Economics Chapter: Market Equilibrium & Elasticity

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Questions and Answers

What is the primary focus when constructing a multiple choice question stem?

Presenting a definite problem without irrelevant material (correct)

Employing ambiguous wording to test comprehension

Including as much background context as possible

Using negative statements to create complexity

Which characteristic should all options in a multiple choice question exhibit?

They should be stated clearly and concisely (correct)

They should contain similar lengths to appear balanced

They should allow for partial credit in responses

They should vary in difficulty to challenge students

What is an important aspect to consider when selecting distractors for a multiple choice question?

They should reflect common student misconceptions (correct)

They should serve as hints towards the correct answer

They should be absurd or obviously incorrect

They should all be based on real-life scenarios

What should be avoided in constructing multiple choice question options?

Employing phrases like 'all of the above' Signup and view all the answers

How should the correct answer in a multiple choice question be determined?

It should be clearly supported by the provided content Signup and view all the answers

What is the opportunity cost of Margot spending $30,000 on university tuition?

What she could have bought with the $30,000, plus what she could have earned. Signup and view all the answers

What does the production possibility frontier illustrate?

Producing more of one good requires sacrificing the production of another good. Signup and view all the answers

How can the production possibility frontier shift outward?

By advancing technology. Signup and view all the answers

What effect does a reduction in mobile phone prices have on demand?

Creates a shift along the demand curve. Signup and view all the answers

What happens to the demand for an inferior good when consumer incomes decrease?

Demand will rise as consumers seek cheaper alternatives. Signup and view all the answers

Which condition would cause a product's demand curve to shift to the right?

Increase in prices of similar substitute goods. Signup and view all the answers

If producers expect higher future prices, what is the likely impact on current demand and supply?

Supply decreases as producers hold back inventory. Signup and view all the answers

What does comparative advantage generally refer to when producing a good?

Having lower opportunity costs compared to others. Signup and view all the answers

What does the term 'commercial gains' refer to?

Profits obtained from selling a good or service. Signup and view all the answers

According to the provided table, what is the opportunity cost of producing the fourth unit of consumable goods?

10 units of capital goods. Signup and view all the answers

Is the combination of 8 weapons and 12 pounds of butter efficient?

This is a feasible but inefficient option. Signup and view all the answers

Which statement is false regarding economic efficiency?

If an economy is efficient, improvement for some requires loss for others. Signup and view all the answers

What is the combined production result with specialization for Marco and Julieth?

55 brownies and 35 cookies. Signup and view all the answers

What factor implies movement along the demand curve for a specific good?

A change in the price of that specific good. Signup and view all the answers

If goods A and B are substitutes, what happens when the price of good B decreases?

Demand for good B increases while demand for good A decreases. Signup and view all the answers

Which factor will NOT trigger an increase in the demand for good X?

A decrease in income if good X is an inferior good. Signup and view all the answers

What could have caused the rightward shift of the demand curve for HBO subscriptions?

An increase in consumer income. Signup and view all the answers

What happens to coffee prices in a market characterized by a surplus?

They decrease to reach equilibrium. Signup and view all the answers

What tends to increase the size of elasticities for goods?

Availability of substitutes. Signup and view all the answers

To maximize revenue, how should an airline manager set fares?

Set high prices for customers with inelastic demand. Signup and view all the answers

What classification is given to goods with a positive cross-price elasticity of demand?

Substitutes. Signup and view all the answers

What indicates that a good is classified as inferior?

The income elasticity of demand is negative. Signup and view all the answers

When does maximum total surplus in a market occur?

When all consumers can purchase the good. Signup and view all the answers

How is consumer surplus for a good calculated?

As the area between the demand curve and price paid. Signup and view all the answers

When is total surplus in a market achieved?

When both consumer and producer surpluses are maximized. Signup and view all the answers

If the price of a raft trip is $150, what is the producer surplus if the cost per trip for the third trip is $140?

$90. Signup and view all the answers

Study Notes

Market Equilibrium and Excess

If a seller is in a market that is not in equilibrium, they will adjust their pricing to reach equilibrium.
A market that is not in equilibrium may have a surplus or shortage of goods.
If there is an excess, the market price drops so that quantity demanded equals quantity supplied.
If there is a shortage, prices rise until quantity demanded equals quantity supplied.

Elasticity of Demand

Elasticity measures how responsive quantity demanded is to changes in price.
Elastic demand: A relatively large change in quantity demanded in response to a small change in price
Inelastic demand: A relatively small change in quantity demanded in response to a large change in price.
Unit elastic demand: A change in quantity demanded is proportional to a change in price.

Types of Goods

Normal goods: Demand increases as income increases.
Inferior goods: Demand decreases as income increases.
Substitute goods: Products that can be used in place of one another to meet a need. (If price for one rises, demand for the other rises.)
Complimentary goods: Goods that are often purchased together. ( If the price of one rises, demand for the other falls.)

Market Efficiency and Producer/Consumer Surplus

Producer Surplus: Difference between the price a producer received for their product and the lowest price they would accept for that product.
Consumer Surplus: Difference between the price a consumer is willing to pay for a product and the market price.

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Description

Explore the concepts of market equilibrium, elasticity of demand, and types of goods in this quiz. Understand how prices adjust in response to surplus and shortage, and differentiate between elastic, inelastic, and unit elastic demand. Test your knowledge on how different goods behave with changes in consumer income.