Micro Econ Test 2

formula for elasticity

Percent Change in Quantity/Percent Change in Price

Price Elasticity for Demand

=%Change in Quantity Demanded/ %Change in Price

Uber increases the price of a ride in Chicago by 10%, and the quantity of rides demanded falls by 30%. The absolute value of the price elasticity of demand for ubers rides is ____, and the price elasticity of demand is ____?

3; elastic

the local grocery store cuts the price of milk by 15%. In response to the price cut, the quantity of milk demanded falls by 5%. The absolute value of the price elasticity of demand for milk is ___, and the price elasticity of demand is ____?

0.33; inelastic

Total revenue is:

the price of a good times the quantity of the good sold

You are a pricing manager at a pharmaceutical company. The CEO of the company calls a meeting of all the managers and states that it is critical to increase revenue soon or you may have to start laying off employees. You know that the absolute value of the price elasticity of demand for your leading patented drug is about 0.5. What is a possible change you can suggest to the CEO to the increase revenue?

increasing the price of the leading patented drug

An article in Maclean’s that the Confederation Bridge that connects New Brunswick to Prince Edward Island (PEI) was not generating as much toll revenue as predict. At that time, the toll rate was $8 for a passenger car making a round trip during rush hour. What additional information would you need to know in order to determine if the toll should be increased or decreased?

the price elasticity of demand

when ruko. a device used to stream movies at home, increases prices by 54 percent, total revenue decreases by 65 percent

elastic

when cinema supreme decreases ticket prices by 12 percent, total revenue does not change

unit elastic

when bluebox, a streaming service for foreigh television shows and movies, increases its prices by 55 percent, total revenue increases by 34 percent

inelastic

michelle is having a meeting with her two colleagues, Matt and Mina, regarding the pricing strategy for the upcoming week. the three of them, run a local brewery. Matt suggests that lowering prices by 15% will increase revenue, while Mina suggests increasing prices by 15% in order to increase revenue. If michelle listens to Mina, she must think that ?

their product has inelastic demand

shep goes to his favorite coffee shop every morning and always buys one large latte, no matter whether there is a special or not (i.e., half-prices Mondays). What is his price elasticity of demand for lattes?

price elasticity of demand : 0

statement best characterizes the relationship between the elasticity of demand, price, and total revenue?

when demand is elastic and price falls, total revenue rises

suppose the percent change in the quanitity demanded for water for any price change is zero. the demand curve for water is ___, and the price elasticity of demand is perfectly ___.

vertical; inelastic

you are given some data for four different products: dryer sheets, soap, and laundry detergent. the absolute value of the price elasticity of demand for dryer sheets is 4. the absolute value of the price elasticity of demand for shampoo is 0.2. The absolute value of the price elasticity of demand for soap is 0.5. The absolute value of the price elasticity of demand for laundry detergent is 2. Which product has the most elastic demand?

dryer sheets

if demand is ____, a higher price yields ___ total revenue.

inelastic; lower

if demand is ___, a higher price yields ____ total revenue.

inelastic; higher

total revenue will rise if price ___ and demand is ____

falls; elastic

a binding price floor is:

always above the equilibrium price

a binding price floor leads to a

surplus

a price ceilings create ____ if they are set ____the equilibrium price

shortages; below

examples of price ceilings

price controls on prescription drugs and rent control

prices floors create ____ if they are set ____ the equilibrium price

surpluses; above

examples of price floors

a minimum unit price on alcohol

____ economics involves describing what is happening or predicting what will happen

positive

_____ economics concerns what should occur and involves value judgement

normative

sales tax on cigarettes reduces the amount of cigarettes sold in a year

sales tax is often higher on goods considered to be luxury goods, such as expensive watches and yachts

tariffs on imports increase the prices Canadians pay for foreign-made goods

positive economics examples

medicine is a necessary expense and therefore should provided for by government

sales tax should be higher on restaurant meals than on groceries because eating out is a luxury

the government should impose tariffs on imports to protect Canadian jobs

normative economics example

when the forces of supply and demand lead to an inefficient outcome ?

economists call this a market failure

efficient market outcome examples

a market in which economic surplus is maximized

inefficient market outcome examples

a market dominated by a few powerful businesses

a market transaction in which one party has information not available the other party

a market transaction in which buyers or sellers behave irrationally

a market in which government regulation creates disortions

positive statement examples

raising the minimum wage will result in some workers losing their jobs

an increase in the gasoline tax will reduce the amount that people drive and therefore cause a reduction in air pollution

if federal income taxes are increased, workers will increase the number of hours they work each year

normative statement examples

the minimum wage should be increased to assist low income households

suppose there is one ticket left for tonight’s performance of hamilton at the mirvish theatre. the ticket costs $700. Sean is a university student and has been saving his tips from his waiting job for months to see the show. he is willing to pay $705 for the ticket. anca has been hamilton five times already but wants to see it again before heading to Europe for a month. she is willing to pay $1250 for the ticket. _____ buying the ticker lead to a more economically effcient outcome.

anca

the richest 15 of Canadians should pay more taxes than the remaining 99%.

normative economics

as the minimum wage rises, the prices of all goods and services tend to rise

positive economics

a decrease in the supply of coconut will, all else equal, cause an increase in the price of German chocolate cake, which includes coconut shavings as an ingredient

positive economics

social welfare spending in sweden takes up too large a share of the national budget

normative economics

a producer surplus is the difference between the

market price and the minimum price a seller is willing to accept

producer surplus is shown graphically as the area ______ the market price.

above the supply curve and below

consumer surplus is equal to the difference between ____ and the market price

the maximum price a buyer is willing to pay

consumer surplus is shown graphically as the area ___ the market price

under the demand and above

_____ statements say something about how the world ought to be

normative

_____ statements say something that describes how the world currently is

positive

describes current economic events

positive economics

predict how the economy will change as a result of specific events

positive economics

predicts how the economy will change as a result of specific events

positive economics

concerns over the effects of an economic decision on people and not on how they will feel about it or what they will believe about why the decision was made

positive economics

involves recommendations or arguments about what should be

normative economics

offers plans for what the economy should look like based on an individual subjective value and beliefs

normative economics

is concerned with how a variety of moral or ethical questions should be solved

normative economics

markets achieve an efficient allocation of resources when:

the quantity demanded equals the quantity supplied

if resouses are allocated efficiently

consumer and producer surplus are maximized

comparative advantage

the ability to produce a good or service at a lower opportunity cost than another

when trading with more developed countries,

less developed countries have a comparative advantage in the production of some good or services

if frances is said to have an absolute advantage over canada in the production of wheat, this means that given the same resources, ?

frances can produce more wheat than Canada

if mary can bake a cake at a lower opportunity cost than Sarah can, then:

mary has a comparative advantage in baking cakes

suppose that verania and josimar are roommates that need to complete some households chores. vacumming and washing dishes need to be done. they know from the last time they did these chores that it takes Verania 2 hours to vacuum and 1 hour to wash dishes. It takes josimar 3 hours to vacuum and 2 hours to wash dishes. Josinmar says it does not matter which task each of them performs because Vernania is faster at both tasks. Josimar’s reasonings?

is wrong. bc vernania has a comparative advantage in washing dishes, she should wash dishes, and josimar should vacuum

according to the harvard business review, BP, an oil and gas company, created a system in which the head of each unit could buy and sell emissions permits, rather than setting target emissions levels with a top-down approach. each permit allowed a unit to produce a certain amount of emissions. if the unit could reduce emissions, permit to another unit that needed one. as a result, BP reduced its emissions nine year in advance of its target goal. which is the term for the systme that BP utilitzed to achieve this

internal market

advice consistent with the principle of comparative advantage

focus on what you are relatively good at doing, even if you are not the best at it

when resources are organized accoriding to the principle of comparative advantage, produces become :

more specialized so they can trade and end up with more of everything

a prediction market is a market where :

payoffs are linked to whether an uncertain event occurs

when a manager sets markets within the company to buy and sell scarce resources, these markets are called:

internal markets

internal markets, which are markets that managers set up within their organization, are:

set up to allocate resources of a company more efficiently, often not using real money

a company would set up internal markets to:

solve the knowledge problem

a benefit a company gain from using internal markets

better allocation of its resources and more accurate predictions

a person has a comparative advantage if they:

have the lowest opportunity cost of producing a particular good compared with another person