Cross Price Elasticity Of Demand Flashcards, test questions and answers
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Business Management
Cross Price Elasticity Of Demand
Horizontal Price Fixing
Industrial Organization
Online Social Networks
Principles Of Marketing
Research And Development Costs
BUS 346 Simon- marketing ch. 14 quiz – Flashcards 10 terms
10 terms
Preview
BUS 346 Simon- marketing ch. 14 quiz – Flashcards
question
Because there are only a few firms in markets with oligopolistic competition,
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price wars may occur
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If the fixed costs of manufacturing a new cell phone are $10,000, the sales price is $60, and variable cost per unit is $20, the break-even point is
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250 units
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Unlike product, promotion, or place, price is the only part of the marketing mix
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that generates revenue
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__________ pricing tactics lower the price of a product below the store's cost.
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Loss leader
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Which of the following is the most logical example of complementary products?
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hot dogs and hot dog buns
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If a firm in a purely competitive market can differentiate its product or service, it becomes part of a(n) _______ market.
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monopolistic competition
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The point at which the number of units sold generates enough revenue to equal the total costs of running an operation is known as the
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break-even point
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In a market with _______ there are many firms providing differentiated products.
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monopolistic competition
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Labor, materials, and energy are typically __________ costs.
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variable
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Barry customizes Harley-Davidson motorcycles. No two cycles are alike. He notices that very few customers even ask the price of his motorcycles before they decide to purchase them. Demand for his motorcycles is probably
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price inelastic
Agricultural Economics
Cross Price Elasticity Of Demand
Food
Movement Along The Demand Curve
Natural Resources
New Technologies
Time And Place
ABM Exam – Flashcard 160 terms
160 terms
Preview
ABM Exam – Flashcard
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Firms that provide inputs to the farmers.
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Aggie Input Suppliers Ex) Monsanto
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Firms who produce RAW food and Aggie commodities
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Producers Ex) Iowa Corn Farmer
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Firms who buy RAW COMMODITIES from producers
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Assemblers Ex) Archer Daniels Midland (ADM) Bunge
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Firms who buy raw Aggie commodities and PROCESSES THEM INTO FOOD INGREDIENTS
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Initial Processors Ex) ADM Bunge *Cargill***
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Manufacturer that buys ingredients and manufactures them into food products
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Food Manufacturer Ex) Kellogg's Coca-Cola
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Firm engaged in distributing food products
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Wholesalers TWO TYPES 1. Institutional Ex) GFS 2. Grocery Ex) SpartanNash
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Firms from whom consumers buy food
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Retailers Ex) Kroger Meijer's
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People who eat food
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Consumers Ex) Me
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Time Value Added
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Value that allows production & consumption at different times ( by storage )
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Place Value Added
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Value by transportation to the location of the next player
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Form Value Added
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Changing the form of the product
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Possession Value Added
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Value by facilitating exchange between buyers and sellers
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Food Bill
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Value of all total food & alcohol Trend: Increasing
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Food Dollar
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Total annual market value for all purchases of DOMESTICALLY produced food (Two types: value by Aggie input supplier & value by farmer (farm share))
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Food dollar is Value Added ____ the domestic farm gate
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After
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Food Marketing Bill
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Total dollar expenditures going to Aggie & food marketing firms to pay for all marketing PAST THE DOMESTIC FARMGATE Trend: Increasing
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Most food products go through ___ changes of possessions
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5-7
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On average, how far does food travel?
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1000 miles
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What are the types of Value Added? What are they each?
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Time - value by storage Form - value by changing Place - value by transportation Possession - value by facilitating exchange
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What is the food bill?
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Value of all total food and alcohol expenditures in a given year
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What is the trend of the food bill and what is its most recent number?
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INCREASING $ 1.6T
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The average American spent how much in the food bill?
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$5,000 including alcohol, 4,500 without
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What is the food Dollar?
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Total annual market value for all purchases of DOMESTICALLY produced food.
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What is the food Dollar split into?
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Farm share - Value by farmer and Aggie input supplier Food marketing bill - Value Added by firms after the domestic farm gate
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What is the food marketing bill? It's trend?
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Total dollar expenditures going to Aggie and food marketing firms to pay for all marketing past the domestic farmgate. INCREASING
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Since 1995 the farm share has been about what percent? New numbers estimate it at what????
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20%, NOW 15-20%
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What is the farm share for food consumed away from home? Why?
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5%. Marketing share has been increasing a lot faster than farm share.
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What costs go into the FMB?
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Labor Packaging Transportation Energy
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What is the average distance food travels?
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1000 miles
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More processed food do what to the farm share?
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Decrease it
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Seasonality costs do what to the farm share?
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Decrease it
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Transportation costs do what to the farm share?
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Decrease it
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Bulky perishable items have what kind of farm share?
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Large
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Food Dollar Expenditures
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Total annual market value for all purchases of DOMESTICALLY PRODUCED GOODS
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Food consumption SHARE trends have been _____ but have been relatively _____ since 2000
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Declining but relatively stable since 2000
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What is the trend for how much we spend on food?
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Upwards trend $1.63T
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What are the reasons of why we spend more on food?
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Population increase -- High food prices due to labor and energy -- Preferences of new food products and marketing services
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The average American eats how many calories per day?
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3500
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Swing in the farm price lead to small impacts on food price. Why?
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The long chain is not affected by a small link.
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What is the trend in food preferences
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More processing More marketing 1/2 of food away from home 1/3 consumed away from home = Value Added trend
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Food expenditures from population growth "mature" market means what?
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More mature consumers, Rising income, And more diversity.
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Will catering to the baby-boomer generation change the US spending on food? Why?
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YES because upgrades in diets and reduction in the percentage spent on food
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What are functional foods
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Foods to provide medical benefits beyond traditional nutritional benefits ex) Vitamin D Milk
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Milk has been trending way ____ While cheese has been trending way ____
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Down Up
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Name the top 5 countries in soil available for food production
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1. 🇺🇸 2. 🇮🇳 3. 🇷🇺 4. 🇨🇳 5. 🇧🇷
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Name the impacts of geographical factors
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-Increases place value - production, processors concentrated in production region -wholesalers concentrated in consumption region
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Name the impacts of biological factors
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-Production Lags: the length of time which the decision to produce occurs until the production reaches the market: chicken 5-7 days, nuts 5-7 years -perishable -quality variation -risks
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Name the impacts of biological factors
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Decisions must be made on expected prices and expected yields
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Geological factors increase what type of value added?
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Place
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Biological factors increase what type of value added?
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Time value Form value
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Name the impacts of capital factors
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(Requires a high degree of asset specificity) -lag in adjustments -influenced heavily by macroeconomics such as inflation
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What is the impact that tech provides?
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Firms face the constant pressure of continually reducing costs and continually adopting new tech
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Seasonality of supply
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Batch production
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Seasonality of demand
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Tastes and preferences throughout year
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What do seasonality factors impact?
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Storage costs Handling costs
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What percentage of US land is used for food and fiber production?
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50% 20% in crops 25% in rangeland 5% other
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What are the impacts of increased productivity?
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-Changes in farm structure -Increases specialization -increased globalization -tighter coordination -increased concentration
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What percent of farms are family owned?
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97-98%
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Large scale farms make more than $1B dollars. True or False?
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False. They make more than 1 million... not billion.
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What percentage of farms are made up by small farms?
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90%
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Small farms own more than ____ of all farm assets (ex. Buildings)
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1/2
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True or false, small farms make up less than 25% of Aggie output
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False. 26%.
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Mid scale and large scale farms make up what percent of all farms?
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8%
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What percent of total value of production does mid scale and large scale farms make?
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60%
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Non family farms make up almost ___ percent of all farms. They make up ____ percent of the total value of farm production
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3% of farms 15% of farm value
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What is asset specificity?
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Assets that can only be used for farm/food production or processing
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Mid-scale and large scale farms account for what percentage of farm production?
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75%
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What is the current trend in farms?
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Increasing size
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Name the increased impacts in farm structure
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Increases Specialiazation - Increased Globalization - Increased Market coordination - Increased concentration
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What percent of exports are Aggie related in the USA?
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10%
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Nearly what percent of USA agriculture is exported?
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nearly 25%
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The USA is the leader in exports and second in imports. T or F?
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False! We are #1 in both.
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What is the current shift in market coordination
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Shifting away from production of commodities towards food products
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More coordination in the market does what?
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Make players more independent
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What is the difference between market concentration and geographic concentration?
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Market: smaller number of firms or players in the industry Geographic: production and allied industry located close to one another
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The Michigan Automobile industry is an example of what?
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Geographic concentration
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What is the CR4
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"4 firm concentration ratio" It is the percentage of industry sales by the 4 largest firms
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What is a benefit to consumers of having larger players?
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Larger players can ship to you for lower prices
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What is the difference between demand and quantity demanded?
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Demand is the quantity buyers will buy at various prices and all possibilities -- Quantity demanded is the quantity demand at a specific price
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A change in quantity demanded...
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Is a movement along the demand curve
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What can change Quantity and Production?
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Substitutes Complements Income Preferences Expectations # of consumers
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What changes Market supplied?
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Price of input supplies Tech changes Bio/Climate changes Expectations # of suppliers
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An increase in supply moves in what direction?
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Right
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What is the largest portion of the Food Marketing Bill? ⭐
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Labor
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How many times does an object change possession before it reaches the consumer? ⭐
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5-7 times
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What is the largest circle in the food diagram? ⭐
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Food Bill
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What is the line that separates the imports from the rest of the food bill? ⭐
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Food Dollar
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What is the outter layer (not the line but the stuff in between) of the food diagram?⭐
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Imports
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What is the inner circle of the food diagram? ⭐
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Food Marketing Bill
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What is the larger part of the dashed line in the food diagram? ⭐
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Services, Supplies, and Inputs
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What is the smaller part of the dashed line in the food diagram? ⭐
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Farm share
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Fresh Produce and Dairy products are the most common sources for food Bourne illnesses.⭐
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True
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Processors tend to locate their facilities near agricultural production regions ⭐
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True
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The farm share of the food dollar has been less than 16 cents of the dollar since 2000⭐
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True
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Less that 25% of the land in the USA is used to produce food and fiber ⭐
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False
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Both the demand for food products and the supply of food products are relatively stable throughout the year ⭐
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False
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Over the next twenty years dairy products are projected to have a decrease in per capita consumption⭐
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True
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There is an increasing trend in real retail food prices ⭐
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True
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Increasing incomes are leading to more emphasis placed on product price and less emphasis placed on food quality attributes ⭐
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False
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Approximately 1 outta 2 meals is consumed away from home ⭐
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False. 1/2 of food expenditures areaway from home but notconsumed away from home.
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The US food market is a mature market which means that growth in the food market will come from older Americans eating more food.⭐
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False
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There is little quality variation in fruits and vegetables.⭐
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False
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Commodity prices at the farm level are the most important factor in determining consumer food prices and choices ⭐
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False
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The share of US income that US consumers spend on food has been decreasing ⭐
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True
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Due to biological nature of food production, Aggie firms are able to quickly contract in order to adjust to price signals in the market ⭐
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False
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Increased importance will be placed on functional foods ⭐
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True
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Agricultural producers are quickly able to adjust to market price signals ⭐
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False
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Since 2000, the share of income spent on food has been rapidly decreasing ⭐
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False
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If the farm share of the food dollar is decreasing then farming is becoming less profitable. ⭐
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FALSE
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Institutional Wholesalers typically do NOT sell to food service retailers⭐
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FALSE
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There is an increasing trend in both the food bill and the food marketing bill ⭐
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True
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Approximately 50% of all jobs in the USA are related to some aspect of the agri-food system ⭐
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False
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The farm share of the food dollar has been decreasing over time ⭐
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True
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If the price of milk doubles, then the proce of ice cream doubles ⭐
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False
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Value Added = price sold - cost to enhance ⭐
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True
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Sams club is an example of an institutional Wholesaler. ⭐
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False
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The average food product travels approximately ____ - _____ miles before reaching the consumer. ⭐
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1200-1500
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Selling Syngenta's corn seed to a corn farmer is an example of what player? ⭐
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Aggie input supplier
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Which value Added is performed when a company transporting wheat from the elevator moves it to the manufacturer for milling? ⭐
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Place
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Wholesalers and assemblers merging is a current trend in agribusiness. ⭐
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False
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Increasing domestic population is the best reason for an increasing trend in the food marketing bill ⭐
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True
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A commodity processor would likely sell a product like cocoa powder ⭐
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True
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What portion of the food dollar is considered farm share?⭐
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15-20%
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JBS is an example of what player?⭐
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Initial provessor
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An apple processing plant takes apples, turns them into juice, and transports them in their own trucks. What types of value Added are added in this situation? ⭐
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Form and Place
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A firm whose primary business is to buy small and sell large without changing the form of the possession is what kind of player?⭐
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An assembler
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Wholesalers distribute food to retailers in ____
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Bulk
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Aggie input suppliers provide seeds and ____ to farmers
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Inputs
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Meijer's is a what? (What kind of retailer?)
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Food service retailer
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Farmers account for what percent of the USA population?
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<2%
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A modern supermarket typically has how many UPCs on its shelves
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40,000
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Michigan is not #1 in what area? Blueberries Milk Cucumbers Black beans Cherries
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Milk
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In terms of Aggie diversity Michigan ranks what?
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#2
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What share of of the food dollar do farmers earn (in cents?)
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6-8 cents
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The food and fiber marketing system accounts for what percent of the US labor force?
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20-25%
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In Michigan, which commodity accounts for the highest cash receipts? Soybeans Milk Need Corn
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Milk
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The top USA chain restaurant, based on value of sales is
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McDonald's
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What industry is the largest user of sugar in the USA?
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Cereal
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Nearly 90% of US breakfast cereal is produced by the 4 largest food manufacturers
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True
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About 160,000 farms in the USA produce most of the food we eat.
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True
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Coke outsells Pepsi but makes less total money than pepsi
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True
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Brazil has the world's largest ethanol industry
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True
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If the price of milk doubles then the price of ice cream doubles
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False
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Nearly 1/3 of food produced for human consumption is wasted
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True
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Farms are shifting away from production of homogenous commodities towards production of commodities with specific end use attributes ⭐
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True
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If ice cream and popsicles are substitutes, one would expect a decrease in the price of ice cream would cause the demand of popsicles to increase ⭐
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False
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A potential benefit to consumers of market concentration in the agri food system is that latger firms may be able to exercise market power ⭐
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False
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Japan has typically been in the top four export destinations for USA Aggie and food exports ⭐
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False, they're #5
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Most farms in the USA are non-family farms ⭐
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False
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In the 20th century, labor was the primary driver of increased Aggie productivity at the farm level ⭐
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False
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The clustering of fruit production and processing in the Traverse Bay Area is an example of market concentration ⭐
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FALSE, geographic concentration
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If a surplus exists in the market, then there is downward pressure on price ⭐
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True
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Would a shift in the supply of milk be caused by a change in the price of hay used to feed cows? ⭐
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Yasss
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The USA has a negative Aggie trade ⭐
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False
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Geographic concentration which leads to increased efficiencies in the market channel is considered an impact in increased what?⭐
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Tech
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If corn is an input for chicken production, and its price dropped, how would dat effect da chicken market?⭐
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Da supply curve shifts dog, decreasin price and increasin quantity traded in da market
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Small scale farms account for less than 25% of all farms assets ⭐
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False, 50%
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If a new production of technology reduces tge cost of producing sugar beets, the supply curve for sugar beets will likely decrease ⭐
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False
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If Tyson owned 1/3 of the sows in the USA then what would be one benefit for the consumer? ⭐
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It decreases costs per unit of production and processing
question
Keep studying
answer
Gotta keep studying
Agricultural Economics
Cross Price Elasticity Of Demand
Diminishing Marginal Utility
Economics
Principles Of Economics: Macroeconomics
Price Elasticity Of Demand Test Questions – Flashcards 23 terms
23 terms
Preview
Price Elasticity Of Demand Test Questions – Flashcards
question
Demand Elasticity
answer
A measure of how quantity demanded will be affected by a change in price, income or related variables.
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Elasticity
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Measures the extent to which demand will change given a change in price
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Price Elasticity of Demand (PƐD)
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The responsiveness of changes in demand given a change in price.
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PƐD Formula
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%△QD / %△P
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%△ is always...
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(Difference / Original)x100
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Price Elastic Demand
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Demand is price elastic if the value of elasticity is greater than -1 (PƐD>-1). If Demand for a good is price elastic then a %△ in P will bring about a large %△ in QD
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Elastic Demand Revenue
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Increase In Price = Fall in Revenue (Drop in price to increase revenue)
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Price Inelastic Demand
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Demand is price inelastic if the value of elasticity is between 0 and -1. (0<PƐD<-1). %△ in P is greater than %△ in QD
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Inelastic Demand Revenue
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Increase in price = increase in revenue.
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Unitary Elasticity
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PƐD = -1 Increase %△ in P = Decrease %△ in QD Rectangular hyperbola.
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Perfectly Inelastic Demand Curve
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PƐD = 0 %△ in QD = 0% No change in demand regardless of price change (therefore increase in price increases revenue). EG: drugs.
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Perfectly Elastic Demand Curve
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PƐD = - infinity Any change in price leads to demand falling to 0. (never a decrease in price because this decreases revenue). Hypothetical. Lots of perfect substitutes.
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Factors Influencing Price Elasticity of Demand (PƐD)
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- If the product is an essential (e.g.: insulin = inelastic) - Availability of substitutes (more substitutes = elastic) - Width of market definition (wider market = less substitutes = more inelastic) - Number of complements (high number of complements = inelastic) - Strength of brand (stronger = more inelastic) - Level of addiction (change in price doesn't affect demand = inelastic) - Time (longer period of time = elastic) - % of Income (small% = inelastic).
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Income Elasticity of Demand (YƐD)
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A measure of the responsiveness of demand to changes in income.
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YƐD formula
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%△QD / %△Y
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YƐD values
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- When YƐD is positive the producer is a normal good (YƐD>0) - Normal Necessities (Income Inelastic) e.g. fruit/milk are between 0 and 1. (0<YƐD1) -Inferior goods have a negative YƐD. They are counter cyclical.
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Cross Price Elasticity (XƐD)
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Measures responsiveness of demand for one good given a change in price of another.
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XƐD Formula
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%△QD of A / %△P of B
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XƐD Values
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Complements are negative. The stronger the complementary nature the bigger negative number. Substitutes are positive. Unrelated goods are 0.
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Price Elasticity of Supply (PƐS)
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A mesure of the responsiveness of supply to change in price.
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PƐS Formula
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%△QS / %△P
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PƐS values
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Elastic > 1 eg: manufactured goods Inelastic < 1 eg: natural resources Perfectly Elastic = infinite Perfectly Inelastic = 0 Unitary Supply = 1
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When will market supply be price elastic?
answer
When PES is greater than 1. Factors: - Supplier has spare capacity to increase output. - High stock levels are available - Short production time frame - Ease of substitution is high (resources can be reallocated.)
Agricultural Economics
Cross Price Elasticity Of Demand
Economics
Perfectly Elastic Supply
Principles Of Economics: Microeconomics
Chapters 20, 21, 22, and 23 – Flashcards 204 terms
204 terms
Preview
Chapters 20, 21, 22, and 23 – Flashcards
question
Horizontal
answer
A demand curve that is completely elastic is
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1.29
answer
Suppose the quantity demanded of ski boats falls from 4.0 million to 3.0 million as a result of an average price increase from $20,000 to $25,000 per boat. The absolute value of the price elasticity of demand is closest to
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How much quantity demanded changes after a change in price.
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Price elasticity looks at
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The percentage change in quantity demanded divided by the percentage change in price.
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The basic formula for price elasticity is
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The change in quantity demanded is divided by the average quantity.
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To find the average percentage change in quantity demanded,
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0.5. X=.10/.05 = 0.5
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If the price increases by 10 percent, and the quantity demanded falls by 5 percent, the absolute value of the price elasticity will be
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The quantity demanded will fall by 45 percent. The basic formula for price elasticity is the price elasticity of demand number = the percentage change in quantity demanded divided by the percentage change in price. 3 = x/.15 =.45, so quantity demanded falls by 45 percent.
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If the elasticity of demand is 3, and the price rises by 15 percent, then
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Increase by 95 percent. The price elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage change in price. From that, one can manipulate the formula to compute the percentage change in quantity demanded by multiplying the price elasticity of demand by the percentage change in price. Therefore the percentage change in quantity is equal to 4 �24% - the percentage change in price using the midpoint formula ((1.49 - 1.89)/((1.49 + 1.89)/2)).
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Assume the price elasticity of demand for JT Chip Co. chips is 4.0. If the company decreases the price of each bag of chips from $1.89 to $1.49, the number of bags sold will
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The percentage change in quantity demanded is greater than the percentage in price.
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If the demand for a product is elastic, then
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The percentage change in quantity demanded divided by the percentage change in price.
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The price elasticity of demand is equal to
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European travel.
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Which of the following products will have elastic demand?
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Airline travel in the long run.
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Which of the following would most likely have a price elasticity coefficient greater than 1?
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elastic; more
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The demand will be _______________ if the consumer has _________ substitute goods to choose from
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Coffee.
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Which of the following would most likely have a price elasticity coefficient less than 1?
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A high ratio of price to income.
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Which of the following causes demand to be more elastic with respect to price?
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More elastic the demand for the good.
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Ceteris paribus, the longer the time period, the
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An increase in price will reduce total revenue.
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If demand is elastic, then
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Lower his price to increase revenue.
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Sam owns a taco restaurant, and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5. You would advise Sam to
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Increase because the percentage increase in price is greater than the percentage change in quantity demanded.
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Assume the price elasticity of demand for MC Pretzel Co. pretzels is 0.8. If the company increases the price of each bag of pretzels, total revenue will
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Price leads to greater total revenue.
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When demand is price-inelastic, ceteris paribus, an increase in
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The company's total revenue will decrease.
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If the price of a good rises by 10 percent and quantity demanded falls by 20 percent, we can predict that
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6.3 The cross-price elasticity of demand is equal to the percentage change in the quantity demanded of typewriters divided by the percentage change in the price of computers. Because a 10.5 percent decrease in computer prices caused a 66.7 percent decrease in the demand for typewriters, the cross-price elasticity of demand is equal to 6.3.
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Suppose computer prices at an office supply store fall from $1,000 to $900 and as a result the quantity demanded of typewriters decreases from 40 to 20 per month. The cross-price elasticity of demand is closest to
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Negative.
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MP3 players and MP3 files are complementary goods. The cross-price elasticity of demand between MP3 players and MP3 files is expected to be
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Substitutes.
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When the prices of postage stamps rise, the demand for Internet service increases, ceteris paribus. Postage stamps and Internet service are therefore
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1.80
answer
Suppose the price of video games falls from $40 to $20 and as a result the quantity demanded of scooters falls from 40,000 to 10,000 per year. The value of the cross-price elasticity of demand is
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The percentage change in quantity demanded for good X will fall if there is a reduction in price of good Y.
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If two goods are substitute goods,
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Both goods are substitute goods because the cross-price elasticity is +2.
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If the price of Coke rises by 5 percent and the sales of Pepsi go up by 10 percent, we can conclude that
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Responsiveness of quantity demanded to a percentage change in income.
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Income elasticity measures the
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Income elasticity of demand.
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Which of the following is the best measure of the effects of a recession?
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Positive.
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A good is normal if the sign on the income elasticity formula is
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The quantity supplied changes little when the price increases.
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Supply is very inelastic when
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Substitute goods.
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Oil and alternative sources of energy such as wind and solar are
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The demand for iPhones is highly elastic.
answer
In the article "After iPhone Price Cut, Sales Are Up by 200 Percent,"
question
The demand for alligator skins fell when income dropped, indicating that the skins were a normal good.
answer
The In The News article "Recession Eats into Gator Market" states that
question
That gasoline and SUV sales have a cross-price elasticity that is negative.
answer
The article "SUV Sales Drop with Gasoline Price Rise" states
question
Decrease by 14.3 percent
answer
Assume the price elasticity of demand for U.S. Frisbee Co. Frisbees is 0.5. If the company increases the price of each Frisbee from $12 to $16, the number of Frisbees demanded will
question
6 percent
answer
If the price of the iPod falls by 3 percent and the price elasticity of demand for iPods is 2.0, then quantity demanded will fall by what percentage
question
Medicines
answer
Which of the following products will have more inelastic demand?
question
Demand is inelastic
answer
Higher prices will increase total revenue if
question
Increase price to increase total revenue
answer
If the elasticity of demand for cigarettes is 0.4, a seller should
question
At higher prices
answer
On a demand curve, demand is more elastic
question
$100
answer
In Figure 20.1, total revenue is maximized at the unit price of
question
$100
answer
In Figure 20.1, at what price is the elasticity of demand unitary?
question
Price-inelastic
answer
In the $80 to $40 price range in Figure 20.1, demand is
question
5.7
answer
In the $160 to $180 price range in Figure 20.1, the absolute value of the price elasticity of demand is closest to
question
Total revenue will decrease
answer
If the price is reduced from $100 to $80 in Figure 20.1, ceteris paribus
question
The demand for salt is inelastic
answer
A grocery store put salt on sale but found that total revenues fell. This can be explained by which of the following?
question
Less positive (move closer to zero).
answer
Assume apples and oranges are substitutes. Suppose apple growers launch a successful advertising campaign that convinces consumers apples are a better product. As a result the cross-price elasticity of apples and oranges will become
question
The cross-price elasticity sign will be negative
answer
If two goods are complementary goods, then
question
The percentage change in quantity demanded for good X will fall if there is a reduction in price of good Y
answer
If two goods are substitute goods
question
3.5
answer
If income falls 4 percent for a year and as a result the quantity of new homes demanded falls from 23 million to 20 million units for the year, the value of the income elasticity of demand for new homes is closest to
question
New cars are a normal good, and the income elasticity is +2.0
answer
If incomes fall by 5 percent and the quantity demanded for new cars falls by 10 percent,
question
Income elasticity of demand is positive.
answer
If a good is normal, its
question
Income elasticity of demand is negative
answer
If a good is inferior, its
question
An inferior good
answer
If income rises by 10 percent and the quantity sold of a particular vehicle falls by 7 percent, then this particular type of vehicle is
question
fall; fall
answer
Assume that store brand cereal is an inferior good. If income rises, then the price of store brand cereal will ________ and the quantity sold of store brand cereal will _______.
question
How much sellers will increase production in response to a change in price
answer
Elasticity of supply tells us
question
The percentage change in quantity demanded was greater than the percentage change in price.
answer
The In The News article "Play Station 3 Sales More Than Double after Price Cut" indicated that
question
Showing that the long-run response to a price increase in cigarettes was likely to be more elastic than the president had estimated.
answer
Nobel Prize-winning economist Gary Becker corrected President Clinton's elasticity estimate for cigarette smoking by
question
Gasoline and SUVs are complementary goods, and when the price of gasoline rose, the demand for SUVs fell
answer
In the article on SUV sales
question
Land, labor, capital, and entrepreneurship.
answer
Which of the following are factors of production?
question
Higher output per worker.
answer
Greater labor productivity means
question
An increase in the amount of physical capital per worker.
answer
Labor productivity will increase in response to
question
Opportunity cost.
answer
The most desired goods and services that are given up in order to get more of another good are the
question
12.0 units per day. The marginal physical product is the difference in total output associated with one additional unit of input, which is 12 (40 - 28).
answer
The marginal physical product of the third unit of labor in Figure 21.1 is
question
Change in total output associated with one additional unit of the variable input.
answer
The marginal physical product is the
question
The difference between total revenue and total cost.
answer
Profit is
question
Total costs.
answer
An increase in production in the short run definitely results in an increase in
question
Fixed costs.
answer
Which of the following costs do not change when output changes in the short run?
question
The rent for a factory.
answer
Which of the following is most likely a fixed cost?
question
The change in total costs divided by the change in quantity produced.
answer
Marginal cost is equal to
question
The average total cost curve when it is above the marginal cost curve.
answer
Which of the following is always downward-sloping?
question
Declines as long as output increases.
answer
The average fixed cost (AFC) curve
question
ATC
answer
The marginal cost curve intersects the minimum of the curve representing
question
Above the average total cost curve.
answer
When the average total cost curve is rising, the marginal cost curve will be
question
$288.00.
answer
What is the marginal cost of the 120th unit of output in Figure 21.2?
question
$80.00.
answer
What is the average fixed cost when output is 120 units in Figure 21.2?
question
40 units
answer
At what output level do diminishing marginal returns begin in Figure 21.2?
question
Dad says her cost is $31,000 and Mom says her cost is $47,600. Profit is equal to revenue minus costs. An accountant will consider only explicit costs, whereas an economist will consider economic costs, which include explicit and implicit costs.
answer
Megan used to work at the local pizzeria for $15,000 per year but quit in order to start her own deli. To buy the necessary equipment, she withdrew $20,000 from her inheritance (which paid 8 percent interest). Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000. She asked her dad the accountant and her mom the economist to calculate her costs for her.
question
The time period when all costs are variable.
answer
In economics, the long run is considered to be
question
Total cost that result from using operations of larger size.
answer
Economies of scale are reductions in average
question
Constant returns to scale.
answer
Assume a given amount of output can be produced by several small plants or one large plant with identical minimum per-unit costs. This long-run situation reflects the existence of
question
Explain why average total costs decline as output increases in the long run.
answer
Economies of scale
question
Diseconomies of scale.
answer
Which of the following is a long-run concept?
question
Less than 7.
answer
If a fifth unit of labor was added to Table 21.1, its MPP would most likely be
question
Continues to decline.
answer
Above 10 units of output, the average fixed cost in Table 21.2
question
20 units per day.
answer
For the output levels in Table 21.2, the minimum of the average variable cost curve occurs at a production rate of
question
$40
answer
At 10 units of output in Table 21.2, the total fixed cost is
question
$20.00.
answer
The marginal cost of the fourth unit of output in Table 21.4 is
question
$13
answer
At 2 units of output in Table 21.4, the average variable cost is
question
$62.00.
answer
At 4 units of output in Table 21.4, the total variable cost is
question
$5.33. AFC is equal to FC ($16) divided by quantity (3), which is $5.33.
answer
At 3 units of output in Table 21.4, average fixed costs are
question
3 units per day. ATC is equal to TC divided by quantity. The ATC is $30, $21, $19.3, and $19.5 with output levels of 1 through 4 respectively. Therefore, ATC is minimized at 3 units of output.
answer
For the output levels in Table 21.4, the minimum of the average total cost curve occurs at a production rate of
question
$30
answer
The total cost of 3 units of output in Table 21.5 is
question
$8.00 VC is equal to TC ($23) minus FC ($15), which is $8.00.
answer
The total variable cost of the first unit of output is:
question
ATC3 only.
answer
In Figure 20.4, a firm that produces over 800 units of output should choose a plant with which short-run average total cost function?
question
ABFDGE.
answer
In Figure 21.4, the long-run average total cost curve is given by the curved line segment
question
Wage rate divided by MPP.
answer
Unit labor cost is equal to the
question
A downward shift in the MC curve.
answer
Assuming labor is a variable input, an increase in labor productivity will result in
question
Economies of scale.
answer
One In the News article titled "Funeral Giant Moves In on Small Rivals" reports that profit for a Houston-based funeral giant is 31 cents on every dollar versus a profit of 12 cents for the funeral industry in general. Such profits are most likely the result of
question
Flour
answer
Which of the following is a factor of production for the Little Biscuit Bread Company?
question
Using the fewest resources to produce a good or service
answer
When a firm produces at a technically efficient output level, it is
question
The quantity of labor changes
answer
The short-run production function shows how output changes when
question
A production function tells us the maximum amount of output attainable from the use of all resources
answer
Which of the following statements is not true regarding the production function and the production possibilities curve?
question
Marginal physical product
answer
The change in total outeput associated with one additional unit of input is the
question
The marginal physical product of the input
answer
Which of the following is the slope of the production function with respect to an input?
question
Efficiency will suffer as the restaurant becomes too crowded with employees
answer
As an In and Out Burger restaurant increases the number of employees for a specific restaurant
question
Marginal cost of each unit of output is rising
answer
If the marginal physical product (MPP) is falling, then the
question
Total cost
answer
The sum of fixed cost and variable cost at any rate of output is
question
Property taxes
answer
Which of the following is most likely a fixed cost?
question
The rent for a factory
answer
Which of the following is most likely a fixed cost?
question
Variable costs
answer
Changes in short-run total costs result from changes in
question
Labor and raw materials costs
answer
In the short run, which of the following is most likely a variable cost?
question
$20,000
answer
What is the total variable cost when output is 100 units in Figure 21.2?
question
includes both implicit and explicit costs
answer
Economic cost
question
Economic costs include implicit costs and accounting costs do not
answer
Accounting costs and economic costs differ because
question
Long-run decision, and therefore an investment decision
answer
Intel's chief executive says the company might expand the technology it is using in its planned $2.5 billion chip-manufacturing factory in China if the U.S. government allows it, underscoring the technology giant's ambitions in the world's fourth-biggest economy. The Intel executive is making
question
Economies of scale must exist
answer
When the size of a factory (and all its associated inputs) doubles and, as a result, output more than doubles
question
The upward-sloping segment of the long-run average total cost curve
answer
Diseconomies of scale are reflected in
question
Diseconomies of scale
answer
Which of the following is a long-run concept?
question
20
answer
What is the marginal physical product of the second unit of labor in Table 21.1?
question
$40
answer
At 30 units of output in Table 21.2, the total variable cost is
question
20
answer
What is the marginal physical product of the fourth unit of labor in Table 21.3?
question
30
answer
How many units of output can be produced when one unit of labor is employed in Table 21.3?
question
96
answer
How many units of output can be produced when three units of labor are employed in Table 21.3?
question
$5.33
answer
32.award:0.00 pointsAt 3 units of output in Table 21.4, average fixed costs are
question
$15
answer
Total fixed costs in Table 21.5 are equal to
question
ATC3 only.
answer
In Figure 21.4, a firm that produces over 800 units of output should choose a plant with which short-run average total cost function?
question
A higher wage rate
answer
Which of the following is least likely to increase productivity?
question
Wage rate divided by MPP.
answer
Unit labor cost is equal to the
question
$0.67 per unit
answer
When the wage rate is $10 per hour and the MPP of a worker is 15 units per hour, the unit labor cost is
question
Shift the long-run ATC curve downward
answer
Higher education levels and better management
question
Upward and cost curves shift downward
answer
The World View article titled "United States Gains Cost Advantage" says productivity advances have contributed to U.S. competitiveness in world markets. When improvements in productivity reduce costs, the production function shifts
question
this investment by Ford is a long-run production decision, and the company plans to enjoy economies of scale
answer
The In The News article "Ford Pumps $400 Million into Kansas City Plant" says that
question
profit
answer
Economists assume the principal motivation of producers is
question
Maximize social welfare.
answer
The profit motive can encourage businesses to do all of the following except
question
Are the costs to produce a good or service for which no direct payment is made.
answer
Implicit costs
question
Covers all its costs, including a provision for normal profit.
answer
A firm that makes zero economic profits
question
Payment for entrepreneurship.
answer
Greater-than-normal profit represents
question
Accounting profit = $75,000; economic profit = $0. Accounting profit is equal to revenue ($250,000) minus explicit costs ($175,000), which is $75,000. Economic profit is equal to accounting profit ($75,000) minus implicit costs ($75,000); therefore his economic profit is $0.
answer
Adam Weed is the owner/operator of a flower shop. Last year he earned $250,000 in total revenue. His explicit costs were $175,000 paid to his employees and suppliers (assume that this amount represents the total opportunity cost of these resources). During the year he received three offers to work for other flower shops with the highest offer being $75,000 per year. Which of the following is true about Adam's accounting and economic profit?
question
There are many firms and no buyer or seller has market power.
answer
Perfect competition is a situation in which
question
Has market power.
answer
If a firm can change market prices by altering its output, then it
question
Is a price taker.
answer
A competitive firm
question
Increase output.
answer
In order to sell additional units of their products, competitive firms must
question
Horizontal, while market demand is downward-sloping.
answer
The demand curve confronting a competitive firm is
question
Equals the marginal revenue curve.
answer
The demand curve confronting a competitive firm
question
Property taxes on land used in production.
answer
Which of the following is generally a fixed cost?
question
Marginal cost.
answer
Which of the following represents the change in total cost that results from a one-unit increase in production?
question
Diminishing returns occurs with greater output.
answer
When the short-run marginal cost curve is upward-sloping,
question
$50 The total fixed cost is $50 because total cost is $50 at 0 units of output.
answer
Refer to the data in Figure 22.1. The total fixed costs for this firm are approximately
question
Marginal revenue is equal to marginal cost.
answer
Short-run profits are maximized at the rate of output where
question
Economic profits will be zero.
answer
Refer to Figure 22.3 for a perfectly competitive firm. If the market price is $15,
question
An economic loss will occur.
answer
Refer to Figure 22.3 for a perfectly competitive firm. If the market price is $10,
question
31 units. The difference between price and average cost-profit per unit-is illustrated by the vertical distance between the price and ATC curves. At a price of $23, the profit per unit is maximized at the output that minimizes ATC, 31.
answer
Refer to Figure 22.3 for a perfectly competitive firm. At a market price of $23, profit per unit is maximized at an output of
question
39
answer
Refer to Figure 22.3 for a perfectly competitive firm. At a market price of $23, total profits are maximized at an output of
question
AVC
answer
The shutdown point occurs where price is below the minimum of
question
The amount of plants and equipment and is a long-run decision.
answer
An investment decision involves choosing
question
Payroll taxes.
answer
A change in which of the following will change the optimal rate of output?
question
Increase output.
answer
Suppose the cost of insecticide (a variable input) decreases for broccoli farmers. In order to maximize profits, ceteris paribus, broccoli farmers should
question
An increase in property taxes.
answer
Which of the following does not affect marginal costs?
question
Make more money when they shut down.
answer
Businesses that fail to account for implicit costs, like the strawberry farmer, Hiroshi Fujishige, who failed to consider the enormous opportunity of selling his property to Disneyland, will
question
Maximize implicit costs but not explicit costs.
answer
All of the following are ways a business can earn economic profits except
question
Economic costs include the opportunity costs of all resources used, while accounting costs include actual dollar outlays.
answer
Accounting costs and economic costs differ because
question
Covers the full opportunity cost of the resources used by the firm.
answer
Normal profit
question
The return on the next best alternative investment opportunity.
answer
Which of the following should not be included when calculating accounting profit?
question
$360,000. The explicit costs include wages and salaries, raw materials, equipment, rent, and interests for a total of $360,000.
answer
Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. What are the annual explicit costs for the firm described above?
question
$450,000. Economic costs include both explicit and implicit costs, totaling $450,000.
answer
Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. What are the annual economic costs for the firm described above?
question
-$90,000. Economic profit is equal to accounting profit ($0) minus implicit costs ($90,000), which is -$90,000.
answer
Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. What is the economic profit for the firm described above?
question
Receive $90,000 more in revenue. Since the firm is losing $90,000, to get the economic profit or normal profit, the firm would need additional revenue of $90,000.
answer
Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. To receive a normal profit, the firm described above would have to
question
Equilibrium price will rise as firms exit.
answer
If long-run economic losses are being experienced in a competitive market,
question
Patients
answer
Examples of barriers to entry include
question
Perfect information.
answer
Which of the following is not a barrier to entry?
question
Perfect information.
answer
Which of the following is not a barrier to entry?
question
There are many firms, none of which has a significant share of total output.
answer
Perfectly competitive firms cannot individually affect market price because
question
Economic losses for the firm.
answer
Suppose a perfectly competitive firm is experiencing zero economic profits. In an effort to increase profits, the firm decides to initiate an advertising campaign for its product. The most likely short-run result of this campaign, ceteris paribus, would be
question
price equals marginal cost.
answer
To maximize profits, a competitive firm will seek to expand output until
question
The ATC is minimized.
answer
Profit per unit is maximized when the firm produces the output where
question
P = maximum ATC.
answer
For a perfectly competitive market, long-run equilibrium is characterized by all of the following but which one?
question
P > ATC.
answer
If a firm decides to make the investment decision to expand its capacity, then it must have discovered that
question
Equals the minimum of the ATC.
answer
In long-run perfectly competitive equilibrium, marginal cost
question
P = long-run ATC.
answer
In which of the following cases would entry and exit cease?
question
Greater demand.
answer
If price is below the long-run competitive equilibrium level, there will be
question
$15 In the long run, a firm should stay in business only if economic profit is greater or equal to zero. This happens when price is greater than or equal to the minimum average total cost ($15).
answer
Refer to Figure 23.1 for a perfectly competitive firm. In the long run, this firm would stay in this market only if the market price was equal to or higher than
question
An increase in marginal revenue.
answer
In a perfectly competitive market where firms are currently experiencing economic profits in the short-run, which of the following is least likely to occur during the long-run?
question
That they are not using resources in the best way.
answer
Economic losses are a signal to producers
question
Price is driven down to minimum ATC.
answer
A perfectly competitive market results in efficiency because
question
The prices consumers pay are a reflection of the value of the goods and services given up.
answer
Marginal cost pricing results in the most desirable mix of goods and services from the consumer's standpoint because
question
The cost of producing the additional 200 soccer balls is greater than the amount that consumers are willing to pay for the additional soccer balls.
answer
Bib's Soccer Ball Company produces 800 soccer balls per week. If the firm used marginal cost pricing to determine soccer ball output, it would produce 600 soccer balls. Consumers do not receive the most desirable quantity of soccer balls from Bib's because
question
Consumers would like more scarce resources devoted to the production of this product.
answer
When economic profits exist in the market for a particular product, this is a signal to producers that
question
Firms will enter the market.
answer
In Figure 23.3, diagram "a" presents the cost curves that are relevant to a firm's production decision, and diagram "b" shows the market demand and supply curves for the market. Use both diagrams to answer the following question: In Figure 23.3, at a price of p2 in the long run
question
A decrease in MR for the remaining firms.
answer
Refer to Figure 23.4. In the long run, which of the following would not be expected?
question
Zero economic profit.
answer
Refer to Figure 23.5 for a perfectly competitive firm. If this firm produces the level of output corresponding to point B in the short run, it will earn
question
The firm should leave this market in an effort to earn economic profits.
answer
Refer to Figure 23.5 for a perfectly competitive firm. Which of the following is not true for this firm at a price of $200?
question
Created new entrants into the tablet market.
answer
The "$99 iPads" The Economy Tomorrowanalysis indicates that the success of the iPad
question
The market supply curve for lasagna will shift to the left.
answer
If the price of ricotta cheese, an ingredient in lasagna, increases, then
question
Increase in production.
answer
Marginal cost is the increase in total cost associated with a one-unit
question
Long-run average total cost.
answer
Investment decisions are made on the basis of the relationship of price to
question
Economic profits induce firms to enter until profits are normal.
answer
For a competitive market in the long run,
question
Additional firms will enter the market.
answer
If economic profits are earned in a competitive market, then over time
question
Reduces the profits of existing firms in the market.
answer
The entry of firms into a market
question
Shifts to the right.
answer
Other things being equal, as more firms enter a market, the market supply curve
question
Are perfect substitutes.
answer
If the products of two firms are homogeneous, then they
question
Are identical
answer
If two products are homogeneous, then they
question
Should reduce production.
answer
If a firm finds that its marginal cost is greater than its price, it
Behavioral Economics
Cross Price Elasticity Of Demand
Managerial Economics
Marginal Utility Per Dollar
Price Elasticity Of Demand Measures
Principles Of Economics: Macroeconomics
Principles Of Economics: Microeconomics
Economics Chapter 10: Consumer Choice and Behavioral Economics – Flashcards 27 terms
27 terms
Preview
Economics Chapter 10: Consumer Choice and Behavioral Economics – Flashcards
question
Economic model of consumer behavior
answer
consumers will buy the combo that makes them as well off as possible from all combos budges allow them to buy
question
Utility
answer
Enjoyment or satisfaction people receive from consumption Difficult to measure directly, economist used to try t in units of utils
question
Marginal Utility
answer
Change in total utility a person receives from consuming one additional unit
question
Total Utility
answer
Rises then falls as marginal utility declines until it eventually becomes negative
question
Height of marginal utility curve
answer
Represents the change in utility as a result of consuming an additional unit
question
Law of Diminishing Marginal Utility
answer
Principle that consumers experience diminishing additional satisfaction as they consume more during a given period of time
question
Budget constraint
answer
Limited amount of income available to consumers to spend
question
Maximize utility
answer
rule of equal marginal utility per dollar spent
question
Consumers should consume goods up to the point where
answer
their marginal utilities per dollar spent are equal and the consumer is at the edge of his budget constraint, provided that Marginal utilities are not negative
question
Utility Maximization formula
answer
MUa/Pa=MUb/Pb and Spendinga+Spendingb=Budget Constraint
question
Marginal utilities per dollars spent are not equaled
answer
Total utility is not maximized
question
Rule of equal marginal utility per dollar spent to analyze how consumers adjust buying decisions w/ price change
answer
Income effect Substitution effect
question
Income effect
answer
Change in Q demanded of a good that results from the effect of a change in P of consumer purchasing power *all other factors constant
question
Substitution Effect
answer
Change in Q demanded of a good that results from a change in price, making good more or less expensive relative to other goods, holding constant the effect of price change on consumer purchasing power. Changes the opportunity cost of consuming
question
Income&Substitution effects on diff types of goods
answer
Normal- work together to up or down Q demanded Inferior- Income effect works in opposite direction, sub always in same direction
question
Demand curve
answer
Plotting optimal consumption points at different prices
question
Determine market demand curve
answer
Adding horizontally all individual demand curves
question
Why is the demand curve downward sloping?
answer
Income and Sub effects work in same direction for normal goods or Substitution effect outweighs the income effect for most inferior goods
question
Giffen Goods
answer
upward sloping demand curve As Q demanded increase as P rises Exceedingly rare in real life
question
Social Factors
answer
Culture, customs, religion explain consumer choices Partly on characteristics of products, partly on how many other people are buying the product
question
Celebrity endorsements
answer
Cause demand for a product to rise
question
Network Externalities
answer
Usefulness increases as # of consumers increases May lead to inferior products as a result of switching costs. Make selection of products path dependent Inferior VHS systems represent market failures, fail to produce efficient output
question
Fair pricing
answer
-Ultimatum game recipients would reject unfair allocations of $20 -Price show/game tickets below what could be charged -Buyers buy together and amount they wish to consume depends on the amount others are consuming -Business may give up some profits in short run to keep customers happy with fair prices in long run
question
Behavioral Economics
answer
Study of situations in which people make choices that do not appear to be economically rational
question
Ignoring Nonmonetary Opportunity Costs
answer
Endowment effect- unwilling to sell good they own even if offered a price > price they would be willing to pay Nonmonetary opportunity costs are just as real as monetary costs & should be taken into account
question
Failing to ignore Sunk Costs
answer
Sunk Cost- Cost that has been paid and cannot be recovered Not let sunk costs impact their decision making
question
Being unrealistic about Future Behavior
answer
Tendency to overvalue utility of current choices, ex smoking, undervalue utility received in future from choice, ex cancer Eat a lot today because expect to eat less tomorrow, underestimation of the costs of choices
Cross Price Elasticity Of Demand
Demand
Economics
Principles Of Economics: Macroeconomics
Principles Of Economics: Microeconomics
ECON Mod 4 21 terms
21 terms
Preview
ECON Mod 4
question
Demand is said to be ____ when the quantity demanded changes the same proportion as the price.
answer
unit elastic
question
Total revenue represents the amount that:
answer
sellers receive for a good or service which is computed as PxQ.
question
If an increase in price causes total expenditure on a product to decrease, then the price elasticity of demand is:
answer
elastic
question
For a given increase in price, the greater is the elasticity of supply, the greater is the resulting
answer
increase in quantity supplied
question
A steel mill raises the price of steel by 20%, which results in a 7% reduction in the quantity of steel demanded. The demand curve facing this firm is
answer
inelastic.
question
The current supply of Rembrandt paintings
answer
is perfectly inelastic Because Rembrandt died in 1669, the quantity of his paintings is fixed. As such, the supply of Rembrandt's paintings cannot be increased. Buyers can offer one million or one hundred million dollars, and it does not matter, only a fixed amount of Rembrandt's paintings exist. So, its supply is a vertical line, perfectly inelastic.
question
A secondary effect of an action that may occur after the initial effects is known as a(n):
answer
unintended consequence.
question
A government mandated price increase for doodads will:
answer
increase the quantity of doodads supplied but decrease the quantity of doodads demanded. A government mandated price increase for doodads has to take the form of a price floor, a legal minimum above the equilibrium price as to make sure it is binding. As a result, a surplus ensues as quantity supplied is greater than quantity demanded. Because the price increases above the equilibrium price, then quantity supplied increases (an upward movement along the supply curve) and quantity demanded decreases (a downward movement along the demand curve).
question
A 25% decrease in the price of breakfast cereal leads to a 20% increase in the quantity of cereal demanded. As a result:
answer
total revenue will decrease
question
If the elasticity of demand coefficient for a good is one-sixth (in absolute terms), we know:
answer
that for every 1% increase in quantity, there will be a 6% decrease in price.
question
A recent study at a liberal arts college concluded that demand elasticity is 0.91 for college courses. The administration is considering a tuition increase to help balance the budget. An economist might advise the school to:
answer
-decrease tuition in order to increase revenue by boosting enrollment. -decrease tuition because demand for courses is elastic
question
Ceteris paribus, if an 8% increase in price leads to a 6% increase in the quantity supplied, then:
answer
supply is inelastic. Supply is inelastic since an 8% increase in price leads to a 6% increase in the quantity supplied for a supply elasticity coefficient of 6 / 8 = 0.75. For supply to be inelastic, an 8% increase in price has to lead to a less than 8% increase in the quantity supplied as to make the supply elasticity coefficient Es < 1. That being the case, the answer is valid.
question
The price elasticity of demand coefficient for gourmet coffee is estimated to be equal to 1.6. It is expected, therefore, that a 5% increase in price would lead to:
answer
an 8% decrease in the quantity of gourmet coffee demanded.
question
To the extent that a governmental price control succeeds in affecting price, it can be expected to lead to a corresponding:
answer
decrease in the volume of sales whether the price is forced up or down.
question
Unlike its competitors, one glass producer can use its equipment to make either windows for houses or windows for cars. Other things equal, compared to its competitors, its supply curve of windows for cars would be:
answer
more elastic than the supply curves of competitors
question
Supply is said to be ____ when the quantity supplied is not very responsive to changes in price.
answer
inelastic
question
When demand is elastic:
answer
-price elasticity of demand is greater than one. -the percentage change in quantity demanded resulting from a price change is greater than the percentage change in price. -consumers are relatively responsive to changes in price
question
Bailey's Barber Shop knows that a 5% increase in the price of their haircuts results in a 15% decrease in the number of haircuts purchased. What is the elasticity of demand facing Bailey's Barber Shop?
answer
3.0 If percentage change in quantity is 15% and percentage change in price is 5%, price elasticity of demand is 3.00, meaning that a 1% increase in price causes a 3% fall in the number of haircuts at Bailey's Barber Shop. Percentage change in quantity demanded %ΔQd = 15% Percentage change in price %ΔP = 5% Price elasticity of demand Ed = %ΔQd / %ΔP = 15% / 5% = 3.0 The price elasticity of demand Ed is defined as percentage change in quantity demanded divided by percentage change in price (expressed as an absolute value, with no sign). So, Ed is a number that can take several values. If that number is greater than 1, then the demand is elastic, implying that percentage change in quantity is greater than the percentage change in price, or that the quantity demanded is very responsive to changes in price.
question
For a given increase in price, a greater elasticity of demand will result in a greater
answer
decrease in quantity demanded For example, if a good's price increases by 1%, quantity demanded would decrease by 2%, if price elasticity of demand is 2. However, quantity demanded would decrease by 5%, if price elasticity of demand is 5.
question
If Stephanie buys a laptop for $700 and the maximum she would have paid was $1,000, which of the following is true?
answer
Stephanie received a consumer surplus of $300.
question
Assume a price floor is imposed in the wheat market at the equilibrium price and that a price ceiling is imposed in the gasoline market at the equilibrium price. An increase in supply in both the wheat and gasoline markets will create:
answer
a surplus in the wheat market and an increase the quantity of gasoline traded.
