a method of estimating the price elasticity of demand by observing the change in total revenue that results from a change in the​ price, when all other influences on the quantity sold remain the same. When a price​ changes, total revenue also changes. But a rise in price does not always increase total revenue.

If the cross elasticity of demand for ski trips with respect to the price of a ski jacket is​ negative, then ski trips and ski jackets are​ ______.

complements

When the price of tomatoes rises from​ $3 per pound to​ $4 per​ pound, the quantity of tomatoes sold decreases from 15 pounds to 10 pounds. Total revenue​ _____, and using the total revenue test​, we can determine that the demand for tomatoes is​ _____ .

decreases from​ $45 to​ $40; elastic Total revenue is the amount spent on a good and received by its seller and equals the price of a good multiplied by the quantity sold. The total revenue from 15 pounds of tomatoes at​ $3 per pound is​ $3 ×15 ​= $45. The total revenue from 10 pounds of tomatoes at​ $4 per pound is​ $4 ×10 ​= $40. Total revenue decreased by​ $5. Total revenue test determines the price elasticity of demand by observing a change in total revenue that results from a price change​ (with all other influences on the quantity sold remaining​ unchanged). Because a rise in price brought a decrease in total​ revenue, we know that the quantity demanded decreased by a larger percentage than the percentage rise in​price, so the demand for tomatoes is elastic.

Distinguish among public​ goods, private​ goods, common​ resources, and natural monopoly goods. A private good is​ ______. A natural monopoly good is​ _______.

excludable and​ rival; excludable and nonrival A private good is both rival and excludable. Examples of private goods are a can of Pepsi and your iPod. A natural monopoly good is nonrival and excludable. Potential users of a natural monopoly good can be excluded if they​ don't pay, but having paid for access use of the good is nonrival. Cable TV is an example of a natural monopoly good.

If the cross elasticity of demand for sports cars with respect to the price of a gallon of gas is​ negative, then sports cars and gasoline are​ ______.

f the cross elasticity of demand for sports cars with respect to the price of a gallon of gas is​ negative, then when the price of a gallon of gas ​rises, the demand for sports cars decreases. So sports cars and gasoline are not substitutes. If sports cars and gasoline were​ substitutes, then when the price of a a gallon of gas ​rises, the demand for sports cars would increase.

A minimum wage set below the equilibrium wage​ _______.

has no effect on the equilibrium wage rate or the quantity of labor employed.

If the quantity of dental services demanded increases by 5 percent when the price of dental services falls by 10​ percent, is the demand for dental services​ inelastic, elastic, or unit​ elastic? The demand for dental services is​ _______.

inelastic The price elasticity of demand is equal to the percentage change in the quantity demanded divided by the percentage change in price. When the price elasticity of demand is greater than​ 1, demand is elastic. When the price elasticity of demand is less than​ 1, demand is inelastic. And when the price elasticity of demand equals​ 1, demand is unit elastic. In this​ question, the percentage change in the quantity demanded is less than the percentage change in the​ price, so demand is inelastic. Next Question

The shorter the time that has elapsed since a price​ change, the more​ _______.

inelastic is demand The shorter the time that has elapsed since a price​ change, the more inelastic is demand. When the price of oil increased by 400 percent during the​ 1970s, people barely changed the quantity of oil and gasoline they consumed.

Ski trips and ski jackets are complements. The cross elasticity of demand for ski trips with respect to the price of a ski jacket is​ _______.

negative Because ski trips and ski jackets are​ complements, when the price of a ski jacket​falls, people buy more ski trips. A negative change in the price of a ski jacket brings a positive change in the quantity of ski trips​ demanded, so the cross elasticity of demand is negative.

When you smoke in a​ restaurant, you are creating a​ _______.

negative consumption externality An externality is a cost of or a benefit from an action that falls on someone other than the person or firm choosing the action. When you smoke in a​ restaurant, you are creating a consumption externality. And the externality is negative—it creates health​ risk, which is borne by people who are not smoking.

Ugly buildings create a​ _______.

negative consumption​ externality, which we deal with by fining people who use their property as garbage dumps An externality is a cost of or a benefit from an action that falls on someone other than the person or firm choosing the action. An externality that imposes a cost is a negative externality. Ugly buildings create a negative consumption externality. We deal with this externality by fining people who use their property as garbage dumps. Next Question

A common resource is​ ______. A public good is​ ______.

nonexcludable and​ rival; nonexcludable and nonrival A common resource is rival and nonexcludable. A unit of a common resource can be used only​ once, but no one can be prevented from using what is available. A public good is both nonrival and nonexcludable. A public good can be consumed simultaneously by​ everyone, and no one can be excluded from enjoying its benefits. Next Question

How do external costs prevent a competitive market from allocating resources​ efficiently? External costs prevent a competitive market from allocating resources efficiently because firms consider​ ______ when they make their production decisions.

only the costs that they bear In a competitive​ market, firms consider only the costs that they will bear when they make their production decisions. Because firms do not consider all of the​ costs, the outcome is inefficient.

The most effective way of decreasing the quantity of illegal drugs bought and decreasing the amount of​ drug-related crime is by​ ______.

penalizing drug​ users, which will decrease demand The most effective way of decreasing the quantity of illegal drugs bought and decreasing the amount of​ drug-related crime is by decreasing the demand for illegal drugs. When demand​ decreases, the demand curve shifts​ leftward, the equilibrium price falls and the equilibrium quantity falls. The revenue earned by drug dealers decreases and​ drug-related crime would decrease.

Rice and noodles are substitutes. The cross elasticity of demand for rice with respect to the price of noodles is​ _______.

positive If rice and noodles are​ substitutes, then when the price of noodles​ rises, the quantity of rice that people buy increases—a positive change in price brings a positive change in the quantity bought—so the cross elasticity of demand is positive. Next Question

A firm does research and development which can also be applied in the manufacturing processes of other firms. What kind of externality​ results? The resulting externality is an example of a​ _______.

positive production externality An externality is a cost of or a benefit from an action that falls on someone other than the person or firm choosing the action. When a firm does research and development which can also be applied in the manufacturing processes of other​ firms, it is creating a positive production externality.

What happens to total revenue when the price falls from​ $400 to​ $250 a room per night and from​ $250 to​ $200 a room per​ night? Is the demand for hotel rooms​ elastic, inelastic, or unit​ elastic? If the price falls from​ $400 to​ $250 a​ night, total revenue​_____. If the price falls from​ $250 to​ $200 a​ night, total revenue​ _____. the demand for hotel rooms is​ _____ because​ _____.

remains the​ same; remains the same The table shows the demand schedule for hotel rooms. If a price cut leaves total revenue​ unchanged, demand is unit elastic. Calculate the total revenue at each price. In each​ case, total revenue is​ $20 billion, so demand is unit elastic.

The greater the elasticity of​ demand, the​ _______ the tax revenue and the​ _______ is the deadweight loss.

smaller; greater The amount of tax revenue collected equals the quantity sold multiplied by the tax per unit of the good. The greater the elasticity of​ demand, the greater the decrease in the quantity sold. That​ is, the quantity sold is​ smaller, the more elastic the demand for the good. The smaller the quantity​ sold, the smaller is the tax revenue generated by the tax. And the greater the decrease in the quantity bought and​ sold, the greater is the inefficiency created by the tax and the greater is the deadweight loss.

The greater the elasticity of​ supply, the​ _______ the tax revenue and the​ _______ is the deadweight loss.

smaller; greater The amount of tax revenue collected equals the quantity sold multiplied by the tax per unit of the good. The greater the elasticity of​ supply, the greater the decrease in the quantity sold. That​ is, the quantity sold is​ smaller, the more elastic the supply of the good. The smaller the quantity​ sold, the smaller is the tax revenue generated by the tax. And the greater the decrease in the quantity bought and​ sold, the greater is the inefficiency created by the tax and the greater is the deadweight loss.

The more​ ______ the​ demand, ______.

​elastic; the larger is the amount of the tax paid by sellers

The market supply curve is the​ ______ sum of the individual supply curves. It is formed by adding​ ______.

The market supply curve is the horizontal sum of the individual supply curves and is formed by adding the quantities supplied by all the producers at each price.

What does the income elasticity of demand​ measure? The income elasticity of demand is a measure of the responsiveness of the demand for a good or service to a change in​ ______, other things remaining the same.

income The income elasticity of demand is a measure of the responsiveness of the demand for a good to a change in​ income, other things remaining the same. We calculate the income elasticity of demand by using the​ formula: Income elasticity of demand​ = Percentage change in quantity demanded ÷Percentage change in income

The income elasticity of demand is a measure of the responsiveness of the demand for a good or service to a change in​ ______, other things remaining the same.

income The income elasticity of demand is a measure of the responsiveness of the demand for a good to a change in​ income, other things remaining the same. We calculate the income elasticity of demand by using the​ formula: Income elasticity of demand​ = Percentage change in quantity demanded ÷Percentage change in income

A campaign that successfully decreases the supply of drugs will​ _______ the amount of crime.

increase

The demand for illegal drugs is inelastic. Much of the expenditure on illegal drugs comes from crime. Assuming these statements to be​ correct, complete the following statements. A successful campaign that decreases the supply of drugs will​ ______ the price of illegal drugs and​ ______ the total amount spent on them.

​increase; increase When the supply of drugs​ decreases, the supply curve shifts leftward and the price of illegal drugs increases. The demand for illegal drugs is inelastic. Similarly to the outcome of the total revenue​ test, if a drug user has an inelastic demand for​ drugs, a 1 percent increase in the price decreases the quantity of drugs bought by less than 1​ percent, and the total amount spent on drugs increases.

The figure shows the market for rice when an effective production quota is applied. With the​ quota, the quantity produced is 100 million boxes a year. Marginal social benefit from the demand curve exceeds marginal social cost from the supply curve.

​increases; falls The graph shows the market for potatoes when a subsidy is paid to growers. Before the​ subsidy, the price of a bag of potatoes is​ $4.00 and the equilibrium quantity is 120 million bags a year. With the​ subsidy, the price falls to​ $2.50 a bag and the quantity increases to 140 million bags a year.

With a sales tax of​ $2 a​ ticket, is the market for concert tickets​ efficient? Explain why or why​ not: With the​ $2 tax, the market for concert tickets is​ _____ because​ _____.

​inefficient; the quantity bought and sold is less than the efficient quantity and a deadweight loss arises With no​ tax, 400 tickets per concert are sold. Marginal benefit equals marginal cost and 400 is the efficient quantity of tickets. With the​ tax, the ticket price rises and the quantity bought decreases to 300 per concert. The outcome is​ underproduction, which is inefficient and creates a deadweight loss. Key Point​: A sales tax that lower the quantity sold is inefficient and creates a deadweight loss.

The fewer the substitutes for a good or​ service, the more​ ______ is the demand for it. The smaller the proportion of income spent on a​ good, the more​ ______ is the demand for it.

​inelastic; inelastic The fewer the substitutes for a good or​ service, the more inelastic is the demand for it. For​ example, oil from which we make gasoline has​ substitutes, but none that are currently very close. So the demand for oil is inelastic. Other things remaining the​ same, the smaller the proportion of income spent on a​ good, the more inelastic is the demand for it. For​ example, if the price of chewing gum​ doubles, you consume almost as much gum as before. Your demand for gum is inelastic.

A 2 percent rise in the price of orange juice decreases the quantity of orange juice demanded by 10 percent and increases the quantity of apple juice demanded by 12 percent. Calculate the price elasticity of demand for orange juice and the cross elasticity of demand for apple juice with respect to the price of orange juice. ​>>> Answer to 1 decimal place. The price elasticity of demand for orange juice is 55. The cross elasticity of demand for apple juice with respect to the price of orange juice is 66.

A 2 percent rise in the price of orange juice decreases the quantity of orange juice demanded and increases the quantity of apple juice demanded by 12 percent. The cross elasticity of demand for apple juice with respect to the price of orange juice​ = Percentage change in quantity of apple juice demanded÷Percentage change in price of orange juice. The cross elasticity of demand for apple juice with respect to the price of orange juice​ = 12 percent÷2 percent​ = 6.0.

Which of the following is an example of a black market​ transaction? Annie rents an apartment​ _____.

A black market is an illegal market that operates alongside a​ government-regulated market. The fact that Annie rents an apartment in a​ rent-controlled city by paying​ $1,000 for an extra set of​ keys, implies that the transaction in a​ government-regulated market is illegal. It is an example of a black market transaction. Next Question

When resources are allocated by the order of someone in authority the allocation method is​ _______. When resources are allocated in the way that the most voters choose​, the allocation method is​ _______.

A command system allocates resources by the order (command) of someone in authority. Majority rule allocates resources in the way that a majority of voters choose.

A minimum wage is a​ _______ applied to labor markets.

A minimum wage is a price floor in the labor market. A price floor is a government regulation that makes it illegal to charge a price lower than a specified level.

A paper mill dumping its waste chemicals into a river is an example of a​ ______ externality. A firm doing research and development which can be used by other firms is an example of a​ ______ externality.

A negative externality imposes an external cost. An external cost is a cost that arises from production and falls on someone other than the​ producer, or a cost that arises from consumption and falls on someone other than the consumer. A paper mill dumping its waste chemicals into a river is an example of a negative production externality. A positive externality provides an external benefit. An external benefit is a benefit that arises from production and falls on someone other than the​ producer, or a benefit that arises from consumption and falls on someone other than the consumer. A firm doing research and development which can be used by other firms is an example of a positive production externality.

Which of the following is an example of a price ceiling or price cap​?

A price cap is a government regulation that places an upper limit on the price at which a particular​ good, service or factor of production may be traded. If a regulation requires cable service to be provided for no more than​ $30 a​ month, this implies an upper limit placed on the price of cable service. This is an example of a price ceiling or a price cap.

A rent ceiling is​ _______.

A price ceiling is a government regulation that makes it illegal to charge a price higher than a specified level. When a price ceiling is applied to a housing​ market, it is called a rent ceiling.

Which of the following is an example of a price floor​?

A price floor is a government regulation that places a lower limit on the price at which a particular​ good, service or factor of production may be traded. If the government guarantees that potato farmers will receive at least​ $50 a​ ton, this implies a lower limit placed on the price of potatoes. So it is an example of a price floor.

The graph shows the market for dried milk. Draw a point at the market equilibrium. Label it 1. Now the Milk Marketing Board places an effective production quota on dried milk. Draw a vertical line that shows the production quota. Label it Quota. Draw a point to indicate the new price of milk and the quantity of milk produced. Label it 2.

A production quota set below the market equilibrium quantity is effective because it results in underproduction. The market price is determined by the amount that consumers are willing to pay for the quantity produced. The new equilibrium price occurs at the intersection of the demand curve and the production quota line.

Which of the following statements illustrates a rent ceiling​?

A rent ceiling is a regulation that makes it illegal to charge more than a specified rent for housing. The fact that Bluestone Properties can charge​ $2,350 rent for​ 2-bedroom apartments that are priced at​ $2,500 in the​ market, implies that a ceiling is forcing Bluestone Properties to charge a rent less than the market rent of​ $2,500. This illustrates a rent ceiling.

Which of the following statements illustrates income elasticity of demand​?

A salary cut and no other changes has resulted in Mary buying less fast food. Income elasticity of demand is a measure of the responsiveness of the demand for a good to a change in​ income, when other things remain unchanged. The fact that a salary cut with no other changes has resulted in Mary buying less fast​ food, tells us about the responsiveness of demand for fast food to an income change. So the statement illustrates income elasticity of demand.

​_____ is rival and​ _____ is nonrival.

A seat on a bus at rush​ hour; national defense A​ good, service or resource is rival if its use by one person decreases the quantity available for someone else. A seat on a bus at rush hour can be used by only one person at a​ time, so it is an example of a rival good. A​ good, service or resource is nonrival if its use by one person does not decrease the quantity available for someone else. National defense used by one person does not lower the level of defense enjoyed by others in the​ country, so it is an example of a nonrival good.

The graph shows the market for kumquats. Draw a point at the equilibrium price and equilibrium quantity. Label it 1. The government decides to subsidize kumquat producers​ $20 a basket. Draw a curve that shows the effect of the subsidy. Label it. Draw a point at the new equilibrium price and equilibrium quantity. Label it 2. Draw a point to show the marginal cost at the new equilibrium quantity. Label it 3.

A subsidy is a payment made by the government to a producer. A subsidy is equivalent to a decrease in cost. The supply curve shifts downward by the amount of the subsidy. The new equilibrium price and equilibrium quantity is found at the intersection of the new supply curve and the demand curve.

Spam Sales Rise as Food Costs Soar Sales of Spam are rising as consumers realize that Spam and other​ lower-cost foods can be substituted for costlier cuts of meat as a way of controlling their already stretched food budgets. AOL Money​ & Finance​, May​ 28, 2008 Is Spam a normal good or an inferior​ good? Explain. Would the income elasticity of demand for Spam be negative or​ positive? Explain. Spam is​ ______ good because​ ______.

An inferior good is one for which demand decreases as income increases. The news clip tells us that food budgets are​ "stretched", so the income available for meat purchases is falling. As income​ falls, people purchase more​ Spam, so Spam is an inferior good.

A good with an income elasticity that is negative is​ _______.

An inferior good is one for which demand decreases as income increases. So an inferior good has a negative income elasticity.

Which of the following statements describes cross price elasticity of demand​?

As a result of a rise in the price of spinach with all else remaining​ constant, Ralph buys more​ broccoli, a substitute for spinach. Cross price elasticity of demand is a measure of the responsiveness of the demand for a good to a change in the price of a substitute or​ complement, when other things remain the same. The​ statement, "As a result of a rise in the price of spinach with all else remaining​constant, Ralph buys more​ broccoli, a substitute for​ spinach", is about responsiveness of the demand for a good to a price change of its substitute. So it describes cross price elasticity of demand.

As you can see in the​ graph, the new supply curve S−sub intersects the demand curve at a price of​ $2.50 a​pound, which is​ $1.50 below the original price of​ $4 a pound. So the price falls by less than​ $2 a pound and the quantity increases from 120 thousand pounds to 140 million pounds.

As you can see in the​ graph, the new supply curve S−sub intersects the demand curve at a price of​ $2.50 a​pound, which is​ $1.50 below the original price of​ $4 a pound. So the price falls by less than​ $2 a pound and the quantity increases from 120 thousand pounds to 140 million pounds.

Consumer surplus is the​ ______ of a good in excess of​ ______, summed over the quantity bought.

Consumer surplus is the excess of the benefit received from a good over the amount paid for it. On a graph consumer surplus equals the area under the demand curve above the price paid for​ it, summed over the quantity bought. The graph shows the market for ice cream cones. The area of the shaded triangle measures the consumer surplus from ice cream cones when the price of an ice cream cone is​ $2.

Consumer surplus​ _______.

Consumer surplus is the excess of the benefit received from a good over the amount paid for it. We can calculate consumer surplus as the marginal benefit​ (or value) of a good minus its​ price, summed over the quantity bought. Next Question

Demand is elastic if a price ▼ increases total revenue. Demand is inelastic if a price ▼ risecut increases total revenue. Demand is unit elastic if a price ▼ cut or risecut but not a riserise but not a cut leaves total revenue unchanged.

Demand is elastic if a price cut increases total revenue. Demand is inelastic if a price rise increases total revenue. Demand is unit elastic if a price cut or rise leaves total revenue unchanged. Demand is elastic if a price cut increases total revenue. In the left​ graph, demand is elastic when the price is greater than​ $12.50 a pizza and in the right​ graph, when demand is elastic and the price​ falls, total revenue increases. Demand is inelastic if a price rise increases total revenue. In the left​ graph, demand is inelastic when the price is less than​ $12.50 a pizza and in the right​ graph, when demand is inelastic and the price​ rises, total revenue increases. Demand is unit elastic if a price rise or price cut leaves total revenue unchanged.

Demand is elastic if a price cut increases total revenue. Demand is inelastic if a price rise increases total revenue. Demand is unit elastic if a price cut or rise leaves total revenue unchanged.

Demand is elastic if a price cut increases total revenue. In the left​ graph, demand is elastic when the price is greater than​ $12.50 a pizza and in the right​ graph, when demand is elastic and the price​ falls, total revenue increases. Demand is inelastic if a price rise increases total revenue. In the left​ graph, demand is inelastic when the price is less than​ $12.50 a pizza and in the right​ graph, when demand is inelastic and the price​ rises, total revenue increases. Demand is unit elastic if a price rise or price cut leaves total revenue unchanged.

Which of the following statements is an example of elasticity of supply​?

Elasticity of supply is a measure of the responsiveness of the quantity supplied of a good to a change in its price when all other influences on​ sellers' plans remain the same. If a 10 percent fall in the​ price, with no other​ change, decreases quantity supplied by 12​ percent, then this describes the responsiveness of the quantity supplied with respect to its price. So the statement is an example of elasticity of supply. Next Question

The elasticity of supply when the average price is​ $125 a pair is 3.57

Elasticity of supply​ = Percentage change in quantity supplied÷Percentage change in price. When the price rises from​ $120 a pair to​ $130 a​ pair, the change in price is​ $10 and the average price is​ $125. So the percentage change in price is ​($10÷​$125)×​100, which is 8 percent. When the price rises from​ $120 a pair to​ $130 a​ pair, the quantity supplied increases from 24 million pairs to 32 million pairs. The change in quantity supplied is 8 million pairs and the average quantity is 28 million pairs. So the percentage change in quantity supplied is​ (8 million÷28 ​million)×​100, which is 28.6 percent. The elasticity of supply equals 28.6 percent÷8 ​percent, which is 3.58.

The table sets out the supply schedule of jeans. Calculate the elasticity of supply when the price rises from​ $125 to​ $135 a pair. Calculate the elasticity of supply when the average price is​ $125 a pair. Is the supply of jeans​ elastic, inelastic, or unit​ elastic? The elasticity of supply when the price rises from​ $125 to​ $135 a pair is 3.25

Elasticity of supply​ = Percentage change in quantity supplied÷Percentage change in price. When the price rises from​ $125 a pair to​ $135 a​ pair, the change in price is​ $10 and the average price is​ $130. So the percentage change in price is ​($10÷​$130)×​100, which is 7.7 percent. When the price rises from​ $125 a pair to​ $135 a​ pair, the quantity supplied increases from 28 million pairs to 36 million pairs. The change in quantity supplied is 8 million pairs and the average quantity is 32 million pairs. So the percentage change in quantity supplied is​ (8 million÷32 ​million)×​100, which is 25 percent. The elasticity of supply equals 25 percent÷7.7 ​percent, which is 3.25.

The graph shows the supply curve for a​ vital-to-life drug on which the government has imposed a​ $2 per dose sales tax. Buyers end up paying the entire tax. Draw and label a demand curve for this drug.

If the buyers pay the entire​ tax, then the price rises by the amount of the tax. For this outcome to​ occur, the demand for the good must be perfectly inelastic and the demand curve is vertical.

If the cross elasticity of demand for a T-shirt with respect to the price of a tank top is​ positive, then T-shirts and tank tops are​ ______.

If the cross elasticity of demand for a T-shirt with respect to the price of a tank top is​ positive, an increase in the price of a tank top increases the quantity of T-shirts that people buy. People substitute less costly T-shirts for more costly tank tops. The two goods are substitutes.

What does the sign​ (positive/negative) of the cross elasticity of demand tell us about the relationship between two​ goods? If the cross elasticity of demand for a donut with respect to the price of a chocolate chip cookie is​ positive, then donuts and chocolate chip cookies are​ _____

If the cross elasticity of demand for a donut with respect to the price of a chocolate chip cookie is​ positive, an increase in the price of a chocolate chip cookie increases the quantity of donuts that people buy. People substitute less costly donuts for more costly chocolate chip cookies. The two goods are substitutes.

The graph shows the supply curve of​ no-name soda. The government has imposed a sales tax of​ $2 per case on​no-name soda. The sellers of​ no-name soda end up paying the entire tax. Draw and label the demand curve for​ no-name soda.

If the sellers pay the entire​ tax, then the price paid by the buyers​ doesn't change. For this outcome to​ occur, the demand for the good must be perfectly elastic and the demand curve is horizontal.

The graph shows the market for office space in a crowded city center. The government has imposed a sales tax on city center office space. It turns out that the sellers end up paying the entire tax. Draw and label the supply curve of city center office space.

If when the government imposes a sales tax on​ city-center office​ space, the sellers pay the entire​ tax, then the price paid by the buyers​ doesn't change. For this outcome to​ occur, the supply of the good must be perfectly inelastic and the supply curve is vertical.

Suppose that the price of a cashmere sweater is​ $100 and​ Jean's marginal benefit from a cashmere sweater is​ $300. If Jean buys 1 cashmere​ sweater, what is her consumer​ surplus? ​Jean's consumer surplus is ​$nothing.

Jean's consumer surplus is equal to her marginal​ benefit, $300 minus the price she​pays, $100, which is​ $200.

MSC​ = MC​ + Marginal external cost

Marginal social cost is the marginal cost incurred by the producer and by everyone else on whom the cost falls—by society. It is the sum of marginal private cost and marginal external cost. That​ is, MSC​ = MC​ + Marginal external cost.

​Sarah, Kirk, and Jean are the only producers of panini sandwiches in an isolated village. The table shows their weekly supply of paninis. When the price of a panini is​ $7.50, what is the quantity of paninis supplied by the market in a​ week? The quantity supplied by the market is ___ paninis a week.

Market supply is the relationship between the total quantity supplied of a good and its price. When the price is​ $7.50 a​ panini, the quantity supplied by Sarah is 4​ paninis, the quantity supplied by Kirk is 2​ paninis, and the quantity supplied by Jean is 1 panini. When the price of a panini is​ $7.50, the quantity supplied in the market is 7 paninis​ (4 + 2​ + 1​ = 7).

Which of the following statements describes an elastic demand​?

Mary's quantity demanded of milk decreased by 8 percent when the price of milk rose by 5 percent. When the percentage change in quantity demanded exceeds the percentage change in​ price, the good has elastic demand The statement​ "Mary's quantity demanded of milk decreased by 8 percent when the price of milk rose by 5​ percent," implies that the percentage change in quantity demanded exceeds the percentage change in price. So the statement describes elastic demand.

Which of the following statements describe an inelastic demand​?

Megan did not buy too many hockey tickets even though their price dropped by 10 percent. When the percentage change in quantity demanded is less than the percentage change in​ price, the good has an inelastic demand. Megan did not buy too many hockey tickets even though their price dropped by 10​percent, implies that the percentage change in quantity demanded of hockey tickets is less than the percentage change in price. So the statement describes inelastic demand.

The Grip of Gas U.S. drivers are ranked as the least sensitive to changes in the price of gasoline. For​ example, if the price rose from​ $3 to​ $4 per gallon and stayed there for a year U.S. purchases of gasoline would fall only about 5 percent. ​Source: Slate​, September​ 27, 2005 Calculate the price elasticity of demand for gasoline. Does this measurement indicate that the demand for gasoline is​ elastic, unit​ elastic, or​ inelastic? The price elasticity of demand for gasoline is . The price elasticity of demand for gasoline is​ ______, and a rise in the price of gasoline​ ______ total revenue from gasoline sales.

Price elasticity of demand equals the percentage change in quantity demanded divided by the percentage change in price. The news clip tells us that if the price rises from​ $3 per gallon to​ $4 per​ gallon, the quantity demanded falls by 5 percent. So the percentage change in the quantity demanded is 5 percent. If the price of a gallon of gasoline rises from​ $3 to​ $4, the increase in the price of a gallon of gasoline is​ $1, and the average price is​ $3.50. So the percentage increase in the price of gasoline is 28.6 percent. The price elasticity of demand is 5 percent÷28.6 ​percent, which is 0.17. ​inelastic; increases The price elasticity of demand for gasoline is 0.17. When the price elasticity of demand is less than​ 1, demand is inelastic. The total revenue test tells us that when the price rises and demand is​ inelastic, total revenue increases.

The graph shows the market for pillows in which the government has imposed a sales tax of​ $6 per pillow on sellers. Draw a point to show the price of a pillow and the quantity of pillows bought and sold with no tax. Label it 1. Draw a point to show the price paid by buyers and the quantity of pillows bought following the tax. Label it 2. Draw a point to show the price received by sellers and the quantity of pillows sold following the tax. Label it 3.

Prior to the​ tax, the price of a pillow and the quantity of pillows bought and sold is determined at the intersection of the supply curve and the demand curve. With the​ tax, the price of a pillow paid by the buyers and the quantity of pillows bought and sold is determined at the intersection of the S​ + tax on sellers curve and the demand curve. The price received by sellers is taken from the supply curve at the new quantity.

The owner with the largest producer surplus is the owner with the​ _______.

Producer surplus is excess of the amount received from the sale of a good or service over the cost of producing it. Marginal cost tells us the cost of production. So the owner with the greatest marginal cost is the owner with the smallest producer surplus. OK

Producer surplus is​ ______.

Producer surplus is the excess of the amount received from the sale of a good or service over the cost of producing it. We calculate producer surplus as the price received minus the marginal cost​ (or minimum​ supply-price) summed over the quantity sold.

Producer surplus is​ _______.

Producer surplus is the excess of the amount received from the sale of a good or service over the cost of producing it. We calculate producer surplus as the price received minus the marginal cost​ (or minimum​ supply-price), summed over the quantity sold.

Producer surplus is the​ _____ a good or​ service, in excess of the​ _____ of producing​ it, summed over the quantity produced.

Producer surplus is the price of a good or​ service, in excess of the marginal cost of producing​ it, summed over the quantity produced.

The graph shows the demand curve for coal. The government imposes a sales tax on sellers of coal. It turns out that the buyers end up paying the entire tax. Draw the supply curve of coal. Label it S . Draw a second supply curve that shows the effect of the tax. Label it S​ + tax.

Remember that when demand is perfectly inelastic or supply is perfectly​ elastic, the buyer pays the entire tax. And when demand is perfectly elastic or supply is perfectly​ inelastic, the seller pays the entire tax.

Which of the following statements best describes search activity​?

Search activity is the time spent looking for someone with whom to do business. The fact that Tim spends time looking for jobs and sending applications to​ firms, implies he spends time in job search. So this illustrates search activity.

Which of the following statements is an example of perfectly elastic demand​?

Sherry is overwhelmed with buyers of her peaches when she lowers their price by a penny a pound compared to other sellers in the​ farmers' market. When the quantity demanded changes by a very large percentage in response to an almost zero percent change in​ price, the good has perfectly elastic demand. The fact that Sherry is overwhelmed with buyers of her peaches when she lowers their price by a penny a pound compared to other sellers in the​ farmers' market, implies that quantity demanded for peaches increases by a very large proportion when the price changes by a small percentage. So the statement is an example of perfectly elastic demand.

Tax incidence is the division of the burden of tax between​ _____.

Tax incidence is the division of the burden of tax between buyers and sellers.

When an effective production quota is applied in the market for​ rice, the marginal social benefit​ _______ marginal social cost.

The figure shows the market for rice when an effective production quota is applied. With the​ quota, the quantity produced is 100 million boxes a year. Marginal social benefit from the demand curve exceeds marginal social cost from the supply curve.

The graph shows the market for books. The market for books initially has no taxes and is in competitive equilibrium. Then a tax of​ $4 a book is imposed on the buyers of books. What is the tax paid by sellers on a book and what is the tax paid by buyers on a​ book? The tax paid by the seller is​ _____ a book and the tax paid by the buyer is​ _____ a book.

The graph shows the market for books. ​Initially, the price of a book is​ $5. Then a tax of​ $4 a book is imposed on the buyers of books. The price paid by the buyer of a book rises to​ $7 and the price received by the seller falls to​ $3 a book. The buyer pays​ $2 of the tax and the seller pays​ $2 of the tax.

The tax is _________________

The graph shows the market for pillows in which the government has imposed a sales tax of​ $6 per pillow on sellers. Prior to the​ tax, buyers pay​ $6 a pillow and sellers receive​ $6 a pillow. After the​ tax, buyers pay​ $9 a​ pillow, so buyers pay​ $3 of the tax. After the​ tax, sellers receive​ $3 a​ pillow, so sellers pay​ $3 of the tax. The tax is split evenly between buyers and sellers.

In the market for​ potatoes, the marginal social cost​ _______ marginal social benefit.

The graph shows the market for potatoes when a subsidy is paid. With the​ subsidy, the quantity is 140 million bags a year. At a quantity of 140 million bags a​ year, marginal social cost from the supply curve S exceeds marginal social benefit from the demand curve D.

An example of an income elastic good is​ ______ and an example of an income inelastic good is​ ______.

The income elasticity of demand for haircuts is 1.36 and the income elasticity of demand for food is 0.14. So a haircut is income elastic and food is income inelastic. Next Question

What does the sign​ (positive/negative) of the income elasticity tell us about a​ good? A good with an income elasticity greater than one is​ ______. A good with an income elasticity that is positive and less than 1 is​ ______.

The income elasticity of demand is calculated by using the formula Income elasticity of demand​ = Percentage change in quantity demanded÷Percentage change in income. Income elasticities of demand for normal goods are categorized as 1. Greater than 1​ (normal good, income​ elastic) 2. Positive and less than 1​ (normal good, income​ inelastic)

Sara bought 3 bottles when the price is​ $3 a​ bottle, 4 bottles when the price is​ $2 a​ bottle, and 5 bottles when the price was​ $1 a bottle. Zoe bought no soda when the price was​ $3 a​ bottle, 2 bottles when the price is​ $2 a​ bottle, and 3 bottles when the price was​ $1 a bottle.

The market demand curve shows the quantity demanded by all the people in the market. In this​ example, Sara and Zoe are the only​ people, so the quantity demand in the market is the sum of the quantities demanded by Sara and Zoe. When the price is​ $2 a​ bottle, Sara bought 4 bottles and Zoe bought 2​ bottles, so at​ $2 a bottle the quantity demanded by the market is 6 bottles of soda.

The market supply curve is the​ ______ sum of the individual supply curves. It is formed by adding the​ ______.

The market supply curve is the horizontal sum of the individual supply curves and is formed by adding the quantities supplied by all the producers at each price.

Provide examples of goods or services whose elasticities of supply are​ (a) zero,​ (b) greater than zero but less than​ infinity, and​ (c) infinity. The momentary supply of wheat has an elasticity of supply equal to​ _______. The​ short-run supply of wheat has an elasticity of supply equal to​ _______.

The momentary supply of wheat has an elasticity of supply equal to zero. The momentary supply of wheat is perfectly inelastic. The quantity supplied depends on​ crop-planting decisions made​ earlier, so the elasticity of supply is zero. The​ short-run supply of wheat has an elasticity of supply equal to more than zero but less than infinity. If farmers already have a crop ready to​ harvest, they may choose to harvest if the price is​ high, or harvest a smaller amount if the price is​ low, so the elasticity of supply is more than zero but less than infinity.

The more​ ______ the​ supply, ______.

The more elastic the​ supply, the larger is the amount of the tax paid by buyers.

The more​ ______ the​ demand, ______.

The more inelastic the​ demand, the larger is the amount of the tax paid by buyers.

The more​ ______ the​ supply, ______.

The more inelastic the​ supply, the larger is the amount of the tax paid by sellers.

Which of the following is an example of a negative externality​? A. The new factory in the area has increased​ children's respiratory ailments. B. The central bank has raised its interest rates by 0.2 percent. C. A young couple wants to have a college fund that will pay​ $30,000 at the end of each​ half-year for 8 years. D. More people are buying automobiles before the arrival of the festive season.?

The new factory in the area has increased​ children's respiratory ailments. A negative externality is a production or consumption activity that creates an external cost. The​ statement, "The new factory in the area has increased​ children's respiratory​ailments," implies that pollution from the factory results in health​ problems, which is an external cost. So the statement is an example of a negative externality.

Concerned about the political fallout from rising college tuition​, the U.S. government decides to impose a price ceiling on tuition of ​$30,000 a student. If more colleges open and drive the equilibrium price of tuition to ​$25,000 a student​, ​_____. The market for college education is​ ______.

The price ceiling and the equilibrium price in the market do not come into​ conflict, so neither a surplus nor a shortage of college education emerges. Because the price ceiling is​ ineffective, marginal social benefit equals marginal social cost at the quantity produced and the market is efficient. Next Question

In​ 2003, when music downloading first took​ off, Universal Music slashed the average price of a CD from​ $21 to​ $15. The company expected the price cut to boost the quantity of CDs sold by 30​ percent, other things remaining the same. What was Universal​ Music's estimate of the price elasticity of demand for​ CDs? Universal​ Music's estimate of the price elasticity of demand for CDs was . 9.9 If you were making the pricing decision at Universal Music would you cut the​ price, raise the​ price, or leave the price​ unchanged?

The price elasticity of demand equals the percentage change in quantity demanded divided by the percentage change in price. The price decreases from​ $21 to​ $15 a​ CD, which is a decrease of​ $6. The average price is​ $18, so the percentage decrease in price is ​($6÷​$18)×​100, which is 33.33 percent. The quantity demanded increases by 30 percent. The price elasticity of demand​ = 30 percent÷33.33 ​percent, which is 0.9. Raise the price to increase total revenue. The total revenue test tells us that when demand is​ inelastic, a rise in the price increases total revenue. The price elasticity of demand is​ 0.9, so the demand for CDs is inelastic. A rise in the price of CDs increases total revenue.

Rain spoils the strawberry​ crop, the price of strawberries rises from ​$6 to ​$8 a​ box, and the quantity demanded decreases from 600 to 200 boxes a week. Calculate the price elasticity of demand over this price range. Describe the demand for strawberries. Over the price range of ​$6 to ​$8​, the price elasticity of demand is _________

The price elasticity of demand equals the percentage change in quantity demanded divided by the percentage change in price. The price increases from ​$6 to ​$8 a​ box, which is an increase of​ $2. The average price is ​$7​, so the percentage increase in price is ​($2÷​$7​)×​100, which is 28.57 percent. The quantity demanded decreases from 600 to 200 ​boxes, which is a decrease of 400. The average quantity is 400 ​boxes, so the percentage decrease in quantity demanded is ​(400÷400​)×​100, which is 100 percent. The price elasticity of demand​ = 100 percent÷28.57 ​percent, which is 3.5.

The table gives the demand and supply schedules for chocolate brownies. If sellers are taxed 20¢ a​ brownie, what is the price of a brownie and who pays the​ tax? The price of a brownie paid by buyers is ________ cents. Buyers pay nothing cents of the tax and sellers pay _______cents of the tax.

The table shows the demand and supply schedule for chocolate​ brownies, and the quantity supplied when sellers are taxed 20 cents a brownie. With the​ tax, the price paid by buyers is 70 cents a​brownie, and 3 million brownies a day are bought. The original supply schedule tells us that when 3 million brownies a day are​ supplied, the price received by sellers is 50 cents a brownie. The original price is 60 cents a​ brownie, so buyers pay 10 cents of the tax and sellers pay 10 cents of the tax.

The figure shows the demand for pens. Calculate the elasticity of demand when the price rises from ​$4 to ​$6 a pen. Over what price range is the demand for pens​ elastic? The elasticity of demand when the price rises from ​$4 to ​$6 a pen is . ______ (4,80) (6,60)

The price elasticity of demand is calculated as the percentage change in the quantity demanded divided by the percentage change in the price. We calculate the change in price as the percentage of the average price and the change in the quantity demanded as the percentage of the average quantity. When the price rises from ​$4 to ​$6​, a change of​ $2, the average price is ​$5. So the percentage change in the price is ​($2÷​$5​)×​100, which is 40 percent. The quantity demanded decreases from 80 pens a day to 60 pens a day. The quantity of pens demanded decreases by 20 and the average quantity is 70. So the percentage change in the quantity demanded is ​(20÷70​)×​100, which is 28.57 percent. So the price elasticity of demand is 28.57 percent÷40 ​percent, which is 0.72.

If the quantity of dental services demanded increases by 5 percent when the price of dental services falls by 10​ percent, is the demand for dental services​ inelastic, elastic, or unit​ elastic?

The price elasticity of demand is equal to the percentage change in the quantity demanded divided by the percentage change in price. When the price elasticity of demand is greater than​ 1, demand is elastic. When the price elasticity of demand is less than​ 1, demand is inelastic. And when the price elasticity of demand equals​ 1, demand is unit elastic. In this​ question, the percentage change in the quantity demanded is greater than the percentage change in the​ price, so demand is elastic.

The table describes the market for​ pesticide, which is a market with a negative externality. When a factory produces​ pesticide, it dumps waste into a lake. A trout farm uses the lake. If the market is​ unregulated, what is the quantity of pesticide​ produced? If the market is​ unregulated, the quantity of pesticide produced is 44 tons a week. This outcome is​ ______ because marginal social cost​ ______ marginal social benefit.

The table describes the market for​ pesticide, which is a market with an external cost. When the quantity produced is 4 tons a​ week, the marginal social cost is​ $195 a ton and the marginal social benefit is​ $120 a ton. Marginal social cost exceeds marginal social benefit. The outcome is inefficient.

Define the elasticity of supply and show how it is calculated. Elasticity of supply measures the responsiveness of the quantity supplied to a change in​ ______, when all other influences on selling plans remain the same.

When demand​ increases, the price rises and the quantity increases. We use the elasticity of supply to determine if the price rises by a large amount and the quantity increases by a little or if the price barely rises and the quantity increases by a large amount.

When resources are allocated on the basis of individual attributes​, the allocation method is​ _______. When resources are allocated to the first in line​, the allocation method is​ _______.

When resources are allocated on the basis of personal characteristics, people with the "right" characteristics get the resources. A first-come, first-served method allocates resources to those who are first in line.

Which of the following is an example of price elasticity of demand​?

When the price of bananas increased by 5 percent and nothing else​ changed, the quantity of bananas demanded decreased by 2 percent. Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on​ buyers' plans remain the same. The statement​ "When the price of bananas increased by 5 percent and nothing else​ changed, the quantity of bananas demanded decreased by 2​ percent" is an example of price elasticity of demand.

A rise in the price of sushi of from 98¢ to​ $1.02 a piece decreases the quantity of soy sauce demanded form 101 units to 99 units an hour and decreases the quantity of sushi demanded by 1 percent an hour. Calculate the price elasticity of demand for sushi and the cross elasticity of demand for soy sauce with respect to the price of sushi. ​>>> Answer to 2 decimal places. ​>>> If your answer is​ negative, include a minus sign. If your answer is​ positive, do not include a plus sign. The price elasticity of demand for sushi is . 25. The cross elasticity of demand for soy sauce with respect to the price of sushi is negative .5

When the price of sushi rises from 98¢ to​ $1.02, the percentage change in the price of sushi is ​($0.04÷​$1.00)×​100, which is 4 percent. When the quantity of soy sauce demanded decreases from 101 units to 99​ units, the percentage change in the quantity of soy sauce demanded is ​(−2 units÷100 ​units)×​100, which is −2 percent. The cross elasticity of demand for soy sauce with respect to the price of sushi​ = Percentage change in quantity of soy sauce demanded÷Percentage change in price of sushi. The cross elasticity of demand of soy sauce with respect to the price of sushi ​=− 2 percent÷4 percent​ = −0.5.

The graph shows the market for tulips. Draw a point at the equilibrium price and equilibrium quantity. Label it 1. Suppose that tulips are taxed​ $6 a bunch and that the tax is on the sellers of tulips. Draw a curve that shows the effect of the tax. Label it. Draw a point to indicate the price paid by buyers and the quantity bought. Label it 2.

When the tax is paid by the​ sellers, the supply curve shifts upward by the amount of the tax. The price paid by the buyers is​ $18 a bunch and the quantity of tulips bought is 60 bunches a​ week, at the intersection of the D and S​ + tax curves. The graph shows the market for tulips. Draw a point at the equilibrium price and equilibrium quantity. Label it 1. Suppose that tulips are taxed​ $6 a bunch and that the tax is on the sellers of tulips. Draw a curve that shows the effect of the tax. Label it. Draw a point to indicate the price paid by buyers and the quantity bought. Label it 2.

1. If there is no tax on concert​ tickets, what is the price of a ticket and how many tickets are​ bought? With no tax on concert​ tickets, the price is ​_____ a ticket and _______concert tickets are bought.

With no sales tax on concert​ tickets, the price of a ticket is the market equilibrium​price, which is​ $7 a ticket. At​ $7 a​ ticket, the quantity of tickets bought is 400 per concert.

In a day in the life of​ Jack, the following four things occur. Which is an example of resources being allocated by the command system​?

With the command​ system, someone in authority allocates resources. Being assigned to a task by a manager is an example of the command system.

A good with an income elasticity greater than one is​ ______. A good with an income elasticity that is positive and less than 1 is​ ______.

a normal good that is income​ elastic; a normal good that is income inelastic The income elasticity of demand is calculated by using the formula Income elasticity of demand​ = Percentage change in quantity demanded÷Percentage change in income. Income elasticities of demand for normal goods are categorized as 1. Greater than 1​ (normal good, income​ elastic) 2. Positive and less than 1​ (normal good, income​ inelastic) OK

Marginal private cost is the cost of producing​ _____ of a good or service that is borne by the​ _____ of that good or service. Marginal external cost is the cost of producing​ _____ of a good or service that falls on people other than the​ _____.

an additional​ unit; producer an additional​ unit; producer Marginal private cost is the cost of producing an additional unit of a good or service that is borne by the producer of that good or service. Marginal external cost is the cost of producing an additional unit of a good or service that falls on people other than the producer.

An externality is a​ _____ that arises from production and that falls on someone other than the​ producer; or a​ _____ that arises from consumption and that falls on someone other than the consumer.

cost or​ benefit; cost or benefit An externality is a cost or benefit that arises from production and that falls on someone other than the​ producer; or a cost or benefit that arises from consumption and that falls on someone other than the consumer.

When a fire alarm goes off accidently in the middle of a lecture it creates an external​ ______. When your instructor offers a free tutorial after class he creates an external​ ______.

cost; benefit An externality is a cost of or a benefit from an action that falls on someone other than the person or firm choosing the action. When a fire alarm goes off accidently in the middle of a lecture it creates an external cost. When your instructor offers a free tutorial after class he creates an external benefit. Next Question

The graph shows the market for cotton. A small town is surrounded by a large cotton farm. The cotton grower sprays the plants with chemicals to control insects and the chemical waste flows into the river passing through the town. Complete the sentence. A Pigovian tax​ ______.

creates an efficient outcome when it is set equal to the marginal external cost When property rights are assigned to either the cotton farmer or to the​ town, the quantity of cotton produced is the efficient quantity. ​Similarly, under a Pigovian tax the quantity of cotton produced is the efficient quantity. By setting the tax equal to the marginal external​ cost, the cotton farmer can be made to behave in the same way as if he bore the cost of the externality directly.

Over this price​ range, the demand for strawberries is​ ______.

elastic The price elasticity of demand equals the percentage change in quantity demanded divided by the percentage change in price. The price elasticity of demand is equal to 3.5. Because the price elasticity of demand is greater than​ 1, the demand for strawberries is elastic.

The greater the elasticity of​ demand, the​ ______ is the amount of the tax paid by sellers and the​ ______ is the decrease in the equilibrium quantity.

greater; greater The top graph shows the market for pens with a perfectly elastic demand. The bottom graph shows the market for pens with a​downward-sloping demand curve. At the market equilibrium​ price, the elasticity of demand for the good in the top graph is greater. With a​ $0.10 tax, the price buyers pay remains at​ $1 a​ pen, but the price sellers receive falls by the full amount of the tax. In the bottom​ graph, the​ $0.10 tax is split between the buyer and the seller. The buyer pays​ $1.05 for a pen and the seller receives​$0.95. The buyer pays​ $0.05 of the tax and the seller pays​ $0.05 of the tax. So the greater the elasticity of​ demand, the greater is the amount of the tax paid by sellers. Initially in both​ graphs, the equilibrium quantity is​ 4,000 pens. With the​ tax, the decrease in the quantity bought and sold is greater in the top graph. The decrease in the equilibrium quantity is greater the more elastic is demand.

When Erika​'s income increases by 20 ​percent, her demand for tickets to professional baseball games increases by 10 percent. Erika​'s demand for tickets is income​ ______. For Erika​, baseball tickets are​ ______ good.

inelastic; normal income elasticity of demand is a measure of the responsiveness of the demand for a good or service to a change in​ income, other things remaining the same. Income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Erika​'s income elasticity of demand for professional baseball tickets is 10÷20​, which is 0.50. When income elasticity is positive and less than​ one, the good is income inelastic and a normal good. Next Question

What are the four types of​ externality? The four types of externality are​ _______.

negative​ production, negative​ consumption, positive​ production, and positive consumption An externality is a cost of or a benefit from an action that falls on someone other than the person or firm choosing the action. An externality can be created through production or consumption. We call an externality that imposes a cost a negative​ externality; and we call an externality that provides a benefit a positive externality. We identify externalities as four​ types: negative​ production, negative​ consumption, positive​ production, and positive consumption. Next Question

A healthy person lowers the costs of a​ government-funded medical system. What type of externality​ results? This is an example of a​ _______ externality.

positive consumption An externality is a cost of or a benefit from an action that falls on someone other than the person or firm choosing the action. A healthy person lowers the costs of a​ government-funded medical system. This is an example of a positive consumption externality.

What externalities arise from beautiful and ugly buildings and how do we deal with​ them? Beautiful buildings create a​ _________.

positive consumption​ externality, which we deal with by having competitions that encourage beautiful design and landscaping An externality is a cost of or a benefit from an action that falls on someone other than the person or firm choosing the action. An externality that provides a benefit is a positive externality. Beautiful buildings create a positive consumption externality. We deal with this externality by having competitions that encourage beautiful design and landscaping.

As Gasoline Prices​ Soar, Americans Slowly Adapt As gas prices rose in March​ 2008, Americans drove 11 billion fewer miles than in March 2007. Realizing that prices are not going​ down, Americans are adapting to higher energy costs. Americans spend 3.7 percent of their disposable income on transportation fuels. How much we spend on gasoline depends on the choices we​ make: what car we​ drive, where we​live, how much time we spend​ driving, and where we choose to go. For many​ people, higher energy costs mean fewer restaurant​ meals, deferred weekend outings with the​ kids, less air​ travel, and more time closer to home. ​Source: International Herald​ Tribune, May​ 23, 2008 List and explain the elasticities of demand that are implicitly referred to in the news clip. ​Why, according to the news​ clip, is the demand for gasoline​ inelastic? Which of the following elasticities is not implicitly referred to in the news​ clip? One of the factors cited in the news clip that makes the demand for gasoline inelastic is​ _______.

price elasticity of supply the small percentage of income spent on gasoline

The cross elasticity of demand is a measure of the responsiveness of the demand for a good to a change in the​ ______, other things remaining the same.

price of a substitute or complement The cross elasticity of demand is a measure of the responsiveness of the demand for a good to a change in the price of a substitute or​ complement, other things remaining the same. We calculate the cross elasticity of demand by using the​ formula: Cross elasticity of demand​ = Percentage change in quantity demanded ÷Percentage change in price of a substitute or complement.

What does the cross elasticity of demand​ measure? The cross elasticity of demand is a measure of the responsiveness of the demand for a good to a change in the​ ______, other things remaining the same.

price of a substitute or complement The cross elasticity of demand is a measure of the responsiveness of the demand for a good to a change in the price of a substitute or​ complement, other things remaining the same. We calculate the cross elasticity of demand by using the​ formula: Cross elasticity of demand​ = Percentage change in quantity demanded ÷Percentage change in price of a substitute or complement. Next Question

The table gives the demand schedule for hotel rooms. What happens to total revenue when the price falls from​ $400 to​ $250 a room per night and from​ $250 to​ $200 a room per​ night? Is the demand for hotel rooms​ elastic, inelastic, or unit​ elastic? If the price falls from​ $400 to​ $250 a​ night, total revenue​ _____. If the price falls from​ $250 to​$200 a​ night, total revenue​ _____. The demand for hotel rooms is​ _____ because​ _____.

remains the​ same; remains the same unit​ elastic; a price cut leaves total revenue unchanged. Total revenue never reaches a maximum The table shows the demand schedule for hotel rooms. If a price cut leaves total revenue​ unchanged, demand is unit elastic. Calculate the total revenue at each price. In each​ case, total revenue is​ $20 billion, so demand is unit elastic.

The greater the elasticity of​ supply, the​ ______ is the amount of the tax paid by sellers and the​ ______ the decrease in the quantity bought.

smaller: greater The top graph shows the market for sand with a perfectly elastic supply. The bottom graph shows the market for sand with an​ upward-sloping supply curve. At the market equilibrium​ price, the elasticity of supply for the good in the top graph is greater. With a 1¢ a pound​ tax, the price sellers receive remains at 10¢ a​ pound, but the price buyers pay rises by the amount of the tax. In the top​ graph, when the good is​ taxed, the price for the buyer changes by the entire amount of the tax so buyers pay the entire tax. In the bottom​ graph, the 1¢ a pound tax is split between the buyer and the seller. The buyer pays 10.5¢ for a pound of sand and the seller receives 9.5¢. The buyer pays 0.5¢ of the tax and the seller pays 0.5¢ of the tax. So the greater the elasticity of​ supply, the greater is the amount of the tax paid by buyers. Initially in both​ graphs, the equilibrium quantity is​ 5,000 pounds. With the​ tax, the decrease in the quantity bought and sold is greater in the top graph. The decrease in the equilibrium quantity is greater the more elastic is supply.

Choose the correct statement about value.

value is what we get, price is what we pay

In​ 2015, an outbreak of Avian Flu decreased the quantity of eggs produced by 18 percent. A shortage of eggs was avoided by a rise in their wholesale price from​ $1.34 to​ $2.40 per dozen. If the demand for eggs​ didn't change, what is your estimate of the price elasticity of demand for​ eggs? Thinking about the influences on the price elasticity of​ demand, why would you expect the demand for eggs to be​inelastic? We would expect the demand for eggs to be inelastic because​ _______.

we spend a small proportion of our income on eggs Other things remaining the​ same, the smaller the proportion of income spent on a​good, the less elastic​ (or more​ inelastic) is the demand for it. We spend a very small proportion of our income on​ eggs, so the demand for eggs is inelastic.

A huge noisy crowd that gathers outside the lecture room creates an external​ ______. When your neighbor grows beautiful flowers on his apartment deck he creates an external​ ______.

​cost; benefit An externality is a cost of or a benefit from an action that falls on someone other than the person or firm choosing the action. A huge noisy crowd that gathers outside the lecture room creates an external cost. When your neighbor grows beautiful flowers on his apartment deck he creates an external benefit.

Demand for a luxury is more​ ______ than demand for a necessity because a luxury has​ ______ substitutes.

​elastic; more A luxury usually has many​ substitutes, one of which is not buying it. Necessities—for ​example, food—have few substitutes. The more substitutes a good​ has, the greater its elasticity. Luxuries are more elastic than necessities.

Study Ranks Honolulu Third Highest for​ 'Unaffordable Housing' ​[Study ranks] Honolulu number 3 in the world for the most unaffordable housing market in urban​ locations, behind Los Angeles and San Diego and is deemed​ "severely unaffordable." With significant constraints on the supply of land for residential​ development, housing inflation has resulted. ​Source: Hawaii Reporter​, September​ 11, 2007 Would the supply of housing in Honolulu be elastic or​ inelastic? Explain how the elasticity of supply plays an important role in influencing how rapidly housing prices in Honolulu rise. The supply of housing in Honolulu is​ ______. The​ ______ elastic the supply of​ housing, the greater the rise in the price of housing when demand increases.

​inelastic; less There is a given quantity of land available in Honolulu for building. A small change in the price of housing does not result in a large increase in the quantity supplied. So it is the case that the supply of housing is inelastic. When the supply of housing is​ inelastic, the supply of housing curve is relatively vertical and an increase in demand increases the price by a large amount