week two smartbook

Which of the following is the formula of price elasticity of demand for a good, X?

%ΔQDX/%ΔPX

Cross-price elasticity is given by which of the following expressions?

%ΔQxD%ΔPY%ΔQxD%ΔPY δQxdδPyδQxdδPy×PyQx

Due to the complexities of human thought process:

-behavior models are abstractions of the way we make decisions -behavior models are simplifications of real-world human decision-making

Total revenue is maximized when marginal revenue equals which is when the own price elasticity of demand is equal to . (Enter a number in both blanks.)

0, -1

Moving along an indifference curve from one bundle to another, a consumer gains 1 unit of X and gives up 3 units of Y. The marginal rate of substitution is between goods X and Y.

3

Suppose a firm produces two products, X and Y. The firm earns revenues from X equal to $50,000 and revenues from Y equal to $30,000. The own price elasticity of demand for X is -2 and the cross-price elasticity of demand between X and Y is -0.6. If the firm lowers the price of product X by 1%, the change in total revenues will be $. (Do not add any negative sign before your answer.)

680

Suppose a firm produces two products, X and Y. The firm earns revenues from X equal to $70,000 and revenues from Y equal to $60,000. The own price elasticity of demand for X is -1.5 and the cross-price elasticity of demand between X and Y is -0.80. If the firm decreases the price of product X by 1%, the change in total revenues will be $.

830

Given a fixed opportunity set that consists of 24 hours, workers will generally try to consume a bundle of labor and leisure that does which of the following?

Achieves the highest affordable indifference curve

Since workers substitute between leisure and income, what must firms do to induce workers to give up leisure?

Compensate workers

All affordable goods and services can be represented by which of the following?

Consumer opportunities

What is true of demand for a good that has many available substitutes?

Demand is relatively elastic.

What is true of demand for a good that has few close substitutes?

Demand is relatively inelastic.

Workers' behavior can be analyzed using which of the following?

Indifference curves

At the point of consumer equilibrium,

MRS = Px/Py

Consider the following relationship between marginal revenue and elasticity of demand: MR = P × {1+EE}1+EE. If demand is unitary elastic:

Marginal revenue equals zero.

Consider the following relationship between marginal revenue and elasticity of demand: MR = P × {1+EE}1+EE. If demand is inelastic:

Marginal revenue is negative.

If a consumer's income decreases and she now consumes less of BOTH goods X and Y, then the consumer considers X and Y to be what type of goods?

Normal goods

If demand is perfectly inelastic, which of the following is correct?

Own-price elasticity equals zero.

If demand is perfectly elastic, which of the following is correct?

Own-price elasticity is infinite in absolute value.

If a consumer spends all of his or her income on either good X or good Y or a combination of both, then the budget line is given by which of the following?

PxX + PyY = M

The budget constraint can be given by which of the following expressions?

PxX + PyY = M Y = MPyMPy - PxPyPxPy⋅X

The budget set can be defined as which of the following?

PxX + PyY ≤ M

When income is constant and the price of good X, PX, increases, what is the effect on the budget line (x is measured on the horizontal axis, y on the vertical axis)?

The budget line rotates clockwise.

When income is constant and the price of good X, PX, decreases, what is the effect on the budget line (x is measured on the horizontal axis, y on the vertical axis)?

The budget line rotates counterclockwise.

If the prices of BOTH good X and good Y double, what is the effect on the budget line (x is measured on the horizontal axis, y on the vertical axis)?

The budget line shifts to the left.

What can be said about goods X and Y if the cross-price elasticity between X and Y is negative?

They are complements.

What can be said about goods X and Y if the cross-price elasticity between X and Y is positive?

They are substitutes.

Given the following budget constraint, PxX + PYY = M, what is the maximum affordable quantity of good Y?

Y = M/PY

If elasticity is given by, EX,Y = %ΔX%ΔY%ΔX%ΔY, then elasticity is positive when:

a decrease in Y leads to a decrease in X. an increase in Y leads to an increase in X.

If elasticity is given by, EX,Y = %ΔX%ΔY%ΔX%ΔY, then elasticity is negative when:

a decrease in Y produces an increase in X. an increase in Y produces a decrease in X.

Qxd = αo - αxPx + αyPy + αMM + αHH Income elasticity is given by:

am x qx/m

Y = MPyMPy - PxPyPxPy X, represents

an affordable combination of goods X and Y.

Economists

are able to model human behavior.

Qxd = α0 - αxPx + αyPy + αMM + αHH Cross-price elasticity is given by:

ay x py/qx

Bundle A is preferred to bundle B. Bundle B is preferred to bundle C. If preferences are transitive, then

bundle A is preferred to bundle C.

Advertising elasticity measures

changes in consumption due to changes in advertising

Cross advertising elasticity measures

changes in consumption of one good due to changes in advertising on another good.

Suppose as a result of a 5% increase in the price of pizza, the demand for soft drinks decreases by 1.1%. In this example, soft drinks and pizza are ____________.

complements

The affordable bundle that generates the most consumer satisfaction is given at _____.

consumer equilibrium MRS = PxPy

Indifference curve analysis allows managers to determine the effect of price changes on

consumer equilibrium.

As a consumer obtains more and more chocolate, the consumer is willing to give up less and less peanut butter. This means the consumers indifference curve between chocolate and peanut butter will be:

convex from the origin

Responsiveness of demand for a good due to changes in the price of a related good is measured using

cross-price elasticity.

If ∣∣EQ,Px∣∣EQ,Px > 1, an increase in the price of a good will _______ total revenue.

decrease

Suppose a consumption bundle contains two goods, X and Y, and that the goods are complements. If the price of good X rises, consumption of good Y ___________.

decreases

Suppose a consumption bundle contains two goods, X and Y, and that the goods are substitutes. If the price of good X falls, consumption of good Y ___________.

decreases

If profits are on the y-axis and output is on the x axis and a manager's preferences depend solely on profit, their indifference curves will be __________.

demand

When consumer income changes and prices are held constant, the slope of the budget line

does not change.

If ∣∣EQ,P∣∣EQ,P> 1, then demand is said to be ________.

elastic

The primary analytic tool used to evaluate the responsiveness of one variable to change in another variable is called ______.

elasticity

A cash gift is generally preferred to an in-kind gift of equal value unless the in-kind gift is ______.

exactly what the consumer would have purchased with the cash

A change in a consumer's income changes consumption patterns because changes in income

expand or contract the budget constraint.

True or false: If a consumer is consuming their equilibrium consumption bundle and the price of one of the goods changes, this will not change the consumer's equilibrium consumption bundle.

false

True or false: It is generally the case that indifference curves have the same shape across all consumers.

false

Suppose elasticity is given by, EX,Y = %ΔX%ΔY%ΔX%ΔY. The absolute value of elasticity will be ________ 1 when the change in X is large relative to the change in Y.

greater than

In the case of a budget constraint for two normal goods, X and Y, an increase in a consumer's income will _____.

have the same effect as a decrease in the price of both X and Y shift the budget constraint to the right

Cash gifts tend to produce a _________ level of utility relative to in-kind gifts.

higher

A buy-one-get-one free deal makes the budget line between the first and the second unit of the good _______.

horizontal

The market demand curve is the ____________ summation of all the individual demand curves.

horizontal

If profits are on the y-axis and output is on the x axis and a manager's preferences depend solely on profit, their indifference curves will be __________.

horizontal lines

Price changes alter consumers':

incentives to buy different goods. equilibrium consumption bundles. budget constraints.

If demand is inelastic, a(n) in price will lead to an increase in total revenue.

increase

An increase in the price of good X rotates the budget line, alters the equilibrium bundle, and

indicates different quantities demanded at different prices. provides two points on a demand curve.

If income elasticity of good X is negative, (EQx, M < 0), then good X is considered a(n) good.

inferior

Given fixed prices, when consumer income decreases, the budget line shifts to the

left

Suppose elasticity is given by, EX,Y = %ΔX%ΔY%ΔX%ΔY. The absolute value of elasticity will be ________ 1 when the change in X is small relative to the change in Y.

less than

Demand tends to be ___________ elastic for goods that require a relatively small portion of consumers' budgets and ____________ elastic for goods that require a relatively large portion of consumers' budgets.

less; more

- (PXPY)PXPY represents the rate of substitution. (Enter only one word in the blank.)

market

If ∣∣EQ,Px∣∣EQ,Px= 1, total revenue is _____.

max

Demand tends to be ___________ elastic when consumers have more time to react to price changes.

more

If income elasticity of good X is positive, (EQx, M > 0), then good X is considered a(n) good.

normal

Income elasticity tells us whether goods are

normal or inferior

Elasticity measures the responsiveness of

one variable changes another

Consumer ______ represent the possible goods and services consumers can afford to consume and consumer ______ determine which of these goods will be consumed.

opportunities; preferences

When income changes, the new equilibrium point will depend entirely on consumer

preference

A buy-one-get-one free deal

reduces only the price of the second unit purchased.

Given fixed prices, when consumer income increases, the budget line shifts to the

right

Given fixed prices, when consumer income increases, the budget line shifts to the (left/right).

right

Cross-price elasticity is given by which of the following expressions?

sQxD/sPy x py/qx

Points on an indifference curve:

show consumption bundles that generate the same amount of satisfaction.

Which of the following are considered expressions for income elasticity?

sqxd/sm x m/qx

The budget set defines combinations of goods and services

that are affordable.

The marginal rate of substitution (MRS) is

the absolute value of the slope of the indifference curve.

Indifference curve analysis is a helpful tool used to derive

the demand curve.

When consumers have more time to react to a price change of a good,

the demand for the good becomes relatively more elastic. the consumers are able to locate more substitutes.

Consumer equilibrium occurs at the point where the MRS is equal to

the ratio of the prices.

- PxPyPxPy equals

the slope of the budget line

Market demand indicates the __________ quantity all consumers would purchase at each possible price

total

True or false: A new car is likely to have a more elastic demand than paper clips.

true

True or false: If a consumer is consuming their equilibrium consumption bundle and the price of one of the goods decreases while all other prices are unchanged, the consumer can reach a higher level of satisfaction.

true

If ∣∣EQ,P∣∣EQ,P= 1, then demand is said to be ________ elastic.

unitary

Total revenue is maximized at a point where demand is

unitary elastic.

If profits are on the y-axis and output is on the x axis and a manager's preferences depend solely on output, their indifference curves will be __________.

vertical lines

Given the following budget constraint, PxX + PYY = M, what is the maximum affordable quantity of good X?

x= m/px

Consider the following relationship between marginal revenue and elasticity of demand: MR = P × {1+EE}1+EE. If elasticity is unitary, marginal revenue is ___________ and total revenue is ____________.

zero; maximized

Qxd = αo - αxPx + αyPy + αMM + αHH Own price elasticity is given by:

αx × PxQx

Given a demand function, Qxd = f(Px, Py, M, H), define own price elasticity.

δQxd/δPx × Px/Qx