Principles of Microeconomics (Ch. 9,11,12,13) – Flashcards
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The formula for the price elasticity of demand is
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The percentage change in quantity demanded divided by the percentage change in price.
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Why isn't elasticity just measured by the slope of the demand curve?
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The slope can change dramatically, depending on the units chosen for quantity and price.
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If a 26 percent increase in the price of Cheerios causes a 22 percent reduction in the number of boxes of cereal demanded, the price elasticity of demand for Cheerios is ____. Is it elastic or inelastic?
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-0.85; inelastic.
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The midpoint method for calculating price elasticity of demand is
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The change in quantity divided by the average of the initial and final quantities divided by the change in price divided by the average of the initial and final prices.
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How else can you calculate the price elasticity of demand?
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Using final values for price and quantity and using initial values for price and quantity.
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What is the advantage of the midpoint method?
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The midpoint formula will give the same value whether moving from the higher price to the lower price or from the lower price to the higher price.
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What does the graph of a perfectly inelastic demand curve look like?
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It is a straight vertical line.
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If the number of orders of puzzles hasn't been enough to offset the price cuts, what is the demand for these puzzles?
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Must be inelastic because the percentage increase in the quantity demanded for orders is less than the percentage decrease in price of the puzzles.
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Suppose the price elasticity of demand for cereal is -0.88. Is it inelastic or elastic?
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Inelastic.
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If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, demand for Red Bull is _____ in this range.
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Elastic.
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If demand is inelastic, the absolute value of the price elasticity of demand is
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Less than one.
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The graph in which elasticity changes at every given point looks like
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A straight line sloping downward.
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If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand?
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1.62
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Calculate the absolute value of the price elasticity of demand between e (60) and f (100). P=16%
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3.125
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T or F. The more substitutes available for a product, the greater the price elasticity of demand.
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True.
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Which of the following products comes closest to having a perfectly price inelastic demand?
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Cholesterol medication in general.
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Which of the following statements about the price elasticity of demand is correct?
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Demand is more elastic in the long run than it is in the short run.
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When there are few close substitutes available for a good, demand tends to be
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Relatively inelastic.
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The demand for all carbonated beverages is likely to be ____ the demand for Dr. Pepper.
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Less elastic than.
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The demand for gasoline in the short run is
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Inelastic because there are no good subtitles for gasoline.
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Why is the price elasticity of demand for toothpaste (-0.45) so low?
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There are few close substitutes for toothpaste.
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Total revenue equals
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Price per unit times quantity sold.
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When demand is price 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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If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for the product is
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Unit-elastic.
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If raising the price of gasoline would cause the the owner to receive less total revenue, the demand for gasoline is
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Elastic.
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Suppose a decrease in the supply of wheat resulted in an increase in revenue. This indicates that
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The resulting increase in price is proportionately greater than decrease in quantity sold.
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Income elasticity means
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How a good's quantity demanded responds to change in buyers' incomes.
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Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded.
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0.5
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Cross-price elasticity of demand is calculated as the
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Percentage change in quantity demanded of one good divided by percentage change in price of a different good.
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If the cross-price elasticity of demand for goods X and Y is negative, this means the two goods are
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Complements.
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Which of the pairs listed will have a negative cross-price elasticity?
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Shampoo and conditioner; iPhones and earbuds.
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If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that
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The two brands of detergent are close substitutes.
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If a good has a negative income elasticity of demand, this indicates that the good is
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Inferior.
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The price elasticity of an upward-sloping curve is always
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Positive.
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Price elasticity of supply is used to gauge
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How responsive suppliers are to price changes.
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Suppose the value of the price elasticity of supply is 4. What does this mean?
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A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.
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Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. What is the price elasticity?
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0.5; Inelastic.
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The price elasticity of supply is usually a positive number because
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Quantity supplied increases in response to price increases.
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_______ advantage is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.
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Comparative.
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_______ advantage is the ability of an individual, a firm, or a country to produce more of a good or service than competitors when using the same amount of resources.
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Absolute.
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A country will always be an exporter of a good where it has a ______ advantage in production.
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Comparative.
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What makes comparative advantage such a powerful insight?
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It explains why if individuals, firms, and countries specialize and trade they will be better off.
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Why do goods that countries import and export change over time?
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Because the goods in which they have comparative advantage change over time.
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A situation in which a country does not trade with other countries is called
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Autarky.
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Among the main sources of comparative advantage are the following:
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Climate and natural resources, relative abundance of labor and capital, technology, external economies.
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A characteristic of the long run is
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All inputs can be varied.
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Which of the following is a factor of production that generally is fixed in the short run?
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A factory building.
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Which of the following is an example of a long run adjustment?
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Wal-Mart builds another Supercenter.
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Which of the following is an example of a short run adjustment?
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Your Wal-Mart hires two more associated.
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Economic cost of production differ from accounting costs in that
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Economic cost adds the opportunity cost of a firm using its own resources while accounting cost does not.
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Implicit costs can be defined as
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The non-monetary opportunity cost of using the firm's own resources.
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Which of the following is an implicit cost of production?
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Rent that could have been earned on a building owned and used by the firm; the loss in the value of capital equipment due to wear and tear.
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The explicit cost of production is called
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Accounting cost.
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The long run refers to a time period
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Long enough for a firm to vary all of its inputs, to adopt new technology and change the size of its physical plant.
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The marginal product of labor is defined as
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The additional output that results when one more worker is hired, holding all other resources constant.
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If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is
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2 chairs.
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The law of diminishing marginal returns states
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That at some point, adding more of a variable input to a give amount of a fixed input, will cause the marginal product of the variable input to decline.
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If marginal product is greater than average product, then
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Marginal product could either be increasing or decreasing.
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Marginal cost is equal to the
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Change is total cost divided by the change in output.
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In the short run, if marginal product is at its maximum, then
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Marginal cost is at it's minimum.
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Which of the following cost will not change as output changes?
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Total fixed cost.
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Which of the following explains why the marginal cost curve has a U shape?
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Initially, the marginal product of labor rises, then falls.
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All of the following statements are true of the minimum efficient scale except one. Which one?
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An increase in the output level will reduce profit.
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At the minimum efficient scale,
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The firm has achieved the lowest possible average cost of production.
