Macroeconomics UCF – Flashcards
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According to a study of the price elasticities of products sold in supermarkets, the price elasticity of demand for toothpaste is estimated at -0.45. Which of the following could explain why the price elasticity of demand for toothpaste is so low?
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There are few close substitutes for toothpaste.
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When demand is elastic, a fall in price causes total revenue to rise because
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The increase in quantity sold is large enough to offset the lower price.
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Suppose the absolute value of the price elasticity of demand for meals at Fortune Buffet House is (infinity symbol) What happens to sales revenue if the restaurant increases its price by 5 percent.
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Sales revenue falls by 100 percent.
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Studies show that the income elasticity of demand for wine is approximately five. What does this mean?
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A one point increase in income leads to a five percent increase in wine consumption.
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Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. what does this mean?
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A 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption.
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The price elasticity of supply is equal to
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The percentage change in quantity supplied divided by the percentage change in price.
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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.
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0.5; The product is inelastic
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Total Utility
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is equal to the sum of the marginal utilities of all units consumed.
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If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of
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the law of diminishing marginal utility.
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The law of diminishing marginal utility states that
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the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant.
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If Callum is consuming his utility maximizing bundle and the price of one good rises, what happens to the marginal utility per dollar spent on this goods (MU/P), and what should Callum do?
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MU/P has decreased and Callum should buy less of this good.
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Along a downward-sloping linear demand curve,
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the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases.
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Once a product becomes established, network externalities may create _______ costs that make consumers reluctant to buy a new product with better technology.
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Switching
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Consider a good whose consumption takes place publicly. Your decision to buy that good depends
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both on the characteristics of the product and on how many other people are buying the good.
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Which of the following statements is correct?
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Short-run profits may be given up to increase long run profits.
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What is the endowment effect? (Selling House NB)
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The tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it.
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Which of the following is a common mistake consumers commit when they make decisions?
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They fail to ignore sunk costs.
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