ECON 1901 Midterm: Study Guide for first midterm Chapters 1-3

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28 Oct 2014

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Expected income decreases (for an inferior good) increase (for a normal good: expected future price, expected income, population, consumer preferences change people want the good more increases (sheer number of people who want it goes up) Things that cause supply to decrease (leftward shift) increase (it"s too expensive to produce good) Price of complements in production it might be costly to keep producing so much beef. The beef might not carry its own weight) decrease (if cowhide is not selling that well, calamities (fops harmed: number of suppliers, nature"s state decrease. Microeconomics examines singularity (one household, one consumer, one business) Macroeconomics examines society as a whole (national economy with government involvement, many different business, international trade, etc. ) Economic way of thinking: choice is a trade-off, rational individuals make choices by comparing costs and benefits, benefits are what we gain from an activity. Determined by own preference: cost is what we give up, rational agents choose at the margin.

Related Questions

Suppose you know the following things about the market for peanut butter and the relationship between peanut butter and jelly:

Peanuts are an input used to produce peanut butter

Peanut butter is an income-inferior good.

Peanut butter and jelly are complements in consumption.

Grapes are an input used to produce jelly.

Use this information to answer what happens in the market for peanut butter in each of the following scenarios:

Scenario 1: Suppose because of a national drought the price of peanuts increases. In the market for peanut butter, the effect of this shock will be that the _____________ (Demand/Supply increase/decrease) and as a result the ______________ (Price Increase/Decrease) and the _____________. (Quantity Increases/Decreases)

Scenario 2: Suppose the economy enters a recession and household income decreases significantly. In the market for peanut butter the effect of this shock wil be that the _____________ (Demand/Supply increase/decrease) and as a result the ______________ (Price Increase/Decrease) and the _____________. (Quantity Increases/Decreases)

1. Anna owns the Sweet Alps Chocolate store. She charges $10 per pound for her hand made chocolate. You, the economist, have calculated the elasticity of demand for chocolate in her town to be 2.5. If she wants to increase her total revenue, what advice will you give her and why? Explain your answer.

2. If the cross elasticity of demand between peanut butter and milk is -1.11, then are peanut butter and milk substitutes or complements? Explain your answer.

3. A 10 percent increase in income brings about a 15 percent decrease in the demand for a good. What is the income elasticity of demand and is the good a normal good or an inferior good? Explain your answer.

4. If the price of a good increases by 8% and the quantity demanded decreases by 12%, what is the price elasticity of demand? Is it elastic, inelastic or unitary elastic?

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

1. To establish a market, which of the following are essential?

1. A marketplace or a location

2. Potential buyers

3. An auctioneer

4. Potential sellers

A. 1, 2 and 4

B. 1, 2, 3, and 4

C. 1 only

D. 2 and 4

E. None of the above

2. Marketing value is:

A. The share of consumer food expenditures going to farmers

B. The share of consumer food expenditures going only to processors

C. The share of consumer food expenditures going to agribusinesses

D. The share of consumer food expenditures going only to marketers

E. None of the above

3. Micropolitan area contains:

A. One urbanized area of at least 10,000 but less than 50,000 people

B. One urbanized area of at least 20,000 but less than 50,000 people

C. One urbanized area of at least 30,000 but less than 50,000 people

D. One urbanized area of at least 40,000 but less than 50,000 people

E. None of the above.

4. Which of the following does not belong to Maslow's hierarchy of needs?

A. Self-actualization

B. Political views

C. Esteem

D. Love/belonging

E. Physiological

5. The process of identifying and focusing on target submarkets is known as:

A. Market collusion

B. Market targeting

C. Market segmentation

D. Market development

E. None of the above

6. Given the following information concerning elasticities for bubble gum:

Own-price elasticity of demand = -0.3

Own-price elasticity of supply = 1.7

Income elasticity = 0.6

Cross-price elasticity concerning chewing gum = -1.5,

then bubble gum demand is ___ and it is a ___ good.

A.Unitary elastic; inferior

B.Inelastic; inferior

C. Elastic; inferior

D. Inelastic; normal

E. Elastic; normal

7. The cross-price elasticity for peanut butter demand with respect to the price of jelly is equal to -0.8. If the price of jelly decreases by 10%, the consumption of peanut butter will:

A. Decrease by 8%

B. Decrease by 1.25%

C. Increase by 1.25%

D. Increase by 8%

E. None of the above

8. The percentage change in quantity demanded of a commodity or product given a 1% change in income is captured by:

A. Own-price elasticity of demand

B. Cross-price elasticity

C. Own-price flexibility

D. Own-price elasticity of supply

E. Income elasticity

9. The most important determinant of supply elasticity is:

A. Length of time

B. Degree of substitutability

C. Degree of complementarity

D. Importance in the budget

E. Luxury versus necessity

10. Assume that a retailer sells 2,000 six-packs of Pepsi per day at a price of $3.00 per six-pack. Also, assume the cross-price elasticity for Pepsi with respect to the price of Coca Cola is 0.5. If the price of Coca Cola rises by 10 percent, what will be the new quantity of six-packs sold by Pepsi?

A. 1,000

B. 2,100

C. 2,400

D. 12,000

E. None of the above

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ECON 1901 Midterm: Study Guide for first midterm Chapters 1-3

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