AP Econ- Chapter 5 Test

When the price of a substitute falls, demand for the original good _____

decrease

In reference to Relatively Elastic, PEoD =

>1

Demand and Want are the same in economics. They are basically interchangeable

False

The mayor of Cow Chip, Iowa wants to increase the tax on sales of alcohol. Mayor Miller believes that this tax will raise more revenue for the city than a local sales tax increase. Mayor Miller believes that:

Alcohol is inelastic

PlayStation 3 and XBOX 360 are substitutes for each other. If the price of PlayStation 3 increases what will happen to the quantity demanded for XBOX 360?

The quantity demanded for XBOX 360 will INCREASE

_______ is the willingness to buy a product and the ability to pay for it

Demand

Name the 5 determinants of the Elasticity of Demand

1. TIME: with more time the demand becomes more elastic and with less time it becomes inelastic
2. AVAILABILITY OF SUBSTITUTE: With more substitutes the demand curve becomes more elastic and with fewer substitutes the curve becomes more inelastic
3. NECESSITY OR LUXURY: if a good is a necessity its inelastic, and if its a luxury it is elastic
4. CATEGORY: broader categories make the curve less inelastic/elastic and a more specific category makes the curve more elastic
5. PURCHASE SIZE: When consumers are buying lower priced goods the curve tends to be more inelastic and with goods with a higher price it becomes more elastic

Which of the following would not shift the demand curve for beef?

A reduction in the price of cattle feed

When the price of a complement rises, demand for the original good

decreases

Prices have an effect on consumers decisions

True

When the price of a substitute rises, demand for the original good

Increases

In reference to Perfect Inelastic, PEoD=

0

Two goods are complementary if a rise in the price of one good leads to a decrease in the demand for the other good

True

In reference to Perfect Elastic, PEoD=

infinity

No matter the price, goods and services have limits with consumer demand. This is called the ______

Diminishing Marginal Utility

There are 5 factors that shift the demand curve for a good or service.

Change in...
1. Tastes
2. Expectations
3. Number of buyers
4. Income
5. Price of substitutes

Ricky receives an annual income of 50k per year. He creates a personal budget in order to prioritize his income because of high inflation living in San Jose. This is called _____

Diminishing Personal Value

Milk and chocolate chip cookies are complementary goods. if the price of milk decreases what will happen ....

The quantity demand for cookies will increase

According to _______, when price decreases, demand rises, and when price increases, demand decreases

The Law of Demand

When the number of consumers falls, market demand for the good ____

decreases

Which of the following goods in likely to have the most elastic demand curve?

Demand for automobiles

If the price of a college tuition increases by 25% and over a period of several years, the quantity demands falls by 0% then the long run elasticity of demand for college tuition is:

Perfectly Inelastic

Martha had been unemployed for the last 6 moths and was just recently hired receiving an....

Income Effect

Two goods are substitutes if a rise in the price of one of the goods leads to a decrease in the...

False

An increase in the price of a product will reduce the amount of it purchased. This will lead to...

consumers will substitute other products for the one whose price has risen

In reference to unit elastic, PEoD=

1

Demand is _____ when a change in price causes a relatively larger change in quantity demanded.

elastic

Discount stores sell relatively elastic goods. Ceteris Paribus, explain why selling at a relatively low price is profitable for them?

Because they are still able to maintain demand and move a high amount of product

The demand for college economics textbooks is price inelastic. Which of the following is true?

Economic textbooks are a necessity

If the price of coffee increases by 50% and over a period of several years, the q...

unit elastic

Don is diabetic. He has to buy 100 ccs of insulin every day no matter what the cost...

Insulin is perfectly inelastic

If the cross elasticity of demand (the cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to change in the price of another goood, ceteris paribus) between peanut butter and milk is -1.11, then then are peanut butter and milk substitutes?

They are complements. Because a change in quantity or price changes the same for both; they pair together

When tastes change in favor of a good, demand for the good:

increases

Jen has just received a raise at her job and as a result, she had stopped purchasing an example of what kind of good?

Substitute Good or Inferior Good

In reference to the graph, D1 to D2 indicates?

Quantity Demanded has decreased

In reference to Relatively Inelastic, PEoD=

<1