1. Sides Game

2. Increase in the Price of Corn
Effect on demand for corn?
No change in demand
*decrease in the QUANTITY demanded

3. Point to the Producer Surplus

4. If steak has an income elasticity of -0.6
It is a inferior good.

5. If Y has a cross price elasticity of -.8 with X
Y and X are? complements

6. Point to the Consumer Surplus

7. Decrease in P and Q
What single shift has occurred?
Decrease demand

8. Races = $50 Musicals = $100 Budget = $300

9. MU always decreases with additional units of consumption
*except maybe in the beginning

10. One reason the demand curve slopes downward is that as one product gets more expensive, similar products become relatively cheaper.
This is called the substitute effect
Other reasons demand is downward sloping: income effect, diminishing marginal utility, and law of demand

11. Point to the Equilibrium Price

12. A price increase of a product will cause a decrease in the quantity demanded for that product

13. Binding price floors cause?
surpluses

14. Which causes misallocation of resources? 2 answers
Binding Price Floors
Binding Price Ceilings
Non-Binding Price Floors
Non-Binding Price Ceilings

15. PED value of 1 indicates
UNIT Elasticity

16. PED is the
% change in Qd
___________________
% change in P

17. If price increased and quantity decreased, what most likely occurred?
Decrease supply

18. A horizontal demand or supply curve is_____ ______
Perfectly elastic

19. The PED of a horizontal demand curve is
Looking for the theoretical value of PED

20. The PED of a vertical demand or supply curve is
Zero or perfectly inelastic

21. Inelastic demand
A price increase will increase TR

22. Point to a point on the Y-axis where a non-bonding price floor could be installed.

23. To determine if a good is normal or inferior
Price elasticity of demand
Income elasticity
Cross price elasticity

24. Quantity MU (in dollars) 1 14 2 11 3 7 4 3 5 -1

25. Total Utility of 2 units
Quantity MU (in dollars) = 25

26. Optimal Purchase Q if Price = $6
Quantity MU (in dollars) Should buy 3 units

27. Optimal Purchase Q if Price = $6
Quantity MU (in dollars) *Optimal Purchase rule: P= MU

28. Unit Elastic (PED)
A price decrease will not change TR

29. Optimal Purchase Rule
P = MU

30. Use TR rule to determine elasticity zone between A and B
P decreases and TR increases

31. Point to the market clearing price Price

32. Consumer Equilibrium requires equalizing MU/$ within income limits

33. To determine if a good is a compliment or substitute
Price elasticity of demand
Income elasticity
Cross price elasticity

34. Increase in corn farmer subsidies
P and Q of corn?
P decreases and Q increases
*because supply will shift right

35. …..

36. Who the burden of an excise tax?

37. Point to the where DWL would appear if an excise tax is applied to this good.