question
The market demand curve
answer
represents the sum of the quantities demanded by all the buyers at each price of the good.
question
What is not held constant in a demand schedule? (income, expectations, tastes, or price)?
answer
price
question
Which of the following examples demonstrates the law of demand?
Mary buys fewer Milky Ways at $0.80 per Milky Way after the price of Snickers falls to $0.70 per Snicker.
Amy buys fewer muffins at $2.00 per muffin than at $3.50 per muffin, other things equal.
After Mark got a raise at work, he bought more cookies at $2.50 per cookie than he did before his raise.
Kelvin buys more donuts at $0.80 per donut than at $0.95 per donut, other things equal.
Mary buys fewer Milky Ways at $0.80 per Milky Way after the price of Snickers falls to $0.70 per Snicker.
Amy buys fewer muffins at $2.00 per muffin than at $3.50 per muffin, other things equal.
After Mark got a raise at work, he bought more cookies at $2.50 per cookie than he did before his raise.
Kelvin buys more donuts at $0.80 per donut than at $0.95 per donut, other things equal.
answer
Kelvin buys more donuts at $0.80 per donut than at $0.95 per donut, other things equal.
question
A movement upward and to the left along a demand curve is called a(n)
answer
decrease in quantity demanded.
question
If the law of demand applies to this good, then P1 could be
4,6,7, or 8?
P = $5 Q = 80
P1 = ? Q = 100
4,6,7, or 8?
P = $5 Q = 80
P1 = ? Q = 100
answer
must be $4 because increase in Qd --> decrease in price
question
Katie is planning to sell her house, and she is considering making two upgrades to the house before listing it for Replacing the carpeting will cost her $2,500 and replacing the roof will cost her $9,000. Katie expects the new carpeting to increase the value of her house by $3,000 and the new roof to increase the value of her house by $7,000.
She should replace the carpeting but not replace the roof
she should make both improvements to her house
she should replace the roof but not replace the carpeting
She should not make either improvement to her house
She should replace the carpeting but not replace the roof
she should make both improvements to her house
she should replace the roof but not replace the carpeting
She should not make either improvement to her house
answer
She should replace the carpeting but not replace the roof
question
After much consideration, you have chosen Cancun over Ft. Lauderdale as your Spring Break destination this year. However, Spring Break is still months away, and you may reverse this decision. Which of the following events would prompt you to reverse this decision?
The marginal benefit of going to Cancun increases.
The marginal cost of going to Cancun decreases.
The marginal benefit of going to Ft. Lauderdale decreases.
The marginal cost of going to Ft. Lauderdale decreases.
The marginal benefit of going to Cancun increases.
The marginal cost of going to Cancun decreases.
The marginal benefit of going to Ft. Lauderdale decreases.
The marginal cost of going to Ft. Lauderdale decreases.
answer
The marginal cost of going to Ft. Lauderdale decreases.
question
Theresa spends 2 hours working instead of watching TV with her friends. The opportunity cost to her of working is
the salary earned working per hour.
the salary earned working per hour. minus the enjoyment of watching TV.
the enjoyment she would have received if she had watched TV with her friends.
zero. Since Theresa chose to study rather than to watch TV, the value of studying must have been greater to her than the value of watching TV.
the salary earned working per hour.
the salary earned working per hour. minus the enjoyment of watching TV.
the enjoyment she would have received if she had watched TV with her friends.
zero. Since Theresa chose to study rather than to watch TV, the value of studying must have been greater to her than the value of watching TV.
answer
the enjoyment she would have received if she had watched TV with her friends.
question
(Check your book for an explanation of double counting costs) Consider Diego's decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Diego's cost of going to college is
$33,800.
$42,600.
$49,800.
$57,000.
$33,800.
$42,600.
$49,800.
$57,000.
answer
$42,600.
question
Suppose the cost of flying a 400-seat plane for an airline is $250,000 and there are 6 empty seats on a flight. If the marginal cost of flying a passenger is $130 and a standby passenger is willing to pay $140, the airline should
sell the ticket because the marginal benefit exceeds the marginal cost.
sell the ticket because the marginal benefit exceeds the average cost.
not sell the ticket because the marginal benefit is less than the marginal cost.
not sell the ticket because the marginal benefit is less than the average cost.
sell the ticket because the marginal benefit exceeds the marginal cost.
sell the ticket because the marginal benefit exceeds the average cost.
not sell the ticket because the marginal benefit is less than the marginal cost.
not sell the ticket because the marginal benefit is less than the average cost.
answer
sell the ticket because the marginal benefit exceeds the marginal cost.
question
Which of the following events could shift the demand curve for corn to the left?
The income of corn buyers falls, and corn is an inferior good.
The income of corn buyers rises, and corn is a normal good.
There is a new study showing that consuming corn can be harmful for your health
The price of corn rises.
The income of corn buyers falls, and corn is an inferior good.
The income of corn buyers rises, and corn is a normal good.
There is a new study showing that consuming corn can be harmful for your health
The price of corn rises.
answer
There is a new study showing that consuming corn can be harmful for your health (ROTTEN - Expectations)
question
If Kindle e-readers and Nook e-readers are substitutes, a lower price for Nooks would result in a(n)
increase in the demand for Kindles.
decrease in the demand for Kindles.
decrease in the demand for Nooks.
increase in the demand for Nooks.
increase in the demand for Kindles.
decrease in the demand for Kindles.
decrease in the demand for Nooks.
increase in the demand for Nooks.
answer
decrease in the demand for Kindles.
question
Suppose that the demand is given by the equation: Qd = 200 - 2P. if the market price is 20, what is the consumer surplus?
8,100
6,400
64,000
81,000
8,100
6,400
64,000
81,000
answer
6,400
question
When we move along a given demand curve,
all determinants of quantity demanded are held constant.
income and price are held constant.
all nonprice determinants of demand are held constant.
only price is held constant.
all determinants of quantity demanded are held constant.
income and price are held constant.
all nonprice determinants of demand are held constant.
only price is held constant.
answer
all nonprice determinants of demand are held constant.
question
Suppose that the demand for good Y is given by the equation: Qdy = 200- 2Py + 3Px, where Px is the price of good X and Py is the price of good Y. Based on this equation we can conclude that:
When the price of X goes up the quatity demanded of Y goes down
Good X and good Y are substitute goods
When the price of X goes down the quatity demanded of Y goes up
Good X and good Y are complementary goods
When the price of X goes up the quatity demanded of Y goes down
Good X and good Y are substitute goods
When the price of X goes down the quatity demanded of Y goes up
Good X and good Y are complementary goods
answer
Good X and good Y are substitute goods
question
Mario buys eight units of good X when his income is $2,000 a month. When his income increases to $2,700 per month, he buys only six units of good X. For Mario, good X is:
an inferior good.
a good of high value.
a normal good.
a good with few substitutes.
an inferior good.
a good of high value.
a normal good.
a good with few substitutes.
answer
inferior good
question
If the price of milk rose to $6 per gallon, consumers would purchase fewer gallons of milk than if the price were $2 per gallon. If the price of chocolate fell to $1.50 per piece, consumers would purchase more chocolate than if the price were $5 per piece. These relationships illustrate the
difference between substitute and complement goods.
law of supply.
law of demand.
difference between normal and inferior goods.
difference between substitute and complement goods.
law of supply.
law of demand.
difference between normal and inferior goods.
answer
law of demand babyyy
question
Coke and Pepsi are substitute soft drinks. Which of the following would cause the demand curve for Pepsi to shift to the left?
a new Pepsi ad campaign that increases the popularity of Pepsi
the cost of making Pepsi rises
the price of Coke decreases
the price of Pepsi decreases
a new Pepsi ad campaign that increases the popularity of Pepsi
the cost of making Pepsi rises
the price of Coke decreases
the price of Pepsi decreases
answer
the price of Coke decreases
question
Suppose that the demand for good Y is given by the equation: Qdy = 40- 2Py + Px, where Px is the price of good X and Py is the price of good Y. If Py is $16, and Px is $8 , what is the consumer surplus in market Y?
$64
$128
$8
$16
$64
$128
$8
$16
answer
$64
question
Consumer
A - $1.459
B - $1,320
C - $1,201
D - $1,165
If the market price of Apple computers is $1,200 each, how much total consumer surplus (in $) are the four consumers earning?
$415
$5,145
$345
$380
A - $1.459
B - $1,320
C - $1,201
D - $1,165
If the market price of Apple computers is $1,200 each, how much total consumer surplus (in $) are the four consumers earning?
$415
$5,145
$345
$380
answer
$380
question
An increase in demand for burgers
shifts the demand curve to the left.
results in an increase in quantity demanded at every price.
results in a movement upward and to the left along a demand curve.
results in a movement downward and to the right along a demand curve.
shifts the demand curve to the left.
results in an increase in quantity demanded at every price.
results in a movement upward and to the left along a demand curve.
results in a movement downward and to the right along a demand curve.
answer
results in an increase in quantity demanded at every price.
question
If the price elasticity of demand for a product is |-2|, this implies that
if the price increases by $1, the quantity demanded will decrease by 2 units.
the change in quantity demanded divided by the change in price is equal to 2.
if the price increases by 1 percent, the quantity demanded will decrease by 2 percent.
if the price increases by 2 percent, the quantity demanded will decrease by 1 percent.
if the price increases by $1, the quantity demanded will decrease by 2 units.
the change in quantity demanded divided by the change in price is equal to 2.
if the price increases by 1 percent, the quantity demanded will decrease by 2 percent.
if the price increases by 2 percent, the quantity demanded will decrease by 1 percent.
answer
if the price increases by 1 percent, the quantity demanded will decrease by 2 percent. (*remember %change Qd/% change P)
question
Which of the following would cause price to increase?
a surplus of the good
a shortage of the good
a decrease in demand
an increase in supply
a surplus of the good
a shortage of the good
a decrease in demand
an increase in supply
answer
a shortage of the good
question
If the equilibrium price increases and the equilibrium output decreases then what must have happened.
Demand decreased
Supply increased
Demand increased
Supply decreased
Demand decreased
Supply increased
Demand increased
Supply decreased
answer
Supply decreased
question
Assume that Qd = 80-2P and Qs = 2P-20, at a price of $30 this market has:
a shortage of 20 units and the price will go up to reach the equilibrium price
a surplus of 20 units and the price will go up to reach the equilibrium price
a surplus of 20 units and the price will go down to reach the equilibrium price
a surplus of 20 units and the price will go up to reach the equilibrium price
a shortage of 20 units and the price will go up to reach the equilibrium price
a surplus of 20 units and the price will go up to reach the equilibrium price
a surplus of 20 units and the price will go down to reach the equilibrium price
a surplus of 20 units and the price will go up to reach the equilibrium price
answer
a surplus of 20 units and the price will go down to reach the equilibrium price
question
If a shortage exists in a market, then we know that the actual price is
below the equilibrium price, and quantity demanded is greater than quantity supplied.
above the equilibrium price, and quantity supplied is greater than quantity demanded.
below the equilibrium price, and quantity supplied is greater than quantity demanded.
above the equilibrium price, and quantity demanded is greater than quantity supplied.
below the equilibrium price, and quantity demanded is greater than quantity supplied.
above the equilibrium price, and quantity supplied is greater than quantity demanded.
below the equilibrium price, and quantity supplied is greater than quantity demanded.
above the equilibrium price, and quantity demanded is greater than quantity supplied.
answer
below the equilibrium price, and quantity demanded is greater than quantity supplied.
question
Suppose buyers of computers and computer software regard the two goods as complements. Then an increase in the price of computer software will cause a(n)
increase in the equilibrium price of computers and a decrease in the equilibrium quantity of computers.
decrease in the equilibrium price of computers and an increase in the equilibrium quantity of computers.
decrease in the demand for computers and a decrease in the quantity supplied of computers.
decrease in the supply of computers and a decrease in the quantity demanded of computers.
increase in the equilibrium price of computers and a decrease in the equilibrium quantity of computers.
decrease in the equilibrium price of computers and an increase in the equilibrium quantity of computers.
decrease in the demand for computers and a decrease in the quantity supplied of computers.
decrease in the supply of computers and a decrease in the quantity demanded of computers.
answer
decrease in the demand for computers and a decrease in the quantity supplied of computers.
question
Assume that at the current market price of $4 per unit of a good, you are willing and able to buy 30 units. Last year at a price of $4 per unit, you would have purchased 20 units. What has most likely happened over the last year?
Demand has increased.
Quantity supplied has increased.
Supply has increased.
Demand has decreased.
Demand has increased.
Quantity supplied has increased.
Supply has increased.
Demand has decreased.
answer
Demand has increased.
question
Suppose the incomes of buyers in a market for a particular inferior good decrease and there is also a reduction in input prices.
Equilibrium output would increase, but the impact on equilibrium price would be ambiguous.
Equilibrium output would decrease, and equilibrium price would decrease.
Equilibrium price would increase, but the impact on equilibrium output would be ambiguous.
Equilibrium output would decrease, but the impact on equilibrium price would be ambiguous.
Equilibrium output would increase, but the impact on equilibrium price would be ambiguous.
Equilibrium output would decrease, and equilibrium price would decrease.
Equilibrium price would increase, but the impact on equilibrium output would be ambiguous.
Equilibrium output would decrease, but the impact on equilibrium price would be ambiguous.
answer
Equilibrium output would increase, but the impact on equilibrium price would be ambiguous.
question
What would most likely cause a decrease in quantity supplied? (movement down & to the left of the supply curve)
An decrease in the price of a complementary good
An increase in the price of an input
An increase in population
A decrease in the price of good X
A decrease in the price of a substitute good
An decrease in the price of a complementary good
An increase in the price of an input
An increase in population
A decrease in the price of good X
A decrease in the price of a substitute good
answer
A decrease in the price of a substitute good
question
What would happen if there was a decrease in the price of paper used in the production of books?
No change
Demand shifts positively
Demand shifts negatively
Supply shifts positively
Supply shifts negatively
No change
Demand shifts positively
Demand shifts negatively
Supply shifts positively
Supply shifts negatively
answer
Supply shifts positively (key word = used in production; R(otten) )
question
During the last few decades in the United States, health officials have argued that eating too much beef might be harmful to human health. As a result, there has been a significant decrease in the amount of beef produced. Which of the following best explains the decrease in production?
Beef producers, concerned about the health of their customers, decided to produce relatively less beef.
Individual consumers, concerned about their own health, decreased their demand for beef, which lowered the equilibrium price of beef, making it less attractive to produce.
Anti-beef protesters have made it difficult for both buyers and sellers of beef to meet in the marketplace.
Government officials, concerned about consumer health, ordered beef producers to produce relatively less beef.
Beef producers, concerned about the health of their customers, decided to produce relatively less beef.
Individual consumers, concerned about their own health, decreased their demand for beef, which lowered the equilibrium price of beef, making it less attractive to produce.
Anti-beef protesters have made it difficult for both buyers and sellers of beef to meet in the marketplace.
Government officials, concerned about consumer health, ordered beef producers to produce relatively less beef.
answer
Individual consumers, concerned about their own health, decreased their demand for beef, which lowered the equilibrium price of beef, making it less attractive to produce.
question
Prices will _ to eliminate a shortage and _ to eliminate a surplus
answer
increase, decrease
question
The price elasticity of demand measures the
size of the shortage created by the increase in demand.
magnitude of the response in quantity demanded to a change in price.
direction of the shift in the demand curve in response to a market event.
responsiveness of quantity demanded to a change in income.
size of the shortage created by the increase in demand.
magnitude of the response in quantity demanded to a change in price.
direction of the shift in the demand curve in response to a market event.
responsiveness of quantity demanded to a change in income.
answer
magnitude of the response in quantity demanded to a change in price.
question
Suppose there is an increase in the price of wood. We would expect the supply curve for pencils to
remain unchanged as the price of pencils and the quantity supplied move down.
shift leftward.
shift rightward.
remained unchanged as the price of pencils and the quantity supplied move up.
remain unchanged as the price of pencils and the quantity supplied move down.
shift leftward.
shift rightward.
remained unchanged as the price of pencils and the quantity supplied move up.
answer
shift leftward. ( refer to R(otten) )
question
What would most likely cause a decrease in quantity supplied? (movement down & to the left of the supply curve)
An increase in the price of a complementary good
An increase in the price of a substitute good
An increase in population
An increase in the price of an input
A decrease in the price of good X
An increase in the price of a complementary good
An increase in the price of a substitute good
An increase in population
An increase in the price of an input
A decrease in the price of good X
answer
An increase in the price of a complementary good
question
If supply and demand for a good both decrease, which of the following is true?
Equilibrium price and quantity will both decrease.
Equilibrium price will decrease but we cannot say for sure what will happen to equilibrium quantity.
Equilibrium quantity will increase but we cannot say for sure what will happen to equilibrium price.
Equilibrium quantity will decrease but we cannot say for sure what will happen to equilibrium price.
Equilibrium price will increase but we cannot say for sure what will happen to equilibrium quantity.
Equilibrium price and quantity will both decrease.
Equilibrium price will decrease but we cannot say for sure what will happen to equilibrium quantity.
Equilibrium quantity will increase but we cannot say for sure what will happen to equilibrium price.
Equilibrium quantity will decrease but we cannot say for sure what will happen to equilibrium price.
Equilibrium price will increase but we cannot say for sure what will happen to equilibrium quantity.
answer
Equilibrium quantity will decrease but we cannot say for sure what will happen to equilibrium price.
(you can never predict both when there is a change to both)
(you can never predict both when there is a change to both)
question
Suppose roses are currently selling for $40 per dozen, but the equilibrium price of roses is $30 per dozen. We would expect a
surplus to exist and the market price of roses to decrease.
surplus to exist and the market price of roses to increase.
shortage to exist and the market price of roses to decrease.
shortage to exist and the market price of roses to increase.
surplus to exist and the market price of roses to decrease.
surplus to exist and the market price of roses to increase.
shortage to exist and the market price of roses to decrease.
shortage to exist and the market price of roses to increase.
answer
surplus to exist and the market price of roses to decrease.
(must meet equilibrium @ $30 --> decrease in price means surplus)
(must meet equilibrium @ $30 --> decrease in price means surplus)
question
Saddle shoes are not popular right now, so very few are being produced. If saddle shoes become popular, then how will this affect the market for saddle shoes?
The demand curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity.
The supply curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity.
The demand curve for saddle shoes will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity.
The supply curve for saddle shoes will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity.
The demand curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity.
The supply curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity.
The demand curve for saddle shoes will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity.
The supply curve for saddle shoes will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity.
answer
The demand curve for saddle shoes will shift right (Qd > Qs), which will create a shortage at the current price. Price will increase (shortage means price increase), which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity.
question
Suppose the demand curve is: P = 300 - 2QD and the supply curve is: P = 100 + 3QS. What is the sum of the consumer and producer surplus in the market at the equilibrium price and quantity?
$2400
$4000
$3200
$2600
$2400
$4000
$3200
$2600
answer
$4000
question
Price elasticity of demand midpoint method
answer
(Q2-Q1)/[(Q2+Q1)/2] / (P2-P1)/[(P2+P1)/2]
question
Good A: price elasticity of demand = 1.9
Good B: price elasticity of demand = 0.8
Which of the following is consistent with the elasticities given in Table 5-1?
A has fewer substitutes than B.
A is a good immediately after a price increase and B is that same good 3 years after the price increase.
A is a good after an increase in income and B is that same good after a decrease in income.
A is a luxury and B is a necessity.
Good B: price elasticity of demand = 0.8
Which of the following is consistent with the elasticities given in Table 5-1?
A has fewer substitutes than B.
A is a good immediately after a price increase and B is that same good 3 years after the price increase.
A is a good after an increase in income and B is that same good after a decrease in income.
A is a luxury and B is a necessity.
answer
A is a luxury and B is a necessity.
(trends:
luxuries --> elastic
necessities --> inelastic)
(trends:
luxuries --> elastic
necessities --> inelastic)
question
Assume that the market for Good X is defined as follows: QD = 64 - 16P and QS = 16P. What is the producer surplus in this market?
$24
$2
$64
$32
$24
$2
$64
$32
answer
$32
question
Assume that Qd = 80-2P and Qs = 2P-20. Equilibrium price and quantity are respectively
$20,10
$60, 40
$25, 30
$15, 10
$10, 20
$20,10
$60, 40
$25, 30
$15, 10
$10, 20
answer
$25, 30
question
Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result,
the equilibrium price increases, and the equilibrium quantity is unchanged.
the equilibrium quantity decreases, and the equilibrium price is unchanged
buyers' total expenditure on the good is unchanged.
the equilibrium quantity and the equilibrium price both are unchanged.
the equilibrium price increases, and the equilibrium quantity is unchanged.
the equilibrium quantity decreases, and the equilibrium price is unchanged
buyers' total expenditure on the good is unchanged.
the equilibrium quantity and the equilibrium price both are unchanged.
answer
the equilibrium price increases, and the equilibrium quantity is unchanged.
question
The demand for Godiva mint chocolates is likely quite elastic because
the market is narrowly defined.
All of the above are correct.
there are many close substitutes.
this particular type of chocolate is viewed as a luxury by many chocolate lovers.
the market is narrowly defined.
All of the above are correct.
there are many close substitutes.
this particular type of chocolate is viewed as a luxury by many chocolate lovers.
answer
All of the above
narrow market --> elastic
more substitutes --> elastic
luxuries --> elastic
narrow market --> elastic
more substitutes --> elastic
luxuries --> elastic
question
P1 = $7 Qd = 12
P2 = $5 Qd = 20
Calculate price elasticity of demand between these points
P2 = $5 Qd = 20
Calculate price elasticity of demand between these points
answer
1.5
question
When small changes in price lead to infinite changes in quantity demanded, demand is perfectly
inelastic, and the demand curve will be vertical.
elastic, and the demand curve will be vertical.
inelastic, and the demand curve will be horizontal.
elastic, and the demand curve will be horizontal.
inelastic, and the demand curve will be vertical.
elastic, and the demand curve will be vertical.
inelastic, and the demand curve will be horizontal.
elastic, and the demand curve will be horizontal.
answer
elastic, and the demand curve will be horizontal.
question
Income elasticity
Normal goods have _
Inferior goods have _
Normal goods have _
Inferior goods have _
answer
positive elasticity because as income rises, demand rises
negative elasticity because as income rises, demand falls
negative elasticity because as income rises, demand falls
question
If the cross-price elasticity of demand for two goods is 1.25, then
the two goods are substitutes.
one of the goods is normal and the other good is inferior.
the two goods are luxuries.
the demand for one of the goods conforms to the law of demand, but the demand for the other good violates the law of demand.
the two goods are substitutes.
one of the goods is normal and the other good is inferior.
the two goods are luxuries.
the demand for one of the goods conforms to the law of demand, but the demand for the other good violates the law of demand.
answer
the two goods are substitutes.
question
The elasticity of demand for a good is |-0.75|. A 4 percent increase in price will cause a:
3 percent decrease in quantity demanded.
0.19 percent decrease in quantity demanded.
5.33 percent increase in quantity demanded.
5.33 percent decrease in quantity demanded.
3 percent decrease in quantity demanded.
0.19 percent decrease in quantity demanded.
5.33 percent increase in quantity demanded.
5.33 percent decrease in quantity demanded.
answer
3 percent decrease in quantity demanded.
question
The price elasticity of demand measures how sensitive the:
price is to a change in the quantity supplied.
quantity demanded is to a change in price.
demand is to a change in the number of suppliers.
price is to a change in quantity demanded.
price is to a change in the quantity supplied.
quantity demanded is to a change in price.
demand is to a change in the number of suppliers.
price is to a change in quantity demanded.
answer
quantity demanded is to a change in price.
question
In which of the following situations will total revenue increase?
Price elasticity of demand is 3.0, and the price of the good decreases.
Price elasticity of demand is 1.2, and the price of the good decreases.
All of the above are correct.
Price elasticity of demand is 0.5, and the price of the good increases.
Price elasticity of demand is 3.0, and the price of the good decreases.
Price elasticity of demand is 1.2, and the price of the good decreases.
All of the above are correct.
Price elasticity of demand is 0.5, and the price of the good increases.
answer
All of the above are correct.
question
The price elasticity of demand measures the
responsiveness of quantity demanded to a change in income
size of the shortage created by the increase in demand.
direction of the shift in the demand curve in response to a market event.
magnitude of the response in quantity demanded to a change in price.
responsiveness of quantity demanded to a change in income
size of the shortage created by the increase in demand.
direction of the shift in the demand curve in response to a market event.
magnitude of the response in quantity demanded to a change in price.
answer
magnitude of the response in quantity demanded to a change in price.
question
Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent.
Refer to Scenario 5-4. The change in equilibrium quantity will be
greater in the beef market than in the milk market.
Any of the above could be correct.
greater in the milk market than in the beef market.
the same in the milk and beef markets.
Refer to Scenario 5-4. The change in equilibrium quantity will be
greater in the beef market than in the milk market.
Any of the above could be correct.
greater in the milk market than in the beef market.
the same in the milk and beef markets.
answer
greater in the beef market than in the milk market.
question
If quinoa farmers know that the demand for quinoa is inelastic, in order to increase their total revenues they should
reduce the number of acres they plant to decrease their output.
plant additional acres to increase their output.
use more fertilizers and weed killers to increase their yields.
Both a and b are correct.
reduce the number of acres they plant to decrease their output.
plant additional acres to increase their output.
use more fertilizers and weed killers to increase their yields.
Both a and b are correct.
answer
reduce the number of acres they plant to decrease their output
question
Using the midpoint method, what is the price elasticity of supply between $5 and $6?
Qs for $5 = 30 and Qs for $6 = 40
Qs for $5 = 30 and Qs for $6 = 40
answer
1.57
question
What is the income elasticity of demand for tea?
Tea = 5 Income = $30,000
Tea = 15 Income = $45,000
Tea = 5 Income = $30,000
Tea = 15 Income = $45,000
answer
2.5
question
Suppose that when the price of good X falls from $6 to $4, the quantity demanded of good Y rises from 30 units to 40 units. Using the midpoint method, the cross-price elasticity of demand is
-1.40, and X and Y are substitutes.
-0.71, and X and Y are substitutes.
-1.40, and X and Y are complements.
-0.71, and X and Y are complements.
-1.40, and X and Y are substitutes.
-0.71, and X and Y are substitutes.
-1.40, and X and Y are complements.
-0.71, and X and Y are complements.
answer
-0.71, and X and Y are complements.
question
Suppose that demand is given by the equation:
Qd = 180 -3P
And supply is given by the equation:
Qs = P-20
Using the midpoint formula, calculate the elasticity for demand when the price changes from $50 to $40
Qd = 180 -3P
And supply is given by the equation:
Qs = P-20
Using the midpoint formula, calculate the elasticity for demand when the price changes from $50 to $40
answer
3 , and elastic
question
If the demand for bananas is elastic, then an increase in the price of bananas will
increase total revenue of banana sellers.
decrease total revenue of banana sellers.
not change total revenue of banana sellers.
There is not enough information to answer this question.
increase total revenue of banana sellers.
decrease total revenue of banana sellers.
not change total revenue of banana sellers.
There is not enough information to answer this question.
answer
decrease total revenue of banana sellers.
question
Suppose the demand function for good X is given by Qdx = 15-0.5Px-0.8Py where Qdx is the quantity demanded of good X, Px is the price of good X, and Py is the price of good Y, which is related to good X.
Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $5 and the price of good Y decreases from $5 to $2, the cross price elasticity of demand is about
Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $5 and the price of good Y decreases from $5 to $2, the cross price elasticity of demand is about
answer
-0.29, and X and Y are complements.
question
Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about
answer
1.43, and an increase in the price will cause hotels' total revenue to decrease.
question
Suppose that Jane enjoys Diet Coke so much that she consumes one can every day. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot. These examples illustrate the importance of
the time horizon in determining the price elasticity of demand.
the availability of close substitutes in determining the price elasticity of demand.
the definition of a market in determining the price elasticity of demand.
a necessity versus a luxury in determining the price elasticity of demand
the time horizon in determining the price elasticity of demand.
the availability of close substitutes in determining the price elasticity of demand.
the definition of a market in determining the price elasticity of demand.
a necessity versus a luxury in determining the price elasticity of demand
answer
a necessity versus a luxury in determining the price elasticity of demand
question
If price elasticity of demand = |-1.5| and price decreases by 10 percent, then
quantity demanded will increase by 1.5 percent
demand will increase by 15 percent
total revenue will remain unchanged
total revenue will decrease
quantity demanded will increase by 15 percent
quantity demanded will increase by 1.5 percent
demand will increase by 15 percent
total revenue will remain unchanged
total revenue will decrease
quantity demanded will increase by 15 percent
answer
quantity demanded will increase by 15 percent
question
Ronda's cake store earned $3,750 in total revenue last month when it sold 125 cakes. This month it earned $3,600 in total revenue when it sold 90 cakes. The price elasticity of demand for Ronda's cake store is
answer
1.14
question
You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. Your roommate still enjoys Ramen noodles very much and buys even more, but you plan to buy fewer Ramen noodles in favor of foods you prefer more. When looking at income elasticity of demand for Ramen noodles, yours would
be positive and your roommate's would be negative.
be negative and your roommate's would be positive.
approach infinity and your roommate's would be zero.
be zero and your roommate's would approach infinity.
be positive and your roommate's would be negative.
be negative and your roommate's would be positive.
approach infinity and your roommate's would be zero.
be zero and your roommate's would approach infinity.
answer
be negative and your roommate's would be positive.
question
A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is
highly responsive to changes in income.
unit elastic.
elastic.
inelastic.
highly responsive to changes in income.
unit elastic.
elastic.
inelastic.
answer
inelastic.
question
The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should
lower the price of the cinnamon rolls.
raise the price of the cinnamon rolls.
reduce costs.
leave the price of the cinnamon rolls unchanged.
lower the price of the cinnamon rolls.
raise the price of the cinnamon rolls.
reduce costs.
leave the price of the cinnamon rolls unchanged.
answer
raise the price of the cinnamon rolls.
question
When a university bookstore prices chemistry textbooks at $200 each, it generally sells 120 books per month. If it lowers the price to $160, sales increase to 160 books per month. Given this information, we know that the price elasticity of demand for chemistry books is about
0.78, and a decrease in price from $200 to $160 results in a decrease in total revenue.
1.29, and a decrease in price from $200 to $160 results in an increase in total revenue.
0.78, and a decrease in price from $200 to $160 results in an increase in total revenue.
1.29, and a decrease in price from $200 to $160 results in a decrease in total revenue.
0.78, and a decrease in price from $200 to $160 results in a decrease in total revenue.
1.29, and a decrease in price from $200 to $160 results in an increase in total revenue.
0.78, and a decrease in price from $200 to $160 results in an increase in total revenue.
1.29, and a decrease in price from $200 to $160 results in a decrease in total revenue.
answer
1.29, and a decrease in price from $200 to $160 results in an increase in total revenue.
question
A decrease in income will cause a consumer's budget constraint to
pivot along the horizontal axis.
pivot along the vertical axis.
shift outward, parallel to its initial position.
shift inward, parallel to its initial position.
pivot along the horizontal axis.
pivot along the vertical axis.
shift outward, parallel to its initial position.
shift inward, parallel to its initial position.
answer
shift inward, parallel to its initial position.
question
Bill consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle, and the price of spaghetti is $8 per serving. His income is $1,000 per month. He spends all of his income each month. He purchases 200 bottles of iced tea. How many servings of spaghetti does he purchase?
50
75
125
10
50
75
125
10
answer
75
question
An increase in a consumer's income
has no effect on the consumer's budget constraint.
decreases the slope of the consumer's budget constraint.
has no effect on the slope of the consumer's budget constraint.
increases the slope of the consumer's budget constraint.
has no effect on the consumer's budget constraint.
decreases the slope of the consumer's budget constraint.
has no effect on the slope of the consumer's budget constraint.
increases the slope of the consumer's budget constraint.
answer
has no effect on the slope of the consumer's budget constraint.
question
If we observe that Jamie's budget constraint has moved outward, then we know for certain that
her income must have decreased.
the price of one or both of the goods must have decreased.
she will be indifferent between goods X and Y.
she can reach a higher indifference curve.
her income must have decreased.
the price of one or both of the goods must have decreased.
she will be indifferent between goods X and Y.
she can reach a higher indifference curve.
answer
she can reach a higher indifference curve.
question
A consumer chooses an optimal consumption point where the
slope of the indifference curve exceeds the slope of the budget constraint.
marginal rate of substitution equals the relative price ratio
ratios of all the marginal utilities are equal.
All of the above are correct.
slope of the indifference curve exceeds the slope of the budget constraint.
marginal rate of substitution equals the relative price ratio
ratios of all the marginal utilities are equal.
All of the above are correct.
answer
marginal rate of substitution equals the relative price ratio
question
A budget constraint illustrates the
consumption bundles that give a consumer equal satisfaction.
purchases made by consumers.
prices that a consumer chooses to pay for products he consumes.
consumption bundles that a consumer can afford.
consumption bundles that give a consumer equal satisfaction.
purchases made by consumers.
prices that a consumer chooses to pay for products he consumes.
consumption bundles that a consumer can afford.
answer
consumption bundles that a consumer can afford.
question
Giffen goods have positively-sloped demand curves because they are
normal goods with no substitution effect.
inferior goods for which the income effect outweighs the substitution effect.
inferior goods with no substitution effect.
inferior goods for which the substitution effect outweighs the income effect.
normal goods with no substitution effect.
inferior goods for which the income effect outweighs the substitution effect.
inferior goods with no substitution effect.
inferior goods for which the substitution effect outweighs the income effect.
answer
inferior goods for which the income effect outweighs the substitution effect.
question
A consumer has preferences over two goods, X and Y. Suppose we graph this consumer's preferences (which satisfy the usual properties of indifference curves) and budget constraint on a diagram with X on the horizontal axis and Y on the vertical axis. At the consumer's current consumption bundle, the consumer is spending all available income, and the marginal rate of substitution is greater than the slope of the budget constraint. We can conclude that the consumer
is currently maximizing satisfaction subject to the budget constraint.
could increase satisfaction by consuming more X and less Y.
could increase satisfaction by consuming less X and more Y.
could purchase more X and more Y and increase total satisfaction.
is currently maximizing satisfaction subject to the budget constraint.
could increase satisfaction by consuming more X and less Y.
could increase satisfaction by consuming less X and more Y.
could purchase more X and more Y and increase total satisfaction.
answer
could increase satisfaction by consuming more X and less Y.
question
If an indifference curve is bowed in toward the origin, the marginal rate of substitution is
likely to be identical to the price ratio for each bundle along the indifference curve.
different for each bundle along the indifference curve.
likely to be constant for all bundles along the indifference curve.
not likely to reflect the relative value of goods.
likely to be identical to the price ratio for each bundle along the indifference curve.
different for each bundle along the indifference curve.
likely to be constant for all bundles along the indifference curve.
not likely to reflect the relative value of goods.
answer
different for each bundle along the indifference curve.
question
Cross price elasticity
If negative --> ?
postitive --> ?
If negative --> ?
postitive --> ?
answer
complements
substitutes
substitutes
question
Perfectly inelastic
answer
as price increases or decreases, there is no change in quantity demanded
question
Perfectly elastic
answer
infinite response to a change in price, infinite quantity demanded
question
T astes and preferences
R elated prices of goods
I ncome
B uyers
E xpectation
R elated prices of goods
I ncome
B uyers
E xpectation
answer
really like something then you are more willing to buy it
substitutes are directly related; complements inversely
increase in McD cause positive shift for BK
income increase demand increase, decrease --> decrease
More buyers more demand, less, less
Meat causes cancer, demand decrease
Energy drink makes you smarter, demand increase
substitutes are directly related; complements inversely
increase in McD cause positive shift for BK
income increase demand increase, decrease --> decrease
More buyers more demand, less, less
Meat causes cancer, demand decrease
Energy drink makes you smarter, demand increase
question
R esources
O pportunity costs
T axes
T echnology
E xpectations
N umber of sellers/producers
O pportunity costs
T axes
T echnology
E xpectations
N umber of sellers/producers
answer
resource price/costs: if the price of resources increase, the curve shifts to the left, b/c the price must increase
opportunity costs of giving up one good for another
taxes/subsidies: government takes/gives $
technology: makes things less expensive to produce- shifts to the right
expectations of producers (about future prices): if prices are expected to increase in the future, producers decrease supply now and wait till price increases
number of producers/sellers: more suppliers, supply of good rises; less suppliers, supply will decline
opportunity costs of giving up one good for another
taxes/subsidies: government takes/gives $
technology: makes things less expensive to produce- shifts to the right
expectations of producers (about future prices): if prices are expected to increase in the future, producers decrease supply now and wait till price increases
number of producers/sellers: more suppliers, supply of good rises; less suppliers, supply will decline
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