Microeconomics Test #2

Front 1

most commonly used measure of consumers' sensitivity to price

Back 1

price elasticity of demand

Front 2

Most consumer goods & services have a price elasticity between ______ & ______

Back 2

.5, 1.5

Front 3

The rule of thumb for most products is that price elasticity clusters around ______.

Back 3

1

Front 4

PE>1 (Elastic or Inelastic?)

Back 4

Elastic

Front 5

PE=1

Back 5

unit elastic

Front 6

PE<1 (Elastic or Inelastic?)

Back 6

Inelastic

Front 7

Goods that are more essential to everyday living & have fewer substitutes tend to have (higher/lower) elasticities. (Ex: staple foods)

Back 7

lower

Front 8

Luxuries, which have many substitutes, tend to have (elastic/inelastic) demand.

Back 8

elastic

Front 9

Demand for automobiles: Elastic or Inelastic
- short-term- ______
- specific model - ______
- long-run - demand in rural areas- ______

Back 9

- elastic - can be delayed
- highly elastic - many substitutes
- inelastic - few alternative modes of transportation

Front 10

Equation for Total Revenue (TR)

Back 10

Price of Good x Units Sold

Front 11

Equation for price elasticity of demand (Ed)

Back 11

% ∆ in QD / % ∆ in price

(Q [new] – Q1 [old])
_________________ x 100
(Q + Q1) /2

÷

(P [new] – P1 [old])
_________________ x 100
(P + P1) /2

Front 12

Price elasticity of Demand is reported as a ______ number even though the calculation is ______, because price & QD move in opposite directions.

Back 12

positive, negative

Front 13

Elastic or inelastic?

% ∆ QD = % ∆ in price

% ∆ QD < % ∆ in price

% ∆ QD > % ∆ in price

Back 13

unit elastic, inelastic, elastic

Front 14

A change in the amount the seller receives for each unit sold.

Back 14

price effect

Front 15

With the price effect:
- When price increases, TR ______.
- When price decreases, TR ______.

Back 15

increases, decreases

Front 16

With the quantity effect:
- When price increases, QD ______, which makes TR ______.
- When price decreases, TR ______.

Back 16

decreases, decreases, increases

Front 17

Price effect and quantity effect work in ______ directions. TR may ______, ______, or ______ whenever price changes.

Back 17

opposite, increase, decrease, remain the same

Front 18

Inelastic or Elastic:
Price effect > Quantity Effect

Quantity Effect > Price Effect

Back 18

inelastic, elastic

Front 19

Elastic or inelastic?
1. Price increases, TR decreases
2. Price increases or decreases and TR =
3. Price decreases, TR increases
4. Price decreases, TR decreases
5. Price increases, TR increases

Back 19

elastic, unitary elastic, inelastic, elastic, inelastic

Front 20

(increase/decrease)
The more time consumers have to adjust to price changes, the more they will ______ purchases in response to ______ in prices and ______ prices in response to ______ in prices.

Back 20

increase, decreases, decrease, increases

Front 21

Long-term demand is more (elastic/inelastic) than short-run demand.

Back 21

elastic

Front 22

Why do we use the midpoint formula when calculating elasticity of demand?

Back 22

So I don't have to worry whether Q or price went up or down.

Front 23

Ed (Elasticity Coefficient) determines the percent change in quantity for a ______% change in price.

Back 23

1

Front 24

Profit =

Back 24

Total Revenue - Total Cost

Front 25

(higher/lower)

The higher the price, the ______ the elasticity. The lower the price, the ______ the elasticity.

Back 25

higher, lower

Front 26

Ed>1, it is (very/not very) responsive, (elastic/inelastic), and relatively (steep/flat).

Back 26

very, elastic, flat

Front 27

The larger the Ed, the (steeper/flatter) the curve?

Back 27

flatter.

Front 28

Ed = ∞, (perfectly elastic/inelastic), can sell as much as I want at one price, but if I raise or lower my price I can't sell any.

Back 28

Perfectly Elastic

Front 29

Ed<1, (very/not very) responsive, relatively (steep/flat) curve.

Back 29

not very, steep

Front 30

Ed=0 (Perfectly Elastic/Inelastic), If I change price, quantity doesn't change at all. Horizontal or vertical line? Something you cannot do without.

Back 30

Perfectly Inelastic, Vertical

Front 31

Ed = 1; point where elasticities shift, doesn't have to be midpoint

Back 31

Point Elasticity, Unit Elasticity

Front 32

TR increases when:
- Price increases & Ed is (elastic/inelastic)
- Price decreases & Ed is (elastic, inelastic)

Back 32

inelastic, elastic

Front 33

TR decreases when:
- Price increases & Ed is (elastic/inelastic)
- Price decrease and Ed is (elastic, inelastic)

Back 33

elastic, inelastic

Front 34

There is no change in TR when:
- Price increases & Ed is ______
- Price decreases & Ed is ______

Back 34

unit, unit

Front 35

When Ed is ______, the increase or decrease in price is matched by change in quantity.

Back 35

unit

Front 36

The most TR occurs when Ed is ______.

Back 36

unit (Ed = 1)

Front 37

Income Elasticity of demand formula (Ey) =

Back 37

% ∆ in QD / % ∆ Y (income)

(Q [new] – Q1 [old])
_________________ x 100
(Q + Q1) /2

÷

(Y [new] – Y1 [old])
_________________ x 100
(Y + Y1) /2

Front 38

For a normal good, as income increases, demand ______. As income decreases, demand ______.

Back 38

increases, decreases

Front 39

For an inferior good, as income increases demand ______. As income decreases, demand ______.

Back 39

decreases, increases

Front 40

With income elasticity of demand, ______ is important, because it tells us whether a good is normal or inferior.

Back 40

sign

Front 41

With income elasticity of demand, that of inferior goods is (positive/negative) and that of normal goods is (positive/negative).

Back 41

negative - inverse relationship to y, moving in opposite directions

positive

Front 42

Which of the following pairs of goods and services would the cross elasticity of demand be negative?
(a) iPods and songs downloaded from iTunes
(b) digital satellite service and digital video recorders
(c) recreational vehicles and camping tents
(d) bowling and co-ed softball
(e) textbooks and study guides

Back 42

(complements)
a, b, & e

Front 43

As the price of one good changes, what happens to demand for the other is known as ______ elasticity.

Back 43

cross price

Front 44

Equation for Cross Price Elasticity (Exz)

Back 44

% Change in QD of one good/ % change in price of the other good

Front 45

If the cross elasticity of demand is positive, they're ______. If it is negative, they're ______.

Back 45

substitutes, complements

Front 46

The absolute value of the cross elasticity of demand (Exz) gives the ______ of the relationship.

Back 46

magnitude

Front 47

A movement along the supply curve as a result of a change in price of the good

Back 47

elasticity of supply

Front 48

Formula for elasticity of supply (Es) =

Back 48

% ∆ in Qs / % ∆ price

(Q [new] – Q1 [old])
_________________ x 100
(Q + Q1) /2

÷

(P [new] – P1 [old])
_________________ x 100
(P + P1) /2

Front 49

The price elasticity of supply is always (positive/negative).

Back 49

positive, sign is not important (direct relationship)

Front 50

If price goes up, and quantity doesn't change, it is ______.

Back 50

perfectly inelastic

Front 51

When the percentage change in quantity = percentage change in price, it is said to be ______. (Es = 1) It doesn't matter the slope of the curve as long as it crosses at the origin.

Back 51

unit elastic

Front 52

Curves that are relatively ______, cross the y-axis at some point other than 0 and are flat.

Back 52

elastic

Front 53

Curves that are ______, cross the y-axis at some point other than 0 and are steep.

Back 53

inelastic

Front 54

Elasticity & ______ are not the same thing!

Back 54

slope

Front 55

Determinants of Supply:
- Availability of ______ resources (inputs)
* Limited or depleted
(elastic/inelastic)
*Readily available
(elastic/inelastic)
- ______ Frame
* momentarily- perfectly
(elastic/inelastic)
* short-run -
(elastic/inelastic)
*long- run -
(elastic/inelastic)

Back 55

production, inelastic, elastic, time, inelastic, inelastic, elastic

Front 56

Goal of economics: ______ efficiency

Back 56

allocative

Front 57

Allocative efficiency occurs at ______. Marginal ______ = Marginal ______. Both consumer & producer are receiving max ______. Satisfaction is measured by ______ (excess value) and ______ surplus.

Back 57

equilibrium, benefit, cost, satisfaction, consumer, producer

Front 58

Equilibrium will provide the max consumer & producer surplus, meaning it is ______.

Back 58

efficient

Front 59

Price (consumer surplus) is what you ______ for the good & also the ______/satisfaction you receive form the good. (marginal ______)

Back 59

pay, value, benefit

Front 60

To calculate value of consumer surplus -

Back 60

1/2H x W

Front 61

When calculating consumer surplus, for example: If the equilibrium price is $7, but I would have been willing to pay $10, the excess value or consumer surplus is ______.

Back 61

$3

Front 62

When looking at the consumer surplus you go from below the ______ curve to equilibrium.

Back 62

demand

Front 63

The more I have of something, the ______ satisfaction I get from 1 more unit (value decreases).

Back 63

less

Front 64

The demand curve is also known as the marginal ______.

Back 64

marginal benefit, (society- marginal social benefit)

Front 65

When looking at the producer surplus, you go from above the ______ curve to equilibrium.

Back 65

supply

Front 66

Price (producer surplus) is what ______ received for the good & marginal ______ (what it costs to produce an additional unit).

Back 66

firm, cost

Front 67

The marginal benefit when considering the producer surplus is the marginal ______.

Back 67

revenue

Front 68

The producer surplus value must cover the cost of ______, otherwise I wouldn't supply the good.

Back 68

production

Front 69

At each price, what someone is willing & able to supply is the ______ surplus.

Back 69

production

Front 70

To find the production surplus:

Back 70

1/2H x W

Front 71

When considering the producer surplus, if I would have sold the good at $2, but I get $5, my extra revenue is ______.

Back 71

$3

Front 72

The supply curve = marginal ______

Back 72

cost, market as a whole - marginal social cost

Front 73

In a ______ economy, supply & demand allocate resources. It is efficient when MB = MC (______ cost), and also when what I get from gaining something equals what I had to give up.

Back 73

market, opportunity

Front 74

A market economy is efficient when ______ & ______ surpluses are at a max, it is ______ efficient. The problem with this is that it is ______, but not necessarily ______ (equity).

Back 74

consumer, producer, allocatively, efficient, fair

Front 75

Providing the goods & services in the quantities people want & they're willing to pay for is known as being ______ efficient.

Back 75

allocatively

Front 76

Price caps and rent controls are known as price ______.

Back 76

ceilings

Front 77

With a price ceiling, price has to be set ______ equilibrium.

Back 77

below

Front 78

When prices can go up to but no higher than a certain amount, that is known as a price ______.

Back 78

ceiling

Front 79

The value lost is known as ______.

Back 79

deadweight

Front 80

Place between what producer is getting and what buyer is willing to pay. Place between producer & consumer surplus.

Back 80

wedge

Front 81

A wedge is a ______ cost.

Back 81

opportunity or search

Front 82

A price floor sets ______ price.

Back 82

minimum

Front 83

Minimum Wage and ag price supports are examples of price ______.

Back 83

floors

Front 84

MB > MC, you have ______ of goods

Back 84

underproduction

Front 85

We are (efficient/inefficient) if MB>MC. (underproduced, underhired)

Back 85

inefficient

Front 86

Tax:
When elasticities are the same, who bears the tax?

Back 86

all of society bears burden equally

Front 87

Tax: When demand is inelastic, ______ bears more of tax burden (gave up most of excess value).

Back 87

consumer, producer pays what's left over

Front 88

Tax: When demand is more elastic than supply, the ______ pays more of a tax.

Back 88

producer, consumer pays the rest

Front 89

Tax: When demand is perfectly inelastic, the percentage change in demand as a result of any price increase = ______. The tax is all on the ______.

Back 89

0, consumer

Front 90

Tax: When supply is perfectly inelastic, the tax is all on the ______.

Back 90

producer

Front 91

The closer to inelastic the numbers, the (more/less) deadweight.

Back 91

less

Front 92

The more elastic demand is, the (more/less) deadweight.

Back 92

more

Front 93

When demand is perfectly elastic, whoever is most ______ will pay the tax, which will be the ______.

Back 93

inelastic, producer

Front 94

In a ______ system, the price is set & you accept it, ______ doesn't get involved in a true system of this kind.

Back 94

market, government

Front 95

In a market system, you weight ______ vs. ______ (fairness, when it's not fair, governments get involved).

Back 95

efficiency, equity

Front 96

A price ceiling helps ______ because ______ surplus goes down.

Back 96

consumers, producer

Front 97

A price floor helps ______, because ______ surplus goes down.

Back 97

supplier, consumer

Front 98

A tax on seller (is/is not) included in selling price.

Back 98

is

Front 99

A tax on buyer (is/is not) included in the selling price.

Back 99

is not

Front 100

A tax on buyer causes a change in ______ because you're going to have to pay extra.

Back 100

demand