ECU Microeconomics 2113 Test #1 (true/false)

In general, elasticity is the
friction that develops between buyers
and sellers in a market.

The price elasticity of
demand measures a buyer's
responsiveness to a change in the price
of a good.

Demand is said to be
elastic if the price of the good responds
substantially to changes in demand.

When quantity demanded
responds only slightly to changes in
price, demand is said to be unit elastic.

Demand for a good would
tend to be more inelastic the fewer the
available substitutes.

Chocolate Chip Cookie
Dough ice cream would tend to have
very elastic demand because it must be
eaten quickly.

A good will have a more
inelastic demand the greater the
availability of close substitutes.

The greater the price
elasticity of demand the more likely the
product is a necessity.

If the price elasticity of
demand for a good is 4.0, then a 10
percent increase in price would result in a 4.0 percent decrease in the quantity
demanded.

If a 15 percent increase in
price causes a 30 percent decrease in
quantity demanded, this product might
have no close substitute.

Demand is elastic if
elasticity is less than 1.

Demand is inelastic if
elasticity is less than 1.

Demand is unit elastic if
elasticity is less than 1.

Demand is said to be unit
elastic if quantity demanded changes by
the same percent as the price.

Elasticity of demand is
closely related to the slope of the
demand curve. The more responsive
buyers are to a change in price, the
demand curve will be steeper.

Alice says that she would
buy one banana split a day regardless
of the price. If she is telling the truth,
Alice's demand for banana splits is
perfectly inelastic.

For a horizontal demand
curve, slope is undefined and elasticity
equals 0.

The difference between
slope and elasticity is that slope
measures actual changes and elasticity
measures percentage changes.

The price elasticity of
supply measures how much the quantity
supplied responds to changes in input
prices.

If the quantity supplied
responds only slightly to changes in
price, then supply is said to be elastic.

The main determinant of
the price elasticity of supply is time.

If a 30 percent change in
price causes a 15 percent change in
quantity supplied, then the price
elasticity of supply is 1/2 and supply is
elastic

When a supply curve is
relatively flat, the supply is relatively
elastic.

If sellers do not respond at
all to a change in price, technological
advancement must be great.

If the elasticity of supply is
zero, then supply is very elastic.

If two supply curves pass
through the same point and one is steep
and the other is flat, the steeper supply
curve is more inelastic.

Concerning a vertical
supply curve, suppliers will not respond
to a change in price.

If the quantity supplied is
the same regardless of price, then the
supply curve would be elastic.

If the elasticity of supply of
a product is 2.5, we know that supply is
inelastic.

The elasticity of a perfectly
elastic supply curve equals 0.

. As elasticity rises, the
supply curve gets flatter.

As the elasticity of supply
approaches infinity, very small changes
in price will lead to very large changes in
quantity supplied.

A decrease in supply will
cause the largest increase in price when
both supply and demand are inelastic.

The forces that make
market economies work are price
and quantity.

In a free market, suppliers
determine how much of a good will
be sold and the price at which it is
sold.

A market is a group of
demanders and suppliers of a
particular good or service.

Those who buy the
product or service ultimately
determine the demand for a product
of or service.

An economy's scarce
resources are allocated by economic
planners.

Similar products,
numerous sellers, and numerous
buyers are all characteristics of a
perfectly competitive market.

If buyers and / or sellers
are price takers, then individually
they have no influence on market price.

Monopoly, perfect competitive, monopolistic competitive, and oligopoly are ranked in order by the number of firms from the most to the least.

If a good is "normal",
then an increase in income will result
in no change in the demand for the
good.

If Francis receives a
decrease in his pay, we would
expect Francis's demand for each
good he purchases to remain
unchanged.

If the price of a substitute
to good X increases, then the
demand for good X will decrease

Two goods are substitutes if a decrease in the price
of one good increases the demand
for the other good.

For economists, people's tastes and demand are
beyond the realm of economics.

Economists in general
do not try to explain people's tastes,
but do try to explain what happens
when tastes change.

You love peanut butter.
You hear on the news that 50 % of
the peanut crop in the South has
been wiped out, which will cause the
price to double by the end of the
year. As a result, your demand for peanut butter will increase by the end of the year.

Suppose you like
banana cream pie made with vanilla
pudding. Assuming all other things
are constant, you notice that the
price of bananas is higher. Your
demand for vanilla pudding would
decrease.

According to the law of
demand price and quantity supplied
are inversely related.

A table that shows the
relationship between the price of a
good and the quantity demanded is
called a demand table.

When referring to the
variables price and quantity
demanded, price and quantity
demanded are independent of each
other.

A demand curve
illustrates the tradeoff between
inflation and unemployment.

A demand curve is the
downward-sloping line relating the
price of the good to the quantity
demanded.

A change in the price
of the good or service would not shift
the demand curve for a good or
service.

When we move up or
down a given demand curve, only
price is held constant.

The sum of all
individual demand curves for a
product is called total demand.

If buyers now wanted
to purchase larger quantities of
Vanilla Coke, the demand curve for
Vanilla Coke would shift to the left.

A very hot summer in
Atlanta will cause the demand for
lemonade to shift to the left.

A country with an aging
population will generally experience
no change in either market demand
or individual demand for prescription
drugs.

An increase in the
number of scholarships issued for
college education would increase the
supply of education.

The market supply
curve shows the total quantity
supplied at any price.

An advance in
production technology will increase a
firm's costs.

. A supply curve slopes
upward because as more is
produced, total cost of production
falls.

In a market, to find the
total amount supplied at a particular
price, we must add up all of the
amounts firms are willing and able to
supply at that price.

Funsters, Inc., the
largest toy company in the country,
sells its most popular doll for $15. It
has just learned that its leading
competitor Toysorama is mass
producing an excellent copy and
plans to flood the market with their
$5 doll in 6 weeks. Funsters should
increase the supply of their doll now
before the other doll hits the market.

The unique point at
which the supply and demand curves
intersect is called market unity.

The price where
quantity supplied equals quantity
demanded is called the coordinating
price.

A decrease in resource
costs to firms in a market will result
in a decrease in equilibrium price
and an increase in equilibrium
quantity.

If a surplus exists in a
market we know that the actual price
is above equilibrium price and
quantity supplied is greater than
quantity demanded.

When there is a
shortage in a market, there is
downward pressure on price.

Suppose that the
number of buyers in a market
increases and a technological
advancement occurs also. In this
market, we would expect equilibrium
quantity would increase, but the
impact on equilibrium price would be
ambiguous.

Suppose that the
incomes of buyers in a particular
market for a normal good decline
and there is also a reduction in input
prices. In this market, we would
expect the equilibrium price would
decrease, but the impact on the
amount sold in the market would be
ambiguous.

Suppose that demand
decreases AND supply decreases.
We would expect equilibrium
quantity would decrease, but the
impact on equilibrium price would be
ambiguous.

New oak tables are
normal goods. What would happen
to the equilibrium price and quantity
in the market for oak tables if the
price of maple tables rises, the price
of oak wood rises, more buyers enter
the market for oak tables and the
price of wood saws increased?
Price will rise and the effect on
quantity is ambiguous.

What will happen to the
equilibrium price and quantity of new
cars if the price of gasoline rises, the
price of steel rises, public
transportation becomes cheaper and
more comfortable, and auto-workers
negotiate higher wages? Quantity
will fall and the effect on price is
ambiguous.

Scarcity exists when
there is less than an infinite amount
of a resource or good.

Approximately 75
percentage of the world's economies
experience scarcity

Economics is the study
of how society manages its scarce
resources.

In most societies,
resources are allocated by a single
central planner.

Economists use the
phrase "There is no such thing as a
free lunch," to illustrate how inflation
increases prices.

Henry decides to
spend two hours playing golf rather
than working at his job which pays
$8 per hour. Henry's tradeoff is
nothing, because he enjoys playing
golf more than working.

Efficiency refers to the
size of the economic pie; equity
refers to how the pie is divided.

When government
policies such as the welfare system
try to help the most needy members
of society, it increases the productivity of the needy in the
society.

In economics, the cost
of something is the dollar amount of
obtaining it.

The opportunity cost of
going to college is the value of the
best opportunity a student gives up
to attend college.

For most students, the
largest single cost of a college
education is the wages given up to
attend school.

Mallory decides to
spend 3 hours working overtime
rather than watching a video with her
friends. She earns $8 an hour. Her
opportunity cost of working is the
$24 she earns working.

Russell spends an hour
studying instead of playing tennis.
The opportunity cost to him of
studying is the enjoyment and
exercise he would have received had
he played tennis.

People make decisions
at the margin by following tradition.

After much
consideration, you have chosen
Cancun over Ft. Lauderdale for your
Spring Break trip this year. For this
decision to change, the marginal
benefit of Cancun must increase.

A rational decision
maker takes an action only if the
marginal benefit is less than the
marginal cost.

Suppose your
management professor has been
offered a corporate job with a 30%
pay increase. He has decided to take
the job. For him, the marginal cost of
leaving was greater than the
marginal benefit.

Prices direct economic
activity in a market economy by
reducing scarcity of the goods and
services produced.

An example of market
power is a fast food restaurant in a
college town.

An example of a firm
with market power is a cable TV
provider in St. Louis.

The "invisible hand"
directs economic activity through
advertising.

Both The Wealth of
Nations and the Declaration of
Independence share the point of
view that individuals are best left to
their own devices without the
government guiding their actions

A primary function of
prices in a market economy is to
provide participants with spending
limits.

Causes of market
failure include externalities and
market power.

An externality is the
impact of a person's actions on that
person's well-being

An example of an
externality is the impact of pollution
from a factory on the health of
people in the vicinity of the factory.

The income of a
typical worker in a country is most
closely linked to productivity.

If the government
wanted to enact a policy to increase
living standards in the country, it
might allow corporate tax write-offs
for money spent on worker safety.