ECE 394 Study Guide - Midterm Guide: Demand Curve, Economic Surplus, Normal Good

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29 Jun 2016

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Principles of economics second mid-term exam (econ 101) You are required to work independently and should not under any circumstance. Using the mid-point method, the percentage change in price would be: 35 percent, 46 percent, 1. 31, 0. 35. If the price of butter changes by 5 percent, we observe a 25 percent change in the quantity demanded of margarine. The cross-price elasticity of these goods is: -5, 5, 0. 2, -0. 2. Income elasticity will be positive for: all normal goods, all inferior goods, only necessities, only luxury goods with substitutes. 9: it is most likely for which of the following to have an income elasticity greater than 1, deli meat, store brand cola, gold earrings, milk, a market has four individuals considering buying a grill for his backyard. Further assume that grills come in only one size and model. Abe considers himself a grill-master, and finds a grill a necessity, so he is willing to pay for a grill.

Related Questions

The demand curve for a good is very unlikely to be perfectly vertical because

A) scarcity and limited income restrict the ability of consumers to afford goods as they become very expensive.
B) as the price of a good rises to high enough levels, the incentive for other suppliers to invent new substitutes for the good increases.
C) consumers generally do not care about the price of the goods they consume.
D) both a and b are true.

As the period for firms to expand output is lengthened, the elasticity of the market supply curve will

A) approach zero.
B) increase.
C) decrease.
D) remain the same since time does not affect the elasticity of market supply.

The price elasticity of demand for automobiles measures the responsiveness of

A) consumer purchases to a change in the price of automobiles.
B) consumer purchases to a change in the quality of automobiles.
C) supplier production levels to a change in the price of automobiles.
D) consumer purchases of automobiles to a change in their income.

Which of the following is true regarding the price elasticity of demand?

A) Demand is generally more elastic in the long run than in the short run.
B) Along a single demand curve, demand elasticity decreases as you move down the curve (to lower prices).
C) a flatter demand curve (has a less steep slope) is relatively more elastic than a demand curve that has a steeper slope.
D) All of the above are true.

5. (Answer ONE of the Following Question)

Economists maintain that the price of a product does not affect demand. How can this be true?
National defence is considered a public good because there appear to be no limits to the nonrivalry-in-consumption characteristic, and exclusion of nonpayers is impossible. Are there any other goods that so perfectly meet both public goods criteria?
Congressman Local stuff always votes for a balanced budget amendment to the U.S. Constitution. He also always votes for spending bills supported by the leadership of his political party. Is this rational?

carminecheetah752

Please answer the following questions. Show your work and then select A, B, C or D as your final answer. Thanks.

Barbershops in a large city would seem to be an example of competitive markets since there are many sellers operating relatively small shops, each seller takes the price of haircuts as given, and the products (haircuts) are very similar between different shops.

Question 1

How could you argue that the barbershop market is not competitive?

Select one:
a. Many barbershops may be locally-owned but are franchises of a single major corporation. Thus, the market is not competitive since it is ultimately only served by one supplier.
b. Each barbershop sells a very differentiated product to its clients since it is rare that two clients receive the exact same haircut (perfect substitute).
c. Since barbershops do not sell any physical or tangible items to customers, the prices charged are not constrained by market forces and can be unusually high or low.
d. Most barbershops only serve clients who live relatively close by. A barbershop on one side of town usually does not attract clients who live or work many miles away on the other side of town. Thus, barber shops tend to only compete with the relatively few other barbershops that are nearby.

Question 2

Is it possible that each barbershop could face a demand curve that is not perfectly elastic?

Select one:
a. No; each barbershop in a large city is indistinguishable from the others (i.e., they are perfect substitutes), and so the demand for any individual barbershop is perfectly elastic.
b. No; since clients are not willing to accept price changes for their haircuts from one month to the next (e.g., $15 haircut this month, $20 haircut next month, etc.), the price will remain constant in the long run and thus demand is perfectly elastic.
c. Yes; if they have some degree of market power (e.g., they can charge slightly higher prices since clients will not stop at every barbershop in the city to find the cheapest price), then they will not face perfectly elastic demand.
d. Yes; demand is only perfectly elastic if the demand curve is upward-sloping, and barbershop demand is downward-sloping.

Question 3

How profitable do you expect barbershops to be in the long run?

Select one:
a. Since they are usually very small, most barbershops will be unable to compete with larger firms with higher fixed and variable costs. Barbershops should expect losses in the long run.
b. Barbershops have the ability to set their own price above the market equilibrium price for a considerable length of time given their small size and the sheer number of other barbershops. Most individual barbershops will enjoy positive economic profit in the long run.
c. Improvements in hair-cutting technology, and the difficulty of new entrepreneurs entering this market, will guarantee above-normal profits for barbershops for the next few decades.
d. Even with a small amount of market power due to attracting only local clients, it is still relatively easy to enter and exit the barbershop industry. Long-run profits will likely be driven down close to zero.

brownreindeer527

Determinates of Price Elasticity

K-Mart-- Determinants of demand elasticities

1. Generally, the elasticity of demand for a product will be greater when there are:

(a) the larger number of substitutes,
(b) the greater proportion of income an item takes,
(c) the less the item is considered to be a necessity, and
(d) the longer length of time allowed for adjustment to change the price of the good.

2. K-Mart, at its web-site, K-Mart.com posts a weekly sales circular on selected merchandise, organized by department. It must be concluded that the demand for these products are elastic. The decrease in price will increase total revenue. Check out this week's specials and, select ten items.

Answer these questions:
How many specials score 1 point (or 1 yes) for meeting the criterion of each determinant above.
Which specials score 4 points (or 4 yes) for meeting the criterion of each determinant above?
Which specials score 0 (or no yes)?
Why would K-Mart include any item that scored less than a 3 (or less than 3 yes) ?

If the product meets all the determinates of elasticity the more elastic the product. Such as a diamond necklace. So the necklace may go on sale or the store may offer unlimited cleaning of the diamonds or storage to encourage people to buy the necklace.

Whereas a product that meets a few of the determinates of elasticity are considered necessities.

For Example: Do not use any of my products.

Determinates	Dial Body Soap	Tide Laundry Det.	Cigarettes	Generic Heart Medication
Does the product have a large number of substitutes?	Yes/1pt.	Yes/1pt.	0	0
Does the product require a large proportion of your income?	0	0	0	0
Is the product a necessity?	0	0	Yes/1pt.	Yes/1pt.
Do you take a long time to think about buying the product?	0	0	0	0
Total for Each Product	1	1	1	1

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ECE 394 Study Guide - Midterm Guide: Demand Curve, Economic Surplus, Normal Good

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