30 Questions
What is the substitution effect?
The change in quantity demanded of one good that results from a change in another good's relative price
What is the law of demand?
An inverse relationship between price and quantity demanded
What is the income effect?
The change in quantity demanded resulting from a change in the consumer's purchasing power
What is the difference between quantity demanded and demand?
Quantity demanded is a point on the demand curve, while demand is the entire curve
What is the law of supply?
A direct relationship between price and quantity supplied
What happens when there is a shortage in a market?
The equilibrium price increases
What happens when there is a surplus in a market?
The equilibrium price decreases
What is consumer surplus?
The area above equilibrium and below demand
What is producer surplus?
The area below equilibrium and above supply
What happens to total welfare at equilibrium?
It is maximized
If Ex,y is positive, what can be inferred about the goods X and Y?
They are complementary.
What is the formula for cross-price elasticity of demand?
%ΔQD X / %ΔP Y
If Ex,y is negative, what can be inferred about the goods X and Y?
They are substitutes.
What is the interpretation of a high cross-price elasticity of demand?
A small change in the price of good Y leads to a large change in the consumption of good X.
What happens to the demand for good X if the price of good Y increases and Ex,y is positive?
The demand for good X increases.
What happens to the demand for good X if the price of good Y decreases and Ex,y is positive?
The demand for good X decreases.
What is the relationship between cross-price elasticity of demand and the concept of substitutes?
A high cross-price elasticity of demand indicates that the goods are substitutes.
What is the relationship between cross-price elasticity of demand and the concept of complements?
A negative cross-price elasticity of demand indicates that the goods are complements.
What is an example of two goods with a high cross-price elasticity of demand?
Coffee and tea
What is an example of two goods with a low cross-price elasticity of demand?
Salt and pepper
What is the term for a group of firms that formally agree not to compete with each other?
Cartel
What is the term for the measure of what the next unit of labor brings to the firm?
Marginal Revenue Product of Labor (MRPL)
In a perfectly competitive labor market, what is the condition for profit-maximizing resource employment?
MRPL = MRC
What is the term for the increase in demand for an input due to an increase in demand for the good produced by that input?
Derived Demand
What is the term for the rule that describes how producers minimize cost by finding the optimal combination of inputs?
Least-Cost Hiring Rule
What happens to the demand for labor when the price of automated machinery decreases?
Demand for labor decreases
What is the term for the constraint that producers face when trying to minimize cost?
Least-Cost Constraint
What is the condition for the least-cost hiring of multiple inputs?
MPL / PL = MPK / PK
What is the term for the graphical representation of the possible combinations of two inputs that can be used to produce a given level of output?
Isoquant
What is the term for the change in the quantity demanded of an input due to a change in the price of a substitute input?
Substitution Effect
Test your understanding of elasticity, a fundamental concept in microeconomics. This quiz covers the definition, formula, and types of price elasticity, including perfectly elastic, inelastic, and unit elastic demand. Apply your knowledge of consumer theory and microeconomic policy to solve these questions.
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