# Shared Flashcard Set

## Details

Microeconomic Analysis
40
Economics
12/17/2010

Term
 The cross-price elasticity of demand between substitutes
Definition
 is positive
Term
 A shift in the consumer's demand for a good X cannot result from a change in the
Definition
 price of X
Term
 A sunk cost
Definition
 should be ignored when making decisions
Term
 Suppose hamburgers are on the horizontal axis and root beer on the vertical axis. You have a budget allowance of \$10, and the price of hamburgers is \$4 and root beer is \$2. The slope of your budget constraint is
Definition
 2
Term
 Which of the following would result in a higher equilibrium price and an ambiguous change in equilibrium quantity?
Definition
 a decrease in supply and an increase in demand
Term
 A case where a consumer buys less of a good when its price falls
Definition
 is an example of a Giffen good and will produce an upward-sloping market demand curve
Term
 Ceteris paribus, if the price of a good rises, consumer surplus
Definition
 decreases
Term
 Suppose the demand for lattes can be estimated using the equation QD=9 – P, if the price is \$3 per latte, how much is the consumer surplus?
Definition
 \$18
Term
 Negatively-sloped, straight-line indifference curves imply
Definition
 that the goods are perfect substitutes.
Term
 In the production possibilities frontier in Figure 1-1, which points are efficient?
Definition
 B and C
Term
 Which one of the following would cause the demand for coffee to increase?
Definition
 an increase in the price of tea, a substitute for coffee
Term
 The bandwagon effect causes market demand to be relatively ______ elastic.
Definition
 more
Term
 Suppose a consumer must pay \$P per visit to the local museum for each of the first 10 visits but \$2P per visit from the 11th visit on. With a composite consumption good on the y-axis and “Visits to the Museum” on the x-axis, the budget line
Definition
 becomes steeper after 10 visits.
Term
 In a two-year setting, suppose Gloria has \$5,000 in income in year 1 and \$10,000 in income in year 2. Gloria can borrow or lend at a rate of 20 percent. If the Gloria's income stream changes so she earns \$10,000 in Year 1 and \$5,000 in Year 2, the budget line will:
Definition
 shift out away from the origin
Term
 Along a concave production possibilities frontier, the per-unit opportunity cost of increasing output typically increases because
Definition
 some resources are better-suited to producing one good than to the other
Term
 The income elasticity of demand for an inferior good
Definition
 is negative
Term
 Which of the following statements about demand elasticity is correct?
Definition
 If demand is price-inelastic, an increase in price will increase total expenditures
Term
 Suppose a vaccine for the common cold is discovered. Although the government begins producing the vaccine in as large a volume as possible, there is not enough vaccine available to meet demand. Consequently, the government must also set up an allocation scheme to control the vaccine's distribution. Which of the following is true about the price of the vaccine?
Definition
 It was below equilibrium.
Term
 An individual may reach a higher indifference curve in all of the following circumstances except
Definition
 an increase in the relative price of one good the consumer purchases, other prices remaining unchanged.
Term
 When the price-consumption curve is
Definition
 upward-sloping, total expenditures on the good are decreasing as the price falls
Term
 With a normal good, the income and substitution effects
Definition
 always work together and both tend to make the demand curve downward sloping.
Term
 Along a demand curve,
Definition
 the consumer's well-being varies.
Term
 If price changes from \$4.75 to \$5.25 and quantity demanded changes from 1025 to 975 units, then the price elasticity of demand is approximately
Definition
 0.5
Term
 For a risk loving individual, with return on the x-axis and total utility on the y-axis, the total utility curve
Definition
 increases at an increasing rate.
Term
 The opportunity cost of a good is always constant if the Production Possibility Frontier is
Definition
 a downward-sloping straight line.
Term
 An excess supply for a product indicates the price is
Definition
 below the equilibrium price.
Term
 Along a linear demand curve, the price elasticity is constant
Definition
 False
Term
 An income-consumption curve identifies how a consumer's consumption pattern changes as income changes while prices are constant._____
Definition
 True
Term
 Along an indifference curve, if the MRS of food for clothing is 1F/2C, this means the consumer would be willing to give up 1 unit of food for 2 units of clothing, and would be better off with the exchange._____________
Definition
 False
Term
 When the marginal rates of substitution differ, the consumer with the steeper indifference curves is happier
Definition
 False
Term
 Positive economics differs from normative economics in that positive economics can be proved correct or incorrect
Definition
 True
Term
 “The tax system should be more progressive so the after-tax distribution of income can be more equal” is an example of a positive economic statement.
Definition
 False
Term
 Price ceilings are often associated with excess supplies.
Definition
 False
Term
 When there is an excess demand for a good, there is upward pressure on price because buyers are willing to pay more.
Definition
 True
Term
 The income effect of a price change is always larger than the substitution effect in the inferior good case
Definition
 False
Term
 If the price-consumption curve is horizontal, then demand elasticity is greater than 1.
Definition
 False
Term
 An individual may reach a higher indifference curve if there is a decrease in the relative price of one good the consumer purchases, other prices remaining unchanged
Definition
 True
Term
 The consumer's optimal consumption bundle is where the slope of the indifference curve equals the slope of the budget line
Definition
 True
Term
 When the price-consumption curve is upward-sloping, total expenditures on the good are increasing as the price falls
Definition
 False
Term
 The snob effect causes market demand to be relatively more elastic
Definition
 False
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