question
If a demand curve shifts to the right, then
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demand has increased.
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Suppose that when the price of hamburgers decreases, a family increases their purchases of ketchup.
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hamburgers and ketchup are compliments
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Holding everything else constant, an increase in the price of MP3 Players will result in
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a decrease in the quantity of MP3 players demanded.
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Suppose that when the price of raspberries increases, Lonnie increases his purchases of papayas.
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To Lonnie, raspberries and papayas are substitutes.
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Assume that both the demand curve and the supply curve for MP3 players shift to the right but the demand curve shifts more than the supply curve. As a result
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both the equilibrium price and quantity of MP3 Players will increase.
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Which of the following would shift the supply curve for MP3 players to the right?
answer
A decrease in the price of an input used to produce MP3 players
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Which of the following would cause an increase in the supply of cheese?
answer
An increase in the number of firms that produce cheese.
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Ranchers can raise either cattle or sheep on their land. Which of the following would cause the supply of sheep to increase?
answer
A decrease in the price of cattle.
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Which of the following is evidence of surplus of bananas?
answer
The price of bananas is lowered in order to increase sales.
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Price elasticity of demand measures
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how responsive quantity demanded is to a change in price.
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If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3 then the quantity demanded
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will decrease by 45 percent.
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If demand is inelastic, the absolute value for the price elasticity of demand is
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one
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When there are few close substitute's available for a good, demand tends to be
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relatively inelastic.
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What is the difference between an "increase in demand" and an "increase in quantity demanded"?
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An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve.
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Which of the following will shift the demand curve for a good?
answer
A decrease in the price of a complementary good.
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In 2004 hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit
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the supply curve shifted to the left resulting in an increase in the equilibrium price.
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Holding everything else constant, the demand for a good tends to be more elastic,
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the more substitutes there are for the good.
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If an increase in income leads to an increase in the demand for peanut butter, then peanut butter is a
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normal good
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Olive oil producers want to sell more olive oil at a higher price. Which of the following events would have this effect?
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Research finds that consumption of olive oil reduces the risk of heart disease
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Which of the following statements is true?
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The more narrowly we define a market, the more elastic the demand for a product will be.
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Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of the white bread to increase?
answer
A decrease in the price of flour.
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Price elasticity of demand measures
answer
how responsive quantity demanded is to a change in price.
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When there are few close substitutes available for a good, demand tends to be
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relatively inelastic
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Which of the following statements is true about the price elasticity of demand along a downward sloping linear demand curve?
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It is elastic at high prices and inelastic at low prices.
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The area above the market supply curve and below the market price,
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is equal to the total amount of producer surplus in a market.
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In a competitive market equilibrium
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the marginal benefit equals the marginal cost of the last unit sold
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Suppose the supply of bicycles is price elastic. This means that
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suppliers will respond significantly to changes in the price of bicycles
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If a firm raised its price and discovered that its total revenue fell, then the demand for its product is
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relatively elastic
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Suppose the demand curve for a product is horizontal and the supply curve is upward sloping. If a unit tax is imposed in the market for this product
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sellers bear the entire burden of the tax
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The government proposes a tax on imported champagne. Buyers will bear the entire burden of the tax if the
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demand curve for imported champagne is vertical
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Which term refers to a legally established minimum price that firms may charge?
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A price floor
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To affect the market outcome, a price ceiling
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must be set below the equilibrium price
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An efficient tax is
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a tax that imposes a small excess burden relative to the tax revenue that it raises
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For a monopolistically competitive firm, marginal revenue
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is less than the price.
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A monopolistically competitive firm maximizes profit where
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price is greater than marginal cost.
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A characteristic only found in oligopolies is
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interdependence of firms.
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A four firm concentration ratio measures
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the fraction of an industry's sales accounted for by the four largest firms.
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If an industry is made up of five identical firms, the four firm concentration ratio is
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80%
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The value of the four firm concentration ratio that many economists consider indicative of the existence of an oligopoly in a particular industry is
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anything greater than 40%.
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Oligopolies are difficult to analyze because
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how firms respond to a price change by a rival is uncertain.
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An oligopolists demand curve is
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unknown because a response of a firms to price changes by rivals is uncertain.
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Because a monopoly's demand curve is the same as the market demand curve for its product,
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the monopoly must lower its price to sell more of its product.
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A local electricity generating company has a monopoly that is protected by an entry barrier that takes the form of
answer
economies scale
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Which of the following statements applies to a monopolist but not to a perfectly competitive firm at their profit maximizing outputs?
answer
Marginal revenue is less than price.
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If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is
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25 dollars
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A perfectly competitive firm's supply curve is its
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marginal cost curve above its minimum avg variable cost.
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If the market price of each camera case is $8 and the firm maximizes profit, what is the amount of the firm's profit or loss?
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Profit of $440
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When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell
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nothing, it will shut down.
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In a perfectly competitive industry, the demand for a single firm's product is
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none
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A perfectly competitive firm maximizes it's profit in the short run by
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choosing the right level of output at price = marginal cost
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If a perfectly competitive firm finds that it is producing an amount of output such that Marginal revenue is less than marginal cost and price is greater than average total cost,
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, it will increase it's output
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If profits are positive in the short run in a a perfectly competitive industry, which of the following would not expect to happen as the market moves to the long run?
answer
Total market output will fall
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Not common to monopolistic and competitive competition
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, firms take market price as given
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Is common to monopolistic competition and perfect competition,
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entry barriers into the industry are low
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A major difference between monopolistic competition and perfect competition is
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sellers selling similar but differentiated products
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For a monopolistically competitive firm, marginal revenue is
answer
less than the price.
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What is the profit maximizing rule for a monopolistically competitive firm?
answer
To produce a quantity such that marginal revenue equals marginal cost
question
A monopolistically competitive firm maximizes profit where
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price is less than marginal cost.
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A monopolistically competitive industry that earns economic profits in the short run will
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experience the entry of new rival firms into the industry in the long run.
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A monopolistically competitive firm that is earning profits will, in the long run, experience all of the following except
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a decrease in rival products.
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A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until
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the firm's demand curve is tangent to its average total cost curve
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The key characteristics of a monopolistically competitive market structure include
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many small sellers acting independently
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The reason that the coffeehouse market is monopolistcailly competitive rather than perfectly competitive is because
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products are similar but different
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