question

Why do moderately priced refrigerators have a light in the refrigerator compartment but not in the freezer compartment?

answer

Because the refrigerator door is opened more frequently than the freezer door.

question

Why do many premium-priced refrigerators have lights not only in the refrigerator compartments but also in the freezer compartments?

answer

Because willingness-to-pay for additional convenience is higher for high-income consumers than for low-income consumers.

question

The opportunity cost of an action is equal to:

answer

the sum of its explicit and implicit costs.

question

Suppose Joe is trying to decide whether to buy a latte at a nearby coffee shop or make a cup of coffee at home. Joe would get $5 worth of value from the latte, and the price of a latte at the coffee shop is $3. Joe would get $2.50 worth of value from a cup of homemade coffee, and it would cost him $1 to make.

What is the opportunity cost to Joe of buying a latte at the coffee shop?

What is the opportunity cost to Joe of buying a latte at the coffee shop?

answer

$4.50

question

Suppose Joe is trying to decide whether to buy a latte at a nearby coffee shop or make a cup of coffee at home. Joe would get $5 worth of value from the latte, and the price of a latte at the coffee shop is $3. Joe would get $2.50 worth of value from a cup of homemade coffee, and it would cost him $1 to make.

How much economic surplus would Joe get from buying a latte at the coffee shop?

How much economic surplus would Joe get from buying a latte at the coffee shop?

answer

$0.50

question

The table below shows your total benefit (measured in dollars) from drinking different amounts of coffee each day. What's your marginal benefit from a second cup of coffee?

Number of cups of Total Benefit per

coffee per day day (in dollars)

0 0

1 5

2 9

3 12

4 14

5 15

Number of cups of Total Benefit per

coffee per day day (in dollars)

0 0

1 5

2 9

3 12

4 14

5 15

answer

$4

question

The table below shows your total benefit (measured in dollars) from drinking different amounts of coffee each day. If each cup of coffee costs you $2.50, then how many cups of coffee should you drink each day?

Number of cups of Total Benefit per

coffee per day day (in dollars)

0 0

1 5

2 9

3 12

4 14

5 15

Number of cups of Total Benefit per

coffee per day day (in dollars)

0 0

1 5

2 9

3 12

4 14

5 15

answer

3

question

The meal plan at University A lets students eat as much as they like for a fixed fee of $500 per semester. The average student there eats 250 pounds of food per semester. University B charges $500 for a book of meal tickets that entitles the student to eat 250 pounds of food per semester. If the student eats more than 250 pounds, he or she pays $2 for each additional pound; if the student eats less, he or she gets a $2 per pound refund.

If students are rational, at which university will average food consumption be higher?

If students are rational, at which university will average food consumption be higher?

answer

University A

question

Kamryn is deciding between three potential activities on Saturday evening:

1) Staying at home and watching her favorite television show, an activity that she values at $18 and that entails no out-of-pocket costs.

2) Going to the movies with her sister to see the latest blockbuster action film, an activity she values at $30 and that entails $15 in out-of-pocket costs.

3) Going out to dinner with her best friend, an activity she values at $40 and that entails $23 in out-of-pocket costs.

a) Which activity should Kamryn choose?

b) What is Kamryn's opportunity cost of going to the movies?

c) Relative to her next best alternative, what is Kamryn's economic surplus from going to the movies?

1) Staying at home and watching her favorite television show, an activity that she values at $18 and that entails no out-of-pocket costs.

2) Going to the movies with her sister to see the latest blockbuster action film, an activity she values at $30 and that entails $15 in out-of-pocket costs.

3) Going out to dinner with her best friend, an activity she values at $40 and that entails $23 in out-of-pocket costs.

a) Which activity should Kamryn choose?

b) What is Kamryn's opportunity cost of going to the movies?

c) Relative to her next best alternative, what is Kamryn's economic surplus from going to the movies?

answer

a) Staying at home and watching her favorite show.

b)33

c) -3

b)33

c) -3

question

To earn extra money in the summer, you grow tomatoes and sell them at a local farmers' market for $0.30 per pound. By adding compost to your garden, you can increase your yield as shown in the accompanying table.

Pounds of Pounds of Add. Pounds Add. Rev.

Compost Tomatoes of Tomatoes (margin. B)

0 100.0 - -

1 120.0 __20__ __6.00_

2 125.0 _5____ _1.50__

3 128.0 _3____ __0.90__

4 130.0 __2___ __0.60_

5 131.0 __1___ ___0.30__

6 131.5 __0.5__ _0.15___

b) If compost costs $0.50 per pound and your goal is to make as much profit as possible, how many pounds of compost should you add?

Pounds of Pounds of Add. Pounds Add. Rev.

Compost Tomatoes of Tomatoes (margin. B)

0 100.0 - -

1 120.0 __20__ __6.00_

2 125.0 _5____ _1.50__

3 128.0 _3____ __0.90__

4 130.0 __2___ __0.60_

5 131.0 __1___ ___0.30__

6 131.5 __0.5__ _0.15___

b) If compost costs $0.50 per pound and your goal is to make as much profit as possible, how many pounds of compost should you add?

answer

Answers are on lines for table.

b) 4

b) 4

question

Tom is a mushroom farmer. He invests all his spare cash in additional mushrooms, which grow on otherwise useless land behind his barn. The mushrooms double in weight during their first year, after which time they are harvested and sold at a constant price per pound. Tom's friend Dick asks Tom for a loan of $200, which he promises to repay after 1 year.

How much interest will Dick have to pay Tom in order for Tom to recover his opportunity cost of making the loan?

How much interest will Dick have to pay Tom in order for Tom to recover his opportunity cost of making the loan?

answer

$200

question

Residents of your city are charged a fixed weekly fee of $6 for garbage collection. They are allowed to put out as many cans as they wish. The average household disposes of three cans of garbage per week under this plan. Now suppose that your city changes to a "tag" system. Each can of garbage to be collected must have a tag affixed to it. The tags cost $2 each and are not reusable.

What effect do you think the introduction of the tag system will have on the total quantity of garbage collected in your city?

What effect do you think the introduction of the tag system will have on the total quantity of garbage collected in your city?

answer

Under the "tag" system, the total quantity of garbage collected in the city will:

decrease.

decrease.

question

For each long-distance call anywhere in the continental United States, a new phone service will charge users $0.30 per minute for the first 2 minutes and $0.02 per minute for additional minutes in each call. Tom's current phone service charges $0.10 per minute for all calls, and his calls are never shorter than 7 minutes.

If Tom's dorm switches to the new phone service, the average length of his calls would:

If Tom's dorm switches to the new phone service, the average length of his calls would:

answer

If Tom's dorm switches to the new phone service, the average length of his calls would:

increase.

increase.

question

Suppose the most you would be willing to pay to have a freshly washed car before going out on a date is $6. The smallest amount for which you would be willing to wash someone else's car is $3.50. You are going out this evening and your car is dirty.

How much economic surplus would you receive from washing it?

How much economic surplus would you receive from washing it?

answer

The economic surplus would be $ 2.50

question

END CHAPTER 1 PROBLEMS

BEGIN CHAPTER 2 PROBLEMS

BEGIN CHAPTER 2 PROBLEMS

answer

END CHAPTER 1 PROBLEMS

BEGIN CHAPTER 2 PROBLEMS

BEGIN CHAPTER 2 PROBLEMS

question

The absolute value of the slope of the production possibilities curve gives the:

answer

opportunity cost of the good on the horizontal axis.

question

Suppose the graph below shows Gilligan's daily production possibilities curve for coconuts and fish. What is Gilligan's opportunity cost of gathering 1 pound of coconuts?

Graph shows a Y axis of 9 and an X axis of 6 with a line connecting Y 9 and X6.

Graph shows a Y axis of 9 and an X axis of 6 with a line connecting Y 9 and X6.

answer

2/3 of a lb of fish

question

Consider a society consisting only of Helen, who allocates her time between sewing dresses and baking bread. Each hour she devotes to sewing dresses yields 4 dresses and each hour she devotes to baking bread yields 8 loaves of bread.

a) If Helen works a total of 8 hours per day, graph her production possibilities curve (PPC).

b. Using the graph above, which of the points listed below are attainable and/or efficient?

i. 28 dresses per day, 16 loaves per day:

ii. 16 dresses per day, 32 loaves per day:

iii. 18 dresses per day, 24 loaves per day:

a) If Helen works a total of 8 hours per day, graph her production possibilities curve (PPC).

b. Using the graph above, which of the points listed below are attainable and/or efficient?

i. 28 dresses per day, 16 loaves per day:

ii. 16 dresses per day, 32 loaves per day:

iii. 18 dresses per day, 24 loaves per day:

answer

a) 4*8= 32 dresses per day

8*8= 64 loaves per day

Draw a line from (0,32) to (64,0).

b)

i. 28 dresses per day, 16 loaves per day: UNATTAINABLE

ii. 16 dresses per day, 32 loaves per day: ATTAINABLE AND EFFICIENT

iii. 18 dresses per day, 24 loaves per day: ATTAINABLE AND INEFFICIENT

Note: Anything below the line (PPC) is "inefficient" and anything above is "unattainable." Anything on the line (PPC) is "attainable and efficient."

8*8= 64 loaves per day

Draw a line from (0,32) to (64,0).

b)

i. 28 dresses per day, 16 loaves per day: UNATTAINABLE

ii. 16 dresses per day, 32 loaves per day: ATTAINABLE AND EFFICIENT

iii. 18 dresses per day, 24 loaves per day: ATTAINABLE AND INEFFICIENT

Note: Anything below the line (PPC) is "inefficient" and anything above is "unattainable." Anything on the line (PPC) is "attainable and efficient."

question

Consider a society consisting only of Helen, who allocates her time between sewing dresses and baking bread. Each hour she devotes to sewing dresses yields 4 dresses and each hour she devotes to baking bread yields 8 loaves of bread.

Suppose that a sewing machine is introduced that enables Helen to sew 8 dresses per hour rather than only 4.

a) If Helen works a total of 8 hours per day, show how this development shifts her production possibilities curve on the graph below.

b) Using the graph above, indicate if the following points are attainable and/or efficient before and after the introduction of the sewing machine.

i. 16 dresses per day, 48 loaves per day:

ii. 24 dresses per day, 16 loaves per day:

c) "An increase in productivity with respect to any one good increases our options for producing and consuming all other goods." Which of the following best explains the meaning of that statement?

Suppose that a sewing machine is introduced that enables Helen to sew 8 dresses per hour rather than only 4.

a) If Helen works a total of 8 hours per day, show how this development shifts her production possibilities curve on the graph below.

b) Using the graph above, indicate if the following points are attainable and/or efficient before and after the introduction of the sewing machine.

i. 16 dresses per day, 48 loaves per day:

ii. 24 dresses per day, 16 loaves per day:

c) "An increase in productivity with respect to any one good increases our options for producing and consuming all other goods." Which of the following best explains the meaning of that statement?

answer

a) 8*8= 64

8*8= 64

Draw line from (0,64) to (64,0)

b)

i. UNATTAINABLE before the sewing machine and ATTAINABLE AND EFFICIENT after its introduction.

ii. ATTAINABLE AND EFFICIENT before the sewing machine and ATTAINABLE AND INEFFICIENT Correct after its introduction.

c) An increase in output per hour for any one good frees up resources that can be devoted to the production of other goods.

8*8= 64

Draw line from (0,64) to (64,0)

b)

i. UNATTAINABLE before the sewing machine and ATTAINABLE AND EFFICIENT after its introduction.

ii. ATTAINABLE AND EFFICIENT before the sewing machine and ATTAINABLE AND INEFFICIENT Correct after its introduction.

c) An increase in output per hour for any one good frees up resources that can be devoted to the production of other goods.

question

Susan can pick 4 pounds of coffee beans in an hour or gather 2 pounds of nuts. Tom can pick 2 pounds of coffee beans in an hour or gather 4 pounds of nuts. Each works 6 hours per day.

a) Together, what is the maximum number of pounds of coffee beans the two can pick in a day? What is the maximum number of pounds of nuts the two can gather in a day?

b) Now suppose Susan and Tom were gathering the maximum number of pounds of nuts when they decided that they would like to begin picking 8 pounds of coffee beans per day.

Who would pick the coffee beans?

How many pounds of nuts would they still be able to gather?

c) Would it be possible for Susan and Tom in total to gather 26 pounds of nuts and pick 20 pounds of coffee beans each day?

If so, how much of each good should each person pick?

d) The combination of 30 pounds of coffee beans and 12 pounds of nuts per day is:

e) On the diagram below, show Susan and Tom's combined daily PPC.

a) Together, what is the maximum number of pounds of coffee beans the two can pick in a day? What is the maximum number of pounds of nuts the two can gather in a day?

b) Now suppose Susan and Tom were gathering the maximum number of pounds of nuts when they decided that they would like to begin picking 8 pounds of coffee beans per day.

Who would pick the coffee beans?

How many pounds of nuts would they still be able to gather?

c) Would it be possible for Susan and Tom in total to gather 26 pounds of nuts and pick 20 pounds of coffee beans each day?

If so, how much of each good should each person pick?

d) The combination of 30 pounds of coffee beans and 12 pounds of nuts per day is:

e) On the diagram below, show Susan and Tom's combined daily PPC.

answer

a) Max. Coffee = 36 lbs per day

Max. Nuts = 36 lbs per day

b) Susan; 32 lbs of nuts per day

c) Yes

Coffee Beans Nuts

Tom 0 24

Susan 20 2

d) attainable and efficient

e) graph (0,36) (24,24) (36,0)

Max. Nuts = 36 lbs per day

b) Susan; 32 lbs of nuts per day

c) Yes

Coffee Beans Nuts

Tom 0 24

Susan 20 2

d) attainable and efficient

e) graph (0,36) (24,24) (36,0)

question

Susan can pick 4 pounds of coffee beans in an hour or gather 2 pounds of nuts. Tom can pick 2 pounds of coffee beans in an hour or gather 4 pounds of nuts. Each works 6 hours per day. Assume that Tom and Susan specialize according to their comparative advantage to produce coffee beans and nuts.

a) Suppose that Susan and Tom could buy or sell coffee beans and nuts in the world market at a price of $2 per pound for coffee beans and $2 per pound for nuts. If each person specialized completely in the good for which he or she had a comparative advantage, how much could they earn by selling all they produce (Tom's earnings plus Susan's earnings)?

b) At the prices just described, what is the maximum amount of coffee beans Susan and Tom could buy each day in the world market with the income they earned? The maximum amount of nuts?

Using the world market and the prices described above, would it be possible for Susan and Tom to consume 40 pounds of nuts and 8 pounds of coffee beans each day?

c) In light of their ability to buy and sell in world markets at the stated prices, on the same graph as their PPC, show all of the combinations of the two goods it would be possible for them to consume. This is also known as their consumption possibilities curve or CPC.

a) Suppose that Susan and Tom could buy or sell coffee beans and nuts in the world market at a price of $2 per pound for coffee beans and $2 per pound for nuts. If each person specialized completely in the good for which he or she had a comparative advantage, how much could they earn by selling all they produce (Tom's earnings plus Susan's earnings)?

b) At the prices just described, what is the maximum amount of coffee beans Susan and Tom could buy each day in the world market with the income they earned? The maximum amount of nuts?

Using the world market and the prices described above, would it be possible for Susan and Tom to consume 40 pounds of nuts and 8 pounds of coffee beans each day?

c) In light of their ability to buy and sell in world markets at the stated prices, on the same graph as their PPC, show all of the combinations of the two goods it would be possible for them to consume. This is also known as their consumption possibilities curve or CPC.

answer

a) $96

b) Max. Coffee Bought = 48 lbs

Max. Nuts Bought = 48 lbs

Yes

c) graph (0,48) and (48,0)

b) Max. Coffee Bought = 48 lbs

Max. Nuts Bought = 48 lbs

Yes

c) graph (0,48) and (48,0)

question

Suppose Sansa and Arya divide their time between making daggers and shields. It takes Sansa 6 hours to make a dagger and 3 hours to make a shield, and it takes Arya 3 hours to make a dagger and 1 hour to make a shield. Sansa and Arya each work 30 hours a week.

a) What is the maximum number of daggers each can make in a week?

b) What is the opportunity cost to each of making a dagger?

c) Who has the comparative advantage in making daggers?

d) Who has the absolute advantage in making daggers?

a) What is the maximum number of daggers each can make in a week?

b) What is the opportunity cost to each of making a dagger?

c) Who has the comparative advantage in making daggers?

d) Who has the absolute advantage in making daggers?

answer

a) Sansa = 5 daggers

Arya = 10 daggers

b) Sansa = 2 shields

Arya = 3 shields

c) Sansa

d) Arya

Arya = 10 daggers

b) Sansa = 2 shields

Arya = 3 shields

c) Sansa

d) Arya

question

Ted can wax a car in 20 minutes or wash a car in 60 minutes. Tom can wax a car in 15 minutes or wash a car in 30 minutes.

a) What is each man's opportunity cost of washing a car?

b) Who has a comparative advantage in washing cars?

a) What is each man's opportunity cost of washing a car?

b) Who has a comparative advantage in washing cars?

answer

a) Ted = 3 wax jobs

Tom = 2 wax jobs

b) Tom

Tom = 2 wax jobs

b) Tom

question

Nancy and Bill are auto mechanics. Nancy takes 4 hours to replace a clutch and 2 hours to replace a set of brakes. Bill takes 6 hours to replace a clutch and 2 hours to replace a set of brakes.

(a) State whether anyone has an absolute advantage at either task and, for each task, (b)identify who has a comparative advantage.

(a) State whether anyone has an absolute advantage at either task and, for each task, (b)identify who has a comparative advantage.

answer

a) Opp. Cost Nancy = 0.50 clutch

Opp. Cost Bill = 0.33 clutch

b) Bill has Comp. Adv. in brake

Nancy has Comp. Adv. clutch

Neither has Absolute Adv. in brake

Nancy has Absolute Adv. in clutch.

Opp. Cost Bill = 0.33 clutch

b) Bill has Comp. Adv. in brake

Nancy has Comp. Adv. clutch

Neither has Absolute Adv. in brake

Nancy has Absolute Adv. in clutch.

question

Each day, Ted can wax 4 cars or wash 12 cars, and Tom can wax 3 cars or wash 6 cars.

a) What is each man's opportunity cost of washing a car?

b) Who has a comparative advantage in washing cars?

a) What is each man's opportunity cost of washing a car?

b) Who has a comparative advantage in washing cars?

answer

a) Ted = 0.33 wax jobs

Tom = 0.50 wax jobs

b) Ted

Tom = 0.50 wax jobs

b) Ted

question

Suppose Martha and Julia both work at a bakery making bread and muffins. In an hour, Martha can either make 10 loaves of bread or 40 muffins, while Julia can either make 12 loaves of bread or 60 muffins. Both Martha and Julia work 8 hours a day.

a) Draw Martha's daily PPC.

b) Draw Julia's daily PPC.

c) What is the opportunity cost to each of making one loaf of bread?

d) What is the opportunity cost to each of making one muffin?

e) Who has the comparative advantage in making bread?

f) Who has the absolute advantage in making bread?

g) Suppose you are the owner of the bakery. If Julia and Martha are currently both spending all of their time making muffins, then which of them should you ask to start making bread?

a) Draw Martha's daily PPC.

b) Draw Julia's daily PPC.

c) What is the opportunity cost to each of making one loaf of bread?

d) What is the opportunity cost to each of making one muffin?

e) Who has the comparative advantage in making bread?

f) Who has the absolute advantage in making bread?

g) Suppose you are the owner of the bakery. If Julia and Martha are currently both spending all of their time making muffins, then which of them should you ask to start making bread?

answer

a) 10*8 = 80 loaves (0,80)

40*8 = 320 muffins (320,0)

b) 12*8 = 96 (0,96)

60*8 = 480 (480,0)

c) Martha = 4 muffins

Julia = 5 muffins

d) Martha = 0.25 bread

Julia = 0.20 bread

e) Martha

f) Julia

g) Martha because her opportunity cost of making bread is lower than Julia's.

40*8 = 320 muffins (320,0)

b) 12*8 = 96 (0,96)

60*8 = 480 (480,0)

c) Martha = 4 muffins

Julia = 5 muffins

d) Martha = 0.25 bread

Julia = 0.20 bread

e) Martha

f) Julia

g) Martha because her opportunity cost of making bread is lower than Julia's.

question

END CHAPTER 2 PROBLEMS

BEGIN CHAPTER 3 PROBLEMS

BEGIN CHAPTER 3 PROBLEMS

answer

END CHAPTER 2 PROBLEMS

BEGIN CHAPTER 3 PROBLEMS

BEGIN CHAPTER 3 PROBLEMS

question

Why are rotisserie chickens less expensive than fresh chickens?

answer

Because rotisserie chickens help solve the problem of unpredictable excess supplies of fresh chickens.

question

How might an economically rational grocery store manager react to a day of unexpectedly low demand for both fresh chicken and rotisserie chicken?

answer

By making more rotisserie chicken and sending it to the deli counter to make chicken soup and chicken salad.

question

If both the supply and demand decrease, then equilibrium

answer

quantity will fall, but we cannot say for certain what will happen to price.

question

If demand increases and supply decreases, then equilibrium

answer

price will rise, but we cannot say for certain what will happen to quantity.

question

If a technological innovation reduces the cost of producing cars, and at the same time, an increase in income leads the demand for cars to rise, then the equilibrium:

answer

quantity of cars will rise, but we cannot say for certain what will happen to price.

question

If the price of golf clubs falls, then we would expect the demand for golf balls to:

answer

increase

question

If two goods are complements and the price of one good increases, then demand for the other good will:

answer

decrease

question

If the demand for bread increases when the price of potatoes increases, then this suggests that potatoes and bread are:

answer

substitutes

question

An increase in demand is represented by a:

answer

rightward shift in the demand curve.

question

If the price of a good falls, then:

answer

the quantity demanded of that good will rise.

question

An increase in market price will lead to:

answer

a decrease in quantity demanded.

question

An increase in demand is represented by a:

answer

rightward shift in the demand curve.

question

If the price of a good falls, then:

answer

the quantity demanded of that good will rise.

question

An increase in market price will lead to:

answer

a decrease in quantity demanded.

question

If the demand for candy increases, then the equilibrium price of candy will _______, and the equilibrium quantity of candy will _______:

answer

rise; rise

question

If equilibrium price of soap rises, and the equilibrium quantity of soap falls, then this suggests that the:

answer

supply of soap decreased.

question

Suppose the cost of the materials used to produce shoes falls. This is likely to lead the equilibrium price of shoes to ________ and the equilibrium quantity of shoes to _______.

answer

decrease; increase

question

What will happen to the equilibrium price and quantity of beef if the price of chicken feed increases? (Assume that chicken and beef are substitutes.)

answer

Both will increase.

question

Suppose the price of butter, a complement to bread, increases. At the same time, suppose the price of flour, a key ingredient to the production of bread, falls. How will both of these factors (the increase in the price of butter and the decrease in the price of flour) affect the equilibrium price and quantity of bread?

answer

The equilibrium price of bread WILL DECREASE, and the equilibrium quantity of bread COULD EITHER INCREASE OR DECREASE.

question

END CHAPTER 3 PROBLEMS

BEGIN CHAPTER 4 PROBLEMS

BEGIN CHAPTER 4 PROBLEMS

answer

END CHAPTER 3 PROBLEMS

BEGIN CHAPTER 4 PROBLEMS

BEGIN CHAPTER 4 PROBLEMS

question

The graph below shows the daily demand for brooms in the small town of Sweepwell. If the price of a broom is $6, then the price elasticity of demand for brooms is:

[Graph has blue line going from (0,9) to (6,0)]

[Graph has blue line going from (0,9) to (6,0)]

answer

2

question

The graph below shows the daily demand for potatoes in the city of Spudville. If the price of potatoes is $4 per pound, then the price elasticity of demand for potatoes is:

[Graph has a blue line going from (0,10) to (5,0)]

[Graph has a blue line going from (0,10) to (5,0)]

answer

0.67

question

The graph below shows the daily demand for potatoes in the city of Spudville. If the price of potatoes is more than $5 per pound, then the price elasticity of demand for potatoes will be:

[Graph has a blue line going from (0,10) to (5,0)]

[Graph has a blue line going from (0,10) to (5,0)]

answer

greater than 1

question

If the price of apples increase by 2 percent, and in response, the quantity of apples demanded falls by 6 percent, then the price elasticity of demand is:

answer

3

question

If the price elasticity of demand is 0.25, then a 2 percent increase in price will lead the quantity demanded to fall by:

answer

0.5 percent

question

The higher is the price elasticity of demand, the:

answer

more responsive the quantity demanded is to a change in price.

question

The price elasticity of demand is given by:

answer

∈=∣(percentage change in quantity demanded)/(percentage change in price)∣

question

Which of the following formulas can be used to calculate the price elasticity of demand?

answer

∈=∣(ΔQ/Q)/(ΔP/P)∣

question

Which of the following formulas can be used to calculate the price elasticity of demand?

answer

∈=P/Q × 1/|slope|

question

What are the respective price elasticities of supply at A and B on the supply curve shown in the figure below?

Elasticity of supply at point A:

Elasticity of supply at point B:

[Graph shows point A at (9,4) and B at (12,6) with an S line running through them]

Elasticity of supply at point A:

Elasticity of supply at point B:

[Graph shows point A at (9,4) and B at (12,6) with an S line running through them]

answer

A = 2/3

B = 3/4

B = 3/4

question

The schedule below shows the number of packs of bagels bought in Davis, California, each day at a variety of prices.

Price ($/pack) Quantity (packs/day)

6 0

5 3,000

4 6,000

3 9,000

2 12,000

1 15,000

0 18,000

a) Graph the daily demand curve for packs of bagels in Davis.

b) Calculate the price elasticity of demand at the point on the demand curve at which the price of bagels is $4 per pack.

c) If all bagel shops increased the price of bagels from $4 per pack to $5 per pack, what would happen to total revenue?

Price ($/pack) Quantity (packs/day)

6 0

5 3,000

4 6,000

3 9,000

2 12,000

1 15,000

0 18,000

a) Graph the daily demand curve for packs of bagels in Davis.

b) Calculate the price elasticity of demand at the point on the demand curve at which the price of bagels is $4 per pack.

c) If all bagel shops increased the price of bagels from $4 per pack to $5 per pack, what would happen to total revenue?

answer

a) graph points (0,6) (3,5) (6,4) (9,3) (12,2) (15,1) (18,0) Have line running through all of those points.

b) 2.0

c) Total revenue would DECREASE from $24,000 to $15,000.

b) 2.0

c) Total revenue would DECREASE from $24,000 to $15,000.

question

At point A on the demand curve shown below, how will a 1 percent increase in the price of the product affect total expenditure on the product?

[Graph shows point A at (6,4) with a line that is defined by (0,6) and (18,0)]

[Graph shows point A at (6,4) with a line that is defined by (0,6) and (18,0)]

answer

Total expenditure will FALL by about 1%.

question

Suppose an 18 percent drop in the price of strawberries leads to a 24 percent increase in the quantity demanded of strawberries and a 12 percent decrease in the quantity demanded of plums.

a) What is the price elasticity of demand for strawberries?

b) At the current price level, the demand for strawberries is _______ because the price elasticity of demand for strawberries is _______.

c) What is the cross-price elasticity of demand between strawberries and plums?

d) Strawberries and plums are ______ because the cross-price elasticity of demand is _______.

a) What is the price elasticity of demand for strawberries?

b) At the current price level, the demand for strawberries is _______ because the price elasticity of demand for strawberries is _______.

c) What is the cross-price elasticity of demand between strawberries and plums?

d) Strawberries and plums are ______ because the cross-price elasticity of demand is _______.

answer

a) 1.33

b) elastic;greater than 1

c)0.67

d) substitutes;positive

b) elastic;greater than 1

c)0.67

d) substitutes;positive

question

A 2 percent increase in the price of milk causes a 4 percent reduction in the quantity demanded of chocolate syrup. What is the cross-price elasticity of demand for chocolate syrup with respect to the price of milk?

a) Cross-price elasticity of demand:

b) Are the two goods complements or substitutes?

a) Cross-price elasticity of demand:

b) Are the two goods complements or substitutes?

answer

a) -2

b)Complements

b)Complements