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Module 3 econ test

Terms in this set (29)

For a good that is a luxury, demand

tends to be inelastic.
tends to be elastic.
has unit elasticity.
cannot be represented by a demand curve in the usual way.
tends to be elastic.
The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.
the extent to which demand increases as additional buyers enter the market.
how much more of a good consumers will demand when incomes rise.
the movement along a supply curve when there is a change in demand.
buyers' responsiveness to a change in the price of a good.
Cross-price elasticity of demand measures how

the price of one good changes in response to a change in the price of another good.

the quantity demanded of one good changes in response to a change in the quantity demanded of another good.

the quantity demanded of one good changes in response to a change in the price of another good.

strongly normal or inferior a good is.
the quantity demanded of one good changes in response to a change in the price of another good.
For which of the following goods is the income elasticity of demand likely lowest?

Clothing
Apples
Diamond earrings
Limousines
Clothing
Which of the following statements is valid when the market supply curve is vertical?

Market quantity supplied does not change when the price changes.
Supply is perfectly elastic.
An increase in market demand will increase the equilibrium quantity.
An increase in market demand will not increase the equilibrium price.
Market quantity supplied does not change when the price changes.
Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

negative, and the good is an inferior good.
negative, and the good is a normal good.
positive, and the good is a normal good.
positive, and the good is an inferior good.
positive, and the good is a normal good.
If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donuts sellers.
decrease total revenue of donuts sellers.
not change total revenue of donuts sellers.
change total revenue of donuts sellers but in an unknown way without more information.
increase total revenue of donuts sellers.
Which of the following is not a determinant of the price elasticity of demand for a good?
Whether a good is a necessity or a luxury
The flatness of the supply curve for the good
The time horizon
The definition of the market for the good
The flatness of the supply curve for the good
If the price elasticity of supply is 0.6, and a price increase led to a 3.7 percent increase in quantity supplied, then the price increase is about

0.16 percent.
2.22 percent.
6.17 percent.
5.17 percent.
6.17 percent.
Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

steeper the demand curve will be.
flatter the demand curve will be.
further to the right the demand curve will sit.
closer to the vertical axis the demand curve will sit.
flatter the demand curve will be.
The demand for grape-flavored Hubba Bubba bubble gum is likely

inelastic because there are many close substitutes for grape-flavored Hubba Bubba .
elastic because there are many close substitutes for grape-flavored Hubba Bubba.
inelastic because the market is broadly defined.
elastic because the market is broadly defined.
elastic because there are many close substitutes for grape-flavored Hubba Bubba.
At a price of $70 per unit, sellers' total revenue equals

$900.
$1,050.
$1,200.
$1,020.
$1,050.
Demand is said to be price elastic if

the price of the good responds substantially to changes in demand.
demand shifts substantially when income or the expected future price of the good changes.
buyers do not respond much to changes in the price of the good.
buyers respond substantially to changes in the price of the good.
buyers respond substantially to changes in the price of the good.
The supply of a good will be more elastic, the

more the good is considered a luxury.
broader is the definition of the market for the good.
larger the number of close substitutes for the good.
longer the time period being considered.
longer the time period being considered.
Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to

only existing customers who now get lower prices on the gowns they were already planning to purchase.
only new customers who enter the market because of the lower prices.
both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.
Consumer surplus does not increase; it decreases.
both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.
If the price is $1,050, who would be willing to supply the product?

Mike and Laura
Mike , Laura, and Sasha
David and Codi
Sasha, David and Codi
David and Codi
If the price of the product is $110, then who would be willing to purchase the product?
Calvin
Calvin and Sam
Calvin, Sam, and Andrew
Calvin, Sam, Andrew, and Sasha
Calvin, Sam, and Andrew
Refer to Figure 7-9. At equilibrium, producer surplus is represented by the area
F.
F+G.
D+H+F.
D+H+F+G+I.
D+H+F.
Suppose there is an early freeze in California that reduces the size of the lemon crop. As the price of lemons rises, what happens to consumer surplus in the market for lemons?

Consumer surplus increases
Consumer surplus decreases
Consumer surplus is not affected by this change in market forces
We would have to know whether the demand for lemons is relatively elastic or inelastic to make this determination
Consumer surplus decreases
The maximum price that a buyer will pay for a good is called

consumer surplus.
producer surplus.
efficiency.
willingness to pay .
willingness to pay .
The equilibrium market price for 10 piano lessons is $400. What is the total producer surplus in the market?

$0
$300
$400
$700
$400
When the price is P2, producer surplus is

A.
A+C.
A+B+C.
D+G.
A+B+C.
Refer to Figure 7-1 . When the price is P 2 , consumer surplus is

A+B+C.
A+B+D.
A.
A+B.
A
As a result of a decrease in price,

new buyers enter the market, increasing consumer surplus.

new buyers enter the market, decreasing consumer surplus.

existing buyers exit the market, increasing consumer surplus.

existing buyers exit the market, decreasing consumer surplus.
new buyers enter the market, increasing consumer surplus.
Refer to Figure 7-8. Total surplus can be measured as the area

JNK.
JNML.
JRL.
JNL.
JNL.
We can say that the allocation of resources is efficient if

producer surplus is maximized.
consumer surplus is maximized.
total surplus is maximized.
sellers' costs are minimized.
total surplus is maximized.
Which tools allow economists to determine if the allocation of resources determined by free markets is desirable?

Profits and costs to firms
Consumer and producer surplus
The equilibrium price and quantity
Incomes of and prices paid by buyers
Consumer and producer surplus
The distinction between efficiency and equality can be described as follows:

Efficiency refers to maximizing the number of trades among buyers and sellers; equality refers to maximizing the gains from trade among buyers and sellers.

Efficiency refers to minimizing the price paid by buyers; equality refers to maximizing the gains from trade among buyers and sellers.

Efficiency refers to maximizing the size of the pie; equality refers to producing a pie of a given size at the least possible cost.

Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.
Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.
A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

maximizes both the total revenue for firms and the quantity supplied of the product.
maximizes the combined welfare of buyers and sellers.
You Answered minimizes costs and maximizes output.
minimizes the level of welfare payments.
maximizes the combined welfare of buyers and sellers.
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