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EC201 > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

If there elastic demand, how are price and total revenue related?

A

price and total revenue are inversely related

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2
Q

What is demand?

A

the amound of a good or service a consumer wants to buy, and is able to buy per unit time

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3
Q

What is the supply curve?

A

shows the quantity supplied at each price, holding constant all other determinants of supply

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4
Q

What is the Law of Demand?

A

A decrease in a good’s own price will result in an increase in the amount demanded, holding constant all the other determinants of demand. Also says that demand curves are negatively sloped

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5
Q

If there is inelastic demand, how are price and total revenue related?

A

price and total revenue are directly related

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6
Q

What causes the supply curve to shift?

A

1) changes in input prices
2) changes in technology
3) changes in expectations
4) changes in taxes

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7
Q

What are factors in decision making, or making choices?

A

1) Making decisions at the margin
2) People face tradeoffs
3) opportunity cost
4) People respond to incentives

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8
Q

For the production possibilities curve in the last question, we know that the opportunity cost of another car:

A

increases as more cards are produced

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9
Q

What causes simply a movement along the supply curve?

A

changes in a good’s price

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10
Q

If the price of corn increases, and the price of elasticity of demand for corn is 0.5, then the total revenue of corn farmers would:

A

increase

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11
Q

What will the income elasticity of demand be for inferior goods?

A

negative

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12
Q

There is a market demand curve for hamburgers. A shift in this demand curve could be caused by: a) an increase in the price of beef, an input to hamburgers b) a tax on hamburgers c) formation of a cartel of hamburger firms d) a decrease in the price of french fries, a complement of hamburgers e) an improvement in the technology for producing hamburgers

A

d) a decrease in the price of french fries, a complement of hamburgers

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13
Q

If there is unit elastic demand, how are price and total revenue related?

A

price and total revenue effect is zero

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14
Q

The demand for accountants as a group is inelastic. A program in the MSU College of Business to increase the number of accountants by increasing the number of accounting majors will have the effect of:

a) increasing the wages of accountants
b) shifting the demand for accountants to the left
c) reducing the demand for accounting faculty
d) reducing the incomes of accountants as a group
e) both a and d are true

A

d) reducing the incomes of accountants as a group

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15
Q

If a good has lots of close substitutes, we expect its demand to:

a) be elastic
b) be inelastic
c) have unit elasticity
d) shift by a large amount when the price changes
e) be either a or b, unless more information is given

A

a) be elastic

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16
Q

The narrower the market boundaries:

A

the more elastic the demand will tend to be

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17
Q

Which of the following is a principal determinate of the market supply curve?

a) consumer tastes an preferences
b) the level of input prices
c) the price elasticity of demand
d) the number of buyers in the market
e) all of the above

A

b) the level of input prices

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18
Q

What is opportunity cost?

A

what you give up in order to do something

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19
Q

The diagram above shows the demand curve for spaghetti, a normal good. The following changes are predicted to happen in the market for spaghetti.
I) The price of spaghetti decreases.
II) Consumer incomes increase.
III) The price of tacos, a substitute for spaghetti increases.
Which of the following statements is true?

a) If III happens, the demand curve will surely shift to the right
b) If II and III happen, the demand curve will surely shift to the left
c) If I and II happen, the demand curve will surely shift to the left
d) Both a and c are true

A

a) If III happens the demand curve will surely shift to the right

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20
Q

The diagram above shows a demand curve in the market for turkeys. The shift in the demand curve might be due to:

a) a change in tastes for turkey
b) a decrease in the cost of turkey feed
c) a decrease in the price of chicken, a substitute for turkey
d) an increase in the price of cranberry sauce, a complement for turkey
e) none of the above

A

a) a change in tastes for turkey

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21
Q

What is the equilibrium price of a good?

A
  • a price at which quantity supplied equals quantity demanded
  • a price at which excess demand equals zero
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22
Q

The demand curve for baseball tickets will shift to the right if:

a) there is a decrease in the price of baseball tickets
b) there is an increase in fees charged for parking at baseball games
c) there is a decrease in the salaries of baseball players
d) there is an increase in consumer’s income
e) there is an increase in the price of hot dogs, a complementary good

A

d) there is an increase in consumer’s incomes

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23
Q

The Smooth Move Dance Studio wants to increase its total revenue. In order to achieve this goal, the manager of Smooth Move drops the price of dance lessons. What does this imply about the manager’s beliefs about the demand for dance lessons?

a) Demand is elastic
b) Demand has unit elasticity
c) Demand is inelastic
d) more info is needed
e) the demand curve shifts to the right

A

a) demand is elastic

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24
Q

When a production possibilities curve has its usual shape (bowing out), what can we say?

A

The opportunity cost of producing more of one product will change as we move along the production possibilities curve.

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25
Q

What is the dependent variable in the standard model of supply?

A

the amount supplied

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26
Q

What is a substitute?

A

2 goods are substitutes if an increase in the price of 1 of them causes an increase in the demand for the other

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27
Q

Which of the following would cause a movement along the supply curve for spaghetti? That is, which of the following causes an increase in the quantity supplied of spaghetti?

a) an improvement in the technology for producing spaghetti
b) a change in the price of sauce, an ingredient to spaghetti
c) a tax of $1 per plate of spaghetti, the tax to be paid by producers
d) a reduction in the wages of workers employed to make spaghetti
e) an increase in the price of spaghetti

A

e) an increase in the price of spaghetti

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28
Q

The shorter the period of time on a good…:

A

the lower the price elasticity of demand will be

29
Q

The diagram above shows supply curves for spaghetti. The most likely reason for the shift in the supply curve from “baseline” to “current” is:

a) imposition of a tax of $7 per plate on all spaghetti produced
b) an increase in the price of tacos, a substitute for spaghetti
c) a decrease in the price of tacos
d) a decrease in the price of spaghetti

A

a) an imposition of a tax of $7 per plate on all spaghetti produced

30
Q

The price elasticity of demand for a good is:

A

the percent change in quantity divided by the percent change in price

  • percent change in Q / percent change in P

(quarter pounder)

31
Q

The diagram above shows the supply and demand curves for cherries. The shift in the supply curve could be caused by:

a) an improvement of the technology of cherry production
b) a tax on cherries
c) an increase in incomes of consumers
d) an increase in the price of cherries
e) an increase in the price of apples, a substitute for cherries

A

a) an improvement of the technology of cherry production

32
Q

What is unit elastic demand?

A

when the numerical value of elasticity equals 1

33
Q

What is the income elasticity of demand?

A

the percent change in quantity demanded divided by a percent change income

Eincome = (Δ Q) / (Δ I)

34
Q

What causes simply a movement along the demand cuve?

A

changes in a good’s own price

35
Q

What will the income elasticity of demand be for normal goods?

A

positive

36
Q

What is the dependant variable in the standard model of demand?

A

the amound demanded

37
Q

What happens if there are more substitutes available for a good?

A

the more elastic the demand will be for that good

38
Q

What is excess demand?

A

exists when at the current price, the quantity demanded is greater than the quantity supplied

39
Q

The diagram above shows the production possibilities frontier for producing computers and cars. For production of cars in the range of 500 to 600, the opportunity cost of one more car is:

A

about 10 computers

40
Q

What causes a shift in a demand curve?

A

1) changes in income
2) prices of substitutes
3) expectations
4) changes in tastes

41
Q

What is the cross elasticity of demand?

A

measures how the quantity demanded of one good responds to a change in the price of another good

42
Q

What does the demand curve show?

A

the quantity demanded at each price, holding constant all other determinants of demand

43
Q

What is the equation for cross elasticity of demand?

A

(percentage change in quantity demanded of good 1)/ (percentage change in the price of good 2)

44
Q

Opportunity costs ___ as more of a good is produced.

A

increase because resources are not perfect substitutes for each other

45
Q

The diagram above shows the market for personal computers. The change shown in the supply curve could be caused by:

a) an increase in consumer incomes
b) a fall in the price of USB drives, a complementary good
c) a tax on computers
d) a decrease in the price of memory chips, an input to computers
e) a change in consumer preferences in favor in having more computers

A

d) a decrease in the price of memory chips, an input to computers

46
Q

What is inelastic demand?

A

when the numerical value of elasticity is less than 1

47
Q

The income elasticity of demand:

A

is the percentage change in the demand for a good divided by the percentage change in income.

48
Q

What are complements for cross elasticity of demand?

A

negative

49
Q

What is a complement?

A

2 goods are complements if an increase in the price of 1 of them causes a decrease in the demand for the other

50
Q

Ripoff Cable TV of East Lansing raises its monthly fee from $38 to $42 per month. As a result the number of households subscribing to the service falls by exactly 10 percent. Using the midpoint formula, the elasticity of demand for Ripoff’s services is:

A

1.0

51
Q

The production possibilities curve shows:

A

for a given output of one good, the maximum amount of another that can be produced

52
Q

When does excess supply exist?

A

exists when at the current price, the quantity supplied is greater than the quantity demanded

53
Q

Which of the following would be expected to shift the suppy curve for apples to the left?

a) An increase in the price of inputs used in the production of apples
b) a decrease in the price of apples
c) a tax of $2 for bushel of apples produced
d) all of the above
e) Options a and c only

A

e) options a and c only

54
Q

The longer the period of time on a good…:

A

the more elastic the demand will tend to be

55
Q

What happens to the price when there is excess demand for a good?

A

the price will tend to rise

56
Q

The demand curve for any good shows:

A

the relationship between the amount demanded and the good’s own price

57
Q

What is elastic demand?

A

when the value of elasticity is greater than 1

58
Q

The price of a type of picture frame falls from $18 to $14. The price elasticity of demand for this type of picture frame is 2.0. As a result of the decrease in price, the quantity demanded of this type of picture frame will increase by:

a) 16%
b) 5%
c) 40%
d) 50%
e) 25%

A

d) 50%

59
Q

Chicken wings are an example of an inferior good because:

A

they are bought by low-income people, and not usually by high income people

60
Q

The diagram above shows the demand curve for spaghetti, a normal good. The following changes are predicted to happen in the market for spaghetti.

I) Consumer incomes increase.
II) The price of tacos, a substitute for spaghetti, decreases.
III) The price of wine, a complement with spaghetti, decreases.
Which of the following statements is true?

a) If I and III happen, the demand curve will surely shift to the right
b) if II and III happen, the demand curve will surely shift to the left
c) If I and II happen, the demand curve will surely shift to the right
d) none of the above

A

a) If I and III happen, the demand curve will surely shift to the right

61
Q

The demand curve for speedboats is elastic. The supply curve for speedboats shifts to the left. What will happen as a result?

a) Price will rise and quantity will fall
b) Total revenue for sellers will decrease
c) price will rise and quantity will rise
d) both a and b
e) both b and c

A

d) both a and b

62
Q

Which of the following is likely to have the highest elasticity of demand?

a) M&M’s candy in Michigan
b) M&M’s candy in the US
c) candy in the US
d) Snack foods in Michigan
e) Snack foods in the US

A

a) M&M’s candy in Michigan

63
Q

What is the Law of Supply?

A

an increase in a good’s own price will result in an increase in the amount supplied, holding constant all the other determinants of supply. Also that supply curves are positively sloped

64
Q

What happens to the price when there is excess supply of a good?

A

the price will tend to fall

65
Q

Restaurant meals are a normal good. This implies that:

a) If income goes up, the demand curve for restaurant meals will shift to the right
b) the income elasticity of demand for restaurant meals is positive
c) If income goes down, the demand curve for restaurant meals will shift to the left
d) all of the above
e) only a and b

A

all of the above

66
Q

What are substitutes for cross elasticity of demand?

A

positive

67
Q

2 important characteristics of a competitive market are:

A

there are many buyers and sellers

68
Q

The diagram above shows a production possibilities curve for spam and eggs. Point A is:

A

attainable, but not efficient

69
Q

The two diagrams above show the demand for spaghetti, a normal good. The difference between the amounts of spaghetti demanded must be due to

A

a change in the price of spaghetti

EC201 (6 decks)

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