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ECON LESSON 4.1 - 4.2 - 4.3
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Gravity
Terms in this set (78)
Suppose a market were currently at equilibrium. A rightward shift of the demand curve would cause
an increase in both price and quantity.
As the price of a good increases, the change in the quantity demanded can be shown by
moving left along the same demand curve.
In general, any ceteris paribus determinant of supply that is favorable to production will
shift the supply curve to the right.
Due to the recent increase in the price of natural gas, the quantity of coal demanded by electric power generation plants has increased. Based on this information, coal and natural gas are:
substitutes
In economic terminology, a normal good is a good
for which demand increases when income increases.
Other things being equal, an increase in wages paid to workers in the steel industry will cause
the supply of steel to decrease.
Suppose we observe the following two simultaneous events in the market for beef. First, there is a decrease in the demand for beef due to changes in consumer tastes. And second, there is a reduction in supply due to cattle farmers selling their land to real estate developers. We know with certainty that these two simultaneous events will cause which of the following?
a decrease in the equilibrium quantity and an indeterminate change in the equilibrium price
Which of the following would cause a shift to the right of the supply curve for gasoline?
I. A large increase in the price of public transportation.
II. A large decrease in the price of automobiles.
III. A large reduction in the costs of producing gasoline.
III only
An increase in demand and an increase in supply will lead to
an unambiguous increase in quantity, but the effect on price is indeterminate.
Sarah gets a salary increase of 20 percent. Before her raise, she purchased 5 pounds of hamburger and 1 pound of beef stew a month. After her raise, she consumes 2 pounds of hamburger and 3 pounds of beef stew a month. If everything else is held constant, we know that
hamburger is an inferior good and beef stew is a normal good for Sarah.
Suppose that goods X and Y are substitutes and the price of good Y falls. We would then expect
an increase in the quantity demanded of good Y and a decrease in the demand for good X.
If the price of automobiles were to decrease substantially, the demand curve for automobiles would most likely
remain unchanged.
The price of good A goes up. As a result, the demand for good B shifts to the left. From this we can infer that:
goods A and B are complements.
If more buyers enter the market for a good, we would expect to see the market demand curve
shift outward and to the right.
You are analyzing the demand for good X. Which of the following will result in a shift to the right of the demand curve for X?
An increase in the price of a good that is a substitute for X
A demand curve for a normal good
shows the inverse relationship between price and quantity demanded.
The above figure shows four different markets with changes in either the supply curve or the demand curve (where subscript 1 indicates the demand or supply curve before the change and subscript 2 indicates the demand or supply curve after the change). Which graph best illustrates the market for non-dairy coffee creamer after severe weather destroys a large portion of the coffee crop? (Non-dairy coffee creamer and coffee are complements.)
Graph D
Illini Union Tech Zone sells two types of tablets, A and B. Suppose that the university gives a refund to each student that amounts to 20% of their income. This increases the quantity demanded for tablet A by 10%, and decreases the quantity demanded for tablet B by 10%. What is the income elasticity of demand for tablet B? If necessary, round to the nearest two decimal points.
-0.5
Which of the following would NOT affect a good's price elasticity of demand?
The cost of producing the good
A perfectly elastic demand curve is
horizontal.
Suppose that when the price of milk rises 20%, the quantity demanded of milk falls 10%. Based on this information, what is the approximate absolute price elasticity of demand for milk?
0.5
The formal definition of price elasticity of demand is
percentage change in quantity demanded divided by percentage change in price.
Store "XYZ Electronics" sells 2 types of screens, Plasma and LCD, and a DVD player. It faces the following demand schedule for different prices of Plasma. Suppose that the income elasticity of demand for Plasmas is 0.5, and consumers' incomes increase by 100%. What is the new quantity demanded of Plasmas when the price of Plasmas is $50? If necessary, round to the nearest two decimal points.
Price of Plasma=$50
Price of Plasma=$100
Plasmas Demanded
1000
700
LCDs Demanded
100
150
DVD Players Demanded
2000
1800
1500
If the absolute price elasticity of demand for good Y is 0.75, when there is a 30 percent increase in price, we can conclude that quantity demanded
has fallen by 22.5 percent.
The price elasticity of demand is a measure of
the responsiveness of the quantity demanded of a good to a changes in the price of the good.
If the cross price elasticity of demand between two goods is negative, then the two goods are
complements
Consider the following hypothetical market. The equilibrium price is $10 and the equilibrium quantity is 20 units. The own-price elasticity of demand is -0.5 and the own-price elasticity of supply is 0.75. If price increases from $10 to $12, what will be the new level of quantity supplied? If necessary, round to the nearest two decimal points.
23
If income increases from $20,000 to $25,000 and the quantity of sodas demanded increases from 100 to 150, then soda is a(n):
Normal Good
Which of the following statements about demand and price elasticity of demand is TRUE?
As the demand curve has a negative slope, the price elasticity of demand is negative.
If income decreases from $25,000 to $20,000 and the quantity of sodas demanded increases from 240 to 250, then soda is a(n):
Inferior good
The longer the time frame involved, the more likely it is that the demand will be relatively
elastic
Store "XYZ Electronics" sells 2 types of screens, Plasma and LCD, and a DVD player. It faces the following demand schedule for different prices of Plasma. Find the cross-price elasticity of demand of LCDs when the price of Plasmas increases from $50 to $100. If necessary, round to the nearest two decimal points.
Price of Plasma=$50
Price of Plasma=$100
Plasmas Demanded
1000
700
LCDs Demanded
100
150
DVD Players Demanded
2000
1800
0.5
In the graph below supply curve is perfectly inelastic. What is the own-price elasticity of supply when we are on the market equilibrium price and price decreases by 15%? If necessary, round to the nearest two decimal points.
0
Suppose that when the price of root beer rises 10%, the quantity of pizza demanded falls 20%. This would mean that pizza and root beer are
complements, with a cross price elasticity of -2.0.
The price elasticity of demand measures
the consumers' sensitivity to a price change.
An elastic response in the quantity of a good demanded would be caused by
the availability of many substitutes.
When demand is perfectly inelastic, the demand curve is
vertical
Suppose we have two goods, tea and coffee. If the price of tea increases by 10% then the quantity demanded of coffee increases by 20%. Then tea is a ______ for coffee.
Substitute
Which of the following is a determinant of the price elasticity of demand for an item?
A) The availability of a close substitute for the item
B) The amount of time available to adjust to a change in the price of the item
C) The percentage of a consumers budget allocated to expenditures on the item
D) All of the above are correct
D) All of the above are correct
Illini Union Tech Zone sells two types of tablets, A and B. Suppose that the university gives a refund to each student that amounts to 20% of their income. This increases the quantity demanded for tablet A by 10%, and decreases the quantity demanded for tablet B by 10%. What is the income elasticity of demand for tablet A? If necessary, round to the nearest two decimal points.
0.5
Consider the following hypothetical market. The equilibrium price is $10 and the equilibrium quantity is 20 units. The own-price elasticity of demand is -0.5 and the own-price elasticity of supply is 0.75. If price increases from $10 to $12, what will be the new level of quantity supplied?If necessary, round to the nearest two decimal points.
23
Suppose we have two goods, cigarettes and lighters. If the price of cigarettes increases by 10% then the quantity demanded of lighters decreases by 20%. Lighters are a ______ for cigarettes.
Complement
Store "XYZ Electronics" sells 2 types of screens, Plasma and LCD, and a DVD player. It faces the following demand schedule for different prices of Plasma. What is the own-price elasticity of demand for Plasmas as the price increases from $50 to $100? If necessary, round to the nearest two decimal points.
Price of Plasma=$50
Price of Plasma=$100
Plasmas Demanded
1000
700
LCDs Demanded
100
150
DVD Players Demanded
2000
1800
-0.3
Inelastic demand implies
that a one percent increase in price results in a smaller than one percent decrease in quantity demanded.
Consider the following hypothetical market. The equilibrium price is $10 and the equilibrium quantity is 20 units. The own-price elasticity of demand is -0.5 and the own-price elasticity of supply is 0.75. If price increases from $10 to $12, what will be the new level of quantity demanded? If necessary, round to the nearest two decimal points.
18
Illini Union Tech Zone sells two types of tablets, A and B. Suppose that a 20% increase in the price of tablet A causes a 50% decrease in the quantity demanded for tablet A, a 10% increase in the quantity demanded for tablet B. What is the own-price elasticity of demand for tablet A? If necessary, round to the nearest two decimal points.
-2.5
If income increases from $20,000 to $25,000 and the quantity of frozen meatballs demanded decreases from 150 to 100, then frozen meatball is a(n):
Inferior good
Suppose we have two goods, tea and coffee. If the price of tea increases by 10% then the quantity demanded of coffee increases by 20%. Then tea is a ______ for coffee.
e
Substitute
Store "XYZ Electronics" sells 2 types of screens, Plasma and LCD, and a DVD player. It faces the following demand schedule for different prices of Plasma. Find the cross-price elasticity of demand of DVD Players when the price of Plasmas increases from $50 to $100. . If necessary, round to the nearest two decimal points.
Price of Plasma=$50
Price of Plasma=$100
Plasmas Demanded
1000
700
LCDs Demanded
100
150
DVD Players Demanded
2000
1800
-0.1
Suppose that the number of units of good X consumed falls 12 percent when the price of good Y falls 8 percent. The cross price elasticity of demand between goods X and Y is
1.5
Store "XYZ Electronics" sells 2 types of screens, Plasma and LCD, and a DVD player. It faces the following demand schedule for different prices of Plasma. Find the cross-price elasticity of demand of LCDs when the price of Plasmas increases from $50 to $100. If necessary, round to the nearest two decimal points.
0.5
Store "XYZ Electronics" sells 2 types of screens, Plasma and LCD, and a DVD player. It faces the following demand schedule for different prices of Plasma. Find the cross-price elasticity of demand of DVD Players when the price of Plasmas increases from $50 to $100. . If necessary, round to the nearest two decimal points.
Price of Plasma=$50
Price of Plasma=$100
Plasmas Demanded
1000
700
LCDs Demanded
100
150
DVD Players Demanded
2000
1800
-0.1
Consider the market for good X. Suppose that Q1= 8, Q
= 10, Q2 = 12, P
= $25. Moreover, assume that P0=$15, P1=$35, P2=$23. If the price is set at Px=$27, what is the Total Consumer Surplus? (Do not include a dollar sign $ in your answer)
32
Consider the market for good X. Suppose that Q1=10, Q
=20, Q2=40, P
= $25. Moreover, assume that P0=$5, P1=$45, P2=$15. If the price is set at Px=$35, what is the Total Producer Surplus? (Do not include a dollar sign $ in your answer)
250
Consider the market for a good X. Suppose that P0=$7, P1=$25, PB=$20 , PA=$10, and equilibrium price P*=$14. If Q0=10 , what is the Consumer Surplus of the 10th unit if trade takes place at the equilibrium price? (Do not include a dollar sign $ in your answer)
6
The signals in markets are determined
by supply and demand.
Consider the market for a good X. Suppose that P1=$31 , P0=$4, and equilibrium price P
=$20. If Q
= 50, what is the Total Consumer Surplus if trade takes place at the equilibrium price? (Do not include a dollar sign $ in your answer)
275
Consider the market for a good X. Suppose that P1=$50 , P0=$10, and equilibrium price P
=$20. If Q
=20, what is the Total Producer Surplus if trade takes place at the equilibrium price? (Do not include a dollar sign $ in your answer)
100
Consider the market for a good X. Suppose that P1=$50 , P0=$10, and equilibrium price P
=$20. If Q
=20 , what is the Total Consumer Surplus if trade takes place at the equilibrium price? (Do not include a dollar sign $ in your answer)
300
Consider the market for a good X. Suppose that P1=$50 , P0=$10, and equilibrium price P
=$20. If Q
=20, what are the Total Gains from Trade? (Do not include a dollar sign $ in your answer)
400
The signaling aspect of the market system refer to
the price of the good to the consumer and producer.
The decrease in consumer surplus and producer surplus that results from an inefficient level of production is called the
deadweight loss.
A shortage will occur whenever
price is below the equilibrium price.
Consider the market for a good X. Suppose that P1=$20 , P0=$2, and equilibrium price P
=$12. If Q
=20 , what are the Total Gains of Trade if trade takes place at the equilibrium price? (Do not include a dollar sign $ in your answer)
180
When there is a shortage,I. there is a tendency for price to increase.II. there is an excess quantity demanded.
Both I and II
Refer to Figure 4-2. What area represents producer surplus at a price of P2?
A + B + C
Consider the market for a good X. Suppose that P0=$7, P1=$25, PB=$20 , PA=$10, and equilibrium price P*=$14. If Q0=10, what is the Producer Surplus of the 10th unit if trade takes place at the equilibrium price? (Do not include a dollar sign $ in your answer)
4
Consider the market for a good X. Suppose that P1=$100 , P0=$20, and equilibrium price P
=$50. If Q
=10 , what is the Total Producer Surplus if trade takes place at the equilibrium price? (Do not include a dollar sign $ in your answer)
150
If there is a shortage in a free market, then
consumers will offer to pay a higher price for the good, and the price will rise toward the equilibrium level.
The figure illustrates the market for bagels. Initially the market is in equilibrium, Then the number of bagels produced is cut from 20 to 10 an hour and the price rises to $2.00 per bagel. Consumer surplus decreases by ________.
$7.50 an hour
Consider the market for a good X. Suppose that P0=$8, P1=$25, PB=$22 , PA=$10, and equilibrium price P*=$15. If Q0=100, what is the Producer Surplus of the 100th unit if trade takes place at the equilibrium price? (Do not include a dollar sign $ in your answer)
5
Consider the market for good X. Suppose that Q1=10, Q
=20, Q2=30, P
= $25. Moreover, assume that P0=$5, P1=$45, P2=$35. If the price is set at Px=$15, what is the Total Producer Surplus? (Do not include a dollar sign $ in your answer)
50
Consider the market for good X. Suppose that Q1=10, Q
=20, Q2=40, P
= $25. Moreover, assume that P0=$5, P1=$45, P2=$35. If the price is set at Px=$15, what is the quantity supplied?
10
Consider the market for good X. Suppose that Q1=10, Q
=20, Q2=30, P
= $25. Moreover, assume that P0=$5, P1=$45, P2=$15. If the price is set at Px=$35, what is the Total Consumer Surplus? (Do not include a dollar sign $ in your answer)
50
Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul's consumer surplus from the purchase is
$75.
Arthur buys a new cell phone for $150. He receives consumer surplus of $150 from the purchase. How much does Arthur value his cell phone?
300
Consider the market for a good X. Suppose that P1=$100 , P0=$20, and P
=$50. If Q
=10 , what are the Total Gains from Trade? (Do not include a dollar sign $ in your answer)
400
Consider the market for a good X. Suppose that P0=$5, P1=$35, PB=$30 , PA=$15, equilibrium price P
=$25, Q0=75, and Q
=150. What is the Total Producer Surplus if trade takes place at the equilibrium price? (Do not include a dollar sign $ in your answer)
1,500
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