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EC120 Study Guide - Final Guide: Price Ceiling, Price Floor, Fixed Cost

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14 Dec 2012

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EC120 Full Course Notes

EC120 Full Course Notes

Document Summary

Quantity demanded is negatively related to the price increase in demand shift the curve to the right. Quantity supplied is positively related to the price increase in supply shift the curve to the right. Chapter 5 availability of close substitutes: more elastic demand if the product is substitutable. Demand is elastic if the quantity demanded responds substantially to changes in the price. Demand is inelastic if the quantity demanded responds only slightly to changes in the price. Narrowly defined markets tend to have more elastic demands than broadly defined markets luxuries elastic demands: easier to find close substitute for narrowly defined goods goods tend to have more elastic demand over longer time horizons. Demand elastic when elasticity greater than 1. Demand inelastic when elasticity less than 1. When demand is inelastic, price and total revenue move in the same direction.

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Related Questions

The primary difference between a change in supply and a change in the quantity supplied is:
Choose one answer.
a. a change in quantity supplied is a shift in the supply curve, and a change in supply is a movement along the supply curve.
b. both a change in quantity supplied and a change in supply are movements along the supply curve, only in different directions.
c. a change in quantity supplied is a movement along the supply curve, and a change in supply is a shift of the supply curve.
d. a change in supply is a movement to the left along the supply curve and a change in quantity supplied is a movement to the right along the supply curve.

Question 2
What is the difference between a shortage and scarcity?
Choose one answer.
a. Scarcity will always exist because choices must be made, but a shortage will only exist if the price is kept below the equilibrium level.
b. Scarcity is a result of two or more alternative uses and will always exist, and quantities of supply and demand adjusting to flexible prices will create shortages.
c. A surplus will exist when a good is scarce; a shortage merely implies that there isn't as much of something as people would like, which is nearly always the case.
d. There is no distinction between the two. They are the same thing.

Question 3
A decrease in supply means:
Choose one answer.
a. a shift to the left of the entire supply curve.
b. moving downward (to the left) along the supply curve with lower prices.
c. less will be demanded at every price.
d. more will be supplied at every price.

Question 4
A decrease in demand, with no change in supply, will lead to ________ in equilibrium quantity and ________ in equilibrium price.
Choose one answer.
a. an increase; an increase
b. an increase; a decrease
c. a decrease; an increase
d. a decrease; a decrease

Question 5
After graduation from college you will receive a substantial increase in your income from a new job. If you decide that you will purchase more T-bone steak and less hamburger, then for you hamburger would be considered a( n ):
Choose one answer.
a. normal good.
b. substitute good.
c. complementary good.
d. inferior good.

Question 6
There is equilibrium in the market when:
Choose one answer.
a. there is no shortage.
b. there is no surplus.
c. price is established where the supply curve and the demand curve intersect.
d. all of the above are true.

Question 7
Which would not cause the supply curve to shift?
Choose one answer.
a. a change in technology
b. a change in factor costs
c. a change in the price of the good
d. a change in the prices of related goods

Question 8
Given that meat and potatoes are complementary goods, if the price of meat decreases substantially, there would be:
Choose one answer.
a. an increase in the demand for potatoes.
b. an increase in the quantity of potatoes demanded.
c. a decrease in the demand for potatoes.
d. no change in the demand for potatoes.

Question 9
Given that milk and cookies are complements, suppose the price of flour (an ingredient in cookies) rises. What happens in the market for milk?
Choose one answer.
a. The equilibrium price and quantity rise.
b. The equilibrium price rises and the equilibrium quantity falls.
c. The equilibrium price and quantity fall.
d. The equilibrium price falls and the equilibrium quantity rises.

Question 10

A temporary price of $2 in this market would result in:
Choose one answer.
a. a surplus of 8,000 bushels.
b. a shortage of 8,000 bushels.
c. a shortage of 10,000 bushels.
d. a surplus of 10,000 bushels.

Question 11
The price of oranges rises. What happens in the market for apples, which are a substitute for oranges?
Choose one answer.
a. The equilibrium price falls, and the equilibrium quantity rises.
b. The equilibrium price rises, and the equilibrium quantity falls.
c. The equilibrium price and quantity rise.
d. The equilibrium price and quantity fall.

Question 12
A market surplus occurs if the:
Choose one answer.
a. price is below the equilibrium price.
b. price is equal to the equilibrium price.
c. equilibrium price is above the actual price.
d. equilibrium price is below the actual price.

In supply and demand theory, an increase in consumer income for a normal good will:

1. Shift the demand curve in and to the left, lowering the equilibrium price but raising the equilibrium quantity.

2. Shift the supply curve out and to the right, lowering the equilibrium price but raising the equilibrium quantity.

3. Shift the demand curve out and to the right, lowering the equilibrium price but raising the equilibrium quantity.

4. Shift the supply curve in and to the left, lowering the equilibrium price and quantity.

5. Shift the demand curve out and to the right, raising the equilibrium price and quantity.

If Hamburger Helper is an inferior good, then, ceteris paribus, a decrease in income will lead to?

A. rightward shift of the supply curve of Hamburger Helper.

B. a movement down along the demand curve for Hamburger Helper.

a rightward shift of the demand curve for Hamburger Helper.

a leftward shift of the demand curve for Hamburger Helper.

a movement up along the demand curve for Hamburger Helper.