question
What is elastic demand?
answer
large change in quantity demanded when there is a change in price
question
What is inelastic demand?
answer
small to no change in quantity demanded when there is a change in price
question
slope for elasticity/inelasticity of demand should be
answer
negative
question
Price elasticity of demand shows a ____________ to a _________________
answer
consumers responsiveness, price change
question
When the price elasticity of demand is greater than one:
answer
very responsive
question
When the price elasticity of demand is less than one:
answer
relatively inelastic (not very responsive)
question
When the price elasticity of demand is equal to one:
answer
unitary elastic (proportional)
question
If the price of a good increases by 25% and results in decrease in quantity demanded by 75%, this is an example of
answer
very responsive consumer behavior
question
Perfect elasticity of demand exists when
answer
demand for the product is entirely dependent on the price of the product. Demand curve is either completely vertical or horizontal.
question
If the demand curve is horizontal, the
answer
price elasticity of demand is undefined because it is equal to infinity. Graph is perfect elastic of demand (forms E graph)
question
If the demand curve is vertical, the
answer
price elasticity of demand is equal to 0 and this shows perfect inelasticity (forms I graph)
question
Is medicine elastic or inelastic?
answer
inelastic
question
Midpoint Forumla to Calculate elasticity
answer
((Qn-Qo)/(Qn+Qo/2)) / ((Pn-Po)/(Pn+Po/2))
question
All linear demand curves will have all 3 elasticities:
answer
relatively elastic at high prices, relatively inelastic at low prices, and midpoint will be unitary
question
As price decreases along demand, coefficients of elasticity _________
answer
decrease
question
If the price of a good is reduced by 10% and there is a gain in sales by 2%, what type of demand elasticity?
answer
inelastic demand
question
If price of good gradually decreases and sales stays the same, what type of demand elasticity is this?
answer
elastic demand
question
If price elasticity of demand is greater than one, as
answer
price increases, quantity demanded decreases by a lot thus total revenue decreases. AND AS price decreases, quantity demanded increases by a lot thus total revenue increases
question
If price elasticity of demand is less than one, as
answer
price increases, quantity demanded decreases by a little thus total revenue increases by a lot AND AS price decreases, quantity demanded increases by a little thus total revenue decreases by a lot
question
If price elasticity of demand is equal to one, as
answer
price increases, quantity demanded will decreases and total revenue stays the same AND AS price decreases, quantity demanded increases and total revenue stays the same
question
If price increases as a result total revenue decreases, then price elasticity of demand for the good is _______ than one
answer
greater
question
If quantity demanded is completely unresponsive to changes in price of good XYZ, the demand of good XYZ is
answer
perfectly inelastic
question
Difference between inelastic and perfectly inelastic
answer
Perfectly Inelastic Demand means that there is no change in the quantity of the product demanded when the price changes whereas inelastic demand is where change in quantity demanded due to a change in price is small
question
List determinants of elasticity of demand
answer
Availability of Substitutes (+), Time (+), Size/Cost of good relative to your budget (+), Luxury goods (elastic) vs Necessities (inelastic)
question
A broadly defined a good has a _______________
answer
inelastic demand (not as many subs)
question
A more narrowly defined good has a ______________
answer
elastic demand
question
Total revenue =
answer
Price x Quantity
question
Tax Revenue =
answer
Per unit tax (T) x Quantity
question
Price elasticity of supply =
answer
% change in quantity supplied / % change in price
question
Price elasticity of supply for income =
answer
% change in quantity supplied / % change in income (inferior or normal)
question
Cross price elasticity of supply (compliments and subs)
answer
% change in Qd of "y"/ % change in Qd of "x"
question
What is total utility?
answer
sum of all utilities: the overall satisfaction that a consumer gets from the consuming particular goods and services
question
What is marginal utility?
answer
additional utility/satisfaction gained from consuming one additional unit of a good or service
question
As you consume additional utilities, TU goes
answer
up
question
When MU is postive... TU is
answer
positive and increasing
question
When MU is 0.... TU is
answer
at max
question
When MU is negative.... TU is
answer
positive and decreasing
question
What is the law of diminishing marginal utility?
answer
As additional units of a good are consumed, the "extra" satisfaction derived from those units decreases
question
Objective of utility is to...
answer
maximize TU
question
List the reasons for downward sloping shape of demand
answer
law of diminishing MU, substitution effect, income effect
question
What is the substitution effect?
answer
As relative price of good increases, the consumer substitutes away from that good and vice versa
question
What is income effect?
answer
As relative price of good increases, the purchasing power decreases causing the consumer to buy/want fewer goods and vice versa
question
Consumer Equilibrium/Optimum: What is a budget constraint?
answer
a line showing various combinations of 2 goods that the consumer can afford
question
Consumer Equilibrium/Optimum: What is an Indifference Curve?
answer
a curve showing various combinations of 2 goods that yield the same total utility. this means consumers are indifferent between the two points on the curve.
question
What is consumer optimum/equilibrium?
answer
occurs at the point where the highest indifference curve and the budget constraint are tangent. It is a combination of goods and services that maximizes utility for a given income.
question
Consumer Equilibrium/Optimum Equation
answer
MUqx/Px = MUqy/Py
question
Income =
answer
PxQx+PyQy
question
Profit exists when
answer
Total Revenue is greater than Total Cost
question
Economic Profit =
answer
TR- TC aka (PxQ)- (explicit cost + implicit costs)
question
Accounting Profit =
answer
TR - total explicit costs
question
What is break even profit?
answer
the point at which total cost and total revenue are equal, meaning there is no loss or gain for your small business.
question
What is short run profit?
answer
a period of time where atleast one input is fixed and all others are variable
question
What is long term profit?
answer
all inputs are variable
question
What is MPP(L)?
answer
Marginal Physical Product of labor: a company's increase in total production when one additional unit of labor is added
question
MPP(l) is calculated by...
answer
change in TP/change in labor
question
Law of Diminishing MPPl (Returns)
answer
As additional units of a variable input are added to the fixed input, the extra/additional output declines in other words, as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other variables remain at a constant.
question
What is the Marginal/Average Rule?
answer
When the marginal cost is greater than average cost, the average cost increases above 0 and if the marginal cost is below average cost, then the average cost will decrease.
question
Formula for Marginal Cost
answer
Wages/MPPl AKA change in total cost/change in output
question
When MPPl increases, Marginal cost is
answer
decreasing
question
When MPPl is at a max, Marginal cost is
answer
at a min
question
When MPPl decreasing, Marginal cost is
answer
increasing
question
What is marginal cost?
answer
the increase or decrease in the cost of producing one more unit or serving one more customer.
question
Average productivity of labor equals
answer
total product/labor.
question
Explicit vs Implicit costs
answer
Explicit costs are out-of-pocket costs for a firm—for example, payments for wages and salaries, rent, or materials. Implicit costs are the opportunity cost of resources already owned by the firm and used in business—for example, expanding a factory onto land already owned.
question
What is total fixed cost?
answer
cost that is independent of output
question
What is sunk cost?
answer
a cost that has already been committed and cannot be recovered. cost that may go to waste like applying to college and insurance
question
If Casey bought 16 cotton t-shirts last year when her income was $40,000 and she buys 14 cotton t-shirts this year when her income is $45,000, then for Casey cotton t-shirts are
a.
a normal good.
b.
a substitute good.
c.
There is not enough information to answer this question.
d.
a complementary good.
e.
an inferior good.
a.
a normal good.
b.
a substitute good.
c.
There is not enough information to answer this question.
d.
a complementary good.
e.
an inferior good.
answer
inferior good
question
Suppose someone believes that if a per-unit tax is placed on the producers of good Y, the consumers of good Y will end up paying the full tax. This person assumes that the demand curve for good Y is...
a.
perfectly inelastic.
b.
inelastic.
c.
elastic.
d.
perfectly elastic.
e.
unit elastic.
a.
perfectly inelastic.
b.
inelastic.
c.
elastic.
d.
perfectly elastic.
e.
unit elastic.
answer
perfectly inelastic
question
The longer the period of time consumers have to adjust to price changes, the __________ the __________ elasticity of demand.
answer
higher, price
question
Suppose a producer decides that if the price of her product is $42, the quantity supplied will be 1,000 units, and if the price is $45, the quantity supplied will be 1,300. The price elasticity of supply for the good is approximately....
a.
+0.26.
b.
+1.9.
c.
-3.8.
d.
-0.26.
e.
+3.8
a.
+0.26.
b.
+1.9.
c.
-3.8.
d.
-0.26.
e.
+3.8
answer
e
question
The fewer substitutes for a good,
a.
the lower its price elasticity of demand.
b.
the lower its income elasticity of demand.
c.
the higher its income elasticity of demand.
d.
the higher its price elasticity of demand.
a.
the lower its price elasticity of demand.
b.
the lower its income elasticity of demand.
c.
the higher its income elasticity of demand.
d.
the higher its price elasticity of demand.
answer
the lower its price elasticity of demand
question
Price elasticity of demand is a measure of the responsiveness of quantity demanded to changes in
a.
price.
b.
supply.
c.
interest rates.
d.
demand.
a.
price.
b.
supply.
c.
interest rates.
d.
demand.
answer
price
question
If the price of a good rises and as a result total revenue falls, then it must be true that
a.
income elasticity of demand for the good is positive.
b.
cross elasticity of demand for the good is negative.
c.
income elasticity of demand for the good is negative.
d.
price elasticity of demand for the good is less than 1.
e.
price elasticity of demand for the good is greater than 1.
a.
income elasticity of demand for the good is positive.
b.
cross elasticity of demand for the good is negative.
c.
income elasticity of demand for the good is negative.
d.
price elasticity of demand for the good is less than 1.
e.
price elasticity of demand for the good is greater than 1.
answer
price elasticity of demand for the good is greater than 1.
question
If quantity demanded is completely unresponsive to changes in the price of good XYZ, then demand for good XYZ is
a.
elastic.
b.
perfectly inelastic.
c.
unit elastic.
d.
inelastic.
e.
perfectly elastic.
a.
elastic.
b.
perfectly inelastic.
c.
unit elastic.
d.
inelastic.
e.
perfectly elastic.
answer
perfectly inelastic
question
Total utility is
a.
is the change in satisfaction derived from consuming each extra unit of a good.
b.
declines as the number of units consumed increases.
c.
remains constant as the number of units consumed increases.
d.
is the total amount of satisfaction derived from consuming a particular quantity of a good.
a.
is the change in satisfaction derived from consuming each extra unit of a good.
b.
declines as the number of units consumed increases.
c.
remains constant as the number of units consumed increases.
d.
is the total amount of satisfaction derived from consuming a particular quantity of a good.
answer
the total amount of satisfaction derived from consuming a particular quantity of a good
question
The law of diminishing marginal utility can be stated as follows...
answer
As the amount of a good consumed increases, the additional satisfaction gained from consuming additional units tends to decrease.
question
Joe is currently in consumer equilibrium by consuming cheese and crackers, such that the last cracker consumed yielded 8 utils and the last piece of cheese consumed yielded 12 utils. Assume the price of crackers is two cents per cracker and the price of cheese is three cents per piece. If the price of crackers increases to four cents, Joe should __________ his consumption of crackers and his marginal utility from crackers will __________ and also __________ his consumption of cheese and his marginal utility from cheese will __________.
answer
decrease, increase, increase, decrease
question
Diamonds are more expensive than water because....
answer
they are relatively scarce and they yield higher marginal utility
question
Suppose that a consumer purchases a combination of X and Y such that MUX/PX = 15 utils per dollar and MUY /PY = 10 utils per dollar. To maximize utility, the consumer should buy
answer
more of X and less of Y
question
In order for an individual to achieve consumer equilibrium through the consumption of two goods, A and B, that individual must fulfill the condition
answer
MUA/PA = MUB/PB.
question
Marginal utility is...
answer
is the extra satisfaction derived from consuming an additional unit of a good.
question
Suppose Alice receives 150 utils from consuming one hamburger and 70 utils from consuming a second hamburger. What is the marginal utility of the second hamburger?
answer
70 utils
question
An indifference curve shows....
answer
the bundles of two goods that give an individual equal total utility.
question
Five months ago Wilson opened up a health club. Which of the following is an implicit cost related to the health club?
a.
Wilson usually eats four hamburgers a day, priced at $3 each.
b.
Wilson paid $100 for the pest control exterminator to spray the health club.
c.
Wilson paid $120 for an outside laundry service to clean the towels used at the club.
d.
Wilson previously worked as an accountant, earning $3,000 a month.
a.
Wilson usually eats four hamburgers a day, priced at $3 each.
b.
Wilson paid $100 for the pest control exterminator to spray the health club.
c.
Wilson paid $120 for an outside laundry service to clean the towels used at the club.
d.
Wilson previously worked as an accountant, earning $3,000 a month.
answer
d
question
Consider the following information about a business Diane opened last year: price = $20, quantity sold = 25,000; implicit cost = $255,000; explicit cost = $360,000. Assuming that all relevant costs and revenue are noted, what was Diane's accounting profit?
answer
$140,000
question
Consider the following information about a business Diane opened last year: price = $20, quantity sold = 25,000; implicit cost = $255,000; explicit cost = $360,000. Assuming that all relevant costs and revenue are noted, what was Diane's economic profit?
answer
-$115,000
question
Which of the following statements is true?
a.
Zero economic profit is a smaller dollar figure than normal profit.
b.
Explicit costs always equal implicit costs.
c.
Saying that a firm earned zero economic profit is the same as saying it earned normal profit.
d.
Zero economic profit is a larger dollar figure than normal profit.
a.
Zero economic profit is a smaller dollar figure than normal profit.
b.
Explicit costs always equal implicit costs.
c.
Saying that a firm earned zero economic profit is the same as saying it earned normal profit.
d.
Zero economic profit is a larger dollar figure than normal profit.
answer
c
question
Which of these statements is false?
a.
Total costs are equal to total fixed costs plus total variable costs.
b.
A fixed cost is a cost that does not change as output changes.
c.
There are no fixed costs in the long run.
d.
In the short run, all inputs are fixed inputs
a.
Total costs are equal to total fixed costs plus total variable costs.
b.
A fixed cost is a cost that does not change as output changes.
c.
There are no fixed costs in the long run.
d.
In the short run, all inputs are fixed inputs
answer
d
question
As long as there are __________ costs, __________ profit will be greater than __________ profit.
answer
implicit, accounting, economic
question
The marginal physical product (MPP) of a variable input is..
answer
the change in total output that results from changing the variable input by one unit
question
The main difference between the short run and the long run is that
answer
in the short run, one or more inputs are fixed
question
"As additional units of a variable input are added to a fixed input, eventually the marginal physical product of the variable input will decline." This is a statement of the
answer
law of diminishing marginal returns
question
Cy recently went into the business of producing and selling cardboard boxes. For this business, which of the following is most likely to be a fixed cost?
a.
fire insurance
b.
paper costs
c.
adhesive costs
d.
labor costs
a.
fire insurance
b.
paper costs
c.
adhesive costs
d.
labor costs
answer
fire insurance b/c fixed costs are available even at zero level output and remain constant throughout subsequent level of production
question
Suppose a given marginal cost curve starts out downward sloping and at some level of output turns upward and becomes upward sloping. The point at which it turns upward is the point at which
answer
diminishing marginal returns set in
question
Average productivity of labor equals
answer
output divided by the quantity of labor
question
The average-marginal rule states that if the marginal magnitude is...
answer
less than the average magnitude, the average magnitude falls
question
diminishing returns only occurs in....
answer
short run
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