Demand and Supply
If Bryson Department Store has a sale on Jeans, what will happen to the quantity demanded of Jeans?
Demand will increase
What is the equation for finding the price elasticity of demand
% change in quantity demanded / % change in price = magnitude of the value of elasticity
What measures how much a change in a person's income affects that person's demand for that particular product
Income Elasticity of Demand
If the quantity demanded outpaces the quantity supplied, we get a?
Shortage
Governments can increase incentives for economic activity by providing businesses or individuals with _______
Subsidies
As the price of a product increases, people will often _______ other, less expensive goods in its place
Substitute
Suppose, for example, that the price of a video game rises by 10 percent (0.10). The quantity demanded drops by 50 percent (0.50). What is the magnitude of the value of elasticity? Is it elastic or inelastic?
5 and it is Elastic
What type of Good has its demand rise as income increases?
Normal Goods or Luxury Goods
What can we do to get out of a shortage?
We can increase prices and increase production
A decrease in total surplus that results from an inefficient level of production is a
Deadweight Cost
Does an Increase in input price cause a shift in supply or demand?
Supply
When the quantity demanded is 0 for any change in price, the demand is
Perfectly Inelastic
What good has the demand decrease when income rises?
Inferior Goods
What do we get when quantity demanded is less than quantity supplied
We get a surplus
In our country. Does Domestic supply shift to the left of right when we add supply + imports to it?
Shifts to the right
The ________ holds that, all things being equal, the higher the price of a product, the greater the quantity supplied
Law of Supply
Name all 5 categories of Elasticity
Elastic, Inelastic, Perfectly Elastic, Perfectly Inelastic, Unit Elastic
Emily has her income increase by 20%. After getting her raise, her spending on food increased by 10%. What is the income elasticity of demand. Is it Elastic or Inelastic?
10% / 20% = 0.5 Income Inelastic
What do we call the difference between the price consumers pay and the price they are willing to pay?
Consumer Surplus
What happens to consumer surplus when we add a tariff to the world supply?
It decreases
Assume that consumers consider popcorn and pretzels to be substitutes. What will a significant decrease in the supply of popcorn do to the pretzel markets demand and their price?
increasing the demand for pretzels and therefore the price of pretzels
Lets suppose the price falls from $10 to $8 resulting in quantity supplied changing from 22,000 to 20,000. What is the elasticity of supply? Is it Inelastic?
{(22,000 - 20,000) / (.5*(22000 + 20000)} divided by {(10 - 8) / (.5*(10 + 8)}
.095 / .222 = 0.43 Inelastic
The price of flashlights increased by 50%. The demand for batteries decreases by 20%. What is the cross-price elasticity of demand? Are the complementary products or substitutes?
The cross price elasticity is -0.40 since it is -20/50 which equals -0.40. The goods are considered complementary goods.
You are willing to pay $35 for a book but bought it on sale for $28.50. It cost the store $10 to buy from a supplier. What would be the total economic surplus?
$25
What happens when a consumer chooses not to pay for a specific good because the utility for that good is no longer worth the price?
Deadweight loss