micro – Flashcard Test Answers
Flashcard maker : Matilda Campbell
Economic Surplus
is maximized in a competitive market when marginal benefit equals marginal cost
the marginal benefit of consuming a product is equal to its price
Consumers are willing to purchase a product up to the point where
Deadweight Loss
refers to the reduction in economic surplus resulting from not being in competitive equilibrium
$75
Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul’s consumer surplus from the purchase is
$325
Lucinda buys a new GPS system for $250. She receives consumer surplus of $75 from the purchase. How much does Lucinda value her GPS system?
the area above the market supply curve and below the market price
The total amount of producer surplus in a market is equal to
he marginal benefit equals the marginal cost from the last unit sold.
Economic efficiency in a competitive market is achieved when
above; below
The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market.
Price Floor
Which term refers to a legally established minimum price that firms may charge?
Economic Surplus
is equal to the sum of consumer surplus and producer surplus.
Consumer Surplus
“I was all ready to pay $300 for a new leather jacket that I had seen in Macy’s but I ended up paying only $180 for the same jacket.” Describes the concept of
landlords have an incentive to rent more apartments than they would without rent control
In a city with rent-controlled apartments, all of the following are true except
the maximum price that a buyer is willing to pay for a good
Willingness to pay measures
must lie below the free market equilibrium price.
In order to be binding, a price ceiling
the marginal benefit equals the marginal cost from the last unit sold.
Economic efficiency in a competitive market is achieved when
puts a legal limit on the rent that landlords can charge for an apartment.
In New York City, about 1 million apartments are subject to rent control by the local government. Rent control
the percentage change in quantity demanded exactly offsets the percentage change in price.
When demand is unit-elastic, a change in price causes total revenue to stay the same because
Remain Constant
If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would
Elastic
A service station owner in Staten Island, New York, was worried that raising the price of gasoline would cause the quantity demanded to fall by so much that he would be in a worse situation than if he did not raise the price. If raising the price of gasoline would cause the owner to receive less total revenue from the sale of gasoline, the demand for gasoline is
the two brands of detergent are close substitutes.
If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that
2.69
Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand?
A one percent increase in income leads to a five percent increase in wine consumption.
Studies show that the income elasticity of demand for wine is approximately five. What does this mean?
positive if subscribers consider the services substitutes for each other.
The cross-price elasticity of demand between an unlimited texting option and an unlimited call minutes option offered from a cell phone provider would be
0.5; The product is inelastic.
Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product.
positive
The price elasticity of an upward-sloping supply curve is always
A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.
Suppose the value of the price elasticity of supply is 4. What does this mean?
the percentage change in quantity supplied divided by the percentage change in price.
Price elasticity of supply is used to gauge
0.5
Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.
relatively inelastic
Facing stiff competition, Hendrix College, a small liberal arts institution in Conway, Ark., decided two years ago to bolster its academic offerings, promising students at least three hands-on experiences outside the classroom, including research, internships and service projects. Although it raised tuition and fees by 29 percent, enrollment in the freshman class rose by 37 percent.
Source: Jonathan D. Glater and Alan Finder, “In New Twist on Tuition Game, Popularity Rises With the Price,” New York Times, December 12, 2006
Source: Jonathan D. Glater and Alan Finder, “In New Twist on Tuition Game, Popularity Rises With the Price,” New York Times, December 12, 2006
Based on the information above, the demand for Hendrix College education is
the increase in quantity sold is large enough to offset the lower price.
When demand is elastic, a fall in price causes total revenue to rise because
Cross-price elasticity of demand
percentage change in quantity demanded of one good divided by percentage change in price of a different good.
1.22
Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity supplied rises from 8,000 units to 10,000 units. Use the midpoint formula to calculate the price elasticity of supply.
income elasticity
measures how a good’s quantity demanded responds to change in buyers’ incomes.
A 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption.
Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean?
A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.
Suppose the value of the price elasticity of supply is 4. What does this mean?
complements
If the cross-price elasticity of demand for computers and software is negative, this means the two goods are
a black market
Economists refer a to a market where buying and selling take place at prices that violate government price regulations as
