Test 1

What is the elasticity formula?

% change in quantity / % change in price

If the demand for a good is highly elastic, that good is likely to have: -many close complements. -few close complements. -many close substitutes. -few close substitutes.

-many close substitutes.

The buyer's reservation price for a particular good or service is the:

largest price the buyer would be willing to pay for it.

Demand tends to be ______ in the short run than in the long run.

less elastic

if a good has a low amount of substitutes, it is more or less elastic

less elastic, inelastic

if a good uses less of your income, you are more or less elastic

less elastic, inelastic

inelastic

less than 1

If a good has a large amount of substitutes, it is more or less elastic

more elastic

On a given linear demand curve, as price increases demand becomes:

more elastic

if a good is more expensive you're likely to be more or less elastic

more elastic

If most consumer goods and services are ______, then most income elasticities are ______.

normal;positive

If one fails to account for implicit costs in decision making, then applying the cost-benefit rule will be flawed because

the costs will be understated

The economic surplus of an action is

the difference between the benefit and the cost of taking an action.

opportunity cost

the most desirable alternative given up as the result of a decision; the next best

Whenever the quantity demanded is not equal to the quantity supplied, the quantity that is actually sold in the market is:

the smaller of the quantity demanded and the quantity supplied.

If bagels and donuts are substitutes, then a decrease in the price of donuts will result in:

A decrease in the demand for bagels.

Scarcity Principle

Although we have boundless needs and wants, the resources available to us are limited. So having more of one good thing usually means having less of another.

implicit costs

Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur

Cost/Benefit Rule

Keep increasing the level of an activity as long as its marginal benefit exceeds marginal cost

A change in demand means there has been a shift in the demand curve, and a change in quantity demanded:

Means that price has changed and there is movement along the demand curve.

Economics

The study of how people seek to satisfy their needs and wants by making choices

A movement along a demand curve from one price-quantity combination to another is called a:

change in quantity demanded.

The marginal cost of an activity is the: -change in the level of the activity divided by the change in the cost of the activity. -the total cost of the activity divided by the level of the activity -the total cost of the activity divided by the change in the level of the activity. -change in the total cost of the activity that results from carrying out an additional unit of the activity.

change in the total cost of the activity that results from carrying out an additional unit of the activity.

If the cross-price elasticity of demand between blueberries and yogurt is negative, then the two goods are

complements

The marginal benefit of an activity is the: -same as the total benefit of an activity -total benefit of an activity/level of activity -extra benefit associated with an extra unit of the activity -total benefit associated with an extra unit of the activity

extra benefit associated with an extra unit of the activity

Inferior goods are

goods that consumers demand less of when their incomes increase

elastic

greater than 1

For any horizontal demand curve, the price elasticity of demand is:

infinite

If individuals are rational, they should choose actions that yield the

largest economic surplus

If consumers completely cease purchasing a product when its price increases by any amount, then demand is:

perfectly elastic

unit elastic

price elasticity of demand is exactly 1

The cross-price elasticity of demand between bread and potatoes is estimated to be 0.5. This implies bread and potatoes are:

substitutes

Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks rather than spending an equal amount of money to go to a movie. Her opportunity cost of going to the beach is:

the value she places on seeing the movie. (The money she spent are sunk costs)

A demand curve that is drawn as a vertical line has a price elasticity of demand equal to:

zero

If the slope of a demand curve is infinite, then the price elasticity of demand is:

zero