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Chapter 1: Introduction (Tuesday section only)

Chapter 2: Demand and Supply
Topics:

demand vs. quantity demanded
demand shifters:
    income (normal/inferior goods)
    prices of related goods (substitutes/complements)
    tastes (advertising)
    demographics, seasonal factors, etc.
    expectations
consumer surplus (on linear demand curve CS = (1/2)Q(P₀ - P))

supply vs. quantity supplied
supply shifters:
    wage rates
    other input prices
    technology
    regulation
    other products (substitutes in production/complements in production)
    taxes
    number of firms
    competitive structure (See chapter 7)
    expectations
producer surplus

market equilibrium
    forces that cause price changes: shortage, surplus
    price ceilings
    price floor
    full economic price (demand price)
    loss of consumer surplus--inefficiency
    effects of shifting supply or demand

Chapter 3: Quantitative Demand Analysis
Topics:

Three ways to calculate elasticities
    two-point formula (arc elasticity)
    point-slope formula: E = (1/m)(X/Q) = d(X/Q)
        where X may be Px, Py, or M,
        m is the b from X = a + bQ, and d is from Q = c + dX
        (m = b is the slope of the demand curve, 1/m = d)
   linear-demand formula: E = P/(P - a)
        where a is the c from X = a + bQ.
        In the context of own-price elasticity, a = the P at which Q_d = 0.
own-price elasticity
    elastic, inelastic, unit elastic, infinitely elastic, perfectly inelastic
    more elastic, less elastic
    relationship between Q and TR when E is elastic or inelastic
    relationship between MR and E
    for what kinds of goods will E be large or small
cross-price elasticity
    substitutes/complements
income elasticity
    normal/inferior goods

regression analysis
    coefficient estimates and their t statistics and p values
    form the equation
    statistical significance
    F for the regression and its p value
    R², adjusted R²

Chapter 4: Individual behavior (Tuesday section covers pp. 113-29)

Chapter 5: Production (Thursday sections cover pp. 152-165)
 

Questions

Chapter 2

1.  When steel workers' wages rise, the steel _____ curve will shift to the _____ .
    a.    demand . . . right
    b.    demand . . . left
    c.    supply . . . right
    d.    supply . . . left

2.  Which of the following will cause the demand for grapefruit to increase?
    a.   better weather in Florida's grapefruit growing regions
    b.   an increase in the price of oranges due to a mold that attacks orange blossoms
    c.   an increase in the price of grapefruit
    d.   a decrease in the price of grapefruit

3.  The demand for good X is given by Q = 600 - 12Px + 5Py - 0.8Pz - 0.02M
    This shows that
    a.    good X is a normal good.
    b.    good Z is a substitute for good X.
    c.    good Y is a substitute for good X.
    d.    good X has an elastic demand curve.

4.  Which of the following is most likely to have an elastic demand curve?
    a.    video games--a luxury good
    b.    gasoline--a necessity
    c.    plastic--an input for the production of other goods
    d.    greeting cards--a small part of a household's budget

Chapter 3

1.  The inverse demand curve for product X is given by P = $50 - .0025Q^d .  What is its elasticity of demand when P is $40?
    a.      -0.8
    b.      -1.25
    c.      -5.00
    d.    -10.00

2.   A market analyst knows that the income elasticity of demand for her company's widgets is 0.4.  She expects the income among the consumers of her product to fall by 5%.  What is the predicted effect on the quantity of the widgets that consumers will want to buy?
    a.    increase by 2%.
    b.    decrease by 2%.
    c.    increase by 12.5%.
    d.    decrease by 12.5%.

3.    The ABC Corp. is thinking of raising the price of its product by 4%.  It knows that elasticity of demand for its product is -1.6.  If it does raise its price, the firm's total revenue will
    a.    rise by 6.4%.
    b.    fall by 6.4%
    c.    rise by 2.4%
    d.    fall by 2.4%

4.    Look at the regression output on page 102 of the text.
    a.    how many observations were used in the study?
    b.    write the regression equation, based on this output.
    c.    which independent variable is most clearly shown to influence the quantity demanded?
    d.    which independent variable was not shown to be correlated with the quantity demanded?
    e.    does the overall model help to explain the value of the quantity demanded?

Chapter 4

1.    There are two goods: apples and bananas.  Sketch budget lines on a graph to show the effect
    a.  an increase in the price of bananas.
    b.  an increase in incomes
    c.  a decreases in the price of apples.

2.    A consumer has $20 to spend on apples and bananas.  The price of apples is $1 each and the price of bananas is $0.50 each.  The consumer is currently buying six apples and eight bananas each week.   The consumer's marginal utility from apples is 20 and the marginal utility from bananas is 30.  The consumer should
    a.    buy more apples and more bananas.
    b.    buy more apples and fewer bananas.
    c.    buy fewer apples and more bananas.
    d.    buy fewer apples and fewer bananas.

3.    What is the MRS_{apples,bananas} for the consumer in question 2?
    a.    2/3
    b.    2/5
    c.    3/2
    d.    5/3

4.    Suppose hamburger is a normal good.  When the price of hamburger rises, the substitution effect will make consumers want to buy ___ hamburger and the income effect will make them want to buy ____  hamburger.
    a.  more . . . more
    b.  more . . . less
    c.  less . . . more
    d.  less . . . less
 

Chapter 5

1.    Supposes a firm's production function is given by Q = 20L^0.7 - L.   What is the firm's MP_L when L is 5?

2.    What is the AP_L of the firm in question 1 when L is 5?

3.    Is the firm in question 1 in Stage I, II, or III when L = 5?

 

last updated Sept. 19, 2001, by Jim Frederick