Econ 2310-003 exam 2

Question 1

To understand how the price of a good is determined in a free market, one must account for the desires of:

Answer 1

Buyers and sellers.

Question 2

The demand curve illustrates the fact that consumers tend to purchase:

Answer 2

More of a good as its price falls.

Question 3

A demand curve is ____ sloping because _____.

Answer 3

Downward; fewer people are willing to buy an item at a higher prices.

Question 4

Suppose that as the price of apples rises, people switch from eating apples to eating oranges. This is known as:

Answer 4

The substitution effect of a price change.

Question 5

You can spend $10 for lunch and you would like to purchase two cheeseburgers. When you get to the restaurant, you find out the price for a cheeseburger has increased from $5 to $6, so you decide to purchase just one cheeseburger. This is best described as:

Answer 5

The income effect of a price change.

Question 6

When the price of a good changes, the amount of that good that buyers wish to buy changes:

Answer 6

Because of both the substitution and the income effects.

Question 7

Shelly purchases a leather purse for $400. One can infer that:

Answer 7

Her reservation price was at least $400.

Question 8

When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer that Moe’s reservation price for a slice of pizza is:

Answer 8

At least $1.57 but less than $2.

Question 9

The supply curve illustrates that firms:

Answer 9

Increase the quantity supplied of a good when its price rises.

Question 10

A sellers reservation price is generally equal to:

Answer 10

The sellers opportunity cost of producing an additional unit.

Question 11

If price is above the equilibrium price, then there will be:

Answer 11

Excess supply.

Question 12

Refer to the accompanying figure. The equilibrium price is ____ , and the equilibrium quantity is _____.

Answer 12

$6; 4

Question 13

Refer to the accompanying figure. At a price of $9, there will be:

Answer 13

an excess supply of 5 units.

Question 14

In a free market, if the price of a good is below the equilibrium price, then;

Answer 14

Buyers, hoping to ensure they acquire the good, will bid the price higher.

Question 15

In a free market, if the price of a good is above the equilibrium price, then;

Answer 15

Sellers, dissatisfied with growing inventories, will lower the prices.

Question 16

Suppose the market demand curve is given by Q^d= 80-10P, and the market supply curve is given by Q^s = 10+15P. What is the equilibrium price and quantity?

Answer 16

P=$2.80 and Q=52

Question 17

A price ceiling that is set above the equilibrium price:

Answer 17

Will have no effect on the market.

Question 18

A movement along a demand curve from one price-quantity combination to another is called a :

Answer 18

Change in quantity demanded.

Question 19

If the demand for a good decreases as an income decreases, then the good is a(n):

Answer 19

Normal good.

Question 20

If the demand for gadgets increases as a result of a decrease in the price of widgets, the widgets and gadgets are:

Answer 20

Complementary goods.

Question 21

What might cause a demand curve to shift to the right?

Answer 21

An increase in the price of a substitute.

Question 22

Two goods are complements if:

Answer 22

An increase in the price of one good leads to a decrease in demand for the other.

Question 23

If an increase in income leads to a decrease in the demand for ground beef, then ground beef is a(n):

Answer 23

Inferior good.

Question 24

Refer to the accompanying figure. Suppose the solid line shows the demand for coffee. If coffee and tea are substitutes, and the price of tea falls, then you would expect:

Answer 24

The demand curve to shift to D(A).

Question 25

Refer to the accompanying figure. Moving from demand curve D2 to demand curve D1 could be caused by a(n):

Answer 25

Increase in the price of a complement.

Question 26

What might cause a decrease in current supply of a priduct?

Answer 26

New information that leads sellers to believe that the product’s price will rise in the future.

Question 27

Refer to the accompanying figure. An increase in demand is represented by a shift from:

Answer 27

Curve C to curve D.

Question 28

Suppose that the equilibrium price of apples decreases and the equilibrium quantity of apples increases. This is best explained by:

Answer 28

An increase in the supply of apples.

Question 29

Refer to the accompanying figure. Assume demand remains unchanged at D1. If supply shifts from S1 to S2, then the equilibrium price will ____ and the equilibrium quantity will ____.

Answer 29

Fall; rise.

Question 30

If supply and demand both increase, the new equilibrium price will be ____ and the new equilibrium quantity will be ____.

Answer 30

Uncertain; higher.

Question 31

Suppose Bianca buys a used textbook from Sebastian for $55. If Bianca’s surplus from this transaction was $10, we can infer that:

Answer 31

Bianca’s reservation price was $65

Question 32

Suppose that Tom bought a bike from Helen for $195. If Helen’s reservation price was $185, and Tom’s reservation price was $215, the total economic surplus from this transaction was:

Answer 32

$30.

Question 33

The price elasticity of demand for a good measures the responsiveness of:

Answer 33

Quantity demanded to a 1 percent change in price of that good.

Question 34

If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to:

Answer 34

3

Question 35

If the price elasticity of demand for pineapples is 0.75, then a 4 percent increase in the price of pineapples will lead to a :

Answer 35

3 percent decrease in the quantity of pineapples demanded.

Question 36

If the price elasticity of demand for a good is greater than one, then the demand for that good is:

Answer 36

elastic

Question 37

If the price elasticity of demand for a good equals one, then the demand for that good is:

Answer 37

Unit elastic

Question 38

If the demand for a good is highly elastic, that good is likely to have:

Answer 38

Many close substitutes

Question 39

If the demand for a good is highly elastic, that good is likely to have:

Answer 39

Many close substitutes.

Question 40

Demand tends to be ____ in the short run that in the long run.

Answer 40

Less elastic

Question 41

If the quantity demanded of a good is Q when the price for the good is P, the price elasticity of demand for that good at that point is:

Answer 41

(P/Q)x(1/slope)

Question 42

The accompanying graph depicts demand

Answer 42

0.5

Question 43

The accompanying graph depicts demand

Answer 43

5/2

Question 44

Suppose two demand curves intersect and so have a point in common. At that point, demand shown by the steeper curve will be ___ the flatter curve.

Answer 44

less elastic than

Question 45

On a given linear demand curve, as price increases demand becoms:

Answer 45

more elastic

Question 46

On a given linear demand curve, as a price increases demand becomes:

Answer 46

more elastic

Question 47

At the midpoint of a straight-line demand curve, the price elasticity of demand is:

Answer 47

equal to one

Question 48

If the demand curve is horizontal, then demand is:

Answer 48

perfectly elastic

Question 49

A perfectly elastic demand curve has a slope of ____ while a perfectly inelastic demand curve has a slope of ____.

Answer 49

0; infinity

Question 50

Refer to the accompanying figure. At a price of $2, the total expenditure on lattes each hour equals:

Answer 50

$60

Question 51

If demand is ___ with respect to price, a price increase will ____ total revenue.

Answer 51

inelastic;increase

Question 52

Suppose that total expenditures for coffee reach a maximum at a price of $5 per pound. At this price, the demand for coffee is:

Answer 52

unit elastic