ECO 561 - Week 2 Review

Income elasticity of demand Total Expenditure = Total Revenue Price X Quantity = Cross-price elasticity of demand If a 5 percent increase income leads to a 2.5 percent decrease in the quantity of oatmeal demanded, th ...

Income elasticity of demand Total Expenditure = Total Revenue Price X Quantity = Cross-price elasticity of demand If a 5 percent increase income leads to a 2.5 percent decrease in the quantity of oatmeal demanded, then the absolute value of the income elasticity of demand for oatmeal is The price elasticity of supply will be higher when: Price Elasticity of Demand Suppose your cousin makes cutting boards that he sells on Etsy. Can he increase his total revenue by increasing the price of his cutting boards? Given that most people spend a relatively small share of their budget on pencils, we would expect the elasticity of demand for pencils to be relatively... When goods or services are produced using unique essential inputs, the price elasticity of supply is likely to be very... Food has few (if any) substitutes, so the price elasticity of demand is relatively If the quantity of peanuts demanded increases by 6 percent in response to a 3 percent increase in the price of almonds, then the cross-price elasticity of demand for peanuts with respect to the price of almonds is: The formula for the price elasticity of demand is: If the price elasticity of demand is less than 1 and the price increases, then total expenditure will A consumer's weekly demand for gasoline is likely to be _______ price elastic than his or her yearly demand for gasoline. If the quantity supplied decreased by 2 percent in response to a 4 percent drop in prices, then the price elasticity of supply is If the price elasticity of demand is infinite, then demand is If the income elasticity of demand for pasta is -1.0, then a 10 percent decrease income will lead to a ________ in the quantity of pasta demanded. The elasticity of demand for a good that has very few substitutes is usually relatively If the price elasticity of supply for tobacco is 5, then if the price of tobacco goes down by 1 percent, the quantity of tobacco supplied will If the demand for economy-class airline tickets is elastic with respect to price, then if the price of economy-class airline tickets decreases, then total expenditure will.. If the price elasticity of demand for shoes is 0.70, then the demand for shoes is If the price elasticity of demand for beer is 1.19, and the price of beer goes up by 1 percent, then the quantity of beer demanded will... If the income elasticity of demand for lottery tickets is negative, then lottery tickets are The elasticity of demand ___________ as you move downward along a straight-line demand curve If the cross-price elasticity of demand for motorcycles with respect to the price of cars is 0.05, then if the price of cars increases by 10 percent, the quantity of motorcycles demanded will If the price of sofas goes up by 10 percent and the quantity of sofas demanded falls by 15 percent, then the total expenditure on sofas will If the percentage increase in price is less than the percentage decrease in quantity demanded, then the total expenditure will ________... If the price elasticity of supply is infinite, then demand is If the price elasticity of demand is zero, then demand is If the price elasticity of supply is zero, then supply is.... If price elasticity of demand for restaurant meals is 1.63, then the demand for restaurant meals is If the price elasticity of demand is greater than 1 and price decreases, then total expenditure will.... In the line is horizontal, supply is If the price of lawnmowers goes up by 9 percent and the quantity of lawnmowers demanded falls by 5 percent, then the total expenditure on lawn mowers will If the percentage increase in price is greater than the percentage decrease in quantity demanded, then total expenditure will If the quantity of Big Macs demanded decreases by 4 percent in response to an 8 percent decrease in the price of Whoppers, then the cross-price elasticity of demand for Big Macs with respect to the price of Whoppers is If demand is elastic with respect to price, total expenditure will ________ in response to a price increase. If the income elasticity of demand for iPhones is 1.3, then a 10 percent decrease income will lead to a ________ in the quantity of iPhones demanded. Given that there are only so many operations the world's top brain surgeon can perform every year, the price elasticity of supply for his/her services is likely to be If a store has 10% off everything sale, then the store's total revenue will fall If the cross-price elasticity of demand for bike helmets with respect to the price of bikes is -0.25, then if the price of bikes increases by 10 percent, the quantity of bike helmets demanded will If the price elasticity of supply for dishwasher is 0.2, then if the price of dishwashers goes up by 8 percent, the quantity of dishwashers supplied will… If an early frost damages this year's orange crop, causing the supply curve for oranges to shift to the left, then total revenue from the sale of oranges will Prices tend to be volatile in markets where both supply and demand are You notice that the price of your favorite candy bar has been relatively stable over time. A possible explanation for this is that both supply and demand are.... If the price elasticity of demand for milk is 0.4, then if the price of milk goes up by 20 percent, the quantity of milk demanded will If the price elasticity of supply for dishwashers is 0.2, then if the price of dishwashers goes up by 8 percent, the quantity of dishwashers supplied will The elasticity of supply along any straight-line supple curve that passes through the origin is If a firm's economic loss is $10,000, then it's ___________ is -$10,000. Economic Loss economic profit formula You should not continue to operate your business/store if economic profit is Barrier to entry Long-run market equilibrium Long-run market equilibrium key points If the market for soccer balls is in a long run equilibrium, and the demand for soccer balls falls, then we would expect...... If the market for calculators is in a long run equilibrium, and the demand for calculators increases, then we would expect...... Economic Rent Economists believe that market efficiency makes clear that.... Economists believe that... Explicit costs Accounting Profit formula The market equilibrium is only efficient if.... The broader interests of society are ______________ promoted by the individual pursuit of self-interest. In the long run, all firms in an industry will tend to earn. In the long run, new firms will enter a market if existing firms are earning a .... Economic loss creates an incentive for.... If the market equilibrium is efficient, then: Implicit costs The difference between a firm's total revenue and the sum of its explicit and implicit costs is the firm's When a market reaches equilibrium... In general, price subsidies will ______ total economic surplus The actual payments a firm makes to its factors of production and other suppliers are its.... Price controls are often designed to help the poor, but the fact that they reduce total economic surplus means that alternative policies such as direct income transfers to the poor: Normal Profit If the firms in a market are earning a positive economic profit, then in the long run, __________ the market will lead economic profit to __________. In a market in which firms are earning a positive economic profit, entry will occur until all firms earn... Economic efficiency is important because when markets are efficient A firm should exit the market if... Allocative function of price If all firms in a market earn zero economic profit, then we would expect Rationing function of price Normal Profit The Equilibrium Principle States that: Invisible Hand Theory If firms are not free to enter and exit the market, then Efficient (or Pareto efficient) means When the costs and benefits to individual participants in the market differ from those experienced by society as a whole, If the price of a product is below the equilibrium price, then it's ________ possible to design a transaction that will make both buyers and sellers better off. A firm that adopts a new cost saving innovation will earn an economic profit in.... It's always possible to design a transaction that will help both buyers or sellers whenever the price of a product is... If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is equal to... If 20 percent increase in the price of a good leads to a 60 percent decrease in the quantity demanded, then what is the price elasticity of demand? When the price of NBA tickets is $25 each, 30,000 tickets are sold. After the price rises to $30 each, 20,000 tickets are sold. At the original price, the demand for NBA ticket is: Suppose the company that owns the vending machines on your campus has doubled the price of a can of soda. They then notice that they are selling approximately 15 percent fewer sodas. The price elasticity of demand for sodas from the campus vending machines, therefore, is: Jeans in general have fewer close substitutes than a specific brand of jeans. Therefore, the demand for jeans in general will be _______ than the demand for a specific brand of jeans. All else equal, compared to small-budget items such as paper towels, the price elasticity of demand for big-ticket items such as refrigerators is: Demand tends to be ______ in the short run than in the long run. Assume the price of gasoline doubles tonight and remains at that price for the next two years. Compared with the long-run price elasticity of demand for gasoline, the short-run price elasticity of demand for gasoline will be ______. If consumers completely cease purchasing a product when its price increases by any amount, then demand is: If the demand curve for open-heart surgery is vertical for people with serious heart conditions, then the demand for open-heart surgery is ______ with respect to price. Adam Smith's theory of the invisible hand posits the actions of independent, self-interested buyers and sellers will ______ lead to the most efficient allocation of resources. The role that prices play in distributing scarce goods and services to those consumers who value them the most highly is known as the ______ function of price. The role that prices play in directing resources away from overcrowded markets and towards markets that are underserved is known as the ______ function of price. The allocative function of price is to: If the firms in a market are earning an economic profit, then, in the long run, the market ______ curve will shift to the ______. If all firms in a perfectly competitive industry are earning a normal profit, then: In an industry with free entry and exit, positive economic profit: Which of the following best describes how a perfectly competitive industry would respond to a sudden increase in popularity of the product? The market demand curve would shift to the right, leading to: One assumption of the perfectly competitive model is free entry and exit. This assumption most directly leads to the implication that: The allocative function of price cannot operate unless there is: In a free market economy, the decisions of buyers and sellers are: The supplier of a factor of production has a reservation price of $100. The purchaser of the factor of production has a reservation price of $200. If the factor of production is unique, then: The economic surplus of an action is: You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The psychic cost to you of working is $2/hr. Your economic surplus from going to work instead of seeing SPAM on Saturday is: Dividing the total cost of undertaking n units of an activity by n reveals the: A firm pays Pam $40 per hour to assemble personal computers. Each day, Pam can assemble 4 computers if she works 1 hour, 7 computers if she works 2 hours, 9 computers if she works 3 hours, and 10 computers if she works 4 hours. Pam cannot work more than 4 hours day. Each computer consists of a motherboard, a hard drive, a case, a monitor, a keyboard, and a mouse. The total cost of these parts is $600 per computer. What is the marginal cost of producing the computers that Pam can assemble during her 2nd hour of work?`` If the price elasticity of demand for pineapples is 0.75, then a 4 percent increase in the price of pineapples will lead to a: Suppose the price P on a given demand curve results in a price elasticity of demand equal to 1. Any price higher than P will lie on the ______ part of the demand curve, and any price lower than P will lie on the ______ part of the demand curve. A demand curve that is drawn as a vertical line has a price elasticity of demand equal to: All else equal, the price elasticity of demand for small-budget items such as soap tends to be ______ than the price elasticity of demand for big-ticket items such as flat-screen TVs. The demand for a good is elastic if the price elasticity of demand is: Suppose that the short-run price elasticity of demand for electricity is 0.03, and the long-run price elasticity of demand is 1.2. One would classify the short-run elasticity as being ___________ and the long-run elasticity as being ____________. Jeans in general have fewer close substitutes than a specific brand of jeans. Therefore, the demand for jeans in general will be _______ than the demand for a specific brand of jeans. Superstar professional athletes can sustain their economic rents because: Which of the following best describes how a perfectly competitive industry would respond to a sudden increase in popularity of the product? The market demand curve would shift to the right, leading to: Which of the following is a characteristic of economic rent?