ECON 1 Study Guide - Midterm Guide: Substitute Good

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ECON 1 Full Course Notes

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Cross elasticity of demand average between two points. Ced for product 2"s quantity relative to product 1"s price. Increase in price of product 1 lowers quantity of product 1 while increasing quantity of. Ced - value lower price of complement product, increase demand for original product. Two unrelated products change in price, 0 change in quantity. |es| < 1 smaller change in quantity supplied. |ed| > 1 elastic change in quantity is large. |ed| < 1 inelastic change in quantity is small average of two points, same elasticity for curve between. Perfect inelasticity and perfect elasticity of demand perfectly inelastic: buy how much they need regardless of price (low or high) Very elastic: given % change in price, large % change in quantity. Very inelastic: given % change in price, small % change in quantity. *order does not matter since calculating between two points.

Related Questions

29. Given the following demand and cost functions, determine the output and sales level that maximize profit.
Demand Function: Q = 25- P; Cost Function: TC = 20+5Q +Q2 (Points : 1) 20 Units
200 Units
5 Units
None of the Above

30. Assume the price of product B, increases from $1 to $1.50. As a result, the quantity demanded of product "A increases from 500 to 600 a month. This indicates that the cross-price elasticity and relationship between the two products. (Points : 1)

.50, Substitutes
.45, Substitutes
.45, Complements
.50, Complements
Products are not related

31. Given the marginal revenue from a product is $15 and the price elasticity of demand is -1.2, what is the price of the product? (Points : 1)

Not enough Information
$8
$88
$42
$68

32. Given the demand function: QD = -10-2.1 P +.62 Y. Where P is price and Y is Income (Points : 1)

For a 1% increase in price, quantity demanded falls by 2.1%
For a 1% increase in price, quantity demanded increases by .62%.
For a 1% decrease in price, quantity demanded increases by 2.72%
None of the above

1. Suppose that a 10% increase in the wage results in a 5% reduction in employment. In this case, labor demand is said to be:

A. elastic

B. inelastic

C. unit elastic

2. Which of the following best explains why elasticity varies along a linear demand curve?

A. As the quantity of labor demanded rises, the percentage change in quantity demanded declines (for a given change in labor use) while the percentage change in wage increases.

B. As the quantity of labor demanded rises, the percentage change in quantity demanded rises (for a given change in labor use) as does the percentage change in the wage.

C. As the quantity of labor demanded rises, the percentage change in quantity demanded declines (for a given change in labor use) as does the percentage change in the wage.

D. As the quantity of labor demanded rises, the percentage change in quantity demanded declines (for a given change in labor use) while the percentage change in wage decreases

3. Labor demand is more elastic when:

A. the substitution effect resulting from a wage change is larger

B. the scale effect resulting from a wage change is larger

C. both are correct

D. none of the above

4. The scale effect associated with a change in the wage is larger when:

A. the demand for the final product is more elastic

B. labor costs are a smaller share of total costs

C. there are many close substitutes for this category of labor

D. economics of scale are present in the production of the good

5. The price elasticity of demand for the final products affects the own-wage elasticity of demand for labor by affecting the magnitude of:

A. the substitution effect that occurs in the labor market

B. the scale effect that occurs in the labor market

C. both substitution and scale effects

D. neither substitution nor scale effects

6. Unions are expected to attempt to:

A. make it more difficult to replace labor with other resources

B. reduce the elasticity of demand for the final product

C. support laws that reduce the elasticity of supply of other resources

D. all of the above.

E. none of the above

7. Unions are likely to be less successful in negotiating higher wages in those labor markets in which:

A. the demand for the final product is more elastic

B. there are few close substitutes for union workers

C. the price elasticity of supply for other factors of production is relatively high

D. labor costs comprise a small share of total costs

browncoyote590

1. Price elasticity of demand is calculated as:

a. the percentage change in quantity demanded divided by the percentage change in price
b. the percentage change in price divided by the percentage change in quantity demanded
c. the absolute change in quantity demanded divided by the absolute change in price.
d. the absolute change in price divided by the absolute change in quantity demanded

2. The price elasticity of demand:

a. is of no use to producers
b. tells producers what will happen to total profit if they change product price
c. tells producers what will happen to quantity supplied if they change product priced.
d. tells producers what will happen to total revenue if they change the product price

3. Along a linear demand curve,

a. both the slope and price elasticity are constant
b. the price elasticity is constant, but the slope varies
c. total revenues are constant
d. the slope is constant, but the price elasticity varies

4. Demand is more elastic:

a. in the short run than in the long run
b. for necessities than for luxuries
c. for food than for hamburgers
d. for goods with many substitutes than for goods with only a few

5. Demand for a necessity, such as food, is:

a. both income and price inelastic
b. income inelastic and price elastic
c. income elastic and price inelastic
d. both income and price elastic

6. The reason economists assume that firms try to maximize economic profit is:

a. over time, firms that don't earn profits will have difficulty securing financing to survive
b. firms in the real world always maximize profit
c. profit is easier to calculate than revenues
d. if a firm fails to earn a profit in its first year, it will go out of business

7. Which of the following is a short-run adjustment?

a. Toyota builds an automobile plant in Kentucky.
b. Faced with increasing enrollment, a private college builds a new school of Business building.
c. Because of staggering losses, three insurance companies exit the industry.
d. People's Bank hires two new tellers to meet the increased demand for customer services.

8. At the point where diminishing marginal returns set in, the slope of the total product curve is:

a. positive and increasing
b. positive and decreasing
c. negative and increasing
d. negative and decreasing

9. Which of the following correctly describes the relationship between the marginal cost and average variable cost curves?:

a. MC is everywhere above AVC
b. AVC is everywhere above MC
c. MC crosses AVC at AVC's minimum point
d. MC crosses AVC at MC's minimum point

10. The shape of the long-run average cost curve reflects
a. market demand
b. economies and diseconomies of scale
c. increasing and diminishing marginal returns
d. the productivity of fixed inputs

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ECON 1 Study Guide - Midterm Guide: Substitute Good

ECON 1 Full Course Notes

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