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Price elasticity of demand is a measure of the responsiveness of quantity demanded to changes in
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price.
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If the price of good X rises and the demand for good X is elastic, then the percentage __________ in quantity demanded is __________ the percentage rise in price, and total revenue __________.
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fall; greater than; falls
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If the percentage change in quantity demanded is less than the percentage change in price, demand is
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inelastic.
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If quantity demanded is completely unresponsive to changes in price, demand is
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perfectly inelastic.
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Which of the following would result in higher price elasticity?
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more substitutes for a good
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A good will tend to have a low price elasticity of demand if
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it has few substitutes.
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The longer the period of time consumers have to adjust to price changes, the __________ the __________ elasticity of demand.
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higher, price
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If price rises and total revenue falls,
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none of the above (a. cross elasticity is negative.
b. price elasticity of demand is less than 1.
c. income elasticity of demand is positive.
d. b and c)
b. price elasticity of demand is less than 1.
c. income elasticity of demand is positive.
d. b and c)
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Market failure is a situation in which
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the market does not provide the ideal or optimal amount of a particular good
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A side effect of an action that adversely affects the well-being of others is called a
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negative externality
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When negative externalities are connected with the production of a good,
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market output will be greater than the socially optimal output
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Suppose the production of a good results in negative externalities. If all costs are taken into account, then
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output will be at a lower level than if all costs are not taken into account
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Exhibit 16-1
nar001-1.jpg
Refer to Exhibit 16-1. This graph represents a negative externality situation. Given this, which of the two curves, X or Y, represents marginal social costs and why?
nar001-1.jpg
Refer to Exhibit 16-1. This graph represents a negative externality situation. Given this, which of the two curves, X or Y, represents marginal social costs and why?
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Curve X, because if there is a negative externality, external costs are associated with it: social costs = external costs + private costs, therefore the marginal social cost curve must lie above the marginal private cost curve
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Given a positive externality, the marginal private benefit curve lies to the __________ of the demand curve, with the market output __________ the socially optimal output
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right; below
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Samantha is given a flu shot by her doctor. This reduces the probability that she will get the flu and it also reduces the probability that others will get the flu, too. The latter is an example of a
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positive externality
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The side effect of an action that increases the well-being of others is called
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a positive externality
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Suppose the production of a good results in positive externalities. If output occurs at the intersection of the marginal social benefits curve and the supply curve, then
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a and c (a. output will be at the socially optimal level. b. the price of the product will be the same as it was when all benefits were not taken into account. c. more output will be produced than if all benefits were not taken into account.)
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If the consumption of a good by one person reduces the amount of it that can be consumed by others, the good is
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rivalrous in consumption
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The primary difference between private goods and public goods is that
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public goods are nonrivalrous in consumption whereas private goods are rivalrous in consumption
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A good is a nonexcludable if
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it is impossible to prevent people from obtaining the benefits of the good once it has been produced
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