ECON 101 Chapter Notes - Chapter 6: Sea Cave

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6. 1 wlasticity as measure to responsiveness to changes in price or incomes. % change in q demanded = 100(change in qd / initial qd) % change in price = (change in price/original price)x100 price elasticity of demand = % change in qd/% change in price. % change in x = 100 (change in x/average value of x) Average value of x = (starting value of x + final value of x)/2. Price elasticity of demand = (q2-q1)/(q1+q2)/2 / (p2-p1)/(p1+p2)/2. 6. 3 price elasticity of supply important indicator of producer behavior. Factors determining price elasticity of demand: whether good is luxury, availability of cose substitutes, share of income spent on good, time elapsed since price change. Cross-price elasticity of demand between goods a and b = (%change in quantity of a demanded) / (%change in quantity in price of b) Income elasticity of demand = (%change in quantity demanded) / (% change in income)

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PROBLEM SET ONE -2 - PRICE-ELASTICITY OF DEMAND

	P₁	P₂	Q_D1	Q_D2	I	II	III	IV	V
1	1	2	10	5
2	5	3	40	90
3	12	20	200	200
4	3	2	9	9
5	0.40	1.40	30	15
6	1.2	4.0	20	15
7	7.5	4.6	40	30
8	5	5.000â¦01	1x10⁶	0
9	5	4.9999â¦.	10	1x10⁹
10	6	12	12	6
11	18	36	360	180
12	7	15	24	16
13	7	16	78	78
14	25	65	150	100
15	65	91	1300	780
16	4	5	21	11
17	8	4	30	54
18	140	275	625	495
19	78	91	780	780
20	91	78	780	780

Column I - determine the Price-Elasticity of Demand Coefficient. Find material in Chapter 6 and the Powerpoint of Elasticity Chap 004 19e.ppt

change in quantity demanded change in price

E_D = ---------------------------------------- â ----------------------------

sum of quantities demanded / 2 sum of prices / 2

The data in the first four columns represent price (P) and quantity demanded (Qd) in time 1 (before change in price) and time 2 (after change in price). Note that results should be expressed in absolute terms (see paragraph Elimination of Minus Sign). For example, -1 should be expressed as â1â.

Column II â Based on topic concerning Interpretations of E_D, indicate which applies based on how the quantity demanded changed subsequent to a change in price (elastic, inelastic, etc.)

Column III - you need to determine if the good in question would be considered a necessity, a luxury or neither.

Column IV â Indicate, in monetary terms, how much is the change in total revenue or total expenditure (TR = P X Q_D), from the first price level to the second.

Column V - the direction of the change, also in monetary terms, that is, increasing or decreasing, and by how much? (show a + sign for increasing and a â sign for decreasing).

Note: for any monetary result please include the applicable currency symbol ($, â¬, etc.)

salmoneagle868

A change in demand for a given factor of production will not occurif:
Answer
A. the productivity of that factor increases.
B. there is a decrease in the price of a substitute factor.
C. the price of that factor falls.
D. the productivity of that factor decreases.

Question 2

In terms of contribution to total income, the single most importantfactor of production is:
Answer
A. labor.
B. entrepreneurship.
C. natural resources.
D. capital.

Question 3

The trade off between work and leisure underlying the supply oflabor involves the substitution effect and the:
Answer
A. complementary effect.
B. elasticity effect.
C. production effect.
D. income effect.

Question 4

(Exhibit: Marginal Revenue Product and Demand) If the product priceis $4 per unit and the price of the factor of production is $80 perunit, the profit-maximizing quantity of the factor is _______unit(s).
Answer
A. 1
B. 5
C. 7
D. 3

Question 5

In perfect competition:
Answer
A. MFCL is greater than the price of labor.
B. the supply curve of labor to the firm is a horizontalline.
C. MRPL equals the price of the good.
D. MFCL is less than the price of labor.

Question 6

An increase in the participation rate of women in the U.S. laborforce:
Answer
A. has shifted the supply curve of labor to the right.
B. has increased the demand for labor.
C. resulted in a faster increase in wages.
D. has shifted the supply of labor to the left.

Question 7

A firm's demand curve for labor is:
Answer
A. the downward-sloping portion of its marginal revenue productcurve.
B. the upward-sloping portion of its marginal revenue productcurve.
C. horizontal for the firm in perfect competition.
D. the downward-sloping portion of its marginal productcurve.

Question 8

Since the 1970s, wage rates in the United States have _______ more_______ than they did in the previous two decades.
Answer
A. decreased; slowly
B. decreased; rapidly
C. increased; rapidly
D. increased; slowly

Question 9

Which of the following statements is true?
Answer
A. If the MFCL = MRPL the firm should hire more labor.
B. If MFCL < MRPL the firm should hire more labor.
C. If MFCL > 0, the firm should shut down.
D. If the MFCL > MRPL the firm should hire more labor.

Question 10

A leftward shift in the labor supply curve would result if:
Answer
A. people have less nonlabor income.
B. transit costs to and from work decline.
C. the population increases.
D. people value leisure more highly.

Question 11

A firm is in equilibrium when the marginal factor cost is:
Answer
A. equal to the marginal revenue product.
B. less than the price of the factor.
C. equal to the average product.
D. greater than the average product.

Question 12

A leftward shift in the labor supply curve would result if:
Answer
A. transit costs to and from work increase.
B. people value leisure less highly.
C. the population increases.
D. people have less nonlabor income.

Question 13

(Exhibit: Wage Determination in Perfect Competition) Which of thefollowing statements is true?
Answer
A. The firm will hire L1 units of labor, as shown in Panel(a).
B. The individual firm is a wage setter.
C. The firm's MFC of labor is equal to the price of the firm'soutput.
D. Total employment is equal to L1, as shown in Panel (a).

Question 14

(Exhibit: Marginal Revenue Product and Demand) If the product priceis $2 per unit and the price of the factor of production is $20 perunit, the profit-maximizing quantity of the factor is _______units.
Answer
A. 6
B. 4
C. 8
D. 2

Question 15

(Exhibit: Marginal Revenue Product and Demand) Assume that theproduct price is $2 per unit, the price of the factor of productionis $40 per unit, and 8 units are being hired. Profit can bemaximized by hiring _______ unit(s).
Answer
A. 2 more
B. 1 more
C. 3 fewer
D. 1 fewer

Question 16

(Exhibit: Demand and Supply of Bricklayers in a PerfectlyCompetitive Labor Market) If the price for "bricks laid in thewall" by a bricklayer is $.10 a brick, the marginal product of thesecond bricklayer is _______ bricks.
Answer
A. 1,200
B. 1,400
C. 1,300
D. 1,500

Question 17

In a perfectly competitive labor market, each firm can hire:
Answer
A. larger quantities of labor at going market wages perworker.
B. all the labor it wants, but only by outbidding itscompetitors.
C. larger quantities of labor at rising wages per worker.
D. only a fixed amount of labor at the going wage.

Question 18

(Exhibit: Demand and Supply of Bricklayers in a PerfectlyCompetitive Labor Market) If the equilibrium wage in the market forbricklayers is $100 a day, but a minimum wage for bricklayers of$130 a day is set by the government:
Answer
A. 3 workers who otherwise would have been employed are nowunemployed.
B. the firm will shut down.
C. 6 workers will now be hired by the firm.
D. all bricklayers are better off.

Question 19

A factor demand curve will shift because of:
Answer
A. the proportion of the factor's cost relative to totalcost.
B. changes in technology.
C. the slope of the MP curve.
D. the elasticity of demand for the final product.

Question 20

Which of the following statements is true?
Answer
A. MFC = change in total cost/ change in the quantity of afactor.
B. MFC = the change in the quantity of a factor times the change inthe price of the factor.
C. MRPL = MC of the output.
D. MRPL = MPL x (P), where P is the price of labor.

4. Decisions made âat the marginâ entail a choice based upon_____________ of a decision.

a. the additional benefits
b. the total costs
c. comparing the total benefits and costs
d. comparing the additional benefits and costs
5. 100 units of Good X are available but individuals desire 500units. ______________ will determine who attains Good X, and whodoes not.

a. A rationing device
b. Opportunity Cost
c. Utility
d. Natural Selection

6. Individuals will continue consuming so long as:

a. The price of a good continues to decrease
b. The marginal costs of consuming are outweighed by the marginalbenefits
c. The individual seeks additional utility
d. The individual is willing and able

8. If the cross-price elasticity of two goods is positive, thenthose two goods are
a. substitutes.
b. complements.
c. normal goods.
d. inferior goods.

11. The basic reason most supply curves are upward sloping isthat:

a. More firms are in the market, therefore more goods areproduced.
b. Because more quantity is being demanded, suppliers raise theprice.
c. Producers face higher opportunity costs when producing higherlevels of quantity, so they must receive a higher price.
d. Producers seek to maximize total revenue.

18. When the price of bubble gum is $0.60, the quantity demanded is500 packs per day. When the price falls to $0.50, the quantitydemanded increases to 900. The demand for gum would beconsidered:

a. inelastic.
b. elastic.
c. unit elastic.
d. perfectly inelastic.

20. Inefficient Production implies which of the following:

a. it is impossible to produce more of one good without producingless of another
b. there are too few resources
c. there are too many resources
d. it is possible to produce more of one good without producingless of another

21. Workers at a bicycle assembly plant currently make minimumwage. If the federal government increases the minimum wage by $1.00an hour it is likely that the

a. demand for bicycle assembly workers will increase.
b. supply of bicycles will shift to the right.
c. supply of bicycles will shift to the left.
d. firm must increase output to maintain profit levels.

24. Suppose at a price of $5 and at a price of $9, John purchases40 units of good X. Given this information, we know that Johnâsdemand for good X is
a. perfectly elastic at all prices.
b. inelastic at all prices.
c. unit elastic between the prices of $5 and $9.
d. perfectly elastic between the prices of $5 and $9.
e. perfectly inelastic between the prices of $5 and $9.

25. If the price of good A decreases by 10 percent and the quantitydemanded of good B decreases by 10 percent, this is evidence that Aand B are
a. substitute goods.
b. complement goods.
c. inferior goods.
d. normal goods.
e. not related.

6. For an individual to achieve consumer equilibrium when consumingtwo goods, A and B, the individual must satisfy the followingcondition:

a. TUA = TUB
b. TUA/PA = TUB/PB
c. MUA = MUB
d. MUA/PA = MUB/PB
e. MUA/PB = MUB/PA

7. Which of the following statements is correct regarding a firm'sdecision making?
a. The decision to shut down and the decision to exit are bothshort-run decisions.
b. The decision to shut down and the decision to exit are bothlong-run decisions.
c. The decision to shut down is a short-run decision, whereas thedecision to exit is a long-run decision.
d. The decision to exit is a short-run decision, whereas thedecision to shut down is a long-run decision.

Table 1

Output Total Cost
0 $20
1 $30
2 $41
3 $51
4 $65
5 $75
6 $84
7 $105

13. Refer to Table 1. The marginal cost of producing the fifth unitof output is
a. $55.00
b. $15.00
c. $9.00
d. $10.00

21. A perfectly competitive firm can produce its current level ofoutput at an average total cost of $10 and a marginal cost of $8.If the market price of the product is currently $8, what should thefirm do?

a. The firm should definitely shut down since average total costexceeds price.
b. The firm should shut down if average variable cost is $8 orgreater, but the firm should continue to produce the current levelof output if average variable cost is less than $8.
c. The firm should increase production in order to increaseprofit.
d. The firm should continue to produce, but it should decreaseproduction in order to increase profit.
24. In the long run all costs are variable. Thus, aprofit-maximizing firm may exit:

a. When Price < Average Total Cost
b. When Price > Average Total Cost
c. When Average Revenue > Average Fixed Cost
d. When Average Revenue > Marginal Cost

25. Marginal cost tells us the
a. value of all resources used in a production process.
b. marginal increment to profitability when price isconstant.
c. amount by which total cost rises when output is increased by oneunit.
d. amount by which output rises when labor is increased by oneunit.

26. For a perfectly competitive firm:
a. marginal revenue is equal to price.
b. price is equal to marginal cost at the output level thatmaximizes profit.
c. selling an additional unit of the good it produces increasestotal revenue by the price of the good.
d. a and b
e. a, b, and c

ECON 101 Chapter Notes - Chapter 6: Sea Cave

ECON 101 Full Course Notes

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