Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Blacklist > CHAPTER FIVE PART 2 > Flashcards

CHAPTER FIVE PART 2 Flashcards

1
Q

Question 5. Consider our discussion of perfectly competitive markets in the lecture and in the

book. In a perfectly competitive market…
a) sellers sell differentiated products.
b) sellers have market power.
c) there are no barriers to entry.
d) price and quantity supplied are always negatively related.

A

C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Question 6. The Law of Demand states that
a) the quantity demanded of a good decreases as the price increases.
b) the quantity demanded of a commodity is the same for all consumers in a perfectly
competitive market.
c) the demand for a commodity is directly related to consumers’ income, all other things
remaining constant.
d) the demand for a commodity always equals the supply of the commodity.

A

A

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Question 7. Which of the following will NOT cause a shift in the supply curve for a good?

a) A change in the technology used to produce the good.
b) A change in the price of an input used to produce the good.
c) A change in the number of sellers.
d) A change in the price of the good.

A

D

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Question 8. Which of the following factors is expected to cause the demand curve for coffee to
shift to the right?
a) A drop in income for all consumers.
b) A bad harvest in some of the major coffee producing countries.
c) A fall in the manufacturing cost for coffee.
d) A price increase for tea which is a substitute for coffee.

A

Question 8. Which of the following factors is expected to cause the demand curve for coffee to
shift to the right?
a) A drop in income for all consumers.
b) A bad harvest in some of the major coffee producing countries.
c) A fall in the manufacturing cost for coffee.
d) A price increase for tea which is a substitute for coffee.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Question 9. Consider a perfectly competitive market. The demand curve is Q(P ) =100 −8P .
The supply curve is Q(P ) =20 +12P . Which statement is correct?
a) The equilibrium quantity is Q =78.
b) At price P =2, the quantity demanded is 42.
c) The equilibrium price is P =5.
d) At price P =5, there is excess supply.

A

D

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Question 10. Consider a perfectly competitive market for a normal good. The market moves
from an initial equilibrium to a new one in which price and quantity are higher. Which of the
following combinations could have led to the new equilibrium (holding everything else equal)?
a) A decrease in income and an increase in input prices.
b) An increase in the number of sellers and a decrease in input prices.
c) No change in income and a decrease in the number of sellers.
d) An increase in income and no change in input prices.

A

D

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Question 11. Consider the market for flounders (a sort of fish). The demand curve in the
northern part of the country is given by QN(P ) =2000 −100P while that in the southern part is
QS(P ) =5000 −500P . The supply curve for the entire country is Q(P ) =20P . What is the market
demand for the entire country (i.e., northern and southern part combined) at a price of P =11
(round to the nearest integer if needed)?
a) Q =199
b) Q =10
c) Q =900
d) Q =400

A

C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Question 12. Consider a demand curve given by Q(P ) =20 −4P . At which price is the price
elasticity of demand equal to one (round to the first decimal if needed)?
a) P =2.2
b) P =4.8
c) P =2.5
d) P =4.7

A

C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q 
Question 13. Consider a demand curve given by Q(P ) =25 −5P . What is the price elasticity of
demand at P =2?
a) 15
b) 2/15
c) 2/3
d) 39/2
A

C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Question 14. When the price of an ice-cream is 2 euro, 16 are sold every day. After increasing
the price to 5 euro each, 10 ice-creams are sold every day. What is the absolute value of the price
elasticity of demand for ice-cream at quantity of 14?
a) 3
b) 3/7
c) 1
d) 1/4

A

B

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Question 15. The total consumer surplus that A and B earn at price P =5 is 50. Which of their
maximum willingness to pay for the good is in line with this setting?
a) The maximum willingness to pay of A is 45 and the maximum willingness to pay of B is 45.
b) The maximum willingness to pay of A is 25 and the maximum willingness to pay of B is 25.
c) The maximum willingness to pay of A is 20 and the maximum willingness to pay of B is 40.
d) The maximum willingness to pay of A is 40 and the maximum willingness to pay of B is 40.

A

C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Question 16. Consider our discussion of different types of elasticities in class. Which of the
following statements is NOT correct?
a) As the number of available substitutes for a good grows, the price elasticity of demand for
that good increases.
b) Complements have negative cross-price elasticity, while substitutes have positive cross-
price elasticity.
c) Luxury goods such as foreign vacation are likely to have a high income elasticity of de-
mand.
d) Normal goods have a negative income elasticity of demand, while inferior goods have a
positive income elasticity of demand.

A

D

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is a consumption bundle?

A

A consumption bundle (basket of goods) is a complete
list of quantities for all available goods.
– Here focus on 2-good case (e.g., bananas (xB) and coconuts (xC))
– notation of typical consumption bundle X: X = (xB, xC)
– consumption bundle A is a specific basket:
A = (2, 5) or A = (2 bananas, 5 coconuts)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Ordering of consumption bundles by any individual:
– if bundle A is weakly preferred to bundle B, then:
– if the individual is indifferent between A and B, then:
– if bundle A is strictly preferred to bundle B, then:

A

Ordering of consumption bundles by any individual:
– if bundle A is weakly preferred to bundle B, then: A ≿B
– if the individual is indifferent between A and B, then: A ~ B
– if bundle A is strictly preferred to bundle B, then: A ≻B

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Name the two assumptions about customers preferences

A
  1. Completeness

2. Transitivity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is completeness?

A

Completeness: for any pair of available consumption bundles X
and Y, a consumer is able to say that X ≿Y or Y ≿X (or both)

17
Q

What is transitivity?

A

• Transitivity: consider any three bundles X,Y, and Z;

X ≿Y and Y ≿Z imply X ≿Z

18
Q

What is referred to as non-satiation (monotonicity)?

A

The assumption that a consumer will always benefit from additional consumption.

19
Q

How can you illustrate preferences?

A

Preferences can be illustrated via indifference curves

20
Q

What does an indifference curve show?

A

An indifference curve shows consumption bundles between which
a consumer is indifferent

21
Q

Name the three characteristics of indifference curves

A 
• Higher indifference curves are
preferred to lower ones.
• Indifference curves do not cross.
(think about this as an exercise)
• Negative slope.
22
Q

How do we construct an indifference curve?

A

Take a point and think about how many units of one good you need
to be compensated with for the loss of one unit of the other good.

23
Q

Whats the slope of the indifference curve called?

A

Slope of the indifference curve is the marginal rate of substitution
(MRS)

24
Q

Whats the concept of the marginal rate of substitution?

A

The rate at which the
consumer is willing to
give up good 2 for
good 1.

MRS = - (X2 / X1)

25
Q

Whats the difference between indifference curves and utility functions?

A
  • Indifference curves: graphical representation of preferences.
  • Utility functions: mathematical representation of preferences.
26
Q

A utility function U(X) assigns to each consumption bundle an …

A

A utility function U(X) assigns to each consumption bundle an
index number of happiness (=utility)

27
Q

Utility is an ordinal concept, which means that…

A

– only the ranking of utility levels has a meaning - the difference
between utility levels is meaningless
– U(A) = 20 and U(B)= 40 does NOT mean that the individual prefers
bundle B twice as much as A

28
Q

What is marginal utility?

A

Marginal utility of any good is the additional utility generated by
one additional unit of good i holding the quantities of all other goods
constant!
In calculus terms this can be written as the partial derivative of U
with respect to the good

29
Q

Whats the law of diminishing MRS

A

As a good in a bundle becomes more abundant (relative to other
goods), it is easier and easier to substitute one of its units such
that its „value“ in terms of other goods as perceived by an
individual falls: The MRS decreases!

30
Q

Andy’s utility for beer is 50 and for wine 10, whereas Thomas’ utility for beer is 25 and 100 for wine.
Which statement is true?
I. Andy prefers beers over wine
II. Thomas prefers wine over beers
III. Andy prefers beer 2x as much as Thomas
IV. Thomas prefers wine 10x as much as Andy
A. I only
B. I and II
C. I, II and III
D. All of them

A

B
As utility is not a mathematical value, just an ordering concept, and depends on the individual‘s
satisfaction, we cannot say that one prefers a good 2x as much or 10x times as much as the other.

31
Q

The price of a phone decreases from 250€ to 200€, and the demand for that phone increases from
10,000 units to 10,500. What is the demand elasticity of that phone?
20
A. 0.25
B. 0.20
C. 4
D. 5

A 
Elasticity formula:
Δ𝑞⋅𝑝 / Δ𝑝⋅𝑞 = Δ𝑞/𝑞 /Δ𝑝/ 𝑝
=
((10,500−10,000) /10,000) / ((200−250) / 250)
= 0.25
32
Q

Name the three rules of cross elasticity

A
  • Cross El < 0: the goods are complements
  • Cross El > 0: the goods are substitutes
  • Cross El = 0: there is no correlation between the goods
33
Q

Name the three rules of income elasticity

A
  • Income El < 0: the good is inferior
  • Income El > 0: the good is normal
  • Income El > 1: the good is a luxury good

Blacklist (31 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions