Deck From Notes

Question 1

When is there a shift of the demand curve?

Answer 1

There is a shift of the demand curve when any factor other than price changes. For example, a change in price of a substitute or a change in info available to consumers.

Question 2

When is there a shift along the demand curve?

Answer 2

When there is a change in price of the good in question.

Question 3

Change in price is…

Answer 3

a movement along the demand curve.

Question 4

When do we use an inverse demand curve?

Answer 4

We use an inverse demand curve to answer the question about how a change in price affects quantity by making price a function of quantity with algebra.

Question 5

What does a supply curve show?

Answer 5

A supply curve show the quantity supplied at each price, holding other factors constant.

Question 6

What is the quantity supplied?

Answer 6

The quantity supplied is the amount of a good firms want to sell at a given price, holding constant other factors that influence firms’ supply decisions, such as costs and government action.

Question 7

What causes the supply curve to shift?

Answer 7

A change in any variable other than the price of the good in question cause the entire supply curve to shift.

Question 8

What causes the equilibrium to change?

Answer 8

The equilibrium changes only if a shock occurs that shifts the supply or demand curve.

Question 9

Do quotas on imports affect the demand or supply curve?

Answer 9

The supply curve.

Question 10

Does the elasticity of demand vary along most demand curves?

Answer 10

Yes

Question 11

Perfectly Inelastic

Answer 11

a point where the elasticity of demand is zero. This means the same quantity is demand regardless of the price. The line is vertical.

Question 12

Unitary Elasticity

Answer 12

A 1% increase in price causes a 1% fall in quantity demanded.

Question 13

Elastic

Answer 13

At prices higher than the midpoint of the linear demand curve, the elasticity of demand is less than -1.

Question 14

Define a substitute by the effect that a change in its price has on the good in question.

Answer 14

An increase in the price of X yields an increase in the demand of Y.

Question 15

Define a compliment, X, in terms of the effect a change in its price has on the quantity demanded of Y.

Answer 15

Good X is a compliment to Good Y if an increase in the price of X yields a decrease in the price of Y.

Question 16

Define a normal good in terms of the effect on demand for it if income rises.

Answer 16

As income rises so does the demand for a normal good.

Question 17

Define an inferior good in terms of how demand for it is affected if income rises.

Answer 17

In income rises the demand for an inferior good decrease. In income decrease the demand for an inferior good rises.

Question 18

What effect do substitutes and compliments have on the demand curve?

Answer 18

They both shift the demand curve.

Question 19

With a linear demand curve, what type of good is it if the co-efficient on a price is positive?

Answer 19

That is a substitute.

Question 20

What type of good has a negative co-efficient in a linear demand function?

Answer 20

That is a compliment.

Question 21

Changes in price cause…

Answer 21

shifts along the demand curve.

Question 22

Example of an inverse demand function…

Answer 22

p = 120 - 2Q

Question 23

How would a price floor or price ceiling that confounds equilibrium from being achieved be described in this course?

Answer 23

As a “shortage” or “surplus”

Question 24

What happens if the price floor is under the equilibrium?

Answer 24

Nothing

Question 25

When is the slope also the price elasticity?

Answer 25

In an inverse demand function.

Question 26

What do you need to estimate the elasticity of everywhere?

Answer 26

You need the price and the quantity.

Question 27

If you’re given the equilibrium and the elasticity what can you find?

Answer 27

The slope. (know how to do this for exam!)

Question 28

What are the four steps to finding an Equilibrium?

Answer 28

1. ) Derive the individual supply and demand curves.
2. ) Sum up individual curves to obtain market curves.
3. ) Find the equilibrium price and market output levels.
4. ) Find the individual production and consumption levels.

Question 29

Will the price elasticity of demand always be negative?

Answer 29

Yes.

Question 30

If elasticity > 0 then the good is///

Answer 30

a normal good

Question 31

if elasticity

Answer 31

an inferior good

Question 32

if cross price elasticity > 0

Answer 32

The good is a substitute.

Question 33

if cross price elasticity

Answer 33

The good is a compliment

Question 34

If the supply elasticity of demand > 1

Answer 34

The good is elastic.

Question 35

If the supply elasticity of demand

Answer 35

The good is inelastic.

Question 36

In Consumer Choice Theory axioms 1-3

Answer 36

Always Hold

Question 37

In Consumer Choice Theory axioms 4-5

Answer 37

Almost always hold

Question 38

The slope of the budget line is…

Answer 38

the Marginal Rate of Transformation

Question 39

The Marginal Rate of Substitution is the slope of the …

Answer 39

indifference curve

Question 40

The tricky thing with Marginal Rate of Substitution is..

Answer 40

the location of which is the numerator and which is the denominator.

Question 41

When there is a rationing constraint then that introduces…

Answer 41

a kind and the policy implication is that we’ll see a lot of people at the kink.

Question 42

MRS = MRT only if…

Answer 42

it’s an interior solution, which it will be w/ cobb-douglas, but not with substitutes.

Question 43

Marginal Utility is…

Answer 43

the additional utility you get by increasing that good by one.