Chapter 15 T or F Flashcards
The inverse demand curve P(x) for a good x measures the price per unit at which the quantity x would be demanded.
T
In general, aggregate demand depends only on prices and total income and not on income distribution.
F
If consumer 1 has the demand function x1 = 1000 - 2p and consumer 2 has the demand function x2 = 500 - p, then the aggregate demand function for an economy with just these two consumers would be x = 1500 - 3p for p < 500.
T
If a consumer has to pay his reservation price for a good, then he gets no consumer surplus from purchasing it.
T
If a price changes, then changes in consumption at the intensive margin are changes that happen because consumers alter the amounts that they consume, but do not either stop consuming or start consuming the good.
T
If the demand curve is a linear function of price, then the price elasticity of demand is the same at all prices.
F
If the demand function is q = 3m/p, where m is income and p is price, then the absolute value of the price elasticity of demand decreases as price increases.
F
If the elasticity of demand curve for millet is -0.50 at all prices higher than the current price, we would expect that when bad weather reduces the size of the millet crop, total revenue of millet producers will fall.
F
If the elasticity of demand curve for buckwheat is -0.75 at all prices higher than the current price, we would expect that when bad weather reduces the size of the buckwheat crop, total revenue of buckwheat producers will fall.
F
If the equation for the demand curve is q = 50 - 1p, then the ratio of marginal revenue to price is constant as price changes.
F
If the equation for the demand curve is q = 40 - 2p, then the ratio of marginal revenue to price is constant as price changes.
F
If a rational consumer must consume either zero or one unit of a good, then an increase in the price of that good with no change in income or in other prices can never lead to an increase in the consumer’s demand for it.
T
In the reservation price model, either aggregate demand is zero or everyone demands one unit of the good.
F
The Laffer effect occurs only if there is a backward-bending labor supply curve.
F
If the demand curve were plotted on graph paper with logarithmic scales on both axes, then its slope would be the elasticity of demand.
T
The market demand curve is simply the horizontal sum of the individual demand curves.
T
The demand curve is inelastic for inferior goods and elastic for normal goods.
F
Marginal revenue is equal to price if the demand curve is horizontal.
T
If the amount of money that people are willing to spend on a good stays the same when its price doubles, then demand for that good must have a price elasticity of demand smaller in absolute value than one.
F
If the price elasticity of demand for a normal good is constant, then a price increase of 10 cents will reduce demand by more if the original price is $1 than if the original price is $2.
T
The demand function for potatoes has the equation q = 1000 - 10p. As the price of potatoes changes from 10 to 20, the absolute value of the price elasticity of demand for potatoes increases.
T
If the demand curve for a good is given by the equation q = 2/p, where q is quantity and p is price, then at any positive price, the elasticity of demand will be -1.
T
If consumer 1 has the inverse demand function given by p = 15 - x and consumer 2 has inverse demand function given by p = 20 - 3x, then the total quantity demanded by the two consumers is x = 7 when the price, p, is 11.
T
The inverse demand for a good is given by p = 60 - 2q. Suppose that the number of consumers doubles. (For each consumer in the market another consumer with an identical demand function appears.) The demand curve shifts to the right, doubling demand at every price, while the slope of the demand curve stays unchanged.
F
If Castor’s demand curve is described by q = 40 - p and Pollux’s demand curve is given by q = 60 - 2p, then each of their demand curves will pass through the point q = 20, p = 20. Therefore if they are the only two consumers in a market, the market demand curve will also pass through q = 20, p = 20.
F
If the price of broccoli falls by $3 per pound, then the demand for broccoli will rise by 15 pounds. Therefore, we can conclude that the demand for broccoli is elastic.
F
If the price of squash falls by $2 per pound, then the demand for squash will rise by 10 pounds. Therefore, we can conclude that the demand for squash is elastic.
F
