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72 Cards in this Set
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i. a measure of the sensitivity of a variable to a change in another variable ii. invariant (or insensitive) to the units in which variables are measured iv. defined as the ratio of the percentage change in the affected variable to the percentage change in the affecting variable 
In economic research elasticities are a commonly used metric. An elasticity is: 

percentage change in quantity demanded divided by the percentage change in price 
The price elasticity of demand is defined as the: 

i. the price elasticity is not sensitive to the units in which price and quantity demanded are measured iii. the price elasticity provides a better means for making crossproduct comparisons (e.g., between goods X and Y) when the prices of the products differ 
To evaluate the sensitivity of changes in quantity demanded (or purchases) to changes in price, a researcher could evaluate the slope of the market demand curve or the price elasticity of demand. The price elasticity of demand may be favored over the slope because: 

ii. percentage change in price will result in a greater percentage change in quantity demanded iv. change in price will cause revenues (or consumer expenditures) to change in the opposite direction 
If the demand for a good is elastic with respect to its price, then a: 

demand is elastic 
If a good's price falls from $50 to $40 and as a result the perperiod quantity demanded increases from 30 to 40 units, then it may be concluded that: 

i. the price elasticity is greater than one ii. buyers are said to be relatively insensitive to changes in price iii. total revenue will increase if price increases iv. a percentage change in price will result in a smaller percentage change in quantity demanded 
If the demand for a good is price elastic at the current market price then: 

increase initially and then decrease 
If the demand for a good is given by the linear equation Q = 200  2P, then as price is lowered from the choke price to zero the total expenditures on the good: 

the smaller the number of substitutes that exist and the smaller the price elasticity of demand

The more broadly a good is defined (for example, gasoline in general versus Wawa brand gasoline): 

i. if a percentage change in price results in a greater percentage change in quantity demanded, then demand is elastic iii. along a linear demand curve, demand is elastic above the midpoint and inelastic below the midpoint iv. total revenue will not change as a result of a change in price if demand is unit elastic 
Which of the following statements is correct? 

TR = 120Q  2Q^2 
Suppose the market demand for a good is described by the demand function P = 120  2Q. It follows that the total revenue function relating the total revenues (TR) to the quantity sold (Q) is: 

A and C 
If the price elasticity of demand is 0.36, 2.58, 0.92, and 1.44 for products A, B, C, and D respectively, then a one percent increase in price will increase total revenue (TR) in which of the following: 

negative and the goods are complements 
Suppose that a 6 percent decrease in the price of good X causes an 7 percent increase in the quantity demanded of good Y. The crossprice elasticity of demand is therefore: 

the good is normal and the income elasticity of demand is positive 
If purchases of a good increase as a result of an increase in household income, then: 

percentage change in quantity supplied divided by the percentage change in price 
The price elasticity of supply is defined as the: 

the supply curve for nuts over a long period (e.g., ten years) is more elastic than the supply curve for nuts over a short period (e.g., one year) 
The demand for nuts, such as almonds, walnuts, and cashews, has increased sizably in recent years, however, it takes a considerable amount of time to increase their production. It follows that: 

iii. satisfaction derived from consumption of a good or service 
In microeconomics the term utility references the:


i. the utility derived from all bundles of goods and services ii. the bundles of goods and services that yield the same level of utility 
The consumer choice models describes how an individual allocate his/her income over goods and services in order to maximize utility. One component of the consumer choice model is the individuals utility function. From the utility function alone, which of the following can be determined? 

Elaine knows that utility is subjective and therefore it is not meaningful to make interpersonal utility comparisons 
Punkrocker Pete is feeling insecure about his longterm relationship with economist Elaine. At the conclusion of a recent date, he tells Elaine, "I feel that I derive much more utility from this relationship than you." Elaine tells him that his claim is ridiculous because: 

change in total utility from consuming each additional unit of a good 
Marginal utility is the: 

if marginal utility is diminishing but positive as consumption increases, then total utility will increase 
Which of the following is statements is correct? 

as more and more units of a good are consumed, marginal utility will decline beyond a point 
The law of diminishing marginal utility states that: 

total utility is increasing at a decreasing rate and marginal utility is decreasing 
Fran likes fruit. If she consumes 1 piece of fruit, she obtains 6 units of utility, if she consumes 2 pieces she obtains 10 units of utility, and if he consumes 3 pieces he obtains 12 units of utility. It follows that: 

Bundle A, Bundle C, Bundle B 
Suppose an individuals preferences are described by the CobbDouglass utility function U = X0.5Y0.5 and consider the following three combinations (or bundles) of X and Y: Bundle A (6,1); Bundle B (3,4); Bundle C (5,2). Given the individuals preferences, the bundles ranked from leastpreferred to mostpreferred are: 

Y = 16/X 
Suppose a consumers utility function is U = X0.5Y0.5. It follows that the indifference function associated with the bundle X = 2 and Y = 8 or (2, 8) is: 

i. both X and Y are goods ii. both X and Y are bads 
If an indifference curve relating X and Y slopes downward, then it may be concluded that: 

X = 6 
Consider an individual whose preferences are described by the utility function is U = X0.5Y0.5. If she consumes 3 units of X and 4 units of Y, then some level of utility will be experienced. If the individual instead consumes 2 units of Y, how much of good X must she consume in order to attain the level of utility associated with 3 units of X and 4 units of Y? 

iii. is unobtainable, given the consumer's income 
Any bundle of goods located outside (versus inside) of a consumers budget constraint: 

Y = 50  0.5X 
If a consumers income is $200, the price of good X is PX = $2, and the price of good Y is PY = $4, then the algebraic expression for the consumers budget constraint is: 

3X and 6Y 
Suppose a consumer has an income of $15 that is spent on two goods: X and Y. The price of good X is $3.00 and the price of good Y is $1.00. Which of the following combinations (or bundles) of X and Y lie on the individuals budget constraint? 

marginal utility per dollar is equal over the goods and services purchased 
If the consumer is a utility maximizer in allocating income over goods and services, then income will be allocated such that: 

2.5 percent decrease in quantity demanded 
Consider the market demand for a given good. If ED = 2.5 at the current market price, then a 1 percent increase in price will result in a: 

iii. is inelastic 
If the price of a good rises from $10 to $20 and as a result the perperiod quantity demanded decreases from 50 to 40 units, then it may be concluded that demand in this price range: 

the larger the number of substitutes that exist and the larger the price elasticity of demand 
The more narrowly a good is defined (for example, Coca Cola or Pepsi versus soft drinks in general): 

the price elasticity of demand is greater for necessities than luxuries 
Which of the following generalizations is not correct? 

ED < 1 within the range over which the price of gasoline has varied (e.g., between $3 and $2 per gallon) 
The U.S. Department of Energy reported that it estimates that the average household can expect to spend about $750 less on gasoline in 2015 compared to 2014 as a result of the decline in the price of crude oil. Given this information, it may be concluded that for the average household: 

iii. the demand for the good is inelastic in the $5$6 price range 
If a firm finds that it can generate $10,000 of revenue when the price of the good its sells is $6 per unit and $8,000 of revenue when the price of the good it sells is $5 per unit, then: 

total revenue declines if price is increased 
Which of the following is not characteristic of the demand for a commodity that is price inelastic? 

elastic 
A local theme park has estimated that in order to increase revenues generated from ticket sales it must reduce ticket prices. It follows that the theme park has estimated the demand for visits to the park to be: 

C and D 
Suppose that at the current prices the price elasticity of demand is 0.56, 0.92, 1.75, and 2.42 for products A, B, C, and D respectively. A one percent decrease in price will increase total revenue (TR) in which of the following: 

increase initially and then decrease 
An individuals total expenditures on a good perperiod are equal to the price of the good times the number of units of the good purchased. If an individuals demand function for a good is given by the linear equation Q = 20  0.5P, then as price decreases from the choke price to zero his/her total expenditures: 

6 
Suppose good A and good B are substitutes for one another and both are normal goods. The quantity of each good demanded (or purchased) is a function of its price (e.g, PA), the price of the substitute (e.g. PB ), and consumer income (I). Given this information, how many total demand elasticities can be calculated for goods A and B? 

TR = 200Q  0.5Q2 
Suppose the market demand for a good is described by the demand function P = 200  0.5Q. It follows that the total revenue function relating the total revenues (TR) to the quantity sold (Q) is: 

ES = 1.5 and ED = 1 
Consider a perfectly competitive market described by the supply function P = 10 + 0.2Q and demand function P = 60  0.3Q. Using the standard formula (versus the midpoint formula) for calculating elasticities, it may be concluded that at the equilibrium price and quantity: 

positive and the goods are substitutes 
Suppose that a 5 percent decrease in the price of good X causes an 8 percent decrease in the quantity demanded of good Y. The crossprice elasticity of demand is therefore: 

how responsive consumers are to changes in income 
The income elasticity of demand is a measure of: 

the good is inferior and the income elasticity of demand is negative 
If purchases of a good increase as a result of a decrease in household income, then: 

smaller than the income elasticity of demand for foreign vacation travel 
The income elasticity of demand for food (e.g., measured by daily calories consumed) can reasonably be expected to be: 

amount of time the producer has to adjust inputs in response to a price change 
The primary determinant of the price elasticity of supply is the: 

the longrun supply of housing is more price elastic than the shortrun supply of housing 
It takes a considerable amount of time to increase the supply of housing within a local housing market (e.g., Orlando) as a result of an increase in the demand for housing. Defining the shortrun as a period of time less than six months and the longrun as a period of time greater than six months, it follows that: 

iii. satisfaction that a consumer derives from a good or service 
In economics the term utility refers to the: 

ii. the utility derived from all combinations of goods and services iii. the bundles that yield a given level of (or the same amount of) utility 
From a utility function, which of the following may be determined? 

a good may yield utility but not be functionally useful 
Which of the following statements is correct? 

if marginal utility is diminishing but positive as consumption increases, then total utility will increase 
Which of the following is statements is correct? 

total utility is increasing at an increasing rate and marginal utility is increasing 
Suppose that if an individual consumes 1 unit of good X she obtains 4 units of utility, if she consumes 2 units of good X she obtains 10 units of utility, and if she consumes 3 units of good X she obtains 18 units of utility. It follows that: 

is positive, but it may be either increasing or decreasing 
Suppose that total utility increases as consumption of a good increases. It follows that the marginal utility from each successive unit of the good consumed: 

total utility is constant 
A critical component of the consumer choice model are indifference curves. In moving upward or downward along a given indifference curve: 

iii. X is a bad and Y is a good or X is a good and Y is a bad 
If an indifference curve relating X and Y slopes upward, then it may be concluded that: 

Y = 8/X 
Consider an individual whose utility function is utility function U = X0.5Y0.5. Given this information, the indifference function associated with the bundle X = 4 and Y = 2 or (4, 2): 

X = 2 
Consider an individual whose utility function is U = X0.5Y0.5. If the individual consumes 1 unit of X and 4 units of Y, then she will experience some level of utility. If the individual instead consumes 2 units of Y, how much of good X must she consume in order to attain the level of utility associated with 1 unit of X and 4 units of Y? 

iii. consumer income is constantiv. the prices of the goods are constant 
Assuming there are no quantity discounts or penalties, in moving downward or upward along a budget constraint: 

ii. the utility maximizing bundle of goods and services a consumer will purchaseiii. how the prices of the goods and services were determined 
Which of the following does the budget constraint alone not indicate? 

8X and 4Y 
Suppose a consumer has an income of $20 that is spent on two goods: X and Y. The price of good X is $1.00 and the price of good Y is $3.00. Which of the following combinations (or bundles) of X and Y lie on the individuals budget constraint? 

ii. implies the consumer is not spending all of her income on goods and services 
Any bundle of goods located inside (versus outside) of a consumers budget constraint: 

Y = 25  0.5X 
Suppose an individual exhausts her income on goods X and Y. If her income is $150, the price of good X is PX = $3, and the price of good Y is PY = $6, then the algebraic expression for her budget constraint is: 

20 units 
Suppose a quantity discount applies on purchases of a good. Specifically, the pricing arrangement is such that a consumer can purchase the first 10 units of the good for $6 each and all additional units (i.e., the 11th, 12th, etc.) can be purchased for $4 each. If the consumer has an income of $100, what is the maximum number of units of the good that the consumer can purchase? 

marginal utility per dollar (i.e., marginal utility divided by price) is equal over the goods 
If a consumer is maximizing utility then income is allocated over goods such that: 

more of Y and less of X 
Suppose an individual is allocating income over goods X and Y such that MUx/Px < MUY/PY . The consumer can increase total utility by purchasing: 

the budget constraint will shift outward, the consumer will move to a new equilibrium along a higher indifference curve, and the level of total utility will increase 
Consider a consumer who maximizes utility subject to a budget constraint. If her income increases, then: 

buyers are said to be relatively insensitive to changes in price otal revenue will increase if price increases 
if the demand for a good is inelastic at the market price, then: 

the good is inferior and the income elasticity of demand is negative 
If purchases of a good increase as a result of a decrease in household income, then: 

4 percent decrease in quantity supplied 
Suppose the price elasticity of supply for a good at the current price is ES = 2. It follows that a 2 percent decrease in price will result in a: 

the shortrun supply of housing is less price elastic than the longrun supply of housing an increase in the demand for housing will have a larger affect on housing prices in the shortrun compared to the longrun 
The supply of housing in a city often takes a considerable amount of time to increase following an increase in the demand for housing. Defining the shortrun as a period of time less than six months and the longrun as a period of time greater than six months, it follows that: 