Microeconomics Midterm Flashcards
True or False:
Price elasticity is higher when close substitutes are available.
True
Breakfast cereal vs sunscreen
True or False:
Price Elasticity is lower for narrowly defined goods than for broadly defined ones.
False
Blue jeans vs clothing
True or False:
Price elasticity is higher for necessities than it is for luxuries.
False
Insulin vs Mediterranean cruises
True or False:
Price elasticity is higher in the long
run than in the short run.
True
There’s not much people can do in the
short run, but the long run presents options
The Determinants of Supply Elasticity
- The more easily sellers can change the quantity they produce, the greater the price elasticity of supply.
Example: Supply of beachfront property is harder to vary and thus less elastic than supply of new cars.
- Availability of Inputs
Can only supply more if you can get the inputs needed to make more. - For many goods, price elasticity of supply is greater in the long run than in the short run.
Firms can build new factories, or new firms may be able to enter the market.
True or False:
The flatter the curve, the bigger the elasticity.
The steeper the curve, the smaller the elasticity.
True
Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2
million bottles.
Is the demand for ginger ale elastic or inelastic?
Elastic
True or False:
If demand is inelastic, the result of cost-saving technological
improvements will be substantially lower prices.
True
True or False:
Where demand is inelastic, the cost increase can largely be passed
along to consumers in the form of higher prices, without much of a decline in equilibrium quantity.
True
True or False:
Elastic demand – price and revenue move in opposite directions (price UP and rev DOWN)
True
True or False:
If demand is more inelastic than supply, consumers bear most of the tax burden.
True
True or False:
If supply is more inelastic than demand, sellers bear most of the tax burden.
True
True or False:
An increase in income causes a decrease in demand for a normal good.
False
When it is impossible to produce more of
one good (or service) without decreasing the quantity produced of another good (or service)
Productive efficiency
When the mix of goods produced
represents the mix that society most desires
Allocative efficiency
True or False:
A price change for a good shows a movement along the demand curve
for that good.
True
True or False:
Increase in # of buyers increases quantity demanded at each price, shifts D curve to the left.
False
True or False:
Suppose the number of buyers increases. Then, at each P, Qd will increase
True
True or False:
Demand for a normal good is positively related to income.
True
INCREASE Income for a group causes an INCREASE in QD for certain goods at each price, shifts D curve to the right.
▪Examples of normal goods? Pizza, jeans, movies
True or False:
Demand for an inferior good is negatively related to income.
True
INCREASE Income causes a DECREASE QD for certain goods at each price, shifts D curves for inferior goods to the left.
▪ Examples of inferior goods? Bus rides, ramen noodles
True or False:
Two goods are substitutes if an increase in the price of one causes a decrease in demand for the other.
False
Example: pizza and hamburgers.
An INCREASE in the price of pizza causes an INCREASE demand for hamburgers, shifting hamburger demand curve to the right.
True or False:
Two goods are complements if
an increase in the price of one
causes a fall in demand for the other.
True
Example: computers and software.
If price of computers rises, people buy fewer computers, and therefore less software. Software demand curve shifts left.
Goods that fill the same need
Substitutes
INCREASE in the P of a substitute
(milkshake) causes INCREASE in D
for Frosties. At every price point, more people will buy the cheaper good.
Goods that are used together
Complements
INCREASE in the P of chips causes DECREASE in D for salsa. The higher P
will cause less D for good #1 so people will demand less of good #2.
True or False:
Expectations can cause a shift of the demand curve.
True
True or False:
Anything that causes a shift in tastes toward a good will decrease demand for that good and shift its D curve to the right.
False
Shifts in taste are positively related
What curve shifts in response to a change in the # of buyers?
Market Demand Curve
Does price shift the Demand curve or cause a movement along the Demand curve.
Causes movement along the Demand curve
True or False:
An increase in the number of sellers increases the quantity supplied at each price, shifts S curve to the right.
True
Example: With many restaurants closed from the
pandemic, the S in the market for restaurant meals
fell and the S curve shifted left.
True or False:
When both curves shift to the right, Q rises, but the effect on P is ambiguous.
True
But if supply increases more
than demand, P falls.
True or False:
If both curves shift in opposite directions, P rises, but effect on Q is ambiguous.
True
If demand increases more than supply, Q rises.
True or False:
A price ceiling below the eq’m price is a
binding constraint on the price and
causes a shortage.
True
Tax Revenue =
Tax x Quantity
