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ECN 203 Study Guide - Quiz Guide: Spring Break, Economic Equilibrium, Market Power

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blushbat715
29 Oct 2015
School
Syracuse University
Department
Economics
Course
ECN 203
Professor
Ashby

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Document Summary

Price elastic >1: flatter demand curve (less chance to buy) Price inelastic < 1: steeper demand curve (still going to buy) Inelastic d: buyers bear more of burden, elastic d: sellers bear more of burden. Cross price elasticity: measures how demand for good 2 responds to a change in the price of good 1. E1x2= percentage change in q2/percentage change in p1. Complements: (e1x2<0), substitutes: (e1x2>0) p ^ qd2 ^ Income elasticity: measures the responsiveness of demand to changes in consumer income. E1: percentage change in q/ percentage change in i. Law of demand: qd falls (rises) as p rises (falls) Law of supply: q^s rises (falls) when p rises (falls) Large number of buyers and sellers in the market. Free entry into or exit out of industry. Market picture: positive profits attract new firms into the market (shift s out)- equilibrium price falls. For the individual firm, as the equilibrium price falls, profits decrease.

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Related Questions

1. Suppose the supply curve with no quota is

Q No Quota=-10 + 0.5p

and the market supply with a quota is

Q Quota=0.5 + 0.25p.

Output (Q) is in thousands of units.

Assuming an inverse demand curve of p = 80-2Q, what will be the effect of a binding quota on equilibrium price and quantity?

A. Price rises by $2.67 and output falls by 1.33 thousand.

B. Price falls by $5 and output falls by 2 thousand.

C. Price falls by $1.33 and output rises by 2.67 thousand.

D. Price rises by $5 and output falls by 2 thousand.

E. Price falls by $3 and output rises by 1.25 thousand.

F. Price rises by $5 and output rises by 2 thousand.

2.

Which of the following is true?

A. The elasticity of supply varies only along the upward-sloping linear supply curves.

B. The elasticity of supply varies along most supply curves.

C. The elasticity of supply is constant along most supply curves.

D. None of the above.

3.

A. When I> 1, supply is considered elastic.

B. When 0<I< 1, supply is considered inelastic.

C. When I = 1, supply is considered unit elastic.

D. All of the above.

E. None of the above.

1. The concept of price elasticity of demand measures:

a. the slope of the demand curve.

b. the number of buyers in a market.

c. the extent to which the demand curve shifts as the result of a price decline.

d. the sensitiveness of quantities demanded to price changes.

2. When the percentage change in price is less than the resulting percentage change in quantity demanded:

a. demand is elastic.

b. demand is inelastic.

c. demand is unit elastic.

d. none of the above.

3. The elasticity of demand:

a. will be the same at each price-quantity combination on a stable demand curve.

b. tends to be elastic in high-price ranges and inelastic in low-price ranges.

c. tends to be inelastic in high-price ranges and elastic in low-price ranges.

d. is infinitely large for a perfectly inelastic demand curve.

4. Suppose that as the price of Y falls from $2.00 to $1.80 the quantity of Y demanded increases from 110 to 121. It can be concluded that the price elasticity of demand is: _______.

5. Total revenue rises as the price of a good increases if price elasticity of demand is:

a. unitary elastic

b. perfectly inelastic.

6. The demand for such products as salt, bread, and electricity tend to be:

a. relatively price elastic.

b. relatively price inelastic.

c. of unit price elasticity.

d. perfectly price elastic.

When quantity demanded decreases in response to a change in price,

A. the demand curve shifts to the right.
B. the demand curve shifts to the left.
C. there is a movement down along the demand curve.
D. there is a movement up along the demand curve.
E. the supply curve shifts to the right.

The price elasticity of demand is the measure of the responsiveness of the demand for a good to a percentage change in the price of that same good. When the demand for a good changes due to an increase or decrease in the price of the good, it can be said that the good has a price elastic demand. On the other hand, a good whose demand is not significantly affected by a change in the price levels is price inelastic. For example, luxury goods are usually price elastic because these are not something that most people really need. Thus, when the price of luxury goods increases, the demand for such goods falls. Goods that fall within the latter category are usually the basic necessities such as food and prescription medicine. Even when these types of goods become pricier, most people would find ways to afford them because they need those items to survive.